CAMDEN PROPERTY TRUST - Quarter Report: 2009 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

Commission file number: 1-12110

CAMDEN PROPERTY TRUST

(Exact Name of Registrant as Specified in Its Charter)

Texas (State or other jurisdiction of incorporation or organization)		76-6088377 (I.R.S. Employer Identification No.)
3 Greenway Plaza, Suite 1300 Houston, Texas (Address of principle executive offices)		77046 (Zip Code)

(713) 354-2500
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*

Yes o No o

*As of October 30, 2009, the registrant has not been phased in to the interactive data requirements.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller Reporting Company o

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

As of October 26, 2009, there were 64,174,961 Common Shares of Beneficial Interest, $0.01 par value, outstanding.

 

 

CAMDEN PROPERTY TRUST
Table of Contents

		Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2009 and December 31, 2008			3
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2009 and 2008			4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2009 and 2008			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			8
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3 Quantitative and Qualitative Disclosures About Market Risk			42
Item 4 Controls and Procedures			42
PART II OTHER INFORMATION			43
Item 1 Legal Proceedings			43
Item 1A Risk Factors			43
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3 Defaults Upon Senior Securities			43
Item 4 Submission of Matters to a Vote of Security Holders			43
Item 5 Other Information			43
Item 6 Exhibits			43
SIGNATURES			44
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CAMDEN PROPERTY TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,				December 31,
(in thousands)		2009				2008
Assets
Real estate assets, at cost
Land		$	746,825			$	744,059
Buildings and improvements			4,484,335				4,447,587
			5,231,160				5,191,646
Accumulated depreciation			(1,107,227	)			(981,049	)
Net operating real estate assets			4,123,933				4,210,597
Properties under development, including land			279,620				264,188
Investments in joint ventures			43,236				15,106
Properties held for sale, including land			6,622				20,653
Total real estate assets			4,453,411				4,510,544
Accounts receivable — affiliates			35,971				37,000
Notes receivable
Affiliates			54,462				58,109
Other			—				8,710
Other assets, net			104,669				103,013
Cash and cash equivalents			81,683				7,407
Restricted cash			3,901				5,559
Total assets		$	4,734,097			$	4,730,342
Liabilities and shareholders’ equity
Liabilities
Notes payable
Unsecured		$	1,646,106			$	2,103,187
Secured			976,051				729,209
Accounts payable and accrued expenses			78,466				82,575
Accrued real estate taxes			42,386				23,600
Distributions payable			33,028				42,936
Other liabilities			145,464				149,554
Total liabilities			2,921,501				3,131,061
Commitments and contingencies
Perpetual preferred units			97,925				97,925
Shareholders’ equity
Common shares of beneficial interest; $0.01 par value per share; 100,000 shares authorized; 79,562 and 68,770 issued; 76,968 and 66,028 outstanding, respectively			770				660
Additional paid in capital			2,522,525				2,237,703
Distributions in excess of net income attributable to common shareholders			(383,265	)			(312,309	)
Notes receivable secured by common shares			(101	)			(295	)
Treasury shares, at cost (12,792 and 12,820 common shares, respectively)			(462,188	)			(463,209	)
Accumulated other comprehensive loss			(44,921	)			(51,056	)
Total common shareholders’ equity			1,632,820				1,411,494
Noncontrolling interests			81,851				89,862
Total shareholders’ equity			1,714,671				1,501,356
Total liabilities and shareholders’ equity		$	4,734,097			$	4,730,342

See Notes to Condensed Consolidated Financial Statements.

CAMDEN PROPERTY TRUST

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
(in thousands, except per share amounts)		2009				2008				2009				2008
Property revenues
Rental revenues		$	133,702			$	138,979			$	406,002			$	409,797
Other property revenues			22,672				20,404				64,861				56,577
Total property revenues			156,374				159,383				470,863				466,374
Property expenses
Property operating and maintenance			46,772				47,519				133,617				126,916
Real estate taxes			17,893				17,921				54,957				53,033
Total property expenses			64,665				65,440				188,574				179,949
Non-property income
Fee and asset management			1,818				2,350				6,093				6,893
Interest and other income			582				1,234				2,414				3,659
Income (loss) on deferred compensation plans			8,194				(10,550	)			11,702				(19,730	)
Total non-property income (loss)			10,594				(6,966	)			20,209				(9,178	)
Other expenses
Property management			4,377				5,007				13,848				15,188
Fee and asset management			1,074				1,198				3,512				4,619
General and administrative			7,532				7,513				23,010				23,887
Interest			31,117				32,838				97,364				98,697
Depreciation and amortization			42,895				43,808				130,763				128,514
Amortization of deferred financing costs			682				798				2,356				2,121
Expense (benefit) on deferred compensation plans			8,194				(10,550	)			11,702				(19,730	)
Total other expenses			95,871				80,612				282,555				253,296
Income from continuing operations before gain on sale of properties, including land, gain (loss) on early retirement of debt, and equity in income (loss) of joint ventures			6,432				6,365				19,943				23,951
Gain on sale of properties, including land			—				1,823				—				2,929
Gain (loss) on early retirement of debt			—				2,440				(2,550	)			4,738
Equity in income (loss) of joint ventures			(38	)			(261	)			592				(782	)
Income from continuing operations before income taxes			6,394				10,367				17,985				30,836
Income tax expense — current			(126	)			(83	)			(772	)			(516	)
Income from continuing operations			6,268				10,284				17,213				30,320
Income (loss) from discontinued operations			(76	)			545				1,084				3,937
Gain on sale of discontinued operations			—				65,599				16,887				80,275
Net income			6,192				76,428				35,184				114,532
Less net income allocated to noncontrolling interests			(505	)			(1,005	)			(1,448	)			(3,400	)
Less income allocated to perpetual preferred units			(1,750	)			(1,750	)			(5,250	)			(5,250	)
Net income attributable to common shareholders		$	3,937			$	73,673			$	28,486			$	105,882

