MAA Q3 2020 Form 10-Q Summary
Business and period: Mid-America Apartment Communities, Inc. (MAA) is a multifamily REIT operating primarily in the Southeast, Southwest and Mid-Atlantic. This filing covers the quarter and nine months ended September 30, 2020. MAA owned and operated 299 apartment communities across 16 states and the District of Columbia; six developments totaling 1,940 planned units were under construction. MAA owned 96.6% of its operating partnership.
Financial results and key metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Rental and other property revenue | $423.2 million | $415.6 million | $1,254.3 million | $1,224.2 million |
| Net income available to MAA common shareholders | $59.0 million | $77.7 million | $168.9 million | $201.5 million |
| Diluted earnings per common share | $0.52 | $0.68 | $1.47 | $1.77 |
| Same Store revenue | $397.6 million | $389.6 million | $1,179.9 million | $1,147.9 million |
| Same Store NOI | $238.7 million | $241.4 million | $730.7 million | $717.2 million |
| Core FFO, non-GAAP | $185.9 million | $185.0 million | $565.9 million | $543.2 million |
Q3 total NOI was $253.4 million, or approximately 59.9% of property revenue, compared with $256.1 million, or 61.6%, a year earlier. Net income fell 24.1% in Q3 and 16.2% year to date; management attributed much of the comparison to noncash changes in the embedded derivative in MAA’s preferred shares. Core FFO increased 0.5% in Q3 and 4.2% year to date.
For Q3, Same Store revenue rose 2.1%, while Same Store NOI declined about 1.1%. Average effective rent per unit increased 1.8%, but average physical occupancy declined to 95.6% from 96.1%. Q3 Same Store property operating expenses rose 7.2%, including higher real estate taxes, insurance, utilities and marketing.
Cash flow and liquidity: Nine-month operating cash flow was $643.9 million, versus $621.5 million. Investing activities used $293.2 million, primarily reflecting $288.2 million for capital improvements, development and other costs. Financing activities used $393.7 million. At September 30, cash and cash equivalents were $18.4 million, plus $9.2 million restricted cash.
Debt: Total debt was $4.43 billion, at a 3.7% weighted-average effective rate; 99.2% of outstanding debt was fixed-rate. Unsecured debt was $3.94 billion and secured debt $486.2 million. The $1.0 billion revolving facility had no borrowings outstanding, with $3.4 million of capacity supporting letters of credit; commercial paper outstanding was $35 million. Fixed-rate debt had a weighted-average 7.9-year maturity. Estimated fair value of fixed-rate debt exceeded carrying value ($4.9 billion versus $4.4 billion).
Material changes and financing
- MAA issued $450 million of 1.700% senior notes due February 2031 in August, receiving net proceeds of approximately $444.7 million, and retired a $300 million term loan.
- In July, the company repaid $63.6 million of mortgages at maturity and $72.2 million ahead of their October maturities.
- Interest expense declined to $41.0 million in Q3 from $44.5 million, and to $126.6 million for the nine months from $136.1 million, reflecting lower effective rates, debt repayments and increased capitalized interest.
- Common dividends were $3.00 per share for the first nine months, compared with $2.88 in the prior-year period. No shares were sold under the ATM program during the nine months.
Outlook, risks and contingencies
The filing provides no specific earnings or operating guidance. Management said the pandemic’s duration and economic effects remained uncertain. Q3 rent collections improved slightly from Q2, but management warned that collections could weaken in Q4, while unemployment, restrictions, elevated apartment supply and renewed disruptions could pressure occupancy, leasing and rent growth. Management emphasized portfolio and market diversification, resident payment flexibility and maintaining occupancy through pricing. Access to debt markets had improved for high-credit borrowers, but prolonged market disruption could limit financing or refinancing.
Residents affected by COVID-19 were offered lease amendments providing varying rent-payment flexibility, with late fees and interest waived on deferred rent under those amendments. COVID-related expenses were $0.4 million in Q3 and $3.0 million year to date.
Two Texas class-action late-fee cases had class certification and partial summary-judgment rulings against the company; appeals were being pursued. Management estimated maximum exposure of $54.6 million in one case and $8.4 million in the other, excluding possible prejudgment interest. The aggregate accrual for unresolved legal matters was $7.4 million at quarter-end. Six developments had expected total costs of $459.5 million, of which $264.0 million had been incurred; planned completion dates ranged from 2020 to 2022.
Other notable items include a $14.6 million year-to-date noncash expense from the preferred-share embedded derivative’s fair-value adjustment and a $21.9 million derivative asset balance at quarter-end. Management identified COVID-19 as a material risk to business, financial condition, results and cash flows. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track rent collection, concessions, occupancy and new-lease/renewal rent trends, particularly as pandemic-related protections and resident payment arrangements change.
- Assess whether Same Store expense growth continues to outpace revenue growth and whether NOI margins recover.
- Monitor the Texas class actions, appeal developments, potential exposure and adequacy of accrued legal liabilities.
- Verify development spending, delivery schedules and lease-up progress against the remaining project budget.
- Review debt maturities, commercial-paper refinancing and available revolver capacity alongside the company’s relatively modest cash balance.
- Separate recurring operating performance from noncash derivative movements when evaluating reported earnings and non-GAAP Core FFO.