Mid-America Apartment Communities, Inc. — Q1 2022 Form 10-Q
Business context and period. Multifamily REIT operating 292 apartment communities, with interests across 16 states and the District of Columbia. The quarter ended March 31, 2022; comparisons are with Q1 2021. MAA conducts substantially all operations through its 97.3%-owned Operating Partnership.
Financial performance and position
- Revenue: $476.1 million, up 12.0% from $425.0 million. Same Store revenue increased 12.2%, driven primarily by 12.4% growth in average effective rent per unit. Same Store average physical occupancy was 95.9%, versus 95.7%.
- Property operations: Same Store NOI was $294.6 million, up 17.0%; its margin was approximately 64.8%, compared with 62.2%. Total NOI was $306.7 million, up 16.8%. Property operating expenses excluding depreciation rose 4.3% to $169.4 million.
- Profit: Net income available to MAA common shareholders was $109.9 million, versus $46.3 million; diluted EPS was $0.95, versus $0.40. Results included a $11.9 million non-cash gain from revaluing the embedded derivative in Series I preferred shares, compared with a $15.1 million non-cash loss in Q1 2021.
- FFO: Company-attributable FFO was $244.8 million, versus $177.8 million; Core FFO was $234.2 million, up from $194.4 million. Both are non-GAAP measures and should be considered alongside GAAP results.
- Cash flow: Operating cash flow was $179.6 million, versus $148.1 million. Investing used $83.5 million; financing used $154.1 million. Cash, cash equivalents and restricted cash ended at $72.6 million. Common dividends paid were $125.4 million.
- Debt and liquidity: Debt carrying value was $4.54 billion, including $4.17 billion unsecured and $365.0 million secured. Weighted-average effective rate was 3.4%; 99.6% of debt was fixed-rate. The $1.0 billion revolver had no borrowings, with $4.0 million of capacity supporting letters of credit. Management reported $1.0 billion of unrestricted cash and available revolving capacity combined.
- Balance sheet: Total assets were $11.20 billion and total equity was $6.10 billion at March 31, 2022. Unrestricted cash was $60.4 million.
Changes versus Q1 2021
- Higher rents and strong demand drove revenue and NOI growth; Same Store rent growth was the main contributor.
- Property operating costs rose more slowly than revenue, but property management and general and administrative expenses increased by $3.6 million and $3.3 million, respectively. Interest expense declined by $0.6 million.
- Net income growth was amplified by the year-over-year swing in the non-cash preferred-share derivative valuation. Other non-operating results also included a $7.6 million casualty gain related to Winter Storm Uri and $10.2 million of non-cash investment losses in Q1 2022.
- Operating cash flow increased, while investing outflows declined as development and capital-improvement spending fell year over year. Financing outflows included a $43.1 million acquisition of a consolidated real estate entity’s noncontrolling interest.
Outlook, risks and other notable items
- The filing does not provide a clear numeric earnings or operating forecast. Management said apartment demand and rent growth were strong, but cited inflation, supply-chain constraints, elevated supply, and potential pressure on rent collection and future rent growth. Higher personnel, repairs and maintenance costs were also expected risks.
- Management expected 2022 development, redevelopment, repositioning and recurring capital expenditures to be in line with 2021 total capital expenditures. Five developments under construction comprise 1,759 planned units, with expected total costs of $444.0 million; $192.8 million had been incurred. Management expected one project to complete in 2022, three in 2023 and one in 2024.
- Annual common dividend rate was $4.35 per share. Future dividends remain subject to cash flows, capital needs, REIT distribution requirements and Board decisions.
- Debt maturities included $126.1 million in 2022; fixed-rate debt interest payments for 2022 were estimated at $126.9 million. The company also had up to $33.5 million of potential capital contributions to technology-focused partnerships if called.
- Two Texas late-fee class-action matters were settled by the named plaintiffs on an individual basis and dismissed in March 2022 after an appellate ruling reversed class certification. Other ordinary-course legal matters remain; management did not expect them to materially adversely affect the company. Accrued legal loss contingencies were $2.0 million.
- Management identified financing access, rising interest rates, refinancing, development execution, inflation and operating costs, real estate market conditions, and COVID-19-related uncertainty among forward-looking risks. No material risk-factor changes from the 2021 Form 10-K were reported. Disclosure controls were deemed effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of reported earnings and FFO growth reflects recurring property operations versus the preferred derivative revaluation, Winter Storm Uri recovery and investment valuation losses.
- Whether strong effective-rent growth can continue while occupancy, renewals, concessions and actual rent collections remain favorable.
- Whether inflation and other property-cost increases erode NOI margins, and whether development costs and completion schedules remain on plan.
- Liquidity and refinancing needs around the 2022 debt maturities and the revolver’s May 2023 maturity, including the effect of interest-rate changes.
- Potential partnership capital calls, settlement and dilution implications of the 1.1 million-share forward-sale agreements, and the Board’s future dividend decisions.