CAMDEN PROPERTY TRUST annual report, FY2019

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Camden Property Trust — FY2019 Form 10-K

Business and reporting period. The filing covers the fiscal year ended December 31, 2019. Camden is a U.S. multifamily REIT that owns, operates, develops, redevelops and acquires apartment communities. At year-end, it owned interests in, operated or was developing 172 properties with 58,315 apartment homes, including eight properties under construction.

Financial and operating performance

  • Revenue: Property revenue was $1.028 billion, up 7.7% from $954.5 million in 2018. Same-store revenue rose 3.7%, primarily from a 3.4% increase in average rental rates. Average stabilized occupancy was approximately 96%, versus 95.6% in 2018; average monthly rental revenue per apartment was $1,562 versus $1,502.
  • Profit: Net income attributable to common shareholders was $219.6 million, or $2.23 per basic share ($2.22 diluted), compared with $156.1 million, or $1.63 per share, in 2018. Management attributed the increase to property operations and disposition gains, partly offset by higher depreciation and a debt-retirement loss.
  • Property NOI and margins: Property NOI increased 8.4% to $662.1 million; same-store NOI rose 4.7% to $552.4 million. Total property NOI was about 64.4% of property revenue, compared with about 64.0% in 2018.
  • FFO and AFFO: Diluted FFO was $505.4 million, up from $464.0 million; diluted AFFO was $433.2 million, up from $391.7 million. These are non-GAAP measures and may not be comparable with other REITs.
  • Cash flow: Operating cash flow was $555.6 million versus $503.7 million. Investing activities used $792.4 million, principally for development, capital improvements and acquisitions. Financing activities provided $220.7 million, including proceeds from debt and equity offerings; distributions to shareholders and non-controlling interests were $317.3 million.
  • Balance sheet and liquidity: Total assets were $6.75 billion and equity was $3.70 billion. Cash and cash equivalents were $23.2 million. Notes payable totaled $2.524 billion, all unsecured at year-end; $143.7 million was variable-rate debt. The $900 million credit facility had $44.0 million drawn and $847.1 million available after letters of credit. All consolidated properties were unencumbered. Weighted-average debt maturity was 8.9 years; management reported no debt maturities through 2021.
  • Dividends: Dividends declared were $3.20 per common share for 2019, up from $3.08 in 2018. The board declared a first-quarter 2020 dividend of $0.83; management indicated an annualized $3.32 rate for 2020 if quarterly distributions remained similar.

Material changes and unusual items

  • Camden acquired four operating properties in 2019 for approximately $439.8 million and acquired land for future development. It sold its remaining three Corpus Christi properties; the two consolidated sales generated a $49.9 million gain, and its joint-venture share of a separate sale gain was $6.2 million.
  • The company issued $600 million of senior notes due 2029 and $300 million due 2049, repaid approximately $439.3 million of secured mortgage debt, and redeemed $250 million of 2021 notes and prepaid a $45.3 million mortgage. Early retirement of debt resulted in an approximately $12.0 million loss.
  • Net income included $21.7 million of income from deferred compensation plan investments and an equal $21.7 million expense, which offset in reported earnings. The 2018 comparison included an offsetting $6.5 million deferred-plan loss and expense.
  • Same-store property expenses rose 2.0%, below same-store revenue growth, but companywide depreciation and amortization increased 11.7% to $336.3 million, principally due to acquisitions, completed development and redevelopment activity.
  • The company adopted the new lease accounting standard in 2019; it reported no material impact on opening retained earnings or property revenue.

Outlook, risks and contingencies

Management expected U.S. economic and employment growth to continue in 2020 and multifamily supply to remain manageable, while cautioning that weaker economic conditions or changing market factors could harm results. Camden planned selective development, redevelopment, acquisitions and dispositions, and stated that available liquidity was sufficient for reasonably anticipated 2020 needs.

  • Estimated remaining cost to complete seven consolidated projects under construction was $358.6 million. For 2020, management expected $220–$240 million of construction costs, $65–$75 million for new development starts, $52–$56 million for repositioning, $16–$20 million for extensive redevelopment, and $72–$76 million of recurring capital expenditures.
  • Key risks include economic or local apartment-market weakness, short lease terms and rent declines, competition, rent-control or rent-stabilization rules, development cost and lease-up risks, joint-venture constraints, debt refinancing and interest-rate exposure, severe weather, cybersecurity and future ERP implementation.
  • Interest-rate risk is the principal market risk identified. A 100-basis-point increase throughout 2019 would have increased annual interest costs on variable-rate debt by approximately $1.4 million. The company had no interest-rate hedges outstanding at year-end and was monitoring the anticipated LIBOR transition.
  • Unconsolidated joint ventures had $496.9 million of third-party debt; Camden reported no guarantees of that debt. The company reported no material legal proceedings and no impairment charges in 2017–2019, but development and land impairment assessments depend on estimates of rents, occupancy, costs and project timing.
  • Senior unsecured debt ratings were A3 with stable outlook from Moody’s and A- with stable outlook from both Fitch and S&P. Management reported compliance with credit-facility covenants. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.

Investor verification priorities

  1. Review the quality and sustainability of earnings growth, separating same-store operating gains from acquisitions, disposition gains, deferred-compensation offsets and the debt-retirement loss.
  2. Assess development execution, remaining project costs, delivery schedules, lease-up progress and exposure to construction-cost or market changes.
  3. Confirm debt maturities, variable-rate exposure, refinancing assumptions, credit-facility availability and the effects of future interest-rate or benchmark-rate changes.
  4. Evaluate market-level rent growth, occupancy, supply, operating-cost trends and potential effects of rent regulation across Camden’s markets.
  5. Compare FFO and AFFO definitions, recurring capital expenditure assumptions and dividend coverage with other REITs and with operating cash flow.