MAA

Business Context and Reporting Period

Company: Mid-America Apartment Communities, Inc. (MAAC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2001
Business Overview: MAAC owns and operates 122 apartment communities across 12 states, comprising 33,291 units (including a 33.3% interest in a joint venture). The company is nearing the completion of a $300 million development program initiated in 1997.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total property revenues increased by approximately $3.96 million for the nine months ended September 30, 2001, compared to the prior year. This was driven by $5.92 million from development communities and $1.17 million from 2000 acquisitions, partially offset by $4.22 million in revenue lost from property dispositions in 2000 and 2001.
• Net Income: Net income available to common shareholders decreased to $10.47 million from $11.50 million in the prior year period. This decline was primarily due to a reduction in gains on property dispositions ($10.06 million in 2001 vs. $10.50 million in 2000) and an increase in interest expense of $2.78 million related to new development funding.
• Operating Expenses: Property operating expenses increased by $1.10 million, largely due to costs associated with new development communities and acquisitions. However, general and administrative costs rose by $412,000, mainly due to transportation costs.
• Occupancy and Rents: Occupancy for non-development units decreased slightly to 94.4% from 95.4% in the prior year. Average monthly rent per unit increased to $657 from $637.

Guidance, Outlook, and Risks

• Development Outlook: The company anticipates requiring approximately $6.56 million in additional funding during the remainder of 2001 and the first quarter of 2002 to complete its current development program.
• Liquidity: Management believes cash provided by operations is adequate to meet operating requirements and REIT distribution obligations. The company maintains $37.7 million in available borrowing capacity under secured credit facilities.
• Debt Management: In July 2001, the company refinanced $14.5 million in mortgages and a $39.6 million loan, and fixed the rate on an additional $25 million of its Fannie Mae facility at 6.3% for seven years. The company utilizes interest rate swaps to hedge variable rate debt exposure.
• Accounting Changes: The company is preparing to adopt FASB Statements No. 141 (Business Combinations) and No. 142 (Goodwill and Other Intangible Assets) effective January 1, 2002. This will require testing goodwill for impairment rather than amortization, though the specific financial impact is not yet estimable.
• Risks: Forward-looking statements are subject to risks including economic downturns, competitive overbuilding, construction delays, interest rate fluctuations, and increases in insurance rates or real estate taxes.

Investor Verification Checklist

• Disposition Gains: Verify the sustainability of earnings given the significant reliance on "Gain on dispositions" ($10.06 million for the nine months) which is non-recurring.
• Development Completion: Confirm the timeline and cost to complete the remaining $6.56 million of the development program and the projected lease-up rates for these units.
• Debt Maturity Profile: Review the weighted average maturity of 11.3 years and the specific terms of the $775.5 million debt portfolio, particularly the variable rate portion ($66.4 million floating).
• FFO vs. Net Income: Analyze the divergence between Net Income ($10.47 million) and Funds From Operations ($42.83 million) to understand the impact of depreciation and non-cash items on reported profitability.
• Accounting Standard Impact: Monitor the impact of the upcoming adoption of FASB 141 and 142 on goodwill valuation and potential impairment charges in the 2002 fiscal year.