MAA(MAA) - 2021 Q4 - Annual Report

PART I Business MAA is a REIT focused on owning, operating, and developing apartment communities in the U.S. Sunbelt region Portfolio Summary as of December 31, 2021 | Multifamily | Communities | Units | | :--- | :--- | :--- | | Consolidated | 296 | 99,733 | | Unconsolidated | 1 | 269 | | Total | 297 | 100,002 | - MAA operates as a multifamily-focused REIT, conducting its business primarily through its operating partnership, MAALP, in which it held a 97.3% interest as of year-end 2021[24][25] Business Objectives and Operations The company aims to generate sustainable cash flow through intense property management and technology-driven operational efficiency - The company's primary objective is to generate sustainable and increasing cash flow to fund dividends through intense property management, technology utilization, and opportunistic investment activities[26] - MAA utilizes a decentralized operating structure supported by centralized enterprise solutions, including a web-based property management system and a "yield management" pricing program[27] - Investment in technology is a key operational driver, enabling 24/7 online leasing and resident services, with expanded virtual and self-guided tour options added in 2021[28] Acquisitions and Development The company actively pursues growth through strategic acquisitions and a robust development pipeline - In 2021, the company acquired two multifamily development properties and 19 acres of land for future development[30][31] - During 2021, MAA incurred $231.6 million in development costs and completed four development projects[31] Multifamily Projects Under Development as of December 31, 2021 | Project | Market | Total Units | Cost to Date | Budgeted Cost | | :--- | :--- | :--- | :--- | :--- | | MAA Westglenn | Denver, CO | 306 | $80.7M | $84.5M | | MAA Park Point | Houston, TX | 308 | $52.5M | $57.0M | | MAA Windmill Hill | Austin, TX | 350 | $39.8M | $63.0M | | Novel Val Vista | Phoenix, AZ | 317 | $36.5M | $72.5M | | Novel West Midtown | Atlanta, GA | 340 | $30.3M | $89.5M | | Novel Daybreak | Salt Lake City, UT | 400 | $33.9M | $94.0M | | Total | | 2,021 | $273.7M | $460.5M | Dispositions and Redevelopment MAA strategically disposes of assets and reinvests capital into unit renovations and Smart Home technology upgrades - In 2021, the company disposed of seven multifamily communities totaling 1,905 units and five land parcels, redeploying proceeds into other strategic investments[33] - The company renovated 6,360 apartment units in 2021 at an average cost of $5,893 per unit, achieving an average rental rate increase of 12.2% above non-renovated units[34] - MAA installed Smart Home technology in 23,579 units during 2021, projecting a monthly rent increase of approximately $25 per unit[35] Human Capital and Capital Structure The company maintains a diverse workforce and a conservative capital structure with low leverage - As of December 31, 2021, MAA employed 2,429 associates, with a workforce composed of approximately 49% ethnic/cultural minorities and 46% females[38][40] - The company's capital structure consisted of 14.2% debt borrowings relative to total market capitalization, with total debt at 29.8% of adjusted total assets, well below the 60% covenant limit[46] Risk Factors The company identifies significant risks related to real estate operations, indebtedness, and maintaining its REIT status Risks Related to Real Estate Investments and Operations Operational risks include the COVID-19 pandemic, economic downturns, geographic concentration, and cybersecurity threats - The COVID-19 pandemic presents material risks to rent collection, supply chains, and development projects[58][60][61] - The company's operations are concentrated in the Southeast, Southwest, and Mid-Atlantic, with 40.5% of its portfolio in the top five markets, increasing vulnerability to regional economic downturns[66] - Cybersecurity breaches of the company's or its third-party vendors' IT systems pose a significant risk of operational interruptions and liability claims[80][81][82] - Climate change poses physical risks from extreme weather and transition risks from new "green" building regulations that could increase costs[72][73] Risks Related to Indebtedness and Financing Activities Financial risks stem from substantial debt, rising interest rates, and restrictive debt covenants - As of