e424b5
Filed pursuant to Rule 424(b)(5)
Registration No. 333-103119
PROSPECTUS SUPPLEMENT
(To Prospectus Dated February 25, 2003)
Camden Property Trust is offering 3,600,000 common shares.
Our common shares trade on the New York Stock Exchange under the symbol CPT. On June 1,
2006, the closing sale price of our common shares was $72.60 per share.
Investing in the common shares involves risks. See Risk Factors beginning on page 1
of the accompanying prospectus and the Risk Factors incorporated by reference from our
Annual Report on Form 10-K for the year ended December 31, 2005.
Deutsche Bank Securities Inc. has agreed to purchase the common shares from us at a
purchase price of $70.87 per share, which will result in net proceeds to us before expenses
of $255,132,000. The underwriting discount is $0.38 per share or $1,368,000 in the
aggregate. The common shares will be offered at a public offering price of $71.25 per
share.
We have granted Deutsche Bank Securities Inc. the right, exercisable for 30 days from the
date hereof, to purchase up to an additional 360,000 common shares to cover
over-allotments.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The underwriter expects to deliver the common shares to purchasers on or about June 7, 2006.
Sole Book-Running Manager
Deutsche Bank Securities
The date of this prospectus supplement is June 2, 2006.
You should rely only on the information contained in or incorporated by reference in this
prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you
with any other information. You should not assume that the information contained in this
prospectus supplement or the accompanying prospectus is accurate as of any date other than the date
of this prospectus supplement or the accompanying prospectus, respectively, or that information
contained in any document incorporated or deemed to be incorporated by reference is accurate as of
any date other than the date of that document.
The distribution of this prospectus supplement and the accompanying prospectus in some
jurisdictions may be restricted by law. Persons who receive this prospectus supplement and the
accompanying prospectus should inform themselves about and observe any such restrictions. This
prospectus supplement and the accompanying prospectus do not constitute, and may not be used in
connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not qualified to do so or to
any person to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
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Prospectus Supplement |
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ii |
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S-1 |
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S-7 |
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S-7 |
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S-8 |
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S-9 |
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S-11 |
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S-13 |
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S-13 |
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Prospectus |
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1 |
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6 |
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7 |
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8 |
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8 |
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9 |
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9 |
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15 |
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31 |
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31 |
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i
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at the SECs public
reference room at 100 F Street, NE, Washington, D.C. 20549. You can request copies of these
documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at
1-800-SEC-0330 for more information about the operation of the public reference room. Our SEC
filings are also available to the public at the SECs web site at http://www.sec.gov. In addition,
you may read and copy our SEC filings at the office of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005. Our website address is http://www.camdenliving.com.
This prospectus supplement and the accompanying prospectus are only part of a registration
statement on Form S-3 that we have filed with the SEC under the Securities Act of 1933 and
therefore omits some of the information contained in the registration statement. We have also
filed exhibits and schedules to the registration statement that are excluded from this prospectus
supplement and the accompanying prospectus, and you should refer to the applicable exhibit or
schedule for a complete description of any statement referring to any contract or other document.
You may inspect or obtain a copy of the registration statement, including the exhibits and
schedules, as described in the previous paragraph.
The SEC allows us to incorporate by reference the information we file with it, which means
that we can disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this prospectus supplement and
the accompanying prospectus and the information we file later with the SEC will automatically
update and supersede this information.
We incorporate by reference the documents listed below and any future filings made with the
SEC (File No. 1-12110) under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 until this offering is completed:
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Annual Report on Form 10-K for the year ended December 31, 2005; |
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Quarterly Report on Form 10-Q for the quarter ended March 31, 2006; and |
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Current Reports on Form 8-K dated January 20, 2006, May 4, 2006 and May 31, 2006. |
You may request a copy of these filings at no cost by writing or telephoning Investor
Relations at the following address and telephone number:
Camden Property Trust
Three Greenway Plaza, Suite 1300
Houston, Texas 77046
(713) 354-2500
You should rely only on the information incorporated by reference or provided in this
prospectus supplement and the accompanying prospectus. We have not authorized anyone else to
provide you with different information. You should not assume that the information in this
prospectus supplement and the accompanying prospectus is accurate as of any date other than the
date on the front of those documents.
ii
SUMMARY
This summary is not complete and may not contain all of the information that may be important
to you in deciding whether to invest in the common shares. To understand this offering fully, you
should carefully read the entire prospectus supplement and the accompanying prospectus and the
documents incorporated by reference. Unless otherwise expressly stated or the context otherwise
requires, all information in this prospectus supplement assumes that the over-allotment option
granted to the underwriter is not exercised.
Our Business
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.
As of March 31, 2006, we owned interests in, operated or were developing 200 multifamily properties
containing 68,903 apartment homes located in thirteen states. We had 4,519 apartment homes under
development at thirteen of our multifamily properties, including 561 apartment homes at two
multifamily properties owned through joint ventures. We had eight properties containing 3,691
apartment homes which were designated as held for sale. Additionally, we had several sites that we
intend to develop into multifamily apartment communities.
Properties. The following table summarizes our multifamily property portfolio as of March 31,
2006, excluding land held for future development:
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March 31, 2006 |
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Apartment Homes |
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Properties |
Operating Properties |
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Dallas, Texas (a) |
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8,483 |
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23 |
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Las Vegas, Nevada (a)(b) |
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8,064 |
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30 |
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Houston, Texas (a) |
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6,810 |
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15 |
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Tampa, Florida |
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5,635 |
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12 |
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Charlotte, North Carolina (c) |
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4,233 |
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17 |
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Orlando, Florida |
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3,296 |
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8 |
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Atlanta, Georgia |
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3,202 |
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10 |
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Washington, D.C. Metro (b) |
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2,882 |
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9 |
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Denver, Colorado (b) |
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2,529 |
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8 |
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Southeast Florida |
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2,520 |
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7 |
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Phoenix, Arizona (a) |
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2,433 |
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8 |
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Raleigh, North Carolina (c) |
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2,220 |
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6 |
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Los Angeles/Orange County, California (a) |
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2,191 |
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5 |
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Austin, Texas |
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2,135 |
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7 |
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St. Louis, Missouri |
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2,123 |
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6 |
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Louisville, Kentucky |
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1,448 |
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5 |
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Corpus Christi, Texas |
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1,410 |
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3 |
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San Diego/Inland Empire, California |
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846 |
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3 |
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Other |
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1,924 |
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5 |
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Total Operating Properties |
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64,384 |
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187 |
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Properties Under Development |
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Washington, D.C. Metro |
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2,364 |
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6 |
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Houston, Texas (d) |
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886 |
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3 |
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Raleigh, North Carolina |
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484 |
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1 |
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San Diego/Inland Empire, California |
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350 |
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1 |
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Los Angeles/Orange County, California (d) |
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290 |
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1 |
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Charlotte, North Carolina |
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145 |
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1 |
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Total Properties Under Development |
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4,519 |
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13 |
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Total Properties |
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68,903 |
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200 |
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Less: Joint Venture Properties (a) (b) (c) (d) |
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8,245 |
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30 |
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Total Properties Owned 100% |
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60,658 |
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170 |
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S-1
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(a) |
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Includes properties held in unconsolidated joint ventures as follows: one property with
456 apartment homes in Dallas, three properties with 1,216 apartment homes in Houston, four
properties with 992 apartment homes in Phoenix, one property with 421 apartment homes in
Orange County, California, and three properties with 949 apartment homes in Las Vegas. Each
property is held individually in a joint venture in which we hold a 20% interest. The
remaining interest is owned by an unaffiliated private investor. |
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(b) |
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Includes properties held in unconsolidated joint ventures as follows: one property with 320
apartment homes in Denver in which we own a 50% interest, the remaining interest is owned by
an unaffiliated private investor; and 14 properties with 3,098 apartment homes in Las Vegas in
which we own a 20% interest, the remaining interest is owned by an unaffiliated private
investor. Additional property held at December 31, 2005 included: one property with 464
apartment homes currently under development and in lease-up in Washington, D.C. Metro in which
we owned a 20% interest, the remaining interest was previously owned by an unaffiliated
private investor. |
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(c) |
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Includes one property held in an unconsolidated joint venture acquired through the merger
with Summit Properties Inc. as follows: one property with 232 apartment homes in Charlotte.
Additional properties held at December 31, 2005 included: one property with 260 apartment
homes in Charlotte and one property with 411 apartment homes in Raleigh. We own a 25%
interest in this joint venture, and the remaining interest is owned by an unaffiliated
investor. |
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(d) |
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Includes properties held in unconsolidated joint ventures entered into in 2006 as follows:
one property with 271 apartment homes in Houston, as well as one property with 290 apartment
homes in Orange County, California. Each property is held individually in a joint venture in
which we hold a 30% interest. The remaining interest is owned by an unaffiliated private
investor. |
Recent Developments
On March 15, 2006, we declared a first quarter dividend of $0.66 per common share, which was
paid on April 17, 2006 to all shareholders of record as of March 31, 2006. This dividend
represented a 3.9% increase over our previous quarterly dividend of $0.635 per share.
S-2
The Offering
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Common shares offered
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3,600,000 shares. We have also
granted the underwriter an option to
purchase up to 360,000 additional
common shares to cover
over-allotments. |
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Common shares to be outstanding after
this offering (1)
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56,348,611 shares (56,708,611 shares
if the underwriter exercises its
over-allotment option in full). |
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NYSE symbol for our common shares
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Our common shares are traded on the
New York Stock Exchange under the
symbol CPT. |
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Use of proceeds
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We will receive approximately $254.9
million in net proceeds from the
sale of common shares in this
offering ($280.4 million if the
underwriter exercises its
over-allotment option in full),
after deducting underwriting
discounts and commissions and our
estimated offering expenses. We
intend to use the net proceeds to
reduce indebtedness on our unsecured
line of credit allowing additional
capacity to fund our current and
future development activities and
for general corporate purposes. |
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(1) |
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The number of shares outstanding after this offering is based on 52,748,611 common shares
outstanding on June 1, 2006, which includes 168,122 unvested restricted shares and excludes
1,346,295 common shares issuable upon exercise of share options, 3,774,586 issuance upon
conversion of units, 2,458,700 shares held in deferred compensations plans for plan
participants and 8,584,218 held in treasury. |
S-3
Summary of Selected Financial and Property Data
The following table presents selected financial and property data. Certain of the summary
selected financial and property data has been derived from our financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2005 and our Quarterly Report on Form
10-Q for the quarter ended March 31, 2006, each of which is incorporated herein by reference. See
Where You Can Find More Information. You should read this selected financial and property data
in conjunction with the financial statements and notes thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K and
Quarterly Report on Form 10-Q.
