Business Context and Reporting Period
Company: Camden Property Trust (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2008
Business Overview: Camden owns, develops, and manages multifamily apartment communities. As of June 30, 2008, the portfolio included 190 properties with 66,065 apartment homes across 13 states and D.C., including 2,453 homes under development and 834 homes held for sale.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2008 | Six Months Ended June 30, 2007 |
|---|---|---|
| Total Property Revenues | $314,130 | $295,876 |
| Net Income | $32,209 | $55,629 |
| Funds from Operations (FFO) - Diluted | $107,198 | $113,731 |
| Net Cash from Operating Activities | $99,221 | $110,410 |
| Total Debt (Notes Payable) | $2,939,300 | $2,828,100 |
| Cash and Cash Equivalents | $1,242 | $3,058 |
| Weighted Avg. Occupancy (100% Owned) | 93.6% | 94.4% |
Material Changes vs. Prior Period
- Revenue Growth: Total property revenues increased 6.2% ($18.3 million) year-over-year, driven by non-same store communities (24.5% increase) and same-store communities (1.5% increase). Same-store growth was aided by utility rebilling programs.
- Net Income Decline: Net income decreased 42% to $32.2 million. This decline was primarily due to a significant reduction in gains from discontinued operations (sales of properties) compared to 2007 and a loss on deferred compensation plans.
- Expense Increases: Interest expense rose 15.9% ($9.0 million) due to higher debt levels funding acquisitions and development. Depreciation and amortization increased 11.2% due to new developments placed in service.
- Debt Position: Total notes payable increased by approximately $111 million. The company repurchased $27.8 million of senior unsecured notes in Q2 2008, realizing a $2.3 million gain.
- Discontinued Operations: The company recognized a $14.7 million gain on the sale of three operating properties in the first half of 2008, compared to $31.0 million in the same period of 2007.
Guidance, Outlook, and Risks
- Outlook: Management expects moderating growth for the remainder of 2008 due to declining job growth and a slowdown in the U.S. economy. However, negative sentiment in the single-family housing market may positively impact multifamily demand.
- Liquidity: The company maintains a $600 million unsecured credit facility with $309.6 million available as of June 30, 2008. Management believes liquidity is sufficient to meet anticipated needs, including $177.2 million in secured mortgage maturities and $27.5 million in remaining development funding for 2008.
- Share Repurchases: The Board authorized a $500 million repurchase program. As of June 30, 2008, $230.1 million had been utilized, leaving approximately $269.9 million remaining.
- Risks: Significant risks include disruptions in credit markets affecting debt financing availability and costs, volatility in interest rates (mitigated by a $500 million interest rate swap), and potential environmental liabilities. The company also faces litigation regarding Fair Housing Act compliance.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by analyzing Net Income excluding the one-time gains from property sales ($14.7 million in 2008 vs. $31.0 million in 2007).
- Debt Maturity Wall: Confirm the refinancing strategy for the $177.2 million of secured mortgage notes maturing in the remainder of 2008 amidst tight credit markets.
- Development Pipeline: Assess the progress and funding requirements for the $2.0 billion to $2.5 billion development pipeline, specifically the $27.5 million remaining to be funded in 2008.
- Occupancy Trends: Monitor the slight decline in weighted average occupancy (93.6% in 2008 vs. 94.4% in 2007) and its impact on future rental revenue.
- Deferred Compensation Volatility: Review the impact of market performance on the deferred compensation plan, which swung from a $7.1 million gain in 2007 to a $9.2 million loss in 2008.