Camden Property Trust — Q3 2010 Form 10-Q
Business context and period. Camden is a multifamily REIT. This unaudited filing covers the quarter and nine months ended September 30, 2010, compared with the same periods in 2009. At quarter-end, it owned interests in or operated 189 communities with 64,681 apartment homes; one 602-home property was held for sale.
Financial performance and position
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Property revenue | $156.3m | $155.2m | $460.8m | $467.5m |
| Property expenses | $64.2m | $64.1m | $189.2m | $187.0m |
| Net income attributable to common shareholders | $1.7m | $3.9m | $6.1m | $28.5m |
| Diluted EPS | $0.02 | $0.06 | $0.09 | $0.46 |
| Diluted FFO | $46.7m | $48.1m | $140.4m | $146.3m |
| Cash from operating activities | Not provided for quarter | Not provided for quarter | $178.5m | $185.4m |
- Q3 consolidated property revenue less property expenses was $92.0m, versus $91.2m a year earlier. The filing does not provide a consolidated operating-margin measure.
- Same-store revenue fell 0.9% in Q3 and 3.0% for the nine months. Same-store rental rates declined 1.2% in Q3 and 3.4% for the nine months; Q3 occupancy improved to 94.4% from 93.8%, while nine-month occupancy was 94.1% in both years.
- For the first nine months, investing activities used $50.1m and financing activities used $101.5m. Cash and cash equivalents were $91.1m at September 30, up from $64.2m at year-end 2009.
- Total notes payable were $2.542bn: $1.508bn unsecured and $1.034bn secured. The weighted average debt maturity was 5.7 years, and weighted average interest rate was 5.0%. The company reported no balance on its unsecured credit line and $489.8m available after letters of credit.
- Interest expense coverage was 2.6 times for Q3 and 2.5 times for the nine months. The common distribution was $0.45 per share for Q3, unchanged year over year; nine-month distributions were $1.35 per share versus $1.60.
Material changes versus prior periods
- Q3 common-shareholder income and diluted EPS declined from $3.9m and $0.06 to $1.7m and $0.02. Nine-month common income fell substantially, in part because 2009 included a $16.9m gain on sale of a discontinued property; no operating properties were sold in the first nine months of 2010.
- Nine-month property revenue declined 1.4%, while property expenses increased 1.2%. Same-store rental weakness was partly offset by improved occupancy and revenue from communities reaching stabilization.
- Nine-month interest expense decreased 2.3% to $95.1m, reflecting lower debt levels and repayments, partly offset by reduced capitalized interest. Q3 interest expense increased 2.1% to $31.8m, primarily due to lower capitalized interest and newly consolidated property debt.
- Nine-month FFO declined 4.0% to $140.4m. Diluted FFO was $46.7m in Q3, compared with $48.1m.
- In August, Camden increased its ownership in an Irvine joint venture from 30% to 99.99% and began consolidating it. It recorded approximately $92.7m of net real estate assets at fair value, with no gain or loss; the property’s prior $52.1m secured debt was repaid and replaced with a $53.0m, 35-year loan at an effective 4.35% rate.
Outlook, risks and unusual items
- Management reported sequential rental-revenue growth over the preceding two quarters and expected rental-rate improvement to continue during 2010. It cautioned that sustained growth depends on employment, new housing supply, homeownership trends and consumer sentiment. No numerical earnings or FFO guidance was provided.
- Two consolidated projects were under construction, with $62.7m of remaining committed expenditures; management planned another project start in Q4 2010. Three projects were expected to add about 700 homes upon completion, anticipated during 2012. Funding was expected from cash and the credit line.
- Management said liquidity was sufficient for anticipated 2010–2011 needs, including approximately $158.5m of 2011 debt maturities. It emphasized plans to generate operating cash, reduce debt and leverage, and control overhead. Senior debt ratings were Baa1 and BBB, both with stable outlooks.
- Key risks include weak employment or rental rates, capital-market volatility, refinancing and variable-rate exposure, development and construction costs, joint-venture performance, property impairments, and maintaining REIT status. Management reported no impairment charges and believed real estate carrying values and affiliate notes were recoverable, but adverse market changes could lead to material future impairment.
- Construction commitments were $62.7m. Camden had guaranteed up to its proportionate share of four JV loans, totaling about $47.8m, and had $6.0m of remaining mezzanine-loan funding commitments. Management did not expect ordinary-course litigation to have a material adverse effect.
- Interest-rate swaps had $516.6m notional value; management estimated $23.0m of accumulated hedge losses would be reclassified to interest expense over the next 12 months. The filing reported a $43.3m derivative liability fair value and an approximately $45.0m termination value.
- The ATM program raised $134.6m from 2.9m shares during the nine months. After quarter-end, Camden issued about 1.0m shares for $50.4m net proceeds; $61.9m of ATM capacity remained as of the filing.
Investor verification priorities
- Assess whether rental-rate recovery and occupancy gains can offset continuing same-store revenue pressure.
- Reconcile reported earnings with FFO and account for the prior-year property-sale gain when comparing periods.
- Review debt maturities, credit-facility covenants and availability, interest-rate hedges, and the cost and timing of refinancing.
- Track funding and completion costs for development projects, and the performance and debt exposure of joint ventures.
- Verify post-quarter ATM share issuance, remaining issuance capacity, and the effect of equity issuance on per-share results.