Mid-America Apartment Communities, Inc. (MAA) — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022 unless otherwise noted. 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 | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Rental and other property revenue | $529.0 million | $476.1 million | +11.1% |
| Same Store revenue | $500.0 million | $450.3 million | +11.0% |
| Net income available to MAA common shareholders | $135.0 million | $109.9 million | +22.9% |
| Diluted earnings per share | $1.16 | $0.95 | +22.1% |
| Core FFO attributable to common shareholders and unitholders | $272.2 million | $234.2 million | +16.2% |
| Operating cash flow | $218.3 million | $179.6 million | +21.5% |
Same Store average effective rent per unit rose 12.6%; average physical occupancy eased to 95.5% from 95.9%. Same Store NOI was $328.9 million versus $292.4 million, with a calculated NOI margin of approximately 65.8% versus 64.9%. Total NOI increased to $346.2 million from $306.7 million. Property operating expenses excluding depreciation rose 7.9% to $182.8 million, driven in part by taxes, repairs and maintenance, personnel, and utilities. Interest expense declined to $37.3 million from $39.1 million.
Reported earnings included a $4.4 million non-cash gain from the fair-value adjustment of the embedded derivative in Series I preferred shares, compared with an $11.9 million gain in Q1 2022. Q1 2022 also included $7.6 million of casualty recoveries related to Winter Storm Uri. Core FFO adjusts for certain such non-core items and is a non-GAAP measure.
Balance sheet, debt and liquidity
- Total assets were $11.35 billion at March 31, 2023; total equity was $6.37 billion.
- Total debt was $4.40 billion, comprising $4.03 billion of unsecured notes and $363.7 million of secured mortgages. All outstanding debt was fixed-rate; weighted-average effective rate was 3.4%.
- Cash and cash equivalents were $142.4 million. The $1.25 billion revolving credit facility had no borrowings outstanding, with $4.3 million of capacity used for letters of credit. Management reported $1.4 billion of unrestricted cash and available revolver capacity combined.
- Net debt was $4.25 billion, and net debt to trailing-twelve-month Adjusted EBITDAre was 3.50x, down from 3.71x at December 31, 2022. These are non-GAAP measures.
- Approximately $351.1 million of debt obligations mature in 2023, including $350.0 million of senior notes due in October. The company also reported $121.8 million of remaining 2023 interest payments on fixed-rate debt.
Cash flows and capital allocation
Operating activities provided $218.3 million. Investing activities used $138.4 million, including $75.6 million for capital improvements and $52.9 million for development. Financing activities provided $15.0 million, including $204.1 million of proceeds from settling forward equity sale agreements, partly offset by common dividends paid of $161.7 million. The company issued 1.1 million shares through those settlements for net proceeds of $203.7 million. The current annual common dividend rate is $5.60 per share.
Outlook, risks and notable items
- Management said apartment demand moderated in Q1, while rent growth and rent collection trends remained strong. It cautioned that inflation, economic conditions and elevated housing supply could weaken collections, demand, or future rent growth; expense pressures may continue.
- For 2023, management expects capital expenditures for development, redevelopment, repositioning and recurring replacements to be in line with total capital expenditures in 2022. No specific earnings or revenue guidance is stated in the supplied filing text.
- Six developments totaling 2,310 planned units had expected total costs of $731.5 million, of which $342.6 million had been incurred by quarter-end. Two were expected to complete in 2023, two in 2024 and two in 2025.
- The company is a defendant in 28 putative class actions alleging coordination to inflate apartment rents through revenue-management software. MAA said it believes the claims against it are without merit and will defend them, but cannot predict the outcome; it cannot assure there will be no material effect on results of operations.
- MAA cited risks to financing access and refinancing from higher rates, market disruption and banking-sector volatility. It also identified development execution, operating-cost inflation, insurance, weather and broader real-estate market conditions as risks.
- Management stated that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether rent growth can continue as occupancy slipped and apartment demand moderated, particularly amid elevated new supply.
- Progress on the $731.5 million development pipeline, including costs to complete and scheduled delivery dates.
- Refinancing or repayment plans for the $350.0 million October 2023 note maturity and other near-term obligations.
- The effects of operating-cost inflation and the RealPage litigation, including any material developments or revised loss assessments.
- How much reported earnings reflect recurring property operations versus non-cash derivative marks and other unusual items; review non-GAAP FFO reconciliations alongside GAAP results.