CAMDEN PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
(in thousands, except per share amounts)		2009				2008				2009				2008
Earnings per share — basic
Income from continuing operations attributable to common shareholders		$	0.06			$	0.12			$	0.17			$	0.38
Income from discontinued operations attributable to common shareholders, including gain on sale			—				1.20				0.29				1.52
Net income attributable to common shareholders		$	0.06			$	1.32			$	0.46			$	1.90
Earnings per share — diluted
Income from continuing operations attributable to common shareholders		$	0.06			$	0.12			$	0.17			$	0.37
Income from discontinued operations attributable to common shareholders, including gain on sale			—				1.18				0.29				1.51
Net income attributable to common shareholders		$	0.06			$	1.30			$	0.46			$	1.88
Distributions declared per common share		$	0.45			$	0.70			$	1.60			$	2.10
Weighted average number of common shares outstanding			66,094				55,367				61,087				55,228
Weighted average number of common and common dilutive equivalent shares outstanding			66,602				56,008				61,579				55,889
Net income attributable to common shareholders
Income from continuing operations		$	6,268			$	10,284			$	17,213			$	30,320
Less net income allocated to noncontrolling interests from continuing operations			(505	)			(1,005	)			(1,448	)			(3,400	)
Less income allocated to perpetual preferred units			(1,750	)			(1,750	)			(5,250	)			(5,250	)
Income from continuing operations attributable to common shareholders			4,013				7,529				10,515				21,670
Income (loss) from discontinued operations attributable to common shareholders, including gain on sale			(76	)			66,144				17,971				84,212
Net income attributable to common shareholders		$	3,937			$	73,673			$	28,486			$	105,882
Condensed Consolidated Statements of Comprehensive Income
Net income		$	6,192			$	76,428			$	35,184			$	114,532
Other comprehensive income
Unrealized loss on cash flow hedging activities			(8,732	)			(4,475	)			(10,307	)			(8,277	)
Reclassification of net losses on cash flow hedging activities			5,697				2,905				16,442				6,875
Gain on postretirement obligations			—				103				—				103
Comprehensive Income			3,157				74,961				41,319				113,233
Less net income allocated to noncontrolling interests			(505	)			(1,005	)			(1,448	)			(3,400	)
Less income allocated to perpetual preferred units			(1,750	)			(1,750	)			(5,250	)			(5,250	)
Comprehensive income attributable to common shareholders		$	902			$	72,206			$	34,621			$	104,583

See Notes to Condensed Consolidated Financial Statements.

CAMDEN PROPERTY TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months
		Ended September 30,
(in thousands)		2009				2008
Cash flows from operating activities
Net income		$	35,184			$	114,532
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization, including discontinued operations			128,797				126,461
Gain on sale of discontinued operations			(16,887	)			(80,275	)
Gain on sale of properties, including land			—				(2,929	)
Distributions of income from joint ventures			4,431				3,813
Equity in (income) loss of joint ventures			(592	)			782
Interest from notes receivable — affiliates			(321	)			(3,093	)
Share-based compensation			7,035				5,809
Loss (gain) on early retirement of debt			2,550				(4,738	)
Amortization of deferred financing costs			2,356				2,138
Accretion of discount on unsecured notes payable			502				429
Net change in operating accounts			22,340				16,384
Net cash from operating activities		$	185,395			$	179,313
Cash flows from investing activities
Development and capital improvements		$	(55,068	)		$	(169,541	)
Proceeds from sales of properties, including land and discontinued operations, net			28,078				123,490
Proceeds from partial sales of assets to joint ventures			—				52,509
Payments received on notes receivable — other			8,710				2,855
Increase in notes receivable — affiliates			(6,219	)			(3,486	)
Investments in joint ventures			(22,796	)			(12,141	)
Distributions of investments from joint ventures			154				955
Change in restricted cash			1,658				704
Other			(4,947	)			(3,032	)
Net cash from investing activities		$	(50,430	)		$	(7,687	)

CAMDEN PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months
		Ended September 30,
(in thousands)		2009				2008
Cash flows from financing activities
Net decrease in unsecured line of credit and short-term borrowings		$	(145,000	)		$	(115,000	)
Repayment of notes payable			(502,880	)			(248,517	)
Proceeds from notes payable			436,797				382,059
Proceeds from issuance of common shares			272,112				—
Distributions to shareholders, perpetual preferred units, and noncontrolling interests			(119,538	)			(129,117	)
Payment of deferred financing costs			(3,960	)			(3,996	)
Net decrease (increase) in accounts receivable — affiliates			1,051				(817	)
Repayment of notes receivable secured by common shares			207				1,671
Repurchase of common shares and units			(22	)			(31,652	)
Common share options exercised			8				1,717
Other			536				646
Net cash from financing activities			(60,689	)			(143,006	)
Net increase in cash and cash equivalents			74,276				28,620
Cash and cash equivalents, beginning of period			7,407				897
Cash and cash equivalents, end of period		$	81,683			$	29,517
Supplemental information
Cash paid for interest, net of interest capitalized		$	94,443			$	97,408
Cash paid for income taxes			1,800				1,613
Supplemental schedule of noncash investing and financing activities
Distributions declared but not paid		$	33,028			$	42,965
Value of shares issued under benefit plans, net of cancellations			8,454				11,472
Conversion of operating partnership units to common shares			3,753				13,198
Accrual associated with construction and capital expenditures			5,401				19,736
Reduction of debt from sale of discontinued operations			—				14,010
Conversion of mezzanine note to investment in joint venture			9,213				—

See Notes to Condensed Consolidated Financial Statements.

CAMDEN PROPERTY TRUST

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Description of Business

Formed on May 25, 1993, Camden Property Trust, a Texas real estate investment trust (“REIT”), is engaged in the ownership, development, construction, and management of multifamily apartment communities. Our multifamily apartment communities are referred to as “communities,” “multifamily communities,” “properties,” or “multifamily properties” in the following discussion. As of September 30, 2009, we owned interests in, operated, or were developing 185 multifamily properties comprising 63,658 apartment homes across the United States. We had 372 apartment homes under development at two of our multifamily properties, including 119 apartment homes at one multifamily property owned through a nonconsolidated joint venture and 253 apartment homes at one multifamily property owned through a fully consolidated joint venture, in which we own an interest. In addition, we own other sites we may develop into multifamily apartment communities.

2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Principles of Consolidation. Our condensed consolidated financial statements include our accounts and the accounts of other subsidiaries and joint ventures over which we have control. All intercompany transactions, balances, and profits have been eliminated in consolidation. Investments acquired or created are evaluated based on the accounting guidance relating to variable interest entities (“VIEs”), which requires the consolidation of VIEs in which we are considered to be the primary beneficiary. If the investment is determined not to be a VIE, then the investment is evaluated for consolidation (primarily using a voting interest model) under the remaining consolidation guidance relating to real estate. If we are the general partner in a limited partnership or manager of a limited liability company, we also consider the consolidation guidance relating to the rights of limited partners or non-managing members, as the case may be, to assess whether any rights held by the limited partners, or non-managing members, as the case may be, overcome the presumption of control by us.

Interim Financial Reporting. We have prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnote disclosures normally included for complete financial statements. While we believe the disclosures presented are adequate for interim reporting, these interim financial statements should be read in conjunction with the audited financial statements and notes included in our Form 10-K for the year ended December 31, 2008 as amended in our Current Report on Form 8-K filed on May 5, 2009. In the opinion of management, all adjustments and eliminations, consisting of normal recurring adjustments, necessary for a fair representation of our financial statements have been included. Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results which may be expected for the full year. Subsequent events for the quarter ended September 30, 2009 have been evaluated through October 30, 2009 (the date the financial statements were issued).

