Reuters logo
Fitch Affirms Camden Property Trust at 'A-'; Outlook Stable
November 29, 2017 / 8:53 PM / 18 days ago

Fitch Affirms Camden Property Trust at 'A-'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, November 29 (Fitch) Fitch Ratings has affirmed the ratings for Camden Property Trust (NYSE: CPT), including the company's Issuer Default Rating (IDR) at 'A-'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS CPT's 'A-' IDR reflects the issuer's appropriately low leverage for the rating and Fitch's expectation that the issuer has the willingness and capacity to maintain it through-the-cycle. Fitch views CPT as having strong access to capital, although not necessarily market leading access typically associated with other 'A' category REITs. This relative difference is mitigated in part by the government-sponsored enterprise's multifamily platforms that limit consequences of differences in access to unsecured debt capital and by lower leverage than other similarly rated issuers. LOWEST LEVERAGE IN THE SECTOR WITH CAPACITY TO SUSTAIN CPT's 'A-' IDR is predicated on the expectation that the issuer will operate with leverage between 4.0x to 5.0x through-the-cycle. CPT's focus on markets with lower physical and zoning barriers to entry and therefore more volatile operating cash flows relative to peers necessitate operating with lower leverage. CPT's leverage is typically one of the lowest for multifamily REITs; however, Fitch recognizes this is influenced by Camden acquiring and developing in higher-cap rate markets. Fitch projects leverage will sustain in the mid-4x's through 2019, assuming positive but decelerating operating fundamentals (2.3% and 1.8% SSNOI growth in 2017 and 2018, respectively) with development spending continuing at somewhat lower levels prospectively. CPT's low leverage level should provide a sufficient cushion to sustain through a downturn similar to the financial crisis. Camden's significant disposition activity in 2016 of $1.2 billion has improved leverage beyond Fitch's prior expectations even after the payment of a special dividend. Camden has been patient with regard to redeploying the proceeds, which signals the issuer's conservatism later in the multifamily cycle, but Fitch expects CPT to be net acquirers over the next few years. Fitch projects fixed-charge coverage (FCC) will sustain in the low-4x range through 2018 as compared to 4.0x, 4.3x, and 4.2x for 2015, 2016 and trailing 12 months (TTM) to 3Q17, respectively. Fitch places less emphasis on recent improvements in FCC given the low interest rate environment. SUN BELT AND DEVELOPMENT FOCUS Camden targets Sun Belt and mid-Atlantic markets, which benefit from migration and job growth but also face lower physical and zoning barriers to entry. Consequently, CPT's same-store net operating income (SSNOI) has grown on average by a slightly lower pace (+3.4% per year from 2004 to 2016 compared to the sector's 3.8% average), with somewhat higher volatility as measured by standard deviation (4.7% to 4.1%, respectively). The company's portfolio is reasonably well-diversified from a geographic perspective, although it is modestly concentrated. Metro Washington DC and Houston comprise approximately 27% of NOI as of 3Q17. Development is a core tenet of Camden's business that generally enhances portfolio quality and competitiveness but can pressure corporate liquidity and leverage. However, unfunded development costs are at a reasonably comfortable level; they comprise only 2.6% of total gross assets at Sept 30, 2017. DERIVATION SUMMARY Camden Property Trust owns a solid portfolio of multifamily apartment properties in the SunBelt region of the United States. The company has the lowest leverage of any REIT in the multifamily sector but has a one notch lower rating (A/Stable) than its peer, EQR, which is a much larger company with market-leading access to capital and a bi-coastal focus, albeit higher leverage than CPT. Mid-American Apartment Communities' (MAA) 'BBB+' rating reflects the post-merger strength of legacy Post Properties and MAA assets across the Sunbelt region. Despite the larger portfolio and increased diversification, MAA maintains higher leverage and weaker demonstrated access to capital than CPT. Other multifamily peers Essex Property Trust (BBB+/Stable) and AIMCO (BBB-/Stable) are primarily focused on the coastal U.S., and both operate with higher leverage. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: --Operating fundamentals will remain positive but moderate towards historic averages while maintaining operating margins; --Low single-digit growth annual SSNOI through 2019; --Expectation of being a net buyer in 2018. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action --Fitch's expectation of leverage sustaining below 4.5x; --Fitch's expectation of fixed-charge coverage sustaining above 3.5x. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action --Fitch's expectation of cost-to-complete development sustaining above 10% of gross asset value; --The funding of development primarily via debt incurrence; --Fitch's expectation of leverage sustaining above 5.5x; --Fitch's expectation of FCC sustaining below 2.5x; --Fitch's expectation of liquidity coverage sustaining below 1.0x. LIQUIDITY Strong Liquidity Camden has a strong liquidity coverage ratio of 2.4x for the period Oct. 1, 2017 through Dec. 31, 2018 with a manageable debt maturity schedule and expected development of $197.9M. In addition, as of Sept. 30, 2017, Camden has not drawn on its $600million revolving credit facility, leaving ample liquidity for the company on top of its $350 million of unrestricted cash. Fitch calculates liquidity as sources (unrestricted cash, availability under the $600 million unsecured revolving credit facility due 2019 and an estimated $155 million of retained cash flow from operations per year) to uses (debt maturities, development expenditures and recurring maintenance capital expenditures). CPT's liquidity is further supported by its low dividend payout ratio (70%-80% over the past four years) and the size of its unencumbered pool. Unencumbered assets cover unsecured debt by 3.7x assuming a stressed 8.5% cap rate. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: Camden Property Trust --IDR at 'A-'; --Unsecured revolving credit facility at 'A-'; --Senior unsecured notes at 'A-'. Rating Outlook is Stable. Contact: Primary Analyst Peter Siciliano Director +1-646-582-4760 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Stephen Boyd, CFA Senior Director +1-212-908-9153 Committee Chairperson Britton Costa Senior Director +1-212-908-0524 Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below: --Historical and projected recurring operating EBITDA is adjusted to add back non-cash stock based compensation, a one-time hurricane expense, and include operating income from discontinued operations; --Fitch has adjusted the historical and projected net debt by assuming the issuer requires $1 million of cash for working capital purposes which is otherwise unavailable to repay debt. Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below