Business Context and Reporting Period
Company: Mid-America Apartment Communities, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2003
Business Overview: The Company owns and operates 125 apartment communities across 12 states, totaling 34,507 units (including unconsolidated joint ventures). The portfolio includes stabilized properties and communities in various stages of lease-up.
Key Financial Metrics
| Metric (in thousands) | Q1 2003 | Q1 2002 |
|---|---|---|
| Total Revenues | $57,759 | $57,168 |
| Net Income | $4,326 | $4,300 |
| Net Income Available to Common Shareholders | $401 | $272 |
| Funds From Operations (FFO) | $14,524 | $13,877 |
| Cash Flow from Operating Activities | $15,942 | $15,346 |
| Cash Flow from Investing Activities | ($24,897) | ($3,444) |
| Cash Flow from Financing Activities | $4,120 | ($11,573) |
| Total Debt (Notes Payable) | $825,776 | $803,703 |
| Cash and Cash Equivalents | $5,759 | $10,594 |
| Weighted Average Interest Rate | 5.0% | 6.3% |
Material Changes vs. Prior Period
- Revenue Growth: Total property revenues increased by approximately $536,000, driven by the acquisition of Green Oaks apartments ($388,000) and communities in development ($686,000), partially offset by a $538,000 decline in revenues from existing communities.
- Expense Trends: Property operating expenses rose by $719,000 due to new acquisitions and development costs. However, interest expense decreased by $727,000, attributed to debt refinancing and lower variable interest rates.
- Occupancy and Rents: Occupancy for 100% owned stabilized units declined to 91.7% from 94.1% in the prior year. Average monthly rent remained flat at $660.
- Acquisitions: The Company acquired The Preserve at Arbor Lakes (284 units) via a joint venture and Green Oaks apartments (300 units) directly during the quarter.
Outlook, Risks, and Management Commentary
- Market Conditions: Management cites general economic weakness and excess apartment supply as primary headwinds. Low interest rates have spurred single-family home purchases, reducing apartment demand. Competitive leasing environments are expected to persist for several quarters.
- Liquidity and Capital Resources: The Company refinanced $147 million of debt maturities in March 2003 using its $550 million FNMA Facility. While current cash flow is sufficient for operations, it is currently insufficient to fully fund shareholder distributions without additional borrowings.
- Derivatives: The Company utilizes interest rate swaps to hedge variable rate debt. Approximately $150 million of variable borrowings are hedged via swaps, and forward swaps are in place for planned refinancings.
- Risks: Key risks include the efficiency of the FNMA Discount Mortgage Backed Securities market, the creditworthiness of FNMA, and the potential for further deterioration in operating performance which could necessitate a reduction in distribution rates.
Investor Verification Checklist
- Debt Maturities: Verify the schedule for the $313 million portion of the FNMA Facility expiring in 2004 and the refinancing strategy.
- Occupancy Trends: Monitor the stabilization timeline for the three communities currently in lease-up (Grand View, Reserve at Dexter Lake II & III) and their impact on FFO.
- Interest Rate Exposure: Assess the remaining $268 million of unhedged variable rate debt under the FNMA Facility against potential rate hikes.
- Distribution Coverage: Confirm whether operating cash flow after capital expenditures will improve sufficiently to cover distributions without increasing leverage.
- Joint Venture Performance: Review the financial performance of the unconsolidated joint ventures (CH/Realty and Blackstone) which represent a significant portion of the portfolio's unit count.