Camden Property Trust — Q1 2011 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2011, compared with Q1 2010. Camden owns, operates, manages, acquires and develops U.S. multifamily communities. At quarter-end it owned interests in, operated or was developing 190 properties with 64,509 apartment homes, including 711 homes under construction.
Key financial results
Amounts are in millions except per-share data, percentages and property counts.
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Total property revenue | $161.1 | $149.5 | +7.8% |
| Property expenses | $63.9 | $61.8 | +3.4% |
| Property revenue less property expenses | $97.2 | $87.6 | +11.0% |
| Net income | $9.6 | $3.8 | — |
| Net income attributable to common shareholders | $7.3 | $2.3 | — |
| Diluted EPS | $0.10 | $0.03 | +$0.07 |
| Diluted FFO | $54.1 | $47.0 | +15.2% |
| Cash from operating activities | $54.4 | $41.8 | +$12.7 |
Property revenue less property expenses equaled approximately 60.3% of property revenue, versus 58.6% in Q1 2010. Same-store revenue increased 3.7%; average rental rates rose 3.1% and average occupancy improved 0.5%. Portfolio weighted-average occupancy was 93.9%, compared with 93.3%.
Interest expense was $29.7 million, down 5.8%. G&A rose 32.2% to $9.8 million, including $2.1 million of one-time bonuses for non-executive employees. Depreciation and amortization rose 9.0% to $46.8 million. Deferred-compensation income and the matching expense were each $6.0 million.
Balance sheet, debt and liquidity
- At March 31, 2011, total assets were $4.58 billion and total liabilities were $2.75 billion.
- Total notes payable were $2.47 billion, down from $2.56 billion at year-end 2010. The quarter’s debt reduction included repayment of $88.0 million of 7.69% notes that matured in February.
- Cash and cash equivalents were $98.8 million, down from $170.6 million at year-end. No borrowings were outstanding under the $500 million unsecured credit facility; approximately $489.8 million remained available after letters of credit.
- Debt had a 5.5-year weighted-average maturity. The filing’s schedule lists $763.0 million due in 2012, including the $500 million term loan and other maturities. Management separately cited approximately $66.5 million of remaining 2011 maturities, excluding scheduled principal amortization.
- Cash used in investing activities was $7.8 million and cash used in financing activities was $118.4 million; cash declined by $71.8 million during the quarter.
- Quarterly distributions declared were $0.49 per common share, up from $0.45. Management said that, if similar quarterly distributions continued for the rest of 2011, the annualized rate would be $1.96 per share or unit.
Material changes and notable items
- Management attributed improved rental revenue to stronger rental rates and occupancy, which it associated in part with declining homeownership and limited new rental supply.
- Same-store property expenses increased only 0.2%; excluding utility-rebilling program expenses, they decreased approximately 0.5%.
- Q1 2011 included a $4.3 million gain from sale of an available-for-sale investment and a $1.1 million gain on sale of interests in three unconsolidated joint ventures. The joint-venture sales generated $19.3 million in proceeds.
- A fund in which Camden owns 20% acquired three properties totaling 941 units for approximately $122.6 million. After quarter-end, Camden sold a Washington, D.C.-area development property to a fund for approximately $9.4 million and reported a $4.7 million gain, including reimbursement of previously written-off costs.
- Development activity increased: three consolidated projects totaling 711 homes were under construction, with estimated total costs of $107.0 million and $48.7 million incurred. Camden reported $56.6 million of additional construction commitments. It also began construction on three projects totaling 978 homes after quarter-end.
Outlook, risks and contingencies
Management expected rental-rate and occupancy improvement to continue in 2011, while noting that sustained revenue growth depends on employment, new multifamily supply and homeownership trends. It intended to pursue development, acquisitions and selective dispositions, while emphasizing cash generation, appropriate leverage and overhead control. Management believed liquidity was sufficient for anticipated 2011 needs, including debt service, development funding and REIT distributions; this is not a quantified earnings forecast.
- Management cited approximately $56.6 million of remaining construction commitments and expected to fund them through cash, operating cash flow, credit-facility draws, dispositions and potentially debt or equity offerings.
- Two Florida condominium associations sued a Camden subsidiary over alleged construction defects at projects previously built and sold. The suits were at an early stage; Camden denied liability and said the potential loss could not be estimated.
- Camden said property impairment estimates depend on assumptions including rents, occupancy and market conditions; deterioration could require material non-cash impairment charges. No nonfinancial fair-value impairment adjustment was recorded in the quarter.
- Other disclosed risks include refinancing and interest-rate exposure, access to capital markets, property-development and disposition risks, competition, joint-venture risks, litigation, and maintaining REIT qualification. Camden reported compliance with credit-facility covenants and no guarantees of construction or development loans for unconsolidated joint ventures.
- Two interest-rate swaps had $516.6 million notional value. Camden estimated $22.3 million of hedging losses would be reclassified to interest expense over the next 12 months. The filing reported derivative termination value of approximately $33.5 million.
Important facts for investors to verify
- Whether same-store rental growth and occupancy gains continued after Q1, and whether expense trends remained favorable.
- How much of the reported earnings and FFO improvement reflects recurring property operations versus investment and joint-venture sale gains.
- Funding and refinancing plans for the 2012 debt maturities, and the availability and cost of credit and equity capital.
- Construction spending, project delivery and lease-up progress, and the returns on the development pipeline and fund investments.
- The outcome or potential financial exposure from the Florida construction-defect litigation, which the filing said could not then be estimated.
- Distribution sustainability relative to operating cash flow and REIT taxable income; the filing does not provide a clear distribution-coverage measure.