Press Release

MAA Reports Second Quarter Results

Company Release - 7/29/2020 4:15 PM ET

GERMANTOWN, Tenn., July 29, 2020 /PRNewswire/ -- Mid-America Apartment Communities, Inc., or MAA (NYSE: MAA), today announced operating results for the quarter ended June 30, 2020.

MAA logo. (PRNewsFoto/MAA)

Net Income Available for Common Shareholders
For the quarter ended June 30, 2020, net income available for MAA common shareholders was $74.1 million, or $0.65 per diluted common share, compared to $61.0 million, or $0.53 per diluted common share, for the quarter ended June 30, 2019.  Results for the quarter ended June 30, 2020, included $11.7 million, or $0.10 per diluted common share, of non-cash income related to the fair value adjustment of the embedded derivative in the MAA Series I preferred shares and $4.3 million, or $0.04 per diluted common share, of non-cash income, net of tax, related to gains recognized from an unconsolidated limited partnership.  Results for the quarter ended June 30, 2019, included $4.6 million, or $0.04 per diluted common share, of non-cash income related to the embedded derivative in the preferred shares.

For the six months ended June 30, 2020, net income available for MAA common shareholders was $109.9 million, or $0.96  per diluted common share, compared to $123.7 million, or $1.09 per diluted common share, for the six months ended June 30, 2019.  Results for the six months ended June 30, 2020, included $15.9 million, or $0.14 per diluted common share, of non-cash expense related to the fair value adjustment of the embedded derivative in the preferred shares and $4.2 million, or $0.04 per diluted common share, of non-cash income, net of tax, related to gains recognized from an unconsolidated limited partnership.  Results for the six months ended June 30, 2019, included $4.1 million, or $0.04 per diluted common share, of non-cash income related to the embedded derivative in the preferred shares.

Core Funds from Operations (FFO) and FFO
Core FFO, which adjusts FFO for items that are not considered part of MAA's core business operations, for the quarter ended June 30, 2020 was $188.9 million, or $1.59 per diluted common share and unit, or per Share, as compared to $180.8 million, or $1.53 per Share, for the quarter ended June 30, 2019. For the quarter ended June 30, 2020, FFO was $202.6 million, or $1.71 per Share, compared to $185.7 million, or $1.57 per Share, for the quarter ended June 30, 2019.  FFO results for the quarter ended June 30, 2020, included $11.7 million, or $0.10 per Share, of non-cash income related to the fair value adjustment of the embedded derivative in the preferred shares and $4.3 million, or $0.04 per Share, of non-cash income, net of tax, related to gains recognized from an unconsolidated limited partnership. FFO results for the quarter ended June 30, 2019, included $4.6 million, or $0.04 per Share, of non-cash income related to the embedded derivative in the preferred shares.

Core FFO for the six months ended June 30, 2020 was $380.1 million, or $3.21 per Share, as compared to $358.2 million, or $3.03 per Share, for the six months ended June 30, 2019.  For the six months ended June 30, 2020, FFO was $364.7 million, or $3.08 per Share, compared to $372.1 million, or $3.15 per Share, for the six months ended June 30, 2019.  FFO results for the six months ended June 30, 2020, included $15.9 million, or $0.14 per Share, of non-cash expense related to the fair value adjustment of the embedded derivative in the preferred shares and $4.2 million, or $0.04 per Share, of non-cash income, net of tax, related to gains recognized from an unconsolidated limited partnership.  FFO results for the six months ended June 30, 2019, included $4.1 million, or $0.03 per Share, of non-cash income related to the embedded derivative in the preferred shares.

A reconciliation of FFO and Core FFO to net income available for MAA common shareholders, and an expanded discussion of the components of FFO and Core FFO, can be found later in this release.

Eric Bolton, Chairman and Chief Executive Officer, said, "Our second quarter results were better than expected.  While the country continues to work through challenges associated with COVID-19, MAA's portfolio of high quality communities, well diversified across the Sunbelt markets, supported by a strong operating platform and a dedicated team of associates, is performing well."

Second Quarter 2020 Highlights

  • Property revenues from the Same Store Portfolio increased 2.1% during the second quarter of 2020 as compared to the same period in the prior year. Results were driven by a 3.4% growth in Average Effective Rent per Unit for the Same Store Portfolio.
  • Property operating expenses for the Same Store Portfolio increased 2.4% during the second quarter of 2020 as compared to the same period in the prior year.
  • Net Operating Income, or NOI, from the Same Store Portfolio increased 2.0% during the second quarter of 2020 as compared to the same period in the prior year.
  • Resident turnover remained low as resident move outs for the Same Store Portfolio for the second quarter of 2020 was 46.3% on a rolling twelve month basis.
  • During the second quarter of 2020, MAA completed the development of Copper Ridge II in the Fort Worth, TX market.
  • As of the end of the second quarter of 2020, MAA had six properties under development, representing 1,940 units once complete, with a total projected cost of $459.5 million and an estimated $243.7 million remaining to be funded.
  • During the second quarter of 2020, MAA completed the initial lease-up of Sync 36 II in the Denver, CO market.
  • As of the end of the second quarter of 2020, MAA had two properties in their initial lease-up with physical occupancy averaging 63.3%. One property is expected to stabilize in the fourth quarter of 2020 and the other property is expected to stabilize in the second quarter of 2021.

COVID-19 Developments
In these unprecedented times, MAA believes the best way it can help its residents is to work with those who have lost wages or compensation due to the COVID-19 pandemic so that they can remain in their homes.  MAA has offered these impacted residents amendments to their leases that provided varying degrees of payment flexibility with respect to April, May, June and July rent and waived late fees and interest charges under the original lease for rent that was deferred under a lease amendment.   

