Attached files

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EX-32.4 - EXHIBIT 32.4 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit324-maalpq12018.htm
EX-32.3 - EXHIBIT 32.3 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit323-maalpq12018.htm
EX-32.2 - EXHIBIT 32.2 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit322-maaq12018.htm
EX-32.1 - EXHIBIT 32.1 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit321-maaq12018.htm
EX-31.4 - EXHIBIT 31.4 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit314-maalpq12018.htm
EX-31.3 - EXHIBIT 31.3 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit313-maalpq12018.htm
EX-31.2 - EXHIBIT 31.2 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit312-maaq12018.htm
EX-31.1 - EXHIBIT 31.1 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit311-maaq12018.htm
EX-12.2 - EXHIBIT 12.2 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit122-maalpq12018.htm
EX-12.1 - EXHIBIT 12.1 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit121-maaq12018.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018
or

¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-12762 (Mid-America Apartment Communities, Inc.)
Commission File Number: 333-190028-01 (Mid-America Apartments, L.P.)
MID-AMERICA APARTMENT COMMUNITIES, INC.
MID-AMERICA APARTMENTS, L.P.
(Exact name of registrant as specified in its charter)
Tennessee (Mid-America Apartment Communities, Inc.)
62-1543819
Tennessee (Mid-America Apartments, L.P.)
62-1543816
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
6815 Poplar Ave., Suite 500, Germantown, TN 38138
 
 
(Address of principal executive offices) (Zip Code)
 
 
(901) 682-6600
 
 
(Registrant's telephone number, including area code)
 
 
6584 Poplar Ave., Memphis, TN 38138
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Mid-America Apartment Communities, Inc.
YES  ý
NO o
Mid-America Apartments, L.P.
YES  ý
NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Mid-America Apartment Communities, Inc.
YES  ý
NO o
Mid-America Apartments, L.P.
YES  ý
NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Mid-America Apartment Communities, Inc.
 
 
 
 
Large accelerated filer  ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
                                                                               (Do not check if a smaller reporting company)
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Mid-America Apartments, L.P.
 
 
 
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer  ý
Smaller reporting company o
Emerging growth company o
                                                                              (Do not check if a smaller reporting company)
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Mid-America Apartment Communities, Inc.
YES o
NO  ý
Mid-America Apartments, L.P.
YES o
NO  ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Mid America Apartment Communities, Inc.
Number of Shares Outstanding at
Class
April 30, 2018
Common Stock, $0.01 par value
113,791,411




MID-AMERICA APARTMENT COMMUNITIES, INC.
MID-AMERICA APARTMENTS, L.P.

TABLE OF CONTENTS

 
 
Page
 PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements.
 
Mid-America Apartment Communities, Inc.
 
 
 
 
 
 
Mid-America Apartments, L.P.
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 

1



Explanatory Note

This report combines the Quarterly Reports on Form 10-Q for the three months ended March 31, 2018 of Mid-America Apartment Communities, Inc., a Tennessee corporation, and Mid-America Apartments, L.P., a Tennessee limited partnership, of which Mid-America Apartment Communities, Inc. is the sole general partner. Mid-America Apartment Communities, Inc. and its 96.5% owned subsidiary, Mid-America Apartments, L.P., are both required to file quarterly reports under the Securities Exchange Act of 1934, as amended.

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to "MAA" refer only to Mid-America Apartment Communities, Inc., and not any of its consolidated subsidiaries. Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to "we," "us," "our," or the "Company" refer collectively to Mid-America Apartment Communities, Inc., together with its consolidated subsidiaries, including Mid-America Apartments, L.P. Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to the "Operating Partnership" or "MAALP" refer to Mid-America Apartments, L.P., together with its consolidated subsidiaries. "Common stock" refers to the common stock of MAA, "preferred stock" refers to the preferred stock of MAA and "shareholders" means the holders of shares of MAA’s common stock or preferred stock, as applicable. The common units of limited partnership interest in the Operating Partnership are referred to as "OP Units" and the holders of the OP Units are referred to as "common unitholders".

As of March 31, 2018, MAA owned 113,745,207 OP Units (or approximately 96.5% of the total number of OP Units). MAA conducts substantially all of its business and holds substantially all of its assets through the Operating Partnership, and by virtue of its ownership of the OP Units and being the Operating Partnership's sole general partner, MAA has the ability to control all of the day-to-day operations of the Operating Partnership.

We believe combining the periodic reports of MAA and the Operating Partnership, including the notes to the condensed consolidated financial statements, into this Quarterly Report on Form 10-Q results in the following benefits:

enhances investors' understanding of MAA and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this Quarterly Report on Form 10-Q applies to both MAA and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined Quarterly Report on Form 10-Q instead of two separate reports.

MAA is a multifamily focused, self-administered and self-managed real estate investment trust, or REIT. Management operates MAA and the Operating Partnership as one business. We believe it is important to understand the few differences between MAA and the Operating Partnership in the context of how MAA and the Operating Partnership operate as a consolidated company. MAA and the Operating Partnership are structured as an "umbrella partnership REIT," or UPREIT. MAA's interest in the Operating Partnership entitles MAA to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to MAA's percentage interest therein and entitles MAA to vote on substantially all matters requiring a vote of the partners. MAA's only material asset is its ownership of OP Units in the Operating Partnership (other than cash held by MAA from time-to-time); therefore, MAA does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time-to-time and guaranteeing certain debt of the Operating Partnership. The Operating Partnership holds, directly or indirectly, all of the real estate assets. Except for net proceeds from public equity issuances by MAA, which are contributed to the Operating Partnership in exchange for OP Units, the Operating Partnership generates the capital required by the Company's business through the Operating Partnership's operations, direct or indirect incurrence of indebtedness and issuance of OP Units.

The presentation of MAA's shareholders' equity and the Operating Partnership's capital are the principal areas of difference between the consolidated financial statements of MAA and those of the Operating Partnership. MAA's shareholders' equity may include shares of preferred stock, shares of common stock, additional paid-in capital, cumulative earnings, cumulative distributions, noncontrolling interest, treasury shares, accumulated other comprehensive income and redeemable common stock. The Operating Partnership's capital may include common capital and preferred capital of the general partner (MAA), limited partners' common capital and preferred capital, noncontrolling interest, accumulated other comprehensive income and redeemable common units. Redeemable common units represent the number of outstanding limited partnership units as of the date of the applicable balance sheet, valued at the greater of the closing market price of MAA's common stock or the aggregate value of the individual partners' capital balances. Holders of OP Units (other than MAA and its entity affiliates) may require the Operating Partnership to redeem their OP Units from time to time, in which case the Operating Partnership may, at its option, pay the redemption price either in cash (in an amount per OP Unit equal, in general, to the average closing price of MAA’s common stock on the New York Stock Exchange, or NYSE, over a specified period prior to the redemption

2



date) or by delivering one share of MAA's common stock (subject to adjustment under specified circumstances) for each OP Unit so redeemed.

In order to highlight the material differences between MAA and the Operating Partnership, this Quarterly Report on Form 10-Q includes sections that separately present and discuss areas that are materially different between MAA and the Operating Partnership, including:

the condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q;
certain accompanying notes to the condensed consolidated financial statements, including Note 2 - Earnings per Common Share of MAA and Note 3 - Earnings per OP Unit of MAALP; Note 4 - MAA Equity and Note 5 - MAALP Capital; and Note 8 - Shareholders' Equity of MAA and Note 9 - Partners' Capital of MAALP;
the controls and procedures in Item 4 of this Quarterly Report on Form 10-Q; and
the certifications included as Exhibits 31 and 32 to this Quarterly Report on Form 10-Q.

