Camden Property Trust — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. Camden is a U.S. multifamily REIT focused on owning, operating, developing, acquiring, and redeveloping apartment communities. At year-end, it owned interests in, operated, or was developing 181 properties with 63,163 apartment homes, including 13 properties under construction.
Financial and operating performance
| Metric | 2014 | 2013 |
|---|---|---|
| Property revenue | $844.0 million | $788.9 million |
| Property expenses | $305.3 million | $285.7 million |
| Net income attributable to common shareholders | $292.1 million | $336.4 million |
| Diluted earnings per common share | $3.27 | $3.78 |
| Diluted FFO | $378.0 million | $368.3 million |
| Cash flow from operating activities | $418.5 million | $404.3 million |
| Cash and cash equivalents at year-end | $153.9 million | $17.8 million |
| Notes payable at year-end | $2.744 billion | $2.531 billion |
Property revenue increased 7.0%; same-store revenue rose 4.5%, reflecting 4.0% higher average rental rates and same-store occupancy of 95.8%, up from 95.3%. Overall operating-property occupancy averaged approximately 96%, versus 95% in 2013. Property expenses rose 6.9%. Property revenue less property expenses was $538.7 million, or approximately 63.8% of property revenue, broadly in line with 2013.
Net income declined despite higher continuing-operations earnings: 2014 included a $155.7 million gain on operating-property sales, while 2013 included substantial gains from discontinued operations. Continuing-operations diluted EPS increased to $3.27 from $1.69. FFO, a non-GAAP REIT measure, increased approximately 2.6% to $378.0 million.
Changes, capital position, and liquidity
- Camden sold five operating properties for approximately $218.3 million and recorded a $155.7 million gain; it also sold land for approximately $23.7 million. One land parcel generated a $1.2 million impairment charge.
- Investing activities used $325.9 million, including $503.3 million of development and capital-improvement expenditures, partly offset by disposition proceeds. Financing activities provided $43.5 million.
- Debt was approximately $2.7 billion, with a 6.3-year weighted-average maturity. About 92.4% was fixed-rate; weighted-average debt cost was 4.4%. Interest coverage was approximately 5.0 times, up from 4.7 times.
- At year-end, the $500 million unsecured revolver had no borrowings and approximately $493.6 million available after letters of credit. Approximately 79.5% of properties, measured by invested capital, were unencumbered. The company reported investment-grade unsecured debt ratings.
- Approximately $251.8 million of debt was scheduled to mature in 2015. The revolver itself matured in September 2015, with an option to extend to September 2016.
- 2014 distributions declared were $2.64 per share. In the first quarter of 2015, the board raised the quarterly dividend from $0.66 to $0.70 per share; the filing indicates a $2.80 annualized rate assuming that level continues.
Outlook, commentary, and risks
Management expected economic and employment growth to continue in 2015 and multifamily supply to remain manageable, while cautioning that weaker conditions could hurt rents, occupancy, cash flow, and results. The company planned selective development, acquisitions, and dispositions, while emphasizing positive operating cash flow, appropriate leverage, and cost control.
For 2015, Camden estimated $250–$270 million of spending to complete construction projects, $80–$100 million for new development starts, $21–$25 million for redevelopment, and $61–$65 million for other capital expenditures. Management considered near-term liquidity sufficient for anticipated needs, including debt maturities and development commitments; these are estimates, not guarantees.
Key risks include local apartment oversupply or rent declines, competition from other housing, short lease terms that expose revenue to changing rents, development cost and lease-up uncertainty, land impairment, joint-venture restrictions, refinancing and interest-rate risk, and potential cyber incidents or catastrophic losses. Failure to maintain REIT qualification could also have material tax and distribution consequences.
Unusual items include a $10.0 million one-time employee bonus associated with restructuring the investment funds, contributing to higher general and administrative expense. The funds’ terms were extended to 2026 and Camden’s ownership interest increased from 20% to 31.3%. The filing reports that a construction-related lawsuit was settled in March 2014 for an amount described as not material. The company adopted revised discontinued-operations accounting in 2014, generally meaning future individual property sales would not be reported as discontinued operations.
Important facts for investors to verify
- Separate recurring operating performance from the $155.7 million property-sale gain and compare FFO with GAAP earnings.
- Track same-store rent growth, occupancy, expense inflation, and market-level supply, particularly as leases renew.
- Assess execution, lease-up, and funding needs for the construction pipeline and planned 2015 development and capital spending.
- Review the 2015 debt maturity and revolver extension/refinancing plans, as well as covenant compliance and access to capital.
- Confirm the sustainability of the increased dividend against operating cash flow, capital commitments, and REIT distribution requirements.