MAA's on-site leasing offices have remained open throughout the COVID-19 pandemic.  As governmental authorities began issuing orders and directives to combat the spread of COVID-19, MAA's leasing offices transitioned to operate on a virtual basis, with full staff still on-site to continue serving current and prospective new residents.  To support its associates who continued to work on-site on a daily basis, MAA provided those associates with enhanced leave and sick time policies, enhanced flextime arrangements and additional COVID-19 paid time off, among other benefits.  In addition, MAA made modifications to its health and retirement plans to assist all of its associates and their families during this time of crisis.  In May, MAA resumed normal operations at its on-site leasing offices, once again permitting public access and walk-in traffic, subject to social distancing restrictions.  Likewise, in May, MAA began reopening property amenities as permitted by governmental orders, directives and guidelines.

MAA's balance sheet remains very strong, with low leverage, significant availability from its unsecured revolving credit facility, and limited near-term debt maturities and funding obligations. Operating metrics for the second quarter of 2020 and the month of July (through July 27, 2020) include the following:

  • Through July 27, 2020, rent cash collections and promises to pay under lease amendments signed by residents financially impacted by COVID-19, combined, represented 99.4% of billed residential rent for the second quarter of 2020.
  • Through July 27, 2020, rent cash collections represented 98.1% of billed residential rent for July 2020. This compares to 96.4% average cash collections of April, May and June rents through the 27th of each such month. Rent cash collections and promises to pay under lease amendments signed by residents financially impacted by COVID-19, combined, represented 98.4% of billed residential rent for July 2020. This compares to 98.7% average combined collections and deferrals of April, May and June rents through the 27th of each such month.
  • Through July 27, 2020, Average Physical Occupancy for the Same Store Portfolio was 95.3% for the month of July.

Additional metrics related to the impact of the COVID-19 pandemic on MAA's business are included in the supplemental schedules accompanying this release.            

Same Store Portfolio Operating Results
To ensure comparable reporting with prior periods, the Same Store Portfolio includes properties that were stabilized and owned by MAA at the beginning of the previous year.

The Same Store Portfolio revenue growth of 2.1% during the second quarter of 2020 was primarily a result of a 3.4% increase in Average Effective Rent per Unit, as compared to the same period in the prior year.  Average Effective Rent per Unit growth was partially offset by lower Average Physical Occupancy and lower collections as compared to the more normal operating conditions during the second quarter of 2019.  Rent growth for the Same Store Portfolio for both new and renewing leases, as compared to the prior lease, on a combined basis increased an average of 1.2% during the second quarter of 2020.  Average Physical Occupancy for the Same Store Portfolio was 95.4% for the second quarter of 2020, as compared to 96.0% in the same period in the prior year.  Property operating expenses increased 2.4% for the second quarter of 2020 as compared to the same period in the prior year. This resulted in Same Store NOI growth of 2.0% for the second quarter of 2020 as compared to the same period in the prior year.

The Same Store Portfolio revenue growth of 3.2% during the six months ended June 30, 2020 was primarily a result of a 3.8% increase in Average Effective Rent per Unit, as compared to the same period in the prior year.  Rent growth for the Same Store Portfolio for both new and renewing leases, as compared to the prior lease, on a combined basis increased an average of 1.8% during the six months ended June 30, 2020.  Average Physical Occupancy for the Same Store Portfolio was 95.6% for the six months ended June 30, 2020, as compared to 95.9%  in the same period in the prior year.  Property operating expenses increased 2.8% for the six months ended June 30, 2020 as compared to the same period in the prior year. This resulted in Same Store NOI growth of 3.4% for the six months ended June 30, 2020 as compared to the same period in the prior year.

A reconciliation of NOI, including Same Store NOI, to net income available for MAA common shareholders, and an expanded discussion of the components of NOI, can be found later in this release.

Development and Lease-up Activity
As of the end of the second quarter of 2020, MAA had six development communities under construction.  MAA expects to complete construction of one of these development communities in 2020, four in 2021 and one in 2022.  Total development costs for the six communities are projected to be $459.5 million, of which an estimated $243.7 million remained to be funded as of the end of the second quarter of 2020.  The expected average stabilized NOI yield on these communities is 6.1%. During the second quarter of 2020, MAA funded $57.4 million of construction costs on current and completed development projects. 

During the second quarter of 2020, MAA completed construction on the Phase II multifamily apartment community expansion of Copper Ridge, located in Fort Worth, Texas, and that apartment community moved into MAA's lease-up portfolio. As of the end of the second quarter of 2020, MAA had two apartment communities, representing a total of 439 units, remaining in initial lease-up: The Greene, located in Greenville, South Carolina and Copper Ridge II.  Physical occupancy for these lease-up projects averaged 63.3% at the end of the second quarter of 2020.

Acquisition and Disposition Activity
MAA did not acquire or dispose of any apartment communities, land parcels or commercial properties during the three months ended June 30, 2020.

Redevelopment Activity
MAA suspended its interior redevelopment activities as of the beginning of the second quarter as a result of COVID-19 shelter-in-place governmental directives, but MAA restarted these activities in May in accordance with governmental guidelines issued in connection with the reopening of the U.S. economy.  Upon restart, MAA continued its interior redevelopment program at select apartment communities throughout the portfolio.  During the second quarter of 2020, MAA redeveloped the interior of 655 units, bringing the total units renovated during the six months ended June 30, 2020 to 2,095 at an average cost of $6,601 per unit, achieving average rental rate increases of approximately 9.1% above non-renovated units. MAA's SmartHome technology initiative (mobile control of lights, thermostat and security, as well as leak monitoring) was also suspended during the second quarter, after installing 8,017 units in the first quarter of 2020. MAA restarted this program in early July and expects to complete an additional 16,000 units by the end of 2020. The 8,017 units completed in the first quarter were installed at an average cost of approximately $1,350 per unit and achieved an average rent increase of $25 per unit. 

