Camden Property Trust — Q2 2011 Form 10-Q
Reporting period: Three and six months ended June 30, 2011. Camden is a multifamily REIT. At quarter-end it owned interests in, operated, or was developing 204 communities with 69,421 apartment homes across the United States, including eight communities under development.
Financial performance and position
| Metric | Q2 2011 | Q2 2010 | First half 2011 | First half 2010 |
|---|---|---|---|---|
| Property revenue | $165.1 million | $151.3 million | $326.3 million | $300.7 million |
| Net income (loss) attributable to common shareholders | $(16.6) million | $2.1 million | $(9.3) million | $4.4 million |
| Diluted FFO | $30.4 million | $46.7 million | $84.5 million | $93.7 million |
| Operating cash flow | Not provided for the quarter | $114.8 million | $100.0 million |
- Q2 total property revenue rose 9.1%; first-half revenue increased 8.5%. Same-store revenue grew 5.3% in Q2 and 4.5% for the first half.
- Same-store average rental rates increased 4.2% in Q2 and 3.6% in the first half; average occupancy improved to 94.4% from 94.1% in Q2, and to 94.1% from 93.7% for the first half.
- Property expenses increased 6.0% in Q2 and 4.7% for the first half. Same-store expenses rose 2.9% and 1.5%, respectively. The implied Q2 property-level margin—property revenue less property expenses, divided by property revenue—was approximately 60.3%, versus 59.1% a year earlier.
- Common diluted EPS was $(0.23) for Q2 and $(0.13) for the first half, versus positive $0.03 and $0.06, respectively, in 2010. Q2 and first-half results included a $29.8 million noncash charge from discontinuing an interest-rate hedge after repaying a $500 million term loan.
- Cash and cash equivalents were $63.1 million at June 30, down from $170.6 million at year-end 2010. First-half operating cash flow was $114.8 million; investing activities used $57.5 million and financing activities used $164.7 million.
- Total notes payable were $2.434 billion, down from $2.564 billion at year-end. Unsecured debt was $1.380 billion and secured debt $1.054 billion. The weighted-average debt maturity was 7.3 years, with a 4.9% weighted-average interest rate.
- Camden had no borrowings on its $500 million unsecured credit facility and approximately $490.1 million available after letters of credit. Interest-expense coverage was 3.1 times for Q2 and 3.0 times for the first half, versus 2.5 times in both 2010 periods.
- Common distributions declared were $0.49 per share in Q2 and $0.98 per share for the first half, compared with $0.45 and $0.90 in 2010.
Material changes and notable items
- Camden issued $500 million of senior unsecured notes in June—$250 million due 2021 and $250 million due 2023—at yields to maturity of 4.70% and 5.00%. Proceeds, together with cash, repaid its $500 million term loan. It also repaid notes maturing in February and May.
- First-half capital spending for development and improvements increased to $67.6 million from $27.9 million. Joint-venture investments were $35.1 million, primarily related to acquisitions by Camden’s funds.
- First-half results included a $4.3 million gain on sale of an available-for-sale investment, $4.7 million in gains on property/land sales, and a $1.1 million gain on sale of joint-venture interests. Camden sold three joint-venture interests for $19.3 million.
- Q2 diluted FFO declined approximately 35% year over year; first-half diluted FFO declined approximately 9.8%. FFO is a non-GAAP supplemental measure and should be considered alongside GAAP results.
Outlook, risks and contingencies
- Management expected rental rates and occupancy to continue improving in 2011, while noting that sustained revenue growth depends on employment, new apartment supply, and homeownership trends. No numerical earnings or FFO guidance was provided.
- Management said it believed liquidity was sufficient for anticipated 2011 operating needs, debt service, recurring capital expenditures, development and investment funding, and required REIT distributions. It expected to fund approximately $122.9 million of remaining anticipated construction expenditures through cash, operating cash flow, credit-facility draws, dispositions, and debt or equity offerings.
- Debt maturities, excluding scheduled principal amortization, were not scheduled for the remainder of 2011; approximately $294.2 million was scheduled for 2012. The credit facility matures in August 2012, with an extension option to August 2013.
- Key risks cited include capital-market and refinancing conditions, interest-rate exposure, competition and rental demand, development and construction execution, property dispositions, joint ventures, litigation, and maintaining REIT status. Management reported compliance with credit-facility covenants and no outstanding guarantees on loans for unconsolidated joint-venture construction and development.
- Two Florida condominium associations had filed construction-defect lawsuits against a subsidiary; the cases were at an early stage, and potential losses could not be estimated. A separate association claim was settled for a payment management described as not material.
- Management reported no material changes in risk factors or market-risk exposure and concluded disclosure controls were effective. It reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of the reported loss and the year-over-year FFO decline reflects the one-time hedge charge, and what are the expected subsequent swap-related earnings effects?
- Whether occupancy, rental-rate growth, and same-store expense trends continue to support operating performance, particularly as new development supply enters the market.
- Funding and completion progress for the development pipeline, including the $122.9 million of anticipated remaining construction expenditures.
- Liquidity and refinancing plans for the August 2012 credit-facility maturity and scheduled 2012 debt repayments.
- Potential dilution and capital effects from the $300 million ATM share program, including post-quarter July sales of approximately $32.4 million disclosed in the filing.
- Developments in the two unresolved Florida construction-defect lawsuits and any change in management’s assessment of potential exposure.