Camden Property Trust (NYSE:CPT) is a real estate investment trust focusing on multi-family residential apartment communities whose value will largely depend on strong rental markets in the Southern belt of the United States and the propensity of young people to rent.
With strong prospects for economic and population growth in cities such as Washington D.C., Houston, Dallas, Las Vegas, Denver or Tampa, Camden Property Trust is a solid bet on rental growth, high occupancy rates and substantial portfolio development potential.
Young people are more likely to rent going forward
Large parts of Camden Property Trust's net operating income originates in Washington D.C., Florida, Texas and California.
All states are vibrant centers of economic activity and prosperity where people flock to in the pursuit of economic opportunities and all states should see reasonable growth and development in their respective real estate markets going forward.
The real estate crisis of 2008 and its aftermath predominantly hurt young people. Dim employment prospects and lowly paid entry level positions contributed to many young people moving back in with their parents.
Economists phrase this phenomenon differently: They call it 'decreasing household formation'.
The result, however, is the same: Young people moving in with their parents leads to lower household formations. In addition, more young people are putting off their first home purchase which, in turn, results in a higher propensity to rent.
And this is a huge opportunity for Camden Property Trust.
Attractive portfolio characteristics
Looking at Camden Property Trust's portfolio metrics suggests, that the REIT is doing a fairly good job at managing its property portfolio which, at the end of the first quarter 2014 consisted of 183 communities with 64,150 apartment units including development properties.
Total portfolio occupancy stood at 95.6% at the end of the first quarter with Charlotte, Denver, Raleigh or Washington D.C. with particularly high occupancy rates at or above the 96% mark.
In addition to high occupancy and asset utilization rates, Camden Property Trust achieves solid rental growth. In the first quarter of 2014, Camden Property Trust received an average monthly rent of $1,173 per unit which compares against $1,128 in the first quarter of 2013 (+4% y-o-y) and which has been steadily trending upwards throughout the year.
Camden Property Trust's tenants also have a relatively high average household income of $82,000 in Q1 2014 indicating that its target demographic is the well-earning, urban middle class with attractive employment prospects.
Solid guidance underscores justifiable FFO valuation
Camden Property Trust has given a solid FFO and earnings guidance as well as an outlook for the development of some portfolio key performance indicators such as revenue and NOI growth for fiscal year 2014.
The REIT has communicated, that it expects funds from operations of $4.10-4.30 per share in 2014. Since Camden Property Trust currently trades at around $71 per share, the REIT fetches a market valuation of less than 17 times 2014 FFO which isn't too expensive given its high-earning tenant profiles and almost fully let property portfolio.
Furthermore, Camden Property Trust forecasts same property NOI growth of 3.25-5.25% which is generally a respectable growth rate and not easily achieved in such a large-scale property portfolio.
The Foolish Bottom Line
Camden Property Trust is a solid 4% yielder with an attractive property footprint. With younger people displaying a higher propensity to rent going forward, Camden Property Trust should be experiencing solid demand for its apartment communities especially if employment prospects for younger people brighten up.
Further NOI and rental growth in the coming quarters should also translate into higher dividends for shareholders and higher initial yields for investors.