Camden Property Trust — Q3 2011 Form 10-Q
Business context and period: Multifamily REIT reporting for the three and nine months ended September 30, 2011, compared with the corresponding 2010 periods. At quarter-end, Camden owned interests in, operated, or was developing 205 communities with 69,700 apartment homes; eight communities with 2,209 homes were under development.
Key financial results
Amounts below are in millions, except per-share data and percentages.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total property revenue | $168.9 | $154.3 | $495.2 | $455.0 |
| Property expenses | $68.0 | $63.7 | $197.6 | $187.4 |
| Income from continuing operations | $14.4 | $2.8 | $9.9 | $9.1 |
| Net income attributable to common shareholders | $11.8 | $1.7 | $2.5 | $6.1 |
| Diluted earnings per common share | $0.16 | $0.02 | $0.03 | $0.09 |
| Diluted FFO | $58.8 | $46.7 | $143.3 | $140.4 |
- Same-store revenue rose 6.3% in Q3 and 5.1% year to date. Management attributed growth to higher rents and occupancy. Same-store average rental rates increased 5.3% in Q3 and 4.2% for the nine months; occupancy was 95.0% and 94.6%, respectively.
- Property expenses increased 6.9% in Q3 and 5.4% year to date. Same-store expense growth was 4.6% in Q3 and 2.6% year to date, reflecting utilities, compensation, and repairs and maintenance, partly offset by lower real estate taxes for the year-to-date period.
- Property revenue less property expenses was $100.9 million in Q3 and $297.6 million for the nine months, equivalent to approximately 59.7% and 60.1% of property revenue, respectively. This is a simple calculation from reported line items, not a company-defined margin.
- Operating cash flow was $200.8 million for the nine months, versus $178.5 million in 2010. Investing activities used $146.2 million, compared with $50.1 million used in 2010; financing activities used $169.1 million, versus $101.5 million. Cash and equivalents ended the period at $56.1 million, down from $170.6 million at year-end 2010.
- Total debt was $2.433 billion, down from $2.564 billion at December 31, 2010. This comprised $1.381 billion unsecured and $1.053 billion secured debt. Total liabilities were $2.719 billion; total assets were $4.595 billion.
- Quarter-end liquidity included $56.1 million cash and approximately $488.4 million available on the $500 million unsecured credit facility, after letters of credit. The facility was extended to September 2015, with an option to extend to September 2016 and an option to increase its size to $750 million. The company reported compliance with its covenants.
- Debt weighted-average maturity was 7.0 years; weighted-average interest rate was 4.8%. Scheduled 2012 debt repayments were $294.2 million. Interest expense coverage, as defined by the company, was 3.2 times for Q3 and 3.1 times for the nine months, compared with 2.6 and 2.5 times in 2010.
- Distributions declared per common share were $0.49 for Q3 and $1.47 for the nine months, compared with $0.45 and $1.35 in 2010. The Q3 dividend was paid October 17, 2011.
Material changes and unusual items
- Q3 common-shareholder income improved versus 2010, while year-to-date common-shareholder income declined. The nine-month 2011 result included a $29.8 million noncash charge from discontinuing hedge accounting after repayment of a $500 million term loan. Without that charge, reported comparisons would differ materially.
- In June, Camden issued $500 million of senior unsecured notes due 2021 and 2023, with stated yields to maturity of 4.70% and 5.00%, and used proceeds plus cash to repay its $500 million term loan. The 2011 debt issuance and repayments were part of a refinancing and maturity-extension program.
- Development and capital-improvement spending was $155.1 million for the nine months, versus $43.9 million in 2010. Camden acquired Atlanta land for approximately $40.1 million and reported $102.1 million of anticipated remaining expenditures on current construction projects.
- Year-to-date results included $4.7 million of gains on property sales, $1.1 million on sales of joint-venture interests, and a $4.3 million gain on sale of an available-for-sale investment. Camden also issued shares through ATM programs; $242.9 million of capacity remained under its 2011 program at quarter-end.
- Management cited improving rental demand and modest new multifamily supply, but warned that economic and employment conditions remained uncertain. It planned to pursue development, acquisitions, and selective dispositions, and said it expected liquidity to cover reasonably anticipated needs through 2012. No specific earnings or FFO guidance was provided.
Risks, contingencies, and other matters
- Management warned that worsening economic conditions, unemployment, competition, development and construction risks, capital-market volatility, interest rates, debt refinancing, and access to financing could adversely affect performance and liquidity. It also identified impairment risk if market conditions or development assumptions deteriorate.
- Two Florida condominium associations have lawsuits alleging defective construction at projects previously built by a Camden subsidiary. The cases were at an early stage; Camden denied liability and said potential losses could not be estimated. A separate association’s claim was settled for a payment described as not material.
- Unconsolidated joint ventures reported aggregate third-party debt of $1.067 billion and net losses of $13.8 million for the nine months. Camden reported no outstanding guarantees on their loans.
- Camden reported no material changes in market-risk exposures or risk factors from its 2010 Form 10-K. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much of the earnings and FFO trend reflects underlying same-store operations versus refinancing, hedge-accounting, asset-sale, and deferred-compensation effects.
- The assumptions supporting projected rents, occupancy, development costs, completion schedules, and recoverability of real estate carrying values.
- The funding plan for the $102.1 million of remaining construction expenditures, future development commitments, and 2012 debt maturities.
- Whether rental growth and occupancy can persist if employment or economic conditions weaken, and how property expense growth affects operating margins.
- Updates on the two Florida construction lawsuits, joint-venture performance and leverage, and any further use of ATM equity issuance.