Camden Property Trust — FY 2015 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2015; it is not a standalone fourth-quarter report. Camden is a U.S. multifamily REIT focused on owning, managing, developing, redeveloping, acquiring, and constructing apartment communities. At year-end, it had interests in, operated, or was developing 180 properties with 62,649 apartment homes, including eight projects under construction.
Financial and operating performance
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Total property revenue | $892.9 million | $844.0 million |
| Property expenses | $321.7 million | $305.3 million |
| Property revenue less property expenses | $571.2 million | $538.7 million |
| Net income attributable to common shareholders | $249.3 million | $292.1 million |
| Diluted EPS | $2.76 | $3.27 |
| Diluted FFO | $414.5 million | $378.0 million |
| Diluted AFFO | $350.3 million | $318.2 million |
| Cash from operating activities | $423.2 million | $418.5 million |
| Total debt at year-end | $2.725 billion | $2.731 billion |
- Property revenue increased 5.8%; property expenses rose 5.4%. Same-store revenue grew 5.2%, including a 4.1% increase in average rental rates. Same-store expenses rose 5.1%, in part because of higher real estate taxes and costs associated with the bulk Internet program.
- Average occupancy for operating properties was approximately 96% in both 2015 and 2014. Average monthly rental revenue per apartment home increased to $1,302 from $1,230.
- Common-shareholder net income and EPS declined year over year, while FFO and AFFO increased. The comparison reflects, among other things, lower gains on property sales in 2015; 2014 also included a substantial gain from discontinued operations in 2013, which is not comparable to continuing operations.
- Operating cash flow increased modestly. Investing activities used $293.3 million, including $425.6 million of development and capital-improvement outlays, partly offset by property-sale proceeds. Financing activities used $273.2 million; year-end cash was $10.6 million versus $153.9 million a year earlier.
- Cash dividends declared were $2.80 per share for 2015, up from $2.64. In the first quarter of 2016, the Board raised the quarterly dividend from $0.70 to $0.75 per share.
Debt, liquidity, and capital
- Year-end debt comprised $1.825 billion unsecured and $899.8 million secured. The weighted-average interest rate was 4.1%, weighted-average maturity was 5.7 years, and 83.4% of debt was fixed-rate.
- The company reported $225 million drawn on its $600 million unsecured credit facility, with approximately $365.6 million available after outstanding letters of credit, and $19 million outstanding on a $40 million short-term facility. The short-term facility matures in May 2016; management characterized the $19 million 2016 debt maturity as manageable.
- Interest coverage, as calculated by management, was 5.2 times, compared with 5.0 times in 2014. Approximately 79.9% of property invested capital was unencumbered.
- Management said liquidity should cover anticipated 2016 operating needs, debt service, recurring capital expenditures, developments, redevelopments, acquisitions, and required REIT distributions. Funding sources include operations, credit facilities, dispositions, debt and equity offerings, and secured financing.
- 2016 expected spending included $190–$210 million to complete the eight projects under construction, $45–$55 million to start new development, $19–$23 million for redevelopment, and $62–$66 million for recurring capital expenditures. The estimated remaining cost to complete the existing construction projects was $310.1 million.
Changes, outlook, and notable items
- Camden sold three operating properties totaling 1,376 homes for approximately $147.4 million and recorded approximately $104.0 million in gains. It acquired three land parcels totaling 58.1 acres for approximately $59.1 million; it acquired no operating properties in 2015.
- Eight projects totaling 2,857 homes were under construction at year-end, down from 13 projects and 4,215 homes in 2014. Three completed consolidated properties and one unconsolidated property remained in lease-up.
- Management attributed operating growth to job growth, favorable demographics, manageable new apartment supply, and households choosing to rent. It expected U.S. economic and employment growth to continue in 2016 and new supply to remain manageable, while cautioning that weaker conditions could hurt results. The filing provides no numeric earnings or FFO guidance.
- Reported 2015 gains on sales were $104.3 million, down from $159.3 million in 2014. General and administrative expense fell year over year, partly because 2014 included approximately $10 million in one-time bonuses related to fund restructuring; excluding that item, G&A increased in 2015.
- Risks include local apartment oversupply or weaker rents and occupancy, short lease terms that expose revenue to rent declines, development cost and lease-up uncertainty, land impairment, refinancing and variable-rate exposure, joint-venture restrictions, REIT qualification and distribution requirements, catastrophic losses, and cybersecurity incidents.
- Unconsolidated joint ventures had $527.0 million of third-party debt; Camden’s proportionate share was approximately $164.9 million. Camden reported no outstanding guarantees of those loans. Management said ordinary-course legal matters were not expected to have a material adverse effect; Item 3 reports no legal proceedings.
- Auditors gave an unqualified opinion on the financial statements and internal controls. Management also concluded disclosure controls and internal control over financial reporting were effective as of year-end.
Important facts for investors to verify
- Reconcile the decline in GAAP net income and EPS with property-sale gains, discontinued-operation presentation, and growth in FFO and AFFO; note that FFO and AFFO are non-GAAP measures.
- Track same-store rent growth against property expense growth, especially real estate taxes, and monitor occupancy and lease-up at recently completed developments.
- Review the $310.1 million remaining construction commitment, projected 2016 spending, and whether operating cash flow and available financing meet those needs.
- Assess debt maturities, floating-rate exposure, credit-facility availability, and the effect of higher interest rates; management estimated a one-percentage-point rate increase would affect next-year income and cash flow by approximately $4.5 million on floating-rate debt.
- Confirm subsequent dividend decisions and the sustainability of distributions relative to cash generation and REIT requirements; the stated $3.00 annualized 2016 rate assumed similar distributions for the rest of 2016.