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Filing pursuant to Rule 14a-12 under the
Securities Exchange Act of 1934
Filer and Subject Company: Summit Properties Inc.
Exchange Act File Number: 1-12792
This filing relates to a proposed acquisition (the "Acquisition") by
Camden Property Trust ("Camden") of Summit Properties, Inc. ("Summit") pursuant
to the terms of an Agreement and Plan of Merger, dated as of October 4, 2004, by
and among Camden, Camden Sparks, Inc., a wholly owned subsidiary of Camden, and
Summit.
The following is a transcript of a conference call with analysts held
on October 5, 2004 regarding the Acquisition and related matters.
CAMDEN PROPERTY TRUST
MODERATOR: RICHARD J. CAMPO
OCTOBER 5, 2004
8:30 AM CT
Terry McKinney:
Camden Property Trust Good morning and thank you for joining this morning's
call.
Before we begin I would like to remind everyone that we
will be making forward-looking statements based on our
current expectations and belief. These statements are
not guarantees of future performance and involve risk
and uncertainties that could cause actual results to
differ materially from expectations. Further
information about these risks could be found in our -
can be found in our filings with the SEC and we
encourage you to review them.
I would now like to turn the call over to Camden's
Chairman and Chief Executive Officer Ric Campo.
Richard J. Campo:
Camden Property Trust Good morning and I appreciate you joining us on our
call today.
With me this morning is Steve LeBlanc, CEO of Summit,
Keith Oden, Dennis Steen, Alex Jessett, and Terry
McKinney and also Ben Fraker.
We are excited and pleased to tell you that Camden and
Summit have entered into a definitive merger agreement.
This is without question a defining moment for both our
companies. This agreement will create an exceptional
multi-family platform and the fifth largest
multi-family company in the industry with a total of
66,693 apartment homes and a total enterprise value of
5.3 billion when the merger is complete. The combined
companies will operate under the nationally recognized
Camden Living Excellence brand name.
As most of you know we celebrated ten years as a
publicly traded company in 2003. Our 11 years of
experience as a public company and the preceding 12
years has shown us that a sound business plan cleanly
executed by intelligent dedicated professionals that
share our values is the key to delivering consistent
performance year after year. So it's not surprising
that after all this time our fundamental strategy
remains the same - creating the best multi-family
platform in the industry that delivers consistent
results for our shareholders.
Since our IPO in 1993, we have focused on growing our
share price, FFO and dividend. Our commitment to our
strategy is demonstrated in the progress that we've
made. We have increased our assets and diversified our
markets from $200 million in two Texas markets in 1993
to 3 billion - 3.8 billion in 14 geographically
dispersed, high growth markets stretching from coast to
coast. This growth has been fueled by the execution of
two highly successful mergers: Paragon in 1997 and
Oasis Residential in 1998. Those mergers increase our
asset value by 1.9 million. Our growth has also been
driven by a $1.2 billion
development program that brought on line more than
14,000 Camden flagship apartment homes, and the prudent
recycling of capital with carefully selected
acquisitions totaling 13,000 apartments and $452
million and the disposition of 17,000 non-strategic
apartments totaling $772 million.
Our results speak for themselves. In the last 11 years
our FFO has grown from $1.86 per share to a consensus
for 2004 of $3.24 a share. Our annual dividend has
increased from $1.60 to $2.54, and at all times has
been covered with operating cash flow and our stock
price has more than doubled.
With this $1.9 billion merger, we are making the right
move for both organizations. We'll be acquiring 14,000
high-quality apartment homes most of which are located
in regions that are new to Camden such as Washington,
DC, South Florida and Atlanta. This strategic
geographic complement enhances our existing footprint
in Florida and North Carolina while further
diversifying our portfolio with the addition of the new
regions.
Our already substantial development pipeline will grow
with the addition of Summit's development arm
consisting of 3,700 apartment homes with approximately
60% located in Washington, DC area and 25% in Southeast
Florida. As you can see, Summit's markets, asset
quality and development pipeline are an excellent match
with Camden.
This transaction is also firmly aligned with our
strategic plan of lowering our net operating income
concentration in Las Vegas, Houston, and Dallas and
increasing our presence on the East and West Coasts.
With this announcement, we are accelerating the process
of diversifying our portfolio. What would have taken
typically five years to accomplish, we will be
completing in just a matter of months. By accelerating
our diversification
strategy, we believe we are continuing to position
ourselves to be the best in all aspects of the
multi-family industry. I would now like to turn the
call over to Keith Oden to give you a couple
observations about this strategic move. Keith...
D. Keith Oden:
Camden Property Trust Thanks, Ric.
The history that Ric covered demonstrates our
commitment to transforming Camden's operating platform
from 6,000 units in Texas to the more than 50,000 unit
national footprint that we enjoy today. Currently, we
operate an efficient, geographically diversified
platform that has consistently delivered stable
earnings growth to our shareholders.
As Ric indicated, our strategic objectives have not
changed. As many of you who follow our company know,
we've been talking about our diversification strategy
for some time. The strategy's premise is that by having
a portfolio diverse in both geography and product type
we are able to leverage all stages of the market cycle
and capture greater market share by offering
high-quality apartment homes at varying price points to
our residents.
Instrumental to this strategy has been our goal of
limiting the NOI concentration at each market to single
digits. For the past 11 years, we've been working
diligently to reduce the NOI contributions of our
over-weighted markets, such as Houston, Dallas, and Las
Vegas and increase our exposure in our other growth
markets to achieve a portfolio with NOI contributions
below 10% in every market. This merger gets us to
single digit NOI concentrations in all markets in less
time than we had planned and on an FFO accretive basis.
We've chosen our core markets carefully. We firmly believe
that over the long term employment growth is intrinsically
linked to multi-family performance, and employment growth
over the next five years will continue to drive the
fundamentals of our business. Consequently, we have sought
to acquire assets that are located within the high growth
markets.
We have also consistently focused on asset quality while
offering a variety of price points to maximize market
share. We continue to increase the overall quality of our
portfolio by pruning the portfolio of older, non-strategic
assets and acquiring assets that match our criteria.
This merger is another crucial step in the execution of
those key objectives. Summit is known for a high quality,
well-located apartment communities. Their East Coast
presence in markets such as Southeast Florida, Washington,
DC area, Atlanta, Raleigh, and Charlotte improve our
platform while providing us a presence in 19 of the 26
highest projected employment growth markets in the US for
the next five years.
It's hard to imagine a portfolio that is a better fit with
our strategic objective than Summit - they are in the
right place with the right assets which makes this move
the best move for Camden. Not only does Summit bring an
excellent East Coast portfolio to the table but it also
brings a sufficient number of premiere communities in each
of those markets to achieve the operating efficiencies
that our core market strategy requires.
Additionally, with Summit's average asset age of only six
(6) years and Camden's eleven (11) years our overall asset
age will be reduced to an average of nine (9) years. The
result is a portfolio of newer, higher quality apartment
communities. We believe that this merger produces the best
platform in the industry when measured by future NOI
growth potential.
Camden's future NOI growth will be enhanced by
accelerating the same store NOI growth on Summit's
assets and by assimilating Summit's development
pipeline and production capabilities into Camden.
For more than ten years we have consistently
outperformed our peer group in same store NOI growth.
Camden's average annual NOI growth is 3.3% compared
with a peer group of 1.0%. Summit's average NOI growth
is slightly higher than the peer group at 1.4%.
We believe that an area in which a positive impact on
NOI can be achieved almost immediately is in improving
operating efficiencies as it relates to technology.
For example, our combined companies would benefit from
the substantial investments that Camden has made in
technology and ancillary income streams over the last
decade. Those technologies that have already
demonstrated that they streamline our employee's work
flow and enhance our residents' lives include Credit
Retreiver, Camden Connect, OpsTechnology, and Sure
Deposit.
