Camden Property Trust — Q1 2016 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2016. Camden is a multifamily apartment REIT. At quarter-end, it owned interests in, operated, or was developing 180 properties with 62,649 apartment homes, including 15 Las Vegas properties classified as held for sale and subsequently sold on April 26, 2016.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Property revenue | $217.6 million | $201.6 million |
| Net operating income (NOI) | $140.4 million | $128.1 million |
| Net income attributable to common shareholders | $41.7 million | $115.6 million |
| Diluted earnings per share | $0.46 | $1.27 |
| Funds from operations (FFO), attributable to common shareholders | $110.1 million | $98.5 million |
| Adjusted FFO (AFFO), attributable to common shareholders | $100.8 million | $87.9 million |
| Net cash from operating activities | $96.5 million | $76.5 million |
Property revenue increased 7.9%; reported NOI increased 9.7%. Same-store revenue rose 4.9% and same-store NOI rose 6.3%, driven primarily by higher rental rates. Average same-store rental rates increased 3.9%. Weighted average occupancy was 95.3%, compared with 95.6%. Property NOI as a share of property revenue was approximately 64.5%, versus 63.5%.
Net income and EPS fell sharply year over year chiefly because Q1 2015 included an $85.1 million gain on the sale of two operating properties; Q1 2016 included only a $0.4 million land-sale gain. Interest expense declined 5.0% to $23.8 million, while depreciation and amortization rose 7.1% to $62.1 million and general and administrative expense rose 25.4% to $12.2 million.
Cash used in investing activities was $77.4 million, including $73.1 million for development and capital improvements. Cash used in financing activities was $22.8 million; distributions paid to shareholders and non-controlling interests were $64.2 million. Cash and cash equivalents were $6.9 million at quarter-end.
Total notes payable were $2.77 billion, comprising $1.87 billion unsecured and $899.3 million secured. The weighted-average debt maturity was 5.4 years. Camden had $265.0 million drawn on its $600 million unsecured credit facility and $20.0 million outstanding under a $40 million short-term facility; after letters of credit, approximately $325.6 million remained available on the credit facility. The interest coverage ratio was 5.5 times. Management reported compliance with debt covenants.
The quarterly distribution declared was $0.75 per common share, up from $0.70 in Q1 2015. Total assets were $6.04 billion and total equity was $2.86 billion at March 31, 2016.
Material changes and significant events
- The Las Vegas disposition closed April 26, after quarter-end, for approximately $630 million. The properties, retail center, and land comprised 4,918 apartment homes and were classified as held for sale at March 31. Pro forma information estimates a $380.6 million increase to common equity from the sale, net of estimated transaction costs; the gain was expected to be recognized in Q2 2016.
- Camden acquired approximately 2.0 acres in Charlotte for $4.1 million and sold approximately 6.3 acres in Tampa for $2.2 million, recognizing a $0.4 million gain.
- Seven consolidated communities with 2,477 homes were under construction. Estimated remaining costs to complete were $245.5 million; management expected to incur $125–$135 million during the remainder of 2016.
- Operating cash flow improved year over year, while investing cash flow shifted from a net inflow in Q1 2015 to a net outflow in Q1 2016, in part because prior-year investing proceeds included sales of operating properties.
Outlook, risks, and contingencies
Management expected economic and employment growth to continue during 2016 and new multifamily supply to remain manageable, while noting that worsening economic conditions could harm results. Camden intended to pursue selective development, redevelopment, acquisitions, and dispositions. It stated that available operating cash flow, credit facilities, property-sale proceeds, and potential debt or equity issuance should meet reasonably anticipated 2016 liquidity needs; it provided no specific earnings or revenue guidance.
Beyond construction completion, management expected up to $35 million for new development starts, $10–$12 million for redevelopment, and $47–$51 million for recurring capital expenditures during the remainder of 2016. It considered approximately $20.1 million of debt maturities for the rest of 2016 manageable. The company had no outstanding guarantees of unconsolidated joint-venture debt; its proportionate share of that debt was approximately $165.3 million.
Key disclosed risks include capital-market and economic volatility, competition and rent pressure, short lease terms, development and construction execution, variable-rate debt and refinancing access, credit-rating changes, joint-venture exposure, impairment estimates, cybersecurity, and maintaining REIT qualification. Management recorded no impairment charges in either comparative quarter but warned that deteriorating markets or changed development plans could require future charges. No material changes to previously disclosed risk factors or market-risk exposures were reported. No legal proceedings were reported.
Important facts for investors to verify
- Confirm the final Las Vegas sale accounting, realized proceeds and gain, transaction costs, and how proceeds were used.
- Monitor same-store rent growth, occupancy, expenses, and the effect of the Las Vegas exit on future comparisons.
- Track construction spending, project completion and lease-up progress, and delivery of the expected development pipeline.
- Review debt maturities, floating-rate exposure, credit-facility availability, covenant compliance, and refinancing conditions.
- Assess operating cash flow and FFO/AFFO against distributions and planned capital commitments; these non-GAAP measures may not be comparable with other REITs.