**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-Q**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30,2005**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from          to          **

 

**Commission file number 0-22411**

 

**CAMDEN SUMMIT PARTNERSHIP, L.P.**

 (Exact name of registrant asspecified in its charter)

 
| **Delaware**                             | ** ** | **56-1857809**      |
|------------------------------------------|------------|---------------------|
| (State or other jurisdiction of          |       | (I.R.S. Employer    |
| incorporation or organization)           |       | Identification No.) |
|                                     |       |                |
| **3 Greenway Plaza**                     | ** ** | ** **          |
| **Suite 1300**                      | ** ** | ** **          |
| **Houston, Texas**                       | ** ** | **77046**           |
| (Address of principal executive offices) |       | (Zip code)          |

 

**(713) 354-2500**

(Registrant’s telephone number, including area code)

 

**N/A**

(Former name, former address and former fiscal year, if changed sincelast report)

 

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

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).  o Yes  ý No

 

 

----

 

**TABLE OFCONTENTS**

 
| **PART I**  | **Financial Information**                                                                                                                                                                                                                       | ** ** |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|             |                                                                                                                                                                                                                                            |       |
| Item 1           | Financial Statements                                                                                                                                                                                                                            |       |
|             | Consolidated  Balance Sheets (Unaudited) as of September 30, 2005 (Successor) and December 31,  2004 (Predecessor)                                                                                                                    |       |
|             | Consolidated  Statements of Operations (Unaudited) for the three months ended September 30,  2005 (Successor) and September 30, 2004 (Predecessor)                                                                                    |       |
|             | Consolidated Statements of  Operations (Unaudited) for the seven months ended September 30, 2005  (Successor), the two months ended February 28, 2005 (Predecessor), and  the nine months ended September 30, 2004 (Predecessor) |       |
|             | Consolidated  Statements of Cash Flows (Unaudited) for the seven months ended September 30,  2005 (Successor), the two months ended February 28, 2005 (Predecessor),  and the nine months ended September 30, 2004 (Predecessor) |       |
|             | Notes to Consolidated  Financial Statements (Unaudited)                                                                                                                                                                                         |       |
| Item 2           | Management’s Discussion  and Analysis of Financial Condition and Results of Operations                                                                                                                                                     |       |
| Item 3           | Quantitative and  Qualitative Disclosures About Market Risk                                                                                                                                                                                     |       |
| Item 4           | Controls and Procedures                                                                                                                                                                                                                         |       |
|             |                                                                                                                                                                                                                                            |       |
| **PART II** | **Other Information**                                                                                                                                                                                                                           | ** ** |
|             |                                                                                                                                                                                                                                            |       |
| Item 1           | Legal Proceedings                                                                                                                                                                                                                               |       |
| Item 2           | Unregistered Sales of  Equity Securities and Use of Proceeds                                                                                                                                                                                    |       |
| Item 3           | Defaults Upon Senior  Securities                                                                                                                                                                                                                |       |
| Item 4           | Submission of Matters to a  Vote of Security Holders                                                                                                                                                                                            |       |
| Item 5           | Other Information                                                                                                                                                                                                                               |       |
| Item 6           | Exhibits                                                                                                                                                                                                                                        |       |
|             | Signatures                                                                                                                                                                                                                                      |       |

 

1

----

 

**PART I. FINANCIAL INFORMATION**

**Item 1.Financial Statements**

 

**CAMDEN SUMMIT PARTNERSHIP, L.P.**

**CONSOLIDATED BALANCE SHEETS**

**(Dollars inthousands)**

**(Unaudited)**

 
| ** **                                      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| ** **                                      | ** ** | **(Successor)**        | ** ** | **(Predecessor)**     | ** ** |
| Assets:                                         |       |                   |       |                  |       |
| Real estate assets, at  cost                    |       |                   |       |                  |       |
| Land                                            |       | $                      | 297,971    |                  | $          | 248,018 |   |
| Buildings and  improvements                     |       | 1,537,006              |       | 1,117,508             |       |
|                                            |       | 1,834,977              |       | 1,365,526             |       |
| Accumulated  depreciation                       |       | (28,352                | )          | (156,913              | )          |
| Net operating real  estate assets               |       | 1,806,625              |       | 1,208,613             |       |
| Properties under  development, including land   |       | 200,306                |       | 219,137               |       |
| Investment in joint  venture                    |       | 2,414                  |       | 2,716                 |       |
| Property held for sale                          |       | —                 |       | 31,348                |       |
| Total real estate  assets                       |       | 2,009,345              |       | 1,461,814             |       |
|                                            |       |                   |       |                  |       |
| Other assets, net                               |       | 13,605                 |       | 23,231                |       |
| Cash                                            |       | 122                    |       | 6,511                 |       |
| Restricted cash                                 |       | 525                    |       | 1,525                 |       |
| Total assets                                    |       | $                      | 2,023,597  |                  | $          | 1,493,081 |   |
|                                            |       |                   |       |                  |       |
| Liabilities and Partners’ Equity:          |       |                   |       |                  |       |
| Liabilities                                     |       |                   |       |                  |       |
| Notes payable                                   |       |                   |       |                  |       |
| Unsecured                                       |       | $                      | 181,965    |                  | $          | 172,511 |   |
| Secured mortgage notes                          |       | 495,068                |       | 490,337               |       |
| Secured credit facility                         |       | —                 |       | 95,900                |       |
| Secured line of credit –  related party    |       | 246,679                |       | —                |       |
| Accounts payable                                |       | 7,692                  |       | 15,134                |       |
| Accrued real estate  taxes                      |       | 9,550                  |       | 3,816                 |       |
| Accrued expenses and  other liabilities         |       | 31,057                 |       | 31,582                |       |
| Series C preferred  units redeemed in 2005 |       | —                 |       | 55,000                |       |
| Distributions payable                           |       | 14,485                 |       | 11,777                |       |
| Total liabilities                               |       | 986,496                |       | 876,057               |       |
|                                            |       |                   |       |                  |       |
| Partners’ equity                           |       | 1,037,101              |       | 617,024               |       |
| Total liabilities and  partners’ equity    |       | $                      | 2,023,597  |                  | $          | 1,493,081 |   |

 

See Notes to Consolidated FinancialStatements.

 

2

----

 

**CAMDEN SUMMIT PARTNERSHIP, L.P.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Dollars inthousands, except per unit amounts)**

**(Unaudited)**

 
| ** **                                                                                                                | ** ** | **For the three**      | ** ** | **For the three**      | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                                | ** ** | **months ended**       | ** ** | **months ended**       | ** ** |
| ** **                                                                                                                | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                                | ** ** | **2005**               | ** ** | **2004**               | ** ** |
| ** **                                                                                                                | ** ** | **(Successor)**        | ** ** | **(Predecessor)**      | ** ** |
| ** **                                                                                                                |       |                   |       |                   |       |
| **REVENUES**                                                                                                              |       |                   |       |                   |       |
| Rental revenues                                                                                                           |       | $                      | 41,774     |                   | $          | 33,577 |   |
| Other property revenues                                                                                                   |       | 3,418                  |       | 3,006                  |       |
| Total property revenues                                                                                                   |       | 45,192                 |       | 36,583                 |       |
| Other income                                                                                                              |       | 2                      |       | 562                    |       |
| Total revenues                                                                                                            |       | 45,194                 |       | 37,145                 |       |
|                                                                                                                      |       |                   |       |                   |       |
| **EXPENSES**                                                                                                              |       |                   |       |                   |       |
| Property operating and maintenance                                                                                        |       | 10,632                 |       | 8,190                  |       |
| Real estate taxes                                                                                                         |       | 4,720                  |       | 4,017                  |       |
| Total property expenses                                                                                                   |       | 15,352                 |       | 12,207                 |       |
| General and  administrative                                                                                               |       | 1,209                  |       | 2,096                  |       |
| Property management                                                                                                       |       | 1,187                  |       | 2,980                  |       |
| Interest                                                                                                                  |       | 9,104                  |       | 8,305                  |       |
| Depreciation and  amortization                                                                                            |       | 21,759                 |       | 10,136                 |       |
| Amortization of  deferred financing costs                                                                                 |       | —                 |       | 476                    |       |
| Total expenses                                                                                                            |       | 48,611                 |       | 36,200                 |       |
| **Income  (loss) from continuing operations before equity in earnings (losses) of joint  venture and minority interests** |       | (3,417                 | )          | 945                    |       |
| Equity in earnings (losses)  of joint venture                                                                             |       | (83                    | )          | (101                   | )          |
| Minority interest  expense                                                                                                |       | (130                   | )          | —                 |       |
| **Income (loss) from continuing operations**                                                                              |       | (3,630                 | )          | 844                    |       |
| Income from  discontinued operations                                                                                      |       | 25                     |       | 2,646                  |       |
| Impairment loss on  discontinued operations                                                                               |       | —                 |       | (6,807                 | )          |
| Gain on sale of  discontinued operations                                                                                  |       | —                 |       | 127,442                |       |
| **Net income (loss)**                                                                                                     |       | (3,605                 | )          | 124,125                |       |
| Distributions to  preferred unitholders                                                                                   |       | —                 |       | (1,203                 | )          |
| **Net income (loss) available to common  unitholders**                                                                    |       | $                      | (3,605     | )                      | $          | 122,922 |   |
|                                                                                                                      |       |                   |       |                   |       |
| **Net income (loss) per unit – basic:**                                                                              |       |                   |       |                   |       |
| Income (loss) from  continuing operations                                                                                 |       | $                      | (0.16      | )                      | $          | 0.02 |   |
| Income from  discontinued operations                                                                                      |       | —                 |       | 3.54                   |       |
| Net income (loss)                                                                                                         |       | $                      | (0.16      | )                      | $          | 3.57 |   |
| Distributions to  preferred unitholders                                                                                   |       | —                 |       | (0.03                  | )          |
| Net income (loss)  available to common unitholders                                                                        |       | $                      | (0.16      | )                      | $          | 3.53 |   |
|                                                                                                                      |       |                   |       |                   |       |
| **Net income (loss) per unit – diluted:**                                                                            |       |                   |       |                   |       |
| Income (loss) from  continuing operations                                                                                 |       | $                      | (0.16      | )                      | $          | 0.02 |   |
| Income from  discontinued operations                                                                                      |       | —                 |       | 3.50                   |       |
| Net income (loss)                                                                                                         |       | $                      | (0.16      | )                      | $          | 3.52 |   |
| Distributions to preferred  unitholders                                                                                   |       | —                 |       | (0.03                  | )          |
| Net income (loss)  available to common unitholders                                                                        |       | $                      | (0.16      | )                      | $          | 3.49 |   |
|                                                                                                                      |       |                   |       |                   |       |
| Distributions per common unit                                                                                             |       | $                      | 0.635      |                   | $          | 0.34 |   |
| Weighted average number of common units outstanding                                                                       |       | 22,810                 |       | 34,808                 |       |
| Weighted average number of common and common dilutive  equivalent units outstanding                                       |       | 22,810                 |       | 35,224                 |       |

 

See Notes to Consolidated Financial Statements.

 

3

----

 

**CAMDEN SUMMIT PARTNERSHIP, L.P.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Dollars inthousands, except per unit amounts)**

