SEC Filing Summary: Mid-America Apartment Communities, Inc. (10-Q)
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the period ended September 30, 2008. Mid-America Apartment Communities, Inc. is a self-administered Real Estate Investment Trust (REIT) owning, acquiring, renovating, developing, and managing apartment communities in the Sunbelt region of the United States. As of the reporting date, the company owned or held interests in 145 multifamily communities comprising 42,427 apartments across 13 states. Four communities (990 units) were classified as held for sale.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Total Operating Revenues | $93.5 million | $275.0 million |
| Net Income | $6.2 million | $22.5 million |
| Net Income Available to Common Shareholders | $3.0 million | $12.9 million |
| Funds From Operations (FFO) | $26.8 million | $81.6 million |
| Net Cash Provided by Operating Activities | N/A | $105.5 million |
| Total Debt Outstanding | $1.36 billion | $1.36 billion |
| Cash and Cash Equivalents | $43.7 million | $43.7 million |
| Weighted Average Interest Rate | 4.69% (Q3) | 4.89% (YTD) |
Material Changes vs. Prior Period
- Revenue Growth: Total property revenues increased by approximately $5.0 million (Q3) and $18.2 million (YTD) compared to the prior year periods. This growth was driven by seven new acquisitions since June 2007, development communities, and a 1.6% increase in average effective rent per unit in the same-store portfolio.
- Net Income Decline: Net income decreased by approximately $5.7 million in Q3 and $9.8 million YTD compared to 2007. The decline is primarily attributed to the absence of significant gains from property dispositions recorded in the prior year (approx. $5.7 million in Q3 2007 and $15.8 million YTD 2007).
- Expense Increases: Property operating expenses (excluding depreciation) rose due to new acquisitions, development costs, and a $0.3 million expense related to Hurricane Ike damage. Personnel costs increased due to reduced turnover.
- Interest Expense: Interest expense decreased by $0.9 million in Q3 and $1.2 million YTD, driven by a reduction in the average cost of debt (from 5.37% to 4.69% in Q3), which offset higher debt balances.
- Discontinued Operations: The company recorded a $0.1 million loss on the sale of discontinued operations YTD 2008, compared to a $9.2 million gain in the same period in 2007.
Guidance, Outlook, and Risks
- Market Outlook: Management notes a slowdown in revenue growth and job formation in the third quarter of 2008 due to general economic conditions. However, they believe this is temporary and expect revenue growth to accelerate in 2009 and 2010, supported by limited new apartment supply and demographic trends.
- Liquidity and Capital: The company raised $98.6 million through controlled equity offerings in the first nine months of 2008. It maintains secured credit facilities with FNMA and Freddie Mac totaling $1.39 billion in capacity, with $1.35 billion available. Management believes resources are adequate for operations and distributions.
- Key Risks:
- Capital Market Volatility: Significant reliance on FNMA and Freddie Mac (92% of debt), which are under government conservatorship. Volatility in the spread between LIBOR and agency rates could increase interest costs or render hedges ineffective.
- Refinancing Risk: Approximately $370 million of debt is variable rate and unhedged. The company faces scheduled refinancings in 2009 and 2010.
- Catastrophic Loss: Exposure to windstorms and earthquakes in the New Madrid zone; insurance deductibles could be significant.
- REIT Status: Failure to meet distribution requirements or ownership limits could result in corporate taxation.
- Unusual Items: The company recorded a net casualty loss of approximately $1.1 million in Q3 2008 related to Hurricane Ike damage at 15 communities.
Investor Verification Checklist
- Verify the current status and credit enhancement of FNMA and Freddie Mac facilities given the government conservatorship.
- Monitor the spread between LIBOR and agency rates (DMBS/Reference Bill) to assess potential increases in variable interest costs.
- Review the lease-up progress and performance of the seven communities acquired since mid-2007.
- Assess the impact of the $0.3 million Hurricane Ike expense and potential future weather-related claims.
- Confirm the timeline and terms for the $39 million mortgage maturing in April 2009 and the $50 million facility maturing in May 2010.
- Track the disposition status of the four communities (990 units) currently classified as held for sale.