Mid-America Apartment Communities, Inc. (MAA) — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. MAA is a multifamily REIT operating primarily in the Southeast, Southwest and Mid-Atlantic. At quarter-end it owned and operated 299 apartment communities across 16 states and Washington, D.C.; six developments totaling 1,940 planned units were under construction. MAA conducts substantially all operations through its 96.6%-owned operating partnership.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Property revenue | $413.0 million | $407.4 million | $831.1 million | $808.6 million |
| Net income | $77.7 million | $64.1 million | $115.7 million | $130.1 million |
| Net income available to MAA common shareholders | $74.1 million | $61.0 million | $109.9 million | $123.7 million |
| Diluted earnings per share | $0.65 | $0.53 | $0.96 | $1.09 |
| Core FFO, a non-GAAP measure | $188.9 million | $180.8 million | $380.1 million | $358.2 million |
- Q2 revenue rose 1.4%; same-store revenue increased 2.1% and same-store NOI increased 2.0% to $242.7 million. Same-store average effective rent per unit rose 3.4%, while average physical occupancy eased to 95.4% from 96.0%.
- Q2 net income available to common shareholders increased 21.6%, but included $11.7 million of noncash income from the preferred-stock embedded derivative and $4.3 million of net noncash income from an unconsolidated limited partnership. Core FFO increased 4.4%.
- For the first half, common-shareholder net income fell 11.2%, despite 2.8% revenue growth. Results included a $15.9 million noncash expense from the preferred-stock embedded derivative; the prior-year period included a $9.3 million land-sale gain. Core FFO rose 6.1%.
- First-half operating cash flow was $389.6 million, versus $368.5 million a year earlier. Investing used $197.8 million, chiefly for $191.9 million of capital improvements and development; financing used $226.7 million. Cash, cash equivalents and restricted cash totaled $35.6 million at June 30.
- Debt totaled $4.47 billion, with a 3.7% weighted average effective rate and 7.0-year average years to maturity. 91.3% was fixed-rate. The $1.0 billion revolving facility had no borrowings outstanding, with $3.1 million of capacity supporting letters of credit; commercial paper outstanding was $90 million, scheduled to mature July 7, 2020. The company reported strong liquidity and limited near-term debt maturities.
- Total assets were $11.13 billion and total equity was $6.17 billion at June 30. Common dividends were $1.00 per share for Q2; the first-half dividend rate was $2.00 per share.
Changes, outlook and risks
- Management offered rent-payment flexibility for residents financially affected by COVID-19, including amendments for April through July rent, and waived late fees and interest on deferred rent covered by amendments. Leasing offices remained open, shifting to virtual service before reopening to walk-ins with restrictions; amenities began reopening where permitted.
- Management said lower occupancy and rent and fee collections weighed on growth. It expected the pandemic environment could reduce rent collections in Q3 and suppress rent growth on new leases and renewals; elevated supply could weigh especially on urban communities. The filing provides no quantified collection rate or formal earnings guidance.
- Six developments had expected total costs of $459.5 million, of which $215.8 million had been incurred by June 30. Management expected one completion in 2020, four in 2021 and one in 2022.
- Two Texas class actions allege unlawful late fees. Class certification and partial summary judgment had been granted at the trial court, and appeals were pending. Management estimated maximum exposure of $54.6 million in one case and $8.4 million in the other, excluding possible prejudgment interest. Accrued loss contingencies for unresolved legal matters totaled $8.5 million.
- Other significant risks include the uncertain duration and severity of COVID-19 effects on residents’ ability to pay, leasing and occupancy, development schedules, operating costs and access to capital. The company also identified financing and refinancing conditions, interest rates and the LIBOR transition as risks. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Subsequent rent collections, delinquencies, concessions and occupancy, particularly as COVID-19 conditions evolve.
- Commercial-paper repayment or refinancing after its July 2020 maturity, and current availability under the revolving credit facility.
- Developments in the Texas class actions, including appeal status, potential damages and legal accruals.
- Development spending, completion timing and lease-up progress against stated project budgets and schedules.
- Underlying operating performance excluding noncash embedded-derivative movements, partnership gains and other Core FFO adjustments; Core FFO is a non-GAAP measure and may not be comparable across REITs.