Camden Property Trust — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Camden is a U.S. multifamily REIT; at quarter-end it owned interests in, operated, or was developing 171 communities with 58,051 apartment homes. Results were materially affected by the COVID-19 pandemic.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Property revenue | $250.7 million | $255.8 million | $516.6 million | $504.3 million |
| Net income attributable to common shareholders | $16.5 million | $42.4 million | $59.8 million | $81.0 million |
| Diluted EPS | $0.17 | $0.43 | $0.60 | $0.82 |
| Property NOI | $151.0 million | $164.5 million | $322.7 million | $322.3 million |
| FFO | $110.4 million | $128.6 million | $246.7 million | $249.3 million |
| AFFO | $91.6 million | $107.5 million | $213.1 million | $218.5 million |
- Q2 property revenue declined 2.0% year over year and property NOI declined 8.2%. Same-store revenue was nearly flat (+0.1%), while same-store NOI fell 1.1%. Q2 average occupancy was 94.9%, down from 96.0%.
- For the six months, property revenue increased 2.4% and same-store revenue rose 1.9%; property NOI was essentially flat (+0.1%). First-quarter rent growth supported the half-year comparison.
- Q2 property expenses rose 9.3% to $99.7 million, including $4.1 million of COVID-related operating expenses. Depreciation and amortization increased 9.6% and interest expense increased 21.4% year over year.
- Operating cash flow was $250.2 million for the first six months, versus $218.7 million in 2019. Investing used $205.6 million and financing provided $533.6 million. Cash, cash equivalents, and restricted cash totaled $605.7 million at June 30.
- Total notes payable were $3.225 billion, up from $2.524 billion at year-end 2019. Camden issued $750 million of 2.8% senior notes due 2030 and used proceeds partly to repay credit-line borrowings. The unsecured facility had no borrowings and $889.8 million available; all consolidated properties were unencumbered. Weighted-average debt maturity was 8.8 years.
- Quarterly common distribution declared was $0.83 per share. The company reported interest coverage of 6.2x for Q2 and 7.0x for the six-month period.
Material changes and unusual items
- Management attributed approximately $14.4 million of lower common-shareholder net income to COVID-related items for the quarter and first half. These included $9.5 million associated with resident relief (including Camden’s share of joint-venture payments), $4.1 million of property-level costs and $0.8 million for an employee relief fund. The property-level NOI reconciliation identifies a $13.2 million COVID-related impact.
- Camden paid about $9.1 million in resident assistance at wholly owned communities, recorded as a reduction of property revenue. It also reported higher bad-debt expense, including a Q2 increase of about $3.4 million in same-store communities.
- Deferred-compensation investment returns and corresponding expenses moved substantially: Q2 income and expense were each $11.4 million; for the first half, both were a $3.4 million loss/benefit. These largely offset and affect reported totals.
- The company did not acquire operating properties in the first half, compared with two acquisitions totaling approximately $214.2 million in the first half of 2019. It acquired Raleigh development land for $18.2 million and sold land for $0.8 million, recognizing a $0.4 million gain.
- Q2 common distributions declared totaled $0.83 per share; first-half distributions declared were $1.66 per share. A new ATM program authorized up to $362.7 million of share sales, but no shares had been sold through the filing date.
Outlook, risks, and contingencies
- Management expected property revenue to decline during the remainder of 2020, citing weak consumer confidence, high unemployment, recession concerns, and intensifying COVID-19 effects. It stated the pandemic’s full financial impact could not be estimated reliably.
- Rent collections were approximately 97.7% of scheduled Q2 rents; 1.1% were under current deferral arrangements and 1.2% delinquent. As of July 29, collections were approximately 98.7%, with 1.3% delinquent and no current deferrals reported.
- Management said available cash, operating cash flow, credit capacity, and access to debt and equity markets were sufficient for anticipated needs over the next 12 months. No debt maturities were scheduled through 2021. Ratings were A3 (Moody’s), A- (Fitch), and A- (S&P), each with stable outlook.
- Six consolidated projects under construction had an estimated $184.7 million of remaining costs; management expected $90–110 million during the rest of 2020. COVID-related restrictions, labor or material disruptions, and permitting delays could affect construction costs and schedules. One development project had construction temporarily suspended.
- Key risks include further rent collection, occupancy, and rental-rate pressure; restrictions on enforcing lease obligations; economic and capital-market volatility; development and refinancing risks; interest-rate exposure; and possible future real estate impairment. No impairment charges were recorded in the period, though management cautioned deterioration could require future charges. Camden reported compliance with debt covenants and no guarantees of unconsolidated joint-venture debt.
Investor verification priorities
- Track rent collections, delinquency, concessions, bad debt, occupancy, and realized rents against management’s expectation of lower remaining-2020 revenue.
- Separate recurring property performance from resident/employee relief costs and deferred-compensation gains or losses when assessing earnings and NOI.
- Monitor Q3 and subsequent same-store NOI, expenses, and leasing trends, particularly whether COVID-19 effects persist or deepen.
- Verify development spending, construction completion and lease-up schedules, and funding needs against the stated $184.7 million remaining project cost.
- Review leverage, interest coverage, debt maturities, credit-facility availability, and any actual issuance under the new ATM program.