Fitch Rates Camden Property Trust's $350MM 2.95% Sr. Unsecured Notes Due
2022 'BBB+'; Outlook Stable
NEW YORK -- December 07, 2012
Fitch Ratings assigns a credit rating of 'BBB+' to the $350 million aggregate
principal amount 2.95% senior unsecured notes due 2022 issued by Camden
Property Trust (NYSE: CPT, Camden). The notes were issued at a spread of 147
basis points over the benchmark rate and priced at 98.945% of par to yield
Camden expects to use the net proceeds of approximately $343.7 million to
repay the outstanding balance on its unsecured line of credit, and the
remainder for general corporate purposes, which may include property
acquisitions and development in the ordinary course of business, capital
expenditures and working capital.
Fitch currently rates Camden Property Trust as follows:
--Issuer Default Rating (IDR) 'BBB+';
--$500 million unsecured revolving credit facility 'BBB+';
--$1.7 billion senior unsecured notes 'BBB+'.
The Rating Outlook is Stable.
The 'BBB+' IDR reflects Camden's fixed-charge coverage ratio that Fitch
expects will continue to benefit from favorable multifamily property
fundamentals, appropriate leverage for the 'BBB+' rating, management's solid
stewardship of the portfolio, and a mostly unencumbered asset base that
provides financial flexibility as well as value to bondholders as evidenced by
robust unencumbered asset coverage. Credit concerns include a large
development pipeline that adversely impacts liquidity and CPT's presence in
markets that are performing well but have shown higher volatility and lower
sustained same-property performance than peers' average through the cycle.
Fixed-charge coverage is appropriate for the 'BBB+' rating and was 3.1x in
third quarter 2012 (3Q'12) and 2.9x for the trailing 12 months ended Sept. 30,
2012, compared with 2.4x in 2011 and 2.1x in 2010. Pro forma for the bond
offering, 3Q'12 annualized fixed-charge coverage is 2.9x. Improvements stem
primarily from occupancy gains and positive leasing spreads in almost all of
Camden's markets, which are primarily in the Sunbelt, and lower fixed charges.
Fitch defines fixed-charge coverage as recurring operating EBITDA less
recurring capital expenditures divided by total interest incurred and
preferred unit distributions.
Positive demand drivers include an increase in Camden's average household
renter income to $72,877 in 3Q'12 from $66,044 in 3Q'11, coupled with low
move-outs related to home purchases. Same-property net operating income (NOI)
increased by 10.7% in 3Q'12, compared with 7.1% in 2011 and negative 3.5% in
2010. During 3Q'12, the top performing markets as measured by SSNOI growth
were Charlotte at 23.7%, Phoenix at 16.2% and Dallas and Houston, both at
15.7%. Even less robust markets remained positive in 3Q'12, including Las
Vegas at 3.2%, San Diego/Inland Empire at 4.8% and Washington D.C. Metro at
Fitch anticipates that high single-digit same-property NOI growth in 2012
followed by moderating same-property NOI growth over the next 12-to-24 months
along with incremental earnings from development will result in fixed-charge
coverage sustaining in the 3.0x to 3.5x range, which would be strong for a
'BBB+' rating. In a stress case not anticipated by Fitch in which Camden
repeats its same-property NOI declining performance of 2009-2010 over the next
12-to-24 months, coverage would remain between 2.5x and 3.0x, which would
remain appropriate for a 'BBB+' rating.
Growth in portfolio-level cash flow, the company's $392 million follow-on
common stock offering in January 2012, and at-the-market common stock offering
programs used to fund acquisitions and development have reduced leverage. Net
debt to 3Q'12 annualized recurring operating EBITDA was 5.5x, compared with
5.9x for the trailing 12 months ended Sept. 30, 2012, 6.7x in 2011 and 7.2x in
Fitch anticipates that leverage will approach 5.0x over the next 12-to-24
months due to improving fundamentals and continued access to common stock
market to meet funding obligations. In a stress case not anticipated by Fitch
in which Camden repeats its same-property NOI declining performance of
2009-2010 over the next 12-to-24 months, leverage would sustain above 6.0x,
which would be more consistent with a 'BBB' rating.
