Camden Property Trust — 2017 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2017. Camden is a U.S. multifamily REIT focused on owning, operating, developing, redeveloping, and acquiring apartment communities. At year-end, it owned interests in, operated, or was developing 162 communities with 55,143 apartment homes; seven communities with 2,110 homes were under construction.
Financial and operating performance
| Metric | 2017 | 2016 | Change / context |
|---|---|---|---|
| Property revenue | $900.9 million | $876.4 million | Up 2.8% |
| Property expenses | $328.7 million | $311.4 million | Up 5.6%; includes $3.9 million of hurricane costs |
| Net operating income (NOI) | $572.2 million | $565.1 million | Up 1.2%; approximately 63.5% of property revenue |
| Same-store revenue / NOI | Revenue up 2.9%; NOI up 2.2% | Revenue up 3.9%; NOI up 4.8% | Rent increases and other property income were partly offset by higher expenses |
| Net income attributable to common shareholders | $196.4 million | $819.8 million | Down substantially; 2016 included large property-sale gains |
| Diluted EPS | $2.13 | $9.05 | 2016 included disposition gains; 2017 included a $43.2 million gain on a property sale |
| Diluted FFO / AFFO | $424.1 million / $359.3 million | $425.5 million / $366.4 million | FFO down 0.3%; AFFO down 1.9% |
| Cash from operating activities | $434.7 million | $443.1 million | Down about 1.9% |
| Debt at year-end | $2.205 billion | $2.481 billion | Lower after repayments; weighted-average maturity 4.3 years |
Stabilized operating communities averaged approximately 95% occupancy in both 2017 and 2016. Average monthly rental revenue per apartment home was $1,447 in 2017, versus $1,405 in 2016. Same-store average rental rates increased 2.9%, compared with 3.2% growth in 2016. FFO and AFFO are non-GAAP measures; the company cautions that its definitions may not be comparable with other REITs.
Liquidity, capital, and distributions
- Year-end cash and cash equivalents were $368.5 million. Camden also had $586.6 million available on its $600 million unsecured credit facility and $45 million available under a short-term facility.
- Cash used in investing activities was $189.8 million, including $299.1 million of development and capital-improvement outlays, partly offset by property-sale proceeds and a $100 million short-term investment maturity. Financing activities used $112.9 million.
- Notes payable declined to $2.205 billion from $2.481 billion. Of outstanding debt, 92.1% was fixed-rate; weighted-average debt interest rate was 4.3%. Scheduled 2018 debt payments were estimated at $173.7 million. The largest listed maturity was $643.0 million in 2019.
- In September 2017, Camden issued approximately 4.8 million common shares for net proceeds of about $442.5 million. It also sold approximately 28,100 shares through its ATM program for net proceeds of about $2.5 million.
- 2017 distributions were $3.00 per common share. The Board declared a first-quarter 2018 dividend of $0.77; if that rate continued for the year, the annualized rate would be $3.08. Future distributions remain at the Board’s discretion.
Material changes, outlook, and risks
- Comparability: 2016 earnings included approximately $375.2 million after tax from the sale of Las Vegas discontinued operations and substantial gains on other property dispositions. 2017 included a $43.2 million gain from selling one Corpus Christi property. These items explain much of the decline in reported earnings and EPS.
- Portfolio activity: Camden acquired one Atlanta operating community for approximately $58.3 million, acquired San Diego land for $20.0 million, and sold one Corpus Christi property for approximately $78.4 million. Two additional Florida property acquisitions closed in January and February 2018.
- Development plans: Remaining estimated cost to complete seven projects under construction was $282.3 million, with $140 million–$160 million expected during 2018. For 2018, the company also estimated $45 million–$55 million for new development starts, $37 million–$41 million for repositioning and revenue-enhancement work, $28 million–$32 million for extensive redevelopment, and $65 million–$69 million for recurring capital expenditures. These are estimates, not guarantees.
- Management outlook: Management expected U.S. economic and employment growth to continue in 2018 and multifamily supply to remain manageable. It plans selective development, redevelopment, acquisitions, and dispositions, while emphasizing liquidity, leverage, and overhead control. No specific 2018 earnings or FFO guidance is provided in the supplied filing text.
- Unusual costs and exposures: Hurricanes Harvey and Irma caused approximately $3.9 million of property expenses, $0.7 million of general and administrative expenses, and $0.4 million of the company’s share of joint-venture costs. No insurance recoveries were anticipated for the wholly owned property expenses. The company cited risks from apartment supply and competition, short lease terms, development execution and cost overruns, interest rates and refinancing, joint ventures, cybersecurity, and potential real-estate impairments.
- Debt and interest-rate risks: The 2019 debt maturity is significant relative to 2018 scheduled payments. LIBOR was expected to be phased out by the end of 2021, potentially affecting indexed borrowings and derivatives. Camden had $200 million notional of forward swaps for anticipated 2018 fixed-rate debt issuance.
- Contingencies and controls: The filing reports no material pending legal proceeding; management considered ordinary-course claims not expected to materially affect the financial statements. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether same-store rent growth and NOI margins hold up as property expenses rose faster than same-store revenue in 2017.
- Progress on lease-up and stabilization of new properties, and actual costs and timing versus the development pipeline estimates.
- Plans to address the $643.0 million of listed 2019 maturities, refinancing terms, and access to capital markets.
- How the 2018 acquisitions, equity issuance, and development spending affect per-share results, leverage, and future cash generation.
- Whether storm-related damage or future weather events generate additional costs, and whether insurance recoveries differ from management’s expectation.
- How to interpret FFO and AFFO alongside GAAP earnings, particularly given 2016 disposition gains and the non-GAAP nature of these measures.