CAMDEN PROPERTY TRUST annual report, FY2012

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Camden Property Trust — 2012 Form 10-K

Business context and reporting period. This annual report covers the year ended December 31, 2012; it is not a standalone fourth-quarter filing. Camden is a U.S. multifamily REIT focused on owning, operating, developing, acquiring and constructing apartment communities. At year-end, it owned interests in, operated or was developing 202 properties with 68,620 apartment homes; nine properties with 2,845 homes were under development. The filing was signed February 15, 2013.

Financial and operating performance

  • Revenue and property operations: Total property revenue was $727.9 million, up 17.2% from $621.1 million in 2011. Same-store revenue increased 6.5%; same-store average rent rose 5.7% and occupancy improved from 94.7% to 95.3%. Same-store expenses rose 2.2%. Portfolio average occupancy was approximately 95% in both 2012 and 2011; average annual rental revenue per apartment home increased from $970 to $1,045.
  • Property-level margin: Property revenue less property expenses was $458.2 million, approximately 62.9% of property revenue, compared with $380.9 million, or 61.3%, in 2011. This is a simple calculation from reported figures, not a company-defined margin measure.
  • Profit: Income from continuing operations attributable to common shareholders was $161.7 million, or $1.90 basic EPS, versus $13.2 million, or $0.17, in 2011. Net income attributable to common shareholders was $283.4 million, or $3.35 basic EPS, versus $49.4 million, or $0.67. Results included $115.1 million of gains on sales of discontinued operations and a $57.4 million gain from acquiring control of joint ventures. Accordingly, reported net income substantially reflects unusual gains.
  • FFO: Diluted funds from operations, a non-GAAP supplemental measure, increased to $313.3 million from $207.5 million. The 2012 figure excludes the acquisition-control gain and gains on property dispositions under the company’s reconciliation.
  • Cash flow: Operating cash flow was $324.3 million, up from $244.8 million. Investing activities used $527.7 million, principally reflecting acquisitions and $290.7 million of development and capital improvements. Financing activities provided $174.9 million. Cash and cash equivalents ended the year at $26.7 million, down from $55.2 million.
  • Debt and liquidity: Notes payable totaled $2.510 billion, compared with $2.432 billion a year earlier. Debt had a 7.0-year weighted-average maturity and 4.5% weighted-average rate; 91.5% was fixed-rate. Camden had no balance drawn on its $500 million unsecured credit facility and approximately $489 million available after letters of credit. Interest coverage was approximately 4.0 times, up from 3.2 times.
  • Capital returns: 2012 distributions were $2.24 per common share, up from $1.96. In the first quarter of 2013, the board raised the quarterly dividend from $0.56 to $0.63 per share; the filing describes $2.52 as the 2013 annualized rate if that quarterly amount continues.

Material changes versus 2011

  • Property revenue increased 17.2%, while property expenses increased 12.3%. The increase reflected 6.5% same-store revenue growth as well as acquisitions, development lease-up and consolidation of 13 formerly unconsolidated joint ventures.
  • Operating cash flow increased $79.4 million. Investment outlays rose substantially, and Camden issued equity and debt to support acquisitions, development and other corporate purposes.
  • Income from continuing operations attributable to common shareholders rose sharply, with the comparison also affected by the $29.8 million non-cash hedging-relationship discontinuation loss recorded in 2011. Net income growth additionally reflects 2012 property-sale and joint-venture acquisition gains.
  • Camden acquired 20 operating properties in nine transactions for approximately $770.2 million, including assumed secured debt, and sold 11 properties for approximately $233.2 million, recognizing a $115.1 million gain. Unconsolidated joint ventures also sold seven properties; Camden’s proportionate share of those gains was approximately $17.4 million.
  • Camden issued $350 million of senior unsecured notes due 2022 at a 2.95% coupon and redeemed $100 million of preferred units. It also issued common equity, including a January public offering with approximately $391.6 million in net proceeds.

Outlook, risks and unusual items

  • Management expected U.S. economic and employment growth to continue in 2013, while noting that unemployment remained elevated and economic risks persisted. It expected new multifamily supply to increase but remain below historical levels. These are management expectations, not guarantees.
  • Camden planned to pursue selective acquisitions, development and dispositions, while emphasizing positive operating cash flow, appropriate debt and leverage, and overhead control. The filing cites expected annual development starts of $250 million to $400 million.
  • At year-end, estimated costs to complete seven consolidated projects under construction were $353.9 million, of which approximately $200.7 million was expected in 2013. The company also expected $50 million to $60 million of redevelopment expenditures and $60 million to $64 million of other capital expenditures in 2013.
  • Management considered 2013 debt maturities of $229.2 million manageable and said liquidity was sufficient for anticipated 2013 needs. Camden repaid a $26.1 million mortgage in January 2013 that had been scheduled to mature in April.
  • Key risks include weaker rental demand or rents, competition and new supply, short lease terms, development cost or lease-up overruns, land impairment, capital-market access and refinancing, variable-rate exposure, catastrophic losses beyond insurance coverage, REIT qualification and joint-venture constraints. Management reported no impairment charges in 2012 and stated it believed carrying values were recoverable, but future impairment remains possible if assumptions or market conditions deteriorate.
  • A construction-defect and building-code lawsuit involving two Florida condominium associations seeks unspecified damages. Management said it could not estimate a potential loss or outcome based on discovery to date. It believed other ordinary-course claims would not materially adversely affect the financial statements.
  • Credit ratings were Moody’s Baa1, Fitch BBB+ and S&P BBB, with stable, stable and positive outlooks, respectively. The company reported compliance with credit-facility covenants. It also reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.

Important facts for investors to verify

  1. Separate recurring property performance and FFO from GAAP earnings, which include significant disposition and joint-venture acquisition gains.
  2. Review same-store rent, occupancy and expense trends alongside the contribution from acquisitions, joint-venture consolidations and lease-up properties.
  3. Assess funding and execution for the $353.9 million construction completion obligation, planned capital expenditures and 2013 debt maturities.
  4. Check debt refinancing, interest-rate exposure, credit ratings and continued access to the unsecured facility and equity programs.
  5. Monitor the Florida construction litigation, land and development valuations, and the board’s future dividend decisions.