Camden Property Trust — Q2 2017 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2017. Camden is a multifamily REIT that owned, operated, or was developing 161 communities with 55,644 apartment homes. Six communities with 1,873 homes were under construction.
Financial performance and position
- Revenue: Q2 property revenue was $223.4 million, up 0.9% year over year; first-half revenue was $442.9 million, up 0.9%. Same-store revenue increased 3.1% in Q2 and 3.0% for the first half.
- Operating performance: Property NOI was $143.0 million in Q2, up 1.2%, and $283.1 million for the first half, up 0.5%. Same-store NOI grew 4.1% and 2.9%, respectively. Average occupancy was 95.3% in Q2 versus 95.4% a year earlier.
- Profit and per-share results: Net income attributable to common shareholders was $39.2 million, or $0.43 per diluted share, in Q2; first-half results were $74.0 million, or $0.82 per diluted share. Continuing-operations EPS was $0.43 for Q2 versus $0.72 in Q2 2016, and $0.82 for the first half versus $1.12. The 2016 comparisons included substantial property-sale gains and discontinued operations.
- Cash flow: First-half operating cash flow was $203.4 million versus $222.1 million in 2016. Investing used $109.0 million, including $148.0 million for development and capital improvements and $58.3 million for an acquisition, partly offset by $100.0 million in short-term investment maturities. Financing used $315.6 million, including debt repayments and distributions. Cash, cash equivalents, and restricted cash ended at $24.6 million.
- Debt and liquidity: Notes payable totaled $2.304 billion, down from $2.481 billion at year-end 2016. The weighted-average debt rate was 4.2%, with a 4.7-year weighted-average maturity. Camden reported $16.3 million cash, $511.6 million available on its $600 million credit facility, and $20.0 million available on its $45 million short-term facility. No debt matured in the remainder of 2017. Interest coverage was 5.7x in Q2 and 5.5x for the first half.
- Distributions: The quarterly distribution was $0.75 per share; first-half distributions declared were $1.50 per share. Management indicated that maintaining a similar quarterly distribution would imply a $3.00 annualized rate for 2017.
Material changes versus the prior comparable period
- Revenue growth reflected higher rental rates and other property income. Same-store average rental rates rose 2.4%; increased bulk-internet rebilling income also contributed. Expense growth, including real estate taxes and insurance, partly offset revenue gains.
- Q2 2017 net income was far below Q2 2016 chiefly because the prior-year quarter included a $375.2 million after-tax gain on the sale of discontinued operations and a $32.2 million gain on an operating-property sale. There were no discontinued operations or operating-property sale gains in 2017.
- First-half interest expense declined 4.1%, primarily following repayment of the 5.83% notes; depreciation and amortization rose 3.4%, partly reflecting completed development and capital improvements.
- Operating cash flow decreased, with management citing prior-year property dispositions and higher cash bonuses, partly offset by same-store growth and lease-up of newer communities.
- Camden repaid $246.8 million of 5.83% senior notes at maturity and prepaid a $30.7 million tax-exempt mortgage note, recording a $0.3 million early-retirement loss. It acquired a 250-home Atlanta community for $58.3 million and San Diego land for $20.0 million.
Outlook, risks, contingencies, and unusual items
- Management expects economic and employment growth to continue and new apartment supply to remain manageable, while noting that weaker economic conditions could hurt results. It intends to pursue development, redevelopment, acquisitions, and selective dispositions as market conditions permit. The filing provides no specific earnings or same-store growth guidance.
- Estimated remaining cost to complete the six projects under construction was $173.2 million; management expected $75–$85 million of that amount in the remainder of 2017. It also anticipated up to $30 million for new development starts, $17–$21 million of redevelopment spending, and $34–$38 million of recurring capital expenditures during the remainder of 2017.
- Funding sources may include operating cash flow, borrowings, debt or equity offerings, dispositions, and ATM share sales. A new ATM program authorized up to $315.3 million of shares; none had been sold through the filing date. Management stated it believed liquidity was sufficient for anticipated 2017 needs.
- Key risks include rent declines, competition, development and construction execution, property-market conditions, debt refinancing and interest-rate exposure, capital-market access, weather events, cybersecurity, and maintaining REIT status. Management reported no material change to previously disclosed risk factors and no material market-risk change.
- Six construction projects and ordinary-course real estate transactions create execution and funding exposure. A post-quarter contract to sell a 1,005-home Corpus Christi property remained conditional on due diligence and purchaser financing; closing was not assured. Camden reported no outstanding guarantees of unconsolidated joint-venture debt, although its proportionate share of that debt was approximately $161.9 million.
- Deferred-compensation investment income and expense each increased to $3.4 million in Q2 and $8.1 million for the first half, offsetting each other. A state tax refund contributed an approximately $0.5 million tax benefit in 2017.
Important facts for investors to verify
- Whether same-store rent and NOI growth continue, especially as occupancy was slightly lower year over year and market supply is increasing.
- Lease-up progress and expected stabilization timing for new communities, including Camden NoMa II, which was 51% leased as of July 26, 2017.
- Actual development and capital spending versus the $173.2 million remaining construction estimate and planned 2017 expenditures.
- Liquidity and refinancing capacity as debt maturities approach, and the effect of floating-rate debt and interest-rate changes.
- Whether the Corpus Christi sale closes and whether any ATM share issuance or other capital raising occurs.
- Underlying recurring earnings and cash available for distributions, distinguishing operating performance from 2016 property-sale gains and non-GAAP measures such as NOI and FFO.