**(Unaudited)**

 
| ** **                                                                                                                | ** ** | **For the seven**      | ** ** | **For the two**       | ** ** | **For the nine**       | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                | ** ** | **months ended**       | ** ** | **months ended**      | ** ** | **months ended**       | ** ** |
| ** **                                                                                                                | ** ** | **September 30,** | ** ** | **February 28,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                                | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004**               | ** ** |
| ** **                                                                                                                | ** ** | **(Successor)**        | ** ** | **(Predecessor)**     | ** ** | **(Predecessor)**      | ** ** |
|                                                                                                                      |       |                   |       |                  |       |                   |       |
| **REVENUES**                                                                                                              |       |                   |       |                  |       |                   |       |
| Rental revenues                                                                                                           |       | $                      | 95,235     |                  | $          | 25,119                 |       | $ | 95,445 |   |
| Other property revenues                                                                                                   |       | 7,705                  |       | 2,078                 |       | 8,101                  |       |
| Total property revenues                                                                                                   |       | 102,940                |       | 27,197                |       | 103,546                |       |
| Other income                                                                                                              |       | 6                      |       | 251                   |       | 1,636                  |       |
| Total revenues                                                                                                            |       | 102,946                |       | 27,448                |       | 105,182                |       |
|                                                                                                                      |       |                   |       |                  |       |                   |       |
| **EXPENSES**                                                                                                              |       |                   |       |                  |       |                   |       |
| Property operating and  maintenance                                                                                       |       | 23,534                 |       | 5,978                 |       | 22,761                 |       |
| Real estate taxes                                                                                                         |       | 11,916                 |       | 3,546                 |       | 12,035                 |       |
| Total property expenses                                                                                                   |       | 35,450                 |       | 9,524                 |       | 34,796                 |       |
| General and  administrative                                                                                               |       | 3,908                  |       | 2,146                 |       | 6,099                  |       |
| Property management                                                                                                       |       | 2,866                  |       | 1,651                 |       | 6,154                  |       |
| Merger expenses                                                                                                           |       | —                 |       | 9,947                 |       | —                 |       |
| Interest                                                                                                                  |       | 20,903                 |       | 5,882                 |       | 22,708                 |       |
| Depreciation and  amortization                                                                                            |       | 50,513                 |       | 8,398                 |       | 30,191                 |       |
| Amortization of  deferred financing costs                                                                                 |       | —                 |       | 288                   |       | 1,138                  |       |
| Total expenses                                                                                                            |       | 113,640                |       | 37,836                |       | 101,086                |       |
| **Income  (loss) from continuing operations before equity in earnings (losses) of joint  venture and minority interests** |       | (10,694                | )          | (10,388               | )          | 4,096                  |       |
| Equity in earnings  (losses) of joint venture                                                                             |       | (197                   | )          | (64                   | )          | (275                   | )          |
| Minority interest  expense                                                                                                |       | (130                   | )          | —                |       | —                 |       |
| **Income (loss) from continuing operations**                                                                              |       | (11,021                | )          | (10,452               | )          | 3,821                  |       |
| Income from  discontinued operations                                                                                      |       | 488                    |       | 245                   |       | 8,050                  |       |
| Impairment loss on  discontinued operations                                                                               |       | —                 |       | —                |       | (6,807                 | )          |
| Gain on sale of  discontinued operations                                                                                  |       | —                 |       | —                |       | 137,483                |       |
| **Net income (loss)**                                                                                                     |       | (10,533                | )          | (10,207               | )          | 142,547                |       |
| Distributions to  preferred unitholders                                                                                   |       | —                 |       | (267                  | )          | (3,609                 | )          |
| **Net income (loss) available to common  unitholders**                                                                    |       | $                      | (10,533    | )                     | $          | (10,474                | )          | $ | 138,938 |   |
|                                                                                                                      |       |                   |       |                  |       |                   |       |
| **Net income (loss) per unit – basic:**                                                                              |       |                   |       |                  |       |                   |       |
| Income (loss) from  continuing operations                                                                                 |       | $                      | (0.48      | )                     | $          | (0.30                  | )          | $ | 0.11 |   |
| Income from  discontinued operations                                                                                      |       | 0.02                   |       | 0.01                  |       | 3.99                   |       |
| Net income (loss)                                                                                                         |       | $                      | (0.46      | )                     | $          | (0.29                  | )          | $ | 4.10 |   |
| Distributions to  preferred unitholders                                                                                   |       | —                 |       | (0.01                 | )          | (0.10                  | )          |
| Net income (loss)  available to common unitholders                                                                        |       | $                      | (0.46      | )                     | $          | (0.30                  | )          | $ | 3.99 |   |
|                                                                                                                      |       |                   |       |                  |       |                   |       |
| **Net income (loss) per unit – diluted:**                                                                            |       |                   |       |                  |       |                   |       |
| Income (loss) from  continuing operations                                                                                 |       | $                      | (0.48      | )                     | $          | (0.30                  | )          | $ | 0.11 |   |
| Income from  discontinued operations                                                                                      |       | 0.02                   |       | 0.01                  |       | 3.95                   |       |
| Net income (loss)                                                                                                         |       | $                      | (0.46      | )                     | $          | (0.29                  | )          | $ | 4.06 |   |
| Distributions to  preferred unitholders                                                                                   |       | —                 |       | (0.01                 | )          | (0.10                  | )          |
| Net income (loss)  available to common unitholders                                                                        |       | $                      | (0.46      | )                     | $          | (0.30                  | )          | $ | 3.96 |   |
|                                                                                                                      |       |                   |       |                  |       |                   |       |
| Distributions per common unit                                                                                             |       | $                      | 1.48       |                  | $          | 0.22                   |       | $ | 1.02 |   |
|                                                                                                                      |       |                   |       |                  |       |                   |       |
| Weighted average number of common units outstanding                                                                       |       | 22,810                 |       | 34,910                |       | 34,803                 |       |
| Weighted average number  of common and common dilutive equivalent units outstanding                                       |       | 22,810                 |       | 34,910                |       | 35,099                 |       |

 

See Notes to Consolidated Financial Statements.

 

4

----

 

**CAMDEN SUMMIT****PARTNERSHIP, L.P.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Dollars inthousands)**

**(Unaudited)**

 
| ** **                                                                                           | ** ** | **For the seven**      | ** ** | **For the two**       | ** ** | **For the nine**       | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                           | ** ** | **months ended**       | ** ** | **months ended**      | ** ** | **months ended**       | ** ** |
| ** **                                                                                           | ** ** | **September 30,** | ** ** | **February 28,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                           | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004**               | ** ** |
| ** **                                                                                           | ** ** | **(Successor)**        | ** ** | **(Predecessor)**     | ** ** | **(Predecessor)**      | ** ** |
|                                                                                                 |       |                   |       |                  |       |                   |       |
| **Cash flow from operating activities:**                                                             |       |                   |       |                  |       |                   |       |
| Net income (loss)                                                                                    |       | $                      | (10,533    | )                     | $          | (10,207                | )          | $ | 142,547 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                   |       |                  |       |                   |       |
| Depreciation and  amortization                                                                       |       | 50,513                 |       | 8,774                 |       | 35,119                 |       |
| Gain on sale of  discontinued operations                                                             |       | —                 |       | —                |       | (137,483               | )          |
| Impairment loss on  discontinued operations                                                          |       | —                 |       | —                |       | 6,807                  |       |
| Issuance of  unrestricted stock grants                                                               |       | —                 |       | —                |       | 1,182                  |       |
| Postretirement benefits  for former executive officers                                               |       | —                 |       | (14                   | )          | 1,536                  |       |
| Minority interest  expense                                                                           |       | 130                    |       | —                |       | —                 |       |
| Equity in (earnings)  losses of joint venture                                                        |       | 197                    |       | 64                    |       | 275                    |       |
| Net change in operating  accounts                                                                    |       | 3,741                  |       | (4,071                | )          | 12,103                 |       |
| Net cash provided by  (used in) operating activities                                                 |       | 44,048                 |       | (5,454                | )          | 62,086                 |       |
|                                                                                                 |       |                   |       |                  |       |                   |       |
| **Cash flows from investing activities:**                                                            |       |                   |       |                  |       |                   |       |
| Investment in real  estate assets                                                                    |       | (58,761                | )          | (12,662               | )          | (99,966                | )          |
| Net proceeds from sales  of properties, including land                                               |       | 29,295                 |       | —                |       | 162,679                |       |
| Acquisition of  communities                                                                          |       | —                 |       | —                |       | (107,609               | )          |
| Payment of merger  related liabilities                                                               |       | (50,765                | )          | —                |       | —                 |       |
| Other investing  activities                                                                          |       | 1,059                  |       | (125                  | )          | (597                   | )          |
| Net cash used in  investing activities                                                               |       | (79,172                | )          | (12,787               | )          | (45,493                | )          |
|                                                                                                 |       |                   |       |                  |       |                   |       |
| **Cash flows from financing activities:**                                                            |       |                   |       |                  |       |                   |       |
| Net (repayments)  borrowings on secured credit facility                                              |       | (188,500               | )          | 92,600                |       | 9,400                  |       |
| Net borrowings on  secured line of credit-related party                                              |       | 246,679                |       | —                |       | —                 |       |
| Repayment of unsecured  notes                                                                        |       | —                 |       | —                |       | (50,000                | )          |
| Repayment of secured  notes                                                                          |       | (15,295                | )          | —                |       | —                 |       |
| Proceeds from issuance  of mortgage notes                                                            |       | —                 |       | —                |       | 109,440                |       |
| Repayment of  construction loan                                                                      |       | —                 |       | —                |       | (33,344                | )          |
| Repayments of  tax-exempt bonds                                                                      |       | —                 |       | —                |       | (10,345                | )          |
| Distributions to common  unitholders                                                                 |       | (26,456                | )          | (12,524               | )          | (35,228                | )          |
| Distributions to Series C  preferred unitholders                                                |       | —                 |       | —                |       | (3,609                 | )          |
| Redemption of Series C  preferred units                                                         |       | —                 |       | (55,000               | )          | —                 |       |
| Other financing activities                                                                           |       | 2,122                  |       | 3,350                 |       | (2,585                 | )          |
| Net cash provided by  (used in) financing activities                                                 |       | 18,550                 |       | 28,426                |       | (16,271                | )          |
| **Net (decrease) increase in cash and cash  equivalents**                                            |       | (16,574                | )          | 10,185                |       | 322                    |       |
| **Cash and cash equivalents, beginning of period**                                                   |       | 16,696                 |       | 6,511                 |       | 2,687                  |       |
| **Cash and cash equivalents, end of period**                                                         |       | $                      | 122        |                  | $          | 16,696                 |       | $ | 3,009 |   |
|                                                                                                 |       |                   |       |                  |       |                   |       |
| **Supplemental information:**                                                                        |       |                   |       |                  |       |                   |       |
| Cash paid for interest,  net of interest capitalized                                                 |       | $                      | 20,600     |                  | $          | 5,067                  |       | $ | 22,815 |   |
| Interest capitalized                                                                                 |       | 5,472                  |       | 1,378                 |       | 7,140                  |       |
|                                                                                                 |       |                   |       |                  |       |                   |       |
| **Supplemental schedule of noncash investing  and financing activities:**                       |       |                   |       |                  |       |                   |       |
| Merger with Camden, net  of cash:                                                                    |       |                   |       |                  |       |                   |       |
| Fair value adjustment  of assets                                                                     |       | $                      | 559,119    |                  | $          | —                 |       | $ | — |   |
| Fair value adjustment  of debt                                                                       |       | 33,936                 |       | —                |       | —                 |       |

 

See Notes to Consolidated Financial Statements.

 

5

----

 

**CAMDENSUMMIT PARTNERSHIP, L.P.**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

*The accompanying interimunaudited financial information has been prepared according to the rules andregulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted according to suchrules and regulations. Management believes that the disclosures includedare adequate to make the information presented not misleading. In the opinionof management, all adjustments and eliminations, consisting only of normalrecurring adjustments, necessary to present fairly the financial position ofCamden Summit Partnership, L.P. (formerly known as Summit PropertiesPartnership, L.P.) as of September 30, 2005, the results of operations for**the three and seven monthsended September 30, 2005 (Successor), the two months ended February 28,2005 (Predecessor), and the three and nine months ended September 30, 2004(Predecessor), and the cash flows for the seven months ended September 30,2005 (Successor), the two months ended February 28, 2005 (Predecessor),and the nine months ended September 30, 2004 (Predecessor) have beenincluded. The results of operations for such interim periods are notnecessarily indicative of the results for the full year.*

 

**1.Basis of Presentation**

 

On February 28, 2005, Summit PropertiesInc. (“Summit”) was merged with and into Camden Summit, Inc. (“CamdenSummit”), a wholly-owned subsidiary of Camden Property Trust (“Camden”), pursuantto an Agreement and Plan of Merger dated as of October 4, 2004 (the “MergerAgreement”), as amended.  Prior to theeffective time of the merger, Summit was the sole general partner of SummitProperties Partnership, L.P. (the “Camden Summit Partnership” or “us” or “we”),and at the effective time, Camden Summit became the sole general partner of theCamden Summit Partnership and the name of this partnership was changed toCamden Summit Partnership, L.P.

 

The consummation of the merger effected a changein control of the Camden Summit Partnership. Prior to the effective time of the merger, Summit was the generalpartner of the Camden Summit Partnership and held 348,086 general partnerunits, representing a 1% general partnership interest, and 31,117,541 limitedpartner units, representing an 89.4% limited partnership interest.  The remaining 3,343,004 limited partner unitswere held by the outside limited partners. As of the effective time of the merger, Camden Summit became the generalpartner of the Camden Summit Partnership and held 232,765.108 general partnerunits, representing a 1% general partnership interest, and 20,808,299.667limited partner units, representing a 91.2% limited partnership interest.  The remaining 1,769,281 units, representing a7.8% limited partner interest, were heldby former outside limited partners.  Eachcommon limited partnership unit is redeemable for one common share of Camden.

 

In conjunction with the merger, the limitedpartners in the Camden Summit Partnership were offered, on a unit-by-unitbasis, the opportunity to redeem their partnership units for $31.20 in cash,without interest, or to remain in the Camden Summit Partnership following themerger at a unit valuation equal to .6687 of a Camden common share.  The limited partner elections resulted inCamden redeeming 742,270.374 partnership units for cash, for an aggregate of$21.7 million, and issuing 1,769,281.232 million partnership units.  The value of the partnership units issued wasdetermined based on the average market price of Camden’s common shares for thefive day period commencing two days prior to the announcement of the merger on October 4,2004.  Subsequent to the merger, 0.1million partnership units have been redeemed for $5.5 million.

 

Camden Summit Partnership, L.P. is a Delaware limitedpartnership and a subsidiary of Camden Summit, which is a wholly-ownedsubsidiary of Camden, a Texas real estate investment trust.  Camden conducts a portion of its businessthrough the Camden Summit Partnership and its subsidiaries.  As ofSeptember 30, 2005, Camden held 91.8% of our common limited partnershipunits as well as the sole 1% general partnership interest.  The remaining 7.2% of the common limited partnershipunits were held by former outside limited partners.

 

As Camden acquiredapproximately 92% of its ownership interest in the Camden Summit Partnership atthe effective time of the merger, Camden has recorded the Camden SummitPartnership as a wholly-owned subsidiary in accordance with the provisions of EmergingIssues Task Force Abstract D-97, “Push-Down Accounting.”  Camden’sownership interest in the Camden Summit Partnership meets the criteria of “substantiallywholly owned,” and as such our assets and liabilities were revalued as of theeffective time of the merger.

 

Camden allocated the purchase price between net tangibleand intangible assets.  Costs wereallocated to the estimated intangible value of in place leases and above orbelow market leases and to the estimated fair value of furniture and fixtures,land and buildings on a value determined by assuming the property is vacant byapplying methods similar to those used by independent appraisers ofincome-producing property.  Depreciationand amortization is computed on a straight-line basis over the remaining usefullives of the related assets.  Buildingsand furniture and fixtures have an estimated useful life of 35 years and 5years, 

 

6

----

 

respectively.  The value of in-placeleases and above or below market leases is being amortized over the estimatedaverage remaining life of leases in place at the time of the merger.  In-place lease terms generally range from 6to 13 months.  We use an estimatedremaining average lease life of 10 months to amortize the value of in-placeleases recorded in conjunction with the merger.

 

The allocations of the purchase price are based uponpreliminary estimates and assumptions. Accordingly, these allocations are subject to revision when we receivefinal information, including appraisals and other analyses.  Revisions to the fair value allocations,which may be significant, will be recorded as further adjustments to thepurchase price allocations.  Revisions tothe purchase price allocations during the third quarter of 2005 includedadjustments of $230,000 to notes payable for a fair value of debt adjustmentand $722,000 to accounts payable, accrued expenses and other liabilities.

