Camden Property Trust — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Camden is a multifamily REIT; it owned interests in, operated, or was developing 183 properties with 64,152 apartment homes across the U.S.
Key financial metrics
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Property revenue | $208.5 million | $195.0 million | $414.4 million | $384.8 million |
| Income from continuing operations | $36.3 million | $47.9 million | $77.4 million | $77.8 million |
| Net income attributable to common shareholders | $35.3 million | $72.2 million | $75.3 million | $135.6 million |
| Diluted EPS | $0.40 | $0.81 | $0.85 | $1.53 |
| Diluted FFO | $94.2 million | $91.4 million | $189.0 million | $178.1 million |
| Operating cash flow | Not separately reported for the quarter | $194.0 million | $181.0 million |
- Same-store property revenue rose 4.5% in Q2 and 4.6% for the first half. Average same-store rents increased 3.9% and 4.0%, respectively; occupancy rose 0.4 and 0.5 percentage points. Q2 average occupancy across operating homes was 95.7%.
- Same-store property expenses increased 3.5% in Q2 and 2.8% for the first half. Q2 same-store property revenue less property expenses was approximately $120.0 million, up about 5.1% from $114.1 million a year earlier.
- For the first half, investing cash outflow was $250.2 million, mainly reflecting $268.0 million of development and capital-improvement spending. Financing cash inflow was $54.5 million; cash declined $1.7 million to $16.1 million.
- At June 30, total debt was $2.70 billion: $1.77 billion unsecured and $930.9 million secured. Weighted-average debt maturity was 6.2 years and the stated weighted-average rate on total notes payable was 4.2%. Interest coverage, net of capitalized interest, was 5.2x for Q2 and 5.1x for the first half.
- Total assets were $5.79 billion and total liabilities $3.01 billion. The $500 million credit facility had $150.0 million drawn, plus $30.0 million in short-term borrowings; after letters of credit, availability was approximately $339.3 million. Camden reported covenant compliance.
- Quarterly distributions declared were $0.66 per common share, versus $0.63 a year earlier. The filing states a $2.64 annualized 2014 rate assuming similar distributions for the rest of the year.
Material changes versus prior comparable periods
- Reported net income and EPS fell sharply versus 2013, primarily because 2013 included gains on sales of discontinued properties and joint-venture properties. Q2 2013 included a $24.9 million after-tax gain on discontinued operations; first-half 2013 included $56.6 million. Joint-venture income was also substantially higher in 2013 due to property-sale gains and a promoted equity interest.
- Underlying operating indicators were stronger: revenue, same-store rents and occupancy, operating cash flow, and diluted FFO increased. First-half diluted FFO rose to $189.0 million from $178.1 million.
- Development spending increased: first-half development and capital-improvement outflows were $268.0 million versus $157.5 million in 2013. Properties under development rose to $599.1 million from $472.6 million at year-end.
- Total notes payable increased $169.4 million from December 31, 2013, reflecting $180.0 million of net line-of-credit and short-term borrowing proceeds, partly offset by repayments and scheduled amortization.
Outlook, risks and unusual items
- Management expected improving U.S. employment and economic conditions and manageable multifamily supply to support rents and occupancy, while cautioning that economic risks and unemployment above historical levels could impair results. It provided no specific earnings or revenue guidance in the supplied filing text.
- Camden planned to continue developing and acquiring communities, selectively dispose of assets, and focus on operating cash flow, leverage, liquidity, and overhead control. It estimated $424.9 million remained to complete 13 consolidated projects, including $195–$205 million expected during the remainder of 2014. It also expected $22–$26 million of redevelopment and $30–$34 million of other capital expenditures during the remainder of 2014.
- Management considered 2014 debt maturities of approximately $54.8 million manageable and stated liquidity was sufficient for reasonably anticipated 2014 needs. The 2015 maturity schedule included $150 million outstanding under the credit line; the facility matures in September 2015, with an option to extend to September 2016.
- In Q2 Camden recorded a $1.2 million impairment on Dallas land; the parcel subsequently sold in July. It also sold two land parcels in 2014 and recognized $1.8 million of gains in the first half. Two properties sold by joint ventures generated Camden’s proportionate share of $3.6 million in gains.
- Unconsolidated joint ventures had $519.9 million of third-party debt, of which Camden’s proportionate share was approximately $104.0 million; Camden reported no guarantees of those loans. A construction-related lawsuit was settled in March 2014 with a one-time payment described as immaterial.
- Risks cited include capital-market and refinancing access, variable-rate debt and interest rates, development and construction execution, competition and rental demand, property and land values, joint-venture exposure, catastrophic losses, cybersecurity, and maintaining REIT qualification. No material change in risk factors or market-risk exposure was reported.
Important facts for investors to verify
- Whether rent growth and high occupancy persist, and how new supply and economic conditions affect leasing.
- Progress, lease-up, costs, and completion timing for the development pipeline and the remaining $424.9 million construction commitment.
- Funding plans for development and debt maturities, including the 2015 credit-facility maturity, and the durability of the reported liquidity position.
- Whether growth in property expenses, particularly taxes, utilities, salaries, and maintenance, erodes same-store operating gains.
- How much reported earnings comparisons reflect prior-period property-sale gains versus ongoing operations; FFO is a non-GAAP supplemental measure and is not a substitute for GAAP earnings or cash flow.
- Potential effects of land valuation changes, joint-venture debt and performance, and future distributions on financial flexibility.