Camden Property Trust — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. Camden is a multifamily REIT. At quarter-end it owned, operated, or was developing 209 communities with 70,871 apartment homes, including six communities under development.
Financial performance and position
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total property revenue | $194.2 million | $164.2 million | $556.8 million | $481.4 million |
| Income attributable to common shareholders | $30.7 million | $11.8 million | $141.2 million | $2.5 million |
| Diluted EPS | $0.35 | $0.16 | $1.66 | $0.03 |
| Property revenue less property expenses | $121.1 million | $98.6 million | $346.7 million | $290.8 million |
- Revenue growth reflected same-store performance and portfolio expansion. Same-store revenue rose 6.5% for the nine months, driven by a 5.6% increase in average rental rates and a 0.6% increase in occupancy. Overall average occupancy was 95.2%, compared with 94.7%.
- Net income comparisons include significant unusual items: 2012 nine-month results included a $40.2 million gain on consolidating joint ventures and a $32.5 million gain on property sales; 2011 included a $29.8 million loss on discontinuing a hedge. The 2012 results also included a $2.1 million write-off of redeemed preferred-unit issuance costs.
- Cash from operations was $250.0 million for the first nine months, versus $200.8 million a year earlier. Investing used $458.4 million, including $305.3 million for acquisitions and $202.7 million for development and capital improvements. Financing provided $158.9 million, including $693.4 million in equity proceeds. Cash and equivalents declined to $5.6 million from $55.2 million at year-end 2011.
- Total notes payable were $2.394 billion at September 30, down from $2.432 billion at December 31, 2011. Debt had a 6.2-year weighted-average maturity and 4.8% weighted-average interest rate. The $500 million unsecured facility had $455.1 million available; Camden reported compliance with its covenants. Approximately 76.5% of properties, by invested capital, were unencumbered.
- Quarterly common distributions declared were $0.56 per share, versus $0.49 a year earlier. Nine-month distributions were $1.68 per share, versus $1.47.
Material changes and operating activity
- Camden acquired the remaining 80% interests in 12 previously unconsolidated joint ventures, bringing 4,034 homes onto its consolidated statements. The consolidation generated the $40.2 million gain. It also acquired four operating properties and land during the period.
- It sold three wholly owned properties in Q1 for approximately $55.6 million, recognizing a $32.5 million gain. Two additional properties were sold in October for approximately $26.6 million.
- Common shares issued increased materially amid a January public offering and ATM sales. The company reported $693.4 million in net share proceeds during the first nine months. The 2012 ATM program had $123.6 million of offering capacity remaining at September 30.
- Interest expense fell to $78.8 million for the nine months from $85.5 million, while depreciation and amortization rose to $155.6 million from $133.5 million, mainly reflecting acquisitions, development completions, and capital improvements.
Outlook, risks, and contingencies
- Management described rental-market conditions as gradually improving, citing favorable demographics and modest new apartment supply, but warned that elevated unemployment and possible economic deterioration could hurt results. It provided no specific full-year earnings or revenue guidance.
- Management intends to pursue selective acquisitions, development, and dispositions, while maintaining liquidity and managing leverage. It expected approximately $178 million of remaining costs to complete consolidated projects under construction, including $31–$34 million in Q4 2012. It anticipated approximately $190.3 million of debt maturities during the remainder of 2012.
- Liquidity plans rely on operating cash flow, the revolver, property sales and secured borrowing, and potential equity or debt issuance. The company said it believed liquidity was sufficient for reasonably anticipated needs; actual access to capital and execution of sales or financing remain uncertain.
- Key disclosed risks include capital-market volatility, refinancing and interest-rate exposure, short-term lease and rent competition, development and acquisition execution, joint-venture and fund risks, catastrophe losses, and maintaining REIT status. The company reported no material change to the risk factors in its 2011 Form 10-K.
- Two Florida condominium associations have sued a subsidiary over alleged construction defects and building-code issues. The cases were at an early stage; Camden denied liability and said potential loss could not be estimated. Management did not expect ordinary-course legal matters to have a material adverse effect.
- Camden reported no guarantees of unconsolidated joint-venture debt, no material change in market-risk exposure, and no material change in internal controls. It stated that it believed its real estate carrying values were recoverable, while warning that deteriorating conditions or changed development plans could lead to future impairment charges.
Investor verification points
- Separate recurring property performance from acquisition gains, disposition gains, hedge effects, and other nonrecurring items; review FFO alongside GAAP earnings.
- Confirm same-store rent growth and occupancy trends, and assess whether operating-cost and real-estate-tax growth could erode property margins.
- Track cash balances, revolver availability, 2012 maturities, construction commitments, and the funding mix for development and acquisitions.
- Assess share issuance and potential dilution against the returns generated by acquired assets and development projects.
- Monitor the Florida litigation, future property dispositions, and the progress and lease-up of the development pipeline.