Most importantly, we will quickly convert the Summit
portfolio to our state-of-the-art web-based OneSite
property management system that we co-designed and
developed and are in the process of implementing across
our portfolio. The system streamlines our business
processes, which in turn increases employees' response
time to service our customer requests and also reduces
customer wait time for those requests. The system
brands the customer experience from first contact to
move-out and creates a seven-day-a-week, just-in-time
customer service solution.
Finally, the company will have a substantial
development pipeline located in strong markets to drive
future growth. Camden's $430 million current and
future development pipeline combined with Summit's $620
million pipeline will result in a $1.1 billion
development pipeline to be staged over the next several
years. Nearly $800 million of those developments will
be located in the key markets of Southern California,
Southeast Florida and the Washington, DC area. On a
$5.3 billion asset base, the anticipated development of
new, high-quality communities in high-growth markets is
a compelling driver of future growth.
Now I'd like to turn the call over to Steve LeBlanc,
CEO of Summit Properties.
Steve LeBlanc:
Summit Properties Thanks Keith and thank you Ric.
You know your tremendous leadership and outstanding
performance over the years has made this merger
possible so thank you.
I'm going to cover two areas this morning. First I'm
going to give you a little bit of history about Summit
and our strategic focus and next I want to discuss the
compelling reasons for this merger.
Summit's a 32-year-old company with a long proud
history and in fact we began a serious transformation
about six years ago when we transformed the company
from 22 markets down to 5. We're a fully integrated
operating company focused on those 5 markets that have
historically led the country in job growth and in fact
Washington, DC and Southeast Florida, two of the best
apartment markets in the country, represent over 50% of
our NOI.
We've got a portfolio of Class A market leading
communities with an average age of only six (6) years.
We've also got some of the best associates in the
industry. We're focused on customer service. We won the
Best Customer
Service Award for four years in a row. We're also
focused on development and creating value. We've got a
$600 million plus pipeline with a tremendous embedded
value creation opportunity.
So Summit's strategic focus, operating platform and
portfolio of Class A communities in five of the best
apartment markets in the country is an excellent fit
for Camden.
Now I'd like to discuss some of the compelling reasons
for this partnership.
One is the tremendous enhanced geographic diversity the
combined company will have with a Coast to Coast
platform that will rival none in the industry.
We'll also have a lower total cost to capital and
they'll also be great, tremendous operating
efficiencies as we adopt the best practices of both
companies.
When you also combine the two terrific development
pipelines, our pipeline of $620 million and Camden's
pipeline of $430 million for a total combined
development pipeline of $1.1 billion, and as Keith
mentioned $785 million in Washington, DC, Southeast
Florida and Southern California three of the best
apartment markets in the country, that's a tremendous
embedded value creation for our combined shareholders.
The organizational fit is also quite remarkable. Camden
will be able to add three new markets, Washington, DC,
Southeast Florida, and Atlanta and add to their
portfolio in Charlotte and Raleigh. I really believe
this will be the best portfolio and operating platform
in the multi-family apartment sector.
We also have shared culture and values which are very
compatible operating ideology. Camden and Summit both
are customer service driven companies. Our associates,
some of the best in the industry, have a long tradition
of excellence in everything they do.
Finally, our shareholders should be very excited about
the premium stock price and the 26% dividend increase
they will benefit from. They will also have an
opportunity to be part of the new Camden which is a
terrific platform.
With that let me turn the call back over to Ric and
Keith and remind them that we are now their biggest
fans.
Richard J. Campo:
Camden Property Trust Thanks Steve.
Based on Camden's closing share price on October 1,
2004, Camden would acquire each Summit common share for
consideration, on average, of $31.37 per share, a
premium of 13.5% to Summit's closing share price on
Friday, October 1st Thirteen dollars and eighty-one
cents ($13.81) of common share consideration will
consist of cash, $434 million in the aggregate, and
$17.56 of common share consideration will consist of
Camden common shares with a fixed exchange ratio. Total
Camden share consideration will equate to approximately
14 million Camden common shares and operating
partnership units. This is assuming that all holders of
the operating partnership units would like to remain in
the partnership following the merger.
Summit shareholders and unit holders will be able to
elect to receive either cash or Camden shares for each
Summit share. The transfer agent will balance the cash
versus stock elections based on shareholder election in
order to maintain the fixed cash and stock relationship
prior to closing. Camden will maintain its
annual dividend of $2.54 per share which will provide a
$0.35 per share or a 26% increase in dividends for
Summit shareholders.
Summit will have a termination right in the event that
Camden shares trade below $39.31 based on the 14-day
average excluding the high and the low immediately
prior to closing. However, Camden has the right to cure
any deficiencies under the $39.31 price by adjusting
the exchange rate. There's a $50 million break-up fee
in the transaction.
Camden's board will be expanded by two directors. We
expect those board seats to be filled by Mr. William B.
McGuire, Jr. and Mr. William F. Paulsen and we are
excited to have these two veteran real estate
professionals add value to our Board.
The $1.9 billion merger we funded with $434 million in
cash, $658 million in Camden shares, and the assumption
of approximately $750 million of Summit debt. The cash
component of the consideration will be funded through a
combination of property sales and the spin-off of
properties into a to-be-formed joint venture. The joint
venture would be similar to the spin-off of the Las
Vegas properties that was part of Oasis Residential
merger. We believe that these cash generating
transactions should be completed before or closely
following the merger closing anticipated to be some
time during January 2005.
We have arranged for a $500 million bridge loan from
Bank of America in the event that our anticipated sales
are not completed before the closing. Post-merger, we
are committed to keeping reasonable debt levels and
maintaining our investment grade ratings.
We have analyzed numerous sets of assumptions for
combining these two companies and the transaction will
be slightly accretive beginning in 2005 under all
scenarios that we've modeled.
Having successfully completed two mergers already we
know how to cut cost by streamlining corporate
administration, integrating operations, and
implementing revenue enhancing and expense control
programs on site.
We expect the major components of our synergies to
result from a $10 million reduction in G&A run-rate
expense, a $6 million interest savings in the first
year from mark to market of assumed debt, and fees
generated from the formation of the joint venture.
However some of the synergies will of course be offset
by higher projected interest rates and the issuance of
14 million shares of Camden stock when the transaction
closes.
The overall cap rate on this transaction is estimated
to be 5.9% based on 2004 NOI in-place rent or in-place
NOI for 2004 after deducting market cap-ex reserves and
management fees. We're currently in the process of
developing our 2005 property level and corporate G&A
budgets and expect to complete them during the fourth
quarter. We plan on providing 2005 earnings guidance
and discussing the underlying assumptions for that
guidance prior to year-end once we have completed our
2005 budget process.
At this point we'll open up the call for any questions.
Your first question comes from Andrew Rosivach of
Camden Property Trust. Please proceed.
Andrew Rosivach:
First Boston Good morning. It's Andrew Rosivach of First Boston.
D. Keith Oden:
Camden Property Trust We knew you liked us but didn't know you'd joined us.
Andrew Rosivach: I know you were worried about your G&A estimates after
hearing that.
D. Keith Oden: Yes.
Andrew Rosivach: Just on the deal terms I think I've got it now. But at
the end of the day if you think of Summit being 35
million shares and units, 21 million are going to -
million shares are going to be bought but with Camden
shares no matter what and 14 million are going to be
bought with cash no matter what. Is that how
(unintelligible)?
Richard J. Campo: (Unintelligible).
Andrew Rosivach: Okay so to a certain extent your consideration for
Summit is going to fluctuate a little bit with Camden
share price.
Richard J. Campo: That's correct.
Andrew Rosivach: Okay.