 

The following table summarizes the preliminaryestimated fair values of the assets acquired and liabilities assumed at thetime of merger, net of cash acquired:

 

| **(in thousands)**                                                     | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|
|                                                                   |       |       |       |
| Land                                                                   |       | $          | 297,169    |   |
| Buildings and improvements                                             |       | 1,527,221  |       |
| Properties under development, including land                           |       | 152,042    |       |
| Investments in joint ventures                                          |       | 2,652      |       |
| Properties held for sale                                               |       | 29,687     |       |
| Other assets, including the value of in-place leases  of $31.7 million |       | 37,417     |       |
| Cash and cash equivalents                                              |       | 16,696     |       |
| Restricted cash                                                        |       | 1,542      |       |
| Total assets                                                           |       | 2,064,426  |       |
| Notes payable                                                          |       | 880,829    |       |
| Accounts payable, accrued expenses and other  liabilities              |       | 99,918     |       |
| Fair value of liabilities, including notes payable                     |       | 980,747    |       |
| Total partnership equity                                               |       | $          | 1,083,679  |   |

 

In connection with themerger, $69.8 million of termination, severance and settlement of share-basedcompensation costs were incurred.  Ofthis amount, Summit paid $26.3 million prior to the effective time of themerger.  As of September 30, 2005,we paid $38.0 million of these costs and have accrued $5.5 million.

 

The following unauditedpro forma financial information for the three and nine months ended September 30,2005 and 2004, gives effect to the merger as if it had occurred at thebeginning of the periods presented. The pro forma financial information for2005 includes pro forma results for the first two months of 2005 and actualresults for the remaining seven months. The pro forma results are based onhistorical data and are not intended to be indicative of the results of futureoperations. 

 
| ** **                 | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|----------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands)**         | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                       |       |                                       |       |                                      |       |   |   |   |   |
| Total property revenues    |       | $                                          | 45,192     |                                      | $          | 40,577 |   | $ | 130,602 |   | $ | 115,691 |   |
| Net income (loss)          |       | (3,605                                     | )          | 113,525                                   |       | (26,737 | ) | 109,581 |   |
| Net income (loss) per unit |       | $                                          | (0.16      | )                                         | $          | 4.98 |   | $ | (1.17 | ) | $ | 4.80 | . |

 

We focus on the operation, development and acquisitionof luxury apartment communities in select neighborhoods throughout theSoutheast and Mid-Atlantic United States. We focus our efforts in five markets: Washington, D.C. Metro, SoutheastFlorida, Atlanta, Raleigh and Charlotte. As of September 30, 2005, our portfolio consisted of 48 completedcommunities comprising 14,991 apartment homes with an additional 1,414apartment homes under construction at four communities.

 

Our Consolidated Balance Sheets and our relatedConsolidated Statements of Operations and Cash Flows for the periods presentedprior to the merger are referenced herein as the Predecessor consolidatedfinancial statements (the “Predecessor”). Our Consolidated Balance Sheet as of September 30, 2005 and ourrelated Consolidated Statements of Operations for the three and seven monthsended September 30, 2005 and our Consolidated Statements of Cash Flows forthe seven months ended September 30, 2005 are referenced herein as the Successorconsolidated financial statements (the “Successor”).

 

SignificantAccounting Policies

 

The following significant accounting policiesrepresent those in effect as of September 30, 2005.  There have been no significant changes fromthe accounting policies in place prior to the effective time of the merger.

 

***Reportable Segments.***  The Financial Accounting Standards Board’s (“FASB”)Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” establishes standardsfor reporting financial and descriptive information about an enterprise’sreportable segments.  We have determinedthat we have one reportable 

 

7

----

 

segment,with activities related to the ownership, development and management ofmultifamily communities.  Our apartmentcommunities generate rental revenue and other income through the leasing ofapartment homes.  Although ourmultifamily communities are geographically diversified throughout the Southeastand Mid-Atlantic states, management evaluates operating performance on anindividual property level.  However, aseach of our apartment communities has similar economic characteristics,residents, and products and services, our apartment communities have been aggregatedinto one reportable segment.  In additionto Generally Accepted Accounting Principles (“GAAP”) measures included in ourconsolidated statements of operations, our chief operating decision makersevaluate the financial performance of each community using a financial measureentitled net operating income.  Eachcommunity’s performance is assessed based on growth of or decline in netoperating income, which is defined as total property revenues less totalproperty expenses as presented in our consolidated statements of operations andexcludes certain revenue and expense items such as fee and asset managementincome and expenses and other indirect operating expenses, interest,depreciation and amortization expenses.

 

Below is a reconciliation of net operatingincome from our wholly-owned communities included in continuing operations toits most directly comparable GAAP measure, income from continuing operationsbefore equity in earnings (losses) of joint venture and minority interests:

 
| ** **                                                                                                            | ** ** | **For the three**      | ** ** | **For the three**      | ** ** | **For the seven**      | ** ** | **For the two**       | ** ** | **For the nine**       | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                            | ** ** | **months ended**       | ** ** | **months ended**       | ** ** | **months ended**       | ** ** | **months ended**      | ** ** | **months ended**       | ** ** |
| ** **                                                                                                            | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **February 28,** | ** ** | **September 30,** | ** ** |
| **(in thousands)**                                                                                                    | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004**               | ** ** |
| ** **                                                                                                            | ** ** | **(Successor)**        | ** ** | **(Predecessor)**      | ** ** | **(Successor)**        | ** ** | **(Predecessor)**     | ** ** | **(Predecessor)**      | ** ** |
|                                                                                                                  |       |                   |       |                   |       |                   |       |                  |       |                   |       |
| Total property revenues                                                                                               |       | $                      | 45,192     |                   | $          | 36,583                 |       | $                     | 102,940    |                   | $          | 27,197 |   | $ | 103,546 |   |
| Total property expenses                                                                                               |       | 15,352                 |       | 12,207                 |       | 35,450                 |       | 9,524                 |       | 34,796                 |       |
| Net operating income                                                                                                  |       | 29,840                 |       | 24,376                 |       | 67,490                 |       | 17,673                |       | 68,750                 |       |
| Less other expenses:                                                                                                  |       |                   |       |                   |       |                   |       |                  |       |                   |       |
| Depreciation and  amortization                                                                                        |       | 21,759                 |       | 10,136                 |       | 50,513                 |       | 8,398                 |       | 30,191                 |       |
| Interest                                                                                                              |       | 9,104                  |       | 8,305                  |       | 20,903                 |       | 5,882                 |       | 22,708                 |       |
| Merger expenses                                                                                                       |       | —                 |       | —                 |       | —                 |       | 9,947                 |       | —                 |       |
| General and  administrative                                                                                           |       | 1,209                  |       | 2,096                  |       | 3,908                  |       | 2,146                 |       | 6,099                  |       |
| Property management                                                                                                   |       | 1,187                  |       | 2,980                  |       | 2,866                  |       | 1,651                 |       | 6,154                  |       |
| Amortization of  deferred financing costs                                                                             |       | —                 |       | 476                    |       | —                 |       | 288                   |       | 1,138                  |       |
| Total other expenses                                                                                                  |       | 33,259                 |       | 23,993                 |       | 78,190                 |       | 28,312                |       | 66,290                 |       |
| Add non-property  income:                                                                                             |       |                   |       |                   |       |                   |       |                  |       |                   |       |
| Other income                                                                                                          |       | 2                      |       | 562                    |       | 6                      |       | 251                   |       | 1,636                  |       |
| Income (loss) from  continuing operations before equity in earnings (losses) of joint venture and  minority interests |       | $                      | (3,417     | )                      | $          | 945                    |       | $                     | (10,694    | )                      | $          | (10,388 | ) | $ | 4,096 |   |

 

***Real Estate Assets, at Cost.***  Real estate assets are carried at cost pluscapitalized carrying charges. Carrying charges are primarily interest and realestate taxes which are capitalized as part of properties underdevelopment.  For the three and sevenmonths ended September 30, 2005, we capitalized $2.7 million and $6.2 million,respectively, in interest and real estate taxes.  Expenditures directly related to thedevelopment, acquisition and improvement of real estate assets, excludinginternal costs relating to acquisitions of operating properties, arecapitalized at cost as land, buildings and improvements. Indirect developmentcosts, including salaries and benefits and other related costs that are clearlyattributable to the development of properties, are also capitalized.  All construction and carrying costs arecapitalized and reported on the balance sheet in properties under developmentuntil the apartment homes are substantially completed. Upon substantialcompletion of the apartment homes, the total cost for the apartment homes andthe associated land is transferred to buildings and improvements and land,respectively, and the assets are depreciated over their estimated useful livesusing the straight-line method of depreciation. All operating expenses associated with completed apartment homes forproperties in the development and leasing phase are expensed.  Upon substantial completion of the project,all apartment homes are considered operating and we begin expensing all itemsthat were previously considered carrying costs.

 

We capitalized $4.5 million during the seven monthsended September 30, 2005, $1.8 million for the two months ended February 28,2005 and $7.4 during the nine months ended September 30, 2004 ofrenovation and improvement costs that we believe extended the economic livesand enhanced the earnings of our multifamily properties.  Capital expenditures are capitalized anddepreciated over their useful lives, which range from 3 to 20 years.

 

Uponthe acquisition of real estate assets, we assess the fair value of acquiredassets, including land, buildings, the value of in-place leases, above andbelow market leases, and acquired liabilities, including fair value adjustmentsfor debt.  We then allocate the purchaseprice of the acquired property based on these assessments.  We assess fair value based on estimated cashflow projections and available market information.

 

8

----

 

Depreciation and amortization is computed on astraight-line basis over the remaining useful lives of the related assets.  Buildings and furniture and fixtures have anestimated useful life of 35 years and 5 years, respectively.  The value of in place leases and above orbelow market leases is being amortized over the estimated average remaininglife of leases in place at the time of the merger.  In-place lease terms generally range from 6to 13 months.

 

If an event or change in circumstances indicates thata potential impairment in the value of a property has occurred, our policy isto assess any potential impairment by making a comparison of the current andprojected cash flows for such property over its remaining holding period, on anundiscounted basis, to the carrying amount of the property.  If such carrying amounts were in excess of theestimated projected cash flows of the property, we would recognize animpairment loss equivalent to an amount required to adjust the carrying amountto its estimated fair market value, less costs to sell.

 

***Incentive and benefits plans. ***In connection with themerger, all employees of Summit who continued employment with Camden becameemployees of Camden Development, Inc., a wholly-owned subsidiary ofCamden.  All Summit benefit plans,including its Stock Option and Incentive Plans, were terminated or convertedinto benefit plans of Camden. Immediately prior to the effective time of the merger, Summit had454,742 options outstanding, including 91,902 incentive stock options, and35,229 unvested restricted stock awards. At the effective time of the merger, all outstanding options werecancelled, and the option holders had the right to receive a cash optionpayment, as defined in the merger agreement, or to elect to receive Camdencommon shares in lieu of the cash option payment.  All Summit restricted stock awards becamefully vested immediately prior to the effective time of the merger and wereconsidered outstanding shares for all purposes under the merger agreement.

 

If we had adopted the provisions of SFAS No. 123to our option grants and ESPP prior to 2003, our net income to commonshareholders and related basic and diluted earnings per share would be asfollows:

 
| ** **                                                                                                  | ** ** | **For the three**      | ** ** | **For the two**       | ** ** | **For the nine**       | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                  | ** ** | **months ended**       | ** ** | **months ended**      | ** ** | **months ended**       | ** ** |
| ** **                                                                                                  | ** ** | **September 30,** | ** ** | **February 28,** | ** ** | **September 30,** | ** ** |
| **(in thousands, except per unit  amounts)**                                                                | ** ** | **2004**               | ** ** | **2005**              | ** ** | **2004**               | ** ** |
| ** **                                                                                                  | ** ** | **(Predecessor)**      | ** ** | **(Predecessor)**     | ** ** | **(Predecessor)**      | ** ** |
|                                                                                                        |       |                   |       |                  |       |                   |       |
| Net income (loss), as  reported                                                                             |       | $                      | 124,125    |                  | $          | (10,207                | )          | $ | 142,547 |   |
| Add: stock-based  employee compensation expense included in reported net income                             |       | 253                    |       | 37                    |       | 769                    |       |
| Deduct: total  stock-based employee compensation expense determined under fair value method  for all awards |       | (315                   | )          | (37                   | )          | (971                   | )          |
| Pro forma net income  (loss)                                                                                |       | $                      | 124,063    |                  | $          | (10,207                | )          | 142,345 |   |
|                                                                                                        |       |                   |       |                  |       |                   |       |
| Net income (loss) per  unit – basic                                                                    |       |                   |       |                  |       |                   |       |
| As reported                                                                                                 |       | $                      | 3.57       |                  | $          | (0.29                  | )          | $ | 4.10 |   |
| Pro forma                                                                                                   |       | 3.56                   |       | (0.29                 | )          | 4.09                   |       |
|                                                                                                        |       |                   |       |                  |       |                   |       |
| Net income (loss) per  unit – diluted                                                                  |       |                   |       |                  |       |                   |       |
| As reported                                                                                                 |       | $                      | 3.52       |                  | $          | (0.29                  | )          | $ | 4.06 |   |
| Pro forma                                                                                                   |       | 3.52                   |       | (0.29                 | )          | 4.06                   |       |

 

***Estimates***.  The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the consolidated financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.

 

***Recent Accounting Pronouncements.***  In December 2004, the FASB issuedStatement of Financial Accounting Standards (“SFAS”) No. 123 (revised2004), “Share-Based Payments (SFAS 123R).” SFAS 123R requires all share-basedpayments to employees, including grants of employee stock options, to berecognized over their vesting periods in the income statement based on theirestimated fair values. In April 2005, the Securities and ExchangeCommission (“SEC”) issued a press release announcing it would provide fora phased-in implementation process for SFAS 123R. SFAS 123R is effective forall public entities in the first annual reporting period beginning after June 15,2005 which, for us would be the calendar year of 2006. As a result of the SEC’sannouncement, we are in the process of assessing the impact of SFAS 123R andhave not determined what impact, if any, our adoption of SFAS 123R will have onour financial position, results of operations or cash flows.

