MAA

Business Context and Reporting Period

Company: Mid-America Apartment Communities, Inc. (MAAC)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 30, 2001
Business Overview: MAAC owns and operates 124 apartment communities with 33,778 units across 13 states. The company is nearing the completion of a $300 million development program initiated in 1997.

Key Financial Metrics

Operational Metrics:
- Average monthly rental per unit: $650 (June 30, 2001) vs. $631 (June 30, 2000).
- Occupancy rate: 94.3% (June 30, 2001) vs. 95.4% (June 30, 2000).
- Weighted average interest rate on debt: 6.8%.
- Weighted average debt maturity: 10.4 years.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 3.4% year-over-year for the six-month period, driven by $4.2 million in revenue from development communities and $1.2 million from 2000 acquisitions. This was partially offset by a $3.6 million decrease due to property dispositions in the prior year.
• Profitability Decline: Net income available to common shareholders dropped significantly from $9.9 million to $1.4 million. This decline is primarily attributed to the absence of a $9.4 million gain on property dispositions recorded in the prior year and an increase in interest expense of $2.8 million due to funding for development and share repurchases.
• Expense Increases: Property operating expenses rose by $1.4 million, and interest expense increased by $2.8 million. Depreciation and amortization remained relatively flat, decreasing slightly by $26,000.
• Capital Deployment: Capital expenditures for new construction decreased significantly to $12.5 million in 2001 compared to $40.5 million in 2000, reflecting the winding down of the major development program.

Guidance, Outlook, and Risks

• Development Outlook: Management anticipates requiring approximately $9.1 million in additional funding during 2001 to complete the remaining development program.
• Liquidity: The company maintains a $295 million secured credit facility with FNMA (with $221.8 million outstanding) and a $70 million facility with a bank group led by AmSouth Bank. Approximately $35 million remains available under these secured facilities.
• Recent Transactions:
  • Sold Canyon Creek Apartments (320 units) for $15.6 million on July 2, 2001.
  • Refinanced $39.6 million in debt and executed a $25 million interest rate swap at 6.4% for six years.
• Accounting Changes: The company is preparing to adopt FASB Statements No. 141 and 142 regarding business combinations and goodwill. While unamortized goodwill is approximately $5.8 million, the specific financial impact of the transition cannot be reasonably estimated at this time.
• Risks: Forward-looking statements are subject to risks including economic downturns, competitive supply/demand imbalances, construction delays, and interest rate fluctuations.

Investor Verification Checklist

• Gain on Dispositions: Verify the impact of the $9.4 million gain in 2000 versus the minimal gain in 2001 on net income comparisons.
• Development Completion: Confirm the $9.1 million funding requirement to complete the remaining development units and the timeline for lease-up.
• Debt Structure: Review the mix of fixed vs. variable rate debt and the effectiveness of the $117 million in interest rate swaps in managing the 6.8% weighted average cost.
• Occupancy Trends: Monitor the 1.1% decline in occupancy (95.4% to 94.3%) and its potential impact on future rental revenue growth.
• Accounting Transition: Assess the potential for transitional impairment losses upon the adoption of FASB Statements 141 and 142 in 2002.