Camden Property Trust — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Camden is a multifamily REIT that owned interests in, operated, or was developing 169 communities with 57,517 apartment homes across the United States.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Property revenue | $248.6 million | $230.7 million | +7.8% |
| Net income | $39.7 million | $40.5 million | −2.0% |
| Net income attributable to common shareholders | $38.6 million | $39.4 million | −2.0% |
| Diluted EPS | $0.40 | $0.41 | −$0.01 |
| Operating cash flow | $92.7 million | $87.2 million | +$5.5 million |
| Net operating income (NOI) | $157.7 million | $146.7 million | +7.5% |
| Funds from operations (FFO) | $120.7 million | $111.4 million | +8.3% |
| Adjusted FFO (AFFO) | $111.0 million | $101.4 million | +9.5% |
Same-store revenue grew 3.7% and same-store NOI grew 3.6%; average rental rates and occupancy increased. Weighted average occupancy was 95.7%, versus 95.2%. Total property expenses increased 8.2%, faster than property revenue, largely reflecting higher real estate taxes and costs at acquired and lease-up communities. Property NOI was approximately 63.5% of property revenue in both periods.
Cash used in investing activities was $176.8 million, compared with $275.6 million, including $79.5 million for development and capital improvements and $94.9 million for the Scottsdale acquisition. Financing activities provided $52.3 million, versus $73.0 million used in Q1 2018. Cash, cash equivalents, and restricted cash totaled $11.7 million at quarter-end, including $6.1 million of cash and cash equivalents.
Total notes payable were $2.125 billion at March 31, 2019, down from $2.322 billion at December 31, 2018. Debt had a 3.9% weighted average interest rate and 5.6-year weighted average maturity. Camden reported $341.6 million of floating-rate debt and interest coverage of 6.8 times. Approximately 98.9% of properties were unencumbered. The amended $900 million unsecured credit facility had $242.0 million drawn and approximately $647.9 million available; an additional $45 million short-term facility was undrawn. Management reported covenant compliance.
The board declared a quarterly dividend of $0.80 per common share. The filing states that, if similar quarterly dividends continue for the rest of 2019, the annualized rate would be $3.20 per share or unit.
Material changes versus the prior period
- Revenue and NOI increased, supported by same-store rent and occupancy growth, acquisitions, and communities entering stabilization or lease-up.
- Net income and diluted EPS declined modestly despite higher revenue. Depreciation and amortization rose 14.3%, primarily due to acquisitions and completed development and repositioning work. Deferred compensation plan income of $10.4 million was offset by a corresponding $10.4 million expense.
- FFO and AFFO rose faster than GAAP net income. These are non-GAAP measures and may not be comparable to similarly named measures at other REITs.
- In February, Camden issued approximately 3.4 million common shares and received $328.4 million net proceeds. It used proceeds in part for the Scottsdale acquisition and debt repayment. The company repaid approximately $439.3 million of secured mortgage debt during the quarter.
- In March, Camden increased its unsecured credit facility from $600 million to $900 million and extended maturity to March 2023, with two six-month extension options.
Outlook, commentary, risks, and unusual items
- Management expected continued U.S. economic and employment growth and manageable multifamily supply in 2019, while noting weaker economic conditions could hurt results. Camden provided no specific earnings or revenue guidance in the supplied filing text.
- Five projects totaling 1,572 homes were under construction. Estimated remaining construction cost was $364 million; management expected to spend $165–$185 million on these projects during the rest of 2019.
- For the remainder of 2019, Camden also estimated $50–$60 million for new development starts, $46–$50 million for repositions and revenue-enhancing work, $22–$26 million for redevelopment, and $58–$62 million for recurring capital expenditures.
- Management planned to pursue selective development, redevelopment, acquisitions, and dispositions, and said available liquidity was sufficient for anticipated 2019 needs. Funding sources may include operating cash flow, credit facilities, debt or equity offerings, asset sales, and the ATM program.
- Subsequent to quarter-end, Camden acquired an Austin operating property for approximately $120.4 million in May and Charlotte development land for approximately $10.9 million in April. These were post-quarter transactions.
- Unconsolidated joint ventures had $510.5 million of third-party debt, of which Camden’s proportionate share was approximately $159.8 million; Camden reported no guarantees of that debt. Construction commitments and future development spending remain significant funding needs.
- Key disclosed risks include economic and rental-market weakness, competition, development and construction execution, access to capital and refinancing, rising interest rates and LIBOR-related changes, REIT qualification, severe weather, cybersecurity, and implementation of a new enterprise resource planning system. The company reported no material change to previously disclosed risk factors, no legal proceedings, and no debt maturities for the remainder of 2019.
- Two designated interest-rate swaps with $300 million notional value hedged anticipated fixed-rate debt issuance. Their quarter-end liability fair value was $13.4 million; Q1 OCI included a $5.9 million unrealized hedge loss.
Important facts for investors to verify
- Whether same-store rent growth and occupancy trends persist, and whether property expense growth—particularly taxes—continues to outpace revenue.
- Progress, leasing, costs, and delivery timing for projects under construction and in lease-up, including the estimated $364 million remaining construction commitment.
- Use of equity proceeds, credit-facility borrowings, and other funding sources, together with debt costs, floating-rate exposure, and covenant headroom.
- Whether the declared $0.80 quarterly dividend is maintained and remains supported by recurring cash generation.
- How post-quarter acquisitions and the development pipeline affect leverage, cash needs, and future operating performance.