MAA(MAA) - 2022 Q4 - Annual Report

Part I Business MAA is a REIT focused on owning, operating, acquiring, and developing apartment communities in the Southeast, Southwest, and Mid-Atlantic US regions - MAA's primary business objectives are to generate sustainable and increasing cash flow to fund dividends through intense property management, technology utilization, opportunistic portfolio management, market diversification, and active capital structure management[26][29] - In 2022, the company disposed of four multifamily communities totaling 1,414 units and two land parcels, redeploying proceeds into other strategic investments[34] - During 2022, MAA renovated 6,574 apartment units at an average cost of $6,109 per unit, achieving average rental rate increases of 10.0% above non-renovated units, and installed smart home technology in 24,029 units[35][36] - As of December 31, 2022, ethnic/cultural minorities represented approximately 50% of the workforce and 40% of leadership positions, while females represented approximately 46% of the workforce and 56% of leadership positions[42] - The company targets total debt, net of cash, to be in a range of 30% to 36% of adjusted total assets, with actual total debt at 28.4% as of December 31, 2022, well below the 60% covenant limit[46] Portfolio Overview as of December 31, 2022 | Multifamily Portfolio | Communities | Units | | :--- | :--- | :--- | | Consolidated | 296 | 99,407 | | Unconsolidated | 1 | 269 | | Total | 297 | 99,676 | 2022 Multifamily Acquisitions | Property | Market | Units | Date Acquired | | :--- | :--- | :--- | :--- | | MAA Hampton Preserve II | Tampa, FL | 196 | July 2022 | | MAA LoSo | Charlotte, NC | 344 | September 2022 | Multifamily Projects Under Development as of December 31, 2022 | Project | Market | Total Units | Budgeted Cost (thousands) | Expected Completion | | :--- | :--- | :--- | :--- | :--- | | Novel West Midtown | Atlanta, GA | 340 | $89,500 | 3rd Quarter 2023 | | Novel Daybreak | Salt Lake City, UT | 400 | $94,000 | 4th Quarter 2023 | | Novel Val Vista | Phoenix, AZ | 317 | $77,200 | 1st Quarter 2024 | | MAA Milepost 35 | Denver, CO | 352 | $125,000 | 4th Quarter 2024 | | MAA Nixie | Raleigh, NC | 406 | $145,500 | 3rd Quarter 2025 | | MAA Breakwater | Tampa, FL | 495 | $197,500 | 4th Quarter 2025 | | Total | | 2,310 | $728,700 | | Risk Factors The company faces significant operational, financial, and regulatory risks, including economic downturns, geographic concentration, substantial indebtedness, and the potential loss of REIT status - Operational risks include potential impacts from public health events like COVID-19 on rent collection, leasing, and construction schedules[57] - Unfavorable economic conditions, such as inflation and unemployment, could adversely affect occupancy, rental revenues, and property values[61] - 41.1% of the portfolio is concentrated in five markets (Atlanta, Dallas, Austin, Orlando, Charlotte), increasing vulnerability to regional economic downturns[65] - The company faces climate change risks, including physical risks from extreme weather events and transition risks from new regulations that could increase operating and development costs[72][73] - Cybersecurity breaches pose a key risk, potentially compromising confidential information, causing operational disruptions, liability claims, and reputational damage[80][82] - Financial risks stem from substantial indebtedness of $4.4 billion as of December 31, 2022, which could limit financial flexibility and increase borrowing costs due to rising interest rates[90][92] - Tax-related risks include the potential failure to maintain REIT qualification, which would result in corporate income tax and reduced funds for shareholder distribution[116] Unresolved Staff Comments The company reports that there are no unresolved staff comments from the SEC - None[124] Properties As of December 31, 2022, MAA's portfolio comprised 296 consolidated communities with 99,407 units, concentrated in the Southeast, Southwest, and Mid-Atlantic, with a 95.3% average occupancy - The total portfolio of 296 consolidated communities (99,407 units) had an average physical occupancy of 95.3% for the year ended December 31, 2022[127] - As of December 31, 2022, the company had $367.2 million of outstanding mortgage indebtedness collateralized by its properties[129] Top 5 Markets by Number of Units (as of Dec 31, 2022) | Market | Number of Communities | Number of Units | Average Physical Occupancy | | :--- | :--- | :--- | :--- | | Atlanta, GA | 29 | 11,434 | 95.4% | | Dallas, TX | 27 | 9,767 | 95.6% | | Austin, TX | 20 | 6,829 | 95.2% | | Charlotte, NC | 20 | 5,867 | 95.8% | | Raleigh/Durham, NC | 15 | 5,350 | 95.6% | Legal Proceedings The company is engaged in certain legal proceedings, with further details incorporated by reference from Note 11 to the consolidated financial statements - The company is a defendant in a class-action lawsuit alleging conspiracy to artificially inflate multifamily residential real estate prices, which it believes is without merit[85][130][402] Mine Safety Disclosures This item is not applicable to the company - Not applicable[131] 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, supported by dividend programs, an ATM offering program with 4.0 million shares available, and a stock repurchase plan for up to 4.0 million shares - MAA's common stock has been listed on the NYSE under the symbol "MAA" since February 1994[133] - The company has an ATM program with authority to issue up to 4.0 million shares, with no sales in 2022 and 4.0 million shares remaining available as of December 31, 2022[137][138] - A stock repurchase plan authorized in December 2015 allows for the repurchase of up to 4.0 million shares, with no shares repurchased as of December 31, 2022[139][140] Comparison of Five-Year Cumulative Total Returns | Year Ended Dec 31 | Mid-America Apartment Communities, Inc. | S&P 500 Index | DJ US REIT Apartment Index | | :--- | :--- | :--- | :--- | | 2017 | $100.00 | $100.00 | $100.00 | | 2018 | $98.94 | $95.62 | $102.19 | | 2019 | $141.00 | $125.72 | $130.92 | | 2020 | $140.10 | $148.85 | $115.30 | | 2021 | $260.40 | $191.58 | $186.51 | | 2022 | $182.93 | $156.88 | $126.67 | [Reserved] This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, MAA's net income increased by 19.6% to $633.7 million, driven by 13.6% property revenue growth, with Core FFO reaching $1.0 billion, supported by $1.3 billion in liquidity and $4.4 billion in total debt - Key performance drivers for the Same Store segment in 2022 included a 14.6% increase in average effective rent per unit, while average physical occupancy slightly decreased to 95.7% from 96.1%[148][149] - As of December 31, 2022, the company maintained a strong liquidity position with $1.3 billion of combined unrestricted cash and available revolving credit facility capacity[170] - As of December 31, 2022, the company had obligations for future capital contributions up to $45.2 million to five technology-focused limited partnerships[186] - The company expects to pay quarterly dividends at an annual rate of $5.60 per share of common stock for the year ending December 31, 2023[190] Financial Highlights (Year Ended Dec 31) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :--- | :--- | :--- | :--- | | Net Income available for MAA common shareholders | $633.7 | $530.1 | 19.6% | | Total Property Revenues | $2,019.9 | $1,778.1 | 13.6% | | Total Property Operating Expenses | $723.7 | $671.2 | 7.8% | Reconciliation of Net Income to Core FFO (in thousands) | | Year ended December 31, 2022 (thousands) | Year ended December 31, 2021 (thousands) | | :--- | :--- | :--- | | Net income available for MAA common shareholders | $633,748 | $530,103 | | Adjustments (Depreciation, Gain on sale, etc.) | $339,034 | $323,319 | | FFO attributable to the Company | $972,782 | $853,422 | | Core Adjustments (Loss on derivative, etc.) | $35,424 | ($22,807) | | Core FFO | $1,008,206 | $830,615 | Outstanding Debt as of December 31, 2022 (in thousands) | Debt Type | Principal Balance (thousands) | Average Years to Maturity | Effective Rate | | :--- | :--- | :--- | :--- | | Unsecured Debt | $4,050,910 | 6.3 | 3.4% | | Secured Debt | $363,993 | 25.8 | 4.4% | | Total Debt | $4,414,903 | 7.9 | 3.4% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on borrowings, mitigated by a focus on fixed-rate debt, with 99.5% of outstanding debt fixed as of December 31, 2022 - The company's main market risk is interest rate fluctuation, managed by utilizing fixed-rate debt and staggering maturity dates[202] - As of December 31, 2022, 99.5% of the company's outstanding debt carried a fixed interest rate, significantly limiting exposure to short-term rate volatility[202] Financial Statements and Supplementary Data This section indicates that the consolidated financial statements and related financial information are provided, starting on page F-1 of the Annual Report on Form 10-K - The consolidated financial statements and supplementary data are located in the financial section of the report, beginning on page F-1[203] 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[204] Controls and Procedures Management, including the CEO and CFO, concluded that both disclosure controls and internal control over financial reporting were effective for MAA and its Operating Partnership as of December 31, 2022, with no material changes during Q4 2022 - MAA's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[206] - Based on the COSO framework, MAA's management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, attested to by Ernst & Young LLP[207][208] - For the Operating Partnership (MAALP), management similarly concluded that both disclosure controls and internal controls over financial reporting were effective as of December 31, 2022[211][212] - No changes occurred during the quarter ended December 31, 2022, that materially affected internal control over financial reporting for either MAA or the Operating Partnership[210][214] Other Information The company reports no other information for this item - None[215] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[216] Part III Directors, Executive Officers and Corporate Governance The information required for this item, including details on directors, executive officers, and corporate governance, is incorporated by reference from MAA's 2023 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Proxy Statement[218] Executive Compensation The information required for this item, including the Compensation Discussion and Analysis and executive compensation tables, is incorporated by reference from MAA's 2023 Proxy Statement - Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement[220] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item, including security ownership of management and certain beneficial owners, is incorporated by reference from MAA's 2023 Proxy Statement - Information regarding security ownership is incorporated by reference from the company's 2023 Proxy Statement[221] Certain Relationships and Related Transactions, and Director Independence The information required for this item, including details on related party transactions and director independence, is incorporated by reference from MAA's 2023 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2023 Proxy Statement[222] Principal Accountant Fees and Services The information required for this item, including details on principal accountant fees and services, is incorporated by reference from MAA's 2023 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the company's 2023 Proxy Statement[223] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Annual Report, including auditor's reports, consolidated financial statements, and required Regulation S-K exhibits - This item lists all financial statements, schedules, and exhibits filed with the Annual Report, including the auditor's report, consolidated balance sheets, statements of operations, and Schedule III for Real Estate and Accumulated Depreciation[226] Form 10-K Summary The company indicates that there is no Form 10-K summary provided - None[233]