Camden Property Trust — Q2 2013 Form 10-Q
Business and period. Camden is a multifamily REIT focused on owning, operating, developing, acquiring, and constructing apartment communities. This unaudited filing covers the quarter and six months ended June 30, 2013, compared with the same 2012 periods. At quarter-end, Camden reported interests in, operation of, or development of 189 properties with 65,239 apartment homes; ten properties were under construction.
Financial performance
- Revenue: Q2 property revenue was $201.5 million, up 13.9%; six-month revenue was $397.7 million, up 14.7%. Same-store revenue rose 5.4% in Q2 and 5.6% for the six months.
- Property costs and operating trends: Property expenses increased 12.2% in Q2 and 12.9% for the six months. Same-store expenses rose 3.7% and 4.1%, respectively, primarily due to real estate taxes, insurance, and salaries. Average occupancy was 95.3% in Q2 and 95.1% for the six months, unchanged from 2012. Management reported higher same-store rents: six-month new leases were 3.5% above expiring rents and renewals were 7.1% above.
- Profit: Income from continuing operations was $50.0 million in Q2 versus $20.1 million; six-month income was $81.9 million versus $77.7 million. Net income attributable to common shareholders was $72.2 million for Q2 and $135.6 million for six months, versus $21.8 million and $110.5 million. Diluted EPS was $0.81 and $1.53, respectively, versus $0.26 and $1.33.
- Nonrecurring contributors: Six-month discontinued-operations sale gains were $56.6 million, including $24.9 million in Q2. Equity income from joint ventures included Camden’s $13.0 million share of a joint venture property-sale gain and a $3.8 million promoted interest. These items materially contributed to reported earnings. In 2012, a $40.2 million gain on acquiring control of joint ventures also affected the comparable six-month result.
- FFO: Diluted funds from operations, a non-GAAP measure, was $91.4 million for Q2 versus $76.7 million and $178.1 million for six months versus $145.3 million. Camden cautions that FFO is not a substitute for GAAP net income and may not be comparable across REITs.
- Cash flow: Six-month operating cash flow was $181.0 million, up from $140.9 million. Investing activities used $156.7 million, including $157.5 million for development and capital improvements; financing activities used $44.5 million. Cash declined to $6.5 million from $26.7 million at year-end 2012.
- Debt and liquidity: Notes payable totaled $2.524 billion, including $1.580 billion unsecured and $944.1 million secured. Weighted-average debt maturity was 6.5 years and weighted-average interest rate was 4.5%. Camden had $40 million drawn on its $500 million credit facility, $11.2 million of letters of credit, and approximately $448.8 million available. The filing reports $201.6 million of scheduled debt maturities for the remainder of 2013. Interest coverage was 4.5 times for both Q2 and the six-month period.
- Distributions: The quarterly common distribution was $0.63 per share, up from $0.56 in Q2 2012. Management stated that, if similar distributions continued for the rest of 2013, the annualized rate would be $2.52.
Material changes and outlook
- Management attributed rental growth to a gradually improving economy, favorable demographics, and manageable new multifamily supply. It expected economic and employment growth to continue in 2013, while noting elevated unemployment and economic uncertainty.
- Camden acquired a 356-home Houston property for approximately $108.5 million and 38.8 acres in Arizona for approximately $25.8 million. It sold two operating properties totaling 1,296 homes and two land holdings; an unconsolidated joint venture also sold 14 Las Vegas properties totaling 3,098 homes.
- Eight consolidated projects under construction had approximately $331 million of estimated costs remaining; management expected $130–$140 million of that amount during the remainder of 2013. It also forecast $35–$45 million of additional repositioning expenditures and $31–$35 million of other capital expenditures for the remainder of 2013.
- Management intended to pursue development and acquisition opportunities, make selective dispositions, and fund liquidity needs through operating cash flow, credit facilities, asset sales, ATM equity issuance, debt or equity offerings, and secured mortgages. It stated that liquidity was sufficient for anticipated 2013 needs and that 2013 maturities were manageable. No specific earnings or FFO guidance was provided.
Risks, contingencies, and other disclosures
- Camden denied liability in a Florida construction-defect lawsuit; the potential outcome and any loss range could not be estimated. A separate association’s claim was settled in June 2013 for an amount described as not material. Management expected ordinary-course legal matters not to have a material adverse effect.
- Management cited risks including economic and capital-market volatility, competition and rent declines, development and construction execution, significant debt and refinancing, variable interest rates, insurance limits, joint-venture exposure, and maintaining REIT qualification.
- Management reported compliance with credit-facility covenants, no guarantees of unconsolidated joint-venture debt, no material changes in market-risk exposures, and effective disclosure controls. No material changes to previously disclosed risk factors were reported.
Investor verification points
- Separate recurring apartment operations from property-sale gains, joint-venture gains, and the prior-year joint-venture control-acquisition gain when assessing earnings growth.
- Verify leasing and rent trends, same-store expense growth, and whether new supply or economic conditions alter occupancy and rent growth.
- Monitor funding for the $331 million construction balance and planned capital spending against operating cash flow, asset-sale proceeds, ATM issuance, and available credit.
- Review near-term debt maturities, refinancing access, interest-rate exposure, and covenant headroom; cash on hand was only $6.5 million at quarter-end.
- Track the unresolved Florida construction litigation and confirm that distributions remain supported by cash generation and REIT requirements.