Asset Impairment. Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists if estimated future undiscounted cash flows associated with long-lived assets are not sufficient to recover the carrying value of such assets. We consider projected future discounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist. When impairment exists, the long-lived asset is adjusted to its fair value. While we believe our estimates of future cash flows are reasonable, different assumptions regarding a number of factors, including market rents, economic conditions, and occupancies, could significantly affect these estimates. In estimating fair value, management uses appraisals, management estimates, or discounted cash flow calculations. In addition, we evaluate our investments in joint ventures and mezzanine construction financing and if, with respect to investments, we believe there is an other than temporary decline in market value, or if, with respect to mezzanine loans, it is probable we will not collect all scheduled amounts due in accordance with the terms, we will record an impairment charge based on these evaluations. In general, we provide mezzanine loans to affiliated joint ventures constructing or operating multifamily assets. While we believe it is currently probable we will collect all scheduled amounts due with respect to these mezzanine loans, current market conditions with respect to credit markets and real estate market fundamentals inject a significant amount of uncertainty into the environment and any further adverse economic or market development may cause us to re-evaluate our conclusions, and could result in impairment charges with respect to our mezzanine loans.

The value of our properties under development depends on market conditions, including estimates of the project start date as well as estimates of demand for multifamily communities. We have reviewed trends and other information and have incorporated this information as well as our current outlook into the assumptions we use in our impairment analyses. Due to, among other factors, the judgment and assumptions applied in the impairment analyses and the fact limited market information regarding the value of comparable land exists at this time, it is possible actual results could differ substantially from those estimated.

We believe the carrying value of our operating real estate assets, properties under development, and land is currently recoverable. However, if market conditions deteriorate beyond our current expectations or if changes in our development strategy significantly affect any key assumptions used in our fair value calculations, we may need to take material charges in future periods for impairments related to existing assets. Any such material non-cash charges would have an adverse effect on our consolidated financial position and results of operations.

Cash and Cash Equivalents. All cash and investments in money market accounts and other highly liquid securities with a maturity of three months or less at the date of purchase are considered to be cash and cash equivalents.

Cost Capitalization. Real estate assets are carried at cost plus capitalized carrying charges. Carrying charges are primarily interest and real estate taxes which are capitalized as part of properties under development. Capitalized interest is based on our weighted average interest rate as it relates to amounts borrowed for construction purposes. Most transaction and restructuring costs associated with the acquisition of real estate assets are expensed. Expenditures directly related to the development and improvement of real estate assets are capitalized at cost as land and buildings and improvements. Indirect development costs, including salaries and benefits and other related costs directly attributable to the development of properties, are also capitalized. All construction and carrying costs are capitalized and reported in the balance sheet as properties under development until the apartment homes are substantially completed. Upon substantial completion of the apartment homes, the total cost for the apartment homes and the associated land is transferred to buildings and improvements and land, respectively.

As discussed above, carrying charges are principally interest and real estate taxes capitalized as part of properties under development and buildings and improvements. Capitalized interest was approximately $2.7 million and $7.6 million for the three and nine months ended September 30, 2009, respectively, and approximately $4.0 million and $13.6 million for the three and nine months ended September 30, 2008, respectively. Capitalized real estate taxes were approximately $0.4 million and $1.4 million for the three and nine months ended September 30, 2009, respectively, and approximately $0.9 million and $3.2 million for the three and nine months ended September 30, 2008, respectively.

Where possible, we stage our construction to allow leasing and occupancy during the construction period, which we believe minimizes the duration of the lease-up period following completion of construction. Our accounting policy related to properties in the development and leasing phase is to expense all operating expenses associated with completed apartment homes. We capitalize renovation and improvement costs we believe extend the economic lives of depreciable property. Capital expenditures subsequent to initial construction are capitalized and depreciated over their estimated useful lives, which range from three to twenty years.

Depreciation and amortization is computed over the expected useful lives of depreciable property on a straight-line basis with lives generally as follows:

		Estimated
		Useful Life
Buildings and improvements		5–35 years
Furniture, fixtures, equipment, and other		3–20 years
Intangible assets (in-place leases and above and below market leases)		underlying lease term

Derivative Instruments. We record all derivatives in the balance sheet at fair value and we do not apply master netting; as such all derivatives are shown at gross value on the balance sheet. Accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows or other types of forecasted transactions are cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes attributable to the earnings effect of the hedged transactions. We may enter into derivative contracts which are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.

Income Recognition. Our rental and other property revenue is recorded when due from residents and is recognized monthly as it is earned. Other property revenue consists primarily of utility rebillings and administrative, application, and other transactional fees charged to our residents. Our apartment homes are rented to residents on lease terms generally ranging from six to fifteen months, with monthly payments due in advance. All sources of income, including from interest and fee and asset management, are recognized as earned. One of our properties is subject to rent control or rent stabilization. Operations of multifamily properties acquired are recorded from the date of acquisition in accordance with the acquisition method of accounting. In management’s opinion, due to the number of residents, the types and diversity of submarkets in which the properties operate, and the collection terms, there is no significant concentration of credit risk.

Reportable Segments. Our multifamily communities are geographically diversified throughout the United States, and management evaluates operating performance on an individual property level. As each of our apartment communities has similar economic characteristics, residents, and products and services, our apartment communities have been aggregated into one reportable segment. Our multifamily communities generate rental revenue and other income through the leasing of apartment homes, which comprised approximately 98% of our total property revenues and total non-property income, excluding income (loss) on deferred compensation plans, for all periods presented.

Use of Estimates. In the application of GAAP, management is required to make estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, results of operations during the reporting periods, and related disclosures. Our more significant estimates include estimates supporting our impairment analysis related to the carrying values of our real estate assets, estimates of the useful lives of our assets, reserves related to the self-insured components of our insurance and employee benefit programs, estimates related to our investments in joint ventures and mezzanine financing, and estimates of expected losses of variable interest entities. These estimates are based on historical experience and other assumptions believed to be reasonable under the circumstances. Future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.

Recent Accounting Pronouncements. In June 2009, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Codification (the “Codification”). Effective July 1, 2009, the Codification is the single source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. We adopted the Codification during the third quarter of 2009 and the adoption did not materially impact our financial statements, however our references to accounting literature within our notes to the condensed consolidated financial statements have been revised to conform to the Codification classification.

Upon the January 1, 2009 adoption of revised provisions regarding classification of noncontrolling interests within the Consolidation Topic of the Codification, we reclassified minority interest balances relating to (i) the common units in Camden Operating, L.P., Oasis Martinique, LLC, and Camden Summit Partnership, L.P. and (ii) other minority interest in a consolidated real estate joint venture into our consolidated equity accounts and these are now classified as noncontrolling interests. The noncontrolling interests amounts at September 30, 2009 and December 31, 2008 were approximately $81.9 million and $89.9 million, respectively. The balance relating to cumulative redeemable perpetual preferred units in Camden Operating, L.P. of approximately $97.9 million remains classified between liability and equity pursuant to guidance in the Distinguishing Liabilities from Equity Topic of the Codification. See Note 14, “Noncontrolling Interests,” for further disclosure requirements of noncontrolling interests.

In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140” (“SFAS 166”), which is not yet included in the Codification. SFAS 166 modifies the financial components approach, removes the concept of a qualifying special purpose entity, and clarifies and amends the derecognition criteria for determining whether a transfer of a financial asset or portion of a financial asset qualifies for sale accounting. SFAS 166 also requires expanded disclosures regarding transferred assets and how they affect the reporting entity. SFAS 166 is effective for us beginning January 1, 2010. We do not expect the adoption of SFAS 166 to have a material effect on our financial statements.

