Dividend Sleuthing: Camden Property Trust

Summary

• Camden Property Trust is one of the largest apartment real estate investment trusts in the U.S.
• Camden's focus is on upscale Sunbelt properties in large, urban centers, appealing to young, professional adults.
• The REIT benefits from strong management with a healthy culture of teamwork that makes for solid relationships with tenants.
• Camden has an S&P credit rating of A-, and has raised the dividend for 10 consecutive years.
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Sunbelt Apartments

As of 1/31/21, Camden Property Trust (NYSE:CPT) was the sixth largest real estate investment trust in the Apartments sub-sector of the FTSE Nareit All REITs Index, with an equity market capitalization of $9.948 billion. CPT's 2020 year-end earnings release indicated assets of $7.199 billion and liabilities of $3.682 billion.

As of February 28, 2021, Camden owned interests in and operated 167 multifamily properties comprised of 56,850, largely focused on the Sunbelt. CPT also owns land holdings which may be developed into multifamily communities in the future.

Camden's median resident age is 30, with an average annual household income of $100,000, an average rent-to-income ratio of 19.4%, and an average 1.8 occupants per apartment. From CPT's Investor Presentation:

Source: CPT's Investor Presentation

Camden receives 80% of rental revenue from these markets listed below, mostly in the Sunbelt (from the February 2021 Investor Presentation):

Source: CPT's February 2021 Investor Presentation

Vital Signs

Camden Property Trust's 3/1/21 closing price was $104.01, giving it a 3.19% dividend yield. The dividend has been raised annually since 2011. The 52-week price range has been $62.48-$115.03.

FFO (funds from operations) were $4.90 per share in 2020, down from $5.04 in 2019. Camden projects 2021 FFO to be from $4.80-$5.20 per share.

In February 2019, Standard & Poor's awarded CPT an A- credit rating with a stable outlook: "The upgrade acknowledges Camden's solid operating results relative to those of its rated peers, the favorable demand drives for multifamily REITs, and the company's commitment to maintaining a strong balance sheet with leverage consistently lower than its multifamily peers."

CPT is financially strong. On 2/5/21, CFO Alex Jessett said in the 2020 Q4 earnings call, "As of today, we have just over $1.2 billion of liquidity comprised of approximately $320 million in cash equivalents and no amounts outstanding on our $900 million unsecured credit facility. ... And we have no scheduled debt maturities until 2022."

Brief History

Camden was founded in 1982 by CEO Ric Campo and President Keith Oden. Along with COO Malcolm Stewart and CFO Alex Jessett, these four have a combined Camden tenure of 125 years. The REIT's initial public offering was in 1993. Some highlights:

• Acquired Paragon Group, Inc in 1997;
• Merged with Oasis Residential, Inc in 1998;
• Merged with Summit Property, Inc in 2005;
• Launched the Camden Multifamily Value Add Fund in 2007, noted on p. 8 of the 2007 Annual Report: "Joint ventures remain a core component of our overall strategy. These collaborations allow us to leverage our operating platform, minimize risk, and reduce our financing commitments. Over the years, we have successfully utilized joint ventures for development and dispositions. Our focus is now on identifying acquisition and development opportunities for Camden’s new Multifamily Value Add Fund."

Strategy

Camden is headquartered in Houston. Their focus is on apartments that appeal to upscale, value conscious professionals in major U.S. urban centers, primarily in the Sunbelt. Typically, they do not build or acquire properties in the highest rent districts of these cities, but in upscale neighborhoods within easy walking distance of the most expensive properties.

The largest net operating income came from D.C. Metro, at 16.1%, followed by Atlanta at 10.0% and Houston at 9.6%. The two smallest NOI contributions were from Austin at 3.4% and Raleigh at 4.4%. CPT is open to expand into several cities not yet in their portfolio, including Nashville, if they can find the right property at the right price.

Source: Camden's February 2021 Investor Presentation

Camden worked for several years to get their S&P credit rating moved from BBB+ to A-. They are conservative and deliberate. Some people have viewed this as a weakness. CEO Ric Campo said he was asked in early March 2020, "Why do you need to have a strong balance sheet?" Two weeks later, "... the stock price goes to $62 bucks from $120. The ... capital markets shut down dramatically, including the unsecured debt market. And ... people started talking about Camden's amazing, strong balance sheet..."

Camden shifts assets over time to its best markets as opportunities arise. The Q4 2020 earnings call indicated acquisitions are expected in underweight areas such as Tampa, Raleigh, Dallas and Denver. Dispositions will come from more concentrated such as Metro D.C. and Houston.

Threats include COVID-19 and the impact of natural disasters. In the Q4 earnings call, Campo explained an expected 40% increase in insurance costs: "In 2020, the U.S. set a record for $20+ billion in natural disasters. Globally, there were $69 billion in natural disasters in 2020."

The Dividend

Camden's dividend has been raised for 10 consecutive years. The 5-year dividend growth rate has been 3.4%. The market consistently awards CPT a premium valuation, which is revealed in the graph below.

CPT's average high yield for the past 5 years was 4.2%, with the highest yield of 5.3% reached in March 2020. The $.83 quarterly dividend ($3.32 annually) and the $104.01 closing price on 03/01/21, gave a 3.19% dividend yield. The market sometimes pushes CPT's price faster than its FFO or dividend growth.

F.A.S.T. Graph

FFO (total green area) and dividends (dark green area) have been in an uptrend since the Great Recession (gray area). CPT's price (black line) dipped below its "normal" Price/FFO ratio (blue line) in 2008-09; 2013-14; and March 2020.

Source: F.A.S.T. Graphs

Investment Thesis

Camden Property Trust was not on my radar until mid-2019 when I discovered that S&P had raised CPT's credit rating earlier that year. The S&P upgrade was unusually complimentary about CPT's commitment to financial discipline. Some REITs "reach for yield" by becoming overly leveraged. I prefer steady, if slower, growth. The market tends to give CPT a premium valuation, so this one may require some time on a watchlist before an attractive buying opportunity presents itself.

Steady growth of FFO and dividends is enhanced by a healthy corporate culture resulting from strong, experienced leadership that fosters a team spirit. Management took care of front line workers in the early days of the pandemic and they took care of residents. Camden assisted residents when the coronavirus hit. CPT's top leaders and the corporation itself made significant contributions to a CPT benevolent fund. Other companies were inspired by Camden's leadership.

After my 2019 study, I put Camden on my watchlist and I made an initial investment in June 2020. CPT represents 3.8% of my personal retirement income portfolio at a cost basis a little less than $90.

Analyst’s Disclosure: I am/we are long CPT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article is for informational purposes only (not a solicitation to buy or sell stocks). Ted is not a registered investment adviser. Kirk Spano is an RIA. Investors should do their own research or consult a financial adviser to determine what investments are appropriate for individual selection. This article expresses my opinions and I cannot guarantee that the information/results will be accurate. Investing in stocks involves risk and could result in losses.