(in thousands, except per share amounts)
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Three months ended |
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Year ended December 31, |
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March 31, |
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2005 |
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2004 |
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2003 |
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2002 |
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2001 |
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2006 |
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2005 |
|
Property Revenues |
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Rental revenues |
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$ |
473,729 |
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$ |
351,810 |
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$ |
336,393 |
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$ |
332,681 |
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$ |
333,725 |
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$ |
131,426 |
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$ |
100,687 |
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Other property revenues |
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42,255 |
|
|
|
31,377 |
|
|
|
29,935 |
|
|
|
27,564 |
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|
|
26,054 |
|
|
|
12,410 |
|
|
|
9,162 |
|
|
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|
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Total property revenues |
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|
515,984 |
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|
|
383,187 |
|
|
|
366,328 |
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|
|
360,245 |
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|
|
359,779 |
|
|
|
143,836 |
|
|
|
109,849 |
|
Property Expenses |
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and
maintenance |
|
|
143,668 |
|
|
|
113,941 |
|
|
|
106,470 |
|
|
|
97,301 |
|
|
|
92,297 |
|
|
|
38,077 |
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|
|
31,521 |
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Real estate taxes |
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55,403 |
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|
|
41,487 |
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39,690 |
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|
37,166 |
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|
35,978 |
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|
15,750 |
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|
12,219 |
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Total property expenses |
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|
199,071 |
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|
|
155,428 |
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|
|
146,160 |
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|
|
134,467 |
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|
128,275 |
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|
53,827 |
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|
43,740 |
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Non-property income |
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|
|
|
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|
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|
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Fee and asset management |
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|
12,912 |
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|
|
9,187 |
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|
7,276 |
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6,264 |
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|
7,695 |
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|
2,477 |
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|
7,306 |
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Sale of technology
investments |
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|
24,206 |
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|
863 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,199 |
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Other revenues |
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|
7,373 |
|
|
|
11,074 |
|
|
|
5,685 |
|
|
|
8,214 |
|
|
|
9,117 |
|
|
|
803 |
|
|
|
3,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total non-property income |
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44,491 |
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|
|
21,124 |
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|
|
12,961 |
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|
|
14,478 |
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|
|
16,812 |
|
|
|
3,280 |
|
|
|
34,751 |
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Other expenses |
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|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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Property management |
|
|
16,145 |
|
|
|
11,924 |
|
|
|
10,154 |
|
|
|
10,027 |
|
|
|
9,510 |
|
|
|
4,226 |
|
|
|
3,220 |
|
Fee and asset management |
|
|
6,897 |
|
|
|
3,856 |
|
|
|
3,908 |
|
|
|
2,499 |
|
|
|
2,016 |
|
|
|
1,366 |
|
|
|
1,948 |
|
General and administrative |
|
|
24,845 |
|
|
|
18,536 |
|
|
|
16,231 |
|
|
|
14,439 |
|
|
|
12,521 |
|
|
|
7,414 |
|
|
|
5,276 |
|
Transaction compensation
and merger expenses |
|
|
14,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,824 |
|
Impairment provision for
technology investments |
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,864 |
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
1,389 |
|
|
|
2,790 |
|
|
|
1,511 |
|
|
|
50 |
|
|
|
23 |
|
Losses related to early
retirement of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
Interest |
|
|
111,548 |
|
|
|
79,214 |
|
|
|
75,414 |
|
|
|
71,499 |
|
|
|
69,712 |
|
|
|
31,037 |
|
|
|
23,501 |
|
Depreciation and
amortization |
|
|
162,074 |
|
|
|
95,974 |
|
|
|
94,770 |
|
|
|
90,316 |
|
|
|
89,317 |
|
|
|
37,053 |
|
|
|
30,855 |
|
Amortization of deferred
financing costs |
|
|
3,739 |
|
|
|
2,697 |
|
|
|
2,633 |
|
|
|
2,165 |
|
|
|
1,591 |
|
|
|
1,047 |
|
|
|
1,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
339,463 |
|
|
|
212,201 |
|
|
|
204,499 |
|
|
|
193,969 |
|
|
|
196,430 |
|
|
|
82,193 |
|
|
|
79,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
S-4
(in thousands, except per share amounts)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
Year ended December 31, |
|
|
March 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2006 |
|
|
2005 |
|
Income from continuing
operations before gain on sale
of properties, impairment loss
on land held for sale, equity
in income of joint ventures and
minority interests |
|
|
21,941 |
|
|
|
36,682 |
|
|
|
28,630 |
|
|
|
46,287 |
|
|
|
51,886 |
|
|
|
11,096 |
|
|
|
20,992 |
|
Gain on sale of properties,
including land |
|
|
132,914 |
|
|
|
1,642 |
|
|
|
2,590 |
|
|
|
359 |
|
|
|
2,346 |
|
|
|
499 |
|
|
|
132,117 |
|
Impairment loss on land held
for sale |
|
|
(339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of joint
ventures |
|
|
10,049 |
|
|
|
356 |
|
|
|
3,200 |
|
|
|
366 |
|
|
|
8,527 |
|
|
|
2,317 |
|
|
|
110 |
|
Income allocated to minority
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions on perpetual
preferred units |
|
|
(7,028 |
) |
|
|
(10,461 |
) |
|
|
(12,747 |
) |
|
|
(12,872 |
) |
|
|
(12,872 |
) |
|
|
(1,750 |
) |
|
|
(1,778 |
) |
Original issuance costs of
redeemed perpetual preferred
units |
|
|
(365 |
) |
|
|
(745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(365 |
) |
Income allocated to common
units and other minority
interests |
|
|
(2,643 |
) |
|
|
(2,720 |
) |
|
|
(2,036 |
) |
|
|
(1,598 |
) |
|
|
(2,851 |
) |
|
|
(1,279 |
) |
|
|
(1,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
154,529 |
|
|
|
24,754 |
|
|
|
19,637 |
|
|
|
32,542 |
|
|
|
47,036 |
|
|
|
10,883 |
|
|
|
149,945 |
|
Income from discontinued
operations |
|
|
8,426 |
|
|
|
9,919 |
|
|
|
9,994 |
|
|
|
13,080 |
|
|
|
14,506 |
|
|
|
3,965 |
|
|
|
2,342 |
|
Gain on sale of discontinued
operations |
|
|
36,175 |
|
|
|
9,351 |
|
|
|
|
|
|
|
29,199 |
|
|
|
26 |
|
|
|
27,392 |
|
|
|
14,391 |
|
Impairment loss on land held
for sale |
|
|
|
|
|
|
(1,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations, allocated to
common units |
|
|
(44 |
) |
|
|
(1,540 |
) |
|
|
(201 |
) |
|
|
(209 |
) |
|
|
(276 |
) |
|
|
(797 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
199,086 |
|
|
|
41,341 |
|
|
|
29,430 |
|
|
|
74,612 |
|
|
|
61,292 |
|
|
|
41,443 |
|
|
|
166,664 |
|
Preferred share dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,545 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to
common shareholders |
|
$ |
199,086 |
|
|
$ |
41,341 |
|
|
$ |
29,430 |
|
|
$ |
74,612 |
|
|
$ |
58,747 |
|
|
$ |
41,443 |
|
|
$ |
166,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
$ |
2.97 |
|
|
$ |
0.60 |
|
|
$ |
0.50 |
|
|
$ |
0.80 |
|
|
$ |
1.12 |
|
|
$ |
0.20 |
|
|
$ |
3.27 |
|
Income from discontinued
operations, including gain on
sale |
|
|
0.86 |
|
|
|
0.40 |
|
|
|
0.25 |
|
|
|
1.04 |
|
|
|
0.36 |
|
|
|
0.56 |
|
|
|
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to
common shareholders |
|
$ |
3.83 |
|
|
$ |
1.00 |
|
|
$ |
0.75 |
|
|
$ |
1.84 |
|
|
$ |
1.48 |
|
|
$ |
0.76 |
|
|
$ |
3.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
$ |
2.79 |
|
|
$ |
0.59 |
|
|
$ |
0.47 |
|
|
$ |
0.77 |
|
|
$ |
1.07 |
|
|
$ |
0.20 |
|
|
$ |
3.06 |
|
Income from discontinued
operations, including gain on
sale |
|
|
0.79 |
|
|
|
0.39 |
|
|
|
0.24 |
|
|
|
0.99 |
|
|
|
0.34 |
|
|
|
0.55 |
|
|
|
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to
common shareholders |
|
$ |
3.58 |
|
|
$ |
0.98 |
|
|
$ |
0.71 |
|
|
$ |
1.76 |
|
|
$ |
1.41 |
|
|
$ |
0.75 |
|
|
$ |
3.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per
common share |
|
$ |
2.54 |
|
|
$ |
2.54 |
|
|
$ |
2.54 |
|
|
$ |
2.54 |
|
|
$ |
2.44 |
|
|
$ |
0.66 |
|
|
$ |
0.635 |
|
Weighted average number of
common shares outstanding |
|
|
52,000 |
|
|
|
41,430 |
|
|
|
39,355 |
|
|
|
40,441 |
|
|
|
39,796 |
|
|
|
54,290 |
|
|
|
45,990 |
|
Weighted average number of
common and common dilutive
equivalent shares out standing |
|
|
56,313 |
|
|
|
42,426 |
|
|
|
41,354 |
|
|
|
42,327 |
|
|
|
41,603 |
|
|
|
55,474 |
|
|
|
49,374 |
|
S-5
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Year ended December 31, |
|
March 31, |
|
|
2005(c) |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2006 |
|
2005(c) |
Balance Sheet Data (at
end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets |
|
$ |
5,039,007 |
|
|
$ |
3,159,077 |
|
|
$ |
3,099,856 |
|
|
$ |
3,035,970 |
|
|
$ |
2,823,530 |
|
|
$ |
5,173,438 |
|
|
$ |
4,923,971 |
|
Accumulated depreciation |
|
|
(716,650 |
) |
|
|
(688,333 |
) |
|
|
(601,688 |
) |
|
|
(498,766 |
) |
|
|
(422,154 |
) |
|
|
(732,984 |
) |
|
|
(658,683 |
) |
Total assets |
|
|
4,487,799 |
|
|
|
2,629,364 |
|
|
|
2,625,561 |
|
|
|
2,608,899 |
|
|
|
2,449,665 |
|
|
|
4,618,404 |
|
|
|
4,450,005 |
|
Notes payable |
|
|
2,633,091 |
|
|
|
1,576,405 |
|
|
|
1,509,677 |
|
|
|
1,427,016 |
|
|
|
1,207,047 |
|
|
|
2,741,653 |
|
|
|
2,576,183 |
|
Minority interests |
|
|
221,023 |
|
|
|
159,567 |
|
|
|
196,385 |
|
|
|
200,729 |
|
|
|
206,079 |
|
|
|
221,471 |
|
|
|
229,539 |
|
Convertible subordinated
debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
$ |
1,370,903 |
|
|
$ |
738,515 |
|
|
$ |
784,885 |
|
|
$ |
839,453 |
|
|
$ |
918,251 |
|
|
$ |
1,382,308 |
|
|
$ |
1,425,751 |
|
Common shares outstanding |
|
|
60,763 |
|
|
|
48,601 |
|
|
|
48,299 |
|
|
|
47,881 |
|
|
|
47,585 |
|
|
|
61,034 |
|
|
|
60,494 |
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by
(used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
200,845 |
|
|
$ |
156,997 |
|
|
$ |
144,703 |
|
|
$ |
184,808 |
|
|
$ |
180,280 |
|
|
$ |
63,245 |
|
|
$ |
54,424 |
|
Investing activities |
|
|
(207,561 |
) |
|
|
(65,321 |
) |
|
|
(94,356 |
) |
|
|
(220,766 |
) |
|
|
(103,689 |
) |
|
|
(103,874 |
) |
|
|
(88,625 |
) |
Financing activities |
|
|
6,039 |
|
|
|
(92,780 |
) |
|
|
(47,365 |
) |
|
|
33,184 |
|
|
|
(78,348 |
) |
|
|
40,309 |
|
|
|
38,299 |
|
Funds from operations
diluted (unaudited) (a) |
|
|
195,290 |
|
|
|
143,669 |
|
|
|
135,699 |
|
|
|
150,443 |
|
|
|
159,719 |
|
|
|
51,839 |
|
|
|
54,438 |
|
Property Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of properties
(at end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in continuing
operations |
|
|
181 |
|
|
|
133 |
|
|
|
132 |
|
|
|
131 |
|
|
|
131 |
|
|
|
179 |
|
|
|
180 |
|
Included in discontinued
operations |
|
|
10 |
|
|
|
11 |
|
|
|
12 |
|
|
|
12 |
|
|
|
14 |
|
|
|
8 |
|
|
|
12 |
|
Number of operating
apartment homes (at end of
period) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in continuing
operations |
|
|
61,634 |
|
|
|
46,759 |
|
|
|
46,095 |
|
|
|
45,541 |
|
|
|
45,226 |
|
|
|
60,693 |
|
|
|
61,345 |
|
Included in discontinued
operations |
|
|
4,216 |
|
|
|
4,697 |
|
|
|
5,249 |
|
|
|
5,249 |
|
|
|
6,119 |
|
|
|
3,691 |
|
|
|
5,101 |
|
Number of operating
apartment homes (weighted
average) (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in continuing
operations |
|
|
50,587 |
|
|
|
41,872 |
|
|
|
41,174 |
|
|
|
40,476 |
|
|
|
39,931 |
|
|
|
53,203 |
|
|
|
45,987 |
|
Included in discontinued
operations |
|
|
4,469 |
|
|
|
5,246 |
|
|
|
5,208 |
|
|
|
6,275 |
|
|
|
6,119 |
|
|
|
3,975 |
|
|
|
4,669 |
|
Weighted average monthly
total property revenue per
apartment home |
|
$ |
850 |
|
|
$ |
763 |
|
|
$ |
741 |
|
|
$ |
741 |
|
|
$ |
751 |
|
|
$ |
901 |
|
|
$ |
796 |
|
Properties under
development (at end of
period) |
|
|
9 |
|
|
|
3 |
|
|
|
2 |
|
|
|
4 |
|
|
|
2 |
|
|
|
13 |
|
|
|
10 |
|
|
|
|
(a) |
|
Management considers FFO to be an appropriate measure of performance of an equity REIT. The
National Association of Real Estate Investment Trusts currently defines FFO as net income
(computed in accordance with generally accepted accounting principles), excluding gains (or
losses) from depreciable operating property sales, plus real estate depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint ventures.
Diluted FFO also assumes conversion of all dilutive convertible securities, including minority
interests, which are convertible into common shares. We consider FFO to be an appropriate
supplemental measure of operating performance because, by excluding gains or losses on
dispositions of operating properties and excluding depreciation, FFO can help one compare the
operating performance of a companys real estate between periods or as compared to different
companies. |
|
(b) |
|
Excludes apartment homes owned in joint ventures. |
|
(c) |
|
The 2005 results include the operations of Summit Properties Inc. subsequent to February 28,
2005. |
S-6
USE OF PROCEEDS
We will receive approximately $254.9 million in net proceeds from the sale of common shares in
this offering ($280.4 million if the underwriter exercises its over-allotment option in full),
after deducting underwriting discounts and commissions and our estimated offering expenses. We
intend to use the net proceeds to reduce indebtedness on our unsecured line of credit allowing
additional capacity to fund our current and future development activities and for general corporate
purposes. Our line of credit matures in January 2010. The scheduled interest rate on the line of
credit is currently based on spreads over LIBOR or Prime. The scheduled interest rate spreads are
subject to change as our credit ratings change. Advances under our line of credit may be priced at
the scheduled rates or we may enter into bid rate loans with participating banks at rates below the
scheduled rates. These bid rate loans have terms of six months or less and may not exceed the
lesser of $300 million or the remaining amount available under the line of credit. An affiliate of
the underwriter of this offering is a lender under the line of credit and, upon application of the
net proceeds from this offering of the common shares, will receive its proportionate share of the
amount of the line of credit to be repaid.
PRICE RANGE OF COMMON SHARES AND DIVIDEND POLICY
The following table sets forth the high and low sale prices per common share for the periods
indicated as reported on the NYSE and the dividends paid by us with respect to each period shown
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
Low |
|
Dividends |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
72.70 |
|
|
$ |
58.40 |
|
|
$ |
0.660 |
|
Second Quarter (through June 1, 2006) |
|
|
72.60 |
|
|
|
65.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
50.70 |
|
|
$ |
45.31 |
|
|
$ |
0.635 |
|
Second Quarter |
|
|
55.60 |
|
|
|
46.76 |
|
|
|
0.635 |
|
Third Quarter |
|
|
56.25 |
|
|
|
49.91 |
|
|
|
0.635 |
|
Fourth Quarter |
|
|
60.18 |
|
|
|
52.70 |
|
|
|
0.635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
45.35 |
|
|
$ |
41.37 |
|
|
$ |
0.635 |
|
Second Quarter |
|
|
46.71 |
|
|
|
40.04 |
|
|
|
0.635 |
|
Third Quarter |
|
|
47.75 |
|
|
|
44.33 |
|
|
|
0.635 |
|
Fourth Quarter |
|
|
51.00 |
|
|
|
44.20 |
|
|
|
0.635 |
|
We are required to distribute 90% of our REIT taxable income, excluding capital gains, on an
annual basis to qualify as a REIT for federal income tax purposes. Accordingly, we intend to make,
but are not contractually bound to make, regular quarterly dividends to common shareholders. All
such dividends are at the discretion of our board of trust managers. The board of trust managers
considers market factors and our performance in addition to REIT requirements in determining
distribution levels.
On March 15, 2006, we declared a first quarter dividend of $0.66 per common share, which was
paid on April 17, 2006 to all shareholders of record as of March 31, 2006. This dividend
represented a 3.9% increase over our previous quarterly dividend of $0.635 per share.
