SEC Filing Summary: Mid-America Apartment Communities, Inc. (10-Q)
Business Context and Reporting Period
Company: Mid-America Apartment Communities, Inc. (MAA)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: MAA 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 June 30, 2009, the portfolio consisted of 144 multifamily communities with 42,390 apartments across 13 states.
Key Financial Metrics
| Metric (in thousands, except per share) | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Operating Revenues | $188,033 | $182,185 |
| Net Income (Consolidated) | $22,563 | $17,368 |
| Net Income Attributable to MAA | $21,287 | $16,323 |
| Net Income Available for Common Shareholders | $14,854 | $9,890 |
| Funds From Operations (FFO) | $60,549 | $54,810 |
| Diluted EPS (Common) | $0.53 | $0.38 |
| Dividends Declared (Common) | $1.230 | $1.230 |
| Total Debt Outstanding | $1,323,648 | $1,200,000 (approx) |
| Cash and Cash Equivalents | $6,080 | $9,977 |
| Net Cash Provided by Operating Activities | $70,519 | $70,593 |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by approximately $5.8 million (3.2%) compared to the first six months of 2008. This was driven by $5.9 million in revenue from six properties acquired in 2008 and 2009, and $1.2 million from development/lease-up communities. These gains were partially offset by a $1.3 million decrease in same-store portfolio revenues due to a 0.8% decline in average effective rent per unit.
- Profitability: Net income attributable to MAA increased by approximately $5.0 million. This improvement was primarily due to recently acquired properties and a reduction in interest expense.
- Interest Expense: Interest expense decreased by $2.5 million to $28.7 million. The weighted average cost of debt dropped from 4.99% to 4.35%, offsetting an increase in average debt outstanding of approximately $53.0 million.
- Discontinued Operations: The company recognized a gain of approximately $2.6 million from the sale of two properties (Woodstream and Riverhills) during the period. No properties were sold in the comparable 2008 period.
- Investing Activities: Net cash used in investing activities decreased significantly to $29.5 million from $104.2 million in the prior year, reflecting reduced acquisition spending ($17.7 million vs. $58.3 million) and proceeds from dispositions ($14.7 million vs. $0.9 million).
Guidance, Outlook, and Risks
Management Commentary & Outlook:
Management anticipates weaker rental demand continuing through 2009 and into the first half of 2010 due to job losses in their markets. However, they believe the decline in same-store revenue is temporary. Positive factors include a trend of households moving back to the rental market from homeownership and limited new apartment supply due to financing constraints. Management forecasts favorable interest rates to continue for the balance of 2009.
Key Risks and Contingencies:
- Interest Rate & Hedging Risk: Approximately 92% of outstanding debt is provided by or credit-enhanced by FNMA and Freddie Mac, which are under government conservatorship. Volatility in the spread between LIBOR and agency rates could impact interest expense and hedge effectiveness.
- Liquidity: While current liquidity is sufficient to cover distributions, a significant deterioration in operations could necessitate a reduction in distribution rates.
- Market Conditions: Risks include overbuilding, competition from condominiums/single-family homes, and job losses affecting occupancy and pricing.
- Derivative Instruments: The company holds significant interest rate swaps and caps. Counterparty credit risk (e.g., JP Morgan, RBC, Deutsche Bank) and potential loss of hedge accounting treatment are noted risks.
Investor Verification Checklist
- Debt Maturity Profile: Verify the specific maturity dates of the $1.3 billion debt portfolio, noting that significant portions mature between 2011 and 2018, and assess refinancing risks given the conservatorship of FNMA/Freddie Mac.
- Same-Store Performance: Review the 0.8% decline in average effective rent per unit for the same-store portfolio to gauge the severity of market headwinds.
- Derivative Exposure: Confirm the fair value of interest rate swaps (liability of ~$57.7 million) and the potential impact of credit rating downgrades on swap counterparties.
- Dividend Coverage: Analyze the coverage of the $1.230 per share dividend by Funds From Operations (FFO) to ensure sustainability in a weaker economic environment.
- Acquisition Strategy: Assess the performance of the six properties acquired in 2008/2009, which drove the majority of revenue growth, to determine if this trend is sustainable.