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This month's REIT Focus is on Camden Property Trust (CPT), a publicly traded, self-managed real estate investment trust that owns multifamily apartment communities. CPT owns a 1% general partner interest and 89.8% limited partner interest in Camden Operating, L.P., its UpReit general partnership. As of 9/30/12, CPT owned interests in, operated or was developing 209 multifamily properties containing 70,871 units. Six of the properties under development represent 2,404 units. The properties are located in the Western, Southwestern and Southeastern U.S. The highest concentration of apartment units is located in Houston, Texas, Las Vegas, Nev., Dallas, Texas, and Tampa, Fla. The average occupancy and monthly rental rate of CPT's portfolio as of 9/30/12 were 95.2% and $1,163, respectively. CPTwas incorporated in the State of Texas in 1993, is traded on the NYSE and is based in Houston, TX.

CPT has 84 million shares outstanding and a market capitalization of approximately $5.8 billion. CPT has a well regarded and veteran management team that includes Richard Campo, Chairman of the Board and CEO, who has been with the company since 1993 and Dennis M. Steen, Senior Vice President and CFO, who has been with the company since 1999.

Select financial data for CPT as of the 9/30/12 10Q and for the period 1/1-9/30/12 is as follows (in millions where applicable):

Real Estate Assets, Gross$6,289
Total Assets$5,218
Notes Payable, Secured and Unsecured$2,394
Stockholders' Equity$2,533
Revenue$557
Net Income$141
Earnings Per Share$1.66
Cash Flow from Operations$250
Unsecured Credit Facility ($500 with $10 used)$490
Market Capitalization$5,800
Debt to:
Gross Real Estate Assets38%
Market Capitalization41%
Real Estate Assets Per Unit$89,000
Dividend Yield ($2.24/sh.)3.2%
Valuation Methodology:
Revenue Per Above Annualized$743
Less: Operating Expenses (excluding depr., amort. & int.)$327
Projected Net Operating Income 2012$416
Projected Inflation Ratex103.5%
Projected NOI for Next Year$431
Projected Cap Rate7.5%
Projected Value of Company$5,747
Less: Total Debt Per Above($2,394)
Projected Value of Company Equity$3,353
Shares Outstanding84
Projected Value Per Share$40
Current Market Price Per Share$69

As shown above, our value for CPT is $40 per share versus a market price of $69 per share. Current average cap rates for apartment properties per CBRE, PricewaterhouseCoopers and the Urban Land Institute are in the 6% to 9% range, depending on the location, occupancy and quality of the property. We have used a cap rate of 7.5% due to CPT's portfolio being primarily located in low barrier to entry or "high beta" markets. High beta markets are states and Metropolitan Statistical Areas with low impediments for new apartment development, a lot of available land for development and a boom and bust CRE cycle. These markets include Texas, Florida, Arizona, and Nevada. At its current price of $69 per share, CPT is trading at a 5% cap rate and is overpriced as many of the other apartment REITs. Apartment fundamentals are excellent with rent increases in 2012 of 5%-10% depending on the specific property and location. However, there are more than 240,000 units scheduled to be developed in 2013 and with the increased competition from single family home rentals, rent increases in 2013 should be in a lower 2%-5% range.

The gross real estate assets, net income and funds from operations for 2010 to 9/30/12 are shown in the table below:

(millions)201020119/30/12 (9mos)
Gross Real Estate Assets$5,441$5,520$6,289
Net Income$23$49$141
Funds from Operations$194$207$227

A five-year price chart of CPT is shown below:

(click to enlarge)

CPT strengths include; moderate leverage, diversified portfolio, solid and experienced management team and a portfolio that is 95% leased. Weaknesses include; portfolio is primarily located in high beta markets and high stock price with lower dividend yield. CPT is a well managed apartment REIT; however, we do not recommend purchase of the stock price at this level and would hold the stock if already owned.

Source: REIT Focus: Camden Property Trust