Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes appearing elsewhere in this report, as well as Part I, Item 1A, "Risk Factors" within our Annual Report on Form 10-K for the year ended December 31, 2022. Historical results and trends which might appear in the condensed consolidated financial statements should not be interpreted as being indicative of future operations.

We consider portions of this report to be "forward-looking" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to our expectations for future periods. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions, or other items relating to the future; forward-looking statements are not guarantees of future performance, results, or events. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance our expectations will be achieved. Any statements contained herein which are not statements of historical fact should be deemed forward-looking statements. Reliance should not be placed on these forward-looking statements as these statements are subject to known and unknown risks, uncertainties, and other factors beyond our control and could differ materially from our actual results and performance.

For a discussion of risks in response to recent bank failures, see "Because of recent deterioration of the credit and capital markets, we may be unable to obtain debt financing from sources other than our unsecured revolving credit facility on acceptable terms or at all" under Item 1A, "Risk Factors." Factors which may cause our actual results or performance to differ materially from those contemplated by forward-looking statements include, but are not limited to, the following:

• Because of recent deterioration of the credit and capital markets, we may be unable to obtain debt financing from sources other than our unsecured revolving credit facility on acceptable terms or at all;

• Volatility in capital and credit markets, or other unfavorable changes in economic conditions, either nationally or regionally in one or more of the markets in which we operate, could adversely impact us;

• Short-term leases could expose us to the effects of declining market rents;

• Competition could limit our ability to lease apartments or increase or maintain rental income;

• We could be negatively impacted by the risks associated with land holdings and related activities;

• Development, repositions, redevelopment and construction risks could impact our profitability;

• Our acquisition strategy may not produce the cash flows expected;

• Changes in rent control or rent stabilization laws and regulations could adversely affect our operations and property values;

• Failure to qualify as a REIT could have adverse consequences;

• Tax laws may continue to change at any time and any such legislative or other actions could have a negative effect on us;

• A cybersecurity incident and other technology disruptions could negatively impact our business;

• We have significant debt which could have adverse consequences;

• Insufficient cash flows could limit our ability to make required payments for debt obligations or pay distributions to shareholders;

• Issuances of additional debt may adversely impact our financial condition;

• We may be unable to renew, repay, or refinance our outstanding debt;

• Rising interest rates could both increase our borrowing costs, thereby adversely affecting our cash flows and the amounts available for distribution to our shareholders, and decrease our share price, if investors seek higher yields through other investments;

• Failure to maintain our current credit ratings could adversely affect our cost of funds, related margins, liquidity, and access to capital markets;

• Share ownership limits and our ability to issue additional equity securities may prevent takeovers beneficial to shareholders;

• The form, timing and amount of dividend distributions in future periods may vary and be impacted by economic and other considerations;

• Environmental, social, and governance factors may impose additional costs and/or expose us to new risks;

• Litigation risks could affect our business;

• A pandemic and measures intended to prevent its spread could negatively impact our business;

• Damage from catastrophic weather and other natural events could result in losses;

• Competition could adversely affect our ability to acquire properties; and

• We could be adversely impacted due to our share price fluctuations.

These forward-looking statements represent our estimates and assumptions as of the date of this report, and we assume no obligation to update or supplement forward-looking statements because of subsequent events.

Executive Summary

Camden Property Trust and all consolidated subsidiaries are primarily engaged in the ownership, management, development, redevelopment, acquisition, and construction of multifamily apartment communities. We focus on investing in markets characterized by high-growth economic conditions, strong employment, and attractive quality of life which we believe leads to higher demand for our apartments and retention of our residents. As of September 30, 2023, we owned interests in, operated, or were developing 177 multifamily properties comprised of 60,514 apartment homes across the United States. In addition, we own other land holdings which we may develop into multifamily apartment communities in the future.

Business Environment and Current Outlook

During the three and nine months ended September 30, 2023, our results reflect an increase in same store revenues of approximately 4.1% and 6.0%, respectively, as compared to the same periods in 2022. The increases were primarily due to higher average rental rates, which we believe was primarily attributable to job growth, favorable demographics with a higher propensity to rent versus buy, continued demand for multifamily housing in our markets, and a manageable supply of new multifamily housing.

We currently believe the supply of multifamily homes will remain at manageable levels during 2023 in the submarkets and asset classes in which we operate. However, if this were to change or other economic conditions were to worsen, our operating results could be adversely affected.

Consolidated Results

Net income attributable to common shareholders was $48.0 million and $29.8 million for the three months ended September 30, 2023 and 2022, respectively, and $181.0 million and $607.9 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease during the nine months ended September 30, 2023 as compared to the same period in 2022 was primarily due to a $474.1 million gain recognized as a result of the remeasurement of our previously held 31.3% ownership interest in two unconsolidated Funds (collectively, "the Funds" or "the acquisition of the Funds") upon our acquiring the remaining ownership interests on April 1, 2022. The decrease was also due to higher interest expense incurred during the nine months ended September 30, 2023 as compared to the same period in 2022. The decrease was partially offset by an increase in property operations during the nine months ended September 30, 2023 as compared to the same period in 2022. The decrease was further offset by recognizing a higher gain on sale of one operating property during the nine months ended September 30, 2023 of approximately $48.9 million as compared to a gain on sale of one operating property during the nine months ended September 30, 2022 of approximately $36.4 million. See further discussion of our 2023 operations as compared to 2022 in "Results of Operations," below.

The increase in net income attributable to common shareholders during the three months ended September 30, 2023 as compared to the same period in 2022 was primarily due to an increase in property operations during the three months ended September 30, 2023 as compared to the same period in 2022. The increase was also due to lower amortization expense recognized during the three months ended September 30, 2023, as a result of the amortization of in-place leases related to the acquisition of the Funds in April 2022 being fully amortized as of December 31, 2022. See further discussion of our 2023 operations as compared to 2022 in "Results of Operations” below.

