Camden Property Trust — Q3 2014 Form 10-Q
Business context and period. The filing covers the quarter and nine months ended September 30, 2014. Camden is a multifamily apartment REIT; it owned interests in, operated, or was developing 183 properties comprising 64,152 apartment homes across the United States. Results are unaudited.
Key financial results
- Revenue: Q3 property revenue was $213.1 million, up 6.7% from $199.7 million. Nine-month property revenue was $627.5 million, up 7.4% from $584.5 million.
- Profit and EPS: Q3 income from continuing operations was $39.3 million versus $35.1 million; diluted continuing-operations EPS was $0.43 versus $0.38. Nine-month continuing income was $116.7 million versus $112.9 million; diluted continuing-operations EPS was $1.28 versus $1.23. Net income attributable to common shareholders was $38.3 million for Q3 and $113.6 million for nine months, versus $70.7 million and $206.4 million, respectively, in 2013, when property-sale gains were substantial.
- FFO: Funds from operations, a non-GAAP measure, was $98.7 million for Q3 versus $93.3 million, and $287.7 million for nine months versus $271.4 million.
- Property operations: Same-store revenue increased 4.6% in both periods. Q3 average occupancy was 96.1% versus 95.3%; average rental rates rose 3.8%. Same-store expenses increased 5.5% in Q3 and 3.7% for nine months, mainly due to property taxes, salaries, utilities, and maintenance.
- Cash flow: Nine-month operating cash flow was $327.0 million versus $309.6 million. Investing activities used $366.1 million, including $390.8 million for development and capital improvements. Financing activities provided $87.4 million. Cash and cash equivalents were $66.1 million at quarter-end.
- Debt and liquidity: Notes payable totaled $2.744 billion, up from $2.531 billion at year-end 2013. The weighted-average debt maturity was 6.6 years and the weighted-average interest rate was 4.4%. Camden had no balance on its $500 million unsecured credit facility and approximately $493.6 million available after letters of credit. The facility matures in September 2015, with an option to extend to September 2016. Interest coverage was 5.2 times for Q3 and nine months.
- Distributions: Distributions declared were $0.66 per common share for Q3, versus $0.63 a year earlier. Management said a $2.64 annualized 2014 rate would result if similar quarterly distributions continued.
Material changes versus the prior period
- Revenue growth reflected same-store rent and occupancy improvements, as well as acquisitions, stabilized properties, and lease-up activity. Operating property occupancy and average monthly revenue per apartment home both improved.
- Q3 continuing-operations EPS increased, while reported net income fell sharply versus 2013 because the prior-year period included income and gains from discontinued property operations and sales. Nine-month net income was similarly affected by 2013 sale gains.
- Interest expense declined 6.9% for the nine months, primarily reflecting capitalized interest and debt repayments; higher development activity and the September 2024 note issuance partly offset the decrease. Depreciation and amortization rose 10.1%, largely due to acquisitions, completed development, and capital improvements.
- Development and capital-improvement cash outlays rose to $390.8 million from $245.3 million, principally due to additional development projects and land acquisitions. The company issued $250 million of 3.50% senior unsecured notes due 2024 and sold 688,300 shares through its ATM program for net proceeds of $50.5 million.
Outlook, risks, and unusual items
- Management expected economic and employment growth to continue through the rest of 2014 and new multifamily supply to remain manageable, while noting economic risks and unemployment above historical levels. It intended to pursue selective development, acquisitions, and dispositions and to maintain liquidity and balance-sheet flexibility. No specific earnings guidance was provided.
- At September 30, 12 consolidated projects were under construction, with an estimated $334.4 million of remaining costs; management expected $90–$100 million of that amount to be incurred during the rest of 2014. It also expected $7–$10 million of additional redevelopment spending and $13–$15 million of other capital expenditures during that period.
- Management stated that liquidity was sufficient for anticipated 2014 needs. It cited $0.4 million of scheduled debt amortization for the remainder of 2014 and $251.8 million of scheduled 2015 debt repayments. Funding sources include operating cash flow, credit facilities, debt and equity offerings, property dispositions, and secured mortgages.
- In October 2014, after quarter-end, Camden acquired Camden Fourth Ward, a 276-home Atlanta property, for approximately $62.6 million. The purchase-price allocation was not finalized at filing.
- Camden recorded a $1.2 million land impairment and $3.6 million of land-sale gains during the first nine months. Joint-venture income fell year over year, largely because 2013 included gains and promoted equity income from property sales. A Florida construction-related lawsuit was settled in March 2014 with a payment management described as immaterial; management said other ordinary-course claims were not expected to have a material adverse effect.
- Key risks identified include economic and capital-market volatility, rent competition and declining rents, development and construction execution, debt refinancing and variable-rate exposure, access to capital and credit ratings, joint-venture risks, REIT qualification, and potential catastrophe losses. Camden reported compliance with its credit facility covenants and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether same-store rent growth and occupancy gains continue to outpace property expense growth.
- Construction progress, lease-up, stabilization, and remaining funding needs for the development pipeline.
- Plans to refinance or extend the credit facility before its September 2015 maturity and to address 2015 debt repayments.
- How development spending, ATM equity issuance, distributions, and additional borrowing affect liquidity and per-share results.
- The impact of joint-venture property sales, earnings, and debt, and the final accounting for the October 2014 acquisition.