Business context and reporting period
Mid-America Apartment Communities, Inc. (MAA), a multifamily REIT, filed this combined Form 10-Q with its operating partnership for the quarter ended September 30, 2022. The company owned and operated 292 apartment communities, with five developments totaling 1,759 planned units under construction across 16 states and the District of Columbia.
Financial and operating performance
| Metric | Q3 2022 | Comparable period |
|---|---|---|
| Property revenue | $520.8 million | $452.6 million; up 15.1% year over year |
| Net income available to MAA common shareholders | $121.4 million; diluted EPS $1.05 | $83.6 million; diluted EPS $0.73 |
| Same Store revenue | $495.4 million; up 14.6% | Average effective rent per unit up 16.7%; physical occupancy 95.8% versus 96.4% |
| Same Store NOI | $315.6 million; approximately 63.7% of segment revenue | $268.9 million; approximately 62.2% of segment revenue |
| Core FFO (non-GAAP) | $259.5 million | $211.3 million; up 22.8% |
For the first nine months, revenue was $1.492 billion, up 13.5%; net income available to common shareholders was $441.0 million, up 27.7%; diluted EPS was $3.82 versus $3.01; and Core FFO was $733.5 million versus $605.5 million. Prior-period comparisons include significant non-operating items, including real estate sale gains and fair-value changes in investments and the preferred-share derivative.
For the nine months ended September 30, operating cash flow was $807.3 million versus $678.3 million. Investing activities used $414.6 million and financing activities used $469.7 million. At quarter-end, cash and cash equivalents were $39.0 million; management reported $1.2 billion of combined unrestricted cash and available revolving-credit capacity.
Total debt was $4.519 billion, with a 3.4% weighted-average effective rate; 97.2% was fixed-rate. Debt included $4.155 billion of unsecured debt and $364.3 million of secured debt. Shareholders’ equity was $6.152 billion. The current annual common dividend rate was $5.00 per share.
Material changes versus the prior comparable period
- Q3 revenue growth was driven principally by Same Store rent growth. Property operating expenses excluding depreciation rose 10.8%, slower than revenue growth, but increased costs included real estate taxes, personnel, repairs and maintenance, utilities, and insurance.
- Q3 income rose 45.3%; however, other non-operating results shifted from $10.3 million of income in Q3 2021 to $1.7 million of expense in Q3 2022, including investment losses and different preferred-derivative fair-value effects.
- Nine-month net income included $132.0 million of gains on depreciable-property sales, compared with $134.5 million in the prior-year period. These gains are not recurring operating revenue.
- In July, the revolving facility was amended to $1.25 billion, with an option to expand to $2.0 billion; in September, the commercial-paper program limit increased from $500 million to $625 million. The company retired $125 million of senior notes due in December 2022 and had $125 million of commercial paper outstanding at quarter-end.
- MAA acquired two communities for approximately $213 million and sold two communities for approximately $167 million during the first nine months. A Maryland community sold after quarter-end for approximately $104 million; the company expected to recognize an approximately $37 million gain in Q4.
Outlook, risks, contingencies and unusual items
No numerical earnings or revenue guidance is provided in the supplied filing text. Management said apartment demand moderated in Q3 but rent growth remained strong, and expects total 2022 capital expenditures for development, redevelopment, repositioning and recurring replacements to be below 2021 levels. Management believes available liquidity and expected operating cash flows are sufficient for requirements over the next 12 months and foreseeable future.
Management cited inflation, supply-chain constraints, elevated operating costs and apartment supply as risks to future rent growth and expenses. It also noted that rising interest rates could raise borrowing or refinancing costs and that weaker capital markets could impair access to funding. Five developments had expected total costs of $444.0 million, of which $266.1 million had been incurred; planned completion dates range from 2022 to 2024.
Unusual items included Q3 Hurricane Ian storm-related operating expenses of $1.6 million; insurance-related casualty gains, primarily from Winter Storm Uri, of $7.2 million in Q3 and $27.6 million year to date; and year-to-date investment losses of $39.3 million before tax. The company also committed up to $32.9 million in future capital contributions to technology-focused limited partnerships.
In October 2022, MAA was named in a putative class action alleging that apartment owners and RealPage conspired to inflate rents. MAA said it believes the lawsuit is without merit and will defend itself. Management did not believe ordinary-course legal matters would materially adversely affect the company, but litigation outcomes are uncertain. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether rent growth and occupancy hold up as demand moderates and new apartment supply remains elevated.
- How operating-cost inflation, especially taxes, personnel, repairs, utilities and insurance, affects Same Store NOI margins.
- Upcoming debt maturities, commercial-paper refinancing or repayment, and the availability and cost of credit as rates change.
- Development budgets, completion schedules, leasing progress and remaining capital commitments.
- The final proceeds and gain from the post-quarter Maryland disposition, and the sustainability of dividends relative to cash generation.
- Developments in the rent-pricing class action and any potential financial or operational consequences.