In the sections that combine disclosures for MAA and the Operating Partnership, this Quarterly Report on Form 10-Q refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership (directly or indirectly through one of its subsidiaries) is generally the entity that enters into contracts, holds assets and issues debt, management believes this presentation is appropriate for the reasons set forth above and because the business is one enterprise, and we operate the business through the Operating Partnership.


3



PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements.

Mid-America Apartment Communities, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except share and per share data)
 
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Real estate assets:
 
 
 
Land
$
1,836,417

 
$
1,836,417

Buildings and improvements and other
11,363,738

 
11,281,504

Development and capital improvements in progress
93,089

 
116,833

 
13,293,244

 
13,234,754

Less: Accumulated depreciation
(2,194,915
)
 
(2,075,071
)
 
11,098,329

 
11,159,683

Undeveloped land
50,198

 
57,285

Investment in real estate joint venture
45,000

 
44,956

Real estate assets, net
11,193,527

 
11,261,924

 
 
 
 
Cash and cash equivalents
59,706

 
10,750

Restricted cash
22,404

 
78,117

Other assets
135,039

 
135,807

Assets held for sale
6,700

 
5,321

Total assets
$
11,417,376

 
$
11,491,919

 
 
 
 
Liabilities and equity
 

 
 

Liabilities:
 

 
 

Unsecured notes payable
$
3,566,664

 
$
3,525,765

Secured notes payable
932,187

 
976,292

Accrued expenses and other liabilities
390,380

 
405,560

Total liabilities
4,889,231

 
4,907,617

 
 
 
 
Redeemable common stock
7,782

 
10,408

 
 
 
 
Shareholders' equity:
 

 
 

Preferred stock, $0.01 par value per share, 20,000,000 shares authorized; 8.50% Series I Cumulative Redeemable Shares, liquidation preference $50 per share, 867,846 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
9

 
9

Common stock, $0.01 par value per share, 145,000,000 shares authorized; 113,745,207 and 113,643,166 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively(1)
1,135

 
1,134

Additional paid-in capital
7,127,740

 
7,121,112

Accumulated distributions in excess of net income
(840,642
)
 
(784,500
)
Accumulated other comprehensive income
3,000

 
2,157

Total MAA shareholders' equity
6,291,242

 
6,339,912

Noncontrolling interests - Operating Partnership units
226,815

 
231,676

Total Company's shareholders' equity
6,518,057

 
6,571,588

Noncontrolling interest - consolidated real estate entity
2,306

 
2,306

Total equity
6,520,363

 
6,573,894

Total liabilities and equity
$
11,417,376

 
$
11,491,919

(1) 
Number of shares issued and outstanding represent total shares of common stock regardless of classification on the Condensed Consolidated Balance Sheets. The number of shares classified as redeemable common stock on the Condensed Consolidated Balance Sheets for March 31, 2018 and December 31, 2017 are 85,289 and 103,504, respectively.
 
See accompanying notes to condensed consolidated financial statements.

4



Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share data)
 
Three months ended March 31,
 
2018
 
2017
Revenues:
 
 
 
Rental and other property revenues
$
386,017

 
$
378,908

Expenses:
 

 
 

Operating expense, excluding real estate taxes and insurance
89,148

 
87,300

Real estate taxes and insurance
55,256

 
53,973

Depreciation and amortization
120,744

 
129,997

Total property operating expenses
265,148

 
271,270

Property management expenses
12,880

 
10,981

General and administrative expenses
10,132

 
12,840

Merger and integration related expenses
3,799

 
6,161

Income before non-operating items
94,058

 
77,656

Interest expense
(40,905
)
 
(36,584
)
Loss on sale of depreciable real estate assets

 
(73
)
Gain on sale of non-depreciable real estate assets
150

 

Other non-operating (expense) income
(2,341
)
 
2,711

Income before income tax expense
50,962

 
43,710

Income tax expense
(640
)
 
(651
)
Income from continuing operations before real estate joint venture activity
50,322

 
43,059

Income from real estate joint venture
498

 
357

Net income
50,820

 
43,416

Net income attributable to noncontrolling interests
1,801

 
1,511

Net income available for shareholders
49,019

 
41,905

Dividends to MAA Series I preferred shareholders
922

 
922

Net income available for MAA common shareholders
$
48,097

 
$
40,983

 
 
 
 
Earnings per common share - basic:
 
 
 

Net income available for common shareholders
$
0.42

 
$
0.36

 
 
 
 
Earnings per common share - diluted:
 

 
 

Net income available for common shareholders
$
0.42

 
$
0.36

 
 
 
 
Dividends declared per common share
$
0.9225

 
$
0.8700


See accompanying notes to condensed consolidated financial statements.

5



Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
 
Three months ended March 31,
 
2018
 
2017
Net income
$
50,820

 
$
43,416

Other comprehensive income:
 
 
 
Unrealized gain from the effective portion of derivative instruments
832

 
2,520

Reclassification adjustment for net (gains) losses included in net income for the effective portion of derivative instruments
(193
)
 
672

Total comprehensive income
51,459

 
46,608

Less: Comprehensive income attributable to noncontrolling interests
(1,830
)
 
(1,624
)
Comprehensive income attributable to MAA
$
49,629

 
$
44,984

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.



6



Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
Three months ended March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
50,820

 
$
43,416

   Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

     Depreciation and amortization
121,361

 
130,082

     Loss on sale of depreciable real estate assets

 
73

     Gain on sale of non-depreciable real estate assets
(150
)
 

     Stock compensation expense
4,024

 
3,018

     Amortization of debt premium and debt issuance costs
(1,569
)
 
(3,147
)
     Net change in operating accounts and other
(21,782
)
 
(40,669
)
Net cash provided by operating activities
152,704

 
132,773

 
 
 
 
Cash flows from investing activities:
 

 
 

     Purchases of real estate and other assets

 
(62,817
)
     Capital improvements, development and other
(51,775
)
 
(86,338
)
     Contributions to affiliates, including joint ventures
(750
)
 

     Proceeds from disposition of real estate assets
5,860

 

Net cash used in investing activities
(46,665
)
 
(149,155
)
 
 
 
 
Cash flows from financing activities:
 

 
 

     Proceeds from lines of credit
150,000

 
155,000

Repayments of lines of credit
(110,000
)
 
(75,000
)
     Principal payments on notes payable
(41,042
)
 
(18,871
)
     Repurchase of common stock
(2,912
)
 
(4,734
)
Debt prepayment and extinguishment costs
(3
)
 
(1
)
     Proceeds from issuances of common shares
199

 
67

     Exercise of stock options
625

 

     Distributions to noncontrolling interests
(3,865
)
 
(3,667
)
     Dividends paid on common shares
(104,876
)
 
(98,791
)
     Dividends paid on preferred shares
(922
)
 
(922
)
Net cash used in financing activities
(112,796
)
 
(46,919
)
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(6,757
)
 
(63,301
)
Cash, cash equivalents and restricted cash, beginning of period
88,867

 
121,800

Cash, cash equivalents and restricted cash, end of period
$
82,110

 
$
58,499

 
 
 
 
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets:
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Cash and cash equivalents
$
59,706

 
$
33,959

Restricted cash
22,404

 
24,540

Total cash, cash equivalents and restricted cash
$
82,110

 
$
58,499

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
24,889

 
$
24,785

Income taxes paid
2,522

 
10

 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 

 
 

Conversion of OP Units to shares of common stock
$
2,780

 
$
167

Accrued construction in progress
14,640

 
21,810

Interest capitalized
795

 
2,020

Mark-to-market adjustment on derivative instruments
(1,363
)
 
6,743

See accompanying notes to condensed consolidated financial statements.

