Mid-America Apartment Communities, Inc. — Q2 2021 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2021. MAA is a multifamily REIT operating primarily in the Southeast, Southwest and Mid-Atlantic; it owned and operated 296 apartment communities and had eight developments under construction. MAA conducts substantially all operations through Mid-America Apartments, L.P. (MAALP), which MAA owned 96.9% of at quarter-end.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Property revenue | $436.9 million | $413.0 million | $861.9 million | $831.1 million |
| Net income available to MAA common shareholders | $215.6 million | $74.1 million | $261.8 million | $109.9 million |
| Diluted EPS | $1.88 | $0.65 | $2.28 | $0.96 |
| Core FFO, non-GAAP | $199.7 million | $188.9 million | $394.2 million | $380.1 million |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $397.3 million | $389.6 million |
Q2 property revenue increased 5.8%; same-store revenue rose 4.7%, while same-store property operating expenses rose 6.3%. Same-store NOI was $257.1 million, up 3.6%; its NOI margin was approximately 61.6%, compared with 62.2% in Q2 2020, based on reported same-store revenue and NOI. Average same-store effective rent per unit increased 3.1%, and average physical occupancy was 96.4%, versus 95.4%.
Six-month property revenue increased 3.7%; same-store revenue rose 3.0% and same-store NOI rose 1.3% to $509.8 million. Same-store operating expenses increased 5.9%. Management cited higher insurance, real estate taxes, utilities and repairs as expense drivers. Core FFO increased 5.8% in Q2 and 3.7% for the six months.
Balance sheet, debt and liquidity
- At June 30, 2021, total assets were $11.24 billion, total liabilities $5.10 billion, and total equity $6.12 billion.
- Total debt was $4.55 billion: $4.19 billion unsecured and $365.9 million secured. Weighted average effective rate was 3.5%; 93.9% of debt was fixed-rate. Debt represented 18.6% of total market capitalization.
- Cash and cash equivalents were $31.9 million, plus $11.1 million restricted cash. The $1.0 billion revolving credit facility had no borrowings outstanding; $3.4 million of capacity supported letters of credit. Commercial paper outstanding was $280 million, within a $500 million program.
- Six-month investing cash outflow was $132.5 million, including $247.5 million of capital improvements, development and other spending, partly offset by $161.8 million of real estate sale proceeds. Financing cash outflow was $257.4 million, including $234.6 million of common dividends. The common dividend was $2.05 per share for the first half, compared with $2.00 a year earlier.
Material changes, outlook and risks
- Reported earnings rose sharply, but Q2 included a $134.8 million gain from selling four communities and $13.2 million of non-cash income from the embedded derivative in preferred shares. These items materially affect comparison with 2020; Core FFO is a non-GAAP measure and should be considered alongside GAAP results.
- Interest expense declined $3.3 million in Q2 and $7.1 million for the six months, which management attributed primarily to lower effective borrowing rates following debt retirements and lower-rate issuances. The company retired a $118.6 million mortgage in February 2021.
- Management reported strong apartment demand and improving rent and collection trends, but noted ongoing COVID-19 uncertainty and elevated supply, particularly in some urban submarkets. No specific full-year earnings or FFO guidance is provided in the supplied filing text. Management expected three developments to complete in 2021, two in 2022 and three in 2023; the eight projects total 2,654 units and have expected costs of $627.5 million, with $326.2 million incurred by June 30.
- Winter Storm Uri caused $37.3 million of casualty losses; management expected most costs to be reimbursed by insurance and recorded a receivable for expected recoveries. The company had renegotiated its property and casualty insurance programs effective July 1, 2021.
- Two Texas class-action late-fee cases remain notable contingencies. Management estimated maximum exposures of $54.6 million and $8.4 million, excluding possible prejudgment interest; aggregate accruals for unresolved legal matters were $5.2 million. The company said it would vigorously defend the cases.
- Other risks include possible rent regulation and eviction restrictions, rising operating costs, development execution, access to financing, interest rates and the LIBOR transition. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification priorities
- Assess recurring performance separately from property-sale gains and preferred-share derivative fair-value effects; compare GAAP earnings with Core FFO.
- Track same-store rent growth, occupancy, collections and expense growth, especially insurance, taxes and repairs.
- Review commercial-paper refinancing and near-term maturities, credit-facility availability, and development spending and completion schedules.
- Monitor insurance recovery for Winter Storm Uri and the outcomes and potential exposure of the Texas class actions.
- Check subsequent disclosures for full-year guidance and developments in COVID-19, supply, rent regulation and eviction policies.