Camden Property Trust (NYSE: CPT) is one of the largest publicly traded real estate investment trusts (REITs) focused on multifamily properties. The residential REIT has a well-defined growth strategy, which has enabled it to steadily increase its dividend.
Here's a closer look at where the REIT's strategy has it headed over the next few years.
Where Camden Property Trust is today
Camden Property currently owns 167 communities with 56,851 apartment homes. The REIT has a diversified portfolio by asset class (68% class B and 32% class A), location (63% suburban and 37% urban), building type (63% low-rise, 27% mid-rise, 7% high-rise, and 3% mixed), and geography (14 major U.S. markets). It focuses on high-growth markets that are benefitting from employment and population growth, like those in the Sun Belt region.
The company has a balanced investment strategy, including investing in development, redevelopment, and repositioning projects as well as making acquisitions. The REIT also features a top-tier balance sheet with A-rated credit, giving it the financial flexibility to make those value-creating investments.
Where Camden Property Trust seems headed
Development is a key aspect of Camden's value creation strategy. The REIT has invested $2 billion to develop 31 communities and nearly 9,500 apartment homes over the past decade. These communities currently have an estimated market value of $3.2 billion, implying Camden has created $1.2 billion of value for its shareholders through development.
The company currently has 11 communities with nearly 3,350 apartment homes under construction at a projected cost of $1.2 billion. Those properties are primarily in fast-growing Sun Belt markets. In addition, Camden has five more communities with 1,630 units in the pipeline, representing $610 million of investment potential, also in high-growth markets.
In addition to expanding its portfolio via development projects, Camden will likely continue to make strategic acquisitions. The company made two purchases in the second quarter. It spent $105.3 million to buy a 328-home apartment community in Franklin, Tennessee, just south of Nashville. It also acquired a 430-home apartment community in Nashville for $186.3 million. Those deals were noteworthy because they added the fast-growing Nashville market to Camden's portfolio.
By adding Nashville, Camden now operates in 14 of the 20 fastest-growing markets by population and 13 of the 20 best for job growth. Given its focus on growth markets, it wouldn't be a surprise to see Camden continue to add new ones to its portfolio in the coming years. Potential target markets could include places like San Antonio, Texas; Jacksonville, Florida; and Las Vegas that benefit from the same migration pulls (favorable business climates and weather) as most of its other markets.
Another aspect of Camden's investment strategy is to expand the income of its existing properties. The REIT will invest in repositioning well-located, 15-to 20-year-old communities by upgrading kitchen and bath areas, appliances, flooring, fixtures, and lighting. It has already renovated more than 33,000 apartment homes over the years, enabling it to raise rents by an average of $125 a month, earning a 10% return.
The company will also complete more extensive redevelopments on select properties by also undertaking exterior upgrades. Camden has the inventory to continue making these value-add investments, given its significant portfolio of class B properties.
Camden's strategy should keep paying dividends
Camden Property has created a lot of value for its investors over the years by focusing on high-growth markets. The REIT will likely continue with that winning strategy over the next three years by developing new communities, acquiring ones in high-growth markets, and investing in its existing portfolio. That should enable the company to continue growing its rental income and dividend, making it an excellent apartment REIT to buy and hold.