Construction Activity

At September 30, 2023, we had a total of five properties under construction comprising 1,553 apartment homes. As of September 30, 2023, we estimated the total additional cost to complete the construction of these five properties is approximately $180.6 million.

Dispositions

Operating property: In June 2023, we sold one operating property comprised of 138 apartment homes located in Costa Mesa, California for approximately $61.1 million and recognized a gain of approximately $48.9 million.

Other

In May 2023, we created an at-the market ("ATM") share offering program through which we can, but have no obligation to, sell common shares and we may also enter into separate forward sale agreements with forward purchasers for an aggregate offering price of up to $500.0 million (the "2023 ATM program"). As of the date of this filing, we have $500.0 million available for sale under this program.

In May 2023, we utilized our unsecured revolving credit facility to retire our $185.2 million secured variable rate notes due in 2024 and 2026. As a result of the early repayments, we recorded a $2.5 million loss on early retirement of debt in our condensed consolidated statements of income and comprehensive income, which was comprised of approximately $1.7 million of prepayment penalties and fees and approximately $0.8 million for the write-off of applicable unamortized fair value adjustments.

In June 2023, we utilized our unsecured revolving credit facility to repay the principal amount of our 5.07% senior unsecured note payable, which was scheduled to mature on June 15, 2023, for a total of $250.0 million, plus accrued interest.

Future Outlook

Subject to market conditions, we intend to continue to seek opportunities to develop new communities and to redevelop, reposition, and acquire existing communities. We also intend to evaluate our portfolio and plan to continue our practice of selective dispositions as market conditions warrant and opportunities arise. We expect to maintain a strong balance sheet and preserve our financial flexibility by continuing to focus on our core fundamentals which we believe are generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs. We intend to meet our near-term liquidity requirements through a combination of one or more of the following: cash flows generated from operations, draws on our unsecured revolving credit facility, the use of debt and equity offerings under our automatic shelf registration statement, proceeds from property dispositions, equity issued from the ATM program, and other unsecured borrowings or secured mortgages.

As of September 30, 2023, we had approximately $725.2 million available under our $1.2 billion unsecured revolving credit facility. As of September 30, 2023 and through the date of this filing, we also had common shares having an aggregate offering amount of up to $500.0 million remaining available for sale under our 2023 ATM program and the ability to issue debt and equity under our automatic shelf registration statement. We believe scheduled repayments of debt due during the next 12 months are manageable at approximately $540.0 million which represents approximately 14.8% of our total outstanding debt, and excludes amortization of debt discounts, and debt issuance costs. We believe we are well-positioned with a strong balance sheet and sufficient liquidity to fund new development, repositions, redevelopment, and other capital requirements including scheduled debt maturities. We will, however, continue to assess and take further actions we believe are prudent to meet our objectives and capital requirements.

Property Portfolio

Our multifamily property portfolio is summarized as follows:

			September 30, 2023												December 31, 2022
			Number of Homes						Properties						Number of Homes						Properties
Operating Properties
Houston, Texas			9,154						26						9,154						26
Dallas, Texas			6,224						15						6,224						15
Washington, D.C. Metro			6,192						17						6,192						17
Atlanta, Georgia			4,862						15						4,862						15
Phoenix, Arizona			4,426						14						4,029						13
Orlando, Florida			3,954						11						3,954						11
Austin, Texas			3,686						11						3,686						11
Raleigh, North Carolina			3,252						9						3,252						9
Charlotte, North Carolina			3,104						14						3,104						14
Tampa, Florida			3,104						8						3,104						8
Southeast Florida			3,050						9						3,050						9
Denver, Colorado			2,873						9						2,873						9
Los Angeles/Orange County, California			2,525						6						2,663						7
San Diego/Inland Empire, California			1,797						6						1,797						6
Nashville, Tennessee			758						2						758						2
Total Operating Properties			58,961						172						58,702						172

			September 30, 2023												December 31, 2022
			Number of Homes						Properties						Number of Homes						Properties
Properties Under Construction
Raleigh, North Carolina			789						2						789						2
Charlotte, North Carolina			387						1						387						1
Houston, Texas			377						2						377						2
Phoenix, Arizona			—						—						397						1
Total Properties Under Construction			1,553						5						1,950						6
Total Properties			60,514						177						60,652						178

Stabilized Communities

We generally consider a property stabilized once it reaches 90% occupancy. During the quarter ended September 30, 2023, stabilization was achieved at one consolidated operating property as follows:

*($ in millions)*Stabilized Property and Location			Number of Apartment Homes																		Date of Construction Completion						Date of Stabilization
Camden Tempe II			397																		2Q23						3Q23
Tempe, AZ

Properties Under Development

Our condensed consolidated balance sheet at September 30, 2023 includes approximately $499.8 million related to properties under development and land. Of this amount, approximately $237.4 million related to our properties currently under construction. In addition, we had approximately $262.4 million primarily invested in land held for future development.

Properties Under Construction. At September 30, 2023, we had five properties in various stages of construction as follows:

($ in millions) Properties and Locations			Number of Homes						Estimated Cost						Cost Incurred						Included in Properties Under Development						Estimated Date of Construction Completion						Estimated Date of Stabilization
Properties Under Construction
Camden NoDa (1)
Charlotte, NC			387						$	108.0					$	107.6					$	5.2					4Q23						2Q24
Camden Durham (2)
Durham, NC			420						145.0						119.0						101.9						2Q24						4Q25
Camden Woodmill Creek (3)
The Woodlands, TX			189						75.0						48.0						39.5						3Q24						4Q24
Camden Village District
Raleigh, NC			369						138.0						61.6						61.6						2Q25						4Q26
Camden Long Meadow Farms
Richmond, TX			188						80.0						29.2						29.2						3Q24						4Q24
Total			1,553						$	546.0					$	365.4					$	237.4

(1) Property in lease-up and was 82% leased at October 25, 2023.

