Business Context and Reporting Period
Company: Mid-America Apartment Communities, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2003
Business Overview: The Company owns and operates 126 apartment communities across 12 states, totaling 34,815 units (including joint ventures). Operations are decentralized, with performance evaluated based on Net Operating Income (NOI) per property.
Key Financial Metrics
| Metric (Dollars in thousands) | Six Months Ended June 30, 2003 |
Six Months Ended June 30, 2002 |
|---|---|---|
| Total Revenues | $115,918 | $115,311 |
| Net Income | $9,431 | $9,270 |
| Net Income Available to Common Shareholders | $1,581 | $1,213 |
| Funds From Operations (FFO) | $29,593 | $28,269 |
| Net Cash Provided by Operating Activities | $45,510 | $37,380 |
| Total Debt (Notes Payable) | $833,212 | $803,703 |
| Cash and Cash Equivalents | $17,767 | $10,594 |
| Weighted Average Interest Rate | 5.3% | 6.2% |
Material Changes vs. Prior Period
- Revenue: Total revenues increased slightly by $607,000 (0.5%) for the six months ended June 30, 2003. This was driven by $2.1 million in incremental revenue from new acquisitions and development communities, partially offset by a $1.7 million decrease in revenue from existing communities due to market weakness.
- Expenses: Property operating expenses increased by $1.8 million, primarily due to new acquisitions and higher costs in existing communities. Interest expense decreased significantly by $2.3 million due to refinancing activities and lower variable interest rates.
- Profitability: Net income increased by $161,000. FFO increased by $1.3 million, largely attributed to the reduction in interest expense outpacing the increase in operating costs.
- Occupancy and Rents: Occupancy for 100% owned units declined to 92.4% from 94.9% in the prior year. Average monthly rent increased slightly to $662 from $660.
- Debt Structure: The Company refinanced approximately $151 million of debt maturities, utilizing its $552 million FNMA Facility. The weighted average interest rate dropped from 6.2% to 5.3%.
Outlook, Risks, and Management Commentary
- Market Conditions: Management cites general economic weakness and excess apartment supply as headwinds. Low interest rates have encouraged single-family home purchases, reducing demand for rentals. Competitive leasing environments are expected to persist for several quarters.
- Liquidity: Operating cash flow after capital expenditures is currently insufficient to fully fund distributions at current rates without additional borrowings. The Company relies on the efficiency of financial markets and the creditworthiness of Fannie Mae (FNMA) for liquidity.
- Subsequent Events: In July 2003, the Company sold 5.6 million shares of Series H Preferred Stock. Proceeds are designated to redeem Series A, Series C, and Series B preferred stock in August 2003.
- Risks: Key risks include the potential failure of lease-up properties to stabilize, covenant violations on credit facilities, and the impact of a downturn in the FNMA DMBS market on refinancing capabilities.
Investor Verification Checklist
- Debt Maturities: Verify the schedule for the $315 million portion of the FNMA Facility expiring in 2004 and the Company's refinancing strategy.
- Preferred Stock Redemption: Confirm the execution of the August 2003 redemptions of Series A, B, and C preferred stock using proceeds from the Series H offering.
- Occupancy Trends: Monitor occupancy rates for the two properties currently in lease-up (Grand View Nashville and Reserve at Dexter Lake III) to ensure stabilization occurs in Q3 2003 as projected.
- Interest Rate Exposure: Assess the effectiveness of the $275 million in interest rate swaps and the remaining $128 million of unhedged variable rate debt.
- FFO vs. Distributions: Evaluate the sustainability of current distribution rates given that operating cash flow after capital expenditures does not fully cover them.