Business Context and Reporting Period
Company: Camden Property Trust (Texas REIT)
Reporting Period: Fiscal year ended December 31, 2006
Business Overview: Camden is engaged in the ownership, development, construction, and management of middle- to upper-market multifamily apartment communities. As of December 31, 2006, the portfolio consisted of 197 properties comprising 67,631 apartment homes across 13 states. The company operates as a single reportable segment.
Key Financial Metrics
| Metric | 2006 | 2005 |
|---|---|---|
| Total Property Revenues | $599.4 million | $522.1 million |
| Net Income | $232.8 million | $199.1 million |
| Earnings Per Share (Diluted) | $3.96 | $3.58 |
| Funds From Operations (FFO) - Diluted | $237.8 million | $195.3 million |
| Operating Cash Flow | $231.6 million | $200.8 million |
| Total Debt Outstanding | $2.33 billion | $2.63 billion |
| Shareholders' Equity | $1.73 billion | $1.37 billion |
| Weighted Average Occupancy | 95.2% | 95.3% |
| Distributions Declared Per Share | $2.64 | $2.54 |
Material Changes vs. Prior Period
- Revenue Growth: Total property revenues increased 14.8% to $599.4 million, driven by higher rental income per apartment home and the addition of new properties. Same-store property revenues increased 6.9%.
- Net Income: Net income rose 16.9% to $232.8 million. This increase was significantly influenced by gains on the sale of properties ($97.5 million in continuing operations and $99.3 million in discontinued operations).
- Debt Reduction: Total notes payable decreased by approximately $302 million to $2.33 billion, primarily due to the repayment of senior unsecured notes and mortgage notes using proceeds from an equity offering and property dispositions.
- Portfolio Activity: The company recognized $91.5 million in gains from the partial sale of nine properties to an affiliated joint venture. Additionally, eight operating properties were sold to unaffiliated third parties for a gain of $78.8 million.
- Development Pipeline: The company expanded its development pipeline, with 11 properties under development totaling 3,788 apartment homes.
Guidance, Outlook, and Risks
Outlook: Management expects moderate growth in 2007 from stabilized communities, citing meaningful job and population growth in key markets. The company intends to maintain a development pipeline of approximately $1.0 billion to $1.5 billion.
Key Risks:
- Refinancing Risk: Significant debt obligations require refinancing; unfavorable terms or inability to refinance could adversely affect financial condition.
- Economic Conditions: Occupancy and rental rates are sensitive to national, regional, and local economic climates, including job growth and housing supply.
- Interest Rate Risk: The company holds variable rate debt (including a $600 million unsecured line of credit); increases in rates would increase interest expense.
- Development Risks: Construction projects face risks regarding zoning, cost overruns, and lease-up timing.
- REIT Qualification: Failure to qualify as a REIT would subject the company to federal income tax at corporate rates.
Investor Verification Checklist
- Debt Maturities: Verify the schedule of debt maturities, noting $219.9 million due in 2007 and $200.7 million in 2008, to assess refinancing needs.
- Gain on Sales: Review the composition of Net Income, as a significant portion ($196.8 million total) is derived from gains on property sales rather than recurring operations.
- Development Costs: Monitor the $156.5 million in contractual construction obligations and the ability to fund the $1.0-$1.5 billion development pipeline.
- Occupancy Trends: Track same-store occupancy and rental rate growth to validate the 6.9% revenue increase in stabilized assets.
- Joint Venture Exposure: Assess the risks and returns associated with the multiple joint ventures, including the 20% interest in Sierra-Nevada and various partial sales to affiliated ventures.