(2) Property in lease-up and was 6% leased at October 25, 2023.

(3) Property in lease-up and was 5% leased at October 25, 2023.

Development Pipeline Communities. At September 30, 2023, we had the following multifamily communities undergoing development activities:

($ in millions) Properties and Locations			Projected Homes						Total Estimated Cost (1)						Cost to Date
Camden South Charlotte
Charlotte, NC			420						$	153.0					$	28.5
Camden Blakeney
Charlotte, NC			349						145.0						25.1
Camden Baker
Denver, CO			435						165.0						32.2
Camden Nations
Nashville, TN			393						175.0						38.6
Camden Gulch
Nashville, TN			480						260.0						47.9
Camden Paces III
Atlanta, GA			350						100.0						22.0
Camden Highland Village II
Houston, TX			300						100.0						10.3
Camden Arts District
Los Angeles, CA			354						150.0						43.7
Camden Downtown II
Houston, TX			271						145.0						14.1
Total			3,352						$	1,393.0					$	262.4

*(1)*Represents our estimate of total costs we expect to incur on these projects. However, forward-looking estimates are not guarantees of future performance, results, or events. Although we believe these expectations are based upon reasonable assumptions, future events rarely develop exactly as forecast, and estimates routinely require adjustment.

Results of Operations

Changes in revenues and expenses related to our operating properties from period to period are due primarily to the performance of stabilized properties in the portfolio, the lease-up of newly constructed properties, and the impact of acquisitions and dispositions.

Management considers property net operating income ("NOI") to be an appropriate supplemental measure of operating performance to net income because it reflects the operating performance of our communities without an allocation of corporate level property management overhead or general and administrative costs. We define NOI as property revenue less property operating and maintenance expenses less real estate taxes. NOI is further detailed in the Property-Level NOI table as seen below. NOI is not defined by accounting principles generally accepted in the United States of America ("GAAP") and should not be considered an alternative to net income as an indication of our operating performance. Additionally, NOI as disclosed by other REITs may not be comparable to our calculation.

Reconciliations of net income to NOI for the three and nine months ended September 30, 2023 and 2022 are as follows:

						Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands)						2023						2022						2023						2022
Net income						$	49,819					$	31,550					$	186,378					$	614,037
Less: Fee and asset management income						(1,077)						(617)						(2,373)						(4,257)
Less: Interest and other income						(64)						(88)						(557)						(2,881)
Less: (Income)/loss on deferred compensation plans						3,339						6,275						(5,417)						28,450
Plus: Property management expense						7,891						6,732						24,939						21,228
Plus: Fee and asset management expense						444						556						1,277						2,090
Plus: General and administrative expense						15,543						14,002						46,762						44,526
Plus: Interest expense						33,006						29,192						99,427						82,756
Plus: Depreciation and amortization expense						144,359						158,877						429,857						429,749
Plus: Expense/(benefit) on deferred compensation plans						(3,339)						(6,275)						5,417						(28,450)
Plus: Loss on early retirement of debt						—						—						2,513						—
Less: Gain on sale of operating property						—						—						(48,919)						(36,372)
Less: Gain on acquisition of unconsolidated joint venture interests						—						—						—						(474,146)
Less: Equity in income of joint ventures						—						—						—						(3,048)
Plus: Income tax expense						752						737						2,753						2,213
Net operating income						$	250,673					$	240,941					$	742,057					$	675,895

Property-Level NOI (1)

Property NOI, as reconciled above, is detailed further into the following categories for the three and nine months ended September 30, 2023 as compared to the same periods in 2022:

($ in thousands)			Homes at						Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
9/30/2023						2023						2022						$						%						2023						2022						$						%
Property revenues:
Same store communities			48,137						$	318,403					$	305,851					$	12,552					4.1		%				$	943,235					$	889,785					$	53,450					6.0		%
Non-same store communities			10,824						67,398						60,844						6,554						10.8						197,910						137,356						60,554						44.1
Development and lease-up communities			1,553						1,315						—						1,315						*						1,965						—						1,965						*
Dispositions/Other			—						3,662						7,077						(3,415)						(48.3)						11,330						19,706						(8,376)						(42.5)
Total property revenues			60,514						$	390,778					$	373,772					$	17,006					4.5		%				$	1,154,440					$	1,046,847					$	107,593					10.3		%
Property expenses:
Same store communities			48,137						$	112,036					$	106,396					$	5,640					5.3		%				$	330,409					$	310,866					$	19,543					6.3		%
Non-same store communities			10,824						25,915						23,703						2,212						9.3						75,910						53,167						22,743						42.8
Development and lease-up communities			1,553						408						5						403						*						612						(3)						615						*
Dispositions/Other			—						1,746						2,727						(981)						(36.0)						5,452						6,922						(1,470)						(21.2)
Total property expenses			60,514						$	140,105					$	132,831					$	7,274					5.5		%				$	412,383					$	370,952					$	41,431					11.2		%
Property NOI:
Same store communities			48,137						$	206,367					$	199,455					$	6,912					3.5		%				$	612,826					$	578,919					$	33,907					5.9		%
Non-same store communities			10,824						41,483						37,141						4,342						11.7						122,000						84,189						37,811						44.9
Development and lease-up communities			1,553						907						(5)						912						*						1,353						3						1,350						*
Dispositions/Other			—						1,916						4,350						(2,434)						(56.0)						5,878						12,784						(6,906)						(54.0)
Total property NOI			60,514						$	250,673					$	240,941					$	9,732					4.0		%				$	742,057					$	675,895					$	66,162					9.8		%

** Not a meaningful percentage.*

(1) Same store communities are communities we wholly-owned and were stabilized since January 1, 2022, excluding communities under redevelopment and properties held for sale. Non-same store communities are stabilized communities not owned or stabilized since January 1, 2022, including communities under redevelopment and excluding properties held for sale. We define communities under redevelopment as communities with capital expenditures which improve a community's cash flow and competitive position through extensive unit, exterior building, common area, and amenity upgrades. Management believes same store information is useful as it allows both management and investors to determine financial results over a particular period for the same set of communities. Development and lease-up communities are non-stabilized communities we have developed since January 1, 2022, excluding properties held for sale. Dispositions/Other includes those communities disposed of or held for sale which are not classified as discontinued operations, non-multifamily rental properties, expenses related to land holdings not under active development, and other miscellaneous revenues and expenses, including net below market leases, casualty-related expenses net of recoveries and severance related costs.