S-7
CAPITALIZATION
The following sets forth our debt and capitalization at March 31, 2006 and as adjusted to
reflect this offering and the application of the net proceeds of this offering as described under
Use of Proceeds above. You should read the information included in the table in conjunction with
our unaudited consolidated financial statements and related notes included in our Quarterly Report
on Form 10-Q for the quarter ended March 31, 2006, which is incorporated by reference in this
prospectus supplement and the accompanying prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
|
Actual |
|
|
Adjustments |
|
|
As Adjusted |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Notes Payable: |
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured |
|
$ |
2,118,403 |
|
|
$ |
(254,882 |
) |
|
$ |
1,863,521 |
|
Secured |
|
|
623,250 |
|
|
|
|
|
|
|
623,250 |
|
|
|
|
|
|
|
|
|
|
|
Total notes payable |
|
|
2,741,653 |
|
|
|
(254,882 |
) |
|
|
2,486,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interests |
|
|
221,471 |
|
|
|
|
|
|
|
221,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Common shares of beneficial interest |
|
|
610 |
|
|
|
36 |
|
|
|
646 |
|
Additional paid-in capital |
|
|
1,908,099 |
|
|
|
254,846 |
|
|
|
2,162,945 |
|
Distributions in excess of net income |
|
|
(289,482 |
) |
|
|
|
|
|
|
(289,482 |
) |
Employee notes receivable |
|
|
(2,046 |
) |
|
|
|
|
|
|
(2,046 |
) |
Treasury shares, at cost |
|
|
(234,873 |
) |
|
|
|
|
|
|
(234,873 |
) |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
1,382,308 |
|
|
|
254,882 |
|
|
|
1,637,190 |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
4,345,432 |
|
|
$ |
|
|
|
$ |
4,345,432 |
|
|
|
|
|
|
|
|
|
|
|
S-8
FEDERAL INCOME TAX CONSEQUENCES
The following discussion supplements the discussion contained under the heading Federal
Income Tax Considerations and Consequences of Your Investment in the accompanying prospectus and
supercedes that discussion to the extent inconsistent with that discussion.
Because the following discussion is a summary that, in conjunction with the discussion
contained under the heading Federal Income Tax Considerations and Consequences of Your Investment
in the accompanying prospectus, is intended to address only material federal income tax
consequences relating to the ownership and disposition of our common shares that will apply to all
holders, it may not contain all the information that may be important to you. As you review this
discussion, you should keep in mind that:
|
|
|
the tax consequences to you may vary depending on your particular tax situation; |
|
|
|
|
special rules that are not discussed below may apply to you if, for example, you are
a tax-exempt organization, a broker-dealer, a non-U.S. person, a trust, an estate, a
regulated investment company, a financial institution, an insurance company, or
otherwise subject to special tax treatment under the Internal Revenue Code; |
|
|
|
|
this summary does not address state, local or non-U.S. tax considerations; |
|
|
|
|
this summary deals only with investors that hold our common shares as capital
assets, within the meaning of Section 1221 of the Internal Revenue Code; and |
|
|
|
|
this discussion is not intended to be, and should not be construed as, tax advice. |
You are urged both to review the following discussion and to consult with your own tax advisor
to determine the effect of ownership and disposition of common shares on your tax situation,
including any state, local or non-U.S. tax consequences.
The information in this section is based on the current Internal Revenue Code, current,
temporary and proposed Treasury regulations, the legislative history of the Internal Revenue Code,
current administrative interpretations and practices of the Internal Revenue Service, including its
practices and policies as endorsed in private letter rulings, which are not binding on the Internal
Revenue Service, and existing court decisions. Future legislation, regulations, administrative
interpretations and court decisions could change current law or adversely affect existing
interpretations of current law. Any change could apply retroactively. We have not requested and
do not plan to request any rulings from the Internal Revenue Service concerning the matters
discussed in the following discussion. It is possible that the Internal Revenue Service could
challenge the statements in this discussion, which do not bind the Internal Revenue Service or the
courts, and that a court could agree with the Internal Revenue Service.
2003 and 2006 Tax Legislation
On May 28, 2003, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation
Act of 2003. The Jobs and Growth Tax Relief Reconciliation Act of 2003 generally reduced the
maximum tax rate applicable to you on capital gains recognized on the sale or other disposition of
our securities from 20% to 15%. The Jobs and Growth Tax Relief Reconciliation Act of 2003 also
generally reduced the maximum marginal rate of tax payable by individuals on dividends received
from corporations that are subject to a corporate level of tax. Except in limited circumstances,
this reduced tax rate will not apply to dividends paid by us to our shareholders because generally
we are not subject to federal income tax on the portion of our REIT taxable income or capital gains
distributed to our shareholders. The reduced maximum federal income tax rate applies to that
portion, if any, of dividends received by our shareholders with respect to shares of our stock held
by them that are attributable to (1) dividends received by us from non-REIT corporations or other
taxable REIT subsidiaries, (2) income from the prior year with respect to which we were required to
pay federal corporate income tax during the prior year (if, for example, we did not distribute 100%
of our REIT taxable income for the prior year) and (3) distributions by us that
S-9
we designate as long-term capital gains dividends (except for some distributions taxable to
our shareholders at a maximum rate of 25%). The dividend and capital gains tax rate reductions
provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003 generally are effective for
taxable years ending on or after May 6, 2003 through December 31, 2008. On May 17, 2006, President
Bush signed the Tax Relief Extension Reconciliation Act of 2005, which extended these reductions
until December 31, 2010. Without future legislative changes, the maximum long-term capital gains
and dividend rates discussed above will increase in 2011. This recent legislation could cause
stock in non-REIT corporations to be a more attractive investment to individual investors than
stock in REITs and could have an adverse effect on the market price of our equity securities.
2004 Tax Legislation
On October 22, 2004, President Bush signed the American Jobs Creation Act of 2004, which,
among other things, amended certain provisions of the Internal Revenue Code relating to REITs.
This legislation revised the REIT asset test by expanding the straight-debt safe harbor to include,
among other things, certain contingent debt instruments that were previously excluded from the
straight-debt safe harbor. It provides for monetary penalties in lieu of REIT disqualification for
failure to meet the income or asset tests, and modifies the treatment of certain REIT distributions
that are attributable to gain from sales or exchanges of United States real property interests.
S-10
UNDERWRITING
Deutsche Bank Securities Inc., as sole book-running manager and underwriter, has agreed,
subject to the terms and conditions of the underwriting agreement, to purchase from us, and we have
agreed to sell to it, 3,600,000 common shares.
The underwriting agreement provides that the obligation of the underwriter to purchase the
common shares is subject to specified conditions, including the delivery of specified legal
opinions by its counsel as well as other conditions. Subject to the terms and conditions of the
underwriting agreement, the underwriter is obligated to purchase all of the common shares, if it
purchases any of the common shares.
We have been advised by Deutsche Bank Securities Inc. that it will offer the common shares to
the public at the public offering price set forth on the cover of this prospectus supplement and to
dealers at a price that represents a concession not in excess of $0.25 per share under the public
offering price. After the common shares are released for sale, the underwriter may change the
offering price and other selling terms.
We have granted to Deutsche Bank Securities Inc. an option exercisable within 30 days of the
date of the underwriting agreement to purchase up to an additional 360,000 common shares to cover
over-allotments.
The following table shows the per share and total underwriting discounts and commissions we
will pay to the underwriter assuming both no exercise and full exercise of the underwriters
over-allotment option to purchase up to an additional 360,000 shares.
|
|
|
|
|
|
|
|
|
|
|
No Exercise |
|
Full Exercise |
Per share |
|
$ |
0.38 |
|
|
$ |
0.38 |
|
Total |
|
$ |
1,368,000 |
|
|
$ |
1,504,800 |
|
We estimate that the total expenses of this offering payable by us, not including the
underwriting discounts and commissions, will be approximately $250,000.
We and our executive officers and trust managers have entered into lock up agreements pursuant
to which we and they agreed not to, directly or indirectly, without the prior written consent of
Deutsche Bank Securities Inc., during a period of 60 days from the date of this prospectus
supplement, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any of the common shares or any securities convertible into or
exchangeable or exercisable for common shares, or file, or cause to be filed, any registration
statement under the Securities Act with respect to any of the foregoing or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the common shares, whether any such swap or
transaction is to be settled by delivery of common shares or other securities, in cash or
otherwise. Deutsche Bank Securities Inc., in its sole discretion, may release any of the
securities subject to these restrictions at any time without notice to you. There are no
agreements between the underwriters and any of our shareholders or affiliates releasing them from
these lock up agreements prior to the expiration of the 60-day period.
The lock up agreements are subject to some exceptions, including, among others, (a) transfers
of common shares by way of testate or intestate succession or by operation of law, (b) transfers of
common shares to an immediate family member or wholly-owned trust, partnership, limited liability
company or other entity, and (c) transfers of common shares to charitable organizations; provided,
however, in each case, the transferee shall have agreed in writing to be bound by the restrictions
on transfer contained in the immediately preceding paragraph and such transfer is not effective
until the agreement to be bound by the restrictions on transfer is executed by the transferee.
In order to facilitate the offering of the common shares, the underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the common shares. These
transactions may include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the
S-11
underwriter of a greater number of common shares than they are required to purchase in the
offering. Covered short sales are sales made in an amount not greater than Deutsche Bank
Securities Inc.s option to purchase additional common shares from us in the offering. The
underwriter may close out any covered short position by either exercising its option to purchase
additional common shares or purchasing common shares in the open market. In determining the source
of common shares to close out the covered short position, the underwriter will consider, among
other things, the price of common shares available for purchase in the open market as compared to
the price at which it may purchase common shares through the option. Naked short sales are sales
in excess of the option. The underwriter must close out any naked short position by purchasing
common shares in the open market. A naked short position is more likely to be created if the
underwriter is concerned that there may be a downward pressure on the price of the common shares in
the open market after pricing that could adversely affect investors who purchase in the offering.
Stabilizing transactions consist of certain bids for or purchases of the common shares made by the
underwriter in the open market prior to the completion of the offering. Any of these activities
may stabilize or maintain the market price of the common shares above independent market levels.
The underwriter is not required to engage in these activities, and may end any of these activities
at any time.
These activities by the underwriter may stabilize, maintain or otherwise affect the market
price of the common shares. As a result, the price of the common shares may be higher than the
price that otherwise might exist in the open market. If these activities are commenced, they may
be discontinued by the underwriter at any time. These transactions may be effected in the
over-the-counter market or otherwise.
The underwriting agreement provides that we will indemnify the underwriter against certain
liabilities, including any liabilities under the Securities Act. The underwriter and its
affiliates have provided, from time to time, and may continue to provide, investment banking,
financial and other services to us, for which we have paid, and intend to pay, customary fees. An
affiliate of the underwriter of this offering is a lender under our line of credit and, upon
application of the net proceeds from this offering of the common shares, will receive its
proportionate share of the amount of the line of credit to be repaid. See Use of Proceeds.
S-12
LEGAL MATTERS
Certain legal matters will be passed upon for us by Locke Liddell & Sapp LLP, Dallas, Texas,
as our securities and tax counsel. Certain legal matters in connection with this offering will be
passed upon for the underwriter by Sidley Austin LLP, New York, New York, who will rely on
the opinion of Locke Liddell & Sapp LLP as to matters of Texas law.
EXPERTS
The consolidated financial statements, as amended in the Current Report on Form 8-K filed on
May 31, 2006, the related financial statement schedules, and managements report on the
effectiveness of internal control over financial reporting incorporated in this prospectus by
reference from Camden Property Trusts Annual Report on Form 10-K for the year ended December 31,
2005 have been audited by Deloitte & Touche LLP, an independent registered public accounting firm,
as stated in their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
S-13
PROSPECTUS
Camden Property Trust
|
|
|
By this prospectus, we may
offer up to $1,085,500,000 of our:
DEBT SECURITIES
PREFERRED SHARES
COMMON SHARES
WARRANTS
|
|
We will provide the specific terms
of these securities in supplements
to this prospectus. You should read
this prospectus and the supplements
carefully before you invest. |
|
|
|
|
|
You should carefully consider
the risks set forth under Risk
Factors starting on page 1 of this
prospectus. |
|
|
|
These securities have not been
approved or disapproved by the SEC
or any state securities commission.
None of those authorities has
determined that this prospectus is
accurate or complete. Any
representation to the contrary is a
criminal offense.
|
|
We may offer the securities directly
or through underwriters, agents or
dealers. The supplement will
describe the terms of that plan of
distribution. The section entitled
Plan of Distribution below also
provides more information on this
topic. |
The date of this prospectus is February 25, 2003.
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page |
|
RISK FACTORS |
|
|
1 |
|
|
|
|
|
|
WHERE YOU CAN FIND MORE INFORMATION |
|
|
6 |
|
|
|
|
|
|
THE COMPANY |
|
|
7 |
|
|
|
|
|
|
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS |
|
|
7 |
|
|
|
|
|
|
USE OF PROCEEDS |
|
|
8 |
|
|
|
|
|
|
DESCRIPTION OF CAPITAL SHARES |
|
|
8 |
|
|
|
|
|
|
DESCRIPTION OF WARRANTS |
|
|
9 |
|
|
|
|
|
|
DESCRIPTION OF DEBT SECURITIES |
|
|
9 |
|
|
|
|
|
|
PLAN OF DISTRIBUTION |
|
|
15 |
|
|
|
|
|
|
RATIO OF EARNINGS TO FIXED CHARGES |
|
|
16 |
|
|
|
|
|
|
FEDERAL INCOME TAX CONSIDERATIONS AND CONSEQUENCES OF YOUR INVESTMENT |
|
|
16 |
|
|
|
|
|
|
LEGAL MATTERS |
|
|
31 |
|
|
|
|
|
|
EXPERTS |
|
|
31 |
|
i
RISK FACTORS
The following sets forth the most significant factors that make an investment in our
securities speculative or risky. You should carefully consider the following information in
conjunction with the other information contained or incorporated by reference in this prospectus or
any prospectus supplement before making a decision to invest in our securities.
Rising interest rates would increase our costs and could affect the market price of our
securities
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
securities to demand a higher annual yield, which could adversely affect the market price of our
outstanding equity or debt securities.
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 decreases.
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 shareholders. 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, that could prevent us from raising rents; and |
|
|
|
|
competition from other available apartments and changes in market rental rates. |
1
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 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 could adversely impact our profitability and our ability to
satisfy our financial obligations and make distributions to shareholders. 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. Based on these estimates, we determine a time and the costs for completion of
the project and assume the risk that the time and costs associated with our performance may be
greater than we 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 10 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.
2
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 September 30, 2002, we had outstanding mortgage indebtedness of approximately $271.4 million
and senior unsecured debt of approximately $1.1 billion, of which approximately $295.4 million was
floating rate debt. 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 funds from operations are 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 in an increase in our debt service
requirements, both of which could adversely affect our financial condition and our 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 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
3
insurance proceeds to replace a property after it has been damaged or destroyed.
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.
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, the Fair Housing Act of 1988 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. We cannot ascertain the costs of compliance with these laws,
which may be substantial.
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
for both current and past years. We cannot assure you that the Internal Revenue Service will not
challenge our qualification as a REIT. We also cannot assure you that new legislation,
regulations, administrative interpretations or court decisions will not 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.
