MID AMERICA APARTMENT COMMUNITIES INC. annual report, FY2023

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Mid-America Apartment Communities, Inc. (MAA) — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text provides limited fourth-quarter operating commentary but not a clear set of quarterly financial results. MAA is a multifamily REIT operating primarily in the Southeast, Southwest and Mid-Atlantic. At year-end it reported 295 consolidated communities and 100,625 units, including five communities under development. MAA owns 97.4% of its Operating Partnership, which holds substantially all real estate assets.

Financial and operating performance

  • Revenue: Property revenues were $2.148 billion, up 6.4% from $2.020 billion in 2022. Same-store revenue grew 6.2% to $2.025 billion.
  • Rental performance: Same-store average effective rent per unit rose 7.0%; average physical occupancy was 95.6%, compared with 95.8% in 2022.
  • Expenses and margins: Property operating expenses, excluding depreciation and amortization, rose 6.1% to $768.1 million; same-store expenses rose 6.5%. Total NOI was $1.380 billion, or approximately 64.3% of property revenues, versus $1.296 billion and approximately 64.2% in 2022. Depreciation and amortization was $565.1 million.
  • Profit: Net income was $567.8 million, compared with $654.8 million in 2022. Net income available to MAA common shareholders was $549.1 million, down 13.4%; diluted earnings per share were $4.71 versus $5.48. Core FFO attributable to common shareholders and unitholders, a non-GAAP measure, increased to $1.098 billion from $1.008 billion.
  • Cash flow: Operating cash flow was $1.137 billion, up $78.7 million. Investing activities used $775.3 million, including $341.2 million for capital improvements and $198.2 million for development. Financing activities used $367.9 million. Cash and cash equivalents at year-end were $41.3 million; cash, cash equivalents and restricted cash totaled $55.1 million.
  • Debt and liquidity: Total debt was $4.540 billion, including $495 million of commercial paper; net debt was $4.499 billion. Net debt to Adjusted EBITDAre was 3.6x, versus 3.7x in 2022. 89.1% of debt was fixed-rate. The company reported $791.8 million of combined unrestricted cash and available revolving-credit capacity; the $1.25 billion revolver had no borrowings outstanding at year-end, with $4.5 million of capacity used for letters of credit.
  • Dividend: MAA paid $5.60 per common share in 2023. Management expected an annualized rate of $5.88 per share in 2024, subject to Board approval and other conditions.

Material changes versus 2022

  • Revenue growth was supported by higher same-store rents, while occupancy eased slightly. Higher supply in some markets was already pressuring rent growth.
  • Same-store operating expenses increased 6.5%, with increases in real estate taxes, repairs and maintenance, personnel, utilities and insurance.
  • Common-shareholder net income declined, principally against a 2022 comparison that included a $214.8 million gain on sales of depreciable real estate. 2022 also included a $29.9 million net casualty gain, primarily related to Winter Storm Uri; 2023 included a $1.0 million net casualty loss.
  • Core FFO rose despite higher property expenses. Interest expense decreased to $149.2 million from $154.7 million, primarily due to a lower average debt balance.
  • MAA sold no apartment communities in 2023, compared with four in 2022. It acquired two apartment communities in 2023 for approximately $210 million and acquired two land parcels for approximately $13 million.
  • Year-end commercial paper borrowings increased to $495 million from $20 million in 2022. MAA retired $350 million of senior notes at maturity in October 2023 and issued $350 million of 5.000% senior notes in January 2024, using the proceeds to repay commercial paper.

Outlook, risks and unusual items

  • Management described fourth-quarter apartment demand as solid, citing prospect traffic and revenue growth, but flagged elevated new supply in certain markets, inflation and general economic uncertainty. It expected supply pressure to continue for several quarters and operating-cost pressures to potentially persist.
  • Five development projects totaling 1,970 units were under construction at year-end, with expected completion dates from 2024 to 2025. Estimated total cost was $647.3 million, of which $391.6 million had been incurred. Management expected 2024 development, repositioning and recurring capital expenditures to be in line with 2023 total capital expenditures; a specific forecast amount was not provided.
  • Material risks include market oversupply and rent pressure, higher taxes and insurance costs, interest rates and refinancing, natural disasters and climate-related property risks, cybersecurity, REIT qualification and regulatory changes.
  • MAA is a defendant in consolidated putative class-action litigation alleging that RealPage and multifamily property owners used revenue-management software to inflate rents. The company disputes the allegations; the litigation was at an early stage and the potential outcome could not be predicted. The filing states that a material effect on results of operations cannot be ruled out. Accrued loss contingencies for unresolved legal matters, including defense costs, were $7.6 million at year-end.
  • Reported earnings included an $18.5 million non-cash gain from remeasurement of the embedded derivative in Series I preferred shares and a $3.5 million net-of-tax gain from investments. The derivative asset was valued at $31.9 million at year-end; its valuation depends on significant market-based assumptions and is sensitive to changes in inputs.
  • Management reported effective disclosure controls and internal control over financial reporting. Ernst and Young issued unqualified opinions on the financial statements and MAA’s internal control over financial reporting.

Important facts for investors to verify

  • Track same-store rent growth, occupancy, concessions and new-apartment supply by market, especially where management reports supply-related pressure.
  • Compare rent growth with property expense growth, particularly taxes, insurance, repairs and personnel costs, and assess the resulting NOI trend.
  • Review refinancing of the $495 million commercial-paper balance and the $400 million of senior notes due in 2024; consider the January 2024 note issuance and its 5.123% effective rate.
  • Assess development budgets, completion schedules, lease-up and returns against the $647.3 million total estimated cost for projects in progress.
  • Monitor the RealPage litigation, related accruals and any updates to the company’s assessment of possible losses.
  • Distinguish GAAP earnings from non-GAAP FFO and Core FFO, and account for the prior-year property-sale and casualty gains when evaluating year-over-year results.
  • Confirm the 2024 dividend rate and capital-spending plans as Board decisions and operating conditions evolve.