 

In December 2004, FASB issued SFAS No. 153, “Exchangeof Nonmonetary Assets, an amendment of APB Opinion No. 29,” whichaddresses the measurement of exchanges of nonmonetary assets.  SFAS No. 153 eliminates the exceptionfor nonmonetary exchanges of similar productive assets and replaces it with ageneral exception for exchange of nonmonetary assets that do not havecommercial substance.  It also specifiesthat a nonmonetary exchange has commercial substance if the future cash flowsof the entity

 

9

----

 

are expected to change significantly as a result of the exchange.  SFAS No. 153 is effective beginning July 1,2005.  The adoption of SFAS No. 153 didnot have a material impact on our financial position, results of operations orcash flows.

 

In March 2005, the FASB issued FASB StaffPosition (“FSP”) FASB Interpretation (“FIN”) 46R-5, “Implicit Variable Interestunder FASB Interpretation No. 46 (revised December 2003), *Consolidation of Variable Interest Entities*.”  This FSP requires a reporting entity toconsider whether it holds an implicit variable interest in a variable interestentity (“VIE”) or potential VIE.  FSP FIN46R-5 was effective with reporting periods beginning after March 3,2005.  The adoption of FSP FIN 46R-5 did nothave a material impact on our financial position, results of operations or cashflows.

 

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections, a replacement of APB Opinion No. 20 andFASB Statement No. 3.”  SFAS No. 154changes the requirements for and reporting of a change in accountingprinciple.  SFAS No. 154 requiresthat a voluntary change in accounting principle be applied retrospectively withall prior period financial statements presented on the new accountingprinciple, unless it is impracticable to do so. This Statement also providesthat (1) a change in method of depreciating or amortizing a long-livednonfinancial asset be accounted for as a change in estimate (prospectively)that was effected by a change in accounting principle, and (2) correctionsof errors in previously issued financial statements should be termed a “restatement.”The new standard is effective for accounting changes and correction of errorsmade in fiscal years beginning after December 15, 2005.  We do not expect that the adoption of SFAS No. 154will have a material impact on our financial position, results of operations orcash flows.

 

In June 2005, the FASB issued Emerging IssuesTask Force (“EITF”) Issue No. 04-05, “Determining Whether a GeneralPartner, or the General Partners as a Group, Controls a Limited Partnership orSimilar Entity When the Limited Partners Have Certain Rights.”  EITF Issue No. 04-05 provides aframework for determining whether a general partner controls, and shouldconsolidate, a limited partnership or a similar entity.  EITF Issue No. 04-05 is effective after June 29,2005, for all newly formed limited partnerships and for any pre-existinglimited partnerships that modify their partnership agreements after thatdate.  General partners of all otherlimited partnerships are required to apply the consensus no later than thebeginning of the first reporting period in fiscal years beginning after December 15,2005.  We do not expect that the adoptionof EITF Issue No. 04-05 will have a material impact on our financialposition, results of operations or cash flows.

 

In June 2005, the FASB issued FSP 78-9-1, “Interactionof AICPA Statement of Position 78-9 and EITF Issue No. 04-05.”  The EITF acknowledged that the consensus inEITF Issue No. 04-05 conflicts with certain aspects of Statement ofPosition (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures.”  The EITF agreed that the assessment ofwhether a general partner, or the general partners as a group, controls alimited partnership should be consistent for all limited partnerships,irrespective of the industry within which the limited partnershipoperates.  Accordingly, the guidance inSOP 78-9 was amended in FSP 78-9-1 to be consistent with the guidance in EITFIssue No. 04-05.  The effectivedates for this FSP are the same as those mentioned above in EITF Issue No. 04-05.  We do not expect that the adoption of FSP 78-9-1will have a material impact on our financial position, results of operations orcash flows.

 

***Reclassifications***.  Certain reclassifications have been made toamounts in prior period consolidated financial statements to conform withcurrent period presentations.  In ourConsolidated Statements of Cash Flows for the seven months ended September 30,2005, we changed the classification of changes in restricted cash to presentsuch changes as an investing activity. We previously presented such changes as operating activities.  In the accompanying Consolidated Statementsof Cash Flows for the two months ended February 28, 2005 and for the ninemonths ended September 30, 2004, we reclassified these changes in balancesto be consistent with our 2005 presentation which resulted in an $18,000decrease and a $3,000 increase in investing cash flows, respectively, and acorresponding $18,000 increase and $3,000 decrease to operating cash flows,respectively, from the amounts previously reported.

 

**2.Per Unit Data**

 

Basicearnings per unit are computed based upon the weighted average number of unitsoutstanding during the respective period. The difference between “basic” and “diluted”weighted average units is the dilutive effect of Summit’s stock-basedcompensation outstanding, which was either cancelled and paid out or fullyvested in connection with the merger with Camden.  No potentially dilutive units wereoutstanding as of September 30, 2005. The number of units added to weighted average units outstanding for thediluted calculation was 416,000 and 296,000 for the three and nine months endedSeptember 30, 2004, respectively.

 

10

----

 

**3.Communities Acquired**

 

Weacquired no communities during the nine months ended September 30, 2005.  We acquired four communities during the ninemonths ended September 30, 2004 of which two communities are located inCharlotte, NC (605 apartment homes), one is located in Miami, FL (232 apartmenthomes) and the remaining community is located in Atlanta, GA (296 apartmenthomes).  During the year ended December 31,2004, we acquired a total of six communities with 1,581 apartment homes asfollows:

 

| ** **              | ** ** | ** **    | ** ** | **Apartment** | ** ** |
|-------------------------|------------|---------------|------------|---------------|------------|
| **Property Name**       | ** ** | **Location**  | ** ** | **Homes**     | ** ** |
| Summit Stonecrest       |       | Charlotte, NC |       | 306           |       |
| Summit South End Square |       | Charlotte, NC |       | 299           |       |
| Summit Doral Villas     |       | Miami, FL     |       | 232           |       |
| Summit Midtown          |       | Atlanta, GA   |       | 296           |       |
| Summit Fallsgrove       |       | Rockville, MD |       | 268           |       |
| Summit Cotton Mills     |       | Charlotte, NC |       | 180           |       |
|                    |       |          |       | 1,581         |       |

 

Thefollowing unaudited pro forma financial information for the three and ninemonths ended September 30, 2004 gives effect to the above acquisitions asif they had occurred at the beginning of the period presented.  The pro forma financial information is basedon historical data and is not intended to be indicative of the results offuture operations.

 
| **(in thousands)**               | ** ** | **Three months ended  September 30, 2004** | ** ** | **Completed  Acquisitions** | ** ** | **As  Adjusted** | ** ** | **Nine months  ended  September 30,  2004** | ** ** | **Completed  Acquisitions** | ** ** | **As  Adjusted** | ** ** |
|----------------------------------|------------|-------------------------------------------------|------------|-----------------------------|------------|------------------|------------|--------------------------------------------------|------------|-----------------------------|------------|------------------|------------|
|                             |       |                                            |       |                        |       |             |       |                                             |       |                        |       |             |       |   |   |   |   |   |   |
| Total revenues                   |       | $                                               | 37,145     |                        | $          | 3,296            |       | $                                                | 40,441     |                        | $          | 105,182          |       | $ | 10,172 |   | $ | 115,354 |   |
| Net income to common unitholders |       | 122,922                                         |       | (128                        | )          | 122,794          |       | 138,938                                          |       | (3,666                      | )          | 135,272          |       |

 

**4.Discontinued Operations**

 

The components of net income that are presented asincome from discontinued operations include net operating income, depreciationand property specific interest expense, if any. In addition, the net gain or loss on the disposal of a property ispresented in discontinued operations when recognized, including impairmentloss, if any.   During the three monthsended September 30, 2005, we sold one property located in Atlanta, GA, previouslypresented in discontinued operations, to an unrelated third party.  The fair value of this property was adjustedat the time of the merger and no gain was recognized on the sale.  As of September 30, 2005, we had no propertiesclassified as held for sale.

 

Duringthe nine months ended September 30, 2004, we sold eight properties, with2,084 apartment homes, for an aggregate sales price of $234.9 million, inaddition to a parcel of land.  All ofthese properties were sold as part of our strategy to dispose of older propertiesand redeploy the proceeds into newer communities in more desirableneighborhoods within our markets.   We also recognized an impairment charge of$6.8 million on one of our held for sale properties during the three monthsended September 30, 2004.

 

The operating results of the one property soldduring the third quarter of 2005 and the ten properties sold during 2004are included in discontinued operationsfor the three and nine months ended September 30, 2005 and 2004, are asfollows:

 
| ** **                                  | ** ** | **For the three**      | ** ** | **For the three**      | ** ** | **For the seven**      | ** ** | **For the two**       | ** ** | **For the nine**       | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **months ended**       | ** ** | **months ended**       | ** ** | **months ended**       | ** ** | **months ended**      | ** ** | **months ended**       | ** ** |
| ** **                                  | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **February 28,** | ** ** | **September 30,** | ** ** |
| **(in thousands)**                          | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004**               | ** ** |
| ** **                                  | ** ** | **(Successor)**        | ** ** | **(Predecessor)**      | ** ** | **(Successor)**        | ** ** | **(Predecessor)**     | ** ** | **(Predecessor)**      | ** ** |
| Property revenues                           |       | $                      | 223        |                   | $          | 5,999                  |       | $                     | 1,621      |                   | $          | 727 |   | $ | 19,465 |   |
| Property operating expenses                 |       | 198                    |       | 2,503                  |       | 1,133                  |       | 482                   |       | 7,903                  |       |
| Net operating income                        |       | 25                     |       | 3,496                  |       | 488                    |       | 245                   |       | 11,562                 |       |
| Depreciation and  amortization and interest |       | —                 |       | 850                    |       | —                 |       | —                |       | 3,512                  |       |
| Income from discontinued operations         |       | $                      | 25         |                   | $          | 2,646                  |       | $                     | 488        |                   | $          | 245 |   | $ | 8,050 |   |

 

11

----

 

 

**5.Investments in Joint Ventures**

 

We owna 25% equity interest in a joint venture named Station Hill, LLC (“Station Hill”),in which we and Hollow Creek, LLC, a subsidiary of a major financial servicescompany, are members.  We are entitled to25% of the joint venture’s cash flow based on our equity interest.  If certain benchmarks are achieved in thefuture, we would be entitled to a preferred return in excess of 25% of the cashflow.  The operating agreement of thejoint venture provides that we will be entitled to 25% of the net proceeds uponliquidation of Station Hill, although our interest in the residual value of thejoint venture could increase above or decrease below 25%.  Our interest in the residual value of thejoint venture could decrease below 25% only if we receive more than 25% of cashflow at any time prior to liquidation. Any such decrease would be limited to the extent of cash flow in excessof 25%.  Station Hill currently owns fourcommunities and is accounted for on the equity method of accounting and,therefore, our 25% equity interest is presented in “Equity in income of jointventures” in our consolidated statements of operations.

 

The joint venture discussed above is accountedfor under the equity method and has been funded with secured, third-party debt.  We are not committed to any additionalfunding on third-party debt in relation to our joint venture.  Management believes that the investment inthe joint venture does not qualify for consolidation as a variable interestentity.  This joint venture is accountedfor under the equity method as we exercise significant influence.

 

In2002, we entered into two separate joint ventures with a major financialservices institution (the “investor member”) to redevelop Summit Roosevelt andSummit Grand Parc, both located in Washington, D.C. Metro, in a manner topermit the use of federal rehabilitation income tax credits.  The investor member contributed approximately$6.5 million for Summit Roosevelt and approximately $2.6 million for Summit GrandParc in equity to fund a portion of the total estimated costs for therespective communities and will receive a preferred priority return on thesecapital investments and an annual asset management fee with respect to eachcommunity.  The investor member’sinterests in the joint ventures are subject to put/call rights during the sixthand seventh years after the respective communities are placed in service.  These joint ventures are consolidated intoour financial statements and the amounts contributed are included in accruedexpenses and other liabilities in our consolidated balance sheet.

 

**6.Notes Payable**

 

The following is a summary of our indebtedness:

 

| **(in millions)**                                                | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                       | ** ** | **(Successor)**              | ** ** | **(Predecessor)**           | ** ** |
| **Senior unsecured notes**                                       |       |                         |       |                        |       |
| $50.0 million 4.30%  Notes, due 2007                             |       | $                            | 52.7       |                        | $          | 52.5 |   |
|                                                             |       |                         |       |                        |       |
| **Medium-term unsecured notes**                                  |       |                         |       |                        |       |
| $25.0 million 3.59%  Notes, due 2005                             |       | 25.2                         |       | 25.0                        |       |
| $25.0 million 3.91%  Notes, due 2006                             |       | 25.5                         |       | 25.0                        |       |
| $25.0 million 4.64%  Notes, due 2009                             |       | 27.4                         |       | 25.0                        |       |
| $10.0 million 4.90%  Notes, due 2010                             |       | 11.5                         |       | 10.0                        |       |
| $35.0 million 4.99%  Notes, due 2011                             |       | 39.6                         |       | 35.0                        |       |
|                                                             |       | 129.2                        |       | 120.0                       |       |
| **Total unsecured notes**                                        |       | 181.9                        |       | 172.5                       |       |
|                                                             |       |                         |       |                        |       |
| **Secured notes**                                                |       |                         |       |                        |       |
| Secured credit facility                                          |       | —                       |       | 95.9                        |       |
| Secured line of credit  – related party                     |       | 246.7                        |       | —                      |       |
| 4.55% - 5.07%  Conventional Mortgage Notes, due 2007 – 2013 |       | 495.1                        |       | 490.3                       |       |
| **Total secured notes**                                          |       | 741.8                        |       | 586.2                       |       |
|                                                             |       |                         |       |                        |       |
| **Total notes payable**                                          |       | $                            | 923.7      |                        | $          | 758.7 |   |

 

In connection with the merger, we recorded a $33.9million fair value adjustment to account for the difference between the fixedrates and market rates for the mortgage notes, senior unsecured notes, andmedium-term unsecured notes.  The fixedinterest rates on the various borrowings were primarily above prevailing marketrates.  Estimates of fair value are basedupon interest rates available for the issuance of debt with similar terms andremaining maturities.

