Mid-America Apartment Communities, Inc. (MAA) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet figures are as of March 31, 2024. Comparisons are with Q1 2023 unless stated otherwise. Dollar amounts below are in millions except per-share data. MAA is a multifamily REIT operating primarily in the Southeast, Southwest and Mid-Atlantic; it owned and operated 290 communities and had five developments under construction.
Financial performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Rental and other property revenue | $543.6 | $529.0; up 2.8% |
| Net income | $147.6 | $139.6 |
| Net income available to MAA common shareholders | $142.8; $1.22 diluted EPS | $135.0; $1.16 diluted EPS |
| Same Store revenue | $519.6 | $512.4; up 1.4% |
| Same Store NOI | $334.6 | $336.9; down 0.7% |
| Total NOI | $345.8 | $346.2 |
| Core FFO attributable to common shareholders and unitholders | $266.2 | $272.2; down $6.0 |
| Operating cash flow | $200.3 | $218.3 |
| Cash used in investing / financing | $(93.0) / $(94.3) | $(138.4) / $15.0 |
Balance sheet, debt and liquidity
- Total assets were $11.47 billion; net real estate assets were $11.14 billion. Total equity was $6.26 billion.
- Total debt was $4.62 billion, comprising $4.26 billion unsecured and $360.2 million secured debt. Net debt was $4.57 billion, and net debt to trailing-twelve-month Adjusted EBITDAre was 3.6x.
- Debt had a 3.6% weighted-average effective rate and 7.2-year average maturity. 94.9% of outstanding debt was fixed-rate; $235 million of commercial paper was variable-rate at a 5.6% effective rate.
- Cash and cash equivalents were $54.6 million, with $13.5 million restricted cash. The company reported $1.1 billion of combined unrestricted cash and available revolving-credit capacity. The $1.25 billion revolver had no borrowings, with $4.5 million of capacity supporting letters of credit.
- Approximately $635 million of principal obligations mature in 2024, including $400 million of senior notes due June and $235 million of commercial paper due April. Including 2024 interest payments, reported debt and debt-service obligations were $745.7 million.
Material changes and operating drivers
- Revenue increased 2.8%, while property operating expenses excluding depreciation rose 8.2% to $197.8 million. Same Store expenses increased 5.4%, including higher real estate taxes, personnel, insurance, office operations and utilities.
- Same Store effective rent per unit rose 1.5%, while average physical occupancy eased to 95.3% from 95.5%. Management cited solid demand, high leasing traffic, low turnover and strong collections, but said elevated new supply was weighing on rent growth in some markets.
- Interest expense increased $3.1 million to $40.4 million, reflecting an 18-basis-point increase in the effective interest rate and higher average debt.
- Other non-operating income was $23.5 million versus $3.5 million. Q1 2024 included a $13.1 million noncash gain on the embedded preferred-stock derivative, a $5.2 million net investment gain and $5.1 million of net casualty recoveries. These unusual items helped lift GAAP earnings; Core FFO declined.
- Operating cash flow fell $18.1 million, primarily due to timing of cash payments. Investing outflows declined as development and capital-improvement spending was lower and there were no property acquisitions or dispositions in Q1 2024.
- In January, the company issued $350 million of senior notes due March 2034 at a 5.0% coupon (5.123% effective rate); proceeds were used to repay commercial paper borrowings.
Outlook, risks and contingencies
- Management expects 2024 total capital expenditures for development, redevelopment, repositioning and recurring replacements to be in line with 2023. Five developments comprise 1,970 planned units; expected total costs are $647.3 million, of which $445.6 million had been incurred by quarter-end. Three projects are expected to complete in 2024 and two in 2025.
- Management expects 2024 common dividends at an annual rate of $5.88 per share, subject to board approval and business conditions. The Q1 declared rate was $1.47 per share.
- Management expects operating cash flow, cash, borrowing capacity and access to debt and equity markets to meet liquidity needs for the next 12 months and foreseeable future. It noted elevated borrowing costs and inflation-driven operating-cost pressures, particularly taxes and insurance. Management believes lower supply deliveries expected late in 2024 and in 2025 may support a rent-performance rebound, but this is uncertain.
- Risks include apartment supply and demand, rent and occupancy trends, inflation and operating costs, interest rates and refinancing, development delays or cost overruns, insurance and catastrophe exposure, and legal proceedings.
- MAA is among defendants in putative class actions alleging use of revenue-management software to inflate apartment rents. The company says it believes the claims against it are without merit and intends to defend them. Outcome is uncertain; management cannot assure the litigation will not materially affect results. Accrued loss contingencies for unresolved legal matters were $7.5 million.
- The company had up to $32.8 million of potential capital contributions to technology-focused limited partnerships if called. No material changes to previously disclosed risk factors or market risk were reported; management said disclosure controls were effective.
Most important facts for investors to verify
- Whether Same Store rent growth can improve as supply pressures evolve, and whether occupancy remains stable.
- Whether expense growth—especially taxes, insurance and personnel—continues to outpace revenue growth.
- Plans and funding for the 2024 debt maturities, and the effects of refinancing at prevailing interest rates.
- Development spending, delivery schedules, lease-up and returns on the five projects under construction.
- The effect of noncash derivative and investment gains and casualty recoveries on reported earnings versus recurring operating performance.
- Developments in the RealPage litigation and any resulting financial exposure.