Richard J. Campo: That's the only thing that fluctuates because it is a
fixed exchange rate - ratio and a fixed number of
shares.
Andrew Rosivach: Got it and how many shares are now pledged to
definitely go stock?
Richard J. Campo: Approximately 14 million shares of Camden stock will be
issued in conjunction with the merger.
Andrew Rosivach: I'm sorry. How many - I think you'd mentioned on
yesterday's call that some of Summit's management team
has already agreed that they'll go 100% stock?
Richard J. Campo: We expect even though you'd have to go to the proxy
solicitation process - we expect that the operating
unit holders or a substantial number of the operating
holders including the founders of the company will
choose stock yes. But we do have to go through the
solicitation process and we do have - and then that has
to go forward but we do expect that, that's correct.
Andrew Rosivach: Got it - okay and then how much are the transaction
costs to the deal and is that baked into the cap rate
calculation?
Richard J. Campo: Yes. The transaction cost in the deal is about - a
total of roughly $66 million in terms of change in
control cost, bankers, lawyers, that sort of stuff.
Those costs are baked into all the cap rate assumptions
and the accretion and dilution analysis that we've put
forth.
Andrew Rosivach: Got it and then finally the mark to market that's
really a - that's a non-cash GAAP event. What would be
the accretion from the deal or would the deal be pretty
close to flat if we backed off the loan premium
amortization?
Richard J. Campo: Well first of all let's talk about how the mark to
market is determined.
First of all we're basically taking their debt and
marking it to market as if it was a - like a bond and
the discount or the reduction or the amount of debt -
the cost associated with the debt that's over market
which in our model is about $20 million in the
aggregate that was - we used - that number was actually
- we
reduced the amount of equity value to Summit
shareholders so as if Summit shareholders are paying
that because their debt is over market. So it's real
money coming out of the computation for the ultimate
equity value of the transaction. So let's make sure
that everybody understands that.
We've subtracted from the total value of Summit equity
the amount of - this $20 million related to the
interest being above market. And that then from an
accounting perspective we are amortizing that $20
million reduction in equity value for Summit
shareholders over the life of those loans as if we just
went out and got new loans at the current market rate.
Okay now from that perspective it's - think of it as
just refinancing the portfolio but the cost associated
with the refinancing of the portfolio was borne by the
Summit shareholders by virtue of them getting $20
million less in value by subtracting that mark from
their equity value. It's not an accounting-ism or
anything like that. It's purely the re-apportion or the
re-pricing of the debt and pricing that cost into the
Summit shareholder value.
Now as far as the accretion dilution calculation
there's about $6 million of mark to market flowing into
the first year and then it starts decaying if you will
or going down over the duration of the loans. Depending
upon how aggressive we are on joint venture fee income
and what we've done models that show that it's either
flat deal or slightly diluted if you take out the
interest savings but, I don't know why you would.
Andrew Rosivach: Just to re-phrase when you quote that 750 million of
debt you're assuming in that 5.9 cap rate that included
that mark to market.
Richard J. Campo: That's correct.
Andrew Rosivach: Okay and then last you give sources and uses for your -
for this transaction but you've also got a pretty
healthy development pipeline to fund. What do you think
would be a - the source of proceeds to fund it?
Richard J. Campo: We'll be forming two joint ventures.
One would be an operating portfolio joint venture where
we would put low cap rate operating assets in, in
essence trading middle of the country properties on an
accretive or flat basis with East Coast properties.
Then a second joint venture would be formed for
development so that we could make sure that we keep
proper levels of leverage and debt on our balance
sheet. That joint venture's probably a $250 to $300
million joint venture and we would fund development
through the joint ventures.
In addition, we would also fund additional joint
ventures going forward through the sale of non-core
assets and just a capital recycling program that we've
been, doing for the last ten years.
Andrew Rosivach: Got it. Okay thanks a lot guys.
Richard J. Campo: Thanks.
Craig Leupold:
Green Street Advisors Good morning Ric.
Richard J. Campo: Hi Craig.
Craig Leupold: Couple of questions - several were answered through -
by Andrew's questions but in terms of the property
management expenses when you say market
management expense what is that assuming in terms of
some percentage of revenues?
Richard J. Campo: Yes. In terms of developing the cap rate we used a 3%
property management fee. Basically the way we
calculated our cap rates is we took the transaction and
looked at it from a value perspective from a bottom up
analysis. We took every single property. We looked at
it individually, had our property people go through,
eight months of actuals. We had all the actuals through
August. We then compared their eight-month actual to
their budget for the last four months of the year. And
if they were on budget the budget was used, if they
were under budget we took the budget down, if they were
doing better than budget we trended it up slightly to
get on - to be on the right trend line that the
property was producing.
We put the four-month then projection in the model
including the eight-month actual and that became our
base run rate if you will. On that run rate we applied
a 3% management fee from a market - we tried to
determine what the market cap rate would be so a 3%
management fee was used.
Craig Leupold: Okay so when you talk about the G&A and property
supervision savings that's where some of that savings
shows up?
Richard J. Campo: No the G&A and property supervision savings didn't have
anything to do with how we calculated the cap rate. The
cap rate is simply using, sort of market metrics with
respect to calculating that number. As far as the G&A
and property supervision let me let Keith talk about
how sort of his team approached that.
D. Keith Oden: Yes. Craig we really looked at it two different ways.
We first started out by just taking the financial
information from Summit and we did an independent
analysis looking at it on a combined basis where we
thought the G&A savings might come from. But then we
also went back and had each of our individual
department heads start from scratch and look at what
would they need in terms of incremental G&A to be able
to support a 14,000 unit portfolio distributed among
five markets where we had overlap in only one.
And after going through that analysis from two
different directions we were within about $300,000 of
the projected G&A savings of 10 million. So we're very
comfortable with the G&A synergies and property
supervision synergies that we've laid out and we think
that's a fairly conservative number and confirmed by
two different methodologies.
Craig Leupold: Okay. What about property taxes? How do you protect
yourself from, you know, given that this is, you know,
a pretty significant price for Summit's assets relative
to their cost basis in the assets and presumably the
appraised values on tax roles? How do you protect from
a property tax increase or what did you do in terms of
your assumptions about a property tax increase?
Richard J. Campo: First of all the cap rate is based on in-place cash
flow so we just used existing property taxes. Because
this is a merger - a corporate level merger - there are
no transfer taxes being paid. It's not a traditional
real estate transaction where you have, you know, real
estate valued at a specific number and then transfer
taxes and contracts being available for taxing
authorities and that sort of thing. So we basically are
doing it on a company level basis so we don't think
there's going to be any major changes in property tax
valuations that Summit hasn't already faced and that
aren't embedded in their 2004 number.
It would be different if we were buying individual
assets and then moving all these individual assets into
Camden but we're not. We're simply acquiring the
operating partnership unit and the general - or the
partnership entity and
acquiring the Summit general partner and basically
merging that general partner into a subsidiary of
Camden. You shouldn't have any negative property tax
effects because there was never any valuation for any
of the individual assets.
Craig Leupold: Okay. I think in yesterday's presentation you mentioned
that in - of the 66 million in transaction cost roughly
40 million is for severance payments to Summit
employees. Any senior Summit officers and/or
development folks staying on as part of the
transaction?
Richard J. Campo: We are definitely interested in talking to the
development and construction folks. Clearly, G&A
savings in transactions like this come from the very
senior levels and we have had, preliminary discussions
with folks. But the fact that Summit has a very, very
good development team and construction team with a lot
of incredible history and a great pipeline, we expect
to, have discussions with those folks and try to keep
them. They're smart, really good people and that makes
a lot of sense. But clearly you can't have two CEOs or
CFOs and that's where a lot of the savings come from.
Steve's a great CEO but I like my job.
Craig Leupold: Okay.
