Business context and reporting period
Mid-America Apartment Communities, Inc. (MAA) is a multifamily REIT operating primarily in the Southeast, Southwest and Mid-Atlantic. This Form 10-K reports the fiscal year ended December 31, 2020; it is an annual report, not a standalone fourth-quarter report. MAA owned 299 consolidated communities with 100,221 units and held an interest in one unconsolidated community with 269 units, across 16 states and the District of Columbia.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Property revenue | $1,678.0 million | $1,641.0 million |
| Net income available to MAA common shareholders | $251.3 million | $350.1 million |
| Diluted earnings per common share | $2.19 | $3.07 |
| Funds from operations (FFO), attributable to MAA | $765.3 million | $773.2 million |
| Core FFO | $761.4 million | $739.2 million |
| Cash from operating activities | $823.9 million | $781.4 million |
| Net cash used in investing activities | $484.7 million | $238.3 million |
Total NOI was $1,037.5 million, compared with $1,028.2 million; NOI as a share of property revenue was approximately 61.8%, versus 62.6%. Same Store average physical occupancy was 95.6%, versus 95.9%, while average effective rent per unit increased 2.6%.
At year-end, total debt was $4.56 billion, with a 3.6% weighted average effective rate and 7.4 years average years to maturity. Approximately 96.2% of debt was fixed-rate. Cash and cash equivalents were $25.2 million, plus $10.4 million of restricted cash. The $1.0 billion revolving credit facility had no borrowings outstanding (letters of credit used $3.4 million of capacity); commercial paper outstanding was $172.0 million. The company reported debt at 31.2% of adjusted total assets and debt equal to 23.3% of total market capitalization.
Material changes versus the prior year
- Revenue rose 2.3%, led by 2.5% Same Store revenue growth, including effective rent growth and the bulk cable internet offering.
- Property operating expenses excluding depreciation increased 4.5% overall and 4.9% in Same Store. Higher real estate taxes, utilities, insurance and marketing were notable contributors.
- Common-shareholder net income declined 28.2% and diluted EPS fell from $3.07 to $2.19. 2019 included $81.0 million of gains on sales of depreciable real estate and $12.0 million of land-sale gains, versus no apartment-community sales and $1.0 million of land-sale gains in 2020. The non-cash preferred-share embedded-derivative income was also lower in 2020 ($2.6 million versus $17.9 million).
- FFO decreased about 1.0%, while Core FFO increased about 3.0%; these are non-GAAP measures and should be considered alongside GAAP results.
- Operating cash flow increased to $823.9 million. Investing cash outflow increased as development and capital-improvement spending rose; 2020 included $426.9 million for capital improvements, development and other, compared with $303.1 million in 2019.
- Common dividends increased to $4.00 per share from $3.84. The company issued $450 million of 1.700% senior notes in August, retired a $300 million term loan, and repaid mortgage debt; year-end total debt was higher than in 2019.
Outlook, management commentary, risks and unusual items
- Management gave no numerical 2021 earnings or operating guidance in the supplied filing text. It expected pandemic-related conditions to continue weighing on rent collections and demand, with new-lease and renewal rent growth potentially below normal; elevated supply could particularly pressure urban communities. Management noted suburban properties had been less affected by new development supply.
- MAA reported providing interest-free rent deferrals to more than 8,000 households and waiving late-payment and lease-termination fees in 2020. Full-year rent collections were lower than in 2019, although collections improved in the second half. The filing does not provide a clear collection-rate figure.
- Eight developments totaling 2,607 units were under construction at year-end, with total budgeted costs of $595.0 million and $335.6 million incurred. Five were expected to complete in 2021, two in 2022 and one in 2023.
- Two Texas tenant class actions concern alleged unlawful late fees. Management estimated maximum exposure of $63.0 million, excluding possible prejudgment interest; accrued loss contingencies for unresolved legal matters totaled $5.3 million. The lawsuits were being appealed and their outcome remained uncertain.
- Other material risks include COVID-19 effects, rent affordability and collections, market supply and competition, operating-cost increases, development execution, refinancing and interest-rate risks, LIBOR transition, natural disasters, regulatory changes, and REIT qualification. The company also disclosed a $19.2 million commitment for possible future contributions to technology-focused partnerships.
- The annual common dividend was $4.00 per share. Management said distributions depend on cash flow, financial condition, capital needs, REIT requirements and Board discretion; continuation at that rate is not assured.
Important facts for investors to verify
- Check subsequent developments and potential financial impact of the Texas late-fee class actions, including the difference between the $63.0 million stated maximum exposure and the $5.3 million aggregate accrual.
- Track rent collections, concessions, occupancy and new-lease and renewal pricing as pandemic effects and apartment supply evolve.
- Review debt maturities and refinancing: the filing lists $363.5 million of debt maturities in 2021, including $172.0 million of commercial paper; also verify the February 2021 repayment of a $118.6 million mortgage.
- Monitor development costs, delivery schedules, lease-up and returns against the $595.0 million development budget.
- Assess dividend coverage using operating cash flow and appropriate REIT measures, while distinguishing GAAP earnings from FFO and Core FFO.
- Consider the filing’s key estimates and unusual non-cash item: the preferred-stock embedded derivative was valued at $39.0 million at year-end, with fair-value changes affecting reported income. Ernst & Young issued unqualified opinions on the financial statements and MAA’s internal control over financial reporting.