Fitch Revises Camden Property Trust's Outlook to Positive; Affirms IDR at
NEW YORK -- June 25, 2014
Fitch Ratings has affirmed the credit ratings for Camden Property Trust (NYSE:
CPT or Camden) as follows:
--Issuer Default Rating (IDR) at 'BBB+';
--$500 million unsecured revolving credit facility at 'BBB+';
--$1.6 billion senior unsecured notes at 'BBB+'.
The Rating Outlook has been revised to Positive from Stable.
KEY RATING DRIVERS
The Positive Outlook reflects leverage that is approaching levels appropriate
for the 'A-' level, along with excellent unencumbered asset coverage of
unsecured debt. Other credit strengths are Camden's management team's
commitment to maintaining strong credit metrics and the company's proven
access to capital. In addition, job growth in many of Camden's markets should
support increases in rental rates and EBITDA (though growth is slowing
relative to the 2011-2013 period), and fixed-charge coverage is expected to
sustain at levels consistent with an 'A-' rating.
Camden targets Sunbelt and mid-Atlantic markets with features such as economic
growth that lead to household formation and job growth, an attractive quality
of life, and/or high single family home prices making the company's apartments
an economical housing choice. Camden's same-store NOI growth through the cycle
has been in line with other apartment REITs, a testament to strong asset
quality despite lower barriers to new supply compared with more
coastal-focused multifamily REITs. Credit concerns center on the development
pipeline (cost-to-complete is the highest of the multifamily REITs), which
improves asset quality but adversely impacts corporate liquidity.
Camden's leverage was 5.5x for the trailing 12 months ended March 31, 2014,
which is the lowest of Fitch rated multifamily REITs. Fitch projects that
Camden's leverage will be in the low 5x range over the next 12-to-24 months
due to same-store NOI growth and incremental EBITDA from new developments.
This is expected to be strong for the 'BBB+' rating for a multifamily REIT in
Sunbelt markets. In a stress case not anticipated by Fitch in which the
company experiences same-store NOI declines that occurred during 2009-2010,
leverage would approach the mid-6x range, which would be appropriate for a
The company has consistently sold assets and/or issued equity to improve and
maintain leverage since 2009 and targets 5x debt to EBITDA. In addition,
Camden has the lowest leverage as a percentage of asset value among
multifamily REITs even when adjusting for a slightly above-average
capitalization rate used to value its portfolio.
Excellent Unencumbered Asset Coverage
The company has primarily utilized the unsecured bond market for debt
financing except during periods of capital market dislocation. Unencumbered
assets (1Q2014 unencumbered property NOI divided by a stressed 7.5%
capitalization rate) covered unsecured debt by 3.2x at March 31, 2014, which
is strong for the 'BBB+' rating and indicates strong financial flexibility.
This metric has been above 3.0x since 2012. In addition, CPT's unencumbered
debt yield was 23.8% as of March 31, 2014, well above its 14.3% secured debt
yield, indicating that the company has lower corporate leverage than total
enterprise leverage and thus strong financial flexibility from its
Strong Management Team Focused on Credit
Richard Campo (Camden's Chairman of the Board of Trust Managers and Chief
Executive Officer) and Keith Oden (Camden's President and Trust Manager)
co-founded Camden's predecessor companies in 1982 and have steered the company
through multifamily and capital markets cycles. The Board incorporates various
metrics in management compensation, looking at the enterprise holistically;
performance metrics relate to equity returns (adjusted funds from operations
per share and growth as well as total shareholder return), asset performance
(SSNOI growth), leverage (notably debt to EBITDA in the top third of Camden's
peer group), asset quality (development, acquisitions and dispositions) and
Proven Access to Capital
The company has issued $1.4 billion of unsecured bonds since 2006, most
recently a $250 million 4.25% 10-year offering in December 2013 priced to
yield 4.272% to maturity or 150 basis points (bps) over the benchmark rate.
Camden has issued $1.5 billion of common stock since 2006, including follow-on
offerings in May 2009 and January 2012 as well as via at-the-market offering
programs, at a weighted average discount to net asset value of 1.1%,
indicating a willingness to defend the balance sheet in periods of high
Job Growth Supports Cash Flow and Fixed-Charge Coverage
Job growth in the energy sector particularly is supporting cash flow growth.
Houston (12.6% of pro rata NOI) employment growth has been strong, as the
metro added roughly three jobs for every one lost in the recession. ExxonMobil
is relocating employees from Ohio and Virginia to the Houston metro in 2015.