Keith Oden: Craig as - speaking as a representative of part of the
synergies here we've talked to our development and
construction team and they're excited about the
opportunity for this platform, we've got, our
development pipeline's actually larger than Camden's
but Camden's got great land embedded on their balance
sheet that needs to be developed including some sites
in Washington that we'd love to have. So our team is
excited about having a bigger platform and a greater
operating company to build off of.
Craig Leupold: Okay and then I guess last question. In terms of the
expected cap rates on the sale again you mentioned
yesterday that Summit had roughly $120 million of
properties under contract and might sell another 140
million before the transaction close. What kind of cap
rate do you expect on those sales and then also what
kind of cap rate do you expect on the contribution of
assets to the joint venture?
Richard J. Campo: The assets that are under contract are condo conversion
candidates and would be sub five cap rates and those
are the under contract assets. The 140 million that may
either be sold outright or/and they could potentially
also be contributed into the joint venture, those cap
rates are estimated to be about 5-3/4 plus or minus.
And the ones in - that will come out of Camden's
portfolio will also be in the 5-3/4 sort of zone.
The interesting thing about cap rates today in this
country is that they're pretty much 5-1/2 to 5-3/4 for
any asset that is, less than five years old - in
Houston, Dallas, Denver, Vegas, and where, in markets
that traditionally have not had cap rates that low. You
take assets that are in the - in that age bracket and
take them to Washington, DC, South Florida, Southern
California and you're pushing five cap rates. Their
condo conversions are sub five cap rates, some in the
three and low fours.
So we do expect to put lower cap rate transactions or
properties into the joint venture so that we can make
sure that we aren't, putting higher cap rate assets in
and creating dilution in the trade.
I think the sort of concept is to be able to put assets
and when we put them in Houston, Dallas and Vegas even
though we will be putting sort of newer assets into
that joint venture we have the capability with land
in-place to replace those assets on our balance sheet
through capital recycling by building the projects in
those markets and then selling older assets in a couple
of years to fund those developments when they're
finished.
Dennis Steen: You know Craig we're the king of capital recycling. So
I know that Bill and Bill as they sit on the Board and
Ric and Keith and I have talked about the opportunity
to do exactly what Ric's talking about - buy our whole
portfolio and sell some of our older communities and
some of the condo converters to fund part of the
acquisition. It's just a terrific opportunity.
Craig Leupold: Yes accepting that, those are market cap rates one -
how low do cap rates go and what kind of returns are
buyers expecting when they're buying, you know, Dallas,
Houston, Las Vegas assets at 5-1/2 to 5-3/4 caps?
Richard J. Campo: Well I think that they're expecting, sort of low teen
leveraged returns and embedded in those cap rates are
the expectations that cash flows are going to improve
at a pretty reasonable pace or a pretty fast pace,
going forward in the next two or three years. Most of
the private buyers are financing on five to seven year
sort of interest only financing. So they get very good
positive cash flow during the holding periods and then
they expect to have the cash flow grow at a faster rate
and cap rates will rise with interest rates. So I think
that that's definitely the model that's out there in
the market today.
We obviously are not, sort of end IRR driven in this
kind of transaction even though we did in fact do, IRRs
and discounted PVs on this valuation to make sure that
our weighted - that we were having an IRR that was
higher than our weighted average cost of capital long
term.
But I think people are looking at, low teen leverage
returns and with reasonable growth rates with current
cash on cash returns that you're getting when you put
fixed rate financing on at these low rates you can -
those numbers work out pretty well.
Craig Leupold: Yes well over the last couple of years though you've
acknowledged that you found it hard to make
acquisitions because of the prices that people are
paying. Now you're, you know, you're doing a sub, you
know, almost a $2 billion transaction here. What gets
you comfortable now to pay these types of cap rates
versus where, you know, your position's been the last
couple of years?
Richard J. Campo: I think what gets us comfortable is we believe that
we're in the trough of the recession and that the
multi-family dynamics are going to turn up positive
here in the next year or so. That the cash flow growth
in this particular portfolio will be at a higher rate
or higher growth percentage than Camden's overall
portfolio and that the cap rate will increase, in the
cash flow the properties will increase going forward.
That even if cap rates are - I think for sure cap rates
will rise at some point but we believe that these
markets and these assets the cash flow will rise higher
than the cap rate - than the cap rates will rise and
that we will have created value by doing this
transaction.
Now if you asked me a year ago I would never have done
this transaction last year at this time because I
didn't know when the - I didn't feel like the market
had bottomed and that we were getting ready for an
upturn and I think that's where we are today. So the
difference in our mentality is that we think we're at
the bottom and going to move up. And then let's say -
and I think that's sort of the, the premise for the
merger.
Now on the other hand if you - let's say we have a
double dip recession or a triple dip or whatever you
want to call it and we don't have cash flow growth.
Well presumably interest rates are not going to rise
and cap rates will stay at historical lows and we'll be
in a situation where am I better off or is Camden
better off in DC, Southeast Florida, Atlanta, Charlotte
and Raleigh as opposed to having, 14% of our assets in
Dallas and Las Vegas and Houston. I think from a - even
in a worst case scenario where we don't have cash flow
rising because we go into another recession we're
better off because we're more diverse and we're - we
have assets in markets that are good markets even in a
recession.
Say you're in a situation where cap rates will remain
low and I don't think prices fall dramatically in that
kind of scenario at all so we're sort of believing that
or we're in a position where we're good on the downside
and better on the upside.
Keith Oden: I would echo what Ric's saying Craig. As far as the
economy you remember on the first call we told you that
we were the most optimistic people you're going to meet
today on the economic outlook and that the market
seemed to be underestimating the terrific cash flow
(unintelligible) and I think the whole industry's going
to have in '05.
In addition to all the comments that Ric made he's also
buying an operating platform. We've got tremendous
embedded value in our development pipeline and combined
this will be the best operating platform in the
multi-family (unintelligible) sector. You can't
discount that at all.
Craig Leupold: Okay - fair enough. Thank you.
Richard J. Campo: Sure.
Jonathan Litt:
Smith Barney Hello. Can you hear me?
Richard J. Campo: We can.
Jonathan Litt: Okay. I'm on a cell phone. I apologize if it's a little
scratchy.
I wanted to confirm a couple things. I think you said
the FAS 141, 142 charge related to the mark into the
market of the debt is $6 million, is that correct?
Richard J. Campo: No. The total amount is 20 million and the...
Jonathan Litt: But the annual impact on earnings first of the year is
6 million?
Richard J. Campo: That's correct.
Jonathan Litt: And then the G&A savings in response to Craig's
question, did you say it was $10 million?
Richard J. Campo: Ten million dollars in the aggregate yes. We will
experience - I think we have that feathering in in the
first year. So in the first full year after the merger
it will be 10 million but it's about - I think we have
maybe 8 million plus - 8.7 built in the first year and
then 10 after that just because they'll be wind down,
costs...
Jonathan Litt: Right.
Richard J. Campo: ...associated with, integrating the functions with the
company. But overall if you just take - if we could
flip a switch January 1 and have everything completed
it would be $10 million (unintelligible).
Jonathan Litt: Now is it fair to assume that some piece of that is
currently being capitalized at Summit because my
recollection from the second quarter was that Summit's
total G&A that was expensed was in the 2 plus million
dollar range?
Dennis Steen: Yes. What you need to really do in your modeling - this
is Dennis, what we have forecasted for in the first
year stabilization is that our G&A and prop sup cost
would be in the 6.6 million to $6.7 million range. If
you go to Summit's income statement if you then
annualize G&A, prop sup, prop sup third party, and the
other corporate costs that are on their income
statement is how you get that 10 million savings.
