Fitch Rates Camden Property Trust's $250MM 4.25% Notes Due 2024 'BBB+';
NEW YORK -- November 22, 2013
Fitch Ratings assigns a credit rating of 'BBB+' to the $250 million aggregate
principal amount of senior unsecured notes due 2024 issued by Camden Property
Trust (NYSE: CPT; Camden). The notes have an annual coupon rate of 4.25% and
were priced at 99.814% of the principal amount to yield 4.272% to maturity or
150 basis points (bps) over the benchmark rate.
The company intends to use the net proceeds to pay at maturity the $200
million aggregate principal amount outstanding of 5.375% senior unsecured
notes due Dec. 15, 2013. Camden intends to use the remainder to repay any
outstanding balance on the company's unsecured line of credit and other
short-term borrowings, and for general corporate purposes.
Fitch currently rates Camden as follows:
--Issuer Default Rating (IDR) 'BBB+';
--$500 million unsecured revolving credit facility 'BBB+';
--$1.6 billion senior unsecured notes 'BBB+'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Camden's 'BBB+' IDR at takes into account credit strengths including favorable
property fundamentals across the multifamily portfolio, which are expected to
contribute to strong fixed-charge coverage for the rating. The company also
has appropriate leverage for the rating, an experienced management team, and
good financial flexibility as evidenced by solid unencumbered asset coverage,
minimal near-term debt maturities and moderate retained operating cash flow.
These credit strengths are balanced by a sizeable development pipeline that is
a growth driver for the company but tempers liquidity coverage. In addition,
Camden's ownership concentration in high population growth Sunbelt markets has
led to operational volatility when compared with multifamily peers due to
fewer supply constraints; however, Camden has outperformed its peers on
average through recent years.
Job growth in Camden's markets has supported strong occupancy rates and
pricing flexibility, resulting in same-store net operating income (SSNOI)
growth. Total SSNOI grew by 6.2% for the year-to-date period ended Sept. 30,
2013 following 9.2% growth in 2012 and 7.1% growth in 2011.
Fixed-charge coverage is strong for the 'BBB+' rating at 3.4x for the trailing
12 months (TTM) ended Sept. 30, 2013 pro forma for the bond offering, up from
3.0x in 2012 and 2.4x in 2011. Strong fundamentals, lower borrowing costs and
equity issuance drove the improvement. Fitch defines fixed-charge coverage as
recurring operating EBITDA less recurring capital expenditures divided by
total interest incurred.
Job growth in Camden's top markets from industries such as energy is leading
to sustained increases in demand. Decreasing rent-to-income ratios (17.4% in
3Q'13 compared with 17.7% in 3Q'12), partly due to rising household income
($79,748 in 3Q'13 compared with $74,150 in 3Q'12), and moderate new supply
support Fitch's outlook for further rent and SSNOI increases.
Fitch's base case projections contemplate 4% to 6% SSNOI over the next several
years resulting in fixed-charge coverage in the 3.7x-3.8x range. Under a
stress case not anticipated by Fitch in which SSNOI declines by levels
experienced in 2009-2010, fixed-charge coverage would remain in the low 3x
range, which is appropriate for a multifamily REIT rated 'BBB+'.
Appropriate Leverage For Rating
Net debt as of Sept. 30, 2013 to TTM recurring operating EBITDA was 5.9x,
compared with 5.9x in 2012 and 6.7x in 2011. The company's $391.6 million
common stock offering in January 2012 and at-the-market common stock offering
programs helped fund acquisitions and development while reducing leverage.
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 and
unsecured bond markets to meet funding obligations. In a stress case not
anticipated by Fitch in which Camden repeats its performance of 2009-2010 over
the next 12-to-24 months, leverage would approach 6.0x, which would be weak
for a multifamily REIT rated 'BBB+'.
Experienced Management Team
Camden's management team continues to improve the quality of the portfolio via
the sale of older assets and through ground-up development. Fitch views
management's focus on asset quality as a key differentiator between Camden and
other Sunbelt and mid-Atlantic-centric apartment owners. Senior management's
tenure with the company is also a key differentiator between Camden and its
Strong Financial Flexibility
The company's unencumbered assets (3Q'13 annualized unencumbered NOI divided
by a stressed capitalization rate of 7.5%) covered net unsecured debt by 2.8x,
which is strong for the 'BBB+' rating. Unencumbered NOI comprised 73.8% of
total 3Q'13 NOI. The rating contemplates that Camden will continue to be a
predominantly unsecured borrower but has the flexibility to encumber the
portfolio if market conditions warrant. Debt maturities are laddered over the
next several years, with 0.5% of pro forma debt maturing in 4Q'13 followed by
1.3% in 2014 and 9.4% in 2015.