December 31, 2021, the company had total debt of $4.5 billion, which could limit funds available for distributions and growth[92] - The company faces risks from rising interest rates and the phase-out of LIBOR, which could increase borrowing costs[94][95] - Debt agreements contain financial covenants and cross-default provisions, where a breach could lead to an acceleration of debt payments[98] Risks Related to Organization, Ownership, and Taxation Key organizational risks involve the 9.9% stock ownership limit and the critical need to maintain REIT tax status - MAA's charter restricts any single shareholder from owning more than 9.9% of its capital stock to protect its REIT status, which may deter potential acquisitions[103][106] - Failure to maintain qualification as a REIT would subject MAA to federal corporate income tax, significantly reducing funds available for distribution[118] - If the Operating Partnership (MAALP) were treated as a corporation for tax purposes, it would cause MAA to fail its REIT qualification tests[123] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[126] Properties The company's portfolio consists of 296 consolidated communities with high occupancy, concentrated in key Sunbelt states - The Same Store portfolio, consisting of 284 communities and 97,003 units, maintained an average physical occupancy of 96.1% for 2021[129] Top 5 Markets by Number of Units (as of Dec 31, 2021) | Market | Number of Communities | Number of Units | Average Physical Occupancy | | :--- | :--- | :--- | :--- | | Atlanta, GA | 29 | 11,434 | 95.5% | | Dallas, TX | 27 | 9,767 | 95.7% | | Austin, TX | 22 | 7,117 | 95.6% | | Charlotte, NC | 20 | 5,867 | 96.2% | | Raleigh / Durham, NC | 15 | 5,350 | 95.9% | Legal Proceedings The company faces two class-action lawsuits in Texas concerning late fees with a potential maximum exposure of $63.0 million - Two class-action lawsuits in Texas allege that late fees charged by the company violated Section 92.019 of the Texas Property Code[423][424] - Management estimates the maximum potential exposure from these lawsuits to be $63.0 million, excluding potential prejudgment interest[423][424] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[133] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MAA's common stock trades on the NYSE, and the company manages equity through ATM and repurchase programs - In November 2021, the company established a new At-the-Market (ATM) program authorizing the issuance of up to 4.0 million shares of common stock, though no shares were sold in 2021[139][140] - A stock repurchase plan authorized in December 2015 allows for the repurchase of up to 4.0 million shares, but no shares have been repurchased under this authorization as of year-end 2021[141][142] Comparison of Five-Year Cumulative Total Returns | Year Ended Dec 31, | MAA | S&P 500 Index | DJ US REIT Apartment Index | | :--- | :--- | :--- | :--- | | 2016 | $100.00 | $100.00 | $100.00 | | 2017 | $106.28 | $121.83 | $104.51 | | 2018 | $105.15 | $116.49 | $106.80 | | 2019 | $149.85 | $153.17 | $136.82 | | 2020 | $148.89 | $181.35 | $120.51 | | 2021 | $276.74 | $233.41 | $194.93 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net income and Core FFO grew significantly in 2021, driven by strong property revenue growth and gains on asset sales Results of Operations Property revenues and net income increased substantially, driven by strong Same Store performance and gains on dispositions - The increase in Same Store revenue was primarily driven by a 5.2% growth in average effective rent per unit and a rise in average physical occupancy to 96.1%[149][155] - Interest expense decreased by $10.7 million YoY to $156.9 million, due to a 27 basis point reduction in the effective interest rate[160] - The company recognized a gain on sale of $220.4 million in 2021 from the disposition of seven apartment communities[161] Financial Performance Summary (2021 vs. 2020) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Income available for MAA common shareholders | $530.1M | $251.3M | +111.0% | | Total Property Revenues | $1,778.1M | $1,678.0M | +6.0% | | Same Store Revenues | $1,702.7M | $1,613.4M | +5.5% | | Total Property Operating Expenses | $671.2M | $640.5M | +4.8% | | Same Store Operating Expenses | $638.4M | $611.5M | +4.4% | Funds from Operations (FFO) Core FFO increased by 9.1% year-over-year due to higher revenues and