OREANDA-NEWS. August 17, 2015. Fitch Ratings has affirmed the ratings of Camden Property Trust (CPT), including the Issuer Default Rating (IDR) at 'BBB+'. The Rating Outlook remains Positive. A full list of rating actions follows at the end of the release.

KEY RATING DRIVERS
CPT's ratings benefit from the quality of the portfolio, largely favorable operating fundamentals, management's conservatism and track record, and low absolute and relative leverage. The ratings affirmation rather than an upgrade reflects that while Camden's current metrics, as well as those forecast by Fitch in its rating case, are largely consistent with a higher rating, further improvement would allow for rating stability through the business cycle. The short lease term for multifamily REITs increases the importance of having sufficient cushion in key metrics. Higher ratings should be less volatile and able to withstand foreseeable events such as operating cycles. Qualitative factors, such as through-the-cycle access to capital on an absolute and relative basis also play an increasingly important role at higher rating categories.

During the Outlook horizon, Fitch will pay close attention to the company's adherence to its financial policies, including its leverage targets, particularly in the face of supply headwinds (i.e. those in Washington, D.C. and Houston - a combined 28.9% of pro-rata net operating income [NOI]) and its common equity trading at a discount to net asset value. The latter diminishes the likelihood of equity issuances and could result in pressure to engage in share repurchases, in Fitch's view.

The ratings are balanced by the issuer's markets having lower barriers to entry of new supply and the issuer's development platform.

LOWEST MULTIFAMILY LEVERAGE
Fitch projects CPT will operate with leverage in the 5x-5.5x range through 2017, consistent with where it has operated for 2013-YTD. Leverage could trend below 5x should CPT continue to issue equity to partially fund development, although Fitch views this scenario as less likely given the current discount to net asset value (NAV). These levels are materially lower than the 6.4x -7.3x in 2009 - 2011. Fitch attributes CPT's higher leverage in past periods to different operating environments, i.e. the issuer's then focus on book-based metrics and debt-funded development. Given the inherent cyclicality in multifamily REITs, whether CPT's leverage increases back toward past levels in future cycles will be determined in large part by management's commitment to its metrics and the size and funding method of its developments. Moreover, while CPT's leverage is typically one of the lowest for multifamily REITs, Fitch recognizes that this is influenced by CPT acquiring and developing in higher cap-rate markets.

Fitch projects fixed-charge coverage (FCC) will improve towards 4x through 2017 as compared to 3.7x for second quarter 2015 (2Q15) and for the trailing 12 months (TTM) ending Dec. 31, 2014. Fitch places less emphasis on recent improvements in REIT FCC given the low interest rate environment.

Fitch defines leverage as debt less readily available cash-to-recurring operating EBITDA. Fitch defines FCC as recurring operating EBITDA less maintenance capital expenditures-to-total interest incurred.

ADEQUATE LIQUIDITY
CPT has a liquidity ratio of 1.2x for the period July 1, 2015 - Dec. 31, 2016 pro forma for the recently announced extension and expansion of the revolving credit facility (RCF). This ratio compares to approximately 1.4x for the broader REIT sector. CPT's debt maturities are generally well-staggered through the rating horizon. CPT's liquidity position is supported by its manageable dividend payout (75% and 78%, respectively, of 2014 and 2Q15 adjusted funds from operations [AFFO]), and the size of its unencumbered asset pool. Unencumbered assets cover unsecured debt by 2.9x assuming a stressed 8.5% cap rate. Longer-term, CPT's liquidity may be pressured by the staggering of its debt maturities, considering 24% matures in 2019 which is concentrated for a larger, higher-rated REIT.

Fitch calculates liquidity as sources (unrestricted cash of \\$16.5 million, availability under the \\$600 million unsecured RCF due 2019 and approximately \\$75 million of retained cash flow from operating activities per year)-to-uses (total debt maturities, remaining development expenditures and recurring maintenance capital expenditures).

SUN BELT MARKETS AND DEVELOPMENT FOCUS
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. Fitch views such markets as typically having lower physical and zoning barriers to entry. Nonetheless, Camden's same-store NOI growth through the cycle has been generally in line with other apartment REITs (2.5% 1999-2015 vs. 2.8% average for multifamily REITs), albeit with slightly higher volatility as measured by standard deviation (4.9% vs. 4.5%).

Development is a core tenet of Camden's business that generally enhances portfolio asset quality and competiveness but can pressure corporate liquidity. While unfunded development costs comprise 5.4% of gross assets at June 30, 2015, roughly in-line with the peer median at 4.6%, Camden has demonstrated a willingness to operate with larger pipelines (e.g. 10.6% in 2006 and 7.8% in 2014).

FAVORABLE PROPERTY FUNDAMENTALS DESPITE SUPPLY HEADWINDS
CPT's operating fundamentals remain strong with same store (SS) NOI growth of 4.8% YTD, in-line with 4.9% in 2014. Assuming market conditions remain favorable, 2015 will mark the fifth straight year of SSNOI growth exceeding 5%. Moreover, the portfolio is achieving this growth despite supply headwinds in CPT's two largest markets, Washington, D.C. and Houston, TX. Fitch's Base Case assumes operating fundamentals will remain positive with SSNOI growth of 2.5% - 5% through 2017.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for CPT include:

--Accommodative Operating Environment: Fitch assumes CPT's operating fundamentals will remain positive, moderating towards historical averages while maintaining recurring operating EBITDA margins;
--Capital Recycling: Fitch assumes any investments will be offset with a similar amount of dispositions at a negative 100bps spread. Fitch also assumes continued development spending of \\$300 million per year through 2017 and deliveries of \\$378 million, \\$200 million and \\$300 million in 2015, 2016 and 2017, respectively, at a 6% yield;
--Continued Unsecured Issuances: Fitch has assumed that CPT will not issue any common stock but will issue \\$250 million of senior unsecured notes in 2015 and 2017. Common stock issuances could result in leverage improving beyond Fitch's expectations.

RATING SENSITIVITIES

The following factors may have a positive impact on the ratings and/or Outlook:

--Fitch's expectation of leverage sustaining below 5.5x and thus operating between 4.5x-5.5x at the 'A-' level (leverage was 5.4x and 5.1x for the TTM and quarter ended June 30, 2015);
--Fitch's expectation of fixed-charge coverage sustaining above 3.5x (FCC was 3.5x and 3.7x for the TTM and quarter ended June 30, 2015).

The following factors may result in negative momentum in the ratings and/or Outlook:

--Fitch's expectation of cost-to-complete development sustaining above 10% of gross asset value (this metric was 5% as of June 30, 2015);
--The funding of development primarily via debt incurrence;
--Fitch's expectation of leverage sustaining above 6.0x;
--Fitch's expectation of FCC sustaining below 2.5x;
--Fitch's expectation of liquidity coverage sustaining below 1.0x.

FULL LIST OF RATING ACTIONS

The ratings were affirmed as follows:

Camden Property Trust
--IDR at 'BBB+';
--Unsecured revolving credit facility at 'BBB+';
--Senior unsecured notes at 'BBB+'.

The Rating Outlook is Positive.