Camden Property Trust — Q2 2019 Form 10-Q
Business and period. Camden is a multifamily REIT that owns, operates, acquires, and develops apartment communities. This unaudited report covers the three and six months ended June 30, 2019, compared with the same periods in 2018. At quarter-end, it owned interests in, operated, or was developing 171 communities with 58,077 homes.
Financial performance
Amounts below are in millions, except per-share data, occupancy, and where noted.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Property revenue | $255.8 | $237.1 | $504.3 | $467.8 |
| Net income | $43.5 | $39.9 | $83.3 | $80.4 |
| Net income attributable to common shareholders | $42.4 | $38.7 | $81.0 | $78.1 |
| Diluted EPS | $0.43 | $0.40 | $0.82 | $0.81 |
| Property NOI | $164.5 | $152.1 | $322.3 | $298.8 |
| FFO | $128.6 | $116.1 | $249.3 | $227.5 |
| AFFO | $107.5 | $96.9 | $218.5 | $198.3 |
Margins and operating indicators. Property NOI was 64.3% of property revenue in Q2 2019, compared with 64.1% a year earlier; first-half NOI margin was approximately 63.9% in both periods. Same-store revenue grew 3.4% in Q2 and 3.5% in the first half; same-store NOI grew 4.2% and 3.9%, respectively. Average occupancy was 96.0% in Q2 and 95.9% for the first half, up from 95.7% and 95.5% in 2018. Average monthly property revenue per home was $1,755 in Q2, versus $1,693.
Cash flow and investment. First-half operating cash flow was $218.7, down from $231.3. Investing cash outflow was $430.1, including $214.2 for acquisitions and $206.7 for development and capital improvements. Financing cash inflow was $322.8, primarily reflecting new debt and equity proceeds, partly offset by mortgage repayments and $155.7 of distributions. Cash and cash equivalents were $149.6 at June 30, 2019, versus $34.4 at year-end 2018.
Debt and liquidity. Notes payable totaled $2.477 billion, compared with $2.322 billion at December 31, 2018; unsecured debt was $2.431 billion and secured debt $45.5 million. Weighted-average debt maturity was 6.5 years, and the weighted-average interest rate shown in the debt maturity schedule was 4.0%. Interest coverage was 7.5 times in Q2 and 7.1 times for the first half, versus 6.5 and 6.4 times in 2018. The $900 million unsecured credit facility had no borrowings outstanding and approximately $889.9 million available. Camden reported approximately 98.9% of properties unencumbered.
Material changes and notable items
- Revenue grew 7.9% in Q2 and 7.8% in the first half; common-attributable net income rose 9.6% in Q2 and 3.8% in the first half. Diluted EPS increased to $0.43 in Q2 and $0.82 for the first half.
- Same-store rent growth and occupancy gains drove operating improvement. Higher real estate taxes and property expenses partly offset revenue growth. Portfolio additions and lease-up also contributed to higher NOI.
- In February, Camden issued about 3.4 million shares for net proceeds of $328.4 million. It acquired operating properties in Scottsdale and Austin for a combined $217.5 million and acquired development land in Tempe and Charlotte.
- In June, Camden issued $600 million of 3.15% senior unsecured notes due 2029. It also repaid approximately $439.3 million of secured mortgage debt during the first quarter. The credit facility was expanded from $600 million to $900 million and its maturity extended to March 2023, with extension options.
- First-half deferred compensation plan investment income of $14.2 million was matched by $14.2 million of expense; this had no net income effect. The company paid $20.4 million to settle forward interest-rate swaps; related amounts are to be reclassified to interest expense over seven years.
- The company declared a $0.80-per-share quarterly dividend. If maintained for the rest of 2019, the annualized rate would be $3.20 per share.
Outlook, risks, and contingencies
Management reported same-store growth supported by rental-rate increases, higher occupancy, job growth, favorable demographics, and manageable new supply. It expected U.S. economic and employment growth to continue during 2019 and supply to remain manageable, while cautioning that deterioration in these conditions could hurt results. Camden intends to pursue development, redevelopment, acquisitions, and selective dispositions while maintaining balance-sheet flexibility; the filing provides no formal earnings or revenue guidance.
Five consolidated projects under construction were expected to require approximately $310.9 million to complete, including $110–$130 million during the remainder of 2019. Management also estimated 2019 remaining spending of $15–$25 million on new development starts, $29–$35 million on repositioning, $15–$19 million on redevelopment, and $37–$41 million on recurring capital expenditures. Funding may include operating cash, available credit, debt or equity issuance, and asset-sale proceeds.
Key risks include economic and capital-market weakness, rent competition and short residential leases, development and construction execution, significant debt and refinancing or interest-rate exposure, joint-venture risks, and adverse weather. Camden also cited LIBOR transition, cybersecurity, and implementation risks related to its new enterprise resource planning system. The first phase of the cloud-based system was completed after quarter-end and is expected to materially affect internal controls over financial reporting in later periods. Management reported no material changes to previously disclosed risk factors, no legal proceedings, and no impairment charges in the period. Camden stated it was in compliance with credit-facility covenants.
Most important facts for investors to verify
- Whether same-store rent growth and occupancy gains persist, and whether property expense growth—especially real estate taxes—accelerates.
- Construction budgets, completion and lease-up timing, and the company’s ability to fund the remaining $310.9 million project cost within its liquidity and leverage objectives.
- Debt costs, maturity profile, credit ratings, floating-rate exposure, and access to the credit facility and capital markets.
- The impact of the new ERP system on reporting controls after its first implementation phase.
- Whether deferred compensation gains and losses remain broadly offsetting, and the future effect of swap-settlement costs on interest expense.
- Whether the $0.80 quarterly dividend is maintained; the $3.20 annualized figure is conditional, not a guarantee.