To the extent that distributions to shareholders would have been made in anticipation of our
qualifying as a REIT, we might be required to borrow funds or to liquidate some of our investments
to pay the applicable tax.
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 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 shares, which 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 intend to continue to make mezzanine loans to various unrelated third parties,
which are typically secured by multifamily residential real estate and are subordinate to senior
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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 completion 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.
5
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at the SECs public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at
1-800-SEC-0330 for more information about the operation of the public reference room. Our SEC
filings are also available to the public at the SECs web site at http://www.sec.gov. In addition,
you may read and copy our SEC filings at the office of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005. Our website address is http://www.camdenliving.com.
This prospectus is only part of a registration statement on Form S-3 that we have filed with
the SEC under the Securities Act of 1933 and therefore omits some of the information contained in
the registration statement. We have also filed exhibits and schedules to the registration
statement that are excluded from this prospectus, and you should refer to the applicable exhibit or
schedule for a complete description of any statement referring to any contract or other document.
You may inspect or obtain a copy of the registration statement, including the exhibits and
schedules, as described in the previous paragraph.
The SEC allows us to incorporate by reference the information we file with it, which means
that we can disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this prospectus and the
information we file later with the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings made with the
SEC (File No. 1-12110) under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 until this offering is completed:
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Annual Report on Form 10-K for the year ended December 31, 2001; |
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Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002, June 30, 2002
and September 30, 2002; and |
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Current Reports on Form 8-K filed on June 4, 2002, August 14, 2002, August 21, 2002
and November 25, 2002. |
You may request a copy of these filings at no cost by writing or telephoning G. Steven Dawson,
Senior Vice President-Finance and Chief Financial Officer, at the following address and telephone
number:
Camden Property Trust
Three Greenway Plaza, Suite 1300
Houston, Texas 77046
(713) 354-2500
You should rely only on the information incorporated by reference or provided in this
prospectus or in the supplement. We have not authorized anyone else to provide you with different
information. You should not assume that the information in this prospectus or any supplement is
accurate as of any date other than the date on the front of those documents.
6
THE COMPANY
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
nine states. As of September 30, 2002, we owned interests in, operated or were developing 149
properties containing 53,542 apartment homes located in nine states. Three of our newly developed
multifamily properties containing 1,166 apartment homes were under development at September 30,
2002. We also have several sites that we intend to develop into multifamily apartment communities.
Our executive offices are located at Three Greenway Plaza, Suite 1300, Houston, Texas 77046,
and our telephone number is (713) 354-2500.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus and any supplement that are forward-looking in
that they do not discuss historical fact, but instead note future 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 prospectus.
Reliance should not be placed on these forward- looking statements because they are subject to
known and unknown risks, uncertainties and other factors that may cause our actual results or
performance to differ materially from those contemplated by 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:
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the results of our efforts to implement our property development and acquisition strategies; |
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the effects of economic conditions, including rising interest rates; |
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our ability to generate sufficient cash flows; |
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the failure to qualify as a real estate investment trust; |
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the costs of our capital and debt; |
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changes in our capital requirements; |
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the actions of our competitors and our ability to respond to those actions; |
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the actions of borrowers under our mezzanine loans; |
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changes in governmental regulations, tax rates and similar matters; |
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environmental uncertainties and disasters; and |
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other risks detailed in our other SEC reports or filings. |
These forward-looking statements represent our estimates and assumptions only as of the date
of this prospectus.
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USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities for general corporate
purposes. Those purposes include the repayment or refinancing of debt, property acquisitions and
development in the ordinary course of business, working capital, investment in financing
transactions and capital expenditures.
We will describe in the supplement any proposed use of proceeds other than for general
corporate purposes.
DESCRIPTION OF CAPITAL SHARES
Our declaration of trust provides that we may issue up to 110,000,000 shares of beneficial
interest, consisting of 100,000,000 common shares and 10,000,000 preferred shares. At January 31,
2003, we had issued and outstanding 39,216,505 common shares.
Common Shares
Holders of common shares are entitled to one vote per share. There is no cumulative voting in
the election of trust managers. The board may declare dividends on common shares in its discretion
if funds are legally available for those purposes. On liquidation, common shareholders are
entitled to receive pro rata any of our remaining assets, after we satisfy or provide for the
satisfaction of all liabilities and obligations on our preferred shares, if any. Common
shareholders do not have preemptive rights to subscribe for or purchase any of our capital shares
or any other of our securities, except as may be granted by the board.
Preferred Shares
Under our declaration of trust, the board is authorized, without shareholder approval, to
issue preferred shares in one or more series, with the designations, powers, preferences, rights,
qualifications, limitations and restrictions as the board determines. Thus, the board, without
shareholder approval, could authorize the issuance of preferred shares with voting, conversion and
other rights that could adversely affect the voting power and other rights of common shareholders
or that could make it more difficult for another company to enter into a business combination with
us.
Restrictions on Ownership
In order for us to qualify as a REIT, under the Internal Revenue Code, not more than 50% in
value of our outstanding capital shares may be owned, directly or indirectly, by five or fewer
individuals or entities during the last half of a taxable year. In addition, our capital shares
must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12
months, or during a proportionate part of a shorter taxable year.
Because our board believes it is essential for us to continue to qualify as a REIT, our
declaration of trust provides that in general no holder may own, or be deemed to own by virtue of
the attribution provisions of the Internal Revenue Code, more than 9.8% of our total outstanding
capital shares. Any transfer of shares will not be valid if it would:
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create a direct or indirect ownership of shares in excess of 9.8% of our total
outstanding capital shares; |
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result in shares being owned by fewer than 100 persons; |
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result in our being closely held within the meaning of Section 856(h) of the
Internal Revenue Code; or |
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result in our disqualification as a REIT. |
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If any person owns or is deemed to own more than 9.8% of our total outstanding capital shares,
the shares that exceed this ownership limit will automatically be deemed to be transferred to us.
We will act as trustee of a trust for the exclusive benefit of the transferees to whom these shares
may ultimately be transferred without violating the 9.8% ownership limit. While in trust, these
shares will not be entitled to participate in dividends or other distributions and, except as
required by law, will not be entitled to vote. We will have the right, for a period of 90 days
during the time any securities are held by us in trust, to purchase all or any portion of these
securities from the original shareholder at the lesser of the price paid for the shares and the
market price of the shares on the date we exercise our option to purchase. All certificates
representing capital shares will bear a legend referring to the restrictions described above.
These restrictions on ownership may have the effect of precluding acquisition of control
unless the board and shareholders determine that maintenance of REIT status is no longer in our
best interests.
Shareholder Liability
Our declaration of trust provides that no shareholder will be personally or individually
liable in any manner whatsoever for any debt, act, omission or obligation incurred by us or our
board. A shareholder will be under no obligation to us or to our creditors with respect to such
shares, other than the obligation to pay to us the full amount of the consideration for which such
shares were issued or to be issued. By statute, the State of Texas provides limited liability for
shareholders of a REIT organized under the Texas Real Estate Investment Trust Act.
Transfer Agent and Registrar
American Stock Transfer & Trust Company or its successor is the transfer agent and registrar
for our common shares.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of debt securities, preferred shares or common shares.
We may issue warrants independently or together with debt securities, preferred shares or common
shares or attached to or separate from the offered securities. We will issue each series of
warrants under a separate warrant agreement between us and a bank or trust company as warrant
agent. The warrant agent will act solely as our agent in connection with the warrants and will not
act for or on behalf of warrant holders.
This summary of some of the provisions of the warrants is not complete. You should refer to
the provisions of the warrant agreement that will be filed with the SEC as part of the offering of
any warrants. To obtain a copy of this document, see Where You Can Find More Information on page
6.
DESCRIPTION OF DEBT SECURITIES
The debt securities will be issued under an indenture between us and SunTrust Bank, as
trustee.
The following summary of some of the provisions of the indenture is not complete. You should
look at the indenture that is filed as an exhibit to the registration statement of which this
prospectus is a part. To obtain a copy of the indenture or other documents that we file with the
SEC, see Where You Can Find More Information on page 6.
General
The debt securities will be direct, unsecured and unsubordinated obligations and will rank
equally with all other of our unsecured and unsubordinated indebtedness. The indenture does not
limit the amount of debt securities that we can offer under it.
We may issue additional debt securities without your consent. We may issue debt securities in
one or more series. We are not required to issue all debt securities of one series at the same
time. Also, unless otherwise
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provided, we may open a series without the consent of the holders of the debt securities of
this series, for issuances of additional debt securities of this series.
The supplement will address the following terms of the debt securities:
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their title; |
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any limits on the principal amounts to be issued; |
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the dates on which the principal is payable; |
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the rates, which may be fixed or variable, at which they will bear interest, or the
method for determining rates; |
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the dates from which the interest will accrue and be payable, or the method of
determining those dates, and any record dates for the payments due; |
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any provisions for redemption, conversion or exchange, at our option or otherwise,
including the periods, prices and terms of redemption or conversion; |
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any sinking fund or similar provisions, whether mandatory or at the holders option,
along with the periods, prices and terms of redemption, purchase or repayment; |
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the amount or percentage payable if we accelerate their maturity, if other than the
principal amount; |
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any changes to the events of default or covenants set forth in the indenture; |
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the terms of subordination, if any; |
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whether the series may be reopened; and |
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any other terms consistent with the indenture. |
We may authorize and determine the terms of a series of debt securities by resolution of our
board of trust managers or one of its committees or through a supplemental indenture.
Form of Debt Securities
Unless the supplement otherwise provides, the debt securities will be issued in registered
form. We will issue debt securities only in denominations of $1,000 and integral multiples of that
amount.
Unless the supplement otherwise provides, we will issue debt securities as one or more global
securities. This means that we will not issue certificates to each holder. We generally will
issue global securities in the total principal amount of the debt securities in a series. Debt
securities in global form will be deposited with or on behalf of a depositary. Debt securities in
global form may not be transferred except as a whole among the depositary, a nominee of or a
successor to the depositary and any nominee of that successor. Unless otherwise identified in the
supplement, the depositary will be The Depository Trust Company (DTC).
We may determine not to use global securities for any series. In that event, we will issue
debt securities in certificated form.
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The laws of some jurisdictions require that some purchasers of securities take physical
delivery of securities in certificated form. Those laws and some conditions on transfer of global
securities may impair the ability to transfer interests in global securities.
Ownership of Global Securities
So long as the depositary or its nominee is the registered owner of a global security, that
entity will be the sole holder of the debt securities represented by that instrument. Both we and
the trustee are only required to treat the depositary or its nominee as the legal owner of those
securities for all purposes under the indenture.
Unless otherwise specified in this prospectus or the supplement, no actual purchaser of debt
securities represented by a global security will be entitled to receive physical delivery of
certificated securities or will be considered the holder of those securities for any purpose under
the indenture. In addition, no actual purchaser will be able to transfer or exchange global
securities unless otherwise specified in this prospectus or the supplement. As a result, each
actual purchaser must rely on the procedures of the depositary to exercise any rights of a holder
under the indenture. Also, if an actual purchaser is not a participant in the depositary, the
actual purchaser must rely on the procedures of the participant through which it owns its interest
in the global security.
The Depository Trust Company
The following is based on information furnished by DTC and applies to the extent that it is
the depositary, unless otherwise provided in the supplement.
Registered Owner. The debt securities will be issued as fully registered securities in the
name of Cede & Co., which is DTCs partnership nominee. The trustee will deposit the global
security with the depositary. The deposit with the depositary and its registration in the name of
Cede & Co. will not change the nature of the actual purchasers ownership interest in the debt
securities.
DTCs Organization. DTC is a limited purpose trust company organized under the New York
Banking Law, a banking organization within the meaning of that law, a member of the Federal
Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code
and a clearing agency registered under the provisions of Section 17A of the Securities Exchange
Act of 1934.
DTC is owned by a number of its direct participants and the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Direct
participants include securities brokers and dealers, banks, trust companies, clearing corporations
and some other organizations who directly participate in DTC. Other entities may access DTCs
system by clearing transactions through or maintaining a custodial relationship with direct
participants. The rules applicable to DTC and its participants are on file with the SEC.
DTCs Activities. DTC holds securities that its participants deposit with it. DTC also
facilitates the settlement among participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry changes in
participants accounts. Doing so eliminates the need for physical movement of securities
certificates.
Participants Records. Except as otherwise provided in this prospectus or a supplement,
purchases of debt securities must be made by or through a direct participant, which will receive a
credit for the securities on the depositarys records. The purchasers interest is in turn to be
recorded on the participants records. Actual purchasers will not receive written confirmations
from the depositary of their purchase, but they generally receive confirmations along with periodic
statements of their holdings from the participants through which they entered into the transaction.
Transfers of interest in the global securities will be made on the books of the participants
on behalf of the actual purchasers. Certificates representing the interest of the actual
purchasers in the securities will not be issued unless the use of global securities is suspended.
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The depositary has no knowledge of the actual purchasers of global securities. The
depositarys records only reflect the identity of the direct participants, who are responsible for
keeping account of their holdings on behalf of their customers.
Notices Among the Depositary, Participants and Actual Owners. Notices and other
communications by the depositary, its participants and the actual purchasers will be governed by
arrangements among them, subject to any legal requirements in effect.
Voting Procedures. Neither DTC nor Cede & Co. will give consents for or vote the global
securities. The depositary generally mails an omnibus proxy to us just after the applicable record
date. That proxy assigns Cede & Co.s voting rights to the direct participants to whose accounts
the securities are credited at that time.
Payments. Principal and interest payments made by us will be delivered to the depositary.
DTCs practice is to credit direct participants accounts on the applicable payment date unless it
has reason to believe that it will not receive payment on that date. Payments by participants to
actual purchasers will be governed by standing instructions and customary practices, as is the case
with securities held for customers in bearer form or registered in street name. Those payments
will be the responsibility of that participant, not the depositary, the trustee or us, subject to
any legal requirements in effect at that time.
We are responsible for payment of principal, interest and premium, if any, to the trustee, who
is responsible to pay it to the depositary. The depositary is responsible for disbursing those
payments to direct participants. The participants are responsible for disbursing payment to the
actual purchasers.
Transfer or Exchange of Debt Securities
You may transfer or exchange debt securities other than global securities without service
charge at the corporate trust office of the trustee. You may also surrender debt securities other
than global securities for conversion or registration of transfer without service charge at the
corporate trust office of the trustee. You must execute a proper form of transfer and pay any
taxes or other governmental charges resulting from that action.
Transfer Agent
If we designate a transfer agent in addition to the trustee in a supplement, we may at any
time rescind this designation or approve a change in the location through which the transfer agent
acts. We will, however, be required to maintain a transfer agent in each place of payment for a
series of debt securities. We may at any time designate additional transfer agents for a series of
debt securities.