Same Store Analysis

Same store property NOI increased approximately $6.9 million and $33.9 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

The $6.9 million increase in same store property NOI for the three months ended September 30, 2023 was primarily due to an increase of approximately $12.6 million in same store property revenues which was partially offset by an increase in property expenses of $5.6 million, as compared to the same period in 2022.

The $12.6 million increase in same store property revenues during the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to a $11.8 million increase in rental revenues comprised of a 5.1% increase in average rental rates and higher other rental income. The increase was also due to an increase of approximately $0.8 million related to income from our bulk internet and other utility rebilling programs.

The $5.6 million increase in same store property expenses during the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to higher property insurance expense of approximately $1.9 million primarily due to higher premiums, higher repairs and maintenance expenses of $1.0 million, higher marketing and leasing expenses of $0.9 million, higher property general and administrative expenses of $0.8 million, higher real estate taxes of $0.4 million due to increased tax rates and property valuations, and higher utilities and salaries of approximately $0.6 million.

The $33.9 million increase in same store property NOI for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to an increase of approximately $53.5 million in same store property revenues which was partially offset by an increase of approximately $19.5 million in same store property expenses.

The $53.5 million increase in same store property revenues during the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to a $49.6 million increase in rental revenues comprised of a 8.0% increase in average rental rates and higher other rental income and reletting fees. The increase was also due to an increase of approximately $3.0 million from our utility and other rebilling programs, and an increase of approximately $0.9 million in fees and other income.

The $19.5 million increase in same store property expenses during the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to higher property insurance expense of approximately $7.2 million primarily due to higher premiums and higher claims, higher repairs and maintenance expense of $3.9 million, higher real estate taxes of $3.7 million due to increased tax rates and property valuations, higher utilities expense of $2.5 million, and higher marketing and leasing expenses of $1.1 million. The increase was also due to higher property general and administrative expenses of $2.9 million, a portion of which was due to centralizing our workforce to manage certain responsibilities for all of our communities during 2022, and was partially offset by a decrease in salaries expense of $1.8 million.

Non-same Store and Development and Lease-up Analysis

Property NOI from non-same store and development and lease-up communities increased approximately $5.3 million and $39.2 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022. The increases were comprised of increases from non-same store communities of approximately $4.4 million and $37.8 million, and increases from development and lease-up communities of approximately $0.9 million and $1.4 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022. The increases in property NOI from our non-same store communities were primarily due to our acquisition of the Funds on April 1, 2022. The increases were also due to the stabilization of three operating properties in 2022 and two operating properties in 2023. The increases in property NOI from our development and lease-up communities was due to the timing of one property under development, which began lease-up during the nine months ended September 30, 2023.

The following table details the changes, described above, relating to non-same store and development and lease up NOI:

(in millions)						For the three months ended September 30, 2023 as compared to 2022						For the nine months ended September 30, 2023 as compared to 2022
Property Revenues:
Revenues from acquisitions						$	1.3					$	43.3
Revenues from non-same store stabilized properties						4.6						14.9
Revenues from development and lease-up properties						1.3						2.0
Other						0.7						2.4
						$	7.9					$	62.6
Property Expenses:
Expenses from acquisitions						$	0.3					$	16.5
Expenses from non-same store stabilized properties						1.5						4.8
Expenses from development and lease-up properties						0.4						0.6
Other						0.4						1.5
						$	2.6					$	23.4
Property NOI:
NOI from acquisitions						$	1.0					$	26.8
NOI from non-same store stabilized properties						3.1						10.1
NOI from development and lease-up properties						0.9						1.4
Other						0.3						0.9
						$	5.3					$	39.2

Dispositions/Other Property Analysis

Dispositions/Other property NOI decreased approximately $2.4 million and $6.9 million for the three and nine months ended September 30, 2023 as compared to the same periods in 2022, respectively. The decreases were comprised of lower other property NOI of approximately $1.5 million and $5.4 million and lower NOI related to dispositions of approximately $0.9 million and $1.5 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022. The lower other property NOI was primarily due to lower revenues of approximately $3.4 million and $6.9 million related to net below market leases recognized during the three and nine months ended September 30, 2022, respectively, as a result of the acquisition of the Funds in April 2022. The decreases in other property NOI were partially offset by higher revenues of approximately $1.1 million and $1.2 million related to business interruptions received during the three and nine months ended September 30, 2023, respectively. The decrease in other property NOI during the three months ended September 30, 2023 was partially offset by lower storm-related expenses of approximately $0.8 million primarily due to recognizing storm related costs of approximately $1.0 million during the three months ended September 30, 2022 related to Hurricane Ian. The decreases in NOI related to dispositions during the three and nine months ended September 30, 2023 were primarily due to the disposition of one operating property in June 2023. The decrease in NOI related to dispositions during the nine months ended September 30, 2023 was also due to the disposition of one operating property in March 2022.