7




Mid-America Apartments, L.P.
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except unit data)
 
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Real estate assets:
 
 
 
Land
$
1,836,417

 
$
1,836,417

Buildings and improvements and other
11,363,738

 
11,281,504

Development and capital improvements in progress
93,089

 
116,833

 
13,293,244

 
13,234,754

Less: Accumulated depreciation
(2,194,915
)
 
(2,075,071
)
 
11,098,329

 
11,159,683

Undeveloped land
50,198

 
57,285

Investment in real estate joint venture
45,000

 
44,956

Real estate assets, net
11,193,527

 
11,261,924

 
 
 
 
Cash and cash equivalents
59,706

 
10,750

Restricted cash
22,404

 
78,117

Other assets
135,039

 
135,807

Assets held for sale
6,700

 
5,321

Total assets
$
11,417,376

 
$
11,491,919

 
 
 
 
Liabilities and capital
 

 
 

Liabilities:
 

 
 

Unsecured notes payable
$
3,566,664

 
$
3,525,765

Secured notes payable
932,187

 
976,292

Accrued expenses and other liabilities
390,380

 
405,560

Due to general partner
19

 
19

Total liabilities
4,889,250

 
4,907,636

 
 
 
 
Redeemable common units
7,782

 
10,408

 
 
 
 
Operating Partnership capital:
 

 
 

Preferred units, 867,846 preferred units outstanding at March 31, 2018 and at December 31, 2017
66,840

 
66,840

Common units:
 
 
 
General partner, 113,745,207 and 113,643,166 OP Units outstanding at March 31, 2018 and December 31, 2017, respectively (1)
6,221,216

 
6,270,758

Limited partners, 4,141,780 and 4,191,586 OP Units outstanding at March 31, 2018 and December 31, 2017, respectively (1)
226,815

 
231,676

Accumulated other comprehensive income
3,167

 
2,295

Total operating partners' capital
6,518,038

 
6,571,569

Noncontrolling interest - consolidated real estate entity
2,306

 
2,306

Total capital
6,520,344

 
6,573,875

Total liabilities and capital
$
11,417,376

 
$
11,491,919

(1) 
Number of units outstanding represent total OP Units regardless of classification on the Condensed Consolidated Balance Sheets. The number of units classified as redeemable common units on the Condensed Consolidated Balance Sheets at March 31, 2018 and December 31, 2017 are 85,289 and 103,504, respectively.
See accompanying notes to condensed consolidated financial statements.

8



Mid-America Apartments, L.P.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per unit data)
 
Three months ended March 31,
 
2018
 
2017
Revenues:
 
 
 
Rental and other property revenues
$
386,017

 
$
378,908

Expenses:
 

 
 

Operating expense, excluding real estate taxes and insurance
89,148

 
87,300

Real estate taxes and insurance
55,256

 
53,973

Depreciation and amortization
120,744

 
129,997

Total property operating expenses
265,148

 
271,270

Property management expenses
12,880

 
10,981

General and administrative expenses
10,132

 
12,840

Merger and integration related expenses
3,799

 
6,161

Income before non-operating items
94,058

 
77,656

Interest expense
(40,905
)
 
(36,584
)
Loss on sale of depreciable real estate assets

 
(73
)
Gain on sale of non-depreciable real estate assets
150

 

Other non-operating (expense) income
(2,341
)
 
2,711

Income before income tax expense
50,962

 
43,710

Income tax expense
(640
)
 
(651
)
Income from continuing operations before real estate joint venture activity
50,322

 
43,059

Income from real estate joint venture
498

 
357

Net income
50,820

 
43,416

Dividends to preferred unitholders
922

 
922

Net income available for MAALP common unitholders
$
49,898

 
$
42,494

 
 
 
 
Earnings per common unit - basic:
 
 
 
Net income available for common unitholders
$
0.42

 
$
0.36

 
 
 
 
Earnings per common unit - diluted:
 
 
 
Net income available for common unitholders
$
0.42

 
$
0.36

 
 
 
 
Distributions declared per common unit
$
0.9225

 
$
0.8700


See accompanying notes to condensed consolidated financial statements.

9



Mid-America Apartments, L.P.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
 
Three months ended March 31,
 
2018
 
2017
Net income
$
50,820

 
$
43,416

Other comprehensive income:
 
 
 
Unrealized gain from the effective portion of derivative instruments
832

 
2,520

Reclassification adjustment for net (gains) losses included in net income for the effective portion of derivative instruments
(193
)
 
672

Comprehensive income attributable to MAALP
$
51,459

 
$
46,608

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.


10



Mid-America Apartments, L.P.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
Three months ended March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
50,820

 
$
43,416

   Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

     Depreciation and amortization
121,361

 
130,082

     Loss on sale of depreciable real estate assets

 
73

     Gain on sale of non-depreciable real estate assets
(150
)
 

     Stock compensation expense
4,024

 
3,018

     Amortization of debt premium and debt issuance costs
(1,569
)
 
(3,147
)
     Net change in operating accounts and other
(21,782
)
 
(40,669
)
Net cash provided by operating activities
152,704

 
132,773

 
 
 
 
Cash flows from investing activities:
 

 
 

     Purchases of real estate and other assets

 
(62,817
)
     Capital improvements, development and other
(51,775
)
 
(86,338
)
     Contributions to affiliates, including joint ventures
(750
)
 

     Proceeds from disposition of real estate assets
5,860

 

Net cash used in investing activities
(46,665
)
 
(149,155
)
 
 
 
 
Cash flows from financing activities:
 

 
 

     Proceeds from lines of credit
150,000

 
155,000

Repayments of lines of credit
(110,000
)
 
(75,000
)
     Principal payments on notes payable
(41,042
)
 
(18,871
)
     Repurchase of common units
(2,912
)
 
(4,734
)
Debt prepayment and extinguishment costs
(3
)
 
(1
)
     Proceeds from issuances of common units
199

 
67

     Exercise of unit options
625

 

     Distributions paid on common units
(108,741
)
 
(102,458
)
     Distributions paid on preferred units
(922
)
 
(922
)
Net cash used in financing activities
(112,796
)
 
(46,919
)
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(6,757
)
 
(63,301
)
Cash, cash equivalents and restricted cash, beginning of period
88,867

 
121,800

Cash, cash equivalents and restricted cash, end of period
$
82,110

 
$
58,499

 
 
 
 
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets:
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Cash and cash equivalents
$
59,706

 
$
33,959

Restricted cash
22,404

 
24,540

Total cash, cash equivalents and restricted cash
$
82,110

 
$
58,499

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
24,889

 
$
24,785

Income taxes paid
2,522

 
10

 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 
 
 
Accrued construction in progress
$
14,640

 
$
21,810

Interest capitalized
795

 
2,020

Mark-to-market adjustment on derivative instruments
(1,363
)
 
6,743


See accompanying notes to condensed consolidated financial statements.

11



Mid-America Apartment Communities, Inc. and Mid-America Apartments, L.P.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.           Basis of Presentation and Principles of Consolidation and Significant Accounting Policies

Unless the context otherwise requires, all references to the "Company" refer collectively to Mid-America Apartment Communities, Inc., together with its consolidated subsidiaries, including Mid-America Apartments, L.P. Unless the context otherwise requires, all references to "MAA" refer only to Mid-America Apartment Communities, Inc. and not any of its consolidated subsidiaries. Unless the context otherwise requires, the references to the "Operating Partnership" or "MAALP" refer to Mid-America Apartments, L.P., together with its consolidated subsidiaries. "Common stock" refers to the common stock of MAA and, unless the context otherwise requires, "shareholders" means the holders of shares of MAA’s common stock. The common units of limited partnership interests in the Operating Partnership are referred to as "OP Units," and the holders of the OP Units are referred to as "common unitholders".