 

12

----

 

The following is a summary of the debt at the time ofmerger:

 

| **(in millions)**                                   | ** ** | **Book  Value** | ** ** | **Fair Value  Adjustment** | ** ** | **Fair  Value** | ** ** |
|-----------------------------------------------------|------------|-----------------|------------|----------------------------|------------|-----------------|------------|
| **Unsecured notes**                                 |       |            |       |                       |       |            |       |
| 3.59% - 4.99% Notes,  due 2005 – 2011          |       | $               | 170.0      |                       | $          | 14.8            |       | $ | 184.8 |   |
|                                                |       |            |       |                       |       |            |       |
| **Secured notes**                                   |       |            |       |                       |       |            |       |
| Secured credit facility                             |       | 188.5           |       | —                     |       | 188.5           |       |
| 3.61% - 5.07% Mortgage  Notes, due 2005 – 2013 |       | 488.4           |       | 19.1                       |       | 507.5           |       |
|                                                |       | 676.9           |       | 19.1                       |       | 696.0           |       |
| **Total notes payable**                             |       | $               | 846.9      |                       | $          | 33.9            |       | $ | 880.8 |   |

 

In connection with the merger, we repaid our $290million secured credit facility, which had an outstanding balance of $188.5million at the date of repayment, using proceeds received from a $500 millionintercompany line of credit from Camden. This line of credit bears interest at 6%, has a ten-year term and issecured by the same eleven communities that secured the credit facility.  As of September 30, 2005, we had $246.7million available under our unsecured line of credit.  Camdenhas issued letters of credit on our behalf which totaled $2.2 million at September 30,2005.  Should Camden be required toperform under these letters of credit, we would be liable to repay Camden forany amounts funded.  The issuance ofletters of credit by Camden does not decrease our borrowings available underthe intercompany line of credit.

 

During 2003, we obtained an unsecured letter of creditfacility, which matures in July 2008 and has a total commitment of $20.0million.  The letters of credit issuedunder this facility will serve as collateral for performance on contracts andas credit guarantees to banks and insurers. As of September 30, 2005, there were $8.9 million of letters ofcredit outstanding under this facility.

 

During the three months ended September 30, 2005,we repaid two mortgage notes totaling $7.9 million with effective interestrates ranging from 3.61% to 3.66% per annum. Amounts paid were funded through our intercompany line of credit withCamden.

 

During 2002, we entered into an interest rate swapwith a notional amount of $50.0 million, relating to $50.0 million of 7.20%fixed rate notes issued under our Medium-term notes program.  Under the interest rate swap agreement,through the maturity date of August 15, 2007, (a) we agreed to pay tothe counterparty the interest on a $50.0 million notional amount at a floatinginterest rate of three-month LIBOR plus 241.75 basis points, and (b) thecounterparty agreed to pay to us the interest on the same notional amount atthe fixed rate of the underlying debt obligation.  The swap was designated as a fair value hedgeof the underlying fixed rate debt obligation and had been recorded in “Otherassets” in our consolidated balance sheets.

 

On March 18, 2005, we terminated the interestrate swap and received $0.6 million from the counterparty.  In accordance with SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities,” we are recording the $0.6million as a reduction of interest expense over the period beginning from thetermination date through the maturity date of the underlying debt obligation ofAugust 15, 2007.

 

On June 21, 2005, we, along with Camden andWachovia Bank (the “Trustee”) entered into Supplemental Indenture No. 5(the “Supplemental Indenture”) to the Indenture, dated as of August 7,1997, between the Trustee and ourselves, as amended (the “Indenture”), underwhich our senior debt securities (the “Notes”) were previously issued. Pursuantto the Supplemental Indenture, holders of the Notes and the Trustee willreceive periodic and other reports required under the Securities Exchange Actof 1934, as amended, of Camden rather than our reports and Camden agreed toguarantee all of our obligations under the Notes and the Indenture.

 

13

----

 

**7.  Net Change in Operating Accounts**

 

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

 
| *** ***                            | ** ** | **For the seven**      | ** ** | **For the two**       | ** ** | **For the nine**       | ** ** |
|-----------------------------------------|------------|------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                              | ** ** | **months ended**       | ** ** | **months ended**      | ** ** | **months ended**       | ** ** |
| ** **                              | ** ** | **September 30,** | ** ** | **February 28,** | ** ** | **September 30,** | ** ** |
| **(in thousands)**                      | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004**               | ** ** |
| ** **                              | ** ** | **(Successor)**        | ** ** | **(Predecessor)**     | ** ** | **(Predecessor)**      | ** ** |
| (Increase) decrease in assets:          |       |                   |       |                  |       |                   |       |
| Other assets, net                       |       | $                      | 1,609      |                  | $          | 1,427                  |       | $ | (1,724 | ) |
|                                    |       |                   |       |                  |       |                   |       |
| Increase (decrease) in liabilities:     |       |                   |       |                  |       |                   |       |
| Accounts payable                        |       | (6,470                 | )          | (2,287                | )          | 4,357                  |       |
| Accrued real estate  taxes              |       | 6,261                  |       | (236                  | )          | 6,791                  |       |
| Accrued expenses and  other liabilities |       | 2,341                  |       | (2,975                | )          | 2,679                  |       |
| Net change in operating  accounts       |       | $                      | 3,741      |                  | $          | (4,071                 | )          | $ | 12,103 |   |

 

**8.Preferred Units**

 

On January 21,2005, we redeemed all 2.2 million preferred units of limited partnershipinterest designated as 8.75% Series C Cumulative Redeemable PerpetualPreferred Units for cash in the amount of $25.00 per unit plus all unpaiddistributions through the redemption date. These preferred units wereredeemable for cash at a redemption price equal to the holder’s capitalaccount. The holder of the Series C preferred units had the right toexchange these preferred units for shares of Summit’s Series C preferredstock on a one-for-one basis, subject to adjustment: (a) on or after September 3,2009, (b) if full quarterly distributions are not made for six quarters, (c) uponthe occurrence of specified events related to our treatment or the treatment ofthe preferred units for federal income tax purposes, or (d) if theholdings in the Operating Partnership of the Series C unitholder exceeded18% of the total profits of or capital interest in the Operating Partnershipfor a taxable year. Distributions on the Series C preferred units werecumulative from the date of original issuance and were payable quarterly at therate of 8.75% per year of the $25.00 original capital contribution. We madedistributions to the holders of the Series C preferred units in theaggregate amount of $0.3 million during the nine months ended September 30,2005, respectively, and $1.2 million and $3.6 million during the three and ninemonths ended September 30, 2004, respectively.  As a result of the redemption, the excess ofthe redemption amount over the carrying amount of the units, which totals $1.5million, reduced income available to common unitholders for the year ended December 31,2004.

 

**9.Related Parties**

 

Subsequent to the completion of the merger,Camden now provides certain corporate support services to us including generaland administrative and property management services.  Costs incurred by Camden which are clearlyapplicable to us are included in our consolidated statements ofoperations.  Certain costs were allocatedto us by Camden based upon our total revenues using Camden’s consolidatedcorporate level expenses as a percentage of their consolidated totalrevenues.  Costs allocated totaled $6.8 millionfor the seven months ended September 30, 2005.  The amounts allocated to us by Camden are notnecessarily indicative of costs which may have been incurred had we operated asan entity unaffiliated with Camden due to operational synergies and costsavings Camden has achieved as a result of the merger.  However, we believe the allocation isreasonable and in accordance with the SEC’s Staff Accounting Bulletin No. 55.

 

At the effective time of the merger, we had notesreceivable outstanding totaling $3.9 million from nine current and formeremployees.  Subsequent to the merger, fiveborrowers paid off their loans totaling $1.8 million.  At September 30, 2005, the notes receivablehad an outstanding balance of $2.1 million. As of November 1, 2005, the employee notes receivable were 100%secured by Camden common shares.

 

**10.Commitments and Contingencies**

 

*Construction Contracts. *As of September 30,2005, we were obligated for approximately $52.3 million of additionalexpenditures on our four wholly-owned projects currently under development (asubstantial amount of which we expect to be funded with our securedintercompany line of credit).

 

14

----

 

*Contingencie*s. On October 6, 2004, a purported class action complaint was filed inthe General Court of Justice, Superior Court Division, of the State of NorthCarolina, County of Mecklenburg, by an alleged Summit stockholder.  This complaint named as defendants Camden,Summit and each member of the board of directors of Summit and principallyalleges that the merger of Camden and Summit and the acts of the Summitdirectors constitute a breach of the Summit defendants’ fiduciary duties to Summitstockholders. The plaintiff in the lawsuit sought, among other things (1) adeclaration that each defendant has committed or aided and abetted a breach offiduciary duty to the Summit stockholders, (2) to preliminarily andpermanently enjoin the merger, (3) to rescind the merger in the event thatit is consummated, (4) an order to permit a stockholders’ committee toensure an unspecified “fair procedure, adequate procedural safe-guards andindependent input by plaintiff” in connection with any transaction for Summitshares, (5) unspecified compensatory damages and (6) attorneys’fees.  On November 3, 2004, Camdenremoved the lawsuit to the United States District Court for the WesternDistrict of North Carolina, Charlotte Division, and filed an Answer andCounterclaim for declaratory judgment denying the plaintiff’s allegations ofwrongdoing.

 

On September 23,2005, the parties to the action executed a stipulation of settlement.  Under the terms of the stipulation, thedefendants admit to no wrongdoing or fault. The stipulation contemplates a dismissal of all claims with prejudiceand a release in favor of all defendants of any and all claims related to themerger that have been or could have been asserted by the plaintiffs or anymembers of the putative class.  Inconnection with negotiations relating to the stipulation, the parties agreed toinclude, and have included, in the joint proxy statement/prospectus relating tothe merger additional disclosures regarding the merger.

 

The stipulation ofsettlement is subject to the customary conditions, including final courtapproval of the settlement.  If theconditions are satisfied, subject to final court approval of the settlement anddismissal of the action by the court with prejudice, the plaintiff’s counselwill seek and Camden, as successor to Summit, will pay an amount not to exceedin the aggregate $383,000 in settlement of this action for attorneys’ fees andexpenses.  Subject to any order of thecourt, any attorneys’ fees and expenses awarded by the court to plaintiff’scounsel will be paid by Camden, as successor to Summit, on behalf of alldefendants within five business days after final court approval of thesettlement.  All costs and expensesexpected to be incurred associated with this matter have been accrued for andare not material to our consolidated financial statements.

 

The defendants vigorouslydeny all liability with respect to the facts and claims alleged in this action,and specifically deny that any further supplemental disclosure was requiredunder any applicable rule, statute, regulation, or law.  However, the defendants considered itdesirable that these actions be settled to avoid the substantial burden,expense, risk, inconvenience and distraction of continued litigation and tofully and finally resolve the settled claims.

 

 On May 25,2001, through a joint venture with SZF, LLC, a Delaware limited liabilitycompany in which we owned 29.78% of the joint venture until July 3, 2003,on which date we purchased its joint venture partner’s 70.22% interest.  We then entered into an agreement withBrickell View, L.L.C. (“Brickell View”), a Florida limited liability company,and certain of its affiliates relating to the formation of Coral Way, LLC, aDelaware limited liability company, to develop a new community in Miami,Florida.  Brickell View agreed to be thedeveloper of that community and certain of its affiliates signed guaranteesobligating them to pay certain costs relating to the development.  On August 12, 2003, we received noticeof two suits filed by Brickell View and certain of its affiliates against SZF,LLC and certain entities affiliated with us. The suits were originally filed in the Miami-Dade Circuit Court and weresubsequently removed to the U.S. District Court for the Southern District ofFlorida.  One of the suits was remandedto the Miami-Dade Circuit Court, while the other remains pending in the U.S.District Court.  These suits relate tothe business agreement among the parties in connection with the development andconstruction of the community by Coral Way. Brickell View and its affiliates allege breach of contract, breach ofimplied covenant of good faith and fair dealing, breach of fiduciary duties andconstructive fraud on the part of SZF, LLC and constructive fraud on our part,including our affiliates, and seek both a declaratory judgment that theguarantee agreements have been constructively terminated and unspecifiedmonetary damages.  We intend to enforceour rights under the joint venture agreements.  We do not believe that there is any basis for allowing Brickell View orits affiliates to be released from their obligations under the developmentagreement or the guarantees.  We believethat the allegations made by Brickell View and its affiliates are not supportedby the facts and we intend to vigorously defend against these suits.  On December 19, 2003, we received noticeof a demand for arbitration asserted by Bermello, Ajamil & Partners, Inc.against Coral Way, LLC for unpaid architectural fees.  In this demand, Bermello, Ajamil &Partners, Inc. allege that they are entitled to an increased architecturalfee as a result of an increase in the cost of the project.  We believe that the allegations made byBermello, Ajamil & Partners, Inc. are not supported by the facts,and we will vigorously defend against this claim.  Additionally, we have asserted a cross-claimagainst Bermello, Ajamil & Partners, Inc. for damages related tothe cost to correct certain structural and other design defects.  All costs and expenses expected to beincurred associated with this matter have been accrued for and are not materialto our consolidated financial statements.