Richard J. Campo: Yes that number would be about 16.6 million. So the
answer to your question is no this is not - we're not
dealing with any capitalized costs at all because
obviously a capitalized cost on their books and an
expense on our books would not be synergies it would be
increase in cost.
Jonathan Litt: Okay.
Richard J. Campo: And so this is purely - you just can't take G&A. You
have to take property supervision and other corporate
cost and those - off of their financial statement. You
annualize that, it's about $16.6 million annually, and
we think that we can - we'll keep about 6 million, 6.6
million of those costs or netting $10 million of
savings.
Jonathan Litt: Now I think also in response to one of Craig's
questions you said there was $120 million under a
contract for sale. Was that at the Camden or the
Summit?
Richard J. Campo: No that's Summit.
Jonathan Litt: And in addition you think you'll do another 140 million
in sales?
Richard J. Campo: Either in sales or a contribution to the JV - the JV we
talked about is somewhere between $400 and $500
million. And the sale portion will be - if we sell
assets - we will have a combination of some older
assets that we're going to just sell and we don't want
in the joint venture. So it just really depends on the
pricing of those assets and how we feel about those
versus what we contribute into the JV.
Jonathan Litt: Okay so if I'm looking at the run rate for Summit in
the second quarter I'd have to assume kind of 200 and -
almost $300 million less in - $250 million less in NOI
or $250 million less in assets so a less amount in
terms of NOI related to those assets you're going to
control?
Richard J. Campo: Well you have to be careful with that because you do
have to take sales out but you do have to put
acquisitions in because Summit acquired a number of
properties during that period. Part of the complication
of - and I know it's difficult for those of you who
don't have the detailed information that we have on the
company in calculating the cap rates. But we have taken
the second quarter subtracted the dispositions that are
either under contract or have already happened, added
back in the acquisitions that they have done, and our
math and that's how we come up with the 5.9 cap rate.
But it is hard to get to from the public information
unless you have the specific cash flows for each
property.
Jonathan Litt: Now the 5.9 cap rate is not on the roughly $2 billion
in cost to close this transaction. It's on something
less than that or it's less development and land, is
that right?
Richard J. Campo: Yes that's right, the 5.9 cap rate is on specific
operating assets which total about 12,732 properties -
that totals up to about 1,600,000,000 plus or minus.
That's the 5.9 cap rate - but you really can't put a
cap rate for example on a
development that's 50% leased at this point and then
make any sense of it. You have to, put a cap rate on it
when it's stabilized and it's not going to be
stabilized, it will be stabilized in six or seven
months but not now.
Jonathan Litt: Now you had said that - or somebody had said that the
Summit development program's worth 620 million. If you
look at the Supplemental on Summit it says 250 million
spent...
Richard J. Campo: Right.
Jonathan Litt: ...two hundred sixty five million expected to be spent.
How do you close the cap to the 620?
Richard J. Campo: Okay what you do is you is - first of all you have
developments that are under construction or in lease
up. That's one number. We basically valued those at
what we think are wholesale values because they have
lease up risk and that's about $200 million plus or
minus and that relates to four properties that are
under construction as we speak.
The issue there is that what we've done is we have
projected the total cost to complete those properties
and put them in our model, okay? So when we talk about
1.9 billion it includes cost to complete developments
plus a premium that we put on those assets to get us a
wholesale cap rate on those developments. So it's not
going to tie directly to the financial statements
because of that. So if you take our original - let me
just walk you through the numbers.
You've got a billion six of stabilized assets at a 5.9
cap. We have - plus or minus, that number - we then
have non-multi-family assets, retail assets that are in
the portfolio of about $17 million. You have
development assets that are under construction and
lease up where money still has to be spent to finish
those developments of about $200 million, okay? Then
you have land that is on the balance sheet that we've
valued the land at the current market value of the land
and that is embedded in the $600 million of portfolio
from a total construction perspective but the land that
we valued is about $57 million.
In addition the company has another $42 million or $43
million worth of land that is under contract that will
be closed between now and the closing. So you have then
a total - if you look at the land for example, the $57
million of land, is for development of 2076 apartments,
the $43 million that's under contract is for the
development of 1119 apartments. So when you put - when
you carry out the value of the portfolio when it's
finished that's how you get the $600 million. You take
those units, you buy the land, you build them, and at
the end of the day...
Jonathan Litt: Oh I see.
Richard J. Campo: ...it's the $600 million.
Jonathan Litt: I got it.
Richard J. Campo: So if you take those four components that's how you'd
get up to the 1.9 billion of the total transaction.
Now when we calculated Summit - the value of the equity
of Summit and this is just the way you build a real
estate model. You evaluate the components, subtract the
cost of the deal, subtract the debt, the liabilities on
their balance sheet, and at the end you end up with a -
about a $1,086,000,000 of value. And you divide that by
their - by the number of shares and you end up with,
you know, 31.39 or 31.37 when we fix the price. A true
bargain.
Jonathan Litt: Thank you for the detailed explanation Ric.
Richard J. Campo: Sure.
Jay Leupp:
RBC Capital Markets Hi Ric. A couple follow-up questions on the asset
sales. Do you expect to have or how much of the asset
sales do you expect to have completed before you
actually close in the first quarter? And also could you
just walk through the basic terms of the standby bridge
that you have lined up in the event that you don't get
them all done?
Richard J. Campo: Sure. Well the ideal situation is to have everything
closed simultaneously with the merger, that may or may
not happen. And Dennis why don't you go through the
standby?
Dennis Steen: Yes the standby, we have a $500 million bridge note
with B of A. There's no commitment fee for the first 60
days subsequent to the signing of the merger agreement
and then we have a ticking fee that begins at that
point and we don't have a further cost until there's
any funding underneath the note.
Jay Leupp: Okay and then Ric back through the numbers that you
were walking through. Can you give us the gross amount
that you were assuming in the acquisition for capital
reserves over the first year? And then if I'm correct
you were using actually two - second quarter NOI
annualized to calculate that 5.9 cap rate?
Richard J. Campo: No - we didn't use second quarter annualized. We used
eight months actual plus adjusted budgets depending on
the property's performance for the last four months of
the year and that 12-month cash flow which included
eight months actual and four months projection is what
we based our 5.9% cap rate on.
Jay Leupp: Okay.
Richard J. Campo: Okay? And then in terms of market cap rates we used -
on new assets we used 150 in reserves and older assets
we used 250 which are market rates. And I know there's
a lot of discussion about yes but cap rates are - or
but CAPEX is, 300 bucks or 500 bucks but in a market -
in today's market these are the underwriting dollars
that people put in and if you use higher numbers you
don't get deals basically.
So if you use a - for every - if you use a $300 CAPEX
number for example and we did sensitivities at various
levels of cap rates and to give you a sense $300
changes your numbers by about five basis points on
yield, okay?
Jay Leupp: Okay.
Richard J. Campo: Just to give you a sensitivity situation there if you
don't like 250.
Jay Leupp: Okay and then just one last follow-up on the asset
sales. Is there any chance in this pool of asset sales
and joint venture that you'll be exiting any existing
markets outright? And then of the markets that you're
acquiring that are new to you which are the two or
three that you're most likely to grow over time?
Keith Oden: The asset sales Jay are most likely to come - and JVs
are most likely to come out of the markets where we're
over-represented which is, you know, Houston, Dallas,
Las Vegas. Also the reason for that is is that we are
in a position to replace those assets from some of our
existing planned position so that those would be the -
where we would focus on as far as the JV or the
outright sales. We have not - in this model we've not
targeted any of the markets for, you know, that we
would be getting out of as a result of this
transaction.
Jay Leupp: And then in terms of the markets that you're acquiring
do you plan to grow in all of them or are there two or
three that you targeted that are most likely to be the
true growth engine of this acquisition?