During the second quarter of 2020, MAA continued its program to upgrade and reposition the amenity and common areas at select properties. The program includes targeted plans to move all units at the properties to higher rents that are expected to deliver yields on cost averaging 8% beginning in calendar year 2021.  During the second quarter of 2020, repositioning work continued at five of these properties and work was initiated on an additional three properties. Work will begin at the other two identified properties later this year or early in 2021 as market conditions stabilize.

Capital Expenditures
Recurring capital expenditures totaled $25.1 million for the second quarter of 2020, or approximately $0.21 per Share, as compared to $24.4 million, or $0.21 per Share, for the same period in the prior year.  These expenditures led to Core Adjusted Funds from Operations, or Core AFFO, of $1.38 per Share for the second quarter of 2020, compared to $1.32 per Share for the same period in the prior year.

Redevelopment, revenue enhancing, commercial and other capital expenditures during the second quarter of 2020 were $24.8 million, as compared to $29.9 million for the same period in the prior year. These expenditures led to Funds Available for Distribution, or FAD, of $139.0 million for the second quarter of 2020, compared to $126.6 million for the same period in the prior year.

Recurring capital expenditures totaled $39.7 million for the six months ended June 30, 2020, or approximately $0.33 per Share, as compared to $36.9 million, or $0.31 per Share, for the same period in the prior year.  These expenditures led to Core AFFO of $2.88 per Share for the six months ended June 30, 2020, compared to $2.72 per Share for the same period in the prior year.

Redevelopment, revenue enhancing, commercial and other capital expenditures during the six months ended June 30, 2020 were $52.6 million, as compared to $55.7 million for the same period in the prior year. These expenditures led to FAD of $287.8 million for the six months ended June 30, 2020, compared to $265.5 million for the same period in the prior year.

A reconciliation of FFO, Core FFO, Core AFFO and FAD to net income available for MAA common shareholders, and an expanded discussion of the components of FFO, Core FFO, Core AFFO and FAD, can be found later in this release.

Financing Activities
As of June 30, 2020, MAA had approximately $926.6 million of combined cash and available capacity under Mid-America Apartments, L.P.'s unsecured revolving credit facility, net of commercial paper borrowings.  Mid-America Apartments, L.P. (referred to as MAALP) is MAA's operating partnership.

Dividends and distributions paid on shares of common stock and noncontrolling interests during the second quarter of 2020 were $118.4 million, as compared to $113.4 million for the same period in the prior year.

Balance Sheet
As of June 30, 2020:

  • Total debt to adjusted total assets (as defined in the covenants for the bonds issued by MAALP) was 31.2%;
  • Total debt outstanding was $4.5 billion with an average effective interest rate of approximately 3.7%;
  • 91.3% of total debt was fixed against rising interest rates for an average of approximately 7.7 years; and
  • Unencumbered NOI was 91.1% of total NOI.

106th Consecutive Quarterly Common Dividend Declared
MAA declared its 106th consecutive quarterly common dividend, which will be paid on July 31, 2020 to holders of record on July 15, 2020.  The current annual dividend rate is $4.00 per common share.

2020 Net Income per Diluted Common Share, Core FFO and Core AFFO per Share Guidance
As a result of the material change in broad economic conditions in the U.S., in late March MAA withdrew its calendar year 2020 guidance for Net income per diluted common share, Core FFO per Share and Core AFFO per Share.  Given continued higher than normal uncertainty in the outlook for the U.S. economy and a number of actions being considered by federal, state and local governments to help stop the spread of the COVID virus, and the potential for wide-ranging impact on rent collections, fees and occupancy, at this point MAA is not providing quarterly or full year 2020 guidance for Net income per diluted common share, Core FFO per Share or Core AFFO per Share.  The supplemental schedules accompanying this release include an update on certain second quarter of 2020 operating metrics as well as certain July 2020 operating metrics. MAA will continue to monitor conditions related to the COVID-19 pandemic and will reestablish full year guidance as more information becomes available. However, given the comparable stability of operating expenses, MAA does reconfirm that it expects Same Store Portfolio operating expense growth for the full year to fall within the range initially projected of 3.75% to 4.75%, as compared to 2019. As previously disclosed, pressures on real estate taxes and insurance along with the roll out of the Double Play bulk cable and internet program are driving the majority of the expected increase.

Supplemental Material and Conference Call
Supplemental data to this release can be found under the "Filings and Financials" navigation tab on the "For Investors" page of our website at www.maac.com. MAA will host a conference call to further discuss second quarter results on Thursday, July 30, 2020, at 9:00 AM Central Time.  The conference call-in number is 877-830-2596.  You may also join the live webcast of the conference call by accessing the "For Investors" page of our website at www.maac.com.  MAA's filings with the Securities and Exchange Commission, or SEC, are filed under the registrant names of Mid-America Apartment Communities, Inc. and Mid-America Apartments, L.P.

About MAA
MAA, an S&P 500 company, is a real estate investment trust, or REIT, focused on delivering full-cycle and superior investment performance for shareholders through the ownership, management, acquisition, development and redevelopment of quality apartment communities in the Southeast, Southwest, and Mid-Atlantic regions of the United States.  As of June 30, 2020, MAA had ownership interest in 102,105 apartment units, including communities currently in development, across 16 states and the District of Columbia. For further details, please visit the MAA website at www.maac.com or contact Investor Relations at investor.relations@maac.com, or via mail at MAA, 6815 Poplar Ave., Suite 500, Germantown, TN 38138, Attn: Investor Relations.