As of March 31, 2018, MAA owned 113,745,207 OP Units (or approximately 96.5% of the total number of OP Units). MAA conducts substantially all of its business and holds substantially all of its assets through the Operating Partnership, and by virtue of its ownership of the OP Units and being the Operating Partnership's sole general partner, MAA has the ability to control all of the day-to-day operations of the Operating Partnership.

Management believes combining the notes to the condensed consolidated financial statements of MAA and the Operating Partnership results in the following benefits:

enhances readers' understanding of MAA and the Operating Partnership by enabling the reader to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both MAA and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined set of notes instead of two separate sets.

MAA is a multifamily focused, self-administered and self-managed real estate investment trust, or REIT. Management operates MAA and the Operating Partnership as one business. The management of the Company is comprised of individuals who are officers of MAA and employees of the Operating Partnership. Management believes it is important to understand the few differences between MAA and the Operating Partnership in the context of how MAA and the Operating Partnership operate as a consolidated company. MAA and the Operating Partnership are structured as an "umbrella partnership REIT," or UPREIT. MAA's interest in the Operating Partnership entitles MAA to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to MAA's percentage interest therein and entitles MAA to vote on substantially all matters requiring a vote of the partners. MAA's only material asset is its ownership of OP Units in the Operating Partnership; therefore, MAA does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain debt of the Operating Partnership. The Operating Partnership holds, directly or indirectly, all of the Company's real estate assets. Except for net proceeds from public equity issuances by MAA, which are contributed to the Operating Partnership in exchange for OP Units, the Operating Partnership generates the capital required by the business through the Operating Partnership's operations, direct or indirect incurrence of indebtedness and issuance of OP Units.

The presentation of MAA's shareholders' equity and the Operating Partnership's capital are the principal areas of difference between the condensed consolidated financial statements of MAA and those of the Operating Partnership. MAA's shareholders' equity may include shares of preferred stock, shares of common stock, additional paid-in capital, cumulative earnings, cumulative distributions, noncontrolling interest, treasury shares, accumulated other comprehensive income and redeemable common stock. The Operating Partnership's capital may include common capital and preferred capital of the general partner (MAA), limited partners' common capital and preferred capital, noncontrolling interest, accumulated other comprehensive income and redeemable common units. Redeemable common units represent the number of outstanding OP Units as of the date of the applicable balance sheet, valued at the greater of the closing market price of MAA's common stock or the aggregate value of the individual partners' capital balances. Holders of OP Units (other than MAA and its corporate affiliates) may require the Operating Partnership to redeem their OP Units from time-to-time, in which case the Operating Partnership may, at its option, pay the redemption price either in cash (in an amount per OP Unit equal, in general, to the average closing price of MAA's common stock on the New York Stock Exchange, or NYSE, over a specified period prior to the redemption date) or by delivering one share of MAA's common stock (subject to adjustment under specified circumstances) for each OP Unit so redeemed.


12



Organization of Mid-America Apartment Communities, Inc.

As of March 31, 2018, the Company owned and operated 302 apartment communities through the Operating Partnership. As of March 31, 2018, MAA also owned a 35.0% interest in an unconsolidated real estate joint venture and a 26.5% interest in an unconsolidated limited partnership. As of March 31, 2018, the Company had two development communities under construction totaling 578 apartment units. Total expected costs for these two development projects are $125.8 million, of which $101.4 million had been incurred through March 31, 2018. The Company expects to complete construction on one project by the third quarter of 2018 and the other project by the fourth quarter of 2018. Twenty-nine of the multifamily properties include retail components with approximately 620,000 square feet of gross leasable space. The Company also has four wholly-owned commercial properties with approximately 260,000 square feet of combined gross leasable area.

On December 1, 2016, MAA completed a merger with Post Properties, Inc., or Post Properties. Pursuant to the Agreement and Plan of Merger, or the Merger Agreement, Post Properties merged with and into MAA, with MAA continuing as the surviving corporation, or the Parent Merger, and Post Apartment Homes, L.P, or Post LP, merged with and into MAALP, with MAALP continuing as the surviving entity, or the Partnership Merger. We refer to the Parent Merger, together with the Partnership Merger, as the Merger in this Quarterly Report on Form 10-Q.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared by the Company's management in accordance with United States generally accepted accounting principles, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or the SEC. The condensed consolidated financial statements of MAA presented herein include the accounts of MAA, the Operating Partnership, and all other subsidiaries in which MAA has a controlling financial interest. MAA owns approximately 92.5% to 100% of all consolidated subsidiaries, including the Operating Partnership. The condensed consolidated financial statements of MAALP presented herein include the accounts of MAALP and all other subsidiaries in which MAALP has a controlling financial interest. MAALP owns, directly or indirectly, 92.5% to 100% of all consolidated subsidiaries. In management's opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included, and all such adjustments were of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
The Company invests in entities which may qualify as variable interest entities, or VIEs, and MAALP is considered a VIE. A VIE is a legal entity in which the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack the power to direct the activities of a legal entity as well as the obligation to absorb its expected losses or the right to receive its expected residual returns. MAALP is classified as a VIE, since the limited partners lack substantive kick-out rights and substantive participating rights. The Company consolidates all VIEs for which it is the primary beneficiary and uses the equity method to account for investments that qualify as VIEs but for which it is not the primary beneficiary. In determining whether the Company is the primary beneficiary of a VIE, management considers both qualitative and quantitative factors, including but not limited to, those activities that most significantly impact the VIE's economic performance and which party controls such activities. The Company uses the equity method of accounting for its investments in entities for which the Company exercises significant influence, but does not have the ability to exercise control. The factors considered in determining whether the Company has the ability to exercise control include ownership of voting interests and participatory rights of investors (see "Investment in Unconsolidated Affiliates" below).

Changes in Presentation

Please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2017 that was filed with the SEC on February 23, 2018 for discussions of the changes in presentation in the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows, which are still applicable for this Quarterly Report on Form 10-Q.

Noncontrolling Interests

At March 31, 2018, the Company had two types of noncontrolling interests, (1) noncontrolling interests related to the common unitholders of its Operating Partnership (see Note 9) and (2) noncontrolling interest related to its consolidated real estate entity (see "Investment in Consolidated Real Estate Joint Venture" below).




13



Investment in Unconsolidated Affiliates

The Company, together with other institutional investors in a limited liability company, or the Apartment LLC, indirectly owns one apartment community, Post Massachusetts Avenue, located in Washington, D.C.  The Company owns a 35.0% equity interest in the unconsolidated real estate joint venture as of March 31, 2018 and provides property and asset management services to the Apartment LLC for which it earns fees. The joint venture was determined to be a VIE, but the Company is not designated as a primary beneficiary. As a result, the Company accounts for its investment in the Apartment LLC using the equity method of accounting, as the Company is able to exert significant influence over the joint venture but does not have a controlling interest.  At March 31, 2018, the Company's investment in the Apartment LLC totaled $45.0 million.  

During September 2017, a subsidiary of the Operating Partnership entered into a limited partnership together with a general partner and other limited partners to form Real Estate Technology Ventures, L.P. The Operating Partnership indirectly owns 26.5% of the limited partnership. The limited partnership was determined to be a VIE, but the Company is not designated as a primary beneficiary. As a result, the Company accounts for its investment in the limited partnership using the equity method of accounting as the investment is considered more than minor. At March 31, 2018, the Company's investment in the limited partnership totaled $2.0 million. The Company is committed to make additional capital contributions totaling $12.8 million if and when called by the general partner of the limited partnership prior to September 2022.

