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Camden Property Trusts recent
merger with Summit Properties has transformed the
companys operating platform
Real Estate Operations
(CPT - NYSE)
Camden Property Trust
3 Greenway Plaza, Suite 1300
Houston, TX 77046
Phone: (713) 354-2500
Chairman and CEO
Lynn Fosse, Senior Editor
June 30, 2005
Richard J. Campo
Chairman of the Board of Trust Managers and Chief Executive Officer
Richard Campo is Chairman of the Board and Chief Executive Officer of Camden Property
Trust. Mr. Campo has served in this capacity since May 1993 and was a co-founder of Camden's
predecessor companies in 1982. Mr. Campo began his real estate career after graduating
from Oregon State University in 1976. He has been involved in development, management,
acquisition and disposition of real estate properties valued in excess of $5 billion.
As an active participant in
the real estate industry, Mr. Campo is a frequent speaker on real estate and development
related topics. Mr. Campo is a member of the American Institute of Certified Public
Accountants. He is involved in numerous local charitable organizations and serves on the
Executive Committee of the Board of Directors for the National Multifamily Housing
Council, the Oregon State University Foundation, the Greater Houston Partnership and the
Harris County-Houston Sports Authority, which was responsible for the design, development,
financing and construction of Houstons new baseball stadium, football arena, and
Camden Property Trust is a real estate company engaged in the ownership, development,
acquisition, management and disposition of multifamily apartment communities. Camden owns
interests in and operates 191 properties containing 65,992 apartment homes across the United
States. Upon completion of ten properties under development, the Companys
portfolio will increase to 69,617 apartment homes in 201 properties.
CEOCFO: Mr. Campo, what
was your vision for Camden and how has it developed today?
Mr. Campo: When we went public in 1993, the vision was
to build a company that provided a solid shareholder return, while growing a diversified
cash flow. It started out at roughly $200 million at the IPO, primarily concentrated in Texas.
Today, we are a nearly $6 billion diversified company, and weve built the company we
thought we were going to build nearly twelve years ago.
CEOCFO: Is there a common thread in the apartments that you
Mr. Campo: There is a common thread. The idea of
diversity that I mentioned previously has to do with having a diversified cash flow by
market and within product type. The reason for that is that markets tend to go up and down
in different cycles. In order to maintain a stable growing cash flow, diversity is
important from both a geographic and property perspective. Within the property
perspective, about half of our portfolio consists of newly developed assets. These are new
urban infill, high-end, top of the market properties. The other half of the portfolio
consists of middle-market properties. Properties are ranked A, B and C. The first part of
our portfolio is an A, and the second part is a B, which is where the broadest and deepest
part of the market lives. Both of those operate very differently. As the economy is raging
along, the A market does very well. As the economy slows down, the A market does poorly
and the B market does well. They go out of sync with each other and you end up with a
diversified cash flow base. We have seen that work well during the recession of the past
three years. It is very challenging and has been the most difficult operating environment
in the past twenty years. However, while our cash flow did go down, it did not go down as
much as a lot of companies, and it did not go down enough to put our dividends at risk.
The idea of geographic and product diversity worked really well in this last
CEOCFO: I see in your corporate description that you talk
about transforming difficult market conditions into strategic business successes; how have
you done that with Summit and in general?
Mr. Campo: Our merger with Summit Properties Inc. was a
unique opportunity for the transformation of Camden into markets that investors tend to
favor more than others. The situation with Summit is very interesting because we have a
big disconnect today between operating fundamentals and investment fundamentals. What that
means is that there is a lot of capital chasing real estate; therefore pricing is at
premium levels today even though operating performance is not optimal, which is an
interesting disconnect. However, Camdens ability to acquire Summit allowed us to
enter the Washington, D.C. market, the Southeast Florida market and the Atlanta market,
while adding to our concentration in North Carolina. In essence, we have lowered our NOI
concentration in Houston, Dallas and Las Vegas, and increased our concentration in Washington,
D.C. and Southeast Florida.
We basically traded properties in markets where we were over-weighted for properties in
markets where we were under-weighted, and we did that on an accretive basis. The merger
was structured as 45% cash and 55% stock, and the cash portion was generated through
formation of a joint venture, which we just completed with The Tuckerman Group LLC. We
formed a joint venture with properties that were located in the over-weighted markets,
such as Houston and Las Vegas, and used that cash to fund the acquisition of east coast
assets. We were then able to transform the company from over-weighted concentrations in
out-of-favor markets to moderate concentrations in premier, desirable markets. We have in
essence transformed the company. We are a company that had nearly half of its net
operating income concentrated in the middle of the country, with about 43% in Houston, Dallas
and Las Vegas. Now, as a result of the merger and the development pipeline, that
percentage will drop to around 20%, and nearly half of our future NOI will come from Southern
California, Washington, D.C. and Southeast Florida.