Tampa (6.8% of pro rata NOI) has employment growth driven by back office
accounting and call center operations, while Dallas (6.7% of pro rata NOI) has
experienced the largest nominal number of job gains in any U.S. metro over the
past year due to population growth twice the U.S. average, according to
CoStar. The Washington D.C. metro (15.9% of Camden's pro rata NOI) has an
economy that is driven by the government sector, but the largest industry in
D.C. is actually professional, scientific, and technical services, according
Camden's portfolio rent rollover rate was 2.1% on new leases and 6.7% on
renewals on average for the trailing 12 months ended March 31, 2014, the
primary component of 6.2% average same-store NOI growth, as occupancy has
remained between 95% and 96% (95.6% as of March 31, 2014).
Fixed charge coverage was 3.6x for the trailing 12 months ended March 31,
2014, up from 3.5x in 2013 and 3.0x in 2012. Fitch projects that fixed charge
coverage will remain between 3.5x and 4.0x over the next 12-to-24 months due
to organic and development driven EBITDA growth, which is strong for the
'BBB+' level for a multifamily REIT. Fitch defines fixed-charge coverage as
recurring operating EBITDA less recurring capital expenditures divided by
total interest incurred. In a stress case not anticipated by Fitch in which
the company experiences same-store NOI declines that occurred during
2009-2010, fixed-charge coverage would remain above 3.0x which would be
adequate for a 'BBB+' rating.
Fitch expects Camden's same-store NOI growth to average approximately 3.5%
through 2016. The company's same-store NOI growth averaged 3.1% from 2004
through 1Q2014, in line with multifamily peers (3.3%), with slightly higher
volatility (standard deviation of 5.1% compared with the peer average of 4%).
Fitch attributes this to strong performance subsequent to the Summit
acquisition in 2005 as well as weaker performance than peers in 2009. Above
average development activity in the previous upcycle led to a decline in
single family and multifamily housing fundamentals during the recession.
Stronger job growth over the next 12-to-24 months in Camden's markets should
lead to more cushion on credit metrics through the cycle.
Large Development Pipeline
As of March 31, 2014, the company's cost-to-complete development was
moderately elevated at 7.2% of gross assets, representing a commitment of
$533.2 million across 14 projects. Development is a core tenet of Camden's
business that generally enhances portfolio asset quality but can pressure its
Fitch estimates the company's liquidity coverage ratio at 0.8x for the period
April 1, 2014 to Dec. 31, 2015. Fitch defines liquidity coverage as liquidity
sources divided by liquidity uses. Liquidity sources include readily available
cash, availability under the company's $500 million unsecured revolving credit
facility and projected retained cash flow from operating activities. Liquidity
uses include pro rata debt maturities, projected recurring capital
expenditures and projected development expenditures. Fitch expects that the
company will access the unsecured bond market and also use proceeds from asset
sales and retained cash to fund development and acquisitions.
The company's AFFO payout ratio was 65.7% in 1Q2014, down from 73% in 2013 and
75.5% in 2012. Based on the current payout ratio, Fitch projects the company
will retain nearly $120 million annually in organic cash flow, bolstering its
The Positive Outlook centers on Fitch's expectation that Camden's leverage is
approaching the low 5x range, which is a level appropriate for the 'A-'
rating. The Positive Outlook also incorporates Fitch's projections of
unencumbered asset coverage in excess of 3x, and fixed-charge coverage in the
high 3x range. However, development continues to negatively impact liquidity
The following factors may result in an upgrade to 'A-':
--Fitch's expectation of leverage sustaining below 5.25x, which would provide
cushion through the cycle at the 'A-' level (leverage was 5.5x as of March 31,
--Fitch's expectation of fixed-charge coverage sustaining above 3.5x
(fixed-charge coverage was 3.6x for TTM ended March 31, 2014).
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 7.2% as of March 31, 2014);
--The funding of development primarily via debt incurrence, which is not
Fitch's current expectation;
--Fitch's expectation of leverage sustaining above 6.0x;
--Fitch's expectation of fixed-charge coverage ratio sustaining below 2.5x;
--Fitch's expectation of liquidity coverage sustaining below 1.0x.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 2014);
--'Rating U.S. Equity REITs and REOCs (Sector Credit Factors) (Feb. 26, 2014);
--'Recovery Ratings and Notching Criteria for Equity REITs' (Nov. 19, 2013).
Applicable Criteria and Related Research:
Rating U.S. Equity REITs and REOCs (Sector Credit Factors)
Recovery Ratings and Notching Criteria for Equity REITs
Corporate Rating Methodology - Including Short-Term Ratings and Parent and
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. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Fitch Ratings, Inc.
Sean Pattap, +1-212-908-0642
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Stephen Boyd, CFA, +1-212-908-9153
Steven Marks, +1-212-908-9161
Sandro Scenga, +1-212-908-0278
Press spacebar to pause and continue. Press esc to stop.