Mid-America Apartment Communities, Inc. (MAA) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. MAA is a multifamily REIT operating primarily in the Southeast, Southwest and Mid-Atlantic. At quarter-end, it owned and operated 290 apartment communities and had six developments under construction. MAA owned 97.4% of its operating partnership.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Rental and other property revenue | $535.1 million | $495.0 million | $1,064.2 million | $971.1 million |
| Net income available to MAA common shareholders | $144.8 million | $209.8 million | $279.8 million | $319.7 million |
| Diluted earnings per common share | $1.24 | $1.82 | $2.40 | $2.76 |
| Same Store NOI | $323.4 million | $297.9 million | $652.4 million | $590.3 million |
| Core FFO attributable to common shareholders and unitholders | $273.3 million | $239.9 million | $545.5 million | $474.0 million |
- Q2 revenue increased 8.1%; Same Store revenue also grew 8.1%. Same Store average effective rent per unit increased 9.3%, while average physical occupancy was 95.5%, versus 95.7% a year earlier.
- For the first six months, revenue rose 9.6%, Same Store revenue 9.5%, and Same Store average effective rent per unit 10.9%. Same Store occupancy was lower than the prior-year period.
- Q2 net income available to common shareholders fell 31.0%, and first-half net income fell 12.5%. A key comparison effect was the $132.0 million gain on sale of two apartment communities in Q2 2022; no apartment communities were sold in the 2023 quarter or first half.
- Core FFO increased 13.9% in Q2 and 15.1% for the first half. This non-GAAP measure excludes certain items and is not a substitute for GAAP earnings or cash flow.
- Q2 property operating expenses excluding depreciation increased 7.0%; Same Store property operating expenses increased 7.2%. Higher taxes, repairs and maintenance, personnel and utilities contributed. Six-month property operating expenses increased 7.4%.
Cash flow, debt and liquidity
- Six-month operating cash flow was $554.1 million, up from $463.9 million. Investing activities used $292.8 million, including $174.3 million for capital improvements and $104.1 million for development. Financing activities used $158.6 million, including $325.0 million of common dividends paid.
- At June 30, total debt was $4.396 billion: $4.033 billion unsecured and $363.3 million secured. Weighted average effective rate was 3.4%; all outstanding debt was fixed-rate. Net debt was $4.246 billion, and net debt to trailing-twelve-month Adjusted EBITDAre was 3.41x, compared with 3.71x at December 31, 2022.
- Cash and cash equivalents were $150.2 million. The $1.25 billion revolving credit facility had no borrowings outstanding, with $4.3 million of capacity supporting letters of credit. Management reported $1.4 billion of combined unrestricted cash and available revolver capacity and expected available resources to meet needs for the next 12 months and foreseeable future.
- Approximately $752 million of principal obligations were identified over the next 12 months, including $350 million of senior notes due October 2023 and $400 million due June 2024. The filing also reports $350.8 million of debt obligations maturing in calendar 2023.
Outlook, risks and unusual items
- Management described apartment demand and rent and collection trends as strong in Q2, but is monitoring inflation, economic conditions and housing supply. Elevated supply may weigh on near-term rent growth in some markets; weaker conditions could pressure demand, rent growth and collections.
- Inflation and supply-chain pressures increased operating costs, particularly personnel, repairs and maintenance, and real estate taxes; management said pressure may continue. Borrowing costs remained elevated, with near-term persistence expected.
- Six developments comprise 2,310 planned units, with estimated total costs of $735.0 million; $391.5 million had been incurred by June 30. Expected completions: one in 2023, three in 2024 and two in 2025. For 2023, total development, redevelopment, repositioning and recurring capital expenditures were expected to be in line with 2022 total capital expenditures.
- The current annual common dividend rate was $5.60 per share; future dividends remain subject to board approval and business and REIT-related considerations. No specific earnings or FFO guidance is provided in the supplied filing text.
- MAA is a defendant in putative class-action litigation alleging apartment owners and operators used RealPage revenue-management software to inflate rents. The company says the claims against it are without merit and intends to defend them; the outcome is uncertain, and the filing says it cannot assure there will be no material effect on results.
- Other non-operating income included non-cash fair-value gains on the preferred-share embedded derivative and investments. The filing also identifies $39.6 million of possible future capital contributions to technology-focused limited partnerships if called.
Investor verification points
- Track Same Store rent growth, occupancy, concessions and collections against changing apartment supply and economic conditions.
- Assess expense growth—especially real estate taxes, insurance, personnel and maintenance—and its effect on NOI.
- Review refinancing plans and costs for the 2023 and 2024 note maturities, plus the availability and terms of credit facilities.
- Monitor development budgets, completion and lease-up progress, and planned capital spending.
- Follow the RealPage litigation, potential exposure and any changes to recorded legal accruals.
- Separate recurring operating performance from prior-year property-sale gains and current-period non-cash derivative and investment valuation items.