Covenants
The following is a summary of some of the covenants we have made in the indenture.
Existence. Except in connection with permitted mergers, consolidations or sales of assets, we
agreed to do or cause to be done all things necessary to preserve and keep our corporate existence,
rights and franchises in full force and effect. We are not, however, required to preserve any
right or franchise if we determine that its preservation is no longer desirable in the conduct of
our business and that the loss is not disadvantageous in any material respect to the holders of
debt securities.
Maintenance of Properties. We agreed to maintain and keep in good condition all of our
material properties used or useful in the conduct of our business. This does not, however,
preclude us from disposing of our properties in the ordinary course of business.
Insurance. We agreed to maintain with insurers of recognized responsibility insurance
concerning our properties against such casualties and contingencies and of such types and in such
amounts as is customary for the same or similar businesses.
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Payment of Taxes and Other Claims. We agreed to pay or discharge before they become delinquent
all taxes and other governmental charges levied or imposed on us and all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon our property. We are not,
however, required to pay or discharge any such charge whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
Provision of Financial Information. We agreed, whether or not we are subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, to prepare the annual reports, quarterly reports and
other documents that we would have been required to file with the SEC pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 within 15 days of each of the respective required
filing dates and to:
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transmit by mail to all holders of debt securities, as their names and addresses
appear in the security register, copies of such annual reports, quarterly reports and
other documents; |
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file with the trustee copies of such annual reports, quarterly reports and other
documents; and |
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promptly upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective holder. |
Events of Default, Notice and Waiver
Events of default under the indenture for any series of debt securities include the following:
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failure for 30 days to pay interest on any debt securities of that series; |
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failure to pay principal or premium, if any, of any debt securities of that series; |
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default in the performance or breach of any of our covenants contained in the
indenture, other than a covenant added to the indenture solely for the benefit of a
series of debt securities other than that series, which continues for 60 days after
written notice as provided in the indenture; |
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default under any other of our debt instruments with an aggregate principal amount
outstanding of at least $10,000,000; |
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entry by a court of competent jurisdiction of one or more judgments, orders or
decrees against us in an aggregate amount, excluding amounts covered by insurance, over
$10,000,000 and these judgments, orders or decrees remain undischarged for a period of
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specified events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator or trustee. |
If an event of default occurs and continues, the trustee and the holders of not less than 25%
of the series may declare the principal amount of all of the debt securities of that series to be
immediately due and payable.
The rights of holders of a series to commence an action for any remedy is subject to a number
of conditions, including the requirement that the holders of 25% of that series request that the
trustee take action and offer a reasonable indemnity to the trustee against its liabilities
incurred in doing so. This provision will not, however, prevent any holder from instituting suit
for the enforcement of payment.
Subject to provisions in the indenture relating to the trustees duties in case of default,
the trustee is under no obligation to exercise any of its rights or powers under the indenture at
the request or direction of any holder unless the holder has offered to the trustee reasonable
security or indemnity. However, the trustee may refuse to follow any direction that is in conflict
with any law or the indenture, that may involve the trustee in personal liability or that may be
unduly prejudicial to holders.
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Modification of the Indenture
We must obtain the consent of holders of at least a majority in principal amount of all
outstanding debt securities affected by a change to the indenture. The consent of holders of at
least a majority in principal amount of each series of outstanding debt securities is required to
waive compliance by us with some of the covenants in the indenture. We must obtain the consent of
each holder affected by a change to extend the maturity; reduce the principal, redemption premium
or interest rate; change the place of payment, or the coin or currency, for payment; limit the
right to sue for payment; reduce the level of consents needed to approve a change to the indenture;
or modify any of the foregoing provisions or any of the provisions relating to the waiver of some
past defaults or covenants, except to increase the required level of consents needed to approve a
change to the indenture.
Defeasance
We may defease the debt securities of a series, which means that we would satisfy our duties
under that series before maturity. We may do so by depositing with the trustee, in trust for the
benefit of the holders, sufficient funds to pay the entire indebtedness on that series, including
principal, premium, if any, and interest. Some other conditions must be met before we may do so.
We must also deliver an opinion of counsel to the effect that the holders of that series will have
no federal income tax consequences as a result of that deposit.
Conversion
Debt securities may be convertible into or exchangeable for common shares, preferred shares or
debt securities of another series. The supplement will describe the terms of any conversion
rights. To protect our status as a REIT, debt securities are not convertible if, as a result of a
conversion, any person would then be deemed to own, directly or indirectly, more than 9.8% of our
capital shares.
Subordination
The terms and conditions of any subordination of subordinated debt securities to other of our
indebtedness will be described in the supplement. The terms will include a description of the
indebtedness ranking senior to the subordinated debt securities, the restrictions on payments to
the holders of subordinated debt securities while a default exists with respect to senior
indebtedness, any restrictions on payments to the holders of the subordinated debt securities
following an event of default and provisions requiring holders of the subordinated debt securities
to remit payments to holders of senior indebtedness.
Because of the subordination, if we become insolvent, holders of subordinated debt securities
may recover less, ratably, than other of our creditors, including holders of senior indebtedness.
Limitations on Incurrence of Debt
The indenture imposes the following limitations on our ability to incur debt if provided with
respect to any series of debt securities.
We will not incur debt if as a result the aggregate principal amount of all our outstanding
debt would exceed 60% of the sum of our total assets as of the end of the last fiscal quarter and
the purchase price of any real estate assets or mortgages receivable acquired, and the amount of
any securities offering proceeds we receive, to the extent that the proceeds were not used to
acquire real estate assets or mortgages receivable or used to reduce debt, since the end of that
quarter, including those proceeds obtained in connection with the incurrence of this additional
debt.
We will not incur debt secured by any mortgage, lien, charge, pledge or security interest of
any kind (Lien) on any of our properties if as a result the aggregate principal amount of all of
our outstanding debt that is secured by any Lien on our property would exceed 40% of the sum of our
total assets as of the end of our last fiscal quarter and the purchase price of any real estate
assets or mortgages receivable acquired, and the amount of any securities offering proceeds
received, to the extent that the proceeds were not used to acquire real estate assets or
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mortgages receivable or used to reduce debt, since the end of that quarter, including those
proceeds obtained in connection with the incurrence of this additional debt.
We will not at any time own unencumbered assets equal to less than 150% of the aggregate
outstanding principal amount of unsecured debt.
We will not incur debt if the ratio of Consolidated Income Available for Debt Service (as
defined in the indenture) to the Annual Service Charge (as defined in the indenture) for the four
consecutive fiscal quarters most recently ended prior to the date on which this additional debt is
to be incurred will have been less than 1.5:1, on a pro forma basis and calculated as described in
the indenture.
Merger, Consolidation and Sale of Assets
We cannot consolidate with, or sell, lease or convey all or substantially all of our assets
to, or merge with or into, any other corporation unless:
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we will be the surviving entity; or |
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the successor corporation, if other than us, expressly assumes all of our
obligations under the debt securities and the indenture, and immediately after that
transaction no default under the indenture will occur and be continuing. |
PLAN OF DISTRIBUTION
We may offer securities directly or through underwriters, dealers or agents. The supplement
will identify those underwriters, dealers or agents and will describe the plan of distribution,
including commissions to be paid. If we do not name a firm in the supplement, the firm may not
directly or indirectly participate in any underwriting of those securities, although it may
participate in the distribution of securities under circumstances entitling it to a dealers
allowance or agents commission.
An underwriting agreement will entitle the underwriters to indemnification against specified
civil liabilities under the federal securities laws and other laws. The underwriters obligations
to purchase securities will be subject to specified conditions and generally will require them to
purchase all of the securities if any are purchased.
Unless otherwise noted in the supplement, the securities will be offered by the underwriters,
if any, when, as and if issued by us, delivered to and accepted by the underwriters and subject to
their right to reject orders in whole or in part.
We may sell securities to dealers, as principals. Those dealers then may resell the
securities to the public at varying prices set by those dealers from time to time.
We may also offer securities through agents. Agents generally act on a best efforts basis
during their appointment, meaning that they are not obligated to purchase securities.
Dealers and agents may be entitled to indemnification as underwriters by us against some
liabilities under the federal securities laws and other laws.
We or the underwriters or the agent may solicit offers by institutions approved by us to
purchase securities under contracts providing for further payment. Permitted institutions include
commercial and savings banks, insurance companies, pension funds, investment companies, educational
and charitable institutions and others. Certain conditions apply to those purchases.
An underwriter may engage in over-allotment, stabilizing transactions, short covering
transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of
1934. Over-allotment involves sales in excess of the offering size, which creates a short
position. Stabilizing transactions permit bidders to
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purchase the underlying security so long as the stabilizing bids do not exceed a specified
maximum. Short covering transactions involve purchases of the securities in the open market after
the distribution is completed to cover short positions. Penalty bids permit the underwriters to
reclaim a selling concession from a dealer when the securities originally sold by the dealer are
purchased in a covering transaction to cover short positions. Those activities may cause the price
of the securities to be higher than it would otherwise be. The underwriters may engage in any
activities on any exchange or other market in which the securities may be traded. If commenced,
the underwriters may discontinue those activities at any time.
The supplement or pricing supplement, as applicable, will set forth the anticipated delivery
date of the securities being sold at that time.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and
preferred distributions for each of our last five fiscal years and the nine months ended September
30, 2002 are presented below. We computed our ratios of earnings to fixed charges by dividing
earnings by fixed charges. We computed our ratios of earnings to combined fixed charges and
preferred share dividends by dividing earnings by the sum of fixed charges and preferred share
dividend requirements. For these purposes, earnings have been calculated by adding fixed charges
to income from operations before income taxes. Fixed charges consist of interest costs, the
interest portion of rental expense, other than on capital leases, estimated to represent the
interest factor in this rental expense and the amortization of debt discounts and issue costs.
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Nine months |
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ended |
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Year ended December 31, |
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September 30, |
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2001(4) |
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2000(3) |
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1999(2) |
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1998 |
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1997(1) |
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2002 |
Ratio of earnings to fixed charges |
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1.63x |
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1.63x |
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1.58x |
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1.81x |
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2.13x |
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1.42x |
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Ratio of earnings to combined
fixed charges and preferred share
dividends |
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1.61x |
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1.58x |
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1.52x |
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1.70x |
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2.13x |
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1.42x |
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(1) |
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Earnings include a $10,170,000 impact related to gain on sales of properties. Excluding this
impact, these ratios would be 1.83x. |
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Earnings include a $2,979,000 impact related to gain on sales of properties. Excluding this
impact, such ratios would be 1.55x and 1.49x. |
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Earnings include a $18,323,000 impact related to gain on sales of properties. Excluding this
impact, such ratios would be 1.45x and 1.41x. |
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Earnings include a $2,372,000 impact related to gain on sales of properties. Excluding this
impact, such ratios would be 1.60x and 1.59x. |
FEDERAL INCOME TAX CONSIDERATIONS AND CONSEQUENCES OF YOUR INVESTMENT
The following is a general summary of the material federal income tax considerations
associated with an investment in the securities. The summary is based on current law. It is not
tax advice and presents general information only. The summary does not deal with particular types
of securityholders that are subject to special treatment under the Internal Revenue Code, such as
insurance companies, financial institutions and broker-dealers. In addition, the summary is not
exhaustive of all possible tax considerations. Your actual tax consequences as a taxpayer can be
complicated and will depend on your specific situation, including variables you cannot control.
You should consult your own tax advisor for a full understanding of the tax consequences of the
purchase, holding and sale of the securities. You should also consult your tax advisor to
determine the effect of any potential changes in applicable tax laws. The Internal Revenue Code
provisions governing the federal income tax treatment of REITs are highly technical and complex,
and the summary is qualified in its entirety by the applicable Internal Revenue Code provisions,
rules and regulations promulgated thereunder, and administrative and judicial interpretations
thereof.
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The following discussion is based upon current law and on representations from us concerning
our compliance with the requirements for qualification as a REIT.
We urge you, as a prospective investor, to consult your own tax advisor with respect to the
specific federal, state, local, foreign and other tax consequences to you of the purchase, holding
and sale of our securities.
We have elected to be taxed as a REIT under the Internal Revenue Code since our taxable year
ended December 31, 1993. We believe that we have been organized and have operated in a manner that
qualifies for taxation as a REIT under the Internal Revenue Code. We also believe that we will
continue to operate in a manner that will preserve our status as a REIT. We cannot, however,
assure you that these requirements will be met in the future.
We have not requested a ruling from the Internal Revenue Service regarding our REIT status.
However, we have received an opinion from the law firm of Locke Liddell & Sapp LLP to the effect
that:
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we have met the requirements for qualification and taxation as a REIT for each
taxable year commencing with the taxable year ended December 31, 1993; |
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our diversity of equity ownership, operations through the date of the opinion and
proposed method of operation should allow us to qualify as a REIT for the taxable year
ending December 31, 2003; and |
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the discussion regarding Federal Income Tax Considerations and Consequences of Your
Investment set forth in this section, to the extent that it describes matters of law
or legal conclusions, is correct in all material respects. |
The opinion is expressed as of its date and Locke Liddell & Sapp LLP has no obligation to
advise us of any change in applicable law or of any matters stated, represented or assumed, after
the date of this opinion.
You should be aware that opinions of counsel are not binding upon the Internal Revenue Service
or any court. Our opinion of counsel is based upon factual representations and covenants made by
us regarding the past, present and future conduct of our business operations. Furthermore, our
opinion of counsel regarding our continued qualification as a REIT is conditioned upon, and our
continued qualification as a REIT will depend on, our ability to meet, through actual annual
operating results, the various REIT qualification tests under the Internal Revenue Code.
In addition, we cannot assure you that new legislation, regulations or administrative
interpretations will not change the tax laws with respect to our qualification as a REIT or any
other matter discussed herein.
Federal Income Taxation of the Company
As long as we qualify for taxation as a REIT, we generally will not be subject to federal
corporate income taxes on that portion of our ordinary income or capital gain that is currently
distributed to shareholders. The REIT provisions of the Internal Revenue Code generally allow us
to deduct dividends paid to our shareholders. The deduction for dividends paid to shareholders
substantially eliminates the federal double taxation of earnings generally applicable to
corporations. When we use the term double taxation, we refer to taxation of corporate income at
two levels, taxation at the corporate level when the corporation must pay tax on the income it has
earned and taxation again at the shareholder level when the shareholder pays taxes on the
distributions it receives from the corporations income in the way of dividends. Additionally, a
REIT may elect to retain and pay taxes on a designated amount of its net long-term capital gains,
in which case the shareholders of the REIT will include their proportionate share of the
undistributed long-term capital gains in income and receive a credit or refund for their share of
the tax paid by the REIT.
