Camden Property: Moderation Has Not Happened Yet

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It comes as no surprise that the fundamentals associated with the apartment rental industry have been so good:

  • Buying a new residence has become more difficult because of the stronger credit scores and mortgage down payments required.
  • Millennials still have high student loan balances.
  • They also have been waiting longer to start families.
  • The pre-1994 rate of home ownership has been around 64 percent; before the recession it rose to 69 percent but is now approximately 64 percent.
  • The market has been underserved after the recession.

Camden Property Trust (NYSE:CPT) is a premier apartment REIT that was formed 22 years ago and whose same-property numbers have benefited from industry tailwinds. Between 2011 and 2014, average same-property NOI and revenue was about 7 and 6 percent respectively — one of the best growth rates in its sector.

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Some moderation has been expected, but that hasn’t happened yet. Average monthly revenue per occupied apartment increased 4.6 percent during Q1 2015 in comparison with Q1 2014 as residents’ average household income increased 7 percent to $87,600. Also, same-property occupancy was 95.5 percent in 2015 Q1. Historically, 18 percent of residents would move out to buy houses, but currently only 13 percent do so.

Owing to a greater spread between developing and acquiring buildings, management sees more value in construction. This insight should explain why Camden has lined up $1.2 billion in development. Rising construction and interest rates may shift that advantage, though this upcoming challenge has already been flagged.

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Camden has been present at top markets for population and employment growth, including Houston, Phoenix, Dallas, Los Angeles and Atlanta, which represent ⅓ of their NOI. More recently, community valuations have caused property taxes to skyrocket, but this scarcely affected the results because of revenue increases.

In terms of valuation, Camden sits in the mid-range of the residential REIT sector. Price-to-FFO (17.6x) and dividend yield (3.6 percent) position the company in a fair entry point.

Source: Camden Property Trust, REIT Stream, Fast Graphs

Written by Heli Brecailo

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