Camden's management team continues to improve the quality of the portfolio.
The company's revised fourth quarter 2012 guidance assumes $270 million in new
on-balance sheet development starts in 4Q'12 and the disposition of $300
million of older properties to push down the average age of the portfolio.
Fitch views this portfolio repositioning positively, as the company is taking
advantage of low multifamily capitalization rates to improve overall portfolio
A large unencumbered asset base further supports the 'BBB+' rating.
Unencumbered assets (calculated as 3Q'12 annualized unencumbered NOI divided
by a stressed capitalization rate of 7.5%) covered unsecured debt by 3.4x. The
rating contemplates that Camden will continue to be a predominantly unsecured
borrower but have the flexibility to encumber the portfolio if market
conditions warrant. In addition, the covenants under the company's bond
indenture and revolving credit facility agreement do not restrict financial
The company's development pipeline is a growth vehicle that negatively impacts
liquidity. As of Sept. 30, 2012, development including projected total costs
represented 6.9% of gross asset value (GAV), up from 4.4% as of Dec. 31, 2010
and 3.7% as of Dec. 31, 2009. However, current development remains well below
peak levels of the last upcycle (11.4% as of Dec. 31, 2005 and 11% as of Dec.
31, 2006). Projected cost to complete was 2.7% of GAV as of Sept. 30, 2012,
compared with 3% as of Dec. 31, 2011 and 0.9% as of Dec. 31, 2010.
For the period Oct. 1, 2012 through Dec. 31, 2014, base case liquidity
coverage pro forma for the bond offering is 1.3x assuming no additional
capital raises. Camden has a manageable debt maturity schedule with no more
than 10.8% of debt due in any given year over the next five years. As
evidenced by the bond offering, the company has demonstrated good capital
markets access, mitigating refinance risk.
Camden's portfolio is performing well -- particularly in recent quarters --
but has shown higher volatility and lower sustained same-property performance
than selected multifamily REIT peers through the cycle. From 2002 to 2011,
Camden's average same-store NOI growth was approximately 60 basis points below
peers, and during a more volatile cycle of 2007 to 2011, Camden's average
same-store NOI growth was approximately 150 basis points below peers.
Furthermore, Camden's results were achieved with more same-store NOI
The Stable Outlook reflects Fitch's view that fixed-charge coverage will
sustain in the 3.0x to 3.5x range, leverage will approach 5.0x over the next
12-to-24 months, and the portfolio will remain predominantly unencumbered.
The following factors may result in positive momentum in the ratings and/or
--Fitch's expectation of fixed-charge coverage ratio sustaining above 3.5x
(3Q'12 pro forma fixed-charge coverage was 2.9x);
--Fitch's expectation of leverage sustaining below 5.0x (3Q'12 pro forma
leverage was 5.5x);
--Geographical diversification across the multifamily portfolio into markets
with more same-store NOI growth stability.
The following factors may result in negative momentum on the ratings and/or
--Fitch's expectation of development including projected total costs
sustaining above 10% of gross asset value (this metric was 6.9% as of Sept.
--The funding of development primarily via debt incurrence, which is not
--Fitch's expectation of fixed-charge coverage ratio sustaining below 2.5x;
--Fitch's expectation of leverage sustaining above 6.0x;
--Fitch's expectation of liquidity coverage sustaining below 1.0x.
Additional information is available on www.fitchratings.com. The ratings above
were unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'Recovery Rating and Notching Criteria for Equity REITs' (Nov. 12, 2012);
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Criteria for Rating U.S. Equity REITs and REOCs' (Feb. 27, 2012).
Applicable Criteria and Related Research:
Recovery Ratings and Notching Criteria for Equity REITs
Corporate Rating Methodology
Criteria for Rating U.S. Equity REITs and REOCs
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Sean Pattap, +1-212-908-0642
One State Street Plaza
New York, NY 10004
Steven Marks, +1-212-908-9161
Robert Curran, +1-212-908-0515
Sandro Scenga, +1-212-908-0278
Press spacebar to pause and continue. Press esc to stop.