In June 2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation No. 46R” (“SFAS 167”), which is not yet included in the Codification. SFAS 167 changes the consolidation analysis for VIEs and requires a qualitative analysis to determine the primary beneficiary of the VIE. The determination of the primary beneficiary of a VIE is based on whether the entity has the power to direct matters which most significantly impact the activities of the VIE and has the obligation to absorb losses, or the right to receive benefits, of the VIE which could potentially be significant to the VIE. SFAS 167 requires an ongoing reconsideration of the primary beneficiary and also amends the events triggering a reassessment of whether an entity is a VIE. SFAS 167 requires additional disclosures for VIEs, including disclosures about a reporting entity’s involvement with VIEs, how a reporting entity’s involvement with a VIE affects the reporting entity’s financial statements, and significant judgments and assumptions made by the reporting entity to determine whether it must consolidate the VIE. SFAS 167 is effective for us beginning January 1, 2010. We are currently evaluating the effects, if any, this statement may have on our financial statements.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which provides alternatives to measuring the fair value of liabilities when a quoted price for an identical liability traded in an active market does not exist. The alternatives include using the quoted price for the identical liability when traded as an asset or the quoted price of a similar liability or of a similar liability when traded as an asset, in addition to valuation techniques based on the amount an entity would pay to transfer the identical liability (or receive to enter into an identical liability). The amended guidance is effective for us beginning October 1, 2009, and we do not expect the effects to have a material impact on our financial statements.

3. Per Share Data

Basic earnings per share are computed using net income attributable to common shareholders and the weighted average number of common shares outstanding. Diluted earnings per share reflect common shares issuable from the assumed conversion of common share options and awards granted and units convertible into common shares. Only those items having a dilutive impact on our basic earnings per share are included in diluted earnings per share. On January 1, 2009, we adopted newly issued guidance in the Earnings Per Share Topic of the Codification relating to share-based payment transactions and participating securities and, as a result, our unvested share-based payment awards are considered participating securities and are included in our basic and diluted earnings per share calculations. The number of common share equivalent securities excluded from the diluted earnings per share calculation was approximately 4.9 million and 4.5 million during the three months ended September 30, 2009 and 2008, respectively, and approximately 4.9 million and 4.4 million during the nine months ended September 30, 2009 and 2008, respectively. These securities, which include common share options and share awards granted and units convertible into common shares, were excluded from the diluted earnings per share calculation as they were determined to be anti-dilutive.

The following table presents information necessary to calculate basic and diluted earnings per share for the three and nine months ended September 30, 2009 and 2008:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except per share amounts)		2009				2008				2009				2008
Basic earnings per share calculation
Income from continuing operations attributable to common shareholders		$	4,013			$	7,529			$	10,515			$	21,670
Amount allocated to participating securities			(3	)			(692	)			(226	)			(919	)
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities			4,010				6,837				10,289				20,751
Income (loss) from discontinued operations attributable to common shareholders, including gain on sale			(76	)			66,144				17,971				84,212
Net income attributable to common shareholders, as adjusted — basic		$	3,934			$	72,981			$	28,260			$	104,963
Income from continuing operations attributable to common shareholders, as adjusted — per share		$	0.06			$	0.12			$	0.17			$	0.38
Income from discontinued operations attributable to common shareholders, including gain on sale — per share			—				1.20				0.29				1.52
Net income attributable to common shareholders, as adjusted — per share		$	0.06			$	1.32			$	0.46			$	1.90
Weighted average common shares outstanding			66,094				55,367				61,087				55,228
Diluted earnings per share calculation
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities		$	4,010			$	6,837			$	10,289			$	20,751
Income allocated to common units			9				9				29				25
Income from continuing operations attributable to common shareholders, as adjusted			4,019				6,846				10,318				20,776
Income (loss) from discontinued operations attributable to common shareholders, including gain on sale			(76	)			66,144				17,971				84,212
Net income attributable to common shareholders, as adjusted		$	3,943			$	72,990			$	28,289			$	104,988
Income from continuing operations attributable to common shareholders, as adjusted — per share		$	0.06			$	0.12			$	0.17			$	0.37
Income from discontinued operations attributable to common shareholders, including gain on sale — per share			—				1.18				0.29				1.51
Net income attributable to common shareholders, as adjusted — per share		$	0.06			$	1.30			$	0.46			$	1.88
Weighted average common shares outstanding			66,094				55,367				61,087				55,228
Incremental shares issuable from assumed conversion of:
Common share options and share awards granted			36				133				13				153
Common units			472				508				479				508
Weighted average common shares outstanding, as adjusted			66,602				56,008				61,579				55,889

Our Board of Trust Managers has approved a program to repurchase up to $500 million of our common equity securities through open market purchases, block purchases, and privately negotiated transactions. Under this program, we repurchased approximately 4.3 million shares for a total of approximately $230.2 million through September 30, 2009. The remaining dollar value of our common equity securities authorized to be repurchased under the program was approximately $269.8 million as of September 30, 2009.

In May 2009, we issued approximately 10.4 million common shares at $27.50 per share in a public equity offering. We have used a portion of the net proceeds of approximately $272.1 million to reduce indebtedness on our unsecured line of credit and repurchase near-term debt maturities.

We filed a shelf registration statement with the Securities and Exchange Commission during the three months ended June 30, 2009, which became automatically effective upon filing. We may use the shelf registration statement to offer, from time to time, an unlimited amount of common shares, preferred shares, debt securities, or warrants. Our declaration of trust provides we may issue up to 110 million shares of beneficial interest, consisting of 100 million common shares and 10 million preferred shares.

4. Investments in Joint Ventures

The joint ventures described as follows are accounted for using the equity method. The joint ventures in which we have an interest have been funded in part with secured third-party debt. We have guaranteed no more than our proportionate interest, totaling approximately $56.9 million, of five loans utilized for construction and development activities for our joint ventures. Additionally, we eliminate fee income from property management services provided to these joint ventures to the extent of our ownership.

In May 2009, a $31.7 million construction loan was refinanced to a secured ten-year note in the principal amount of approximately $23.0 million by one of our joint ventures. The note has a fixed annual interest rate of 5.325% with monthly payments of principal and interest due beginning on July 1, 2009. Concurrent with this transaction, each of the two joint venture partners made a mezzanine loan to the joint venture in the amount of $4.6 million, or $9.2 million in the aggregate, each of which has a 10% annual interest rate and matures on June 3, 2019. We had previously made a mezzanine loan to this joint venture of $9.2 million, which was converted into an additional equity interest (with a preference on distribution of cash flows over previously contributed equity) in the joint venture concurrently with the refinancing.