Investment in Consolidated Real Estate Entity

At March 31, 2018, the Company owned a 92.5% equity interest in a consolidated real estate joint venture to develop, construct and operate a 359-unit apartment community in Denver, Colorado, along with a private real estate company. The venture partner was generally responsible for the development and construction of the community, and the Company will continue to manage the community as construction on the development was completed during the three months ended March 31, 2018. The joint venture was determined to be a VIE with the Company designated as the primary beneficiary.  As a result, the accounts of the joint venture are consolidated by the Company.  At March 31, 2018, the consolidated assets, liabilities and equity included buildings and improvements and other, net of accumulated depreciation of $71.0 million; land of $14.9 million; and accrued expenses and other liabilities of $2.6 million.

Assets Held for Sale

During the first quarter of 2018, the criteria for classifying one land parcel as held for sale were met, and as a result, the land parcel was presented as held for sale in the Condensed Consolidated Balance Sheet as of March 31, 2018. See Note 13 for details on the April 2018 disposition of this land parcel. The Randal Park land parcel that comprised the asset held for sale balance as of December 31, 2017, was sold during the first quarter as detailed on Note 12.

Fair Value Measurements

The Company applies the guidance in Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements and Disclosures, to the valuation of real estate assets recorded at fair value, if any; to its impairment valuation analysis of real estate assets; to its disclosure of the fair value of financial instruments, principally indebtedness; and to its derivative financial instruments.  Fair value disclosures required under ASC Topic 820 are summarized in Note 7 utilizing the following hierarchy:

Level 1 - Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the assets or liability.
Revenue from Contracts with Customers

The Company primarily leases multifamily residential apartments under operating leases generally with terms of one year or less, which are recorded as operating leases. Rental lease revenues are recognized in accordance with ASC Topic 840, Leases, using a method that represents a straight-line basis over the term of the lease. Rental income represents approximately 93% of the Company's total revenues and includes gross market rent less adjustments for concessions, vacancy loss and bad debt.

Other non-lease revenues represent the remaining 7% of the Company's total revenues and are primarily driven by utility reimbursement revenue from its tenants. The Company's primary sources of reimbursement revenue are from water and cable utility services, which produced $9.8 million and $7.5 million, respectively, of revenues during the three months ended March 31, 2018, and $9.4 million and $7.7 million of revenues, respectively, during the three months ended March 31, 2017.


14



Other non-lease revenues are recognized in accordance with ASC Topic 606, Revenue Recognition, as a result of the Company's January 1, 2018 adoption of Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers, using the modified retrospective approach. The guidance requires that revenue (outside of the scope of lease revenue accounting rules) is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. While ASU 2014-09 requires additional disclosure regarding the nature and timing of the Company's non-lease revenue transactions, which is provided here in Note 1 as well as Note 11, the adoption of the ASU did not have a material impact on the Company's consolidated financial statements or the Company's internal accounting policies and did not result in an opening adjustment to retained earnings. In addition, the Company elected the available practical expedients to the ASU’s requirement for disclosure on remaining performance obligations, which allow an entity to avoid disclosing the amount of the remaining performance obligations for contracts with an original expected duration of less than one year or those that meet the practical expedient in ASC 606-10-55-18 that permits the entity to recognize revenue as invoiced. See Note 11 for the disaggregation of our revenues in accordance with ASU 2014-09.

Impact of Recently Adopted Accounting Standards on Condensed Consolidated Statements of Cash Flows

Effective January 1, 2018, the Company adopted ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (a
Consensus of the FASB Emerging Issues Task Force), which clarifies how certain types of cash receipts and cash payments are to be presented and classified on the statement of cash flows. Management has determined three of the eight transactions in the ASU are relevant to the Company and its cash flows and include debt prepayment and extinguishment costs, proceeds from the settlement of insurance claims and distributions received from equity method investees. Upon adoption of ASU 2016-15, the Company recognized a $0.2 million increase to net cash provided by operating activities and a $0.2 million decrease to net cash used in investing activities for the three months ended March 31, 2017.

The Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (A Consensus of the FASB Emerging Issues Task Force), effective January 1, 2018. The ASU required restricted cash to be presented within cash and cash equivalents when reconciling the beginning and ending amounts in the statement of cash flow with retrospective adjustments to all periods presented. The Company previously reported the change in restricted cash within the operating and investing activities in the consolidated statement of cash flows. Upon adoption, cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 increased by approximately $24.5 million to reflect the restricted cash balances. Additionally, net cash provided by operating activities decreased by $5.5 million for the three months ended March 31, 2017, while net cash used in investing activities decreased by $58.3 million for the three months ended March 31, 2017.

Recently Issued Accounting Pronouncements
The Company believes the following recent accounting pronouncement is relevant to the readers of the Company's financial statements and could have a material effect on the Company's consolidated financial statements.
In 2016, the Financial Accounting Standard Board, or FASB, issued a new lease accounting standard, ASU 2016-02, Leases (Topic 842), which amends existing accounting standards and establishes the principles, presentation and disclosure requirements for lease accounting for both the lessee and lessor. Under the new standard, lessors will use an approach that is substantially equivalent to existing guidance but aligned with the newly adopted revenue recognition standard, while lessees will be required to record most leases on the balance sheet and recognize lease expense in the income statement in a manner similar to current practice. The new standard requires a lessee to recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for all leases with terms of more than twelve months. Expenses related to leases determined to be operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile in which interest and amortization are presented separately in the income statement.
The standard must be adopted using a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. However, the FASB has proposed an alternative transition method that would allow entities the option to apply the new lease guidance as of the period of adoption without adjusting comparative periods presented. Further, prior period financial statements and disclosures would be presented in accordance with existing leases guidance under this proposed transitional practical expedient. Management is currently evaluating the impact the standard will have on the consolidated financial statements and related disclosures upon adoption on January 1, 2019.

15



2.    Earnings per Common Share of MAA

Basic earnings per share is computed by dividing net income available to MAA common shareholders by the weighted average number of common shares outstanding during the period.  All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share. Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis with diluted earnings per share being the more dilutive of the treasury stock or two-class methods.  OP Units are included in dilutive earnings per share calculations when the units are dilutive to earnings per share. For the three months ended March 31, 2018 and 2017, MAA's basic earnings per share is computed using the two-class method, and MAA's diluted earnings per share was computed using the more dilutive of the treasury stock method or two-class method, as presented below (dollars and shares in thousands, except per share amounts):
 
Three months ended March 31,
 
2018
 
2017
Common Shares Outstanding
 
 
 
Weighted average common shares - basic
113,507

 
113,338

Weighted average partnership units outstanding

(1) 
4,219

Effect of dilutive securities

(2) 
307

Weighted average common shares - diluted
113,507

 
117,864

 
 
 
 
Calculation of Earnings per Common Share - basic
 
 
 
Net income
$
50,820

 
$
43,416

Net income attributable to noncontrolling interests
(1,801
)
 
(1,511
)
Unvested restricted stock (allocation of earnings)
(79
)
 
(73
)
Preferred dividends
(922
)
 
(922
)
Net income available for common shareholders, adjusted
$
48,018

 
$
40,910

 
 
 
 
Weighted average common shares - basic
113,507

 
113,338

Earnings per common share - basic
$
0.42

 
$
0.36

 
 
 
 
Calculation of Earnings per Common Share - diluted
 
 
 
Net income
$
50,820

 
$
43,416

Net income attributable to noncontrolling interests
(1,801
)
(1) 

Unvested restricted stock (allocation of earnings)
(79
)
(2) 

Preferred dividends
(922
)
 
(922
)
Net income available for common shareholders, adjusted
$
48,018

 
$
42,494

 
 
 
 
Weighted average common shares - diluted
113,507

 
117,864

Earnings per common share - diluted
$
0.42

 
$
0.36


(1) For the three months ended March 31, 2018, 4.2 million OP Units and their related income are not included in the diluted earnings per share calculations as they are not dilutive.
(2) For the three months ended March 31, 2018, 0.2 million potentially dilutive securities and their related income are not included in the diluted earnings per share calculations as they are not dilutive.