lower interest expense - Core FFO increased by $69.3 million (9.1%) in 2021 compared to 2020, primarily due to higher property revenues and lower interest expense[166] FFO and Core FFO Reconciliation (in thousands) | | Year ended Dec 31, 2021 | Year ended Dec 31, 2020 | | :--- | :--- | :--- | | Net income available for MAA common shareholders | $530,103 | $251,274 | | Adjustments (Depreciation, Gain on sale, etc.) | $323,319 | $513,020 | | FFO attributable to the Company | $853,422 | $765,294 | | Core Adjustments (Derivative loss, debt extinguishment, etc.) | ($22,807) | ($3,942) | | Core FFO | $830,615 | $761,352 | Liquidity and Capital Resources The company maintained strong liquidity of $1.1 billion while managing cash flows from operations, investing, and financing - As of December 31, 2021, the company had $1.1 billion in total liquidity, comprising unrestricted cash and available capacity under its revolving credit facility[171] - Investing activities in 2021 included $307.9 million in proceeds from dispositions, offset by $279.6 million in capital improvements and $231.6 million in development costs[173] - Financing activities in 2021 included issuing $594.4 million in notes payable and paying $470.4 million in common dividends[175] Cash Flow Summary (in millions) | Cash Flow | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $895.0 | $823.9 | | Net Cash used in Investing Activities | ($253.6) | ($484.7) | | Net Cash used in Financing Activities | ($546.4) | ($374.1) | Debt and Equity The company managed its $4.5 billion debt portfolio through new issuances and maintained a low effective interest rate - In August 2021, MAALP issued $600 million in unsecured senior notes at favorable rates[182][183] - In August 2021, MAA entered into forward sale agreements for 1.1 million shares of common stock at an initial price of $190.56 per share[188] Debt Outstanding as of December 31, 2021 (in thousands) | Debt Type | Principal Balance | Avg. Years to Maturity | Effective Rate | | :--- | :--- | :--- | :--- | | Unsecured senior notes | $4,175,000 | 7.1 | 3.3% | | Secured property mortgages | $368,555 | 26.8 | 4.4% | | Total Debt | $4,543,555 | 8.7 | 3.4% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation, which is mitigated by a capital structure of 100% fixed-rate debt - The company's main market risk is interest rate changes on its borrowings, which is mitigated through the use of fixed-rate debt instruments[208] - As of December 31, 2021, 100.0% of the company's outstanding debt was subject to fixed rates, minimizing the impact of interest rate fluctuations[208] Financial Statements and Supplementary Data This section contains the company's consolidated financial statements and the independent auditor's report - The consolidated financial statements and supplementary data required by this item are included from page F-1 to F-42 of the report[209] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[210] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal controls were effective as of year-end - MAA's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[212] - Based on the COSO framework, MAA's management concluded that its internal control over financial reporting was effective as of December 31, 2021, an assessment attested to by Ernst & Young LLP[213][214] - No material changes occurred in the company's internal control over financial reporting during the fourth quarter of 2021[216] PART III Directors, Executive Officers, Compensation, Security Ownership, and Accountant Fees Required information on governance, compensation, and ownership is incorporated by reference from the 2022 Proxy Statement - Information regarding Directors, Executive Officers, and Corporate Governance (Item 10) is incorporated by reference from the 2022 Proxy Statement[224] - Details on Executive Compensation (Item 11) are incorporated by reference from the 2022 Proxy Statement[226] - Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees and Services (Item 14) are all incorporated by reference from the 2022 Proxy Statement[227][228][229] PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K - This section contains the list of financial statements, the financial statement schedule (Schedule III – Real Estate and Accumulated Depreciation), and all exhibits filed with the Form 10-K[232] Form 10-K Summary The company has not provided a Form 10-K summary - None[238]