Camden Property Trust — Q2 2010 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2010; six-month comparisons are for the period ended June 30. Camden is a multifamily REIT. At quarter-end it owned interests in or operated 185 communities with 63,658 apartment homes across the U.S.; one 602-home property was held for sale.
Financial performance and position
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Property revenues | $153.2 million | $156.3 million | $304.5 million | $312.3 million |
| Property expenses | $62.5 million | $62.6 million | $125.0 million | $122.9 million |
| Net income attributable to common shareholders | $2.1 million | $18.3 million | $4.4 million | $24.5 million |
| Diluted EPS | $0.03 | $0.30 | $0.06 | $0.41 |
| Diluted FFO | $46.7 million | $46.6 million | $93.7 million | $98.2 million |
Property-level operating margin proxy, calculated as property revenues less property expenses divided by property revenues, was approximately 59.2% in Q2 versus 60.0% a year earlier; for the first half it was approximately 59.0% versus 60.6%. Same-store revenues fell 3.3% in Q2 and 4.0% for the first half. Management attributed the decline mainly to lower rental rates and modestly lower occupancy. Weighted average occupancy was 94.1% in Q2 versus 94.4%.
Six-month operating cash flow was $100.0 million, down from $105.7 million. Investing activities used $28.4 million, compared with $3.3 million used in the prior-year period; financing activities used $7.6 million, versus $47.9 million provided. Cash and cash equivalents were $128.2 million at June 30, up from $64.2 million at year-end 2009.
Total notes payable were $2.572 billion, down from $2.625 billion at year-end. The $600 million unsecured credit facility had $589.7 million available after letters of credit and matures in January 2011. Weighted-average debt maturity was 5.2 years; interest coverage was approximately 2.5 times. The company reported total assets of $4.595 billion and total liabilities of $2.835 billion. Common distributions declared were $0.45 per share for Q2, unchanged from Q2 2009.
Material changes versus the prior comparable period
- Q2 common net income and EPS were sharply lower than in 2009, principally because 2009 included a $16.9 million gain on a property sale. The six-month comparison is similarly affected; excluding that gain, 2009 reported $7.7 million of common income from continuing operations for the first half versus $4.0 million in 2010.
- Same-store revenue softness outweighed modest reductions in same-store expenses. Same-store average rental rates declined 3.5% in Q2 and 4.5% for the first half.
- Interest expense declined 6.7% in Q2 and 4.5% for the first half, primarily reflecting debt repayments and lower line-of-credit balances, partly offset by lower capitalized interest.
- Q2 deferred-compensation investment results were a $3.6 million loss, versus $7.7 million of income in Q2 2009; an equal offsetting expense or benefit was recorded, limiting the net earnings effect.
- In the first half, Camden sold approximately 2.3 million shares through its ATM program for net proceeds of $106.4 million. It repaid approximately $55.3 million of notes that matured in January 2010.
Outlook, risks, contingencies and unusual items
- Management said occupancy and rental rates improved modestly in the latest quarter, but expected 2010 property revenues to remain below 2009. It described the economic recovery as uncertain and planned to prioritize liquidity, debt reduction, positive operating cash flow and cost control.
- Management believed liquidity was adequate for anticipated 2010 needs. It was negotiating a replacement for the $600 million credit facility and expected completion in Q3 2010; this was an expectation, not a completed refinancing as of the filing.
- Future liquidity depends on operating cash flows, credit-market access, asset sales, borrowing availability and ratings. The filing identifies risks from economic weakness, rent and occupancy declines, refinancing and floating-rate debt, development, real-estate valuations, joint ventures, and REIT qualification.
- Debt maturities were scheduled at $84.2 million for the remainder of 2010 and $761.9 million in 2012. The filing says the $10.0 million medium-term notes due in 2010 were repaid on July 19, 2010.
- Camden had guaranteed up to its proportionate share of five joint-venture loans, approximately $63.5 million, and had $6.0 million of remaining mezzanine-loan funding commitments. It reported $983.4 million of third-party debt at unconsolidated joint ventures.
- Interest-rate swaps had a reported fair-value liability of $43.8 million; the filing states their termination value, including accrued interest, was approximately $45.8 million. A further $21.7 million was estimated to be reclassified from accumulated other comprehensive loss to interest expense over the next 12 months.
- Management believed operating real estate and development assets were recoverable, but warned deteriorating market conditions or changed development plans could result in material impairment charges. No impairment adjustment was recorded in the first half.
- The company reported ordinary-course litigation and stated management did not expect its resolution to materially adversely affect the financial statements. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether the credit-facility refinancing was completed on expected terms before the January 2011 maturity.
- Whether rental rates, occupancy and same-store revenue stabilized or continued to decline after Q2.
- How the $761.9 million of scheduled 2012 maturities will be funded or refinanced.
- Any changes in property, land or joint-venture valuations, impairment assessments, or collection prospects for affiliate mezzanine loans.
- Future ATM share sales, dilution, distributions, and the effect of joint-venture guarantees and funding commitments on liquidity.
- That GAAP net income comparisons are affected by the prior-year property-sale gain; FFO is a non-GAAP supplemental measure and may not be comparable across REITs.