Mid-America Apartment Communities, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 14, 2023. This annual filing covers MAA and its 97.3%-owned operating partnership. MAA is a multifamily REIT focused on the Southeast, Southwest and Mid-Atlantic. It reported 297 communities, including developments, with 99,676 units across 16 states and the District of Columbia.
Key financial and operating metrics
| Metric | FY2022 | Comparable period / change |
|---|---|---|
| Property revenue | $2.020 billion | +$241.8 million; +13.6% year over year |
| Net income available to MAA common shareholders | $633.7 million; $5.49 basic EPS | $530.1 million; $4.62 basic EPS in 2021; net income increased 19.6% |
| Funds from operations (FFO), attributable to the Company | $972.8 million | $853.4 million in 2021 |
| Core FFO | $1.008 billion | $830.6 million in 2021 |
| Operating cash flow | $1.058 billion | $895.0 million in 2021 |
| Investing / financing cash flow | $(405.2) million / $(722.8) million | 2021: $(253.6) million / $(546.4) million |
| Debt | $4.415 billion carrying value | $4.517 billion at year-end 2021; weighted average effective rate 3.4% |
| Cash and liquidity | $38.7 million cash and equivalents; $61.1 million including restricted cash | $1.3 billion of unrestricted cash plus available revolving-credit capacity reported |
Same Store revenue rose 13.5% to $1.925 billion; Same Store NOI increased to $1.243 billion from $1.062 billion. Same Store average effective rent per unit grew 14.6%, while average physical occupancy eased to 95.7% from 96.1%. The overall portfolio’s average physical occupancy was 95.3%.
Property operating expenses excluding depreciation and amortization increased 7.8% to $723.7 million. Depreciation and amortization was $543.0 million, property management expense $65.5 million, general and administrative expense $58.8 million, and interest expense $154.7 million. Same Store NOI divided by Same Store revenue was approximately 64.6%; this is a derived ratio, not a GAAP margin reported by the company.
Material changes versus 2021
- Revenue growth was led by rent increases; the occupancy decline partially offset effective-rent gains.
- Operating costs increased, particularly real estate taxes, personnel, repairs and maintenance, utilities, and insurance. Same Store property operating expenses increased 7.6%.
- Operating cash flow increased to $1.058 billion. Investing outflows rose, including higher real estate purchases and capital improvements, while development spending declined.
- Net income included $214.8 million of gains on sales of depreciable real estate, $29.9 million of net casualty gain (primarily insurance proceeds related to Winter Storm Uri), $35.8 million of non-cash investment losses net of tax, and $21.1 million of non-cash loss from revaluing the preferred-stock embedded derivative.
- MAA sold four apartment communities totaling 1,414 units and acquired two communities totaling 540 units. It also completed three development projects and had six developments under construction.
Outlook, risks and unusual items
- Management said apartment demand moderated in the second half of 2022 but rent growth remained strong. It cautioned that inflation, economic weakness and elevated housing supply could weaken collections, demand and rent growth, while operating-cost pressures could persist.
- Management expected 2023 capital expenditures for development, redevelopment, repositioning and recurring replacements to be in line with 2022 levels. Six projects under construction represented 2,310 units and $728.7 million in expected total costs; $291.7 million had been incurred by year-end 2022.
- Management expected a 2023 annual common dividend rate of $5.60 per share, compared with $4.675 per share distributed in 2022. The Board retains discretion to change dividends.
- Debt maturities include approximately $369.5 million in 2023. The company had no revolver borrowings at year-end, though $4.3 million of capacity supported letters of credit; the revolving facility was $1.25 billion, with an option to expand to $2.0 billion. Almost all outstanding debt was fixed-rate.
- In January 2023, after year-end, MAA settled forward sale agreements for 1.1 million shares, receiving net proceeds of $203.7 million. This is a subsequent event, not FY2022 cash proceeds.
- MAA is a defendant in a 2022 lawsuit alleging a conspiracy to inflate multifamily rents involving RealPage and other landlords. The company says it will defend the case; its outcome is uncertain, and the filing does not provide a clear estimate of potential exposure. Aggregate accruals for unresolved legal matters, including defense costs, were $10.0 million at year-end.
- Key risks include interest-rate and refinancing exposure, inflation and insurance costs, apartment supply and competition, geographic concentration, severe weather and climate-related costs, cybersecurity, regulation including possible rent controls, REIT qualification, and development delays or cost overruns.
Important facts for investors to verify
- Review the audited financial statements and reconcile GAAP earnings with FFO and Core FFO, which are non-GAAP measures.
- Track Same Store rent growth, occupancy, concessions, collections and new apartment supply as demand moderates.
- Assess the 2023 debt maturity and refinancing costs, covenant headroom, and available liquidity; distinguish unrestricted cash from restricted cash.
- Monitor whether development budgets, timing and projected returns remain achievable, and whether operating-cost inflation outpaces rent growth.
- Follow developments in the rent-setting lawsuit and the company’s legal accruals and disclosures.
- Consider the sustainability of the planned $5.60 annual dividend against operating cash flow, capital needs and debt service. The filing reports effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and MAA’s internal controls.