Camden Property Trust — Q2 2018 Form 10-Q
Business context and reporting period. Camden is a multifamily REIT focused on owning, operating, developing, redeveloping, and acquiring apartment communities. This unaudited filing covers the quarter and six months ended June 30, 2018. At quarter-end, the company owned interests in, operated, or was developing 165 communities with 56,194 apartment homes, including seven projects under construction.
Financial performance and condition
- Q2 revenue and earnings: Property revenue was $237.1 million, up 6.2% from $223.4 million a year earlier. Net income was $39.9 million versus $40.3 million; net income attributable to common shareholders was $38.7 million versus $39.2 million. Diluted EPS was $0.40 versus $0.43.
- First-half results: Property revenue was $467.8 million, up 5.6%. Net income attributable to common shareholders was $78.1 million versus $74.0 million; diluted EPS was $0.81 versus $0.82.
- Property operations: Same-store revenue increased 3.2% in Q2 and 3.3% in the first half; same-store NOI grew 3.2% and 3.6%, respectively. Average occupancy for the operating portfolio was 95.7% in Q2 versus 95.3% a year earlier. Total NOI was $152.1 million in Q2, up 6.3%, and $298.8 million in the first half, up 5.6%.
- Cash flow and investment: First-half operating cash flow was $231.3 million, compared with $203.4 million. Investing activities used $387.2 million, including $201.9 million for two property acquisitions and $177.5 million for development and capital improvements. Financing activities used $148.2 million, primarily for distributions. Cash, cash equivalents, and restricted cash ended the period at $73.7 million.
- Debt and liquidity: Notes payable totaled $2.205 billion, comprising $1.340 billion unsecured and $865.6 million secured. Weighted-average debt maturity was 3.8 years and the weighted-average rate on notes payable was 4.4%. The company had no balance drawn on its $600 million credit facility and $45 million short-term facility; approximately $587.4 million and $45 million, respectively, remained available. Interest coverage was 6.5x for Q2 and 6.4x for the first half.
- Distributions: Distributions declared were $0.77 per common share for Q2, up from $0.75. Management indicated an annualized rate of $3.08 if quarterly distributions remained similar through year-end.
Material changes versus the prior comparable period
- Revenue and NOI growth reflected higher same-store rents and occupancy, acquisitions, and contributions from development and lease-up properties. Same-store expenses also rose, notably real estate taxes and payroll.
- Q2 common-shareholder income and diluted EPS declined slightly despite higher property revenue and NOI. Higher depreciation and amortization—up 16.2% in Q2—was a significant expense increase. Interest expense declined, primarily following repayment of higher-rate debt in 2017.
- First-half operating cash flow rose, while investing cash outflow increased substantially from 2017, principally because of the two Florida acquisitions and higher development and capital spending. First-half net income increased, but diluted EPS was lower, with weighted-average diluted shares rising to 95.3 million from 91.0 million.
- Deferred-compensation plan income and expense both fell sharply year over year; management states these items offset each other and largely reflected investment performance.
Outlook, commentary, and risks
- Management reported same-store growth from higher rental rates and occupancy and cited job growth, demographics, manageable new supply, and continued renter demand. It expected U.S. economic and employment growth to continue during 2018, while warning weaker conditions could adversely affect results.
- The company planned to continue pursuing development, redevelopment, repositioning, acquisitions, and selective dispositions, subject to market conditions. It stated that liquidity was sufficient for anticipated 2018 needs.
- Seven projects under construction had estimated remaining costs of $283.4 million; management expected $80–$100 million of that amount to be spent during the rest of 2018. Additional anticipated second-half 2018 spending included $20–$30 million for new development starts, $27–$31 million for repositioning and revenue-enhancing work, $18–$22 million for redevelopment, and $36–$40 million for recurring capital expenditures.
- Scheduled 2018 debt payments were estimated at approximately $174.4 million. The $600 million credit facility matures in August 2019, with two six-month extension options; the company also disclosed a $45 million borrowing facility maturing in May 2019.
- Key risks include capital-market access and refinancing, rising interest rates and LIBOR exposure, significant debt, short lease terms and rent competition, development and acquisition execution, joint-venture exposure, natural disasters, cybersecurity, and maintaining REIT qualification. Management reported no material change to previously disclosed risk factors and no material change in market-risk exposures.
- The company had five forward interest-rate swaps with $400 million aggregate notional value to hedge anticipated fixed-rate debt issuance. It reported no impairment charges and no outstanding guarantees on unconsolidated joint-venture debt.
Important facts for investors to verify
- Whether same-store rent growth, occupancy, and NOI trends continue, particularly as property taxes and operating costs rise.
- Funding and completion progress for the seven active construction projects, remaining cost estimates, lease-up pace, and expected stabilization dates.
- Debt maturities and refinancing plans, including the 2019 credit-facility maturity, interest-rate exposure, and continued covenant compliance.
- Actual operating cash generation and capital spending relative to distributions and development commitments; assess the sustainability of the current distribution level.
- Acquisition performance and the effect of share issuance or other financing on per-share results; no shares were sold under the ATM program through the filing date, with $312.8 million of capacity remaining.