16



3.    Earnings per OP Unit of MAALP

Basic earnings per OP Unit is computed by dividing net income available for common unitholders by the weighted average number of OP Units outstanding during the period. All outstanding unvested restricted unit awards contain rights to non-forfeitable distributions and participate in undistributed earnings with common unitholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per OP Unit. Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units. A reconciliation of the numerators and denominators of the basic and diluted earnings per OP Unit computations for the three months ended March 31, 2018 and 2017 is presented below (dollars and units in thousands, except per unit amounts):

 
Three months ended March 31,
 
2018
 
2017
Common Units Outstanding
 
 
 
Weighted average common units - basic
117,689

 
117,557

Effect of dilutive securities

(1) 
307

Weighted average common units - diluted
117,689

 
117,864

 
 
 
 
Calculation of Earnings per Common Unit - basic
 
 
 
Net income
$
50,820

 
$
43,416

Unvested restricted stock (allocation of earnings)
(79
)
 
(73
)
Preferred unit distributions
(922
)
 
(922
)
Net income available for common unitholders, adjusted
$
49,819

 
$
42,421

 
 
 
 
Weighted average common units - basic
117,689

 
117,557

Earnings per common unit - basic
$
0.42

 
$
0.36

 
 
 
 
Calculation of Earnings per Common Unit - diluted
 
 
 
Net income
$
50,820

 
$
43,416

Unvested restricted stock (allocation of earnings)
(79
)
(1) 

Preferred unit distributions
(922
)
 
(922
)
Net income available for common unitholders, adjusted
$
49,819

 
$
42,494

 
 
 
 
Weighted average common units - diluted
117,689

 
117,864

Earnings per common unit - diluted
$
0.42

 
$
0.36


(1) For the three months ended March 31, 2018, 0.2 million potentially dilutive securities and their related income are not included in the diluted earnings per share calculations as they are not dilutive.


17



4.    MAA Equity

Changes in total equity and its components for the three months ended March 31, 2018 and 2017 were as follows (dollars in thousands):

  
Mid-America Apartment Communities, Inc. Shareholders' Equity
 
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Distributions in Excess of Net Income
 
Accumulated
Other
Comprehensive
Income
 
Noncontrolling
Interests - Operating Partnership
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total
Equity
EQUITY BALANCE DECEMBER 31, 2017
$
9

 
$
1,134

 
$
7,121,112

 
$
(784,500
)
 
$
2,157

 
$
231,676

 
$
2,306

 
$
6,573,894

Net income attributable to controlling interests

 

 

 
49,019

 

 
1,801

 

 
50,820

Other comprehensive income - derivative instruments

 

 

 

 
610

 
29

 

 
639

Issuance and registration of common shares

 
1

 
104

 

 

 

 

 
105

Shares repurchased and retired

 

 
(2,912
)
 

 

 

 

 
(2,912
)
Exercise of stock options

 

 
625

 

 

 

 

 
625

Shares issued in exchange for common units

 

 
2,780

 

 

 
(2,780
)
 

 

Shares issued in exchange for redeemable stock

 

 
1,915

 

 

 

 

 
1,915

Redeemable stock fair market value adjustment

 

 

 
965

 

 

 

 
965

Adjustment for noncontrolling interests in Operating Partnership

 

 
92

 

 

 
(92
)
 

 

Cumulative adjustment due to adoption of ASU 2017-12

 

 

 
(233
)
 
233

 

 

 

Amortization of unearned compensation

 

 
4,024

 

 

 

 

 
4,024

Dividends on preferred stock

 

 

 
(922
)
 

 

 

 
(922
)
Dividends on common stock

 

 

 
(104,971
)
 

 

 

 
(104,971
)
Dividends on noncontrolling interests units

 

 

 

 

 
(3,819
)
 

 
(3,819
)
EQUITY BALANCE MARCH 31, 2018
$
9

 
$
1,135

 
$
7,127,740

 
$
(840,642
)
 
$
3,000

 
$
226,815

 
$
2,306

 
$
6,520,363


  
Mid-America Apartment Communities, Inc. Shareholders' Equity
 
 
 
 
 
 
 
Preferred Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Distributions
in Excess of
Net Income
 
Accumulated
Other
Comprehensive
Income 
 
Noncontrolling
Interests - Operating Partnership
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total
Equity
EQUITY BALANCE DECEMBER 31, 2016
$
9

 
$
1,133

 
$
7,109,012

 
$
(707,479
)
 
$
1,144

 
$
235,976

 
$
2,306

 
$
6,642,101

Net income attributable to controlling interests

 

 

 
41,905

 

 
1,511

 

 
43,416

Other comprehensive loss - derivative instruments

 

 

 

 
3,079

 
113

 

 
3,192

Issuance and registration of common shares

 
1

 
67

 

 

 

 

 
68

Issuance and registration of preferred shares

 

 
2,007

 

 

 

 

 
2,007

Shares repurchased and retired

 

 
(4,734
)
 

 

 

 

 
(4,734
)
Shares issued in exchange for common units

 

 
167

 

 

 
(167
)
 

 

Shares issued in exchange for redeemable stock

 

 
1,482

 

 

 

 

 
1,482

Redeemable stock fair market value adjustment

 

 

 
(298
)
 

 

 

 
(298
)
Adjustment for noncontrolling interests in Operating Partnership

 

 
305

 

 

 
(305
)
 

 

Amortization of unearned compensation

 

 
3,139

 
(114
)
 

 

 

 
3,025

Dividends on preferred stock

 

 

 
(922
)
 

 

 

 
(922
)
Dividends on common stock

 

 

 
(98,841
)
 

 

 

 
(98,841
)
Dividends on noncontrolling interests units

 

 

 

 

 
(3,664
)
 

 
(3,664
)
EQUITY BALANCE MARCH 31, 2017
$
9

 
$
1,134

 
$
7,111,445

 
$
(765,749
)
 
$
4,223

 
$
233,464

 
$
2,306

 
$
6,586,832



18



5.    MAALP Capital

Changes in total capital and its components for the three months ended March 31, 2018 and 2017 were as follows (dollars in thousands):

 
Mid-America Apartments, L.P. Unitholders' Capital
 
 
 
 
 
Limited Partner
 
General Partner
 
Preferred Units
 
Accumulated
Other
Comprehensive
Income
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total Partnership Capital
CAPITAL BALANCE DECEMBER 31, 2017
$
231,676

 
$
6,270,758

 
$
66,840

 
$
2,295

 
$
2,306

 
$
6,573,875

Net income
1,801

 
48,097

 
922

 

 

 
50,820

Other comprehensive income - derivative instruments

 

 

 
639

 

 
639

Issuance of units

 
105

 

 

 

 
105

Units repurchased and retired

 
(2,912
)
 

 

 

 
(2,912
)
Exercise of unit options

 
625

 

 

 

 
625

General partner units issued in exchange for limited partner units
(2,780
)
 
2,780

 

 

 

 

Units issued in exchange for redeemable units

 
1,915

 

 

 

 
1,915

Redeemable units fair market value adjustment

 
965

 

 

 

 
965

Adjustment for limited partners' capital at redemption value
(63
)
 
63

 

 

 

 

Cumulative adjustment due to adoption of ASU 2017-12

 
(233
)
 

 
233

 

 

Amortization of unearned compensation

 
4,024

 

 

 

 
4,024

Distributions to preferred unitholders

 

 
(922
)
 

 

 
(922
)
Distributions to common unitholders
(3,819
)
 
(104,971
)
 

 

 

 
(108,790
)
CAPITAL BALANCE MARCH 31, 2018
$
226,815

 
$
6,221,216

 
$
66,840

 
$
3,167

 
$
2,306

 
$
6,520,344


  
Mid-America Apartments, L.P. Unitholders' Capital
 
 
 
