Camden Property Trust — Q1 2015 Form 10-Q
Business context and reporting period. This unaudited filing covers the three months ended March 31, 2015, compared with Q1 2014. Camden is a multifamily REIT; at quarter-end it owned interests in, operated, or was developing 180 communities with 62,452 apartment homes across the United States, including 12 projects under construction.
Key financial results
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total property revenue | $215.4 million | $205.9 million | +4.6% |
| Property expenses | $78.4 million | $74.3 million | +5.5% |
| Income from continuing operations | $121.1 million | $41.1 million | Higher, largely reflecting property-sale gain |
| Net income attributable to common shareholders | $115.6 million | $40.0 million | Higher, largely reflecting property-sale gain |
| Diluted EPS | $1.27 | $0.45 | Higher, largely reflecting property-sale gain |
| FFO | $98.5 million | $94.8 million | +3.9% |
| AFFO | $87.3 million | $86.4 million | +1.0% |
| Cash from operating activities | $76.5 million | $94.0 million | Down $17.5 million |
Q1 2015 net income included an $85.2 million gain, primarily from selling two operating properties for approximately $114.4 million. Property operating expenses rose faster than property revenue. Same-store revenue grew 4.6%, driven principally by a 4.1% increase in average rental rates; same-store expenses increased 6.2%, mainly due to real estate taxes, salaries, internet-program costs, and repairs and maintenance. Average occupancy was 95.6% in both periods.
Balance sheet and liquidity. At March 31, cash and cash equivalents were $174.4 million; total assets were $6.08 billion; and total notes payable were $2.74 billion, comprising $1.84 billion unsecured and $904.9 million secured. Debt had a 6.1-year weighted-average maturity and a 4.4% weighted-average interest rate. The company reported no borrowings on its $500 million unsecured credit facility and approximately $493.6 million of availability after letters of credit. Interest coverage was approximately 5.0 times, versus 5.1 times a year earlier. Distributions declared were $0.70 per common share, compared with $0.66.
Material changes and management commentary
- Operating cash flow fell from $94.0 million to $76.5 million. Management cited a roughly $10 million one-time employee bonus and timing of interest payments, partly offset by higher property-level revenues.
- Investing cash flow was positive $14.1 million, versus negative $99.2 million in Q1 2014, primarily because property-sale proceeds of $112.2 million offset $97.8 million of development and capital-improvement spending.
- Financing cash flow was negative $70.2 million, including $60.4 million of distributions and $9.5 million used to acquire remaining non-controlling interests in two joint ventures.
- Management said it expects economic and employment growth to continue during 2015 and new multifamily supply to remain manageable, while cautioning that weaker economic conditions could hurt results. It intends to pursue development and acquisitions selectively, continue selective dispositions, and preserve liquidity and balance-sheet strength.
- Management estimated $394 million to complete 11 consolidated projects under construction, including approximately $200–$220 million expected during the remainder of 2015. It also expected $65–$85 million for new development starts, $14–$18 million for redevelopment, and $50–$54 million for other capital expenditures during the rest of 2015.
- Scheduled debt maturities for the remainder of 2015 were approximately $251.4 million, about 9% of total debt. The $500 million credit facility matures in September 2015, with an option to extend to September 2016; no balance was outstanding at quarter-end. Management considered liquidity sufficient for anticipated 2015 needs.
- After quarter-end, Camden signed an agreement to acquire approximately 50 acres in Phoenix for $36.3 million and made an $11.9 million non-refundable payment. The filing also reports no material change in previously disclosed risk factors, no material legal proceedings, and no impairment charges in the quarter.
Risks, contingencies, and unusual items
The company identified exposure to capital-market and economic volatility, short-term lease and rental-market changes, competition, development and construction execution, joint-venture risks, significant debt and refinancing needs, variable interest rates, access to capital, REIT qualification, and catastrophic losses exceeding insurance. It had $527.3 million of third-party debt at unconsolidated joint ventures, of which its proportionate share was approximately $165.0 million; it reported no guarantees of those loans. Management believed ordinary-course legal claims would not materially adversely affect the financial statements. The filing notes that estimates of development values and future cash flows involve judgment and that deteriorating market conditions could result in future impairment charges.
Most important facts for investors to verify
- Separate recurring performance from the $85.2 million property-sale gain; review FFO and AFFO alongside GAAP earnings.
- Track same-store expense growth against rent growth, especially property taxes, and monitor occupancy and rent trends.
- Confirm refinancing or repayment plans for 2015 maturities and the September 2015 credit-facility expiration.
- Monitor development spending, lease-up progress, and the ability to complete projects within estimated costs and schedules.
- Assess the impact of the Phoenix land agreement and non-refundable payment, and the availability and potential dilution from the ATM and other capital-raising programs.