CEOCFO: What are the main challenges in assimilating a merger
like the one you did with Summit and how do you get the Summit properties to run the way
the Camden properties run?
Mr. Campo: The transition/integration is the most
important part of a merger and the key to that is blocking and tackling. I think many
people do not understand that, but its really a simple process. The most important
thing to start with is making sure that you understand the culture. The good news for Summit
and for us is that it is a very positive culture. Number one is diversity; number two is
blocking and tackling, making lists and reconciling issues. These are basic things like
making sure the bills are paid and employees get their paychecks on time. We do have a
tremendous opportunity at Camden for creating a better operating company at Summit. Summits
same property NOI increased about 1.0% on average over ten years. Camdens same
property NOI increased 3.3%, so over a ten-year period we had much better results. We
think there are opportunities to improve performance at the Summit properties. I think
they come from the right integration of cultures and having people focused on the right
CEOCFO: How much of what you do is developing new properties
or redevelopment, and should it make a difference to the investor?
Mr. Campo: I think that it is important to investors.
We started developing about seven years ago, when it made sense to develop, and we have
developed about $1.3 billion of properties around the country. Being an adept developer is
important, especially in todays current environment where prices are at an all-time
high, and capitalization rates are at an all-time low. To create value long term you have
to get higher yields on assets, and development allows you to get 100 to 200 basis points
higher yields compared to buying an asset. Going forward, Camden is a large cap company,
but we are the smallest of the large caps. When we layer on Summits $650 million
development pipeline to Camdens $450 million pipeline, we have an embedded pipeline
of $1.1 billion. With our development teams around the country, we should add $200 to $300
million annually, so at the high end of that annual production, we will have roughly $2
billion of development coming on line over the next three years. Thats a lot of
potential growth for a $6 billion company. The development is concentrated in Southern
California, Washington, D.C. and Southeast Florida, which are three of the strongest
markets in the country. So, development is important because you get higher yields and it
has the ability to help the growth rate going forward. I think the key to growth going
forward, when you have a company as large as Camden, is executing in the field day-to-day
on the operations side. You cant build enough properties to offset a bad management
team that cant operate day-to-day activity in the field.
CEOCFO: Why should a renter want to live in a Camden
Mr. Campo: Renters should want to live in a Camden
apartment because we have a brand promise of Living Excellence. We are very focused on
service, value and providing the best housing alternative at the best price. We measure
customer satisfaction in a lot of areas, and we have one of the lower turnover rates for
our markets, both in customer and employee turnover. Its all about service. We all
understand that you can talk about service, but the key is delivering it. I can tell you
that when a customer has a problem in his or her apartment and it is not taken care of in
a timely fashion, they are upset about that. We strive to provide excellent customer
service, and all of our tracking tells us that we do that.
CEOCFO: Quality people have always been important to Camden.
How do you maintain your high standards as you grow?
Mr. Campo: It has to start with corporate commitment to
the people, operating with best practices, and creating an environment and culture that
promotes education. Excellence in the workplace is something you have to work on every
day. Many people talk about it, but you have to have action associated with the talk. We
have focused on lowering turnover, so we have one of the lowest turnover rates in the
industry at 41%. The industry average is about 65%, because you have a lot of retail sales
people and maintenance people that turn over often. The key is keeping as much longevity
as you can. When you think about it, our company is large with 2,300 employees. Really, we
have 200 properties in various markets operating as independent businesses in their trade
areas. The trade zone is within a several mile radius of the property. It is important to
get your leaders in the field - the property managers that are running those properties -
and put them on the same page, focused on providing living excellence for the residence.
You constantly have to monitor where your people are and what they are doing.
Something we did about a month ago offers a great example of how we show our people that
we believe they are the key to the success of the company. We gave company-wide bonuses
totaling about $7.5 million as the result of the Summit merger closing. The transition
with Summit went well and we had a big windfall from a technology company, where we made
$26 million on a $2 million investment, so we created a company-wide bonus program. The
bottom line is that you have to walk the walk as well as talk the
talk with your employees and make sure that people are totally engaged with what the
company is about. To do that, you have to involve all employees at all levels in
compensation programs and share the wealth with them. Out of 2,300 employees, we have
1,000 that are shareholders, and all of our senior people are shareholders in the company.
That is how you develop a winning team that outperforms.
CEOCFO: In closing, why should potential investors be
interested and what should they know that doesnt jump out at first glance when
looking at Camden?
Mr. Campo: The key thing that investors need to look at
today is the transformation of our company. We are a company that had its NOI concentrated
in the middle of the country. Now as a result of the merger and the development pipeline
overlay, we will become a totally different company over the next couple of years. Camden
has outperformed a lot of other multifamily companies and has been a top performer despite
being in more difficult or less in-favor markets. Now that we are in favorable markets
instead of out-of-favor markets with the same management team, we should be able to
jumpstart out growth and outperform our competitors from an operating perspective and an
earnings perspective. That should be a real positive for investors in the next two or
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