A popular way for real estate investment trusts (REITs) to invest in real estate is to own, invest in, or develop multifamily apartments. While there is a slew of residential REITs to invest in, Camden Property Trust (NYSE: CPT) is of notable interest right now because of the company's exposure to markets in the Sun Belt region, a rapidly growing region with massive inward migrations.
But ideal property location alone doesn't guarantee a company is a buy. Let's take a closer look at Camden Property Trust and whether it's a buy in today's market.
A closer look at Camden
Camden Property Trust acquires, develops, owns, and operates multifamily complexes in 14 major metropolitan markets across the U.S. Sun Belt. As of the second quarter of 2021, the company had interest or ownership in 169 apartment communities, a mix of Class A and Class B, high-rise, low-rise, mid-rise, and mixed buildings in both urban and suburban settings.
Roughly 90% of Camden's portfolio is located among the fastest-growing markets for population and job growth. This means the company is favorably positioned for growth from this trend while benefiting from its tenant base of higher-income earners and, largely, millennials, a demographic seeing increased demand for rental housing, particularly in areas in which Camden operates.
When it comes to performance, Camden's most recent is hard to beat. Occupancy rates as of May 2021 were 97%, nearly 3% higher than the same month the previous year. Rental collections are 98.4%, with only 1.6% of their tenants being delinquent, and lease renewals and new-lease sign rates are an impressive 6.5% and 8.9%, respectively.
However, Q1 2021 wasn't off to as great of a start, with earnings per share and adjusted funds from operation (AFFO) down from the same quarter the year prior, largely due to increased expenses.
Camden is projecting a stable performance in 2021, though still below its 2020 performance, largely due to stalling rental rate increases at the current moment. Although it does have seven communities currently under development, which will add 2,608 units to its portfolio and should help increase its revenues over the long term, especially because of its target markets.
It's important to note that share prices are a bit inflated right now, given the company's current performance. Investors are banking on Camden's market locations to perform well over the next decade, pushing its share prices to record-high levels in 2021. That means investors are paying a premium to participate in this growing residential REIT. Given its current dividend return is 2.5%, Camden may not be the right play for every investor.
The Millionacres bottom line
Personally, I believe Camden is a worthwhile buy for a patient investor, but it isn't a screaming buy right now. While performance is down from last year, its Sun Belt-centric portfolio puts it in a great position for growth in the long haul. Coupled with its healthy debt-to-EBITDA ratio of 4.9 times and stable dividend returns, it's definitely a worthwhile buy.