Non-Property Income

($ in thousands)			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
2023						2022						$						%						2023						2022						$						%
Fee and asset management			$	1,077					$	617					$	460					74.6		%				$	2,373					$	4,257					$	(1,884)					(44.3)		%
Interest and other income			64						88						(24)						(27.3)		%				557						2,881						(2,324)						(80.7)		%
Income/(loss) on deferred compensation plans			(3,339)						(6,275)						2,936						(46.8)		%				5,417						(28,450)						33,867						*
Total non-property income/(loss)			$	(2,198)					$	(5,570)					$	3,372					(60.5)		%				$	8,347					$	(21,312)					$	29,659					(139.2)		%

** Not a meaningful percentage.*

Fee and asset management income from property management, asset management, construction, and development activities at our joint ventures and our third-party construction projects, increased approximately $0.5 million for the three months and decreased approximately $1.9 million for the nine months ended September 30, 2023, as compared to the same periods in 2022. The increase for the three months ended September 30, 2023 was related to higher fees earned on third-party construction projects due to higher activity during the three months ended September 30, 2023 as compared to the same period in 2022. The decrease during the nine months ended September 30, 2023 was primarily due to the consolidation of the Funds on

April 1, 2022, and no longer having any related fee and asset management income. The decrease was also due to lower fees earned on third-party construction projects due to lower activity during the nine months ended September 30, 2023, as compared to the same period in 2022.

Interest and other income decreased approximately $2.3 million for the nine months ended September 30, 2023, as compared to the same period in 2022. The decrease was primarily due to a higher earn-out received and recognized during the nine months ended September 30, 2022 as compared to the same period in 2023 related to a technology joint venture sold in September 2020.

Our deferred compensation plans incurred a loss of approximately $3.3 million and $6.3 million during the three months ended September 30, 2023 and 2022, respectively, as compared to recognizing income of approximately $5.4 million and incurring a loss of approximately $28.5 million during the nine months ended September 30, 2023 and 2022, respectively. The changes were related to the performance of the investments held in deferred compensation plans for participants and were directly offset by the expense/(benefit) related to these plans, as discussed below.

Other Expenses

($ in thousands)			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
2023						2022						$						%						2023						2022						$						%
Property management			$	7,891					$	6,732					$	1,159					17.2		%				$	24,939					$	21,228					$	3,711					17.5		%
Fee and asset management			444						556						(112)						(20.1)						1,277						2,090						(813)						(38.9)
General and administrative			15,543						14,002						1,541						11.0						46,762						44,526						2,236						5.0
Interest			33,006						29,192						3,814						13.1						99,427						82,756						16,671						20.1
Depreciation and amortization			144,359						158,877						(14,518)						(9.1)						429,857						429,749						108						*
Expense/(benefit) on deferred compensation plans			(3,339)						(6,275)						2,936						(46.8)						5,417						(28,450)						33,867						*
Total other expenses			$	197,904					$	203,084					$	(5,180)					(2.6)		%				$	607,679					$	551,899					$	55,780					10.1		%

** Not a meaningful percentage.*

Property management expense, which represents regional supervision and accounting costs related to property operations, increased approximately $1.2 million and $3.7 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022. The increases were primarily related to higher salaries, benefits, and incentive compensation costs, and higher travel related costs. Property management expenses were 2.0% and 1.8% of total property revenues for the three months ended September 30, 2023 and 2022, respectively, and were 2.2% and 2.0% of total property revenues for the nine months ended September 30, 2023 and 2022, respectively.

Fee and asset management expense from property management, asset management, construction, and development activities at our joint ventures and our third-party projects decreased approximately $0.8 million during the nine months ended September 30, 2023, as compared to the same period in 2022. The decrease during the nine months ended September 30, 2023 was primarily due to our consolidating the Funds on April 1, 2022, and no longer having any related fee and asset management expenses.

General and administrative expense increased approximately $1.5 million and $2.2 million during the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022. The increases were primarily related to higher salaries, benefits, and incentive compensation costs and higher information technology expenses during the three and nine months ended September 30, 2023 as compared to the same periods in 2022. Excluding income/(loss) on deferred compensation plans, general and administrative expenses were 4.0% and 3.7% of total revenues for the three months ended September 30, 2023 and 2022, respectively, and were 4.0% and 4.2% of total revenues for the nine months ended September 30, 2023 and 2022, respectively.

Interest expense increased approximately $3.8 million and $16.7 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022. The increases were primarily due to a $300 million term loan we entered into in December 2022, higher interest expense recognized on our unsecured revolving credit facility resulting from higher interest rates and increases in average balances outstanding, and higher interest expense recognized on our other variable rate debt outstanding during the three and nine months ended September 30, 2023 due to having higher interest rates as compared to the same periods in 2022. The increase during the nine months ended September 30, 2023 was also due to an increase in interest expense related to our assuming approximately $515 million of secured mortgage debt upon completion of the acquisition of the Funds on April 1, 2022.

The increases in interest expense during the three and nine months ended September 30, 2023 were partially offset by lower interest expense related to the repayment of a $350 million, 3.15% senior unsecured note payable in December 2022, the

repayment of a $250 million, 5.07% senior unsecured note payable in June 2023, and higher capitalized interest during the three and nine months ended September 30, 2023 resulting from higher interest rates on our unsecured revolving credit facility. The increase during the three months ended September 30, 2023 was also partially offset by lower interest expense related to the early retirement of $185.2 million of secured variable rate notes in May 2023.

Depreciation and amortization expense decreased approximately $14.5 million and increased approximately $0.1 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022. The decrease during the three months ended September 30, 2023 was primarily due to the amortization of in-place leases incurred during the three months ended September 30, 2022 related to the acquisition of the Funds in April 2022 being fully amortized by December 31, 2022. The decrease was partially offset by higher depreciation during the three months ended September 30, 2023 due to the completion of apartment homes in our development pipeline and completion of repositions during 2022 and 2023.