Forward-Looking Statements
Sections of this release contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to our expectations for future periods. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future.  Such forward-looking statements include, without limitation, statements regarding the potential impact of the COVID-19 pandemic on our business, statements regarding expected operating performance and results, property stabilizations, property acquisition and disposition activity, joint venture activity, development and renovation activity and other capital expenditures, and capital raising and financing activity, as well as lease pricing, revenue and expense growth, occupancy, interest rate and other economic expectations. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "forecasts," "projects," "assumes," "will," "may," "could," "should," "target," "outlook," "guidance" and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, as described below, which may cause our actual results, performance or achievements to be materially different from the results of operations, financial conditions or plans expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such forward-looking statements included in this release may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

The following factors, among others, could cause our actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements:

  • the COVID-19 pandemic and measures taken or that may be taken by federal, state and local governmental authorities to combat the spread of the disease;
  • inability to generate sufficient cash flows due to unfavorable economic and market conditions, changes in supply and/or demand, competition, uninsured losses, changes in tax and housing laws, or other factors;
  • exposure, as a multifamily focused REIT, to risks inherent in investments in a single industry and sector;
  • adverse changes in real estate markets, including, but not limited to, the extent of future demand for multifamily units in our significant markets, barriers of entry into new markets which we may seek to enter in the future, limitations on our ability to increase rental rates, competition, our ability to identify and consummate attractive acquisitions or development projects on favorable terms, our ability to consummate any planned dispositions in a timely manner on acceptable terms, and our ability to reinvest sale proceeds in a manner that generates favorable returns;
  • failure of new acquisitions to achieve anticipated results or be efficiently integrated;
  • failure of development communities to be completed within budget and on a timely basis, if at all, to lease-up as anticipated or to achieve anticipated results;
  • unexpected capital needs;
  • changes in operating costs, including real estate taxes, utilities and insurance costs;
  • inability to obtain appropriate insurance coverage at reasonable rates, or at all, or losses from catastrophes in excess of our insurance coverage;
  • ability to obtain financing at favorable rates, if at all, and refinance existing debt as it matures;
  • level and volatility of interest or capitalization rates or capital market conditions;
  • price volatility, dislocations and liquidity disruptions in the financial markets and the resulting impact on financing;
  • the effect of any rating agency actions on the cost and availability of new debt financing;
  • the effect of the phase-out of the London Interbank Offered Rate, or LIBOR, as a variable rate debt benchmark by the end of 2021 and the transition to a different benchmark interest rate;
  • significant decline in market value of real estate serving as collateral for mortgage obligations;
  • significant change in the mortgage financing market that would cause single-family housing, either as an owned or rental product, to become a more significant competitive product;
  • our ability to continue to satisfy complex rules in order to maintain our status as a REIT for federal income tax purposes, the ability of MAALP to satisfy the rules to maintain its status as a partnership for federal income tax purposes, the ability of our taxable REIT subsidiaries to maintain their status as such for federal income tax purposes, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;
  • inability to attract and retain qualified personnel;
  • cyber liability or potential liability for breaches of our or our service providers' information technology systems, or business operations disruptions;
  • potential liability for environmental contamination;
  • adverse legislative or regulatory developments;
  • extreme weather, natural disasters, disease outbreak and public health events;
  • legal proceedings relating to various issues, which, among other things, could result in a class action lawsuit;
  • compliance costs associated with numerous federal, state and local laws and regulations, including those costs associated with laws requiring access for disabled persons; and
  • other risks identified in this release and in reports we file with the SEC or in other documents that we publicly disseminate.

New factors may also emerge from time to time that could have a material adverse effect on our business.  Except as required by law, we undertake no obligation to publicly update or revise forward-looking statements contained in this release to reflect events, circumstances or changes in expectations after the date of this release.

FINANCIAL HIGHLIGHTS


Dollars in thousands, except per share data

Three months ended June 30,



Six months ended June 30,



2020



2019



2020





2019


Rental and other property revenues

$

413,026



$

407,390



$

831,124





$

808,568




















Net income available for MAA common shareholders

$

74,140



$

60,995



$

109,866





$

123,733




















Total NOI (1)

$

255,555



$

253,248



$

520,481





$

505,049




















Earnings per common share: (2)


















Basic

$

0.65



$

0.53



$

0.96





$

1.09


Diluted

$

0.65



$

0.53



$

0.96





$

1.09




















Funds from operations per Share - diluted: (2)


















FFO (1)

$

1.71



$

1.57



$

3.08





$

3.15


Core FFO (1)

$

1.59



$

1.53



$

3.21





$

3.03


Core AFFO (1)

$

1.38



$

1.32



$

2.88





$

2.72




















Dividends declared per common share

$

1.00



$

0.96



$

2.00





$

1.92




















Dividends/Core FFO (diluted) payout ratio


62.9

%



62.7

%



62.3

%





63.4

%

Dividends/Core AFFO (diluted) payout ratio


72.5

%



72.7

%



69.4

%





70.6

%



















Consolidated interest expense

$

42,118



$

45,936



$

85,600





$

91,636


Mark-to-market debt adjustment


58




86




92






171


Debt discount and debt issuance cost amortization


(1,190)




(1,835)




(2,380)






(3,640)


Capitalized interest


1,628




705




3,019






1,093


Total interest incurred

$

42,614



$

44,892



$

86,331





$

89,260




















Amortization of principal on notes payable

$

1,743



$

1,825



$

3,483





$

3,672




(1)

A reconciliation of the following items and an expanded discussion of their respective components can be found later in this release: (i) NOI to Net income available for MAA common shareholders; and (ii) FFO, Core FFO and Core AFFO to Net income available for MAA common shareholders.