In August 2009, a $82.5 million third-party secured construction note, originally maturing in August 2009, was extended to June 2010 by one of our joint ventures. Concurrent with this extension, a payment in the amount of $29.3 million was made to reduce the note balance to $53.2 million. The payment was funded in two parts: i) approximately $7.1 million was funded by capital from the joint venture partners contributed pro rata in accordance with their ownership percentages and ii) approximately $22.2 million was funded by us in exchange for an additional equity interest (with a preference on distribution of cash flows over previously contributed equity) in the joint venture.

Mezzanine loans we have made to affiliated joint ventures are recorded as “Notes receivable — affiliates” as discussed in Note 5, “Notes Receivable.”

We earn fees for property management, construction, development, and other services provided primarily to joint ventures in which we own an interest. Fees earned for these services amounted to approximately $1.8 million and $6.1 million during the three and nine months ended September 30, 2009, respectively, and approximately $2.4 million and $6.9 million during the three and nine months ended September 30, 2008, respectively.

As of September 30, 2009, our equity investments in unconsolidated joint ventures, which we account for utilizing the equity method of accounting, consisted of 25 joint ventures, with our ownership percentages ranging from 15% to 72%. We provide property management services to the joint ventures which own operating properties and may provide construction and development services to the joint ventures which own properties under development. The following table summarizes aggregate balance sheet and statement of income data for the unconsolidated joint ventures as of the periods presented (in millions):

		September 30,				December 31,
		2009				2008
Total assets		$	1,208.1			$	1,210.7
Total third-party debt			979.0				984.2
Total equity			150.1				145.0

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Total revenues		$	35.2			$	33.0			$	103.2			$	93.6
Net loss			(5.8	)			(5.0	)			(12.9	)			(12.6	)
Equity in income (1)			—				(0.3	)			0.6				(0.8	)

5. Notes Receivable

Notes receivable — affiliates. We have provided mezzanine construction financing, with rates ranging from the London Interbank Offered Rate (“LIBOR”) plus 3% to 12% per year, in connection with certain of our joint venture transactions. During the quarter ended June 30, 2009, one mezzanine note was converted into an additional equity interest in the related joint venture and a new mezzanine note was provided. See further discussion of this transaction in Note 4, “Investment in Joint Ventures.” As of September 30, 2009 and December 31, 2008, the balance of “Notes receivable — affiliates” totaled approximately $54.5 million and $58.1 million, respectively, on notes maturing through 2019. We eliminate the interest and other income to the extent of our percentage ownership in the joint ventures. We have reviewed the terms and conditions underlying these notes receivable and believe these notes are collectible, and no impairment existed at September 30, 2009.

At September 30, 2009, our commitment to fund additional amounts under the mezzanine loans was an aggregate of approximately $30.2 million.

Notes receivable — other. We have a mezzanine financing program under which from time to time we provide secured financing to third party owners of real estate properties. At December 31, 2008, an aggregate of approximately $8.7 million was outstanding on these loans. This amount, together with accrued interest, was paid in full during the three months ended March 31, 2009.

Notes receivable secured by common shares. At September 30, 2009, one note receivable was outstanding with a balance of approximately $0.1 million, which was secured by our common shares and reported as a component of shareholders’ equity in our condensed consolidated balance sheet.

6. Notes Payable

The following is a summary of our indebtedness:

		September 30,				December 31,
(in millions)		2009				2008
Commercial Banks
Unsecured line of credit and short-term borrowings		$	—			$	145.0
$500 million term loan, due 2012			500.0				500.0
			500.0				645.0
Senior unsecured notes
$100.0 million 4.74% Notes, due 2009			—				81.9
$250.0 million 4.39% Notes, due 2010			55.3				150.4
$100.0 million 6.75% Notes, due 2010			57.8				79.9
$150.0 million 7.69% Notes, due 2011			87.9				149.8
$200.0 million 5.93% Notes, due 2012			189.4				199.6
$200.0 million 5.45% Notes, due 2013			199.4				199.3
$250.0 million 5.08% Notes, due 2015			249.0				248.9
$300.0 million 5.75% Notes, due 2017			246.0				246.0
			1,084.8				1,355.8
Medium-term notes
$15.0 million 7.63% Notes, due 2009			—				15.0
$25.0 million 4.64% Notes, due 2009			—				25.2
$10.0 million 4.90% Notes, due 2010			10.3				10.5
$14.5 million 6.79% Notes, due 2010			14.5				14.5
$35.0 million 4.99% Notes, due 2011			36.5				37.2
			61.3				102.4
Total unsecured notes payable			1,646.1				2,103.2
Secured notes
1.10% – 6.00% Conventional Mortgage Notes, due 2011 – 2019			934.3				686.6
1.66% Tax-exempt Mortgage Note due 2028			41.8				42.6
			976.1				729.2
Total notes payable		$	2,622.2			$	2,832.4
Floating rate debt included in commercial bank indebtedness (0.00%)		$	—			$	145.0
Floating rate debt included in secured notes (1.10% - 3.56%)			184.9				180.9
Floating rate tax-exempt debt included in secured notes (1.66%)			41.8				42.6

We have a $600 million unsecured credit facility which matures in January 2010 and can be extended at our option to January 2011. On October 16, 2009, we exercised our option to extend the maturity to January 2011. The scheduled interest rate is based on spreads over LIBOR or the Prime Rate. The scheduled interest rate spreads are subject to change as our credit ratings change. Advances under the line of credit may be priced at the scheduled rates, or we may enter into bid rate loans with participating banks at rates below the scheduled rates. These bid rate loans have terms of six months or less and may not exceed the lesser of $300 million or the remaining amount available under the line of credit. The line of credit is subject to customary financial covenants and limitations, all of which we are in compliance.

Our line of credit provides us with the ability to issue up to $100 million in letters of credit. While our issuance of letters of credit does not increase our borrowings outstanding under our line of credit, it does reduce the amount available. At September 30, 2009, we had outstanding letters of credit totaling approximately $10.3 million, and we had approximately $589.7 million available under our unsecured line of credit.

As an alternative to our unsecured line of credit, from time to time we borrow using competitively bid unsecured short-term notes with lenders who may or may not be a part of the unsecured line of credit bank group. Such borrowings vary in term and pricing and are typically priced at interest rates below those available under the unsecured line of credit.

At September 30, 2009 and 2008, the weighted average interest rate on our floating rate debt, which includes our unsecured line of credit, was approximately 1.2% and 4.4%, respectively.

On April 17, 2009, we, as guarantor, and five separate subsidiaries as borrowers (collectively, the “Borrowers”) entered into a $420 million secured credit facility agreement. The ten-year facility has a fixed annual interest rate of 5.12% with monthly payments of interest only and matures on May 1, 2019. We have entered into standard nonrecourse carveout guarantees. The obligations of the Borrowers under the credit agreement are secured by cross-collateralized first priority mortgages on eleven multifamily properties. The proceeds from this credit facility were used to pay down amounts outstanding under our revolving line of credit, for general corporate purposes, to repurchase outstanding debt, and to repay maturing debt.

During the second quarter of 2009, we repurchased and retired approximately $317.6 million of certain series of unsecured and secured notes maturing between 2010 and 2012 from unrelated third parties for approximately $320.3 million. These transactions resulted in a net loss on early retirement of debt of approximately $2.7 million which includes a reduction for applicable loan costs.