The slight increase in depreciation and amortization during the nine months ended September 30, 2023 was primarily due to higher depreciation expense related to our acquisition of the Funds on April 1, 2022, and the completion of apartment homes in our development pipeline and completion of repositions during 2022 and 2023. The increase was offset by the amortization of in-place leases incurred during the nine months ended September 30, 2022 related to the acquisition of the Funds in April 2022 being fully amortized by December 31, 2022, and the acquisitions of two operating properties in 2021 being fully amortized by March 31, 2022. The increase was also offset by lower depreciation expense related to the disposition of one operating property in March of 2022 and another operating property in June 2023, and also due to a higher amount of three to five year assets being fully depreciated during the nine months ended September 30, 2023 as compared to the same period in 2022.

Our deferred compensation plans recognized a benefit of approximately $3.3 million and $6.3 million for the three months ended September 30, 2023 and 2022, respectively, as compared to incurring an expense of approximately $5.4 million and recognizing a benefit of approximately $28.5 million during the nine months ended September 30, 2023 and 2022, respectively. The changes were related to the performance of the investments held in deferred compensation plans for participants and were directly offset by the income/(loss) related to these plans, as discussed in the non-property income section above.

Other

			Three Months Ended September 30,												Change						Nine Months Ended September 30,												Change
($ in thousands)			2023						2022						$									2023						2022						$
Loss on early retirement of debt			$	—					$	—					$	—								$	(2,513)					$	—					$	(2,513)
Gain on sale of operating property			$	—					$	—					$	—								$	48,919					$	36,372					$	12,547
Gain on acquisition of unconsolidated joint venture interests			$	—					$	—					$	—								$	—					$	474,146					$	(474,146)
Equity in income of joint ventures			$	—					$	—					$	—								$	—					$	3,048					$	(3,048)
Income tax expense			$	(752)					$	(737)					$	(15)								$	(2,753)					$	(2,213)					$	(540)

The $2.5 million loss on early retirement of debt during the nine months ended September 30, 2023 was due to the early repayment of our $185.2 million secured variable rate notes due in 2024 and 2026, and consisted of approximately $1.7 million of prepayment penalties and fees and approximately $0.8 million of unamortized fair value adjustments.

The $48.9 million gain on sale during the nine months ended September 30, 2023, was due to the disposition of one operating property located in Costa Mesa, California in June 2023. The $36.4 million gain on sale during the nine months ended September 30, 2022, was due to the disposition of one operating property located in Largo, Maryland during the first quarter of 2022.

On April 1, 2022, we acquired the remaining 68.7% ownership interest in the Funds. Prior to the acquisition, we held a 31.3% ownership interest in the Funds, and accounted for these investments under the equity method. As a result of acquiring the remaining ownership interests, we consolidated the Funds and recorded a gain of approximately $474.1 million which represented the difference between the fair market value and the cost basis of our previously owned equity interests.

Equity in income of joint ventures decreased approximately $3.0 million for the nine months ended September 30, 2023, as compared to the same period in 2022 due to our consolidating the Funds on April 1, 2022.

Income tax expense increased approximately $0.5 million for the nine months ended September 30, 2023, as compared to the same period in 2022. The increase was primarily due to higher state and franchise income taxes, partially offset by a decrease in taxable income due to lower third-party construction activities in a taxable REIT subsidiary.

Funds from Operations ("FFO"), Core FFO, and Core Adjusted FFO ("Core AFFO")

Management considers FFO, Core FFO, and Core AFFO to be appropriate supplementary measures of the financial performance of an equity REIT. The National Association of Real Estate Investment Trusts ("NAREIT") currently defines FFO in accordance with the 2018 NAREIT FFO White Paper which defines FFO as net income (computed in accordance with GAAP), excluding depreciation and amortization related to real estate, gains (or losses) from the sale of certain real estate assets (depreciable real estate), impairments of certain real estate assets (depreciable real estate), gains (or losses) from change in control, and adjustments for unconsolidated joint ventures to reflect FFO on the same basis. Our calculation of diluted FFO also assumes conversion of all potentially dilutive securities, including certain non-controlling interests, which are convertible into common shares. We consider FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses on dispositions of depreciable real estate and depreciation, FFO can assist in the comparison of the operating performance of a company's real estate investments between periods or to different companies.

Core FFO represents FFO as further adjusted for items not considered part of our core business operations. We consider Core FFO to be a helpful supplemental measure of operating performance as it excludes not only depreciation expense of real estate assets, but it also excludes certain items which, by nature, are not comparable period over period and therefore tends to obscure actual operating performance. Our definition of Core FFO may differ from other REITs, and there can be no assurance our basis for computing this measure is comparable to other REITs.

Core AFFO is calculated utilizing Core FFO less recurring capitalized expenditures which are necessary to help preserve the value of and maintain the functionality at our communities. We also consider Core AFFO to be a useful supplemental measure because it is frequently used by analysts and investors to evaluate a REIT's operating performance between periods or to different companies. Our definition of recurring capital expenditures may differ from other REITs, and there can be no assurance our basis for computing this measure is comparable to other REITs.

To facilitate a clear understanding of our consolidated historical operating results, we believe FFO, Core FFO, and Core AFFO should be examined in conjunction with net income attributable to common shareholders as presented in the condensed consolidated statements of income and comprehensive income and data included elsewhere in this report. FFO, Core FFO, and Core AFFO are not defined by GAAP and should not be considered alternatives to net income attributable to common shareholders as an indication of our operating performance. Additionally, FFO, Core FFO, and Core AFFO as disclosed by other REITs may not be comparable to our calculation.