 
 
Limited Partner
 
General Partner
 
Preferred Units
 
Accumulated
Other
Comprehensive
Income
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total Partnership Capital
CAPITAL BALANCE DECEMBER 31, 2016
$
235,976

 
$
6,337,721

 
$
64,833

 
$
1,246

 
$
2,306

 
$
6,642,082

Net income
1,511

 
40,983

 
922

 

 

 
43,416

Other comprehensive income - derivative instruments

 

 

 
3,192

 

 
3,192

Issuance of units

 
68

 
2,007

 

 

 
2,075

Units repurchased and retired

 
(4,734
)
 

 

 

 
(4,734
)
General partner units issued in exchange for limited partner units
(167
)
 
167

 

 

 

 

Units issued in exchange for redeemable units

 
1,482

 

 

 

 
1,482

Redeemable units fair market value adjustment

 
(298
)
 

 

 

 
(298
)
Adjustment for limited partners' capital at redemption value
(192
)
 
192

 

 

 

 

Amortization of unearned compensation

 
3,025

 

 

 

 
3,025

Distributions to preferred unitholders

 

 
(922
)
 

 

 
(922
)
Distributions to common unitholders
(3,664
)
 
(98,841
)
 

 

 

 
(102,505
)
CAPITAL BALANCE MARCH 31, 2017
$
233,464

 
$
6,279,765

 
$
66,840

 
$
4,438

 
$
2,306

 
$
6,586,813



19



6.           Borrowings

The following table summarizes the Company's outstanding debt as of March 31, 2018 (dollars in thousands):
 
Borrowed
Balance
 
Effective
Rate
 
Contract
Maturity
Unsecured debt
 

 
 

 
 
Variable rate revolving credit facility
$
450,000

 
2.8
%
 
4/15/2020
Fixed rate senior notes
2,292,000

 
4.0
%
 
11/13/2024
Term loans fixed with swaps
550,000

 
2.9
%
 
7/9/2020
Variable rate term loans
300,000

 
2.6
%
 
8/29/2020
Fair market value adjustments, debt issuance costs and discounts
(25,336
)
 
 
 
 
Total unsecured debt
$
3,566,664

 
3.5
%
 
 
Fixed rate secured debt
 
 
 
 
 
Individual property mortgages
$
841,711

 
4.0
%
 
11/1/2019
Variable rate secured debt (1)
 

 
 

 
 
Fannie Mae Facility
80,000

 
2.1
%
 
12/1/2018
Fair market value adjustments and debt issuance costs
10,476

 
 
 
 
Total secured debt
$
932,187

 
3.8
%
 
 
Total outstanding debt
$
4,498,851

 
3.6
%
 
 
(1) Includes capped balances.

Unsecured Revolving Credit Facility

MAALP maintains a $1.0 billion unsecured credit facility with a syndicate of banks led by KeyBank National Association, or the KeyBank Facility. The KeyBank Facility includes an expansion option up to $1.5 billion. The KeyBank Facility bears an interest rate of the London Interbank Offered Rate, or LIBOR, plus a spread of 0.85% to 1.55% based on an investment grade pricing grid and is currently bearing interest at 2.78%. The KeyBank Facility expires in April 2020 with an option to extend for an additional six months. At March 31, 2018, the MAALP had $450.0 million outstanding under the KeyBank Facility with another approximately $2.5 million of additional capacity used to support outstanding letters of credit.

Senior Unsecured Notes

As of March 31, 2018, MAALP had approximately $2.0 billion in principal amount of publicly issued senior unsecured notes and $292.0 million of privately placed senior unsecured notes. These senior unsecured notes had maturities at issuance ranging from seven to twelve years, averaging 6.6 years remaining until maturity as of March 31, 2018.

Unsecured Term Loans

The Company maintains four term loans with a syndicate of banks, one led by KeyBank National Association, or KeyBank, two by Wells Fargo Bank, N.A., or Wells Fargo, and one by U.S. Bank National Association, or U.S. Bank, respectively. The KeyBank term loan has a balance of $150.0 million, matures in 2021, and has a variable interest rate of LIBOR plus a spread of 0.90% to 1.75% based on the Company's credit ratings. The Wells Fargo term loans have balances of $250.0 million and $300.0 million, respectively, mature in 2018 and 2022, respectively, and have variable interest rates of LIBOR plus spreads of 0.90% to 1.90% and 0.90% to 1.75%, respectively, based on the Company's credit ratings. The U.S. Bank term loan has a balance of $150.0 million, matures in 2020, and has a variable interest rate of LIBOR plus a spread of 0.90% to 1.90% based on the Company's credit ratings.

Secured Property Mortgages

As of March 31, 2018, the Company had $841.7 million of fixed rate conventional property mortgages with an average interest rate of 4.0% and an average maturity in 2019.

In February 2018, the Company retired a $38.3 million mortgage associated with Highlands of West Village. The mortgage was scheduled to mature in May 2018. In addition to the debt retirement, the Company paid $2.7 million associated with property mortgage principal amortizations during the three months ended March 31, 2018.


20



Secured Credit Facility

The Company maintains an $80.0 million secured credit facility with Prudential Mortgage Capital, which is credit enhanced by the Federal National Mortgage Association, or the Fannie Mae Facility. The Fannie Mae Facility matures on December 1, 2018. Borrowings under the Fannie Mae Facility totaled $80.0 million at March 31, 2018, all of which was variable rate at an average interest rate of 2.1%. The available borrowing capacity at March 31, 2018 was $80.0 million.

Guarantees

MAA fully and unconditionally guarantees the following debt incurred by the Operating Partnership:

$80.0 million of the Fannie Mae Facility, all of which was borrowed as of March 31, 2018; and
$292.0 million of the privately placed senior unsecured notes.

7.           Financial Instruments and Derivatives

Financial Instruments Not Carried at Fair Value

Cash and cash equivalents, restricted cash, and accrued expenses and other liabilities are carried at amounts that reasonably approximate their fair value due to their short term nature.

Fixed rate notes payable at March 31, 2018 and December 31, 2017, totaled $3.1 billion and $3.2 billion, respectively, and had estimated fair values of $3.2 billion and $3.3 billion (excluding prepayment penalties) as of March 31, 2018 and December 31, 2017, respectively. The carrying values of variable rate notes payable (excluding the effect of interest rate swap and cap agreements) at March 31, 2018 and December 31, 2017, totaled $1.4 billion and $1.3 billion, respectively, and had estimated fair values of $1.4 billion and $1.3 billion (excluding prepayment penalties) as of March 31, 2018 and December 31, 2017, respectively. The fair values of fixed rate debt are determined by using the present value of future cash outflows discounted with the applicable current market rate plus a credit spread. The fair values of variable rate debt are determined using the stated variable rate plus the current market credit spread. The variable rates reset every 30 to 90 days, and management concluded that these rates reasonably estimate current market rates. Management has determined the inputs used to value the outstanding debt fall within Level 2 of the fair value hierarchy, and therefore, the fair market valuation of debt is considered Level 2 in the fair value hierarchy.

Financial Instruments Measured at Fair Value on a Recurring Basis

The Company uses interest rate swaps and interest rate caps to add stability to interest expense and to manage its exposure to interest rate movements. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The fair value of interest rate derivative contracts designated as hedging instruments recorded in "Other assets" in the accompanying Condensed Consolidated Balance Sheets was $5.1 million and $3.6 million as of March 31, 2018 and December 31, 2017, respectively. The fair value of interest rate derivative contract liabilities recorded in "Accrued expenses and other liabilities" in the accompanying Condensed Consolidated Balance Sheets was $1.6 million and $1.3 million as of March 31, 2018 and December 31, 2017, respectively.