Camden's adjusted funds from operations (AFFO) payout ratio was 72.5% for
year-to-date ended Sept. 30, 2013, down from 75.5% in 2012 and 99% in 2011.
The current AFFO payout ratio indicates good internally-generated liquidity.
In addition, the covenants under the company's bond indenture and revolving
credit facility agreement do not restrict financial flexibility.
Large Development Pipeline
The company's development pipeline is a growth vehicle that negatively impacts
liquidity. As of Sept. 30, 2013, cost-to-complete development represented 5.6%
of gross asset value, up slightly from 5.2% as of Dec. 31, 2012. Current
cost-to-complete as a percentage of gross asset value is slightly above levels
of the last upcycle (4.3% as of Dec. 31, 2005 and 4% as of Dec. 31, 2006).
For Oct. 1, 2013 through Dec. 31, 2015, base case pro forma liquidity coverage
assuming no additional capital raises is 0.9x. Fitch defines liquidity
coverage as liquidity sources divided by uses. Liquidity sources include cash,
availability under the company's unsecured revolving credit facility pro forma
for the bond offering, and projected retained cash flows from operating
activities after dividends. Liquidity uses include pro rata debt maturities,
projected recurring capital expenditures, and expected cost-to-complete
In 3Q'13, the company's top five markets were D.C. Metro (16.4% of pro rata
NOI), Houston (12.9%), Tampa (7.4%), Dallas (7.3%), and Los Angeles/Orange
County, CA (6.6%). SSNOI was positive in all of Camden's markets in 3Q'13
except for D.C. Metro, with the top three markets being Atlanta (+12.8%),
Corpus Christi (+11.5%), and Austin (+9.3%). The bottom three markets were
D.C. Metro (-0.2%), Las Vegas (+2.5%), and San Diego/Inland Empire (+3.3%).
Camden's portfolio is performing well (5.6% SSNOI in 3Q'13 compared with the
peer average of 4.4%) and has outperformed peers since 2011. For 2003-2012,
Camden averaged SSNOI growth of 1.8% compared with the peer average SSNOI of
Camden has shown more SSNOI growth volatility than its peers during the
trailing 10-year period. Fitch attributes this to strong performance
subsequent to the Summit acquisition in 2005, offset by weaker performance
than peers in 2009, stemming from fewer supply constraints resulting in
above-average development activity in the previous up-cycle. However, rents
have recovered relative to recessionary lows in each of Camden's markets
except for Las Vegas and Fitch has a favorable outlook for most of Camden's
markets. Nevertheless, the company's portfolio overweight in the D.C. metro is
a credit concern given weakening demand and elevated levels of new supply.
The Stable Outlook reflects Fitch's view that fixed-charge coverage will be
strong for the rating in the mid-3x range, leverage will approach 5x over the
next 12-to-24 months and company will continue its active development
pipeline, starting between $250 million and $400 million annually.
The following factors may result in positive momentum on the ratings and/or
--Fitch's expectation of fixed-charge coverage sustaining above 3.5x (TTM pro
forma fixed-charge coverage was 3.4x);
--Fitch's expectation of leverage sustaining below 5.0x (as of Sept. 30 2013,
leverage was 5.9x);
--More geographical diversification across the multifamily portfolio into
markets with growth stability.
The following factors may result in negative momentum on the ratings and/or
--Fitch's expectation of cost-to-complete development sustaining above 10% of
gross asset value (this metric was 5.6% as of Sept. 30, 2013);
--The funding of development primarily via debt incurrence, which is not
Fitch's current expectation;
--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 at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--Recovery Ratings and Notching Criteria for Equity REITs (Nov. 19, 2013);
--Criteria for Rating U.S. Equity REITs and REOCs (Feb. 26, 2013);
--Corporate Rating Methodology (Aug. 8, 2012).
Applicable Criteria and Related Research:
Recovery Ratings and Notching Criteria for Equity REITs
Criteria for Rating U.S. Equity REITs and REOCs
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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