Summary
- Camden Property Trust owns 167 high-quality multifamily communities in 15 strong U.S markets, primarily in the Sun Belt.
- The REIT’s balance sheet is unusually strong and Standard & Poor’s raised its credit rating to A- in February, 2019.
- The company’s management team has a long, consistent tenure and has developed a successful corporate culture.
Our SWOT analysis is meant to serve as a baseline for doing research on companies that we might invest in at certain prices. As Warren Buffett has repeated many times, only by getting to know a company’s business, can we start to understand whether or not to invest our hard earned money.
Introduction to Camden Property Trust
Camden Property Trust (CPT) develops, acquires and manages high-quality multifamily apartment communities in geographically diverse U.S. markets characterized by high-growth economies, strong employment and attractive quality of life. As of December 31, 2018, Camden owned interests in, operated, or was developing 167 properties with 56,858 apartment homes.
Camden operates in 15 U.S. metropolitan areas coast-to-coast, primarily in the Sun Belt, from Southern California to the District of Columbia. The top four markets contributed 43.9% of CPT’s 2018 net operating income: Metro Washington, D.C. (16.5%), Houston (10.8%), Los Angeles/Orange County (8.5%) and Atlanta (8.1%).
Camden has one of the longest-tenured management teams among REITs. CPT locations are slightly removed from the most expensive neighborhoods for affordability. Camden has diligently paid down debt. S&P raised CPT’s credit rating to A- in February, 2019.
Strengths
Camden Property Trust is a story of leadership, location and relatively low leverage for a REIT.
- Camden, public since 1993, was founded in 1982 by CEO Ric Campo and President Keith Oden. With COO Malcolm Stewart and CFO Alex Jessett, these four have a combined Camden tenure of over 120 years. CPT has grown from a $200 million Texas REIT in 1993 to the sixth largest U.S. apartment REIT with a market capitalization of over $9.3 billion.
- Camden has 1,600 employees. CPT is #19 on Fortune’s 2019 list of 100 Best Companies to Work For. Camden has made the list for 12 consecutive years. CPT’s growth and workplace recognition reflect Camden’s strong, consistent management.
- Camden offers good value by locating its properties a few blocks away from the highest rent areas. Apartments average 956 square feet. The 2018 occupancy rate was 96%, up from 95% in 2017, and average monthly rent was $1,502 in 2018, up from $1,447 in 2017.
- Camden’s S&P credit rating of A- reflects the company’s intention to be in a strong financial position in the late phase of this economic cycle.
Weaknesses
Over time, Camden should add more assets in higher growth markets, assure shareholders that the company has a solid succession plan, and lower the average age of its properties.
- Camden’s property portfolio is overweight in two of their slower-growth metro areas: Washington, D.C and Houston (company headquarters).
- Camden’s Board annually reviews CPT’s corporate governance and succession planning. Given senior management’s strength and longevity, shareholders need confidence that a solid succession plan is in place.
- The company’s Sustainability Report addresses company progress on environmental, social and governance issues. At some point, Camden could separate the duties of Chairman and CEO. Ric Campo would be an excellent non-executive Chairman.
- The 2018 Form 10-K indicates that Camden has 45 properties aged 10 years or less, 80 properties aged 11-20 and 36 properties older than 20 years. What is CPT’s strategy for redeveloping or replacing older properties?
Opportunities
Camden’s properties are located where the REIT can grow through both new construction and acquisitions, supported by strong financials–a powerful advantage during the late stages of an economic cycle.
- The company’s geography (Sun Belt, urban/suburban), economy (a relatively low 18.6% average rent-income ratio) and demographics (largest age group is 25-34) provide a solid foundation for growth.
- Camden has achieved a good balance of new construction and acquisition of existing properties.
- CPT has lowered debt to prepare for opportunistic acquisitions of attractive properties when the next recession causes financially weaker REITs to sell.
- 98% of Camden’s debt is unsecured and 99% of assets are unencumbered, giving CPT strong flexibility to finance future growth.
Threats
Camden faces the threat of a general economic downturn and threats such as regulations, taxes, competition, climate or geological disasters and breaches to security.
- Camden enjoys strong job markets and high renter incomes. This long economic expansion will someday cease. Recession is a major threat.
- CPT was unhurt by Hurricane Harvey in 2017, but severe weather or geological disasters remain a threat.
- Among the risk factors cited in Camden’s 2018 Form 10-K, the greatest threats appear to be economic, such as lower employment and higher interest rates.
- Threats include cyber-security breaches and mischief by individuals and terrorist groups.
Long-Term Camden Property Trust Outlook
Camden has strong leadership, operates in growing markets with attractive demographics and is in excellent financial condition.
Watch for a management succession plan. Watch for signs of weakening job markets in Camden’s areas. Watch for changes in marriage/family trends. Watch for evidence of continued debt reduction to further strengthen Camden’s balance sheet.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article was written by Ted Leach (Dividend Sleuth) with input from Kirk Spano and David Zanoni. The article is for informational purposes only (not a solicitation to buy or sell stocks). Ted is not a registered investment adviser. Investors should do their own research or consult a financial adviser to determine what investments are appropriate for their individual situation. 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.
