Camden Property Trust — Q3 2020 Form 10-Q
Business context and reporting period. Camden is a multifamily REIT that owns, operates, develops and manages apartment communities. At September 30, 2020, it owned interests in, operated or was developing 174 properties with 59,104 apartment homes across the U.S. This unaudited filing covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods.
Key financial and operating metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Property revenues | $265.7 million | $260.7 million | $782.3 million | $765.0 million |
| Net income attributable to common shareholders | $35.0 million | $43.6 million | $94.7 million | $124.6 million |
| Diluted EPS | $0.35 | $0.44 | $0.95 | $1.26 |
| Property NOI | $164.7 million | $166.8 million | $487.4 million | $489.1 million |
| FFO | $126.6 million | $130.5 million | $373.3 million | $379.8 million |
| AFFO | $104.3 million | $110.3 million | $317.4 million | $328.7 million |
| Cash from operating activities | Not provided separately for the quarter | Not provided separately for the quarter | $413.3 million | $408.4 million |
Margins and property performance. Same-store revenue increased 0.8% in Q3 and 1.5% for the first nine months, while same-store NOI declined 1.3% in Q3 and rose 1.0% year to date. Overall NOI declined 1.3% in Q3 and 0.3% year to date. Average occupancy for wholly owned operating apartments was 95.3% in both 2020 periods, versus 96.2% in Q3 2019 and 96.0% for the 2019 nine-month period. Average monthly property revenue per apartment home was $1,802 in Q3 and $1,771 for the nine-month period.
Cash, debt and liquidity. Cash and cash equivalents were $589.6 million at September 30, up from $23.2 million at December 31, 2019. Total notes payable were $3.226 billion, compared with $2.524 billion at year-end; the increase primarily reflects the April issuance of $750 million of 2.80% senior notes due 2030. Weighted-average debt maturity was approximately 8.5 years, with a 3.5% weighted-average interest rate. The company had no credit-facility borrowings and approximately $889.8 million available under its $900 million facility, net of letters of credit. All consolidated properties were unencumbered. The filing reports nine-month investing cash outflows of $298.1 million and financing cash inflows of $450.8 million. The interest expense coverage ratio was 6.2 times for Q3 and 6.7 times for the nine-month period.
The company declared a quarterly dividend of $0.83 per common share. As of the filing date, the 2020 ATM program had up to $362.7 million available; no shares had been sold under it through the filing date.
Changes versus the prior comparable periods
- Q3 property revenue rose 1.9%, but net income attributable to common shareholders fell 19.8%, diluted EPS fell from $0.44 to $0.35, and NOI fell 1.3%.
- For the first nine months, property revenue rose 2.3%, while common net income declined approximately 24.0%, diluted EPS decreased from $1.26 to $0.95, and NOI decreased 0.3%.
- Higher depreciation and amortization and interest expense weighed on earnings. Q3 depreciation and amortization rose $4.8 million and interest expense rose $3.5 million; for nine months, the increases were $24.5 million and $6.9 million, respectively.
- Same-store revenue gains were offset by higher expenses, lower occupancy and increased bad debt. Q3 same-store expenses rose 4.7% against 0.8% revenue growth.
- Nine-month operating cash flow increased modestly, while investing cash outflows were lower than in 2019, which included $214.2 million of operating-property acquisitions. Financing cash flow rose, primarily reflecting the 2020 bond issuance.
Outlook, management commentary and risks
- Management said the pandemic’s ultimate effects remained uncertain and warned that property revenue could decline during the remainder of 2020. Q3 rent collections were approximately 99.4% of scheduled rents; as of October 27, October collections were approximately 98.1%. The filing reported no scheduled rent in a current deferral arrangement for either period.
- COVID-19-related impacts totaled approximately $14.8 million for the first nine months, including Resident Relief Fund support, property-level costs and an Employee Relief Fund. Approximately $9.1 million of resident assistance at wholly owned communities reduced property revenue; other costs included $2.8 million of on-site employee bonuses.
- Management intends to pursue development, redevelopment, repositioning and selective acquisitions or dispositions, while maintaining financial flexibility. It stated that available cash, operating cash flow, credit capacity and capital-market access should meet anticipated near-term needs.
- Eight consolidated projects under construction had an estimated $383.7 million of remaining costs; management expected $50 million to $70 million of that spending in the remainder of 2020. COVID-related shutdowns, permitting delays or supply and labor disruptions could affect completion timing and costs. Nine projects, including one held through a joint venture, were under construction.
- Subsequent to quarter-end, Camden obtained a $40 million two-year floating-rate loan and used the proceeds plus cash to repay a $100 million term loan due in 2022. The filing stated that no debt matured through year-end 2021 as of the filing date.
- Key risks include pandemic-driven rent collection, occupancy and pricing pressure; unemployment and recession; rent or eviction restrictions; development costs and delays; access to capital and refinancing; interest-rate and LIBOR changes; and REIT qualification. The company reported no impairment charges in the periods presented, but noted that worsening markets or changed development assumptions could require future impairment charges.
- Management reported compliance with debt covenants. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported. No legal proceedings were listed.
Important facts for investors to verify
- Whether rent collections, delinquency, bad debt and occupancy trends improved or deteriorated after the October 27, 2020 update.
- How much of the reported earnings decline reflects recurring operating pressures versus pandemic relief costs, higher depreciation and financing costs.
- Whether development projects remain on schedule and within the estimated remaining cost, particularly given pandemic-related construction risks.
- Debt levels, interest costs, credit-facility availability and subsequent financing or refinancing activity, including the October term-loan repayment.
- Future dividend capacity and any actual issuance under the $362.7 million ATM authorization.
- That FFO, AFFO and NOI are non-GAAP measures and may not be directly comparable with similarly named measures reported by other REITs.