Mid-America Apartment Communities, Inc. — Q3 2023 Form 10-Q
Business context and period. MAA is a multifamily REIT operating primarily in the Southeast, Southwest and Mid-Atlantic. This filing covers the quarter and nine months ended September 30, 2023. At quarter-end, MAA owned and operated 290 apartment communities and had five developments under construction. MAA conducts substantially all business through Mid-America Apartments, L.P.
Financial performance
- Revenue: Q3 rental and other property revenue was $542.0 million, up 4.1% year over year. Nine-month revenue was $1.606 billion, up 7.7%.
- Same-store operations: Q3 same-store revenue increased 4.1%, supported by 4.5% growth in average effective rent per unit; average physical occupancy was 95.7%, versus 95.8% a year earlier. Same-store property expenses rose 4.7% in Q3. For nine months, same-store revenue rose 7.6% and expenses rose 6.7%.
- NOI and margin: Q3 total net operating income (NOI) was $342.8 million, up 4.1%; NOI margin was approximately 63.2%, broadly unchanged from 2022. Nine-month NOI was $1.030 billion, up 8.5%, with margin of approximately 64.2%, versus 63.7%. NOI is a non-GAAP measure.
- Profit and EPS: Q3 net income was $113.7 million, compared with $125.7 million; net income available to MAA common shareholders was $109.8 million, down 9.5%, and diluted EPS was $0.94 versus $1.05. Nine-month net income available to common shareholders was $389.6 million, down 11.7%; diluted EPS was $3.34 versus $3.82.
- FFO: Q3 Core FFO attributable to common shareholders and unitholders was $274.9 million, up from $259.5 million. Nine-month Core FFO was $820.4 million versus $733.5 million. Both FFO measures are non-GAAP.
- Cash flow: For the nine months, operating cash flow was $872.3 million, versus $807.3 million; investing cash outflow was $428.5 million, versus $414.6 million; and financing cash outflow was $329.4 million, versus $469.7 million. Cash and restricted cash totaled $175.3 million at September 30.
- Debt and liquidity: Debt was $4.394 billion, comprising $4.034 billion unsecured and $360.1 million secured; the weighted-average effective rate was 3.4%, and all outstanding debt was fixed-rate. Net debt to trailing-twelve-month Adjusted EBITDAre was 3.4x, versus 3.7x at year-end 2022. The company reported $1.4 billion of unrestricted cash and available revolver capacity; its $1.25 billion revolver had no borrowings, with $4.5 million of capacity supporting letters of credit. No commercial paper was outstanding at quarter-end.
- Balance sheet: Total assets were $11.382 billion and total equity was $6.304 billion at September 30, 2023. Common dividends declared during the first nine months were $4.20 per share; the current annual dividend rate was $5.60 per share.
Changes, outlook and notable items
- Revenue growth did not translate into higher GAAP earnings. Q3 other non-operating expense included an $11.3 million non-cash loss from the preferred-share embedded derivative and $6.6 million of non-cash investment losses. Nine-month 2023 results also lacked the $132.0 million gain on apartment-community sales recorded in the prior-year period.
- Management reported solid apartment demand and rent growth, but noted elevated new supply affecting rent growth in some markets, with pressure expected to persist for several quarters. It also flagged inflation-driven increases in personnel, repairs and maintenance, real estate taxes, insurance and utilities, and elevated borrowing costs. No specific earnings or rent-growth guidance range is provided in this filing.
- Management expects 2023 development, redevelopment, repositioning and recurring capital expenditures to be in line with total capital expenditures in 2022. Five projects comprising 1,970 units had expected total costs of $642.7 million, of which $346.3 million had been incurred; three were expected to complete in 2024 and two in 2025.
- About $750 million of principal obligations were due over the 12 months following September 30, including $350 million of notes due October 2023 and $400 million due June 2024. After quarter-end, the company retired the October $350 million maturity using cash and commercial-paper borrowings. In October it also acquired a 323-unit Phoenix community for approximately $102 million.
- MAA is defending against putative class-action litigation alleging multifamily rent coordination through RealPage software. The company says it believes the claims against it are without merit, but cannot predict the outcome or assure there will be no material effect on results of operations. It had accrued $7.3 million for unresolved legal matters, including defense costs, at quarter-end.
- The company had up to $37.7 million in potential additional capital contributions to five technology-focused limited partnerships, payable if called. Management cited refinancing, interest-rate, operating-cost, housing-supply, development, weather, insurance and legal risks. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether rent growth and occupancy remain resilient as new apartment supply weighs on selected markets, and whether expense growth moderates.
- How the October 2023 $350 million note repayment was funded and the timing and cost of refinancing the $400 million June 2024 maturity.
- Progress, remaining costs and delivery timing for the five developments, alongside ongoing redevelopment and recurring capital needs.
- The effect of the RealPage litigation and any changes to the recorded legal contingency.
- Whether reported Core FFO growth is sustained; compare this non-GAAP measure with GAAP earnings and cash flows, and account for prior-year property-sale gains and non-cash valuation items.