Mid-America Apartment Communities, Inc. (MAA) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. MAA is a multifamily REIT operating primarily in the Southeast, Southwest and Mid-Atlantic. At quarter-end it owned and operated 290 apartment communities, with five developments under construction totaling 1,759 planned units. MAA owned 97.3% of the Operating Partnership.
Financial performance and position
- Q2 revenue: $495.0 million, up 13.3% year over year. Same Store revenue rose 13.7%, led by 14.3% growth in average effective rent per unit.
- Q2 earnings: Net income was $216.6 million versus $223.9 million; net income available to MAA common shareholders was $209.8 million versus $215.6 million. Diluted EPS was $1.82 versus $1.88.
- First-half results: Revenue was $971.1 million, up 12.7%; net income available to common shareholders was $319.7 million, up 22.1%; diluted EPS was $2.76 versus $2.28.
- Property operations: Q2 total NOI was $313.4 million, up 16.9%, or approximately 63.3% of property revenue versus 61.4% a year earlier. First-half NOI was $620.0 million, up 16.8%, or approximately 63.9% of revenue versus 61.6%.
- Non-GAAP measures: Q2 Core FFO was $239.9 million, up from $199.7 million; first-half Core FFO was $474.0 million versus $394.2 million. Management cautions these non-GAAP measures are not substitutes for GAAP results or cash flow.
- Cash flow: First-half operating cash flow was $463.9 million versus $397.3 million. Investing used $57.8 million and financing used $315.0 million. Cash, cash equivalents and restricted cash totaled $221.7 million at June 30, including $161.1 million of restricted cash.
- Debt and liquidity: Debt totaled $4.52 billion, with a 3.4% weighted average effective rate and 8.2-year average years to maturity; all outstanding debt was fixed rate. Unsecured notes were $4.15 billion and secured debt $364.7 million. No revolver or commercial paper borrowings were outstanding at quarter-end. The company reported $1.1 billion of unrestricted cash and available revolver capacity combined.
- Balance sheet and distributions: Total assets were $11.28 billion and total equity $6.17 billion. The current annual common dividend rate was $5.00 per share. Q2 dividends were $1.25 per share.
Material changes versus comparable periods
- Q2 revenue growth substantially exceeded growth in property operating expenses: revenue increased 13.3%, while property operating expenses excluding depreciation rose 7.7%. Same Store expenses increased 8.1%, including higher taxes, repairs and maintenance, personnel and utilities.
- Q2 common earnings declined despite strong rental growth, principally reflecting a $21.8 million non-cash loss on the preferred-share embedded derivative and $20.9 million of non-cash investment losses. Q2 2021 included a $13.2 million derivative gain and $6.3 million of investment gains.
- First-half earnings and Core FFO increased, with property revenue growth partly offset by higher operating, property-management and general and administrative expenses.
- Q2 average Same Store physical occupancy was 95.7%, down from 96.4% a year earlier, while average effective rent per unit rose 14.3%.
Outlook, risks and unusual items
- Management described apartment demand, rent growth and rent collection trends as strong in Q2, but flagged inflation, supply-chain pressures and elevated supply as risks to rent growth, collections and costs. Personnel, repairs and maintenance costs were notably higher.
- No specific earnings or FFO guidance is stated in the supplied filing text. Management expected 2022 development, redevelopment and recurring capital expenditures to be in line with 2021 total capital expenditures. Five projects had estimated total costs of $444.0 million, of which $230.4 million had been incurred; expected completion dates range from 2022 to 2024.
- In July, MAA amended its revolving facility, increasing capacity from $1.0 billion to $1.25 billion, expandable to $2.0 billion, and extending maturity to October 2026, with two six-month extensions. The amended facility uses SOFR-based pricing.
- Q2 and first-half results included casualty gains related to Winter Storm Uri of $14.4 million and $22.1 million, respectively, partly offset in other periods by storm losses. These figures include non-cash and insurance-related items.
- Management identified risks including economic and apartment-market conditions, inflation and operating costs, development execution, insurance and casualty exposure, access to financing, interest rates, and legal, regulatory, climate and cybersecurity matters. It reported no material changes to the risk factors in its 2021 Form 10-K. Ordinary-course legal matters were not expected to have a material adverse effect; accrued legal loss contingencies were $2.0 million at June 30.
Important facts for investors to verify
- Whether Same Store rent growth can continue as occupancy eased and new supply and economic conditions evolve.
- How inflation and operating-cost growth affect NOI margins and whether rent increases offset those pressures.
- The distinction between GAAP earnings, Core FFO and cash generation, including the impact of derivative and investment fair-value changes and storm recoveries.
- Development spending, completion timing and lease-up performance for the five projects, plus the expected 2022 capital-expenditure level.
- Debt maturities, refinancing costs and liquidity following the July 2022 revolving-credit amendment; restricted cash is not equivalent to unrestricted liquidity.
- Potential capital calls of up to $31.7 million for technology-focused partnerships and settlement of the 1.1 million-share forward sale agreements, which were unsettled at June 30, 2022.