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Even if we qualify for taxation as a REIT, we will be subject to federal income tax as
follows:
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We will be taxed at regular corporate rates on our undistributed REIT taxable
income, including undistributed net capital gain. |
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Under some circumstances, we may be subject to the alternative minimum tax as a
consequence of our items of tax preference. |
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We will be taxed at the highest corporate rate on our net income from the sale or
other disposition of foreclosure property that is held primarily for sale to
customers in the ordinary course of business and other non-qualifying income from
foreclosure property. Foreclosure property is, in general, any real property and any
personal property incident to real property acquired through foreclosure or deed in
lieu of foreclosure. |
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We will be subject to a 100% tax on any net income from prohibited transactions,
which are, in general, sales or other dispositions of property held primarily for sale
to customers in the ordinary course of business, other than foreclosure property. |
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If we fail to satisfy the 75% or 95% gross income test under the REIT provisions of
the Internal Revenue Code, but have maintained our qualification as a REIT, we will be
subject to a tax equal to 100% of the net income attributable to the greater of the
amount by which we fail the 75% test or the 95% test, multiplied by a fraction intended
to reflect our profitability. |
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If we fail to distribute during each year at least the sum of (a) 85% of our
ordinary income for such year, (b) 95% of our capital gain net income for such year and
(c) any undistributed taxable income from prior periods, we will be subject to a 4%
excise tax on the excess of the required distribution over the amounts actually
distributed. |
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If (a) we acquire any asset from a C corporation, which is a corporation subject to
full corporate level tax, in a carryover-basis transaction, and (b) we subsequently
recognize gain on the disposition of this asset during the 10-year period beginning on
the date on which we acquire the asset, then the excess of the fair market value of the
asset as of the beginning of the 10-year period over our adjusted basis in the asset at
that time will be subject to tax at the highest regular corporate rate, under
guidelines issued by the Internal Revenue Service. |
REIT Qualification
Organizational Requirements. The Internal Revenue Code defines a REIT as a corporation, trust
or association that meets the following conditions:
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it is managed by one or more trustees or directors; |
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its beneficial ownership is evidenced by transferable shares or by transferable
certificates of beneficial interest; |
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it would be taxable as a domestic corporation but for the REIT requirements; |
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it is neither a financial institution nor an insurance company; |
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its beneficial ownership is held by 100 or more persons; and |
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during the last half of each taxable year, five or fewer individuals do not
own, directly or indirectly, more than 50% in value of its outstanding stock, taking
into account applicable attribution rules. |
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In addition, other tests, described below, regarding the nature of income and assets of the
REIT also must be satisfied. The Internal Revenue Code provides that conditions (1) through (4),
inclusive, must be met during the entire taxable year. Condition (5) must be met during at least
335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less
than 12 months. Conditions (5) and (6) will not apply until after the first taxable year for which
an election is made to be taxed as a REIT. For purposes of conditions (5) and (6), pension funds
and particular other tax-exempt entities are treated as individuals, subject to an exception in the
case of condition (6) that looks through the fund or entity to actual participants of the fund or
beneficial owners of the entity in determining the number of owners of the outstanding stock.
Our declaration of trust currently includes restrictions regarding transfers of capital
shares, which restrictions are intended, among other things, to assist us in continuing to satisfy
conditions (5) and (6). In rendering its opinion that we have met the requirements for
qualification and taxation as a REIT, Locke Liddell & Sapp LLP is relying on our representations
that the ownership of our capital shares will satisfy conditions (5) and (6). There can be no
assurance, however, that the restrictions in our declaration of trust will, as a matter of law,
preclude us from failing to satisfy those conditions or that a transfer in violation of those
restrictions would not cause us to fail these conditions.
If a REIT owns a qualified REIT subsidiary, the Internal Revenue Code provides that the
qualified REIT subsidiary is disregarded for federal income tax purposes. Thus, all assets,
liabilities and items of income, deduction and credit of the qualified REIT subsidiary are treated
as assets, liabilities and these items of the REIT itself. When we use the term qualified REIT
subsidiary, we mean a corporation, other than a taxable REIT subsidiary, in which all of its
shares are held by the REIT. We own, directly or indirectly, 100% of the shares of several
corporations which constitute qualified REIT subsidiaries. Thus, all of the assets, liabilities
and items of income, deduction and credit of these qualified REIT subsidiaries will be treated as
our assets and liabilities and our items of income, deduction and credit. Unless the context
requires otherwise, all references to we, us and our company in this Federal Income Tax
Considerations and Consequences of Your Investment section, refer to Camden Property Trust and its
qualified REIT subsidiaries.
In the case of a REIT that is a partner in a partnership, Treasury Regulations issued by the
United States Treasury Department provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to the income of the
partnership attributable to this share. A REITs proportionate share of the assets of the
partnership will be determined based on the REITs capital interest in the partnership. In
addition, the character of the assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of Section 856 of the Internal Revenue Code,
including satisfying the gross income tests and asset tests. Thus, our proportionate share of the
assets, liabilities and items of income of Camden Operating, L.P. and any other entity taxable as a
partnership for federal income tax purposes in which we hold an interest will be treated as our
assets and liabilities and our items of income for purposes of applying the requirements described
in this section. The assets, liabilities and items of income of Camden Operating, L.P. and any
other entity taxable as a partnership for federal income tax purposes in which we hold an interest
include Camden Operating, L.P.s and each such entitys share of the assets and liabilities and
items of income with respect to any entity taxable as a partnership in which they hold an interest.
Income Tests. In general, in order to qualify as a REIT, we must derive at least 95% of our
gross income, excluding gross income from prohibited transactions, from real estate sources and
from dividends, interest and gain from the sale or disposition of stock or securities or from any
combination of the foregoing. We must also derive at least 75% of our gross income, excluding
gross income from prohibited transactions, from investments relating to real property or mortgages
on real property including rents from real property, interest on obligations secured by mortgages
on real property and, in particular circumstances, interest from particular types of temporary
investments. Additionally, with respect to each of our tax years beginning on or before January 1,
1997, short-term gain from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain from the sale or other disposition of real property held for less
than four years apart from involuntary conversions and sales of foreclosure property must have
represented less than 30% of our gross income including gross income from prohibited transactions
for each such taxable year.
Rent derived from leases will be qualifying income under the REIT requirements, provided
several requirements are satisfied. First, a lease may not have the effect of giving us a share of
the income or profits of the
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lessee. Second, the rent attributable to personal property that is leased in connection with
a lease of real property must not exceed 15% of the total rent received under the lease. If so,
the portion of rent attributable to the personal property will not qualify as rents from real
property. For taxable years beginning after December 31, 2000, the test to determine the rent
attributable to personal property that is leased in connection with a lease of real property is
based on relative fair market values. Third, rents received from a related party tenant will not
qualify as rents from real property. For these purposes, a tenant will be a related party tenant
if the REIT, directly or indirectly, actually or constructively, owns 10% or more of the tenant.
As a result of the passage of the Ticket to Work and Work Incentives Act of 1999 as enacted on
December 17, 1999 (we refer to this as the REIT Modernization Act), for taxable years after
December 31, 2000, we may lease property to a taxable REIT subsidiary and the rents received from
that subsidiary will not be disqualified from being rents from real property by reason of our
ownership interest in the subsidiary. We can avail ourselves of this exception to the related
party rent rules so long as at least 90% of the leased space of the property is rented to persons
who are not related parties or taxable REIT subsidiaries and the taxable REIT subsidiary pays
commercially reasonable rent which is substantially comparable to the rent paid by third parties.
A taxable REIT subsidiary includes a corporation other than a REIT in which a REIT directly or
indirectly holds stock and that has made a joint election with the REIT to be treated as a taxable
REIT subsidiary. A taxable REIT subsidiary will be subject to federal income tax at regular
corporate rates. Fourth, the REIT generally must not operate or manage its property or furnish or
render services to tenants. However, the REIT may provide customary services or provide
non-customary services through an independent contractor who is adequately compensated and from
whom the REIT derives no income or a taxable REIT subsidiary. Also, for tax years beginning after
August 5, 1997, the REIT may provide non-customary services with respect to its properties as long
as the income from the provision of these services with regard to each property does not exceed 1%
of all amounts received by the REIT from each property. For all taxable years beginning after
December 31, 2000 the REIT may provide or furnish non-customary services through a taxable REIT
subsidiary. Finally, all leases must also qualify as true leases for federal income tax
purposes, and not as service contracts, joint ventures or other types of arrangements.
We have not charged, and do not anticipate charging, rent that is based in whole or in part on
the income or profits of any person. We have not derived, and do not anticipate deriving, rent
attributable to personal property leased in connection with real property that exceeds 15% of the
total rents.
We have provided and will provide services with respect to our multifamily apartment
communities. We believe that the services with respect to our communities that have been and will
be provided by us are usually or customarily rendered in connection with the rental of space for
occupancy only and are not otherwise rendered to particular tenants; and, for tax years beginning
after August 5, 1997, income from the provision of other kinds of services with respect to a given
property has not and will not exceed 1% of all amounts received by us from such property.
Therefore, we believe that the provision of such services has not and will not cause rents received
with respect to our communities to fail to qualify as rents from real property. We believe that
services with respect to our communities that we believe may not be provided by us directly without
jeopardizing the qualification of rent as rents from real property have been and will be performed
by independent contractors, or, for taxable years beginning after December 31, 2000, taxable REIT
subsidiaries.
The term interest, as defined for purposes of both gross income tests, generally excludes
any amount that is based in whole or in part on the income or profits of any person. However,
interest generally includes the following:
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an amount that is based on a fixed percentage or percentages of receipts or sales;
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an amount that is based on the income or profits of a debtor, as long as the debtor
derives substantially all of its income from the real property securing the debt from
leasing substantially all of its interest in the property, and only to the extent that
the amounts received by the debtor would be qualifying rents from real property if
received directly by a REIT. |
If a loan contains a provision that entitles a REIT to a percentage of the borrowers gain
upon the sale of the real property securing the loan or a percentage of the appreciation in the
propertys value as of a specific date,
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income attributable to that loan provision will be treated as gain from the sale of the
property securing the loan, which generally is qualifying income for purposes of both gross income
tests.
Interest on debt secured by mortgages on real property or on interests in real property
generally is qualifying income for purposes of the 75% gross income test. However, if the highest
principal amount of a loan outstanding during a taxable year exceeds the fair market value of the
real property securing the loan as of the date that our commitment to make the loan becomes
binding, a portion of the interest income from such loan will not be qualifying income for purposes
of the 75% gross income test, but will be qualifying income for purposes of the 95% gross income
test. The portion of the interest income that will not be qualifying income for purposes of the
75% gross income test will bear the same relationship to the total interest income as the principal
amount of the loan that is not secured by real property bears to the total amount of the loan.
Some of our mezzanine loans may not be secured by real property. Our interest income from
those loans is and will be qualifying income for purposes of the 95% gross income test, but not the
75% gross income test. In addition, the loan amount of a mortgage loan that we own may exceed the
value of the real property securing the loan. In that case, a portion of the income from the loan
will be qualifying income for purposes of the 95% gross income test, but not the 75% gross income
test. It also is possible that, in some instances, the interest income from a mortgage loan may be
based in part on the borrowers profits or net income. That scenario generally will cause the
income from the loan to be non-qualifying income for purposes of both gross income tests.
We will be subject to tax at the maximum corporate rate on any income from foreclosure
property, other than income that otherwise would be qualifying income for purposes of the 75% gross
income test, less expenses directly connected with the production of that income. However, gross
income from foreclosure property will qualify for purposes of the 75% and 95% gross income tests.
Foreclosure property is any real property, including interests in real property, and any personal
property incident to such real property:
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that is acquired by a REIT as the result of the REIT having bid in such property at
foreclosure, or having otherwise reduced such property to ownership or possession by
agreement or process of law, after there was a default or default was imminent on a
lease of such property or on indebtedness that such property secured; |
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for which the related loan was acquired by the REIT at a time when the default was
not imminent or anticipated; and |
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for which the REIT makes a proper election to treat the property as foreclosure
property. |
However, a REIT will not be considered to have foreclosed on a property where the REIT takes
control of the property as a mortgagee-in-possession and cannot receive any profit or sustain any
loss except as a creditor of the mortgagor. Property generally ceases to be foreclosure property
at the end of the third taxable year following the taxable year in which the REIT acquired the
property, or longer if an extension is granted by the Secretary of the Treasury. This grace period
terminates and foreclosure property ceases to be foreclosure property on the first day:
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on which a lease is entered into for the property that, by its terms, will give rise
to income that does not qualify for purposes of the 75% gross income test, or any
amount is received or accrued, directly or indirectly, pursuant to a lease entered into
on or after such day that will give rise to income that does not qualify for purposes
of the 75% gross income test; |
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on which any construction takes place on the property, other than completion of a
building or any other improvement, where more than 10% of the construction was
completed before default became imminent; or |
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which is more than 90 days after the day on which the REIT acquired the property and
the property is used in a trade or business which is conducted by the REIT, other than
through an independent contractor from whom the REIT itself does not derive or receive
any income. |
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We do not anticipate that we will receive any income from property acquired through
foreclosure that is not qualifying income for purposes of the 75% gross income test, but if we do
receive any such income, we will make an election to treat the related property as foreclosure
property. In addition, we anticipate that any income we receive with respect to property that is
not eligible for a foreclosure property election will be qualifying income for purposes of both
gross income tests.
We may recognize taxable income without receiving a corresponding cash distribution if we
foreclose on or make a significant modification to a loan, to the extent that the fair market value
of the underlying property or the principal amount of the modified loan, as applicable, exceeds our
basis in the original loan.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year,
we may nevertheless qualify as a REIT for that year if we are eligible for relief under the
Internal Revenue Code. These relief provisions generally will be available if:
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our failure to meet these tests was due to reasonable cause and not due to willful neglect; |
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we attach a schedule of the sources of our income to our federal income tax return; and |
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any incorrect information on the schedule is not due to fraud with intent to evade tax. |
It is not possible, however, to state whether, in all circumstances, we would be entitled to
the benefit of these relief provisions. For example, if we fail to satisfy the gross income tests
because nonqualifying income that we intentionally incur exceeds the limits on such income, the
Internal Revenue Service could conclude that our failure to satisfy the tests was not due to
reasonable cause. As discussed above, even if these relief provisions apply, a tax would be
imposed with respect to the excess net income. No similar mitigation provision provides relief if
we failed the 30% gross income test in a taxable year beginning on or before January 1, 1997, and
any failure to so qualify would have caused us to fail to qualify as a REIT.