Reconciliations of net income attributable to common shareholders to FFO, Core FFO, and Core AFFO for the three and nine months ended September 30, 2023 and 2022 are as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
($ in thousands)			2023						2022						2023						2022
Funds from operations
Net income attributable to common shareholders			$	47,963					$	29,844					$	180,979					$	607,904
Real estate depreciation and amortization			141,362						156,065						420,762						421,808
Adjustments for unconsolidated joint ventures			—						—						—						2,709
Gain on sale of operating property			—						—						(48,919)						(36,372)
Gain on acquisition of unconsolidated joint venture interests			—						—						—						(474,146)
Income allocated to non-controlling interests			1,856						1,706						5,399						6,133
Funds from operations			$	191,181					$	187,615					$	558,221					$	528,036
Casualty-related expenses, net of (recoveries)			(436)						1,406						503						1,657
Severance			—						—						—						896
Legal costs and settlements			—						—						84						555

			Three Months Ended September 30,												Nine Months Ended September 30,
($ in thousands)			2023						2022						2023						2022
Loss on early retirement of debt			—						—						2,513						—
Expensed development and other pursuit costs			—						—						471						—
Net below market lease amortization			—						(3,442)						—						(7,745)
Miscellaneous (income)/expense (1)			—						—						(364)						(2,071)
Core funds from operations			$	190,745					$	185,579					$	561,428					$	521,328
Less: recurring capitalized expenditures			(26,554)						(26,001)						(65,167)						(61,682)
Core adjusted funds from operations			$	164,191					$	159,578					$	496,261					$	459,646
Weighted average shares – basic			108,683						108,466						108,638						107,314
Incremental shares issuable from assumed conversion of:
Share awards granted			23						40						21						52
Common units			1,595						1,606						1,596						1,606
Weighted average shares – diluted			110,301						110,112						110,255						108,972

(1) Nine months ended September 30, 2023 and 2022 activity relates to proceeds from an earn-out from a previously sold technology investment.

Liquidity and Capital Resources

Financial Condition and Sources of Liquidity

We intend to maintain a strong balance sheet and preserve our financial flexibility, which we believe should enhance our ability to identify and capitalize on investment opportunities as they become available. We intend to maintain what management believes is a conservative capital structure by:

• extending and sequencing the maturity dates of our debt where practicable;

• managing interest rate exposure using what management believes to be prudent levels of fixed and floating rate debt;

• maintaining what management believes to be conservative coverage ratios; and

• using what management believes to be a prudent combination of debt and equity.

Our interest expense coverage ratio, net of capitalized interest, was approximately 6.9 and 7.5 for the three months ended September 30, 2023 and 2022, respectively, and 6.8 and 7.4 for the nine months ended September 30, 2023 and 2022. This ratio is a method for calculating the amount of operating cash flows available to cover interest expense and is calculated by dividing interest expense for the period into the sum of property revenues and expenses, non-property income, and other expenses, after adding back depreciation, amortization, and interest expense. Approximately 89.9% and 83.8% of our properties were unencumbered as of September 30, 2023 and 2022, respectively. Our weighted average maturity of debt was approximately 6.0 years at September 30, 2023.

Our primary sources of liquidity is cash flows generated from operations. Other sources may include one or more of the following: availability under our unsecured revolving credit facility, the use of debt and equity offerings under our automatic shelf registration statement, proceeds from property dispositions, equity issued from our ATM program, and other unsecured borrowings or secured mortgages. We believe our liquidity and financial condition are sufficient to meet all of our reasonably anticipated cash needs during the next twelve months from our filing date including:

• normal recurring operating expenses;

• current debt service requirements including scheduled debt maturities;

• recurring and non-recurring capital expenditures;

• funding of property developments, repositions, redevelopments, and acquisitions; and

• the minimum dividend payments required to maintain our REIT qualification under the Code.

Factors which could increase or decrease our future liquidity include but are not limited to volatility in capital and credit markets, changes in rent control or rent stabilization laws, sources of financing, the minimum REIT dividend requirements, our ability to complete asset purchases, sales, or developments, the effect our debt level and changes in credit ratings could have on our cost of funds, and our ability to access capital markets.

Cash Flows

The following is a discussion of our cash flows for the nine months ended September 30, 2023 as compared to the same period in 2022.

Net cash from operating activities was approximately $603.0 million during the nine months ended September 30, 2023 as compared to approximately $576.5 million for the same period in 2022. The increase was primarily due to the increase in cash from property operations due to the acquisition of the Funds on April 1, 2022, and the growth attributable to our same store, non-same store and development and lease-up communities. The increase was partially offset by higher real estate tax payments related to the acquisition of the Funds and higher interest payments on our secured and unsecured debt. See further discussion of our 2023 operations as compared to 2022 in "Results of Operations."

Net cash used in investing activities during the nine months ended September 30, 2023 totaled approximately $240.7 million as compared to $1.3 billion during the same period in 2022. Cash outflows during the nine months ended September 30, 2023 primarily related to amounts paid for property development and capital improvements of approximately $294.3 million. These outflows were partially offset by net proceeds from the sale of one operating property of approximately $60.4 million. Cash outflows during the nine months ended September 30, 2022 primarily related to the acquisition of the Funds for cash consideration of approximately $1.1 billion, and amounts paid for property development and capital improvements of approximately $342.5 million. These outflows were partially offset by net proceeds from the sale of one operating property of approximately $70.5 million. The decrease in property development and capital improvements for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to the acquisition of four parcels of land for

development in 2022, partially offset by higher reposition expenditures in 2023 as compared to 2022. The property development and capital improvements during the nine months ended September 30, 2023 and 2022, included the following:

						Nine Months Ended September 30,
(in millions)						2023						2022
Expenditures for new development, including land						$	127.4					$	203.2
Capital expenditures						75.2						75.3
Reposition expenditures						64.1						37.2
Direct real estate taxes and capitalized interest and other indirect costs						27.6						26.8
Total						$	294.3					$	342.5

Net cash used in financing activities totaled approximately $356.8 million for the nine months ended September 30, 2023 as compared to net cash from financing activities of $221.0 million during the same period in 2022. Cash outflows during the nine months ended September 30, 2023 primarily related to $324.4 million used for distributions to common shareholders and non-controlling interest holders, and the repayment of $250 million senior unsecured notes and $187.7 million secured variable rate notes, which includes prepayment penalties and fees. These outflows were partially offset by net proceeds of $405.0 million of borrowings from our unsecured revolving credit facility. Cash inflows during the nine months ended September 30, 2022 primarily related to net proceeds of $516.8 million from the issuance of approximately 2.9 million common shares from our equity offering and approximately 0.2 million common shares from our ATM programs, partially offset by $293.2 million used for distributions to common shareholders and non-controlling interest holders.