 

On May 6, 2003, wepurchased certain assets of Brickell Grand, Inc. (“Brickell Grand”),including the community known as Summit Brickell.  At the time of purchase, Summit Brickell wassubject to a $4.1 million claim of construction lien filed by the generalcontractor, Bovis Lend Lease, Inc. (“Bovis”), due to Brickell Grand’salleged failure to pay the full amount of the construction costs.  Bovis sought to enforce this claim of lienagainst Brickell Grand in a suit filed on October 18, 2002 in Miami-DadeCircuit Court, Florida.  In mid-2003,litigation with Bovis was temporarily stayed pending mediation.  In September 2003, Bovis filed an 

 

15

----

 

amended complaint seeking to enforce anincreased claim of lien of $4.6 million. Mediation with Bovis ended unsuccessfully in November 2003.  The litigation is proceeding in the Miami-DadeCircuit Court.  As the current owner ofSummit Brickell, which property is subject to the claim of lien, we arevigorously defending against these claims of lien and related litigation.  As a result of several items claimed by Bovisin its amended claim of lien, we are asserting a counterclaim for a fraudulentmechanic’s lien, as well as counterclaims for breach of contract and breach ofwarranties.  In January 2005,Brickell Grand, Inc. filed suit in Miami-Dade Circuit Court, Florida,asserting claims for breach of contract and fraud in the inducement, allegingthat Summit has an obligation toindemnify Brickell Grand, Inc. in the Bovis lawsuit and that Summit had failed to properly marketthe apartments, increasing Brickell Grand Inc.’s cost overrun obligations.  Brickell Grand, Inc. also claims that Summit misappropriated its identity byfiling eviction actions in its name.  On May 31,2005, we paid Bovis $1.3 million, which was credited against amounts owed by usto Bovis.  By paying the $1.3 million, wein no way release our claims against Bovis for construction–related defects orany of Bovis’ warranty obligations related to the Summit Brickellproperty.  We continue to believe thatthese allegations made by Brickell Grand, Inc. are not supported by thefacts, and intend to vigorously defend against these claims.  All costs and expenses expected to beincurred associated with this matter have been accrued for and are not materialto our consolidated financial statements.

 

We are the developer for oneapartment community which is owned by a third party.  Under the development and other relatedagreements, we have guaranteed certain aspects relating to the construction,lease-up and management of that apartment community.  We have also committed to fund certaindevelopment cost overruns, if any, and lease-up losses.  We have evaluated our commitments andobligations under these agreements and determined that no accrual or charge isnecessary as the overall development economics are profitable.  We began marketing and leasing activities inthe first quarter of 2005 and completed construction during the third quarterof 2005.

 

We are subject to various legal proceedings and claimsthat arise in the ordinary course of business. These matters are generallycovered by insurance. While the resolution of these matters cannot be predictedwith certainty, management believes that the final outcome of such matters willnot have a material adverse effect on our consolidated financial statements.

 

*Lease commitments*.  At September 30, 2005, we had long-termoperating leases covering certain land, office facilities and equipment.  Rental expense totaled $62,000 and $160,000for the three and nine months ended September 30, 2005, respectively,compared to $78,000 and $221,000 for the three and nine months ended September 30,2004, respectively.  Minimum annualrental commitments for the remaining three months of 2005 are $24,000, and forthe years ending December 31, 2006 through 2009 are $0.2 million, $0.2million, $0.2 million, and $0.1 million, respectively, and $0.1 million in theaggregate thereafter.

 

**11.  Post Retirement Benefits**

 

Camden Summit has entered into a separation agreementwith William B. McGuire and William F. Paulsen. Each separation agreement was effective as of the effective time of themerger of Summit and of Camden Summit, which occurred on February 28,2005.  Pursuant to the respectiveseparation agreement, as of the effective time of the merger, Messrs. McGuireand Paulsen resigned as an officer and director of Summit and all entitiesrelated to Summit, and the respective employment agreement between Summit andeach such executive was terminated.  Alsopursuant to the respective separation agreement, each such executive receivedpayments totaling $1.0 million and other benefits approximately equivalent tothose he was entitled to receive upon termination of employment pursuant to hisemployment agreement with Summit.

 

The other benefitsreceived by Messrs. McGuire and Paulsen are considered post retirementbenefits.  As of September 30, 2005,we had accrued $3.2 million associated with these post retirementliabilities.  Net periodic benefit cost,relating entirely to interest cost, was $0.1 million for the nine months ended September 30,2005.  We have not made any contributionsas of September 30, 2005, nor do we expect to make any contributions forthe remainder of 2005.

 

16

----

 

**Item2.  *Management’sDiscussion and Analysis of Financial Condition and Results of Operations***

 

The following discussion should be read in conjunctionwith all of the consolidated financial statements and notes appearing elsewherein this report as well as the audited consolidated financial statementsappearing in Camden Summit Partnership, L.P.’s (“Camden Summit Partnership”) Form 10-Kfor the year ended December 31, 2004.  The statements contained in this report thatare not historical facts are forward-looking statements, and actual results maydiffer materially from those included in the forward-looking statements. Theseforward-looking statements involve risks and uncertainties including, but notlimited to, the following:

 

•                  the resultsof our efforts to implement our property development and constructionstrategies;

•                  the effectsof economic conditions, including rising interest rates;

•                  our abilityto generate sufficient cash flows;

•                  the costs ofour capital and debt;

•                  competition,which could limit our ability to secure attractive investment opportunities,lease apartment homes, or increase or maintain rents;

•                  changes inour capital requirements;

•                  changes ingovernmental regulations, tax rates and similar matters;

•                  environmentaluncertainties and disasters; and

•                  supply anddemand for apartment communities in our current market areas.

 

Do not rely on these forward-looking statements,which only represent our estimates and assumptions as of the date of thisreport.  We assume no obligation toupdate or revise any forward-looking statement.

 

**Business**

 

On February 28, 2005, Summit PropertiesInc. (“Summit”) was merged with and into Camden Summit, Inc. (“CamdenSummit”), a wholly-owned subsidiary of Camden Property Trust (“Camden”), pursuantto an Agreement and Plan of Merger dated as of October 4, 2004 (the “MergerAgreement”), as amended.  Prior to theeffective time of the merger, Summit was the sole general partner of SummitProperties Partnership, L.P. (the “Camden Summit Partnership” or “us” or “we”),and at the effective time, Camden Summit became the sole general partner of theCamden Summit Partnership and the name of this partnership was changed toCamden Summit Partnership, L.P.

 

The consummation of the merger effected a changein control of the Camden Summit Partnership. Prior to the effective time of the merger, Summit was the generalpartner of the Camden Summit Partnership and held 348,086 general partnerunits, representing a 1% general partnership interest, and 31,117,541 limitedpartner units, representing an 89.4% limited partnership interest.  The remaining 3,343,004 limited partner unitswere held by the outside limited partners. As of the effective time of the merger, Camden Summit became the generalpartner of the Camden Summit Partnership and held 232,765.108 general partnerunits, representing a 1% general partnership interest, and 20,808,299.667limited partner units, representing a 91.2% limited partnership interest.  The remaining 1,769,281 units, representing a7.8% limited partner interest, were heldby outside limited partners.  Each commonlimited partnership unit is redeemable for one common share of Camden.

 

In conjunction with the merger, the limitedpartners in the Camden Summit Partnership were offered, on a unit-by-unitbasis, the opportunity to redeem their partnership units for $31.20 in cash,without interest, or to remain in the Camden Summit Partnership following themerger at a unit valuation equal to .6687 of a Camden common share.  The limited partner elections resulted inCamden redeeming 742,270.374 million partnership units for cash, for anaggregate of $21.7 million, and issuing 1,769,281.232 million partnershipunits.  The value of the common sharesand partnership units issued was determined based on the average market priceof Camden’s common shares for the five day period commencing two days prior tothe announcement of the merger on October 4, 2004.  Subsequent to the merger, 0.1 millionpartnership units have been redeemed for $5.5 million.

 

Camden Summit Partnership, L.P. is a Delaware limitedpartnership and a subsidiary of Camden Summit, which is a wholly-ownedsubsidiary of Camden, a Texas real estate investment trust.  Camden conducted a portion of its businessthrough the Camden Summit Partnership and its subsidiaries.  As ofSeptember 30, 2005, Camden held 91.8% of our common limited partnershipunits as well as the sole 1% general partnership interest.  The remaining 7.2% of the common limited partnershipunits were held by outside limited partners.

 

We focus on the operation, development and acquisitionof luxury apartment communities in select neighborhoods throughout theSoutheast and Mid-Atlantic United States. We focus our efforts in five markets: Washington, D.C. Metro, SoutheastFlorida, Atlanta, Raleigh and Charlotte. As of September 30, 2005, our portfolio consisted of 48 completedcommunities comprising 14,991 apartment homes with an additional 1,414apartment homes under construction at four communities.

 

17

----

 

Property Portfolio

 

Our multifamily propertyportfolio, excluding land held for future development is summarized as follows:

 
| ** **                             | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                             | ** ** | **Apartment**               | ** ** | ** **                 | ** ** | **Apartment** | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **Homes**                   | ** ** | **Properties**             | ** ** | **Homes** | ** ** | **Properties** | ** ** |
| **Operating Properties**               |       |                        |       |                       |       |   |   |   |   |
| Charlotte, North  Carolina (a)         |       | 3,134                       |       | 13                         |       | 3,134 |   | 13 |   |
| Atlanta, Georgia                       |       | 3,202                       | ** ** | 10                         |       | 3,633 | ** ** | 11 | ** ** |
| D.C. Metro                             |       | 2,882                       | ** ** | 9                          |       | 2,882 | ** ** | 9 | ** ** |
| Raleigh, North Carolina  (a)           |       | 2,631                       |       | 7                          |       | 2,631 |   | 7 |   |
| Southeast Florida                      |       | 2,520                       |       | 7                          |       | 2,100 |   | 6 |   |
| Other                                  |       | 622                         |       | 2                          |       | 622 |   | 2 |   |
| **Total  Operating Properties**        |       | 14,991                      |       | 48                         |       | 15,002 |   | 48 |   |
| **Properties Under Development**       |       |                        |       |                       |       |   |   |   |   |
| D.C. Metro                             |       | 785                         |       | 2                          |       | 785 |   | 2 |   |
| Raleigh, North Carolina                |       | 484                         |       | 1                          |       | 484 |   | 1 |   |
| Charlotte, North  Carolina             |       | 145                         |       | 1                          |       | 145 |   | 1 |   |
| Southeast Florida                      |       | —                      |       | —                     |       | 420 |   | 1 |   |
| **Total Properties Under Development** |       | 1,414                       |       | 4                          |       | 1,834 |   | 5 |   |
| **Total Properties**                   |       | 16,405                      |       | 52                         |       | 16,836 |   | 53 |   |
|                                   |       |                        |       |                       |       |   |   |   |   |
| Less: Joint Venture  Properties (a)    |       | 1,203                       |       | 4                          |       | 1,203 |   | 4 |   |
|                                   |       |                        |       |                       |       |   |   |   |   |
| **Total Properties Owned 100%**        |       | 15,202                      |       | 48                         |       | 15,633 |   | 49 |   |

 

----

*(a)*       *Includes properties held in a joint venture asfollows:  three properties with 792apartment homes in Charlotte, and one property with 411 apartment homes inRaleigh in which we own a 25% interest, the remaining interest is owned by anunaffiliated private investor.*

 

**DevelopmentProperties**

 

At September 30, 2005, we had four properties invarious stages of construction as follows:

 

*($ in millions)*

 
| **Property and Location**          | ** ** | **Number of  Apartment  Homes** | ** ** | **Estimated  Cost** | ** ** | **Cost  Incurred  at 9/30/05** | ** ** | **Estimated  Date of  Completion** | ** ** | **Estimated  Date of  Stabilization** | ** ** |
|------------------------------------|------------|---------------------------------|------------|---------------------|------------|--------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
|                               |       |                            |       |                |       |                           |       |                               |       |                                  |       |
| In Lease-Up                        |       |                            |       |                |       |                           |       |                               |       |                                  |       |
| Camden Fairfax Corner*Fairfax, VA* |       | 488                             |       | $                   | 82.0       |                           | $          | 64.9                               |       | 3Q06                                  |       | 1Q07 |   |
|                               |       |                            |       |                |       |                           |       |                               |       |                                  |       |
| Under Construction                 |       |                            |       |                |       |                           |       |                               |       |                                  |       |
| Camden Dilworth*Charlotte, NC*     |       | 145                             |       | 18.0                |       | 10.6                           |       | 2Q06                               |       | 3Q06                                  |       |
| Camden Clearbrook*Frederick, MD*   |       | 297                             |       | 45.0                |       | 20.5                           |       | 3Q06                               |       | 1Q07                                  |       |
| Camden Manor Park*Raleigh, NC*     |       | 484                             |       | 52.0                |       | 37.6                           |       | 4Q06                               |       | 3Q07                                  |       |
| Total                              |       | 1,414                           |       | $                   | 197.0      |                           | $          | 133.6                              |       |                                  |       |   |   |

 

Where possible, we stage our construction to allowleasing and occupancy during the construction period, which we believeminimizes the duration of the lease-up period following completion ofconstruction.  Our accounting policyrelated to properties in the development and leasing phase is that alloperating expenses associated with completed apartment homes are expensed.

 

If an event or change in circumstance indicatesthat a potential impairment in the value of a property has occurred, our policyis to assess any potential impairment by making a comparison of the current andprojected cash flows for such property over its remaining holding period, on anundiscounted basis, to the carrying amount of the property.  If such carrying amounts were in excess ofthe estimated projected cash flows of the property, we would recognize animpairment loss equivalent to an amount required to adjust the carrying amountto its estimated fair value, less costs to sell.

 

18

----

 

Our consolidated balance sheet at September 30,2005 included $200.3 million related to wholly-owned properties under development.Of this amount, $127.5 million related to our four projects currently underdevelopment. Additionally, at September 30, 2005, we had $72.8 millioninvested in land held for future development.

 

**Results of Operations**

 

*Comparisonof the Three Months ended September 30, 2005 and September 30, 2004*

 

Income(loss) from continuing operations decreased $4.5 million, from $0.8 million to$(3.6) million for the three months ended September 30, 2004 and 2005, respectively.  The decrease in income from continuingoperations was due to many factors which included, but were not limited to, increasesin depreciation, amortization and interest related to our merger with Camden,partially offset by increases in net operating income and decreases in generaland administrative expenses.  Our primaryfinancial focus for our apartment communities is net operating income.  Net operating income represents totalproperty revenues less total property expenses. Net operating income increased $5.5 million, or 22.4%, from $24.4million to $29.8 million for the three months ended September 30, 2004 and2005, respectively.  See furtherdiscussion of net operating income in our discussion of “Basis of Presentation- Segment Reporting” in Note 1 to our Consolidated Financial Statements.  Comparisons discussed below are made usingthe combined operations of the Predecessor and Successor for 2005 as comparedto the Predecessor’s operations for the same period in 2004.