Asset Tests. On the last day of each calendar quarter, we must meet four tests concerning the
nature of our assets. First, at least 75% of the value of our total assets generally must consist
of real estate assets, cash, cash items and government securities. For this purpose, real estate
assets include interests in real property, interests in loans secured by mortgages on real
property or by certain interests in real property, shares in other REITs and particular options,
but exclude mineral, oil or gas royalty interests. The temporary investment of new capital in debt
instruments also qualifies under this 75% asset test, but only for the one-year period beginning on
the date we receive the new capital. Second, no more than 25% of our total assets may be
represented by securities, other than securities in the 75% asset class. Third, with regard to
these securities, the value of any one issuers securities owned by us may not exceed 5% of the
value of our total assets, unless the issuer is a taxable REIT subsidiary, and we may not own more
than 10% of the voting power or value of any one issuers outstanding securities, unless the issuer
is a taxable REIT subsidiary or we can avail ourselves of a safe harbor for straight debt.
Fourth, no more than 20% of our total assets may be represented by securities of one or more
taxable REIT subsidiaries. We must satisfy the asset tests at the close of each quarter. If we
fail an asset test as of the close of the quarter due to the acquisition of securities or other
property during the quarter, we may satisfy this test by disposing of the securities or other
non-qualifying property within the 30-day period following the close of that quarter. We cannot
assure you that the Internal Revenue Service will not challenge our compliance with these tests.
If we hold assets in violation of the applicable asset tests, we would be disqualified as a REIT.
We currently own more than 10% of the total value of the outstanding securities of several
subsidiaries. Each of these subsidiaries has elected to be a taxable REIT subsidiary. It should
be noted that the Internal Revenue Code contains two provisions that ensure that taxable REIT
subsidiaries are subject to an appropriate level of federal income taxation. First, taxable REIT
subsidiaries are limited in their ability to deduct interest payments made to an affiliated REIT.
Second, if a taxable REIT subsidiary pays an amount to a REIT that exceeds the amount that would be
paid to an unrelated party in an arms-length transaction, the REIT generally will be subject to an
excise tax equity to 100% of such excess.
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The term securities generally includes our debt securities issued by another REIT or a
partnership, except that debt securities of a partnership are not treated as securities for
purposes of the 10% value test if we own at least a 20% profits interest in the partnership as long
as such debt qualifies as straight debt, generally requiring that the interest rate not be based
on profits or certain discretionary factors and that the instrument not be convertible into equity.
We believe that our mortgage loans are qualifying assets for purposes of the 75% asset test.
However, if the outstanding principal balance of a mortgage loan exceeds the fair market value of
the real property securing the loan, a portion of such loan likely will not be a qualifying real
estate asset under the federal income tax laws. The non-qualifying portion of that mortgage loan
will be equal to the portion of the loan amount that exceeds the value of the associated real
property. Accordingly, our mezzanine loans will not be qualifying assets for purposes of the 75%
asset test to the extent that they are not secured by mortgages on real property.
Other Restrictions. The REIT requirements impose a number of other restrictions on our
operations. For example, any net income that we derive from sales of property in the ordinary
course of business, other than inventory acquired by reason of some foreclosures, is subject to a
100% tax unless eligible under a safe harbor.
Distributions. Due to minimum distribution requirements, we must generally distribute each
year an amount at least equal to:
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the sum of (a) 90% (previously 95% for taxable years beginning before December 31,
2000) of our REIT taxable income, as computed without regard to the dividends-paid
deduction or our capital gains, and (b) 90% (previously 95% for taxable years beginning
before December 31, 2000) of our net income, if any, from foreclosure property in
excess of the special tax on income from foreclosure property; minus |
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the sum of specific items of noncash income. |
This distribution must be paid in the taxable year to which it relates, or in the following
taxable year, if declared before we timely file our federal income tax return for that year and if
paid on or before the first regular dividend payment after that declaration. Capital gain
dividends are not included in the calculation to determine whether we satisfy the above-described
distribution requirement. In general, a capital gain dividend is a dividend attributable to net
capital gain recognized by us and properly designated as such.
Even if we satisfy the foregoing distribution requirement, to the extent that we do not
distribute all of our net capital gain or REIT taxable income as adjusted, we will be subject to
tax on this gain or income at a regular capital gains or ordinary corporate tax rates.
Furthermore, if we fail to distribute during each calendar year at least the sum of:
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85% of our ordinary income for that year; |
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95% of our capital gain net income for that year; and |
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any undistributed taxable income from prior periods, |
we would be subject to a 4% excise tax on the excess of the required distribution over the amounts
actually distributed. In addition, during our recognition period, if we dispose of any asset
subject to the rules regarding built-in gain, under guidance issued by the Internal Revenue
Service, we will be required to distribute at least 95% of any after-tax built-in gain recognized
on the disposition of the asset. The term built-in-gain refers to the excess of (a) the fair
market value of the asset as of the beginning of the applicable recognition period over (b) the
adjusted basis in such asset as of the beginning of such recognition period.
Typically, our REIT taxable income is less than our cash flow due to the allowance of
depreciation and other noncash charges in computing REIT taxable income. Accordingly, we
anticipate that we will generally have sufficient cash or liquid assets to enable us to satisfy the
90% distribution requirement. However, from time to time,
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we may not have sufficient cash or other liquid assets to meet this distribution requirement
or to distribute a greater amount as may be necessary to avoid income and excise taxation. This
may occur because of:
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timing differences between the actual receipt of income and the actual payment of
deductible expenses and the inclusion of this income and the deduction of these
expenses in arriving at our taxable income, or |
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as a result of nondeductible expenditures, such as principal amortization or capital
expenditures, including any reinvestment of proceeds received from the sale of our
properties, other than in a tax-free exchange, in excess of noncash deductions. |
If these timing differences occur, or if our nondeductible expenditures exceed our noncash
deductions, we may find it necessary to arrange for borrowings or, if possible, pay taxable stock
dividends in order to meet the dividend requirement.
Under some circumstances, we may be able to rectify a failure to meet the distribution
requirement for a year by paying dividends to shareholders in a later year, which may be included
in our deduction for dividends paid for the earlier year. We will refer to these dividends as
deficiency dividends. Thus, we may be able to avoid being taxed on amounts distributed as
deficiency dividends. We will, however, be required to pay interest and any applicable penalties
based upon the amount of any deficiency.
Certain Income From Mortgage Loans. We will recognize taxable income in advance of the
related cash flow if any of our mortgage loans are deemed to have original issue discount. We
generally must accrue original issue discount based on a constant yield method that takes into
account projected prepayments but that defers taking into account credit losses until they are
actually incurred.
We may be required to recognize the amount of any payment projected to be made pursuant to a
provision in a mortgage loan that entitles us to share in the gain from the sale of, or the
appreciation in, the mortgaged property over the term of the related loan, even though we may not
receive the related cash until the maturity of the loan.
Failure to Qualify as a REIT
If we fail to qualify for taxation as a REIT in any taxable year and relief provisions do not
apply, the following consequences will occur:
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we will be subject to tax, including any applicable alternative minimum tax, on our
taxable income at regular corporate rates; |
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we will be unable to deduct distributions to our shareholders; |
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we will not be required to make shareholder distributions; |
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to the extent that we make distributions from our current and accumulated earnings
and profits, the distributions will be dividends, taxable to our shareholders as
ordinary income; |
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subject to the limitations of the Internal Revenue Code, our corporate shareholders
may be eligible for the dividends-received deduction; and |
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unless we are entitled to relief under specific statutory provisions, we will be
disqualified from qualification as a REIT for the four taxable years following the year
during which qualification is lost. |
It is not possible to state whether in all circumstances we would be entitled to statutory
relief.
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Taxation of Taxable U.S. Shareholders
As used below, the term U.S. Shareholder means a security holder who for United States
federal income tax purposes:
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is a citizen or resident of the United States; |
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is a corporation created or organized in or under the laws of the United States or
of any state thereof or in the District of Columbia; or |
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is a partnership, trust or estate treated as a domestic partnership, trust or
estate. |
Distributions Generally. As long as we qualify as a REIT, any distributions that we make to
our shareholders out of our current or accumulated earnings and profits, other than capital gain
dividends discussed below, will constitute dividends taxable to our taxable U.S. Shareholders as
ordinary income. These distributions will not be eligible for the dividends-received deduction in
the case of U.S. Shareholders that are corporations. For purposes of determining whether the
distributions we make to holders of shares are out of current or accumulated earnings and profits,
our earnings and profits will be allocated first to our outstanding preferred shares and then to
common shares.
To the extent that we make a distribution to a U.S. Shareholder in excess of our current and
accumulated earnings and profits, these distributions will be treated first as a tax-free return of
capital with respect to the U.S. Shareholders common shares or preferred shares. This will reduce
the U.S. Shareholders adjusted basis and, to the extent that the distribution exceeds the U.S.
Shareholders adjusted basis in its shares, the excess portion of the distribution will be taxable
to the U.S. Shareholder as gain realized from the sale of the shares.
The Internal Revenue Service will deem us to have sufficient earnings and profits to treat as
a dividend any distribution by us up to the amount required to be distributed in order to avoid
imposition of the 4% excise tax discussed above. Moreover, any deficiency dividend will be treated
as an ordinary or capital gain dividend, as the case may be, regardless of our earnings and
profits. As a result, shareholders may be required to treat particular distributions that would
otherwise result in a tax-free return of capital as taxable dividends.
If we make distributions to a shareholder in excess of the U.S. Shareholders adjusted basis
in its common shares or preferred shares, and if the applicable shares have been held as a capital
asset, the distributions will be taxable as capital gains. If held for more than one year, this
gain will be taxable as long-term capital gain.
If (a) we declare dividends in October, November, or December of any year that are payable to
shareholders of record on a specified date in any of these months, and (b) we actually pay the
dividend on or before January 31 of the following calendar year, we will treat such dividends as
both paid by us and received by the shareholders on December 31 of that year. Shareholders may not
include in their own income tax returns any of our net operating losses or capital losses.
Capital Gain Distributions. Distributions that we properly designate as capital gain
dividends will be taxable to taxable U.S. Shareholders as long-term capital gains to the extent
that they do not exceed our actual net capital gain for the taxable year without regard to the
period for which the U.S. Shareholder has held its shares. U.S. Shareholders that are corporations
may, however, be required to treat up to 20% of particular capital gain dividends as ordinary
income. Capital gain dividends are not eligible for the dividends-received deduction for
corporations.
Passive Activity Losses and Investment Interest Limitations. Distributions we make and gain
arising from the sale or exchange by a U.S. Shareholder of our common shares or preferred shares
will not be treated as passive activity income. As a result, U.S. Shareholders generally will not
be able to apply any passive losses against this income or gain. Generally, our distributions
that do not constitute a return of capital will be treated as investment income for purposes of
computing the investment interest limitation. Gain arising from the sale or other disposition of
our common shares or preferred shares, however, will generally not be treated as investment income.
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Retention of Net Long-Term Capital Gains. We may elect to retain, rather than distribute as a
capital gain dividend, our net long-term capital gains received during the year. If we make this
election, we would pay tax on our retained net long-term capital gains. In addition, to the extent
we elect to retain net long-term capital gains, a U.S. Shareholder generally would:
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subject to limitations, include its proportionate share of our undistributed
long-term capital gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls; |
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be deemed to have paid the capital gains tax imposed on us on the designated amounts
included in the U.S. Shareholders long-term capital gains; |
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receive a credit or refund for the amount of tax deemed paid by it; |
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increase the adjusted basis of its shares by the difference between the amount of
includable gains and the tax deemed to have been paid by it; and |
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in the case of a U.S. Shareholder that is a corporation, appropriately adjust its
earnings and profits for the retained capital gains in accordance with Treasury
Regulations to be prescribed by the Internal Revenue Service. |
Depreciation Recapture. The maximum tax rate imposed on the long-term capital gains of
non-corporate taxpayers is 20%, although a 25% maximum tax rate is imposed on the portion of such
gains attributable to the prior depreciation claims in respect of depreciable real property held
for more than one year and not otherwise treated as ordinary recapture income under Section 1250
of the Internal Revenue Code. The Secretary of the Treasury has the authority to prescribe
appropriate regulations on how the capital gains rates will apply to sales and exchanges by
partnerships and REITs and of interests in partnerships and REITs. Under this authority, the
Secretary of the Treasury issued regulations relating to the taxation of capital gains in the case
of sales and exchanges of interests of partnerships, S corporation and trusts, but not of interests
in REITs. These regulations apply to transfers that occur on or after September 21, 2000.
Accordingly, you are urged to consult with your tax advisors with respect to your capital gain tax
liability resulting from a distribution or deemed distribution of capital gains from us and a sale
by you of our preferred shares or common shares, as applicable.
Sale of Securities
U.S. Shareholders who sell or exchange securities will generally recognize gain or loss for
federal income tax purposes in an amount equal to the difference between the amount of cash and the
fair market value of any property received on the sale or exchange and the holders adjusted basis
in the securities for tax purposes. If the securities were held as a capital asset, then this gain
or loss will be capital gain or loss. If the securities were held for more than one year, the
capital gain or loss will be long-term capital gain or loss. However, any loss recognized by a
holder on the sale of common shares or preferred shares held for not more than six months and with
respect to which capital gains were required to be included in such holders income will be treated
as a long-term capital loss, to the extent the U.S. Shareholders received distributions from us
that were treated as long-term capital gains.
Taxation of Debt Securities
Stated Interest and Market Discount. Holders of debt securities will be required to include
stated interest on the debt securities in gross income for federal income tax purposes in
accordance with their methods of accounting for tax purposes. Purchasers of debt securities should
be aware that the holding and disposition of debt securities may be affected by the market discount
provisions of the Internal Revenue Code. These rules generally provide that if a holder of a debt
security purchases it at a market discount and thereafter recognizes gain on a disposition of the
debt security, including a gift or payment on maturity, the lesser of the gain or appreciation, in
the case of a gift, and the portion of the market discount that accrued while the debt security was
held by the holder will be treated as ordinary interest income at the time of the disposition. For
this purpose, a purchase at a market discount includes a purchase after original issuance at a
price below the debt securitys stated principal amount. The
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market discount rules also provide that a holder who acquires a debt security at a market
discount and who does not elect to include the market discount in income on a current basis may be
required to defer a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry the debt security until the holder
disposes of the debt security in a taxable transaction.