(2)

See the "Share and Unit Data" section for additional information.

 

FINANCIAL HIGHLIGHTS (CONTINUED)


Dollars in thousands, except share price











June 30, 2020



December 31, 2019


Gross Assets (1)


$

14,338,256



$

14,185,703


Gross Real Estate Assets (1)


$

14,165,312



$

13,996,700


Total debt


$

4,472,608



$

4,454,598


Common shares and units outstanding



118,423,860




118,313,567


Share price


$

114.67



$

131.86


Book equity value


$

6,184,910



$

6,303,590


Market equity value


$

13,579,664



$

15,600,827


Net Debt/Adjusted EBITDAre(2)


4.69x



4.71x




(1)

A reconciliation of Gross Assets to Total assets and Gross Real Estate Assets to Real estate assets, net, along with an expanded discussion of their components, can be found later in this release.

(2)

Adjusted EBITDAre in this calculation represents the trailing twelve month period for each date presented. A reconciliation of the following items and an expanded discussion of their respective components can be found later in this release: (i) EBITDA, EBITDAre and Adjusted EBITDAre to Net income; and (ii) Net Debt to Unsecured notes payable and Secured notes payable.

 

CONSOLIDATED STATEMENTS OF OPERATIONS


Dollars in thousands, except per share data

Three months ended June 30,



Six months ended June 30,



2020



2019



2020



2019


Revenues:
















Rental and other property revenues

$

413,026



$

407,390



$

831,124



$

808,568


Expenses:
















Operating expenses, excluding real estate taxes and insurance


95,555




96,172




186,923




185,965


Real estate taxes and insurance


61,916




57,970




123,720




117,554


Depreciation and amortization


127,190




123,944




253,578




246,733


Total property operating expenses


284,661




278,086




564,221




550,252


Property management expenses


11,730




13,454




26,373




27,296


General and administrative expenses


10,557




10,398




23,821




22,735


Interest expense


42,118




45,936




85,600




91,636


(Gain) loss on sale of depreciable real estate assets


(2)







27




13


(Gain) loss on sale of non-depreciable real estate assets


(5)




(297)




371




(9,260)


Other non-operating (income) expense


(14,643)




(4,575)




13,889




(4,694)


Income before income tax expense


78,610




64,388




116,822




130,590


Income tax expense


(1,200)




(682)




(1,867)




(1,323)


Income from continuing operations before real estate joint venture activity


77,410




63,706




114,955




129,267


Income from real estate joint venture


318




435




725




832


Net income


77,728




64,141




115,680




130,099


Net income attributable to noncontrolling interests


2,666




2,224




3,970




4,522


Net income available for shareholders


75,062




61,917




111,710




125,577


Dividends to MAA Series I preferred shareholders


922




922




1,844




1,844


Net income available for MAA common shareholders

$

74,140



$

60,995



$

109,866



$

123,733


















Earnings per common share - basic:
















Net income available for common shareholders

$

0.65



$

0.53



$

0.96



$

1.09


















Earnings per common share - diluted:
















Net income available for common shareholders

$

0.65



$

0.53



$

0.96



$

1.09


 

SHARE AND UNIT DATA


Shares and units in thousands

Three months ended June 30,



Six months ended June 30,



2020



2019



2020



2019


Net Income Shares (1)
















Weighted average common shares - basic


114,204




113,838




114,158




113,783


Effect of dilutive securities


234




249




324




211


Weighted average common shares - diluted


114,438




114,087




114,482




113,994


Funds From Operations Shares And Units
















Weighted average common shares and units - basic


118,263




117,935




118,220




117,886


Weighted average common shares and units - diluted


118,423




118,139




118,383




118,079


Period End Shares And Units
















Common shares at June 30,


114,365




114,043




114,365




114,043


Operating Partnership units at June 30,


4,059




4,090




4,059




4,090


Total common shares and units at June 30,


118,424




118,133




118,424




118,133




(1)

For additional information on the calculation of diluted common shares and earnings per common share, please refer to the Notes to Condensed Consolidated Financial Statements in MAA's Quarterly Report on Form 10-Q for the three and six months ended June 30, 2020, expected to be filed with the SEC on or about July 30, 2020.

 

CONSOLIDATED BALANCE SHEETS


Dollars in thousands









June 30, 2020



December 31, 2019


Assets








Real estate assets:








Land

$

1,910,655



$

1,905,757


Buildings and improvements and other


11,960,028




11,841,978


Development and capital improvements in progress


196,824




116,424




14,067,507




13,864,159


Less: Accumulated depreciation


(3,206,943)




(2,955,253)




10,860,564




10,908,906


Undeveloped land


34,548




34,548


Investment in real estate joint venture


43,590




43,674


Real estate assets, net


10,938,702




10,987,128










Cash and cash equivalents


19,667




20,476


Restricted cash


15,927




50,065


Other assets


157,017




172,781


Total assets

$

11,131,313



$

11,230,450










Liabilities and equity








Liabilities:








Unsecured notes payable

$

3,849,784



$

3,828,201


Secured notes payable


622,824




626,397


Accrued expenses and other liabilities


473,795




472,262


Total liabilities


4,946,403




4,926,860










Redeemable common stock


13,333




14,131










Shareholders' equity:








Preferred stock


9




9


Common stock


1,140




1,140


Additional paid-in capital


7,168,886




7,166,073


Accumulated distributions in excess of net income


(1,202,536)




(1,085,479)


Accumulated other comprehensive loss


(12,665)




(13,178)


