Camden Property Trust — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. Camden owns, operates, and develops multifamily communities. At quarter-end it owned interests in, operated, or was developing 159 properties with 55,366 apartment homes, including six properties under construction.
Key financial metrics
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total property revenue | $219.5 million | $217.6 million |
| Net income attributable to common shareholders | $34.9 million | $41.7 million |
| Continuing-operations EPS, diluted | $0.39 | $0.41 |
| Property NOI | $140.1 million | $140.4 million |
| Funds from operations (FFO) | $100.4 million | $110.1 million |
| Adjusted FFO (AFFO) | $90.7 million | $100.8 million |
| Cash from operating activities | $73.0 million | $96.5 million |
| Cash, cash equivalents, and restricted cash at quarter-end | $253.7 million | $12.3 million |
| Notes payable at quarter-end | $2.450 billion | $2.481 billion at Dec. 31, 2016 |
Rental revenue was $188.1 million, versus $187.1 million; total property expenses were $79.5 million, up 3.0%. Same-store revenue increased 2.9%, while same-store NOI grew 1.7%. Average occupancy across operating homes was 94.7%, compared with 95.3%. The declared quarterly distribution was $0.75 per common share, unchanged from Q1 2016.
Cash used in development and capital improvements was $62.8 million, including $38.3 million for new development and $11.8 million for capital expenditures. Financing activities used $99.9 million, primarily for distributions and repayment of $30.7 million of secured debt.
Material changes and explanations
- Common-shareholder net income and EPS declined year over year. Q1 2016 included $5.1 million of discontinued-operations income; there were no discontinued operations in Q1 2017. Continuing-operations EPS declined to $0.39 from $0.41.
- Total NOI was nearly flat. Same-store NOI increased $2.1 million, but NOI from dispositions and other items fell $8.2 million, primarily reflecting property sales in 2016. Non-same-store and development/lease-up NOI increased as properties stabilized and newly completed communities leased up.
- Operating cash flow decreased $23.5 million, reflecting 2016 dispositions and higher cash bonuses, partly offset by rent growth and contributions from newer properties.
- Deferred-compensation investment income and related expense each rose to $4.6 million from $0.1 million, largely offsetting each other in reported results.
- Camden repaid $30.7 million of tax-exempt secured notes in February and recorded a $0.3 million early-retirement loss. Total debt declined from $2.481 billion at year-end to $2.450 billion.
Liquidity, outlook, and risks
At March 31, Camden had $245.5 million of cash and cash equivalents and $587.3 million available under its $600 million unsecured credit facility, with no facility borrowings outstanding. The facility matures in August 2019, with two six-month extension options. Debt maturities for the remainder of 2017 were approximately $245.8 million; weighted-average debt maturity was 4.6 years and weighted-average debt interest rate was 4.4%. Interest coverage was 5.3 times. Management stated it believed liquidity was sufficient for anticipated 2017 needs and that it was in compliance with facility covenants.
Six projects under construction comprise 2,250 homes, with an estimated $204.5 million of additional completion costs; management expected to spend $115–$125 million of that amount during the remainder of 2017. It also anticipated up to $50 million for new development starts, $18–$22 million for redevelopment, and $50–$54 million for recurring capital expenditures during the rest of 2017.
Management intends to pursue development, redevelopment, acquisitions, and selective dispositions as conditions permit. It cited rent growth, employment and demographic trends, and supply it viewed as manageable, while warning that worsening economic conditions could hurt results. Principal risks include market and credit volatility, rent and occupancy competition, development and construction execution, rising interest rates, debt refinancing and access to capital, natural disasters, cybersecurity, and maintaining REIT qualification. Management reported no material change to previously disclosed risk factors and no material change in market-risk exposure.
- After quarter-end, Camden acquired 8.2 acres in San Diego for $20.0 million.
- Unconsolidated joint ventures had $519.2 million of third-party debt; Camden’s proportionate share was approximately $162.5 million. Camden reported no guarantees of that debt.
- No impairment charges were recorded in either comparative quarter. Management cautioned that weaker market conditions or changed development plans could lead to future impairment charges.
- There were no legal proceedings reported. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether same-store rent growth can continue and offset higher property expenses, particularly real estate taxes and insurance, and occupancy softness.
- Lease-up progress and delivery timing for the construction pipeline, and whether completion costs remain within estimates.
- How Camden will fund 2017 debt maturities and planned development and capital spending while maintaining liquidity and distributions.
- Whether the decline in operating cash flow, FFO, and AFFO reflects mainly prior-year dispositions or signals a sustained operating trend.
- The effects of interest-rate changes, apartment supply, economic conditions, and access to refinancing and capital markets.