A holder of a debt security acquired at a market discount may elect to include the market
discount in income as the discount on the debt security accrues, either on a straight line basis,
or, if elected, on a constant interest rate basis. The current inclusion election, once made,
applies to all market discount obligations acquired by the holder on or after the first day of the
first taxable year to which the election applies and may not be revoked without the consent of the
Securities and Exchange Commission or the Internal Revenue Service. If a holder of a debt security
elects to include market discount in income in accordance with the preceding sentence, the
foregoing rules with respect to the recognition of ordinary income on a sale or particular other
dispositions of such debt security and the deferral of interest deductions on indebtedness related
to such debt security would not apply.
Amortizable Bond Premium. Generally, if the tax basis of a debt security held as a capital
asset exceeds the amount payable at maturity of the debt security, the excess may constitute
amortizable bond premium that the holder may elect to amortize under the constant interest rate
method and deduct the amortized premium over the period from the holders acquisition date to the
debt securitys maturity date. A holder who elects to amortize bond premium must reduce the tax
basis in the related debt security by the amount of the aggregate deductions allowable for
amortizable bond premium.
The amortizable bond premium deduction is treated as an offset to interest income on the
related security for federal income tax purposes. Each prospective purchaser is urged to consult
its tax advisor as to the consequences of the treatment of this premium as an offset to interest
income for federal income tax purposes.
Disposition. In general, a holder of a debt security will recognize gain or loss upon the
sale, exchange, redemption, payment upon maturity or other taxable disposition of the debt
security. The gain or loss is measured by the difference between (a) the amount of cash and the
fair market value of property received and (b) the holders tax basis in the debt security as
increased by any market discount previously included in income by the holder and decreased by any
amortizable bond premium deducted over the term of the debt security. However, the amount of cash
and the fair market value of other property received excludes cash or other property attributable
to the payment of accrued interest not previously included in income, which amount will be taxable
as ordinary income. Subject to the market discount and amortizable bond premium rules described
above, any gain or loss will generally be long-term capital gain or loss, provided the debt
security was a capital asset in the hands of the holder and had been held for more than one year.
Backup Withholding on Debt Securities and Shares
Under the backup withholding rules, a domestic holder of debt securities or shares may be
subject to backup withholding with respect to interest or dividends paid on, and gross proceeds
from the sale of, the securities unless the holder (a) is a corporation or comes within other
specific exempt categories and, when required, demonstrates this fact or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules. A holder of debt
securities or shares who does not provide us with its current taxpayer identification number may be
subject to penalties imposed by the Internal Revenue Service. Any amount paid as backup
withholding will be creditable against the holders federal income tax liability.
We will report to holders of debt securities or shares and the Internal Revenue Service the
amount of any interest or dividends paid and any amount withheld with respect to the debt
securities or shares during the calendar year.
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Effect of Tax Status of Camden Operating, L.P. on REIT Qualification
A substantial portion of our investments are through Camden Operating, L.P. (formerly Paragon
Group L.P.). Camden Operating, L.P. may involve special tax considerations. These considerations
include:
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the allocations of income and expense items of Camden Operating, L.P., which could
affect the computation of our taxable income; |
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the status of Camden Operating, L.P. as a partnership, as opposed to an association
taxable as a corporation for income tax purposes; and |
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the taking of actions by Camden Operating, L.P. that could adversely affect our
qualification as a REIT. |
In addition, Camden Operating, L.P. owns properties through subsidiary entities taxable as
partnerships for federal income tax purposes. These entities have been structured in a manner that
is intended to qualify them for taxation as partnerships for federal income tax purposes. If
Camden Operating, L.P. or any of the foregoing entities in which Camden Operating, L.P. has an
interest were treated as an association taxable as a corporation, we could fail to qualify as a
REIT.
Tax Allocations with Respect to Contributed Properties
When property is contributed to a partnership in exchange for an interest in the partnership,
the partnership generally takes a carryover basis in that property for tax purposes equal to the
adjusted basis of the contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution. Under Section 704(c) of the Internal
Revenue Code, income, gain, loss and deduction attributable to this contributed property must be
allocated in a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of the contributed property at the time of contribution
and the adjusted tax basis of such property at the time of contribution. We will refer to this
allocation as the book-tax difference. These allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other economic or legal arrangements among
the partners.
In connection with the formation of Camden Operating, L.P., appreciated property was
contributed to Camden Operating, L.P. Consequently, the Third Amended and Restated Agreement of
Limited Partnership of Camden Operating, L.P. requires tax allocations to be made in a manner
consistent with Section 704(c) of the Internal Revenue Code. The Treasury Regulations under
Section 704(c) of the Internal Revenue Code provide partnerships with a choice of several methods
of accounting for book-tax differences for property contributed on or after December 21, 1993,
including the retention of the traditional method that was available under prior law or the
election of particular alternative methods. Camden Operating, L.P. has elected the traditional
method of Section 704(c) allocations. Under the traditional method, which is the least favorable
method from our perspective, the carryover basis of contributed interests in the properties in the
hands of Camden Operating, L.P. could cause us (a) to be allocated lower amounts of depreciation
deductions for tax purposes than would be allocated to us if such properties were to have a tax
basis equal to their fair market value at the time of the contribution and (b) to be allocated
taxable gain in the event of a sale of such contributed interests in our properties in excess of
the economic or book income allocated to us as a result of such sale, with a corresponding benefit
to the other partners in Camden Operating, L.P. These allocations possibly could cause us to
recognize taxable income in excess of cash proceeds, which might adversely affect our ability to
comply with REIT distribution requirements. However, we do not anticipate that this adverse effect
will occur.
Interests in the properties purchased by Camden Operating, L.P., other than in exchange for
interests in Camden Operating, L.P., were acquired with an initial tax basis equal to their fair
market value. Thus, Section 704(c) of the Internal Revenue Code generally will not apply to these
interests.
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Special Tax Considerations of Non-U.S. Shareholders and Potential Tax Consequences of Their
Investment
The rules governing federal income taxation of nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders are complex and no attempt will
be made herein to provide more than a summary of such rules. If you are a prospective non-U.S.
shareholder, you should consult with your own tax advisors to determine the impact of federal,
state and local income tax laws with regard to an investment by you in the securities, including
any reporting requirements.
Distributions not Attributable to Gain from the Sale or Exchange of a U.S. Real Property
Interest. Distributions to non-U.S. Shareholders that are not attributable to gain from sales or
exchanges by us of U.S. real property interests and are not designated by us as capital gains
dividends will be treated as dividends and result in ordinary income to the extent that they are
made out of our current or accumulated earnings and profits. These distributions ordinarily will
be subject to a withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. However, if income from the investment in
the common shares or preferred shares is treated as effectively connected with the non-U.S.
Shareholders conduct of a U.S. trade or business, the non-U.S. Shareholder generally will be
subject to federal income tax at graduated rates, in the same manner as U.S. Shareholders are taxed
with respect to these distributions. In the case of a non-U.S. Shareholder that is a non-U.S.
corporation, the holder may also be subject to the 30% branch profits tax. Distributions in excess
of our current and accumulated earnings and profits will not be taxable to a non-U.S. Shareholder
to the extent that these distributions do not exceed the adjusted basis of the non-U.S.
Shareholders common shares or preferred shares, but rather will reduce the adjusted basis of these
shares. To the extent that these distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a non-U.S. Shareholders common shares or preferred shares,
these distributions will give rise to tax liability if the non-U.S. Shareholder otherwise would be
subject to tax on any gain from the sale or disposition of its common shares or preferred shares.
Distributions Attributable to Gain from the Sale or Exchange of a U.S. Real Property Interest.
For any year in which we qualify as a REIT, distributions that are attributable to gain from sales
or exchanges by us of U.S. real property interests will be taxed to a non-U.S. Shareholder under
the provisions of the Foreign Investment in Real Property Tax Act of 1980. Under the Foreign
Investment in Real Property Tax Act, distributions attributable to gain from sales of U.S. real
property interests are taxed to a non-U.S. Shareholder as if this gain were effectively connected
with a U.S. business. Non-U.S. Shareholders thus would be taxed at the normal capital gain rates
applicable to U.S. Shareholders, subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals. Distributions subject to the
Foreign Investment in Real Property Tax Act also may be subject to a 30% branch profits tax in the
hands of a non-U.S. corporate shareholder not entitled to treaty relief or exemption.
Withholding Obligations from Distributions to Non-U.S. Shareholders. Although tax treaties
may reduce our withholding obligations, we generally will be required to withhold from
distributions to non-U.S. Shareholders, and remit to the Internal Revenue Service, (a) 35% of
designated capital gain dividends, or, if greater, 35% of the amount of any distributions that
could be designated as capital gain dividends and (b) 30% of ordinary dividends paid out of
earnings and profits. In addition, if we designate prior distributions as capital gain dividends,
subsequent distributions, up to the amount of such prior distributions, will be treated as capital
gain dividends for purposes of withholding. A distribution in excess of our earnings and profits
will be subject to 30% dividend withholding if at the time of the distribution it cannot be
determined whether the distribution will be in an amount in excess of our current or accumulated
earnings and profits. If we withhold an amount of tax with respect to a distribution to a non-U.S.
Shareholder in excess of the shareholders U.S. tax liability with respect to this distribution,
the non-U.S. Shareholder may file for a refund of the excess from the Internal Revenue Service.
Furthermore, the U.S. Treasury Department has issued final Treasury Regulations governing
information reporting and certification procedures regarding withholding and backup withholding on
some amounts paid to non-U.S. Shareholders.
Sales of Common Shares or Preferred Shares by a Non-U.S. Shareholder. Gain recognized by a
non-U.S. Shareholder upon a sale of its common shares or preferred shares generally will not be
taxed under the Foreign Investment in Real Property Tax Act of 1980 if we are a domestically
controlled REIT. A domestically controlled REIT is defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was held directly or
indirectly by non-U.S. persons. It is currently anticipated that we will be a
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domestically controlled REIT, and, therefore, sales of common shares or preferred shares will
not be subject to taxation under the Foreign Investment in Real Property Tax Act. However, because
our common shares and preferred shares will be traded publicly, we may not continue to be a
domestically controlled REIT. Furthermore, gain not subject to the Foreign Investment in Real
Property Tax Act will be taxable to a non-U.S. Shareholder if (a) investment in the common shares
or preferred shares is effectively connected with the non-U.S. Shareholders U.S. trade or
business, in which case the non-U.S. Shareholder will be subject to the same treatment as U.S.
Shareholders with respect to such gain, or (b) the non-U.S. Shareholder is a nonresident alien
individual who was present in the U.S. for 183 days or more during the taxable year and other
conditions apply, in which case the nonresident alien individual will be subject to a 30% tax on
the individuals capital gains. If the gain on the sale of common shares or preferred shares were
to be subject to taxation under the Foreign Investment in Real Property Tax Act, the non-U.S.
Shareholder would be subject to the same treatment as U.S. Shareholders with respect to this gain.
The non-U.S. Shareholder may, however, be subject to applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the possible application
of the 30% branch profits tax in the case of non-U.S. corporations. In addition, a purchaser of
common shares or preferred shares subject to taxation under the Foreign Investment in Real Property
Tax Act would generally be required to deduct and withhold a tax equal to 10% of the amount
realized on the disposition by a non-U.S. Shareholder. Any amount withheld would be creditable
against the non-U.S. Shareholders Foreign Investment in Real Property Tax Act tax liability.
State and Local Tax
We and the holders of our securities may be subject to state and local tax in various states
and localities, including those in which we or you transact business, own property or reside. Our
and your tax treatment in these jurisdictions may differ from the federal income tax treatment
described above. Consequently, as a prospective investor, you should consult your own tax advisors
regarding the effect of state and local tax laws on an investment in our debt securities and
shares.
Taxation of Tax-Exempt Shareholders
The Internal Revenue Service has ruled that amounts distributed as dividends by a qualified
REIT do not constitute unrelated business taxable income when received by a tax-exempt entity.
Based on that ruling, except for the tax-exempt shareholders described below, if a tax-exempt
shareholder does not hold its shares as debt financed property within the meaning of the Internal
Revenue Code and the shares are not otherwise used in a trade or business, then dividend income
received from us will not be unrelated business taxable income to the tax-exempt shareholder.
Generally, shares will be debt financed property if the exempt holder financed the acquisition of
the shares through a borrowing. Similarly, income from the sale of shares will not constitute
unrelated business taxable income unless a tax-exempt shareholder has held its shares as debt
financed property within the meaning of the Internal Revenue Code or has used the shares in its
trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, or qualified group legal services plans exempt from
federal income taxation under Internal Revenue Code Section 501(c)(7), (c)(9), (c)(17) and (c)(20),
respectively, income from an investment in our shares will constitute unrelated business taxable
income unless the organization is able to properly deduct amounts set aside or placed in reserve
for specified purposes so as to offset the income generated by its investment in our shares. These
prospective investors should consult their own tax advisors concerning these set aside and
reserve requirements. However, a portion of the dividends paid by a pension held REIT will be
treated as unrelated business taxable income to any trust that:
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is described in Section 401(a) of the Internal Revenue Code; |
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is tax-exempt under Section 501(a) of the Internal Revenue Code; and |
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holds more than 10% by value of the interests in the REIT. |
Tax-exempt pension funds that are described in Section 401(a) of the Internal Revenue Code are
referred to below as qualified trusts.
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A REIT is a pension held REIT if:
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it would not have qualified as a REIT but for the fact that Section 856(h)(3) of the
Internal Revenue Code provides that stock owned by qualified trusts will be treated,
for purposes of the not closely held requirement, as owned by the actual participants
of the trust rather than by the trust itself; and |
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either, (1) at least one such qualified trust holds more than 25% by value of the
interests in the REIT, or (2) one or more such qualified trusts, each of which owns
more than 10% by value of the interests in the REIT, hold in the aggregate more than
50% by value of the interests in the REIT. |
The percentage of any REIT dividend treated as unrelated business taxable income is equal to
the ratio of:
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the unrelated business taxable income earned by the REIT less particular associated
expenses, treating the REIT as if it were a qualified trust and therefore subject to
tax on its unrelated business taxable income, to |
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the total gross income, less particular associated expenses, of the REIT. |
A de minimus exception applies where the percentage is less than 5% for any year. The
provisions requiring qualified trusts to treat a portion of REIT distributions as unrelated
business taxable income will not apply if the REIT is able to satisfy the not closely held
requirement without relying upon the look-through exception with respect to qualified trusts.
LEGAL MATTERS
Unless otherwise noted in a supplement, Locke Liddell & Sapp LLP, Dallas, Texas, will pass on
the legality of the securities offered through this prospectus.
EXPERTS
The consolidated financial statements and related financial statement schedule incorporated in
this prospectus by reference from Camden Property Trusts Annual Report on Form 10-K for the year
ended December 31, 2001 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports, which are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in accounting and
auditing.
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