Total MAA shareholders' equity


5,954,834




6,068,565


Noncontrolling interests - Operating Partnership units


209,894




214,647


Total Company's shareholders' equity


6,164,728




6,283,212


Noncontrolling interests - consolidated real estate entities


6,849




6,247


Total equity


6,171,577




6,289,459


Total liabilities and equity

$

11,131,313



$

11,230,450


 

RECONCILIATION OF FFO, CORE FFO, CORE AFFO AND FAD TO NET INCOME AVAILABLE FOR MAA COMMON SHAREHOLDERS


Amounts in thousands, except per share and unit data

Three months ended June 30,



Six months ended June 30,



2020



2019



2020



2019


Net income available for MAA common shareholders

$

74,140



$

60,995



$

109,866



$

123,733


Depreciation and amortization of real estate assets


125,668




122,323




250,514




243,533


(Gain) loss on sale of depreciable real estate assets


(2)







27




13


Depreciation and amortization of real estate assets of real estate joint venture


153




166




305




311


Net income attributable to noncontrolling interests


2,666




2,224




3,970




4,522


Funds from operations attributable to the Company


202,625




185,708




364,682




372,112


(Income) loss on embedded derivative in preferred shares (1)


(11,693)




(4,594)




15,945




(4,070)


(Gain) loss on sale of non-depreciable real estate assets


(5)




(297)




371




(9,260)


(Gain) loss from unconsolidated limited partnerships, net of tax (1)(2)


(4,262)




179




(4,185)




324


Net casualty (gain) loss and other settlement proceeds (1)


(151)




(309)




696




(1,853)


Loss (gain) on debt extinguishment (1)





47




(1)




55


Non-routine legal costs and settlements (1)





200




40




1,016


COVID-19 related costs (1)


2,411







2,607





Mark-to-market debt adjustment (3)


(58)




(86)




(92)




(171)


Core funds from operations


188,867




180,848




380,063




358,153


Recurring capital expenditures


(25,118)




(24,358)




(39,692)




(36,918)


Core adjusted funds from operations


163,749




156,490




340,371




321,235


Redevelopment capital expenditures


(10,075)




(14,826)




(24,023)




(27,271)


Revenue enhancing capital expenditures


(8,447)




(9,813)




(16,375)




(17,852)


Commercial capital expenditures


(1,143)




(1,037)




(1,538)




(2,456)


Other capital expenditures


(5,086)




(4,187)




(10,676)




(8,164)


Funds available for distribution

$

138,998



$

126,627



$

287,759



$

265,492


















Dividends and distributions paid

$

118,407



$

113,373



$

236,744



$

226,644


















Weighted average common shares - diluted


114,438




114,087




114,482




113,994


FFO weighted average common shares and units - diluted


118,423




118,139




118,383




118,079


















Earnings per common share - diluted:
















Net income available for common shareholders

$

0.65



$

0.53



$

0.96



$

1.09


















Funds from operations per Share - diluted

$

1.71



$

1.57



$

3.08



$

3.15


Core funds from operations per Share - diluted

$

1.59



$

1.53



$

3.21



$

3.03


Core adjusted funds from operations per Share - diluted

$

1.38



$

1.32



$

2.88



$

2.72




(1)

Included in Other non-operating (income) expense in the Consolidated Statements of Operations.

(2)

For the three and six months ended June 30, 2020, $5.0 million and $4.9 million, respectively, of gains from unconsolidated limited partnerships are offset by $0.7 million of income tax expense. 

(3)

Included in Interest expense in the Consolidated Statements of Operations.

 

RECONCILIATION OF NET OPERATING INCOME TO NET INCOME AVAILABLE FOR MAA COMMON SHAREHOLDERS


Dollars in thousands

Three Months Ended



Six Months Ended



June 30,

2020



March 31,

2020



June 30,

2019



June 30,

2020



June 30,

2019


Net Operating Income




















Same Store NOI

$

242,713



$

249,287



$

238,016



$

492,000



$

475,854


Non-Same Store and Other NOI


12,842




15,639




15,232




28,481




29,195


Total NOI


255,555




264,926




253,248




520,481




505,049


Depreciation and amortization


(127,190)




(126,388)




(123,944)




(253,578)




(246,733)


Property management expenses


(11,730)




(14,643)




(13,454)




(26,373)




(27,296)


General and administrative expenses


(10,557)




(13,264)




(10,398)




(23,821)




(22,735)


Interest expense


(42,118)




(43,482)




(45,936)




(85,600)




(91,636)


Gain (loss) on sale of depreciable real estate assets


2




(29)







(27)




(13)


Gain (loss) on sale of non-depreciable real estate assets


5




(376)




297




(371)




9,260


Other non-operating income (expense)


14,643




(28,532)




4,575




(13,889)




4,694


Income tax expense


(1,200)




(667)




(682)




(1,867)




(1,323)


Income from real estate joint venture


318




407




435




725




832


Net income attributable to noncontrolling interests


(2,666)




(1,304)




(2,224)




(3,970)




(4,522)


Dividends to MAA Series I preferred shareholders


(922)




(922)




(922)




(1,844)




(1,844)


Net income available for MAA common shareholders

$

74,140



$

35,726



$

60,995



$

109,866



$

123,733


 

RECONCILIATION OF EBITDA, EBITDAre AND ADJUSTED EBITDAre TO NET INCOME


Dollars in thousands

Three Months Ended



Twelve Months Ended



June 30, 2020



June 30, 2019



June 30, 2020



December 31,
2019


Net income

$

77,728



$

64,141



$

352,199



$

366,618


Depreciation and amortization


127,190




123,944




503,688




496,843


Interest expense


42,118




45,936




173,811




179,847


Income tax expense


1,200




682




4,240




3,696


EBITDA


248,236




234,703




1,033,938




1,047,004


Gain on sale of depreciable real estate assets


(2)







(80,974)