Keith Oden: Well, you know, clearly the - on a percentage basis
where we have the opportunity to add to our portfolio
and they happen to be markets that we really have liked
for a long time and we've been looking for the right
opportunity to enter them with enough size and a
portfolio to make it make sense would be South Florida,
Atlanta, and Washington, DC. Since we have overlap in
Charlotte when you put the two companies together I
can't see us adding net to assets at Charlotte. And
then from - in the case of Raleigh we're comfortable
with the level of our exposure in Raleigh.
But the three - obviously the three markets that we
have the greatest deal of interest in and they're
markets that we frankly have been talking about and you
guys have heard us talk about them for five years or
so. And our reluctance has been finding an opportunity
on a portfolio basis where we could immediately have
enough presence to compete in those very competitive
markets.
Jay Leupp: Thank you.
Jim Sullivan:
Prudential Thank you and good morning.
First of all a question on the transaction cost savings
that you've outlined of 10 million. Can you tell us
what kind of headcount reduction that entails?
Richard J. Campo: Headcount reduction? We don't have the headcount
reduction numbers, you know, sort of right here but
when you think about it the corporate G&A is - in the
corporate office for the top, three or four people is
pretty substantial so...
James Sullivan: Yes.
Keith Oden: We haven't had the opportunity to meet with and understand
all the capabilities of Summit's employees. I think the
simple way though to think about it is is that as we did
with the Oasis and the Paragon mergers we would anticipate
that 100% of the site level employees would come over and
join us.
We also, as Ric mentioned earlier, we are very anxious to
integrate the construction and development operations and
obviously the property supervision that comes with the
on-site staff.
If you take - if you sort of take those components what
you're left with is executive staff and then the - sort of
the duplication of the back office accounting functions
that, you know, that are going to have to be combined in
any business combination like this.
Jim Sullivan: No I think you had talked about it in your prepared
comments - about the technology platform that Camden has
and where you think you can maybe increase efficiencies
applying that to the Summit portfolio. Is the - will there
be a transition period that might present a challenge here
- an integration challenge or not?
Keith Oden: It is our expectation that throughout the next four months
prior to closing that we would make as much progress on
integration as is possible and practicable while you still
have two companies that are standalone entities.
We have assumed that in the first year Jim that instead of
the $10 million run rate G&A savings that we would realize
about 8.7 million. The balance of that 1.3 million is - we
think is sufficient to account for the overlap but
obviously
our first order of business is to make as much progress
along those fronts as is practicable under the
circumstances.
James Sullivan: Okay and I think you indicated as part of the $66 million
in transaction cost that approximately 40 million would be
for change in control and severance. Is there likely to be
any incremental special charge through eliminating staff
in the corporate office?
Keith Oden: No.
James Sullivan: No? Okay.
Development yields, we've been hearing a lot over the last
several months about rising commodity cost and the affect
that's having on construction costs. Can you give us your
expectation in terms of development deals for the two
portfolios and whether or not you're confident that the
recovery in the apartment market that some of you have
been talking about here is going to be enough to - or
strong enough to keep those development yields at
attractive levels?
Richard J. Campo: Well that's a - definitely a good question. The
development business has been under pressure not just from
the weakness of the markets but also increasing cost. The
market - the cost has increased tremendously in the last
12 to 18 months so development yields have been a
challenge to keep up. And the way we have evaluated the
Summit pipeline is basically doing standalone models on
our own but also looking at the land and saying - and
deciding that - and valuing the land and what we think the
market value of the land is today.
So each development will be evaluated to make sure that
the yields are reasonable and commensurate with the risk
associated with a development
program. And if the risks - for whatever reasons the costs
are too high or the market rents aren't there and we don't
believe that the risk return relationship makes sense
we'll just sell the land. And we'll do that on Camden's
books as well, it's - that's what a prudent developer does
is if you have land positions that don't work you sell
them and move on to the next development deal. But there's
- development yields are - it is challenging now with
costs going up and clearly the recovery in the market is
important to maintain development yields.
James Sullivan: And can you tell us what the return hurdle is before you
make that decision to sell the land?
Richard J. Campo: Sure, in markets like Washington, DC you don't want to - I
don't think you start out with development yields below a
seven. And today traditionally with cap rates at 5, 5-1/2,
you're getting a, 150 to 200 basis point positive spread
between what you can buy the assets at. When you start
getting into the sixes we start - I start getting queasy
from a risk reward perspective - from a development
perspective. So, the 7, 7-1/2 zone is sort of where we
would like to be from a development yield perspective and
if we start seeing, yields, going in yields, substantially
lower than that then we'd have to reevaluate.
James Sullivan: Okay and can you also tell us to the extent you're
comfortable talking about it the origins of the contact
between the two companies and the discussions about a
possible merger? When did they begin?
Richard J. Campo: They began in about June of this past year but in terms of
in earnest discussions. The relationship though between
the management teams at Summit and Camden and their Board
span ten years. So we've - I've known Steve for a long
time. I've known Bill Paulsen for a long time. And I think
what happens in cases like this is that management teams
get to know each other, they respect each other from afar
and when an opportunity to do a, to
have a strategic situation develop you're in good position
to do that because everybody knows everybody.
And I think from that perspective even though we had -
definitive discussions began in about June we had had lots
of conversations just about business and about the world
and, you know, where everybody was vis-a-vis, their
competitive set, for years.
James Sullivan: Okay and the final question from me and this is for Steve.
Steve in your prepared comments in talking about the
achievements of Summit over the last few years one of the
items you cited was the focus on a smaller group of
markets - essentially five markets. And that's been part
of your strategy for a couple of years here and that you
cite as a positive. In this case obviously as a result of
this transaction you take the portfolio or the scope of
the company in the opposite direction. And can you just
tell us how you get comfortable with expanding the market
and including markets like Denver and Las Vegas and some
of the Texas markets?
Steve LeBlanc: Certainly. When I joined the company six years ago we were
in 22 markets and essentially on a number of units basis
about the same size. And given the size of our company,
giving that we believe that this industry is - and this
business is a fully integrated operating business we
didn't think we could have an operating platform with that
kind of diversity. We were just too small to be in 22
markets.
How did we choose five markets? Well we looked at a sharp
ratio and a portfolio of management in an efficient
frontier of total rate of return based upon risk adjusted
parameters. Those five markets we selected and we really
looked at every major market in the country - the five
markets we selected,
Washington, South Florida, Atlanta, Raleigh, and
Charlotte, we believe gave us the best risk adjusted rate
of return on the efficient frontier.
We will - our plan had always been as we talked about the
last few quarters was to grow the platform. We are too
small. Given the public company, the cost of being a
public company, Sarbanes-Oxley, the operating efficiencies
we can achieve, some of the synergies we can get through
training and operating excellence and new operating
systems on site, et cetera we needed to grow the platform.
Ric talked about it being able to achieve his five-year
growth plans by doing this merger. Summit can do the same
thing. We had put together a five-year plan to grow to
30,000 units - really we were going to try to do it in
three to five years so we were very aggressive on trying
to grow the platform. This gets us there in three months
instead of three to five years. So the market selection
they have it certainly improves by adding the Summit
portfolio.
I know that Ric and Keith are terrific real estate
operators and they're going to drive total rate of return
and long term stable cash flow growth by having a
portfolio that is geographically diverse in 26 of the
highest growth markets in this country. As I said I don't
think there's a better operating platform in growth
markets in the multi-family (unintelligible) sector.
James Sullivan: Your comments give rise to a second final question. In
looking at the potential alternatives for Summit did you
consider liquidation of the company - selling the assets
and distributing the proceeds to the shareholders? And if
you did were the transaction costs, the tax costs,
otherwise, was that the differential that made this
transaction more attractive or was it the upside you see
in the future from this expanded platform as you
characterize it?
