CAMDEN PROPERTY TRUST annual report, FY2023

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Camden Property Trust — 2023 Form 10-K

Business context and reporting period. Camden is a U.S. multifamily REIT that owns, operates, develops, redevelops, and acquires apartment communities. This annual report covers the fiscal year ended December 31, 2023, with comparisons primarily to 2022. At year-end, it owned interests in, operated, or was developing 176 communities with 59,800 apartment homes, including four communities under construction. Its 172 operating properties had approximately 95% average occupancy, versus 96% in 2022.

Financial performance and condition

  • Revenue and property operations: Property revenue was $1.542 billion, up 8.4% from $1.423 billion. Same-store revenue grew 5.1%, including a 6.6% increase in average rental rates. Same-store property expenses rose 6.7%, and same-store NOI increased 4.3% to $804.2 million. Total NOI was $993.1 million, up 7.4%.
  • Profit: Net income attributable to common shareholders was $403.3 million, or $3.71 per diluted share, compared with $653.6 million, or $6.04 per diluted share, in 2022. The prior year included a $474.1 million gain from remeasuring Camden’s previously held interest in two investment funds when it acquired the remaining interests. In 2023, property-sale gains were $225.4 million, compared with $36.4 million in 2022.
  • REIT supplemental measures: FFO was $747.9 million, up from $719.6 million; Core FFO was $752.0 million, up from $712.8 million; and Core AFFO was $654.9 million, up from $622.1 million. These are non-GAAP measures as defined by the company.
  • Cash flow: Operating cash flow was $795.0 million, versus $744.7 million. Investing activities used $127.1 million, including $410.9 million for development and capital improvements, partly offset by $290.7 million in property-sale proceeds. Financing activities used $417.2 million, including shareholder and non-controlling-interest distributions of $434.9 million.
  • Debt and interest: Year-end notes payable totaled $3.715 billion, compared with $3.681 billion a year earlier. Interest expense increased 17.6% to $133.4 million. Debt was 77.2% fixed-rate and 22.8% variable-rate, with a 5.6-year weighted-average maturity. Interest coverage, net of capitalized interest, was 6.8 times, down from 7.4 times.
  • Liquidity and equity: Cash and cash equivalents were $259.7 million at year-end, up from $10.7 million. Approximately $1.2 billion was available under the $1.2 billion revolving credit facility, which matures in August 2026. Total assets were $9.384 billion and total equity was $5.052 billion. The company reported compliance with its debt covenants.
  • Dividends: 2023 declared distributions were $4.00 per common share. The Board declared a first-quarter 2024 dividend of $1.03 per share; assuming the same quarterly rate for the rest of 2024, the indicated annualized rate would be $4.12, not a full-year earnings forecast.

Material changes versus 2022

  • Same-store revenue and NOI grew, supported principally by higher rents; occupancy declined approximately one percentage point.
  • Net income fell largely because 2022 included the $474.1 million fund-acquisition remeasurement gain. Higher interest expense also weighed on 2023 results, partly offset by larger gains on property sales.
  • Operating cash flow increased. Investing cash outflow fell sharply from $1.456 billion to $127.1 million, as 2022 included approximately $1.1 billion of cash consideration for the fund acquisition.
  • Camden sold two Costa Mesa, California properties with 852 homes for approximately $293.1 million and recorded a $225.3 million gain. It made no operating-property acquisitions in 2023.
  • At year-end, 89.8% of properties were unencumbered, up from 83.9%. Variable-rate debt rose to $848.5 million from $566.9 million, and its weighted-average rate rose to 6.5% from 5.5%.

Outlook, risks, contingencies, and unusual items

  • Operating outlook: Management expects new multifamily supply in its submarkets and asset classes to likely rise in 2024, while anticipating continued demand to absorb deliveries. It cautions that weaker demand or economic conditions could hurt results. The filing does not provide a clear numerical earnings or same-store growth guidance range.
  • Planned investment: For 2024, Camden expected to spend $120–$130 million to complete four projects; $40–$60 million to start new development; $90–$94 million on repositioning, redevelopment, repurposing, and revenue-enhancing work; and $101–$105 million on recurring capital expenditures. It estimated $137.6 million remained to complete the four projects.
  • Financing after year-end: In January 2024, Camden issued $400 million of 4.90% notes due 2034, used part of the proceeds to repay its $300 million 6.21% term loan, and repaid $250 million of notes that matured. It estimated remaining scheduled debt payments over the following 12 months at approximately $290 million, excluding the $550 million repaid in January. In February 2024, it sold an Atlanta property with 592 homes for approximately $115 million.
  • Debt-market and operating risks: Risks include higher borrowing and refinancing costs, tighter credit availability, apartment oversupply, weaker rents or occupancy, rising operating and insurance costs, and changes to rent-control laws. Variable-rate exposure could increase interest expense; a 100-basis-point increase throughout 2023 would have raised annual interest cost by approximately $8.5 million, holding other factors constant.
  • Development and asset valuation: Camden had $486.9 million invested in properties under development and land. Management recorded no impairment charges in 2021–2023 but warned that deteriorating markets or changed development plans could require future impairments. The auditor identified impairment indicators for development properties, including land, as a critical audit matter because the assessment depends on significant assumptions.
  • Litigation: The company is among multifamily owners/operators named in private antitrust cases alleging rent-fixing through revenue-management software, consolidated in federal court. The District of Columbia Attorney General also sued Camden and others; the company said it believes the claims are without merit and intends to defend them. Federal and state regulators have also informed the company they are investigating. The filing says outcome and potential loss cannot currently be estimated.
  • Other: A $2.5 million loss on early retirement of secured debt was recorded in 2023. Camden reported no cybersecurity breach to date and no impairment charges for the years presented. Its financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.

Important facts for investors to verify

  • Whether 2024 supply, leasing demand, occupancy, and rent growth support management’s expectations, particularly given occupancy’s year-over-year decline.
  • How insurance, property taxes, repairs, and other property costs affect NOI as expenses grew faster than same-store revenue in 2023.
  • The schedule, pricing, and refinancing of debt maturities, variable-rate exposure, and interest-rate swap terms; also confirm the impact of the January 2024 financing and repayments.
  • Construction completion, lease-up, costs, and stabilization progress for the four projects under construction and the broader development pipeline.
  • Developments, potential exposure, and any loss estimates in the antitrust litigation and related regulatory investigations.
  • Whether the Board maintains the dividend and whether operating cash flow continues to support distributions and planned investment.