During the third quarter of 2009, we repaid the remaining amount of our $100 million, 4.74% senior unsecured notes maturing in 2009 for a total of approximately $81.9 million. We do not have any further debt, except for scheduled principal amortization of $1.0 million, maturing in 2009.

Our indebtedness, including our unsecured line of credit, had a weighted average maturity of approximately 5.9 years at September 30, 2009. Scheduled repayments on outstanding debt assuming all contractual extensions, including our line of credit and scheduled principal amortizations, and the weighted average interest rate on maturing debt at September 30, 2009, are as follows:

						Weighted
						Average
(in millions)		Amount				Interest Rate
2009		$	1.0	*			—	%
2010			141.6				5.7
2011			149.2				6.4
2012			761.9				5.4
2013			227.2				5.4
2014 and thereafter			1,341.3				4.7
Total		$	2,622.2				5.1	%

7. Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives. We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures arising from business activities resulting in differences in the amount, timing, and duration of our known or expected cash payments principally related to our borrowings.

Cash Flow Hedges of Interest Rate Risk. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable rate amounts from a counterparty in exchange for us making fixed-rate payments, or the receipt of a fixed-rate payment from a counterparty in exchange for us making variable rate payments, over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up front premium.

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. During the three and nine months ended September 30, 2009 and 2008, such derivatives were used to hedge the variable cash flows associated with existing variable rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No portion was ineffective during the three or nine months ended September 30, 2009 and 2008.

Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense in the period the hedged forecasted transaction affects earnings. Over the next twelve months, we estimate an additional $21.9 million will be reclassified to interest expense.

As of September 30, 2009, we had the following outstanding interest rate derivatives designated as cash flow hedges of interest rate risk:

Interest Rate Derivative		Number of Instruments				Notional Amount
Interest Rate Swaps			2			$512.8 million

Non-designated Hedges. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks. Non-designated hedges are either specifically non-designated by management or do not meet strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings in other income or other expense.

As of September 30, 2009, we had the following outstanding interest rate derivative which was not designated as a hedge of interest rate risk:

Interest Rate Derivative		Number of Instruments				Notional Amount
Interest Rate Cap			1			$175.0 million

The table below presents the fair value of our derivative financial instruments as well as their classification in the condensed consolidated balance sheets at September 30, 2009 and December 31, 2008 (in millions):

Fair Values of Derivative Instruments

Asset Derivatives

Liability Derivatives

September 30, 2009

December 31, 2008

September 30, 2009

December 31, 2008

Balance

Balance

Balance

Balance

Sheet

Fair

Sheet

Fair

Sheet

Fair

Sheet

Fair

Location

Value

Location

Value

Location

Value

Location

Value

Derivatives designated as hedging instruments

Interest Rate Swaps

Other Liabilities

$

44.7

Other Liabilities

$

51.1

Derivatives not designated as hedging instruments

Interest Rate Cap

Other Assets

$

0.1

Other Assets

$

0.1

The tables below present the effect of our derivative financial instruments on the condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2009 and 2008 (in millions).

Effect of Derivative Instruments on the Three Months Ended September 30,

Location of Gain or

Amount of Loss

Amount of Loss

(Loss) Recognized in

Recognized in Other

Location of Loss

Reclassified from

Income on Derivative

Comprehensive Income

Reclassified from

Accumulated OCI into

(Ineffective Portion

(“OCI”) on Derivative

Accumulated

Income

and Amount Excluded

Derivatives in Cash Flow

(Effective Portion)

OCI into Income

(Effective Portion)

from Effectiveness

Hedging Relationships

2009

2008

(Effective Portion)

2009

2008

Testing)

Interest Rate Swaps

$

(8.7

)

$

(4.5

)

Interest Expense

$

5.7

$

2.9

Not applicable

		Location of Gain				Amount of Gain Recognized
Derivatives Not Designated		Recognized in Income				in Income on Derivative
as Hedging Instruments		on Derivative				2009				2008
Interest Rate Cap		Other income				$	—			$	—

Effect of Derivative Instruments on the Nine Months Ended September 30,

Location of Gain or

Amount of Loss

(Loss) Recognized in

Amount of Loss

Location of Loss

Reclassified from

Income on Derivative

Recognized in OCI on

Reclassified from

Accumulated OCI into

(Ineffective Portion

Derivatives in Cash

Derivative

Accumulated OCI

Income

and Amount Excluded

Flow Hedging

(Effective Portion)

into Income

(Effective Portion)

from Effectiveness

Relationships

2009

2008

(Effective Portion)

2009

2008

Testing)

Interest Rate Swaps

$

(10.3

)

$

(8.3

)

Interest Expense

$

16.4

$

6.9

Not applicable

		Location of Gain				Amount of Gain Recognized
Derivatives Not Designated		Recognized in Income				in Income on Derivative
as Hedging Instruments		on Derivative				2009				2008
Interest Rate Cap		Other income				$	0.1			$	—

Credit-risk-related Contingent Features. Derivative financial investments expose us to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. We believe we minimize our credit risk on these transactions by transacting with major creditworthy financial institutions. As part of our on-going control procedures, we monitor the credit ratings of counterparties and our exposure to any single entity, which we believe minimizes credit risk concentration. We believe the likelihood of realized losses from counterparty non-performance is remote.

Our agreements with each of our derivative counterparties contain a provision pursuant to which a default under any of our indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, the counterparty has the right to declare a default on our derivative obligations. Our agreements with each of our derivative counterparties also provide if we consolidate with, merge with or into, or transfer all or substantially all our assets to another entity and the creditworthiness of the resulting, surviving, or transferee entity is materially weaker than ours, the counterparty has the right to terminate the derivative obligations.

At September 30, 2009, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk (the “termination value”), related to these agreements was approximately $47.1 million. As of September 30, 2009, we had not posted any collateral related to these agreements. If we were in breach of any of these provisions at September 30, 2009, or terminated these agreements, we would have been required to settle our obligations at their termination value of approximately $47.1 million.

8. Share-based Compensation

Share Awards and Vesting. Share awards generally have a vesting period of five years. The compensation cost for share awards is based on the market value of the shares on the date of grant and is amortized over the vesting period. To estimate forfeitures, we use actual forfeiture history. At September 30, 2009, the unamortized value of previously issued unvested share awards was approximately $23.2 million. The total fair value of shares vested during the nine months ended September 30, 2009 and 2008 was approximately $9.4 million and $8.8 million, respectively.

Valuation Assumptions. Options generally have a vesting period of three to five years. The weighted average fair value of options granted in 2009 was $3.06 per option. We estimated the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for options granted during the three months ended March 31, 2009 (no additional options have been granted as of September 30, 2009):

Expected volatility			33.0	%
Risk-free interest rate			2.6	%
Expected dividend yield			9.3	%
Expected life (in years)			7.0

Our computation of expected volatility for 2009 is based on the historical volatility of our common shares over a time period equal to the expected life of the option and ending on the grant date. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield on our common shares is estimated using the annual dividends paid in the prior year and the market price on the date of grant. Our computation of expected life for 2009 is estimated based on historical experience of similar awards, giving consideration to the contractual terms of the share-based awards.