Steve LeBlanc: Well we have a terrific Board of Directors who always took
the shareholder's best interest at heart when they made
every decision we've made as a public company. We ran a
fully vetted best practices process when we looked at
doing something strategically and Camden is by far the
best fit and the best opportunity for our shareholders.
For those shareholders who want to take advantage of the
premium they can cash out. For those shareholders who want
to participate in what we think is going to be the best
multi-family real estate platform going forward they can
stay in and participate in that.
So we looked at a number of alternatives and instead of
going into those details I'll point you to the proxy that
will come out in about two weeks and it will have a lot
more details about the process we went through as we tried
to maximize shareholder value in doing this transaction.
James Sullivan: Okay very good. Thank you.
Steve LeBlanc: You're welcome.
Susan Villiner:
Bear Stearns Thank you.
I just wanted to go over the financing. I know S&P already
opined and affirmed your mid triple B rating. And I was
wondering if you could walk us through a little bit more
specifically in regards to Summit's more recent focus on
their secured debt and how you're going to refinance that
and get your ratios back up to pre-acquisition ratios.
Richard J. Campo: Sure. First of all before I answer the question we're
going to - we have a lot of people that are still in the
queue to answer - that want to ask questions. So what
we're going to do is limit the questions going forward to
one question without follow-ups because we want to be
respectful of people's time and try to keep this call at
an hour and a half max and we're at an hour and ten,
fifteen minutes into it.
So the answer to the question is in terms of financing
Camden is an unsecured credit or an unsecured financing -
that's our strategy is to use unsecured financing. And
over time we will be paying down the secured financing of
Summit as those loans mature or as the spread between
prepayment penalties and interest rates so we can get -
become more rational or reasonable to be able to take. So
we will continue to be - to finance in the unsecured
market and maintain our unsecured debt ratings.
In terms of the financing once we complete our asset sales
and our joint venture formation our debt levels are pretty
much where they began at the beginning. So it's a
leveraged neutral transaction once we get that - get the
JVs and the sales done and I think that's why S&P, you
know, affirmed the ratings. They or we believe that and
this is - and I think a lot of folks concur with this that
today the liquidity in the multi-family market is
absolutely superb from a transaction perspective.
So the ability to execute the sales and the joint ventures
in a reasonable timeframe to make sure we don't have to
keep the bridge loan outstanding very long and then get
back to a normalized leverage perspective for this
investment grade credit we're at should take a very short
period of time and be done within the fourth or within the
first quarter in any case.
So we aren't going to take our debt levels up and over
time our credit metrics will improve as our developments
come into (unintelligible) and our operating cash flow
starts to increase with the recovery we expect in the
market the next couple of years.
Susan Villiner: And will that - can we assume that the Summit's secured
bank line will be paid off?
Richard J. Campo: Yes.
Susan Villiner: Okay.
Richard J. Campo: It will be paid off. It will be paid off at closing.
Susan Villiner: Thank you very much.
Richard J. Campo: Yes.
Rob Stevenson:
Morgan Stanley Good morning guys.
Are you guys providing any tax protection on certain
assets to Summit shareholders?
Richard J. Campo: Yes we are. We are providing 15-year tax protection to the
operating unit holders at Summit. That's based - I think
in the market today that's pretty close to a market
position. You either provide 10 to 20 years in some
transactions but we are providing 15-year tax support.
Rob Stevenson: And how much of the asset base does that encompass?
Richard J. Campo: It encompasses about - I think about 2/3 but the key thing
is they've already - most of the assets have been 1031
exchanged into newer assets or developments. So most of
the assets, we don't anticipate selling a lot of or
needing to sell a lot of the Summit assets. The whole
point of the merger is is it's a newer, higher quality
portfolio on average than Camden's so they've done a
really good job of capital recycling already so we don't
have, a great need to do that.
Rob Stevenson: Okay and is the shareholder vote for both companies a
simple majority or is there a super majority on either?
Richard J. Campo: A simple majority for both.
Rob Stevenson: Okay thanks.
Bill Acheson:
Merrill Lynch Good morning.
I just wanted to make sure I understood the way that you
estimate the in-place NOI.
Richard J. Campo: Okay.
Bill Acheson: I mean, it sounds like, you know, in simple terms that if
the operations were ahead of budget in the first half you
sort of assume that they're going to stay that way even if
some of the metrics like jobs and the regional economy
kind of back off. Is that correct?
Richard J. Campo: Well it's not so much the first half. It's through the
first eight months. So if the run rate of the property was
better than its original budget for that period of time
and the trajectory of that NOI run rate was positive
compared to its budget we did give them the benefit of
that positive budget situation.
On the other hand if the property was under its budget and
was not achieving its budgeted results we lowered the
budget for the run rate for those assets for that
four-month period.
So even - we gave benefit to ones who were above and we
gave - and we penalized ones that were below.
Bill Acheson: Okay got you.
Richard J. Campo: So I think that's a fair way to try to estimate what the
total run rate would be for the portfolio for 2004.
Bill Acheson: Okay and in-place NOI included operating properties and
development properties in lease up?
Richard J. Campo: The developments were handled separately. The in-place NOI
was handled based on just existing assets that were
stabilized. The developments if they were in lease up we
looked at their lease up budget, compared what they were
doing on a per unit - on a monthly absorption of those
units and if they were better than budget we gave them
better than budget. If they were worse than budget we gave
them worse than budget marks on that as well. So we just
looked at each individual asset and put forth what we
thought was actual - what the ultimate lease up would be.
Bill Acheson: Okay so you include lease up for the second half of the
year - projected lease up for the second half of the year?
Richard J. Campo: Yes.
Bill Acheson: Okay (unintelligible).
Richard J. Campo: But included in the base NOI numbers were for stabilized
but developments were separated and done in the same way -
yes.
Bill Acheson: Okay thank you.
Fred Taylor:
Lord Abbott Yes thank you.
A follow-up to I believe it was Susan Villiner's subject
on the refinancing. You answered most of my questions
there but could you maybe discuss with the asset sales,
the development, the need or lack of need for the bridge
facility, what your likely capital markets activity would
be if not late this year then first half of '05 in terms
of issuing longer dated unsecured bonds?
Richard J. Campo: The bridge loan would be out - if we needed the bridge
loan it would be outstanding for a short period of time
and we would take the bridge loan out with a long term -
with property sales first.
Fred Taylor: Right.
Richard J. Campo: Ultimately we do have several bond - longer dated bond
transactions scheduled for early in the year, perhaps in
the fourth quarter if we - and depending on the timing of
the sales to make sure that our line of credit balance
doesn't get too
high. But we have probably 2 or $300 million of bond
transaction that would happen probably in the next 12 to,
you know, 6 to 12 months.
Fred Taylor: Okay, 2 to 300, and current outstandings on your bank
facility, the...
Richard J. Campo: Just right over 300 million today.
Fred Taylor: And that matures when?
Richard J. Campo: On the facility you said? It doesn't mature until August
of next year.
Fred Taylor: Thank you very much.
Brian Long:
Chesapeake Partners Hi. I was wondering if you could just clarify the Summit
dividend policy while the transaction is pending. Will you
pay your October dividend in normal course and then if
this transaction should still be pending come the January
dividend would that also be paid?
Steve LeBlanc: Yes. The current plan is to continue the Summit dividend
right up until closing and then our plan is for both of
those to declare a dividend the day before closing and
then start a new run rate for the Camden shareholders
which could include Summit shareholders - well will
include Summit shareholders that convert into Camden
stock.
Brian Long: Great. Thank you.
Steve LeBlanc: You're welcome.
Sam Saba (Jess):
Quattro Global
Capital Yes (Jess) (unintelligible) for (Sam Saba).