(80,988)


Adjustments to reflect the Company's share of EBITDAre of unconsolidated affiliates


336




339




1,346




1,351


EBITDAre


248,570




235,042




954,310




967,367


(Gain) loss on embedded derivative in preferred shares (1)


(11,693)




(4,594)




2,129




(17,886)


Gain on sale of non-depreciable real estate assets


(5)




(297)




(2,416)




(12,047)


(Gain) loss from unconsolidated limited partnerships, net of tax (1)(2)


(4,262)




179




(7,463)




(2,954)


Net casualty gain and other settlement proceeds (1)


(151)




(309)




(841)




(3,390)


Loss on debt extinguishment (1)





47




197




253


Non-routine legal costs and settlements (1)





200




1,300




2,276


COVID-19 related costs (1)


2,411







2,607





Mark-to-market debt adjustment (3)


(58)




(86)




(177)




(256)


Adjusted EBITDAre

$

234,812



$

230,182



$

949,646



$

933,363




(1)

Included in Other non-operating (income) expense in the Consolidated Statements of Operations.

(2)

For the three and twelve months ended June 30, 2020, $5.0 million and $9.1 million, respectively, of gains from unconsolidated limited partnerships are offset by $0.7 million and $1.6 million, respectively, of income tax expense.  For the twelve months ended December 31, 2019, $3.8 million of gains from unconsolidated limited partnerships are offset by $0.9 million of income tax expense. 

(3)

Included in Interest expense in the Consolidated Statements of Operations.

 

RECONCILIATION OF NET DEBT TO UNSECURED NOTES PAYABLE AND SECURED NOTES PAYABLE


Dollars in thousands









June 30, 2020



December 31, 2019


Unsecured notes payable

$

3,849,784



$

3,828,201


Secured notes payable


622,824




626,397


Total debt


4,472,608




4,454,598


Cash and cash equivalents


(19,667)




(20,476)


1031(b) exchange proceeds included in Restricted cash (1)





(33,843)


Net Debt

$

4,452,941



$

4,400,279




(1)

Included in Restricted cash in the Consolidated Balance Sheets.

 

RECONCILIATION OF GROSS ASSETS TO TOTAL ASSETS


Dollars in thousands











June 30, 2020



December 31, 2019


Total assets


$

11,131,313



$

11,230,450


Accumulated depreciation



3,206,943




2,955,253


Gross Assets


$

14,338,256



$

14,185,703


 

RECONCILIATION OF GROSS REAL ESTATE ASSETS TO REAL ESTATE ASSETS, NET


Dollars in thousands









June 30, 2020



December 31, 2019


Real estate assets, net

$

10,938,702



$

10,987,128


Accumulated depreciation


3,206,943




2,955,253


Cash and cash equivalents


19,667




20,476


1031(b) exchange proceeds included in Restricted cash (1)





33,843


Gross Real Estate Assets

$

14,165,312



$

13,996,700




(1)

Included in Restricted cash in the Consolidated Balance Sheets.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDAre
For purposes of calculations in this release, Adjusted Earnings Before Interest, Income Taxes, Depreciation and Amortization for real estate, or Adjusted EBITDAre, represents EBITDAre further adjusted for items that are not considered part of MAA's core operations such as adjustments related to the fair value of the embedded derivative in the MAA Series I preferred shares, gain or loss on sale of non-depreciable assets, adjustments for gains or losses from unconsolidated limited partnerships, net casualty gain or loss, gain or loss on debt extinguishment, non-routine legal costs and settlements, COVID-19 related costs and mark-to-market debt adjustments.  As an owner and operator of real estate, MAA considers Adjusted EBITDAre to be an important measure of performance from core operations because Adjusted EBITDAre does not include various income and expense items that are not indicative of operating performance.  MAA's computation of Adjusted EBITDAre may differ from the methodology utilized by other companies to calculate Adjusted EBITDAre.  Adjusted EBITDAre should not be considered as an alternative to Net income as an indicator of operating performance.

Core Adjusted Funds from Operations (Core AFFO)
Core AFFO is composed of Core FFO less recurring capital expenditures. Core AFFO should not be considered as an alternative to Net income available for MAA common shareholders as an indicator of operating performance.  As an owner and operator of real estate, MAA considers Core AFFO to be an important measure of performance from operations because Core AFFO measures the ability to control revenues, expenses and recurring capital expenditures.

Core Funds from Operations (Core FFO)
Core FFO represents FFO as adjusted for items that are not considered part of MAA's core business operations such as adjustments related to the fair value of the embedded derivative in the MAA Series I preferred shares, gain or loss on sale of non-depreciable assets, adjustments for gains or losses from unconsolidated limited partnerships, net casualty gain or loss, gain or loss on debt extinguishment, non-routine legal costs and settlements, COVID-19 related costs and mark-to-market debt adjustments. While MAA's definition of Core FFO may be similar to others in the industry, MAA's methodology for calculating Core FFO may differ from that utilized by other REITs and, accordingly, may not be comparable to such other REITs. Core FFO should not be considered as an alternative to Net income available for MAA common shareholders as an indicator of operating performance. MAA believes that Core FFO is helpful in understanding its core operating performance between periods in that it removes certain items that by their nature are not comparable over periods and therefore tend to obscure actual operating performance.

EBITDA
For purposes of calculations in this release, Earnings Before Interest, Income Taxes, Depreciation and Amortization, or EBITDA, is composed of net income plus depreciation and amortization, interest expense, and income taxes.  As an owner and operator of real estate, MAA considers EBITDA to be an important measure of performance from core operations because EBITDA does not include various expense items that are not indicative of operating performance. EBITDA should not be considered as an alternative to Net income as an indicator of operating performance.