Options. During the nine months ended September 30, 2009, 218 options were exercised at a price of $36.87 per option. As of September 30, 2009, there was approximately $2.7 million of total unrecognized compensation cost related to unvested options, which is expected to be amortized over the next five years. Total compensation cost for option and share awards charged against income was approximately $2.1 million and $6.2 million for the three and nine months ended September 30, 2009, respectively, and approximately $1.7 million and $5.0 million for the three and nine months ended September 30, 2008, respectively. Total capitalized compensation cost for option and share awards was approximately $0.5 million and $1.3 million for the three and nine months ended September 30, 2009, respectively, and approximately $0.7 million and $2.0 million for the three and nine months ended September 30, 2008, respectively.

The weighted average remaining contractual term of outstanding options under the share incentive plans is approximately 6.1 years.

The following table summarizes share options outstanding and exercisable at September 30, 2009:

		Outstanding Options								Exercisable Options								Remaining
						Weighted								Weighted				Contractual
Range of Exercise						Average								Average				Life
Prices		Number				Price				Number				Price				(Years)
$25.88–$41.91			760,320			$	31.91				270,811			$	35.27				7.0
$42.90–$44.00			472,200				43.23				472,200				43.23				3.9
$45.53–$73.32			759,995				49.55				430,116				50.72				6.6
Total options			1,992,515			$	41.32				1,173,127			$	44.14				6.1

The following table summarizes activity under our 1993 and 2002 Share Incentive Plans for the nine months ended September 30, 2009:

						Weighted
		Options /				Average
		Share Awards				Exercise /
		Outstanding				Grant Price
Balance at January 1, 2009			4,125,312			$	41.37
Options
Granted			489,509				30.06
Exercised			(218	)			36.87
Forfeited			(33,303	)			43.37
Net Options			455,988
Share Awards
Granted			328,118				30.08
Forfeited			(25,898	)			54.71
Net Share Awards			302,220
Balance at September 30, 2009			4,883,520			$	36.26
Vested share awards at September 30, 2009			2,159,701			$	37.73

9. Net Change in Operating Accounts

The effect of changes in the operating accounts on cash flows from operating activities is as follows:

		Nine Months Ended
		September 30,
(in thousands)		2009				2008
Decrease in assets:
Other assets, net		$	5,470			$	739
Increase (decrease) in liabilities:
Accounts payable and accrued expenses			(2,278	)			(637	)
Accrued real estate taxes			19,081				17,550
Other liabilities			67				(1,268	)
Change in operating accounts		$	22,340			$	16,384

10. Commitments and Contingencies

Construction Contracts. As of September 30, 2009, we were obligated for approximately $12.9 million of additional construction and development expenditures for one development project owned by a consolidated joint venture. Remaining expected expenditures for this project are expected to be funded from an existing construction loan.

Litigation. In September 2007, the Equal Rights Center (the “ERC”) filed a lawsuit against us and one of our wholly-owned subsidiaries in the United States District Court for the District of Maryland. The suit alleged various violations of the Fair Housing Act and the Americans with Disabilities Act by us in the design, construction, control, management, and/or ownership of various multifamily properties. On September 14, 2009, we entered into a consent decree agreement with the ERC to fully and finally resolve the lawsuit. Pursuant to this consent decree agreement, we agreed to make a one-time payment to the ERC. We previously accrued and reserved the costs related to the settlement. We also agreed to participate in an educational, training, and consulting program administered by the ERC, and to survey approximately 6,500 Camden apartment homes to determine compliance with applicable accessibility requirements and to make improvements to the surveyed apartment homes as necessary. The survey and remediation process will extend over a period of approximately four years, and the participation in the educational and training program will extend over a period of ten years. Based on preliminary investigations, the estimated cost of capital improvements to the surveyed apartment homes to meet accessibility requirements is not expected to be material.

We are subject to various other legal proceedings and claims which arise in the ordinary course of business. Matters which arise out of allegations of bodily injury, property damage, and employment practices are generally covered by insurance. While the resolution of these other legal proceedings and claims cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our condensed consolidated financial statements.

Other Contingencies. In the ordinary course of our business, we issue letters of intent indicating a willingness to negotiate for acquisitions, dispositions, or joint ventures and also enter into arrangements contemplating various transactions. Such letters of intent and other arrangements are non-binding as to either party unless and until a definitive contract is entered into by the parties. Even if definitive contracts relating to the purchase or sale of real property are entered into, these contracts generally provide the purchaser with time to evaluate the property and conduct due diligence, during which periods the purchaser will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money. There can be no assurance definitive contracts will be entered into with respect to any matter covered by letters of intent or we will consummate any transaction contemplated by any definitive contract. Furthermore, due diligence periods for real property are frequently extended as needed. An acquisition or sale of real property becomes probable at the time the due diligence period expires and the definitive contract has not been terminated. We are then at risk under a real property acquisition contract, but generally only to the extent of any earnest money deposits associated with the contract, and are obligated to sell under a real property sales contract.

Lease Commitments. At September 30, 2009, we had long-term leases covering certain land, office facilities, and equipment. Rental expense totaled approximately $0.7 million and $2.3 million for the three and nine months ended September 30, 2009, respectively, and approximately $0.7 million and $2.2 million for the three and nine months ended September 30, 2008, respectively. Minimum annual rental commitments for the remainder of 2009 are approximately $0.6 million, and for the years ending December 31, 2010 through 2013 are approximately $2.5 million, $2.4 million, $2.0 million, and $1.9 million, respectively, and approximately $3.6 million in the aggregate thereafter.

Investments in Joint Ventures. We have entered into, and may continue in the future to enter into, joint ventures or partnerships (including limited liability companies) through which we own an indirect economic interest in less than 100% of the community or communities owned directly by the joint venture or partnership. Our decision whether to hold the entire interest in an apartment community ourselves, or to have an indirect interest in the community through a joint venture or partnership, is based on a variety of factors and considerations, including: (i) our projection, in some circumstances, we will achieve higher returns on our invested capital or reduce our risk if a joint venture or partnership vehicle is used; (ii) our desire to diversify our portfolio of communities by market; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) the economic and tax terms required by a seller of land or of a community, who may prefer or who may require less payment if the land or community is contributed to a joint venture or partnership. Investments in joint ventures or partnerships are not limited to a specified percentage of our assets. Each joint venture or partnership agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion is limited to varying degrees in our existing joint venture and partnership agreements and may be limited to varying degrees depending on the terms of future joint venture or partnership agreements.

