MAA(MAA) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Mid-America Apartment Communities, Inc. (MAA) and Mid-America Apartments, L.P. (MAALP) for the three and six months ended June 30, 2023 Condensed Consolidated Financial Statements The financial statements provide a snapshot of the company's financial position and performance, with MAA reporting total assets of $11.39 billion and total revenues of $1.06 billion for the six months ended June 30, 2023 MAA Key Financial Highlights (Six Months Ended June 30, 2023) | Metric | Amount (in thousands) | YoY Change | | :--- | :--- | :--- | | Total Revenues | $1,064,179 | +9.6% | | Net Income Available for MAA Common Shareholders | $279,754 | -12.5% | | Total Assets (as of June 30, 2023) | $11,391,170 | +1.3% (vs Dec 31, 2022) | | Total Liabilities (as of June 30, 2023) | $5,020,107 | -0.2% (vs Dec 31, 2022) | | Net Cash Provided by Operating Activities | $554,083 | +19.4% | - The decrease in Net Income for the six months ended June 30, 2023 compared to 2022 is primarily due to a significant gain on sale of depreciable real estate assets of $132.0 million recognized in 2022, which was not repeated in 2023[20] Notes to Condensed Consolidated Financial Statements The notes provide critical context to the financial statements, detailing the company's structure, accounting policies, debt, equity, and segment performance, with 290 apartment communities owned and operated and total outstanding debt of approximately $4.4 billion as of June 30, 2023 - As of June 30, 2023, the company owned and operated 290 apartment communities and had six development communities under construction with total expected costs of $735.0 million[38] Outstanding Debt Summary (as of June 30, 2023) | Debt Type | Balance (in thousands) | Weighted Avg. Effective Rate | | :--- | :--- | :--- | | Unsecured Debt | $4,033,091 | 3.4% | | Secured Debt | $363,302 | 4.4% | | Total Outstanding Debt | $4,396,393 | 3.4% | - The company is a defendant in the "RealPage Litigation," a series of class action lawsuits alleging conspiracy to artificially inflate apartment prices through revenue management software. The company believes the litigation is without merit[94] Segment Net Operating Income (NOI) (Six Months Ended June 30) | Segment | 2023 NOI (in thousands) | 2022 NOI (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Same Store | $652,375 | $590,324 | +10.5% | | Non-Same Store and Other | $34,668 | $29,697 | +16.7% | | Total NOI | $687,043 | $620,021 | +10.8% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q2 2023, highlighting an 8.1% increase in total property revenues driven by strong Same Store segment performance, despite a decrease in net income due to a large gain on asset sales in the prior year period Overview and Trends In Q2 2023, Same Store revenue growth was driven by a 9.3% increase in average effective rent per unit, while average physical occupancy saw a slight decline to 95.5%, with management monitoring inflation, economic conditions, and new housing supply Same Store Segment Key Metrics (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Average Effective Rent per Unit | - | - | +9.3% | | Average Physical Occupancy | 95.5% | 95.7% | -0.2% | - The company believes its portfolio diversity across markets, submarkets, product types, and price points helps mitigate exposure to economic issues in any single geographic area[111] Results of Operations For Q2 2023, total property revenues increased 8.1% to $535.1 million, while property operating expenses rose 7.0% to $194.3 million, with net income available for common shareholders decreasing 31.0% to $144.8 million due to a prior-year gain on asset sales Property Revenues by Segment (Three Months Ended June 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | % Increase | | :--- | :--- | :--- | :--- | | Same Store | $505,505 | $467,805 | 8.1% | | Non-Same Store and Other | $29,641 | $27,235 | 8.8% | | Total | $535,146 | $495,040 | 8.1% | Property Operating Expenses by Segment (Three Months Ended June 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | % Increase | | :--- | :--- | :--- | :--- | | Same Store | $182,070 | $169,917 | 7.2% | | Non-Same Store and Other | $12,263 | $11,760 | 4.3% | | Total | $194,333 | $181,677 | 7.0% | - Other non-operating income was $17.0 million in Q2 2023, a significant swing from a $28.3 million expense in Q2 2022, driven by gains on an embedded derivative and investments compared to prior-year losses[121] Non-GAAP Financial Measures This section provides definitions and reconciliations for key non-GAAP metrics, with Core Funds from Operations (Core FFO) attributable to common shareholders and unitholders increasing 14.0% to $273.3 million for Q2 2023, and the net debt to trailing twelve-month Adjusted EBITDAre ratio improving to 3.41x Core FFO Reconciliation Summary (in thousands) | Period | Net Income Available for MAA Common Shareholders | FFO | Core FFO | | :--- | :--- | :--- | :--- | | Q2 2023 | $144,766 | $286,344 | $273,280 | | Q2 2022 | $209,780 | $216,162 | $239,856 | - The Net Debt to Adjusted EBITDAre ratio improved from 3.71x at December 31, 2022, to 3.41x at June 30, 2023, due to higher Adjusted EBITDAre and lower net debt[143] Liquidity and Capital Resources The company maintains a strong liquidity position with $1.4 billion in combined unrestricted cash and available credit facility capacity as of June 30, 2023, and believes it has sufficient liquidity to fund its requirements for the next 12 months - As of June 30, 2023, the company had $1.4 billion of combined unrestricted cash and available capacity under its revolving credit facility[147] - In January 2023, MAA settled two forward sale agreements for 1.1 million shares, generating net proceeds of $203.7 million, which will be used to fund development and redevelopment activities[160] Debt Maturity Schedule (Principal Balance, in thousands) | Year | Total Debt Maturing | | :--- | :--- | | 2023 | $349,846 | | 2024 | $399,251 | | 2025 | $401,384 | | 2026 | $297,587 | | 2027 | $596,941 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to changes in interest rates, which is managed by utilizing fixed-rate debt, with 100% of outstanding debt subject to fixed interest rates as of June 30, 2023 - As of June 30, 2023, 100.0% of the company's outstanding debt was subject to fixed rates, effectively mitigating near-term interest rate risk[170] Controls and Procedures Management, including the CEO and CFO, evaluated the disclosure controls and procedures for both MAA and MAALP as of June 30, 2023, concluding that these controls were effective with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation as of June 30, 2023, the CEO and CFO of both MAA and MAALP concluded that the company's disclosure controls and procedures were effective[171][173] - No changes occurred during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[172][174] PART II – OTHER INFORMATION Legal Proceedings The company is a defendant in the "RealPage Litigation," a series of putative class action lawsuits alleging a conspiracy to artificially inflate apartment rental prices using revenue management software, which the company believes is without merit - The company is involved in the "RealPage Litigation," which alleges that lessors of multifamily real estate conspired to artificially inflate prices using RealPage's software[94] - The company believes the litigation is without merit and plans to defend the case vigorously. As of June 30, 2023, the company's accrual for loss contingencies for all unresolved legal matters was $7.7 million[94][96] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[177] Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2023, the company repurchased 39,404 shares of its common stock, which were shares surrendered by employees to satisfy tax obligations related to the vesting of restricted stock awards Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | 39,404 | $150.24 | | May 2023 | — | — | | June 2023 | — | — | | Total | 39,404 | - | - The repurchased shares were surrendered by employees to satisfy statutory minimum tax obligations associated with the vesting of restricted shares[178] Other Information During the three months ended June 30, 2023, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2023[181] Exhibits This section lists the exhibits filed as part of the Form 10-Q report, including corporate governance documents, incentive plan forms, and certifications by the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as Interactive Data Files (Inline XBRL)[183]