Business Context and Reporting Period
Company: Mid-America Apartment Communities, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2007
Business Overview: The Company owns and operates 137 multifamily apartment communities across 13 states. Operations are organized as a single reportable segment focused on the acquisition and operation of these communities.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2007 | Six Months Ended June 30, 2006 |
|---|---|---|
| Total Operating Revenues | $171,770,000 | $157,186,000 |
| Net Income | $20,442,000 | $11,018,000 |
| Net Income Available to Common Shareholders | $13,461,000 | $4,037,000 |
| Funds From Operations (FFO) | $47,488,000 | $42,658,000 |
| Diluted EPS (Common) | $0.53 | $0.18 |
| Net Cash Provided by Operating Activities | $58,847,000 | $60,681,000 |
| Total Debt Outstanding | $1,195,570,000 | $1,196,349,000 (Dec 31, 2006) |
| Weighted Average Interest Rate | 5.5% | 5.45% (Six months 2006) |
| Cash and Cash Equivalents | $4,292,000 | $11,366,000 (End of period 2006) |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by approximately $14.7 million (9.3%) compared to the first six months of 2006. This was driven by $7.2 million from eight properties acquired in 2006 and 2007, and $7.4 million from the existing portfolio due to higher average rents and reduced concessions.
- Profitability: Net income increased by approximately $9.4 million. This significant increase was bolstered by non-recurring gains, including a $3.4 million gain on the sale of two communities (Gleneagles and Hickory Farms), a $5.4 million gain on the disposition of a joint venture property, and a $226,000 gain on the sale of excess land.
- Operating Expenses: Property operating expenses rose by $7.4 million, primarily due to higher insurance premiums (renewed July 2006) and real estate taxes, alongside costs associated with new acquisitions.
- Dividends: Dividends declared per common share were $1.210 for the six months ended June 30, 2007, compared to $1.785 in the prior year period (which included a special dividend paid in July 2006).
Outlook, Risks, and Unusual Items
- Unusual Items: The financial results for the six months ended June 30, 2007, were materially impacted by the sale of discontinued operations and joint venture assets. Without these gains, net income would have been significantly lower.
- Market Trends: Management reports strong demand driven by job growth in the Sunbelt region. However, specific markets like Tampa, Orlando, and Columbus, GA, showed weakness due to condominium conversions and military deployment impacts.
- Cost Pressures: The Company faces rising operating costs, specifically in insurance, real estate taxes, and construction materials.
- Liquidity and Debt: The Company maintains $1.2 billion in available borrowing capacity under credit facilities (including FNMA and Freddie Mac). Approximately 71% of debt is credit-enhanced by FNMA. Management notes reliance on the efficiency of the FNMA DMBS market and the creditworthiness of FNMA.
- Subsequent Events: Following the reporting period, the Company sold two additional communities in Jackson, MS (July 16, 2007), and acquired a new property in Houston, TX (July 6, 2007).
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by analyzing Net Income excluding the $3.4 million gain on community sales and the $5.4 million joint venture gain.
- Insurance Costs: Monitor the impact of the July 2006 insurance renewal on future operating margins, as premiums increased significantly.
- Debt Maturities: Review the debt schedule, noting that a significant portion of variable rate debt and credit facilities have maturities or renewal dates in late 2007 and 2008.
- FFO vs. Net Income: Compare Funds From Operations ($47.5M) to Net Income ($20.4M) to assess core operating performance independent of depreciation and asset sales.
- Market Specifics: Assess the performance of the 5 communities in Tampa/Orlando and the Columbus, GA portfolio, which were identified as underperforming relative to the broader portfolio.