Camden Property Trust — Q1 2014 Form 10-Q
Business context and reporting period. Camden is a multifamily REIT focused on owning, operating, acquiring, and developing apartment communities. This unaudited report covers the three months ended March 31, 2014. At quarter-end, the company owned interests in, operated, or was developing 183 properties with 64,150 apartment homes; 14 properties were under construction.
Financial and operating results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Property revenue | $205.9 million | $189.8 million |
| Property expenses | $74.3 million | $69.4 million |
| Income from continuing operations | $41.1 million | $29.9 million |
| Net income attributable to common shareholders | $40.0 million | $63.5 million |
| Basic and diluted EPS | $0.45 | $0.72 |
| Diluted FFO (non-GAAP) | $94.8 million | $86.6 million |
| Cash from operating activities | $94.0 million | $84.9 million |
- Property revenue increased 8.5%. Same-store revenue rose 4.7%, driven by a 4.1% increase in average rental rates and a 0.7% increase in average occupancy. Same-store expenses increased 2.1%, mainly from property taxes and utility costs.
- Average occupancy for operating properties was 95.6%, versus 94.9%. Property expenses were about 36.1% of property revenue, compared with 36.6% in Q1 2013; this is a simple calculation from reported totals, not a company-reported margin.
- Common distributions declared were $0.66 per share, up from $0.63. The quarterly dividend was paid April 17, 2014.
- Cash and cash equivalents were $16.8 million; restricted cash was $5.5 million. Total assets were $5.68 billion and total equity was $2.74 billion.
- Total notes payable were $2.59 billion: $1.65 billion unsecured and $940.9 million secured. Weighted-average debt maturity was 6.6 years; interest expense coverage was 5.1 times. Approximately 77.9% of properties, by invested capital, were unencumbered.
- Net cash used in investing was $99.2 million, including $110.1 million for development and capital improvements. Net cash from financing was $4.2 million. Quarter-end cash declined by $1.0 million.
Material changes versus the prior comparable period
- Continuing-operations income increased to $41.1 million from $29.9 million, while common-shareholder net income declined to $40.0 million from $63.5 million. Q1 2013 included $34.6 million attributable to common shareholders from discontinued operations, including a $31.8 million after-tax sale gain; Q1 2014 had no such operating-property sale gain in discontinued operations.
- Diluted FFO increased about 9.5%. Q1 2014 included Camden’s $3.6 million proportionate gain from joint-venture property sales; the FFO reconciliation excludes this gain.
- Operating cash flow increased about $9.1 million. Development and capital-improvement outlays rose to $110.1 million from $58.4 million, and investing cash flow shifted from $8.1 million provided to $99.2 million used.
- Debt increased approximately $59.1 million from December 31, 2013, principally reflecting $60 million outstanding on the unsecured credit line at quarter-end.
Outlook, risks, and contingencies
- Management expected improving employment and multifamily demand, with new supply remaining manageable, to support operations during 2014. It also cautioned that economic risks remained and unemployment was above historical levels. No specific earnings or FFO guidance was provided.
- Management said it intended to pursue development and acquisitions selectively, make selective dispositions, and maintain liquidity through operating cash flow, credit facilities, asset sales, and potential debt or equity issuance. It considered near-term liquidity adequate.
- Estimated remaining costs to complete 14 consolidated construction projects were $533.2 million, including $290–$300 million expected during the remainder of 2014. Management also expected $40–$55 million of redevelopment and $48–$52 million of other capital expenditures for the remainder of 2014.
- Approximately $429.3 million remained available under the $500 million unsecured credit facility, after $60 million drawn and $10.7 million of letters of credit. About $34.5 million of debt was scheduled to mature in 2014. The company reported compliance with credit-facility covenants.
- Joint ventures had $517.0 million of third-party debt; Camden’s proportionate share was approximately $103.4 million. Camden reported no guarantees of joint-venture loans.
- A Florida construction-related lawsuit was settled in March 2014 with a one-time payment described as immaterial. Management said other ordinary-course proceedings were not expected to have a material adverse effect. No impairment charges were recorded; management warned deteriorating markets or changes to development plans could require future impairment charges.
- Principal stated risks include economic and capital-market volatility, short-term lease exposure to falling rents, competition, development and construction execution, significant debt and refinancing needs, variable-rate exposure, joint-venture risks, and maintaining REIT qualification. The filing reported no material change in previously disclosed risk factors or market-risk exposures.
- The company adopted ASU 2014-08 effective January 1, 2014 and expects future sales of individual operating properties generally will no longer be reported as discontinued operations.
Important facts for investors to verify
- Whether rental growth, occupancy, and same-store expense trends persist as new multifamily supply increases.
- Progress, leasing, completion timing, and remaining funding needs for the development pipeline, particularly the $533.2 million consolidated completion estimate.
- Debt maturities, credit-facility availability, refinancing access, and interest-rate exposure; confirm the reported covenant compliance and liquidity remain current.
- How much future reported earnings reflect property operations versus joint-venture gains, asset sales, and other nonrecurring items; distinguish GAAP net income from FFO.
- Whether the $0.66 quarterly distribution is supported by ongoing operating cash flow and REIT taxable income; the filing does not provide a forward earnings or FFO target.