11. Income Taxes

We have maintained and intend to maintain our election as a REIT under the Internal Revenue Code of 1986, as amended. In order for us to continue to qualify as a REIT we must meet a number of organizational and operational requirements, including a requirement to distribute annual dividends to our shareholders equal to a minimum of 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gains. As a REIT, we generally will not be subject to federal income tax on our taxable income at the corporate level to the extent such income is distributed to our shareholders annually. If our taxable income exceeds our dividends in a tax year, REIT tax rules allow us to designate dividends from the subsequent tax year in order to avoid current taxation on undistributed income. If we fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at regular corporate rates, including any applicable alternative minimum tax. In addition, we may not be able to requalify as a REIT for the four subsequent taxable years. Historically, we have incurred only state and local income, franchise, excise, and margin taxes. Taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to applicable federal, state, and local income taxes. Our operating partnerships are flow-through entities and are not subject to federal income taxes at the entity level. We have provided for income, franchise, and margin taxes in the condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2009. These taxes are primarily for entity level taxes on certain ventures, state margin taxes, and federal taxes on certain of our taxable REIT subsidiaries. We have no significant temporary differences or tax credits associated with our taxable REIT subsidiaries.

We believe we have no uncertain tax positions or unrecognized tax benefits requiring disclosure as of and for the nine months ended September 30, 2009.

12. Dispositions and Assets Held for Sale

During the nine months ended September 30, 2009, we recognized a gain of approximately $16.9 million from the sale of one operating property, containing 671 apartment homes with a net book value of approximately $11.3 million, to an unaffiliated third party. This sale generated total net proceeds of approximately $28.0 million. During the nine months ended September 30, 2008, we recognized gains totaling approximately $80.3 million from the sale of eight operating properties, containing a combined 2,392 apartment homes, to unaffiliated third parties. These sales generated total net proceeds of approximately $121.7 million.

For the three and nine months ended September 30, 2009 and 2008, income from discontinued operations included the results of operations of one operating property sold in 2009 through its sale date. For the three and nine months ended September 30, 2008, income from discontinued operations also included the results of operations of eight operating properties sold during 2008. We had no operating properties designated as held for sale as of September 30, 2009.

The following is a summary of income from discontinued operations for the three and nine months ended September 30, 2009 and 2008:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2009				2008				2009				2008
Property revenues		$	—			$	2,690			$	2,408			$	14,659
Property expenses			76				1,711				1,324				7,494
			(76	)			979				1,084				7,165
Interest			—				86				—				466
Depreciation and amortization			—				348				—				2,762
Income from discontinued operations		$	(76	)		$	545			$	1,084			$	3,937

13. Fair Value Disclosures

The following table presents information regarding our assets and liabilities measured at fair value on a recurring basis as of September 30, 2009, and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets we have the ability to access for identical assets and liabilities. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 which are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Disclosures concerning assets and liabilities measured at fair value are as follows:

Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2009
(in millions)

		Quoted Prices in
		Active Markets				Significant Other				Significant				Balance at
		for Identical				Observable				Unobservable				September 30,
		Assets (Level 1)				Inputs (Level 2)				Inputs (Level 3)				2009
Assets
Deferred compensation plan investments		$	46.8			$	—			$	—			$	46.8
Derivative financial instruments			—				0.1				—				0.1
Liabilities
Derivative financial instruments			—				44.7				—				44.7

To estimate fair values, observable market prices are used if available. In some instances, observable market prices are not readily available for certain financial instruments and fair value is estimated using present value or other techniques appropriate for a particular financial instrument. These techniques involve some degree of judgment and as a result are not necessarily indicative of the amounts we would realize in a current market exchange. The use of different assumptions or estimation techniques may have a material effect on the estimated fair value amounts.

Deferred compensation plan investments. The estimated fair values of investment securities classified as deferred compensation plan investments are based on quoted market prices utilizing public information for the same transactions or information provided through third-party advisors. Our deferred compensation plan investments are recorded in other assets.

Derivative financial instruments. We enter into derivative financial instruments, specifically interest rate swaps and caps, for non-trading purposes. We use interest rate swaps and caps to manage interest rate risk arising from interest payments associated with floating rate debt. Through September 30, 2009, we had derivative financial instruments designated and qualifying as cash flow hedges. Derivative contracts with positive net fair values are recorded in other assets. Derivative contracts with negative net fair values are recorded in other liabilities. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps and caps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk, both our own nonperformance risk and the respective counterparty’s nonperformance risk. The fair value of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts which would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities.

Although we have determined the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. As of September 30, 2009, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Effective January 1, 2009, we adopted the provisions of the Fair Value Measurements and Disclosures Topic of the Codification relating to our nonfinancial assets and nonfinancial liabilities measured on a nonrecurring basis, which primarily relates to impairment of long-lived assets or investments. During the nine months ended September 30, 2009, there were no events which required fair value adjustments of our nonfinancial assets and nonfinancial liabilities.

Other Fair Value Disclosures. As of September 30, 2009 and December 31, 2008, management estimated the carrying value of cash and cash equivalents, restricted cash, accounts receivable, notes receivable, investments and liabilities under deferred compensation plans, accounts payable, accrued expenses and other liabilities, and distributions payable were at amounts which reasonably approximated their fair value.

In calculating the fair value of our notes payable, interest rates and spreads reflect our current creditworthiness and market conditions available for the issuance of notes payable with similar terms and remaining maturities. In instances where markets are not active, we follow the guidance of the Fair Value Measurements and Disclosures Topic of the Codification to estimate fair value in a non-active market.

		September 30, 2009								December 31, 2008
		Carrying				Estimated				Carrying				Estimated
(in thousands)		Value				Fair Value				Value				Fair Value
Fixed rate notes payable (1)		$	2,395.5			$	2,396.2			$	2,467.3			$	2,163.8
Floating rate notes payable (2)			226.7				220.1				365.1				359.0

14. Noncontrolling interests

A reconciliation of equity attributable to noncontrolling interests and disclosure of those amounts of consolidated net income attributable to the noncontrolling interests for the periods indicated is presented below:

		Common Shareholders
										Distributions
										in excess of				Notes
		Common								net income				receivable								Accumulated
		shares of				Additional				attributable				secured by								other								Total
		beneficial				paid-in				to common				common				Treasury				comprehensive				Noncontrolling				shareholders’
(in thousands except per share amounts)		interest				capital				shareholders				shares				shares				loss				interests				equity
Shareholders’ Equity, January 1, 2009		$	660			$	2,237,703			$	(312,309	)		$	(295	)		$	(463,209	)		$	(51,056	)		$	89,862			$	1,501,356
Net income											28,486																1,448				29,934
Common shares issued			104				272,008																								272,112
Unrealized loss on cash flow hedging activities																							(10,307	)							(10,307	)
Reclassification of net losses on cash flow hedging activities																							16,442								16,442
Amortization of previously granted share awards							8,110																								8,110
Employee stock purchase plan							(215	)											1,027												812
Common share options exercised, including amortization							513																								513
Conversions and redemptions of operating partnership units			1				3,760																				(3,777	)			(16	)
Cash distributions											(99,442	)															(4,934	)			(104,376	)
Other			5				646								194				(6	)							(748	)			91
Shareholders’ Equity, September 30, 2009		$	770			$	2,522,525			$	(383,265	)		$	(101	)		$	(462,188	)		$	(44,921	)		$	81,851			$	1,714,671