Camden Property Trust — Q2 2012 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2012. Camden is a multifamily REIT; it owned interests in, operated, or was developing 206 properties comprising 69,902 apartment homes across the United States. Financial amounts below are in U.S. dollars; “m” means million.
Financial performance and condition
- Revenue: Q2 property revenue was $186.0m, up 15.3% year over year; first-half revenue was $364.7m, up 14.3%. Same-store revenue grew 6.1% in Q2 and 6.4% for the first half.
- Profit and EPS: Q2 net income attributable to common shareholders was $21.8m ($0.26 diluted EPS), versus a $16.6m loss ($0.23 loss per diluted share) in Q2 2011. First-half net income attributable to common shareholders was $110.5m ($1.32 diluted EPS), versus a $9.3m loss ($0.13 loss per diluted share) a year earlier. First-half results included significant acquisition and property-sale gains.
- FFO: Diluted funds from operations, a non-GAAP REIT measure, was $76.7m in Q2 versus $30.4m, and $145.3m for the first half versus $84.5m. FFO per share is not stated clearly in the provided filing text.
- Property-level margin: Property revenue less property expenses was 62.1% of property revenue in both Q2 and the first half, compared with approximately 60.5% in the comparable 2011 periods. This is a simple derived property-level measure, not a GAAP operating margin. Same-store property expenses rose 2.1% in Q2 and 2.3% in the first half.
- Cash flow: First-half operating cash flow was $140.9m, compared with $114.8m. Investing activities used $261.0m, primarily for development, capital improvements, and acquisitions; financing activities provided $117.1m. Cash and cash equivalents were $52.1m at June 30.
- Debt and liquidity: Notes payable totaled $2.396bn, down from $2.432bn at year-end 2011; weighted average debt maturity was 6.4 years and weighted average interest rate was 4.8%. Camden had no line-of-credit borrowings and approximately $489.5m available on its $500m facility after letters of credit. Debt maturities for the remainder of 2012 were reported at $258.5m; a $19.3m note was repaid after quarter-end and a $31.5m note was extended.
- Distributions and capital: Q2 distributions declared were $0.56 per common share. Camden issued shares through a January public offering and ATM programs; the first-half cash flow statement reports $604.5m of proceeds from common-share issuance. The company redeemed $100m of preferred units in February.
Material changes versus the prior comparable period
- Same-store rental revenue gains reflected higher rents and occupancy: Q2 average rental rates increased 5.6% and occupancy 0.4%; first-half rates increased 5.5% and occupancy 0.7%. Q2 new leases averaged 6.0% above expiring rents and renewals 8.3% above; first-half increases were 4.8% and 8.2%, respectively.
- Revenue and expenses increased partly because Camden consolidated 12 former joint ventures in January 2012, adding 4,034 homes. The company also completed four development projects with 903 homes during the first half.
- First-half income included a $40.2m gain from remeasuring Camden’s previously held interests when it acquired control of the 12 joint ventures, and a $32.5m after-tax gain from selling three properties. These items materially affect comparison of reported earnings.
- Q2 2011 included a $29.8m loss from discontinuing a hedge relationship; this did not recur in 2012. Interest expense declined in 2012, while depreciation and amortization rose with acquisitions, completed units, and capital improvements.
Outlook, risks, contingencies, and unusual items
- Management cited a gradually improving economy, favorable demographics, modest new apartment supply, and lower homeownership as supporting rental growth, but cautioned that elevated unemployment and broader economic weakness could adversely affect results. No specific earnings or FFO guidance is provided.
- Management planned to pursue development, acquisitions, and selective dispositions, while emphasizing positive operating cash flow, appropriate debt levels, and cost control. It estimated $137.4m of remaining costs to complete consolidated projects under construction, including $45m–$55m expected in the second half of 2012.
- Key risks identified include economic and capital-market volatility, competition and rent changes, development and acquisition execution, property-sale constraints, variable-rate debt and refinancing, credit ratings, joint ventures, insurance adequacy, and maintaining REIT qualification. The filing reports no material changes to previously disclosed risk factors.
- Two Florida condominium associations sued a Camden subsidiary over alleged construction defects and building-code violations. The cases were at an early stage; potential outcomes and any loss range could not be estimated. Management said ordinary-course claims were not expected to have a material adverse effect.
- Camden reported no outstanding guarantees of unconsolidated joint-venture debt and no impairment adjustments during the first half. It warned that deteriorating market conditions or changed development assumptions could require future impairment charges.
Important facts for investors to verify
- How much of reported first-half earnings and FFO reflects recurring operations versus the $40.2m acquisition-accounting gain and $32.5m property-sale gain.
- Whether same-store rent and occupancy growth persists, and how property-tax, utility, and compensation costs affect margins.
- Funding plans for 2012 debt maturities and development commitments, including subsequent repayment and extension activity.
- The impact of share issuance and the remaining ATM capacity on per-share results and future capital needs.
- Progress, lease-up, costs, and stabilization timing for projects under construction, plus developments in the Florida litigation.