EBITDAre
For purposes of calculations in this release, Earnings Before Interest, Income Taxes, Depreciation and Amortization for real estate, or EBITDAre, is composed of EBITDA further adjusted for the gain or loss on sale of depreciable asset sales and plus adjustments to reflect MAA's share of EBITDAre of unconsolidated affiliates.  As an owner and operator of real estate, MAA considers EBITDAre to be an important measure of performance from core operations because EBITDAre does not include various expense items that are not indicative of operating performance. While MAA's definition of EBITDAre is in accordance with NAREIT's definition, it may differ from the methodology utilized by other companies to calculate EBITDAre. EBITDAre should not be considered as an alternative to Net income as an indicator of operating performance.

Funds Available for Distribution (FAD)
FAD is composed of Core FFO less total capital expenditures, excluding development spending and property acquisitions.  FAD should not be considered as an alternative to Net income available for MAA common shareholders as an indicator of operating performance.  As an owner and operator of real estate, MAA considers FAD to be an important measure of performance from core operations because FAD measures the ability to control revenues, expenses and total capital expenditures.

Funds From Operations (FFO)
FFO represents net income available for MAA common shareholders (calculated in accordance with GAAP) excluding gains or losses on disposition of operating properties and asset impairment, plus depreciation and amortization of real estate assets, net income attributable to noncontrolling interests, and adjustments for joint ventures.  Because net income attributable to noncontrolling interests is added back, FFO, when used in this document, represents FFO attributable to the Company.  While MAA's definition of FFO is in accordance with NAREIT's definition, it may differ from the methodology for calculating FFO utilized by other companies and, accordingly, may not be comparable to such other companies.  FFO should not be considered as an alternative to Net income available for MAA common shareholders as an indicator of operating performance.  MAA believes that FFO is helpful in understanding operating performance in that FFO excludes depreciation and amortization of real estate assets.  MAA believes that GAAP historical cost depreciation of real estate assets is generally not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies.

Gross Assets
Gross Assets represents Total assets plus Accumulated depreciation.  MAA believes that Gross Assets can be used as a helpful tool in evaluating its balance sheet positions.  MAA believes that GAAP historical cost depreciation of real estate assets is generally not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies.

Gross Real Estate Assets
Gross Real Estate Assets represents Real estate assets, net plus Accumulated depreciation and Cash and cash equivalents.  MAA believes that Gross Real Estate Assets can be used as a helpful tool in evaluating its balance sheet positions.  MAA believes that GAAP historical cost depreciation of real estate assets is generally not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies.

Net Debt
Net Debt represents Unsecured notes payable and Secured notes payable less Cash and cash equivalents.  MAA believes Net Debt is a helpful tool in evaluating its debt position.

Net Operating Income (NOI)
Net Operating Income represents Rental and other property revenues less Total property operating expenses, excluding depreciation and amortization, for all properties held during the period, regardless of their status as held for sale. NOI should not be considered as an alternative to Net income available for MAA common shareholders.  MAA believes NOI by market is a helpful tool in evaluating the operating performance within MAA's markets because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance.

Same Store NOI
Same Store NOI represents Rental and other property revenues less Total property operating expenses, excluding depreciation and amortization, for all properties classified within the Same Store Portfolio during the period. Same Store NOI should not be considered as an alternative to Net income available for MAA common shareholders.  MAA believes Same Store NOI is a helpful tool in evaluating the operating performance within MAA's markets because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance.

Non-Same Store and Other NOI
Non-Same Store and Other NOI represents Rental and other property revenues less Total property operating expenses, excluding depreciation and amortization, for all properties classified within the Non-Same Store and Other Portfolio during the period. Non-Same Store and Other NOI should not be considered as an alternative to Net income available for MAA common shareholders.  MAA believes Non-Same Store and Other NOI is a helpful tool in evaluating the operating performance within MAA's markets because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance.

OTHER KEY DEFINITIONS

Average Effective Rent per Unit
Average Effective Rent per Unit represents the average of gross rent amounts after the effect of leasing concessions for occupied units plus prevalent market rates asked for unoccupied units, divided by the total number of units. Leasing concessions represent discounts to the current market rate. MAA believes average effective rent is a helpful measurement in evaluating average pricing. It does not represent actual rental revenue collected per unit.

Average Physical Occupancy
Average Physical Occupancy represents the average of the daily physical occupancy for the respective period.

Development Communities
Communities remain identified as development until certificates of occupancy are obtained for all units under development. Once all units are delivered and available for occupancy, the community moves into the Lease-up Communities portfolio.

Lease-up Communities
New acquisitions acquired during lease-up and newly developed communities remain in the Lease-up Communities portfolio until stabilized.  Communities are considered stabilized after achieving at least 90% occupancy for 90 days.

Non-Same Store and Other Portfolio
Non-Same Store and Other Portfolio includes recently acquired communities, communities in development or lease-up, communities that have been identified for disposition, communities that have undergone a significant casualty loss, stabilized communities that do not meet the requirements defined by the Same Store Portfolio, retail properties and commercial properties.

Same Store Portfolio
MAA reviews its Same Store Portfolio at the beginning of each calendar year, or as significant transactions or events warrant. Communities are generally added into the Same Store Portfolio if they were owned and stabilized at the beginning of the previous year.  Communities are considered stabilized after achieving at least 90% occupancy for 90 days. Communities that have been approved by MAA's Board of Directors for disposition are excluded from the Same Store Portfolio.  Communities that have undergone a significant casualty loss are also excluded from the Same Store Portfolio.

Unencumbered NOI
Unencumbered NOI represents NOI generated by unencumbered assets (as defined in MAALP's bond covenants).

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SOURCE MAA