Camden Property Trust — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Unaudited. Camden owns, operates, and develops multifamily apartment communities; at quarter-end it had interests in 181 properties with 62,909 apartment homes, including 10 properties under construction.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Property revenue | $227.2m | $213.1m | $663.3m | $627.5m |
| Net income attributable to common shareholders | $37.0m | $38.3m | $188.7m | $113.6m |
| Diluted EPS | $0.41 | $0.43 | $2.09 | $1.28 |
| FFO attributable to common shareholders | $104.3m | $98.7m | $304.9m | $287.7m |
| AFFO attributable to common shareholders | $82.8m | $80.6m | $252.9m | $244.2m |
- Q3 property revenue rose 6.6%; same-store revenue increased 5.5% and same-store expenses rose 5.7%. For the first nine months, same-store revenue grew 5.1% and expenses grew 5.2%.
- Average occupancy was 96.0% in Q3 2015 versus 96.1% a year earlier. Same-store average rental rates increased 4.3% for the quarter and 4.1% for the nine-month period.
- Q3 property expenses increased 6.9% to $84.1m. Depreciation and amortization was $65.1m, and interest expense was $23.3m.
- Nine-month net income includes an $85.1m gain on sales of two operating properties; the prior-year period included gains of $3.6m and a $1.2m land impairment. The gain materially affects year-over-year GAAP earnings comparisons.
Cash flow, debt, and liquidity
- Nine-month operating cash flow was $317.7m, compared with $327.0m in 2014. Investing cash outflow was $231.9m, including $336.4m for development and capital improvements. Financing cash outflow was $229.3m. Cash and cash equivalents ended the period at $10.4m.
- Total notes payable were $2.715bn at September 30, 2015, down from $2.744bn at December 31, 2014. The weighted-average debt rate was 4.0%, and weighted-average maturity was approximately 6.0 years. Floating-rate debt was $431.5m.
- In August, Camden amended and expanded its unsecured credit facility from $500m to $600m, extending maturity to August 2019, with two six-month extension options. At quarter-end, $200m was drawn and approximately $389.9m was available after letters of credit. A separate $40m short-term facility had $23m outstanding and matures in May 2016.
- Interest expense coverage was 5.4 times for Q3 and 5.2 times for the first nine months. Approximately 79.9% of properties were unencumbered.
- Quarterly distributions declared were $0.70 per common share, versus $0.66 a year earlier. Management indicated an annualized $2.80 rate for 2015 assuming similar distributions for the remainder of the year; this is not formal earnings guidance.
Changes, outlook, and notable items
- Management attributed rental growth to employment and economic improvement, favorable demographics, and manageable new apartment supply. It expected U.S. economic and employment growth to continue during the remainder of 2015, while warning that weaker conditions could hurt results.
- Management intended to pursue development, redevelopment, acquisitions, and selective dispositions, while prioritizing operating cash flow, appropriate debt levels, liquidity, and overhead control. It described liquidity as sufficient for anticipated 2015 needs.
- Estimated remaining cost to complete nine consolidated projects under construction was $357.2m, including an estimated $65m–$75m during the remainder of 2015. Development and lease-up execution, costs, and timing remain important considerations.
- In January 2015, Camden sold two properties for approximately $114.4m, recognizing an approximately $85.1m gain. Subsequent to quarter-end, it sold a 260-home Florida property for approximately $33m and acquired Maryland land for approximately $13.3m.
- Unconsolidated joint ventures had $529.3m of third-party debt; Camden reported no guarantees of those loans. The company identified risks including market and credit volatility, competition, development, short-term leases, interest rates, refinancing, and maintaining REIT status.
- No material changes to previously disclosed risk factors or market-risk exposure were reported. Management said disclosure controls were effective and there were no material changes in internal control over financial reporting.
Key facts for investors to verify
- How much operating growth is recurring, given the significant property-sale gain included in nine-month net income?
- Whether same-store rent gains can continue to outpace property expense growth, particularly real estate taxes and maintenance costs.
- Progress, costs, lease-up, and funding for the $357.2m remaining construction commitment and the broader development pipeline.
- Debt maturities, exposure to floating rates, credit-facility availability, and the company’s ability to fund investment and distributions while preserving liquidity.
- Performance and financing risks of joint ventures, including their debt and Camden’s proportionate exposure.