 

Thefollowing table presents the components of net operating income for the threemonths ended September 30, 2005 and 2004:

 

| ** **                            | ** ** | ** **    | ** ** | **For the three**      | ** ** | **For the three**      | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|---------------|------------|------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **Apartment** | ** ** | **Months ended**       | ** ** | **months ended**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Homes at**  | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **Change** | ** ** |
| **($ in thousands)**             | ** ** | **9/30/05**   | ** ** | **2005**               | ** ** | **2004**               | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **                            | ** ** | ** **    | ** ** | **(Successor)**        | ** ** | **(Predecessor)**      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Property revenues**                 |       |          |       |                   |       |                   |       |       |       |       |       |
| Same store communities                |       | 11,083        |       | $                      | 34,469     |                   | $          | 32,653     |       | $          | 1,816      |   | 5.6 | % |
| Non-same store  communities           |       | 2,705         |       | 9,184                  |       | 3,930                  |       | 5,254      |       | 133.7      |       |
| Development and  lease-up communities |       | 1,414         |       | 36                     |       | —                 |       | 36         |       | 100.0      |       |
| Other                                 |       | —        |       | 1,503                  |       | —                 |       | 1,503      |       | 100.0      |       |
| Total property revenues               |       | 15,202        |       | 45,192                 |       | 36,583                 |       | 8,609      |       | 23.5       |       |
|                                  |       |          |       |                   |       |                   |       |       |       |       |       |
| **Property  expenses**                |       |          |       |                   |       |                   |       |       |       |       |       |
| Same store communities                |       | 11,083        |       | 11,920                 |       | 10,852                 |       | 1,068      |       | 9.8        |       |
| Non-same store  communities           |       | 2,705         |       | 3,130                  |       | 1,355                  |       | 1,775      |       | 131.0      |       |
| Development and  lease-up communities |       | 1,414         |       | 7                      |       | —                 |       | 7          |       | 100.0      |       |
| Other                                 |       | —        |       | 295                    |       | —                 |       | 295        |       | 100.0      |       |
| Total property expenses               |       | 15,202        |       | 15,352                 |       | 12,207                 |       | 3,145      |       | 25.8       |       |
|                                  |       |          |       |                   |       |                   |       |       |       |       |       |
| **Net  operating income**             |       |          |       |                   |       |                   |       |       |       |       |       |
| Same store communities                |       | 11,083        |       | 22,549                 |       | 21,801                 |       | 748        |       | 3.4        |       |
| Non-same store  communities           |       | 2,705         |       | 6,054                  |       | 2,575                  |       | 3,479      |       | 135.1      |       |
| Development and  lease-up communities |       | 1,414         |       | 29                     |       | —                 |       | 29         |       | 100.0      |       |
| Other                                 |       | —        |       | 1,208                  |       | —                 |       | 1,208      |       | 100.0      |       |
| Total net operating  income           |       | 15,202        |       | $                      | 29,840     |                   | $          | 24,376     |       | $          | 5,464      |   | 22.4 | % |

 

*Same store communities are communities we owned and were stabilized asof January 1, 2004.  Non-same storecommunities are stabilized communities we have acquired or developed after January 1,2004.  Development and lease-upcommunities are non-stabilized communities we have developed or acquired after January 1,2004.*

 

Totalproperty revenues for the three months ended September 30, 2005 increased$8.6 million over the same period in 2004. Property revenues from our same store properties increased 5.6%, from $32.7million for the three months ended September 30, 2004 to $34.5 million forthe three months ended September 30, 2005. For same store properties, the primary increase was related toreductions in rent concessions and vacancy. Property revenues from our non-same store and development and lease-upproperties increased from $3.9 million for the third quarter of 2004 to $9.2million for the third quarter of 2005.  Thisincrease was primarily due to the revenues earned from the six apartmentcommunities, or 1,581 apartment homes, acquired during the year ended December 31,2004 and the revenues related to development communities completed andstabilized over the past year.  Otherproperty revenues during the three months ended September 30, 2005 relateto the amortization of below market leases in place at the time of the merger.

 

Totalproperty expenses increased 25.8%, or $3.1 million, as compared to the sameperiod in 2004.  Property expenses forour same store communities increased 9.8% or $1.1 million for the third quarterof 2005 as compared to the third quarter of 2004.  The increase was primarily due to payroll relatedexpenses, increased repair and maintenance and higher property insurance costs.  Non-

 

19

----

 

same store anddevelopment and lease-up communities expenses increased $1.8 million from $1.4million for the third quarter 2004 as compared to $3.1 million for the thirdquarter 2005.

 

Generaland administrative and property management expenses were $5.1 million and $2.4million for the three months ended September 30, 2004 and 2005,respectively.  General and administrativeand property management expenses as a percent of total revenues decreased from13.7% to 5.3% for the three months ended September 30, 2004 and 2005,respectively.  This decrease wasprimarily due to the costs allocated to us by Camden compared to propertysupervision and general and administrative costs expensed for the three monthsended September 30, 2004.   Costsallocated totaled $2.4 million for the three months ended September 30,2005.  See further discussion of thisallocation in our discussion of “Related Parties” in Note 9 to our ConsolidatedFinancial Statements.

 

Interestexpense increased $0.8 million, from $8.3 million to $9.1 million, for the threemonths ended September 30, 2004 and 2005, respectively.  The increase was primarily a result ofadditional borrowings incurred during the past year related to our acquisitionand development properties and acquisitions completed in 2004.  These increases were partially offset byreductions in interest from the amortization of the fair value adjustmentsrecorded on our notes payable in connection with our merger with Camden.  See further discussion of our notes payablein the “Liquidity and Capital Resources” section.

 

Depreciationand amortization expense for continuing operations increased $11.1 million,from $10.6 million to $21.8 million, for the three months ended September 30,2004 and 2005, respectively.  Thisincrease was primarily due to additional depreciation and amortization ofintangibles related to in-place leases as a result of our merger with Camdenand new development and capital improvements placed in service during the pastyear.

 

Distributionsto preferred unitholders were $1.2 million for the three months ended September 30,2004.  We redeemed all outstandingpreferred units in January 2005. See further discussion of our preferred units in Note 8 to our ConsolidatedFinancial Statements.

 

During the three months ended September 30, 2005,we sold one community located in Atlanta, Georgia.  We recognized no gain on the sale of thiscommunity.  During the three months endedSeptember 30, 2004, we sold seven communities, with 2,084 apartment homes,for an aggregate sales price of $212.4 million. We recognized a gain on sale of $104.4 million related to the sale ofthese communities.  Additionally, we recordeda $6.8 million impairment charge on one of our held for sale communities duringthe three months ended September 30, 2004.

 

*Comparisonof the Nine Months ended September 30, 2005 and September 30, 2004*

 

Income(loss) from continuing operations decreased $25.3 million, from $3.8 million to$(21.5) million for the nine months ended September 30, 2004 and 2005,respectively.  The decrease in incomefrom continuing operations was due to many factors which included, but were notlimited to, increases in depreciation and amortization, interest expense andmerger related expenses offset by increases in net operating income.  Our primary financial focus for our apartmentcommunities is net operating income.  Netoperating income represents total property revenues less total propertyexpenses.  Net operating income increased$16.4 million, or 23.9%, from $68.8 million to $85.2 million for the ninemonths ended September 30, 2004 and 2005, respectively.  See further discussion of net operatingincome in our discussion of “Basis of Presentation - Segment Reporting” in Note1 to our Consolidated Financial Statements. Comparisons discussed below are made using the combined operations ofthe Predecessor and Successor for 2005 as compared to the Predecessor’soperations for the same period in 2004.

 

20

----

 

Thefollowing table presents the components of net operating income for the ninemonths ended September 30, 2005 and 2004:

 
| ** **                            | ** ** | ** **    | ** ** | **For the seven**      | ** ** | **For the two**       | ** ** | **For the nine**       | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|---------------|------------|------------------------|------------|-----------------------|------------|------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **Apartment** | ** ** | **months ended**       | ** ** | **months ended**      | ** ** | **months ended**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Homes at**  | ** ** | **September 30,** | ** ** | **February 28,** | ** ** | **September 30,** | ** ** | **Change** | ** ** |
| **($ in thousands)**             | ** ** | **9/30/05**   | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004**               | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **                            | ** ** | ** **    | ** ** | **(Successor)**        | ** ** | **(Predecessor)**     | ** ** | **(Predecessor)**      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Property revenues**                 |       |          |       |                   |       |                  |       |                   |       |       |       |       |       |
| Same store communities                |       | 11,083        |       | $                      | 78,896     |                  | $          | 21,766                 |       | $          | 97,117     |       | $          | 3,545 |   | 3.7 | % |
| Non-same store  communities           |       | 2,705         |       | 20,506                 |       | 5,431                 |       | 6,429                  |       | 19,508     |       | 303.4      |       |
| Development and  lease-up communities |       | 1,414         |       | 36                     |       | —                |       | —                 |       | 36         |       | 100.0      |       |
| Other                                 |       | —        |       | 3,502                  |       | —                |       | —                 |       | 3,502      |       | 100.0      |       |
| Total property revenues               |       | 15,202        |       | 102,940                |       | 27,197                |       | 103,546                |       | 26,591     |       | 25.7       |       |
|                                  |       |          |       |                   |       |                  |       |                   |       |       |       |       |       |
| **Property  expenses**                |       |          |       |                   |       |                  |       |                   |       |       |       |       |       |
| Same store communities                |       | 11,083        |       | 27,040                 |       | 7,268                 |       | 32,314                 |       | 1,994      |       | 6.2        |       |
| Non-same store  communities           |       | 2,705         |       | 7,806                  |       | 2,256                 |       | 2,482                  |       | 7,580      |       | 305.4      |       |
| Development and  lease-up communities |       | 1,414         |       | 7                      |       | —                |       | —                 |       | 7          |       | 100.0      |       |
| Other                                 |       | —        |       | 597                    |       | —                |       | —                 |       | 597        |       | 100.0      |       |
| Total property expenses               |       | 15,202        |       | 35,450                 |       | 9,524                 |       | 34,796                 |       | 10,178     |       | 29.3       |       |
|                                  |       |          |       |                   |       |                  |       |                   |       |       |       |       |       |
| **Net  operating income**             |       |          |       |                   |       |                  |       |                   |       |       |       |       |       |
| Same store communities                |       | 11,083        |       | 51,856                 |       | 14,498                |       | 64,803                 |       | 1,551      |       | 2.4        |       |
| Non-same store  communities           |       | 2,705         |       | 12,700                 |       | 3,175                 |       | 3,947                  |       | 11,928     |       | 302.2      |       |
| Development and  lease-up communities |       | 1,414         |       | 29                     |       | —                |       | —                 |       | 29         |       | 100.0      |       |
| Other                                 |       | —        |       | 2,905                  |       | —                |       | —                 |       | 2,905      |       | 100.0      |       |
| Total net operating  income           |       | 15,202        |       | $                      | 67,490     |                  | $          | 17,673                 |       | $          | 68,750     |       | $          | 16,413 |   | 23.9 | % |

 

*Same store communities are communities we owned and were stabilized asof January 1, 2004.  Non-same storecommunities are stabilized communities we have acquired or developed after January 1,2004.  Development and lease-upcommunities are non-stabilized communities we have developed or acquired after January 1,2004*.

 

Totalproperty revenues for the nine months ended September 30, 2005 increased $26.6million over the same period in 2004. Property revenues from our same store properties increased 3.7%, from $97.1million for the first nine months of 2004 to $100.7 million for the first ninemonths of 2005.  For same storeproperties, the primary increase was related to reductions in rent concessions andvacancy.  Property revenues from ournon-same store and development and lease-up properties increased from $6.4 millionfor the nine months ended September 30, 2004 to $25.9 million for the sameperiod in 2005.  This increase wasprimarily due to the revenues related to the six apartment communities, or1,581 apartment homes, acquired during the year ended December 31, 2004and the revenues related to development communities completed and stabilized overthe past year.  Other property revenuesduring the nine months ended September 30, 2005 related to theamortization of below market leases in place at the time of the merger.

 

Totalproperty expenses increased 29.3%, or $10.2 million, during the nine monthsended September 30, 2005 as compared to the same period in 2004.  Property expenses for our same storecommunities increased 6.2%, or $2.0 million for the first nine months of 2005as compared to the first nine months of 2004. The increase was primarily due to increases in payroll related expenses,repair and maintenance costs, property insurance and property tax expensesoffset by decreases in marketing and leasing expenses.  Non-same store and development and lease-up communitiesexpenses increased $7.6 million from $2.5 million for the first nine months of2004 as compared to $10.1 million for the first nine months of 2005.  This increase was primarily due to theexpenses related to the six apartment communities, or 1,581 homes, acquiredduring the year ended December 31, 2004 and the expenses related todevelopment communities completed and stabilized over the past year.

 

Generaland administrative and property management expenses decreased a total of $1.7million, from $12.3 million to $10.6 million for the nine months ended September 30,2004 and 2005, respectively.  General andadministrative and property management expenses as a percent of total revenueswas 6.6% for the seven months ended September 30, 2005 compared to 13.9%for the two months ended February 28, 2005 and 11.7% for the nine monthsended September 30, 2004.  Subsequentto the completion of the merger, costs were allocated to us by Camden basedupon our total revenues compared to property supervision and general andadministrative costs expensed during the nine months ended September 30,2004.  Costs allocated totaled $6.8 millionfor the seven months ended September 30, 2005.  See further discussion of this allocation inour discussion of “Related Parties” in Note 9 to our Consolidated FinancialStatements.

 

Duringthe first nine months of 2005, we incurred merger related expenses of $9.9million due to advisory and severance related costs associated with our mergerwith Camden.

