Business Context and Reporting Period
Company: Mid-America Apartment Communities, Inc. (MAAC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2002
Business Overview: MAAC owns and operates 122 apartment communities across 12 states, comprising 33,434 units (including a 33.3% interest in a joint venture). The company operates as a Real Estate Investment Trust (REIT).
Key Financial Metrics
| Metric | Q1 2002 | Q1 2001 |
|---|---|---|
| Total Revenues | $55.96 million | $56.61 million |
| Net Income | $4.30 million | $4.86 million |
| Net Income Available to Common Shareholders | $0.27 million | $0.83 million |
| Earnings Per Share (Basic) | $0.02 | $0.05 |
| Funds From Operations (FFO) | $13.88 million | $14.14 million |
| Net Cash Provided by Operating Activities | $15.35 million | $18.98 million |
| Total Debt (Notes Payable) | $783.61 million | $779.66 million |
| Cash and Cash Equivalents | $12.52 million | $12.19 million |
| Weighted Average Interest Rate | 6.3% | 7.1% |
| Occupancy Rate (Non-development) | 94.1% | 94.9% |
Material Changes vs. Prior Period
- Revenue Decline: Total property revenues decreased by approximately $622,000. This was driven by a $921,000 reduction due to property dispositions in 2001 and a $510,000 decrease in same-store communities, partially offset by $809,000 in revenue from new development communities.
- Expense Increases: Property operating expenses rose by $385,000, primarily due to costs associated with development communities ($183,000) and same-store communities ($513,000).
- Interest Expense Reduction: Interest expense decreased by approximately $1.1 million due to debt refinancings and lower variable rates, reducing the weighted average interest rate from 7.1% to 6.3%.
- Capital Expenditures: Investing cash outflows for construction dropped significantly to $545,000 from $4.95 million in the prior year, as the company neared completion of its $300 million development program.
- Stock Repurchases: The company repurchased $2.42 million of common stock in Q1 2001 but made no repurchases in Q1 2002.
Guidance, Outlook, and Risks
- Development Outlook: Management expects three communities currently in lease-up to stabilize in 2002. One property under construction (Reserve at Dexter Lake III) is forecast to stabilize late in 2002. The company anticipates funding an additional $128,000 to complete this project.
- Liquidity and Debt: The company holds $291.7 million of a $295 million secured credit facility (FNMA Facility) and $10 million under an unsecured facility. It has $11.6 million in debt maturing in 2002 and approximately $151 million maturing in 2003, which it plans to refinance.
- Preferred Stock: Beginning December 2003, holders of Series E Preferred Stock ($25 million) have the option to redeem shares for cash or common stock. Management plans to maintain liquidity to redeem these for cash.
- Accounting Changes: The company adopted FASB Statement No. 142 effective January 1, 2002, ceasing the amortization of goodwill ($5.8 million unamortized balance).
- Risks: Key risks include dependence on the creditworthiness of FNMA for credit enhancement, potential liquidity constraints if debt markets collapse, and general economic downturns affecting occupancy and rental rates.
Investor Verification Checklist
- Verify the stabilization timeline and occupancy rates for the three communities currently in lease-up and the one under construction.
- Confirm the company's ability to refinance the $151 million in debt maturing in 2003 at comparable interest rates.
- Monitor the credit status of FNMA, which provides credit enhancement for over $300 million of the company's debt.
- Review the impact of the Series E Preferred Stock redemption option in late 2003 on future cash flow requirements.
- Assess the effectiveness of interest rate swaps in hedging the remaining unhedged variable rate debt ($66.7 million).