Business context and reporting period
Camden Property Trust’s unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016. The REIT owns, manages, develops, and acquires multifamily communities. At quarter-end, it owned interests in, operated, or was developing 158 properties with 54,925 apartment homes, including seven projects under construction.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total property revenue | $220.2 million | $212.6 million | $659.3 million | $620.6 million |
| Net income attributable to common shareholders | $290.9 million | $37.0 million | $778.9 million | $188.7 million |
| Diluted EPS | $3.21 | $0.41 | $8.60 | $2.09 |
| FFO | $104.2 million | $104.3 million | $319.9 million | $304.9 million |
| AFFO | $85.0 million | $86.1 million | $276.3 million | $258.2 million |
Q3 property NOI was $139.9 million, up 4.4%; nine-month NOI was $421.6 million, up 6.8%. Same-store revenue increased 3.7% in Q3 and 4.2% for the nine months, while same-store NOI rose 4.5% and 4.7%, respectively. Average same-store rental rates increased 3.1% in Q3 and 3.5% year to date. Weighted average occupancy was 95.8% in Q3 versus 96.1% a year earlier.
Net income and EPS were boosted substantially by property-sale gains: the company recorded $262.7 million of gains on operating-property sales in Q3 and $295.4 million for the nine months. The nine-month results also included a $375.2 million after-tax gain from the Las Vegas disposition in discontinued operations. FFO and AFFO, which exclude major disposition gains, provide a more useful view of recurring performance; Q3 FFO was essentially flat and AFFO declined year over year.
For the nine months, operating cash flow was $357.5 million, investing cash flow was $766.6 million, and financing cash outflow was $821.0 million. Cash and cash equivalents were $313.7 million at September 30, compared with $10.6 million at December 31, 2015; short-term investments were $100.0 million. Total notes payable were $2.48 billion, down from $2.72 billion at year-end 2015. The company reported $586.7 million available under its $600 million unsecured credit facility, after letters of credit, and no facility borrowings at quarter-end. Debt had a 5.1-year weighted-average maturity and 4.4% weighted-average interest rate. Interest coverage was 5.4 times for Q3 and 5.5 times for the nine months.
Material changes versus prior comparable periods
- Revenue and same-store operating results grew, driven primarily by rental-rate increases and higher other property income; property expenses also increased.
- Reported earnings rose sharply because of property dispositions, rather than a comparable increase in recurring operating earnings. Q3 FFO was nearly unchanged year over year.
- In April, Camden sold 15 Las Vegas properties, a retail center, and land for approximately $630 million, recognizing a $375.2 million gain. In Q3 it sold six operating properties with 2,906 homes for approximately $484.4 million and recognized a $262.7 million gain.
- The portfolio contracted from 180 properties and 62,649 homes at December 31, 2015 to 158 properties and 54,925 homes at September 30, 2016, primarily reflecting dispositions.
- Cash and short-term investments increased, while total notes payable declined. Distributions declared for the nine months were $6.50 per common share, including a $4.25 special dividend primarily funded by disposition gains.
Outlook, risks, and unusual items
Management said it expected U.S. economic and employment growth to continue through the remainder of 2016 and new multifamily supply to remain manageable, while cautioning that weaker economic conditions could hurt results. It gave no specific earnings or revenue guidance. Management planned to pursue development, redevelopment, acquisitions, and selective dispositions as market conditions warranted, and stated it believed liquidity was sufficient for anticipated needs.
Seven projects under construction were expected to require approximately $212.6 million in additional completion costs; management anticipated spending $40–$45 million of that amount during the remainder of 2016. Funding sources could include cash, operating cash flow, credit facilities, asset-sale proceeds, and debt or equity offerings. Key disclosed risks include rent and occupancy pressure from economic weakness or competition, development and construction execution, access to capital and refinancing, interest-rate exposure, debt levels, joint-venture risks, and maintaining REIT status. The company reported no impairment charges, no outstanding guarantees of unconsolidated joint-venture debt, no material change in previously disclosed risk factors, and no legal proceedings.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring property operations versus the $262.7 million Q3 operating-property gain and the $375.2 million Las Vegas gain.
- Whether same-store rent and NOI growth and occupancy remain resilient as apartment supply increases in Camden’s markets.
- Progress, lease-up, total costs, and timing for the seven projects under construction, including the remaining $212.6 million commitment.
- Debt maturities and refinancing needs, interest-rate sensitivity, covenant compliance, and continued access to the credit facility and capital markets.
- The sustainability of regular distributions and the distinction between the $0.75 quarterly dividend and the $4.25 special disposition-related dividend.