To comply with the provisions of ASC Topic 820, management incorporates credit valuation adjustments to appropriately reflect both its nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Based on the fair value measurement guidance issued by the FASB, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.


21



The derivative asset related to the redemption feature embedded in the MAA Series I preferred stock issued in connection with Merger is valued using widely accepted valuation techniques, including a discounted cash flow analysis in which the perpetual value of the preferred shares is compared to the value of the preferred shares assuming the call option is exercised, with the value of the bifurcated call option as the difference between the two values. This analysis reflects the contractual terms of the redeemable preferred shares, which are redeemable at the Company's option beginning on October 1, 2026 and at the redemption price of $50 per share (see Note 8). The analysis uses observable market-based inputs, including trading data available on the preferred shares, coupon yields on preferred stock issuances from REITs with similar credit ratings as MAA and treasury rates to determine the fair value of the bifurcated call option.

The redemption feature embedded in the MAA Series I preferred stock is reported as a derivative asset in "Other assets" in the accompanying Condensed Consolidated Balance Sheets and is adjusted to its fair value at each reporting date, with a corresponding non-cash adjustment to "Other non-operating (expense) income" in the accompanying Condensed Consolidated Statements of Operations. As a result of mark-to-market adjustments of non-cash expense recorded to reflect the change in fair value of the derivative asset in the three months ended March 31, 2018, the fair value of the embedded derivative decreased to $18.5 million as of March 31, 2018 compared to $21.2 million as of December 31, 2017. The Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, and as a result, all of its derivatives held as of March 31, 2018 and December 31, 2017 were classified as Level 2 in the fair value hierarchy.

Cash Flow Hedges of Interest Rate Risk

As of January 1, 2018, the Company early adopted ASU 2017-12, Derivatives and Hedging (Topic 815), which clarifies hedge accounting requirements, improves disclosure of hedging arrangements and better aligns risk management activities and financial reporting for hedging relationships. The Company adopted the standard using a modified retrospective approach via the elimination of the previously recorded cumulative ineffectiveness for cash flow and net investment hedges existing at date of adoption as a cumulative-effect adjustment of $0.2 million to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings. The adoption of the ASU did not have a material impact on the consolidated financial statements or the Company's internal accounting policies.

The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in "Accumulated other comprehensive income" and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. In conjunction with the adoption of ASU 2017-12, as long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, there is no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses will be recognized in the period in which hedged transactions impact earnings, regardless of whether or not economic mismatches exist in the hedging relationship.

Amounts reported in "Accumulated other comprehensive income" related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on the Company's variable rate or fixed rate debt. During the next twelve months, the Company estimates that an additional $1.9 million will be reclassified to earnings as a decrease to "Interest expense", which primarily represents the difference between the fixed interest rate swap payments and the projected variable interest rate swap receipts.

As of March 31, 2018, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate Derivative
 
Number of Instruments
 
Notional Amount
Interest Rate Cap
 
1
 
$
25,000,000

  Interest Rate Swaps(1)
 
12
 
$
550,000,000


(1) 
Six forward rate swaps totaling $300.0 million, which hedge the first 10 years of interest payments on debt expected to be issued in 2018, are included in the number of instruments but excluded from the notional amount. These swaps are not included in the debt discussion in Note 6 or Management's Discussion and Analysis of Financial Condition and Results of Operations found elsewhere in this report.







22



Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations

The tables below present the effect of the Company's derivative financial instruments on the Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (dollars in thousands):
Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
 
Amount of Gain (Loss) Reclassified from Accumulated OCI into Interest Expense (Effective Portion)
Three months ended March 31,
 
2018
 
2017
 
 
2018
 
2017
Interest rate contracts
 
$
832

 
$
2,520

 
Interest Expense
 
$
193

 
$
(672
)

Derivatives Not Designated as Hedging Instruments
 
Location of (Loss) Gain Recognized in Income on Derivative
 
Amount of (Loss) Gain Recognized in Earnings on Derivative
For the three months ended March 31,
 
 
2018
 
2017
 
 
 
 
 
 
 
Preferred stock embedded derivative
 
Non-operating (expense) income
 
$
(2,644
)
 
$
2,353


Credit-Risk-Related Contingent Features

Certain of the Company's derivative contracts contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. As of March 31, 2018, the Company had not breached the provisions of these agreements. If the provisions had been breached, the Company could have been required to settle its obligations under the agreements at the termination value of $1.2 million. Although the Company's derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both the Company and its counterparties under certain situations, the Company does not net its derivative fair values or any existing rights or obligations to cash collateral in the Condensed Consolidated Balance Sheets.

Changes in Accumulated Other Comprehensive Income

The Company's other comprehensive income consists entirely of gains and losses attributable to the effective portion of its cash flow hedges. The table below reflects the change in the balance for the three months ended March 31, 2018 and 2017 (dollars in thousands):
 
 
Affected Line Item in the Condensed Consolidated Statements Of Operations
 
Three months ended March 31,
 
 
 
2018
 
2017
Beginning balance
 
 
 
$
2,157

 
$
1,144

Other comprehensive income before reclassifications
 
 
 
832

 
2,520

Amounts reclassified from Accumulated other comprehensive income - interest rate contracts
 
Interest expense
 
(193
)
 
672

Net current period other comprehensive income attributable to noncontrolling interests
 
 
 
(29
)
 
(113
)
Cumulative adjustment due to adoption of ASU 2017-12
 
 
 
233

 

Change in Accumulated other comprehensive income attributable to MAA
 
 
 
843

 
3,079

Ending balance
 
 
 
$
3,000

 
$
4,223


8.           Shareholders' Equity of MAA

On March 31, 2018, 113,745,207 shares of common stock of MAA and 4,141,780 OP Units (excluding the OP Units held by MAA) were issued and outstanding, representing a total of 117,886,987 shares and units. At March 31, 2017, 113,574,798 shares of common stock of MAA and 4,217,444 OP Units were outstanding, representing a total of 117,792,242 shares and units. Options to purchase 95,838 shares of MAA's common stock were outstanding as of March 31, 2018, compared to 147,282 outstanding options as of March 31, 2017. During the three months ended March 31, 2018, 32,391 shares of MAA's common stock were acquired from employees to satisfy minimum tax withholding obligations that arose upon vesting of restricted stock granted pursuant to approved plans. During the three months ended March 31, 2017, 47,480 shares were acquired for such purposes. During the three months ended March 31, 2018, we issued 12,600 shares related to the exercise of stock options. These exercises resulted in proceeds of $0.6 million. During the three months ended March 31, 2017, there were no stock options exercised.

23



Preferred Stock

As of March 31, 2018, MAA had one outstanding series of cumulative redeemable preferred stock, which has the following characteristics:
Description
 
Outstanding Shares
 
Liquidation Preference(1)
 
Optional Redemption Date
 
Redemption Price (2)
 
Stated Dividend Yield
 
Approximate Dividend Rate
Series I
 
867,846
 
$50.00
 
10/1/2026
 
$50.00
 
8.50%
 
$4.25
(1) The total liquidation preference for the outstanding preferred stock is $43.4 million.
(2) The redemption price is the price at which the preferred stock is redeemable, at MAA's option, for cash.

9.    Partners' Capital of MAALP

OP Units

Interests in MAALP are represented by OP Units. As of March 31, 2018, there were 117,886,987 OP Units outstanding, 113,745,207 or 96.5% of which were owned by MAA, MAALP's general partner. The remaining 4,141,780 OP Units were owned by non-affiliated limited partners, or Class A Limited Partners. As of March 31, 2017, there were 117,792,242 OP Units outstanding, 113,574,798 or 96.4% of which were owned by