Fitch expects Camden to use the net proceeds from the offering for general corporate purposes. Examples include the repayment or refinancing of debt, property acquisitions and development in the ordinary course of business, working capital, investment in financing transactions and capital expenditures.
Camden's next corporate bond maturity is its 5.08% notes due
In addition to the 2024 notes, Fitch currently rates Camden as follows:
--Issuer Default Rating (IDR) 'BBB+';
The Rating Outlook is Positive.
KEY RATING DRIVERS
The Positive Outlook reflects leverage that is approaching levels appropriate for the 'A-' level, along with excellent unencumbered asset coverage of unsecured debt. Other credit strengths are Camden's management team's commitment to maintaining strong credit metrics and the company's proven access to capital. In addition, job growth in many of Camden's markets should support increases in rental rates and EBITDA (though growth is slowing relative to the 2011-2013 period), and fixed-charge coverage is expected to sustain at levels consistent with an 'A-' rating.
Camden targets Sunbelt and mid-Atlantic markets with features such as economic growth that lead to household formation and job growth, an attractive quality of life, and/or high single family home prices making the company's apartments an economical housing choice. Camden's same-store NOI growth through the cycle has been in line with other apartment REITs, a testament to strong asset quality despite lower barriers to new supply compared with more coastal-focused multifamily REITs. Credit concerns center on the development pipeline (cost-to-complete is the highest of the multifamily REITs), which improves asset quality but adversely impacts corporate liquidity.
Camden's leverage was 5.7x for in 2Q'14, which is the lowest of Fitch rated multifamily REITs. Fitch projects that Camden's leverage will be in the low 5x range over the next 12-to-24 months due to same-store NOI growth and incremental EBITDA from new developments. This is expected to be strong for the 'BBB+' rating for a multifamily REIT in Sunbelt markets. In a stress case not anticipated by Fitch in which the company experiences same-store NOI declines that occurred during 2009 - 2010, leverage would approach the mid-6x range, which would be appropriate for a 'BBB+' rating.
The company has consistently sold assets and/or issued equity to improve and maintain leverage since 2009 and targets 5x debt to EBITDA. In addition, Camden has the lowest leverage as a percentage of asset value among multifamily REITs even when adjusting for a slightly above-average capitalization rate used to value its portfolio.
Excellent Unencumbered Asset Coverage
The company has primarily utilized the unsecured bond market for debt financing except during periods of capital market dislocation. Unencumbered assets (2Q'14 unencumbered property NOI divided by a stressed 7.5% capitalization rate) covered net unsecured debt by 3.0x at
Strong Management Team Focused on Credit
Proven Access to Capital
The company has issued
Job Growth Supports Cash Flow and Fixed-Charge Coverage
Job growth in the energy sector particularly is supporting cash flow growth.
Camden's portfolio rent rollover rate was 1.8% on new leases and 6.5% on renewals on average for the trailing 12 months ended
Fixed charge coverage was 3.3x in 2Q'14 pro forma, compared with 3.5x in 2013 and 3.0x in 2012. Fitch projects that fixed charge coverage will remain between 3.5x and 4.0x over the next 12-to-24 months due to organic and development driven EBITDA growth, which is strong for the 'BBB+' level for a multifamily REIT. Fitch defines fixed-charge coverage as recurring operating EBITDA less recurring capital expenditures divided by total interest incurred. In a stress case not anticipated by Fitch in which the company experiences same-store NOI declines that occurred during 2009 - 2010, fixed-charge coverage would remain above 3.0x which would be adequate for a 'BBB+' rating.
Fitch expects Camden's same-store NOI growth to average approximately 3.5% through 2016. The company's same-store NOI growth averaged 3.1% from 2004 through 2Q'14, in line with multifamily peers (3.3%), with slightly higher volatility (standard deviation of 5.1% compared with the peer average of 4%). Fitch attributes this to strong performance subsequent to the Summit acquisition in 2005 as well as weaker performance than peers in 2009. Above average development activity in the previous upcycle led to a decline in single family and multifamily housing fundamentals during the recession. Stronger job growth over the next 12-to-24 months in Camden's markets should lead to more cushion on credit metrics through the cycle.
Large Development Pipeline
Fitch estimates the company's liquidity coverage ratio at 1.1x for the period
The company's AFFO payout ratio was 77.4% in 2Q'14, compared with 73.0% in 2013 and 75.5% in 2012. Based on the current payout ratio, Fitch projects the company will retain nearly
The Positive Outlook centers on Fitch's expectation that Camden's leverage is approaching the low 5x range, which is a level appropriate for the 'A-' rating. The Positive Outlook also incorporates Fitch's projections of unencumbered asset coverage in excess of 3x, and fixed-charge coverage in the high 3x range. However, development continues to negatively impact liquidity coverage.
The following factors may result in an upgrade to 'A-':
--Fitch's expectation of leverage sustaining below 5.25x, which would provide cushion through the cycle at the 'A-' level (pro forma leverage is 5.7x);
--Fitch's expectation of fixed-charge coverage sustaining above 3.5x (pro forma fixed-charge coverage is 3.3x).
The following factors may result in negative momentum on the ratings and/or Rating Outlook:
--Fitch's expectation of cost-to-complete development sustaining above 10% of gross asset value (this metric was 5.6% as of
--The funding of development primarily via debt incurrence, which is not Fitch's current expectation;
--Fitch's expectation of leverage sustaining above 6.0x;
--Fitch's expectation of fixed-charge coverage ratio sustaining below 2.5x;
--Fitch's expectation of liquidity coverage sustaining below 1.0x.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
--'Rating U.S. Equity REITs and REOCs (Sector Credit Factors) (
--'Recovery Ratings and Notching Criteria for Equity REITs' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Criteria for Rating U.S. Equity REITs and REOCs - Effective
Recovery Ratings and Notching Criteria for Equity REITs
Source: Fitch Ratings
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