 

21

----

 

Interestexpense increased $4.1 million, from $22.7 million to $26.8 million, for the ninemonths ended September 30, 2004 and 2005, respectively.  The increase was a result of additionalborrowings incurred during the past year related to our acquisition anddevelopment properties.  These increaseswere partially offset by reductions in interest from the amortization of thefair value adjustments recorded on our notes payable in connection with ourmerger with Camden.  See furtherdiscussion of our notes payable in the “Liquidity and Capital Resources”section.

 

Depreciationand amortization expense for continuing operations increased $27.9 million,from $31.3 million to $59.2 million, for the nine months ended September 30,2004 and 2005, respectively.  Thisincrease was primarily due to additional depreciation and amortization ofintangibles related to in-place leases as a result of our merger with Camdenand new development and capital improvements placed in service during the pastyear.

 

Distributionsto preferred unitholders were $3.6 million for the nine months ended September 30,2004, compared to $0.3 million for the same period in 2005.  The decrease was due to our redemption of alloutstanding preferred units in January 2005.  See further discussion of our preferred unitsin Note 8 to our Consolidated Financial Statements.

 

During the nine months ended September 30, 2005,we sold one community located in Atlanta, Georgia and recognized no gain on thesale of this property.  During the ninemonths ended September 30, 2004, we sold eight communities with 2,084apartment homes for an aggregate sales price of $234.9 million.  We also sold one parcel of land for $88,000during the nine months ended September 30, 2004.  Additionally, we recorded a $6.8 millionimpairment charge on one of our communities during the nine months ended September 30,2004.

 

**Liquidityand Capital Resources**

 

*Liquidity*

 

We intend to meet our short-term and long-termliquidity requirements through cash flows provided by operations and oursecured intercompany line of credit with Camden discussed below.   We expect our ability to generate cash willbe sufficient to meet our liquidity needs which include:

 

(i)                                     operatingexpenses;

(ii)                                  debtservice requirements, including the repayment of maturing debt;

(iii)                               recurring capitalexpenditures;

(iv)                              fundingof property developments; and

(v)                                 distributionson our common units.

 

*Capital resources*

 

Ouroutstanding indebtedness on notes payable as of September 30, 2005 totaled$923.7 million. This amount includes $495.1 million in conventional mortgages,$181.9 million of unsecured notes, and $246.7 million under our $500 millionsecured intercompany line of credit.  Forfurther discussion of our notes payable outstanding, including the fair valueadjustments recorded in connection with the merger, see Note 6 to ourConsolidated Financial Statements.

 

Inconnection with the merger, we repaid our $290 million secured credit facility,which had an outstanding balance of $188.5 million at the date of repayment,using proceeds received from a $500 million intercompany line of credit fromCamden.  This line of credit bears interestat 6%, has a ten-year term and is secured by the same eleven communities whichsecured the credit facility.

 

As of January 1, 2005, we had $6.5 million ofcash and cash equivalents and $194.1 million available under our then existing $290million secured credit facility.  Afterconsidering the items discussed below and our cash provided by operatingactivities during the year of $38.6 million, as of September 30, 2005, wehad $0.1 million of cash and cash equivalents and $253.3 million availableunder our $500 million intercompany line of credit.  During the nine months ended September 30,2005, we generated cash proceeds primarily from borrowings under our $290million secured credit facility and our $500 million intercompany line ofcredit.

 

22

----

 

Theproceeds were used primarily for:

 

•                  Repayment of all amounts outstandingunder our $290 million secured credit facility;

•                  Construction activities on propertiesunder development;

•                  Funding of capital expenditures andother improvements;

•                  Redemption of Series C preferredunits;

•                  Funding distributions to commonunitholders; and

•                  Payment of merger relatedliabilities.

 

Duringthe nine months ended September 30, 2004, we generated cash proceeds fromvarious transactions, including:

 

•                  Proceeds received from sales ofproperties;

•                  Issuance of fixed-rate mortgagessecured by two communities; and

•                  Borrowings under our $290 millionsecured credit facility.

 

Theproceeds in the first nine months of 2004 were used primarily to fund:

 

•                  Construction activities on propertiesunder development;

•                  Acquisition of properties;

•                  Repayment of construction loans; and

•                  Funding of capital expenditures andother improvements.

 

### ***Contractual Obligations***

### * *

The following tablesummarizes our known contractual obligations as of September 30, 2005:

 
| **(in millions)**                       | ** ** | **Total** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** |
|-----------------------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|
| Debt maturities                         |       | $         | 923.7      |     | $          | 28.1     |       | $        | 36.8       |     | $          | 68.1     |       | $              | 183.4      |   | $ | 78.5 |   | $ | 528.8 |   |
| Non-cancelable operating lease payments |       | 0.8       |       | —   |       | 0.2      |       | 0.2      |       | 0.2      |       | 0.1      |       | 0.1            |       |
| Construction contracts                  |       | 52.3      |       | 21.1     |       | 31.2     |       | —   |       | —   |       | —   |       | —         |       |
|                                    |       | $         | 976.8      |     | $          | 49.2     |       | $        | 68.2       |     | $          | 68.3     |       | $              | 183.6      |   | $ | 78.6 |   | $ | 528.9 |   |

***Inflation***

 

Welease apartments under lease terms generally ranging from 6 to 13 months.  Management believes that such short-termlease contracts lessen the impact of inflation due to the ability to adjustrental rates to market levels as leases expire.

 

***Critical Accounting Policies***

 

TheSecurities and Exchange Commission (“SEC”) has issued guidance for thedisclosure of “critical accounting policies.” The SEC defines “critical accounting policies” as those that are mostimportant to the presentation of a company’s financial condition and results,and require management’s most difficult, subjective or complex judgments, oftenas a result of the need to make estimates about the effect of matters that areinherently uncertain.  We followfinancial accounting and reporting policies that are in accordance withgenerally accepted accounting principles. The more significant of these policies relate to cost capitalization andasset impairment, which are discussed in Note 1 of our Consolidated FinancialStatements, income recognition, acquisition of assets and capital expenditures,which are discussed below.

 

*Income recognition.* Our rental and other property income is recorded when due from residentsand is recognized monthly as it is earned. Other property income consists of administrative, application and othertransactional fees charged to our residents. Interest, fee and asset management, and all other sources of income arerecognized as earned.

 

*Acquisition of assets. *Upon the acquisition of real estate, we assess thefair value of acquired assets, including land, buildings, the value of in-placeleases, above and below market leases, and acquired liabilities.  We then allocate the purchase price of theacquired property based on these assessments. We assess fair value based on estimated cash flow projections andavailable market information.

 

23

----

 

*Capital expenditures. *We capitalize renovation and improvement costs that webelieve extend the economic lives and enhance the earnings of the relatedassets.   Capital expenditures, includingcarpet, appliances and HVAC unit replacements, subsequent to initialconstruction are capitalized and depreciated over their estimated useful lives,which range from 3 to 20 years.

 

Thepreparation of our financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities at the date of theconsolidated financial statements, results of operations during the reportingperiods and related disclosures.  Ourmore significant estimates relate to estimates supporting our impairmentanalysis related to the carrying value of our real estate assets and estimatesof the useful lives of our assets. Actual results could differ from those estimates.

 

***Impact of New Accounting Pronouncements***

 

In December 2004,the Financial Accounting Standards Board (“FASB”) issued Statement ofFinancial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-BasedPayments (SFAS 123R).” SFAS 123R requires all share-based payments toemployees, including grants of employee stock options, to be recognized overtheir vesting periods in the income statement based on their estimated fairvalues. In April 2005, the Securities and Exchange Commission (“SEC”) issueda press release announcing it would provide for a phased-in implementationprocess for SFAS 123R. SFAS 123R is effective for all public entities in thefirst annual reporting period beginning after June 15, 2005 which, for uswould be the calendar year of 2006. As a result of the SEC’s announcement, we arein the process of assessing the impact of SFAS 123R and have not determinedwhat impact, if any, our adoption of SFAS 123R will have on our financialposition, results of operations or cash flows.

 

In December 2004, FASB issued SFAS No. 153, “Exchangeof Nonmonetary Assets, an amendment of APB Opinion No. 29,” whichaddresses the measurement of exchanges of nonmonetary assets.  SFAS No. 153 eliminates the exceptionfor nonmonetary exchanges of similar productive assets and replaces it with ageneral exception for exchange of nonmonetary assets that do not havecommercial substance.  It also specifiesthat a nonmonetary exchange has commercial substance if the future cash flowsof the entity are expected to change significantly as a result of the exchange.  SFAS No. 153 is effective beginning July 1,2005.  The adoption of SFAS No. 153 didnot have a material impact on our financial position, results of operations orcash flows.

 

In March 2005, the FASB issued FASB StaffPosition (“FSP”) FASB Interpretation (“FIN”) 46R-5, “Implicit Variable Interestunder FASB Interpretation No. 46 (revised December 2003), *Consolidation of Variable Interest Entities*.”  This FSP requires a reporting entity toconsider whether it holds an implicit variable interest in a variable interestentity (“VIE”) or potential VIE.  FSP FIN46R-5 is effective with reporting periods beginning after March 3,2005.  The adoption of FSP FIN 46R-5 did nothave a material impact on our financial position, results of operations or cashflows.

 

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections, a replacement of APB Opinion No. 20 andFASB Statement No. 3.”  SFAS No. 154changes the requirements for and reporting of a change in accountingprinciple.  SFAS No. 154 requiresthat a voluntary change in accounting principle be applied retrospectively withall prior period financial statements presented on the new accountingprinciple, unless it is impracticable to do so. This Statement also providesthat (1) a change in method of depreciating or amortizing a long-livednonfinancial asset be accounted for as a change in estimate (prospectively)that was effected by a change in accounting principle, and (2) correctionsof errors in previously issued financial statements should be termed a “restatement.”The new standard is effective for accounting changes and correction of errorsmade in fiscal years beginning after December 15, 2005.  We do not expect that the adoption of SFAS No. 154will have a material impact on our financial position, results of operations orcash flows.

 

In June 2005, the FASB issued Emerging IssuesTask Force (“EITF”) Issue No. 04-05, “Determining Whether a GeneralPartner, or the General Partners as a Group, Controls a Limited Partnership orSimilar Entity When the Limited Partners Have Certain Rights.”  EITF Issue No. 04-05 provides aframework for determining whether a general partner controls, and shouldconsolidate, a limited partnership or a similar entity.  EITF Issue No. 04-05 is effective after June 29,2005, for all newly formed limited partnerships and for any pre-existinglimited partnerships that modify their partnership agreements after thatdate.  General partners of all otherlimited partnerships are required to apply the consensus no later than thebeginning of the first reporting period in fiscal years beginning after December 15,2005.  We do not expect that the adoptionof EITF Issue No. 04-05 will have a material impact on our financialposition, results of operations or cash flows.

 

In June 2005, the FASB issued FSP 78-9-1, “Interactionof AICPA Statement of Position 78-9 and EITF Issue No. 04-05.”  The EITF acknowledged that the consensus inEITF Issue No. 04-05 conflicts with certain aspects of Statement ofPosition (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures.”  The EITF agreed that the assessment ofwhether a general partner, or the general partners as a group, controls alimited partnership should be consistent for all limited partnerships,irrespective of the industry within which the limited partnershipoperates.  Accordingly, the guidance inSOP 78-9 was amended in FSP 78-9-1 to be consistent with the guidance in EITFIssue No. 04-05.  The effectivedates for this FSP are the same as those mentioned above in EITF Issue No.

 

24

----

 

04-05.  We do not expect that theadoption of FSP 78-9-1 will have a material impact on our financial position,results of operations or cash flows.

 

***Item 3.  Quantitative and Qualitative Disclosuresabout Market Risk***

 

No material changes have occurred since our AnnualReport on Form 10-K for the year ended December 31, 2004.

 

***Item 4.  Controls and Procedures***

 

Under the supervision andwith the participation of Camden Summit’s Chief Executive Officer (“CEO”) andChief Financial Officer (“CFO”), management has evaluated the effectiveness ofthe design and operation of our disclosure controls and procedures (as definedin Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Actof 1934) as of September 30, 2005. Based on that evaluation, the CEO and CFO concluded that our disclosurecontrols and procedures were effective as of September 30, 2005.

 

In connection with our merger with Camden, ourinternal controls, including our internal control over financial reporting (asdefined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)were converted to the internal control processes in place at Camden.  Camden’s management assessed their internalcontrol over financial reporting as of December 31, 2004 and has concludedthat it was effective.  Additionally,there were no changes in Camden’s internal control over financial reportingduring the quarter ended September 30, 2005 that has materially affected,or is reasonably likely to materially affect, their internal control overfinancial reporting.

 

25

----

 

**PART II**

 

**Item 1.  *LegalProceedings***

 

For furtherdiscussion regarding legal proceedings, see Note 10 to the ConsolidatedFinancial Statements.

 

***Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds***

 

None

 

***Item 3.  Defaults Upon Senior Securities***

 

None

 

***Item 4.  Submissionof Matters to a Vote of Security Holders***

 

None

 

***Item 5.  OtherInformation***

 

None

 

**Item 6.  *Exhibits***

 

(a)                                  Exhibits

 
| 31.1   | Certification by  Chief Executive Officer pursuant to Rule 13a-14(a) of Chief  Executive Officer dated November 4, 2005. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                    |
| 31.2   | Certification by  Chief Financial Officer pursuant to Rule 13a-14(a) of Chief  Financial Officer dated November 4, 2005. |
|   |                                                                                                                                    |
| 32.1   | Certification  Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.     |

 

26

----

 

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|                   | CAMDEN SUMMIT  PARTNERSHIP, L.P.                   |
|------------------------|----------------------------------------------------|
|                   |                                               |
|                   | By: Camden  Summit, Inc., its general partner |
|                   |                                               |
| November 4,  2005 | By:                                                |     /s/  Dennis M. Steen |   |
|                   |                                               | Dennis M. Steen |
|                   |                                               | Senior Vice  President - Finance  Chief Financial Officer and Secretary |

 

27

----