In the presentation you have a 13.81 per share in cash
value and a 17.56 per share stock value and assuming
Camden's price of 47.12 on October 1 that would imply an
exchange ratio of .3727. Is that the fixed exchange ratio
in the merger agreement?
Richard J. Campo: No the way we have it in the merger agreement the fixed
exchange ratio is .6687 and the way you get to - I
understand how you're getting to the (unintelligible)
number. In essence the stock component - the way the
merger agreement is written the shareholders of Summit can
choose up to $434 million in cash at a weight of 31.20 a
share. So if you do the math on that that means that at
31.20 a share the maximum amount of shareholders that can
get cash for Summit is 13,923,000 shares and there's
roughly 31 million and some change in shares - (31.6).
Man: Well there's (31.6) plus the operating (unintelligible).
Richard J. Campo: Well the operating units are totally separate.
Man: Right.
Richard J. Campo: But so what that implies then is that Camden shares are
around 14 million shares that can be issued for Camden and
when you calculate the 31.81 it's basically a fixed number
because the cash component can't change and the stock
component for Camden can't change either. So when you
calculate the percentages the stock component is basically
55.75% of the consideration. So if you take the fixed
.6687 and multiply that by .5575 that's how you get your
.3728 exchange ratio. And so the value of the transaction
will vary based on
Camden's price subject to this fixed amount of shares that
are going to be issued which is the 14 million shares
roughly.
(Jess): Okay so then the 13.81 in cash is that subject to change
based on the finalist - final fully diluted share count?
Richard J. Campo: It's based on - yes on Camden - on whatever Summit's total
outstanding stock or shares are outstanding at the day of
closing that's correct. And if there are more shares
outstanding at closing that number will go down and if
there's less shares - I don't think there would be less
shares outstanding but - and the only way shares are going
to change is probably option exercises...
(Jess): Okay.
Richard J. Campo: ...so that number ought to be pretty close to being fixed.
(Jess): Okay, and then the same would be on the stock side...
Richard J. Campo: Yes.
(Jess): ...as well?
Richard J. Campo: Absolutely.
(Jess): Okay, okay and with respect to the election what choices
would shareholders have? Is there a mixed election option
and what would happen if you didn't elect?
Richard J. Campo: There is a mixed election. People can choose stock or cash
or cash only or stock only. If they don't choose I believe
they choose stock and then the
transfer agent at the end of the day will balance the
accounts so that 55.75 of the shareholders get stock and
that 40 and 35.25 get cash and the cash is
(unintelligible) $434 million number.
So in a perfect world if Summit shareholders - if there
were 35.25 percentage of the shareholders or roughly (13
million 923) shares decided for all cash and then the
balance of those shares decided for stock you wouldn't
have any kind of adjustment at the end. And so depending
upon how the elections are made the ultimate cash and
stock components will be - are fixed today and then the
people will get their - the shareholders will get whatever
ultimately allocation needs to be made to balance those
accounts.
(Jess): Okay.
Richard J. Campo: So we can't know today exactly what people are going to
choose but said another way if 100% of the people choose
stock they will be required to take - everyone will be
required to take 13.81 in cash in addition to their stock
position.
(Jess): Okay and the stock ratio then would be just continuing
then. If 100% elected stock you'd get 13.81...
Richard J. Campo: Right, right.
(Jess): ...and what would your exchange ratio would be on your
stock?
Richard J. Campo: That's right.
We have time for one more question and then if people need
to ask additional questions that haven't been covered they
can talk to us off line, okay? Because
we have committed to doing this call for an hour and a
half and we're sort of at that time.
John Chen:
Cavity Financial I've already had all my questions answered. Thanks.
Richard J. Campo: Okay - one more then.
Operator: And your next question comes from (Steve Newfield) of
(unintelligible) Fund Management. Please proceed.
Steve Newfield:
Fund Management Yes my question was answered.
Richard J. Campo: Okay. We can have one more then.
Steve Mantanyon:
HMC New York Hi. My question's also been answered. Thank you.
Richard J. Campo: It's a great way to get question answered so one more
then.
Operator: Your next question comes from (Chuck Park) of (Deal
Analytics). Please proceed.
Woman: Hi. Can you just go over the pricing period for the walk
away (unintelligible)?
Richard J. Campo: Sure. It is three days before the closing - the projected
closing. We take the 14 day average price of the stock and
we drop the two high periods and the two low periods and
then that is the - or two high days, two low days, and
then we
average those ten days together. And that has - that
number has to be equal to or higher than $39.31 per share.
Woman: Okay great. Will this deal require HSR clearance?
Richard J. Campo: I'm sorry?
Woman: Will this deal require Hart-Scott-Rodino clearance?
Richard J. Campo: That's a good question. I don't have a lawyer here to tell
me that. I'm not sure of the answer to that. We'll have to
get back to you on that.
Woman: Okay. Thanks.
Richard J. Campo: We appreciate the time everybody has spent on this call
and we will be available for further clarifications on the
questions that have been asked on this call.
This will be posted on the Internet and filed with the SEC
so we can't have future discussions about the specific
questions that we've answered on the call. Beyond that we
will not be able to talk about any new questions unless
they are filed with the SEC as part of our proxy.
So we appreciate your time and support and look forward to
visiting with you in the future. Thank you very much.
END
In addition to historical information, this presentation contains
forward-looking statements under the federal securities law. These statements
are based on current expectations, estimates and projections about the industry
and markets in which the companies operate, managements' beliefs, and
assumptions made by management. Forward-looking statements are not guarantees of
future performance and involve certain risks and uncertainties which are
difficult to predict.
Additional Information about the Merger and Where to Find It
In connection with the proposed merger of Summit with and into a wholly owned
subsidiary of Camden, Camden and Summit intend to file relevant materials with
the Securities and Exchange Commission, including a registration statement on
Form S-4 that will contain a prospectus and a joint proxy statement. INVESTORS
AND SECURITY HOLDERS OF CAMDEN AND SUMMIT ARE URGED TO READ THE MATERIALS WHEN
THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
CAMDEN, SUMMIT AND THE MERGER. The proxy statement, prospectus and other
relevant materials (when they become available), and any other documents filed
by Camden or Summit with the SEC, may be obtained free of charge at the SEC's
web site at www.sec.gov. In addition, investors and security holders may obtain
free copies of the documents filed with the SEC by Camden by directing a written
request to Camden Property Trust, 3 Greenway Plaza, Suite 1300, Houston, TX
77046, Attention: Investor Relations, and free copies of the documents filed by
with the SEC by Summit by directing a written request to Summit Properties Inc.
309 East Morehead Street, Suite 200, Charlotte, NC 28202, Attention: Investor
Relations. Investors and security holders are urged to read the proxy statement,
prospectus and the other relevant materials when they become available before
making any voting or investment decision with respect to the merger.
Camden, Summit and their respective executive officers, trust managers and
directors may be deemed to be participants in the solicitation of proxies from
the security holders of Camden, Summit and Summit Properties Partnership, L.P.
in connection with the merger. Information about those executive officers and
trust managers of Camden and their ownership of Camden common shares is set
forth in the proxy statement for Camden's 2004 Annual Meeting of Shareholders,
which was filed with the SEC on March 30, 2004. Information about the executive
officers and directors of Summit and their ownership of Summit common stock and
limited partnership interests in Summit Properties Partnership, L.P. is set
forth in the proxy statement for Summit's 2004 Annual Meeting of Stockholders,
which was filed with the SEC on March 24, 2004. Investors and security holders
may obtain additional information regarding the direct and indirect interests of
Camden, Summit and their respective executive officers, trust managers and
directors in the merger by reading the proxy statement and prospectus regarding
the merger when they become available.
This communication shall not constitute an offer to sell or the solicitation of
an offer to sell or the solicitation of an offer to buy any securities, nor
shall there be any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended.