Camden Property Trust — Q3 2017 Form 10-Q
Business and period. The filing covers the quarter and nine months ended September 30, 2017. Camden is a multifamily REIT with interests in, operations of, or development of 162 properties containing 55,877 apartment homes across the U.S.; six properties with 1,839 homes were under construction.
Financial and operating performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Property revenue | $228.2 million | $220.2 million | $671.1 million | $659.3 million |
| Net income attributable to common shareholders | $34.4 million | $290.9 million | $108.4 million | $778.9 million |
| Diluted EPS | $0.38 | $3.21 | $1.20 | $8.60 |
| FFO | $103.2 million | $104.2 million | $309.5 million | $319.9 million |
| AFFO | $85.7 million | $85.0 million | $265.5 million | $276.3 million |
| Cash from operating activities | — | $333.9 million | $357.5 million |
- Property revenue rose 3.6% in Q3 and 1.8% year to date. Same-store revenue increased 2.5% and 2.8%, respectively; same-store NOI increased 1.7% and 2.5%. Q3 average occupancy was 95.9%, versus 95.8% a year earlier.
- Q3 property expenses increased 9.8% to $88.3 million; the increase included approximately $3.9 million of hurricane damage costs. Excluding those costs, management reported annualized property expenses per home of $7,248 for the quarter versus $6,884 in Q3 2016. Reported total NOI was $139.9 million in Q3 and $423.0 million year to date.
- Interest expense declined 8.1% in Q3 and 5.4% year to date, mainly following repayment of $246.8 million of 5.83% senior notes. Depreciation and amortization rose 6.7% and 4.5%, respectively.
- At September 30, total assets were $6.17 billion, total liabilities $2.63 billion, and total notes payable $2.20 billion. Notes payable comprised $1.34 billion unsecured and $866.1 million secured; weighted-average debt interest was 4.3%, with a 4.5-year weighted-average maturity.
- Cash and cash equivalents were $350.3 million, plus $9.2 million restricted cash. The $600 million credit facility had $586.6 million available after letters of credit; a separate $45 million short-term facility was fully available. No debt matured during the balance of 2017. Interest coverage was 5.8x for Q3 and 5.6x year to date.
Changes versus prior comparable periods
- Reported net income and EPS fell sharply from 2016, primarily because 2016 included substantial property-sale gains: $262.7 million in Q3 and $295.4 million for the first nine months, plus a $375.2 million gain on a discontinued-operations sale in the 2016 nine-month period. These gains were absent in 2017; the comparison does not indicate a similar decline in recurring property revenue.
- FFO decreased 1.0% for Q3 and 3.3% year to date; AFFO rose 0.8% for Q3 but fell 3.9% year to date. 2016 distributions included a $4.25-per-share special dividend; 2017 declared quarterly distributions were $0.75 per share.
- Operating cash flow declined $23.6 million year to date. Management attributed the reduction principally to 2016 property dispositions and higher employee cash bonuses, partly offset by rental growth and contributions from stabilized and newly leased properties.
- Debt fell from $2.48 billion at December 31, 2016 to $2.20 billion at September 30, 2017, reflecting repayment of the 2017-maturity senior notes and a $30.7 million tax-exempt mortgage note.
Outlook, risks, and unusual items
- Management expected U.S. employment and economic growth to continue through the remainder of 2017 and multifamily supply to remain manageable, while warning that weaker conditions could harm results. Camden intended to pursue development, redevelopment, acquisitions, and selective dispositions subject to market conditions; no earnings guidance was provided.
- Six projects under construction had estimated remaining costs of $197.9 million. Management expected to fund construction and other needs through cash, operating cash flow, credit facilities, debt or equity issuance, and potential property-sale proceeds. It described liquidity as sufficient for reasonably anticipated 2017 needs.
- Hurricanes Harvey and Irma caused approximately $3.9 million of expenses at wholly owned communities, with no insurance recoveries anticipated, plus $0.7 million of corporate storm-related expenses and approximately $0.4 million of the company’s share of joint-venture costs.
- In September, Camden issued approximately 4.8 million common shares for $442.5 million net proceeds. It also had up to $312.8 million remaining under its ATM program as of the filing date. A $100 million forward interest-rate swap was entered into to hedge anticipated 2018 debt issuance; its $1.8 million fair-value gain was recorded in other comprehensive income.
- Key risks include rental-market competition and short lease terms, development and construction execution, weather losses, access to capital and refinancing, higher interest rates, joint-venture exposures, and maintaining REIT qualification. The filing reported no material change to previously disclosed risk factors and no legal proceedings.
Investor verification points
- Assess recurring performance using same-store NOI, FFO/AFFO, and occupancy, separating the large 2016 disposition gains from ongoing operations.
- Verify the pace and cost of the six active developments and the expected funding for the $197.9 million remaining construction commitment.
- Track debt maturities, floating-rate exposure, credit-facility availability, and the planned 2018 debt issuance and related swap settlement.
- Monitor hurricane-related repairs, any later insurance recoveries, and ongoing property expense and tax trends.
- Review dilution and capital allocation from the September equity issuance and remaining ATM capacity, alongside dividend coverage and future distribution decisions.