Financial Flexibility

We have a $1.2 billion unsecured revolving credit facility which matures in August 2026, with two options to extend the facility at our election for two consecutive six-month periods and to expand the facility up to three times by up to an additional $500 million upon satisfaction of certain conditions. The interest rate on our unsecured revolving credit facility is based upon, at our option, (a) the daily or the one-, three-, or six-month Secured Overnight Financing Rate ("SOFR") plus, in each case, a spread based on our credit rating, or (b) a base rate equal to the higher of: (i) the Federal Funds Rate plus 0.50%, (ii) Bank of America, N.A.'s prime rate, (iii) Term SOFR plus 1.0%, and (iv) 1.0%. The weighted average interest rate on our unsecured revolving credit facility was approximately 6.13% for the nine months ended September 30, 2023. Advances under our unsecured revolving credit facility may be priced at the scheduled rates, or we may enter into bid rate loans with participating banks at rates below the scheduled rates. These bid rate loans have terms of 180 days or less and may not exceed the lesser of $600 million or the remaining amount available under our unsecured revolving credit facility. Our unsecured revolving credit facility is subject to customary financial covenants and limitations. We believe we are in compliance with all such financial covenants and limitations as of September 30, 2023 and through the date of this filing.

Our unsecured revolving credit facility provides us with the ability to issue up to $50 million in letters of credit. While our issuance of letters of credit does not increase our borrowings outstanding under our unsecured revolving credit facility, it does reduce the amount available. At September 30, 2023, we had outstanding letters of credit totaling approximately $27.8 million, resulting in approximately $725.2 million available under our unsecured revolving credit facility.

In May 2023, we created an ATM share offering program through which we can, but have no obligation to, sell common shares and we may also enter into separate forward sale agreements with forward purchasers for an aggregate offering amount of up to $500.0 million (the "2023 ATM program"), in amounts and at times as we determine, into the existing trading market at current market prices as well as through negotiated transactions. Actual sales from time to time may depend on a variety of factors including, among others, market conditions, the trading price of our common shares, and determinations by management of the appropriate sources of funding for us. We intend to use proceeds from the sale of our common shares under the 2023 ATM program for general corporate purposes, which may include reducing future borrowings under our unsecured revolving credit facility, the repayment of other indebtedness, the redemption or other repurchase of outstanding debt or equity securities, funding for development activities, and financing for acquisitions. As of the date of this filing, we have not sold any shares or entered into any forward sales agreement and have common shares having an aggregate offering amount of up to $500.0 million remaining available for sale under the 2023 ATM program.

We believe our ability to access capital markets is enhanced by our senior unsecured debt ratings by Moody's, Fitch, and Standard and Poor's, which are currently A3 with stable outlook, A- with stable outlook, and A- with stable outlook, respectively. We believe our ability to access capital markets is also enhanced by our ability to borrow on a secured basis from various institutions including banks, Fannie Mae, Freddie Mac, or life insurance companies. However, we may not be able to maintain our current credit ratings and or borrow on a secured or unsecured basis in the future.

Future Cash Requirements and Contractual Obligations

One of our principal long-term liquidity requirements includes the repayment of maturing debt, including any future borrowings under our unsecured revolving credit facility. We believe scheduled repayments of debt due during the next 12 months are manageable at approximately $540.0 million which represents approximately 14.8% of our total outstanding debt, and excludes amortization of debt discounts, and debt issuance costs. See Note 7, "Notes Payable," in the notes to Condensed Consolidated Financial Statements for a further discussion of our scheduled maturities.

As of September 30, 2023, we estimated the additional cost to complete the construction of five properties to be approximately $180.6 million. Of this amount, we expect to incur costs between approximately $55 million and $75 million during the remainder of 2023 and to incur the remaining costs during 2024 through 2025. Additionally, we expect to incur costs between approximately $9 million and $11 million related to the start of new development activities, between approximately $23 million and $27 million of repositions, redevelopment, repurposes, and revenue enhancing expenditures and between approximately $31 million and $39 million of additional recurring capital expenditures.

We anticipate meeting our near-term liquidity requirements through a combination of one or more of the following: cash flows generated from operations, draws on our unsecured revolving credit facility, the use of debt and equity offerings under our automatic shelf registration statement, proceeds from property dispositions, equity issued from our ATM program, and other unsecured borrowings or secured mortgages. We continue to evaluate our portfolio and plan to continue our practice of selective dispositions as market conditions warrant and opportunities arise.

As a REIT, we are subject to a number of organizational and operational requirements, including a requirement to distribute current dividends to our shareholders equal to a minimum of 90% of our annual taxable income. In order to minimize paying income taxes, our general policy is to distribute at least 100% of our taxable income. In September 2023, our Board of Trust Managers declared a quarterly dividend of $1.00 per common share to our common shareholders of record as of September 29, 2023. The quarterly dividend was subsequently paid on October 17, 2023, and we paid equivalent amounts per unit to holders of the common operating partnership units. Assuming similar quarterly dividend distributions for the remainder of 2023, our annualized dividend rate would be $4.00 per share or unit.

Critical Accounting Policies

Our critical accounting policies have not changed from the information reported in our Annual Report on Form 10-K for the year ended December 31, 2022.