UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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: 1-12762
MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact Name of Registrant as Specified in Charter)
TENNESSEE 62-1543819
(State of Incorporation) (I.R.S. Employer Identification Number)
6584 POPLAR AVENUE, SUITE 340
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
(901) 682-6600
Registrant's telephone number, including area code
(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.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at October 15, 2000
----- ----------------------------
Common Stock, $.01 par value 17,482,183
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000 (Unaudited)
and December 31, 1999
Consolidated Statements of Operations for the three and nine
months ended September 30, 2000 and 1999 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Mid-America Apartment Communities, Inc.
Consolidated Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999
(Dollars in thousands)
2000 1999
----------- -----------
Assets:
Real estate assets:
Land $ 124,859 $ 119,823
Buildings and improvements 1,217,450 1,172,780
Furniture, fixtures and equipment 29,275 28,238
Construction in progress 37,548 58,840
- ----------------------------------------------------------------------------------------------
1,409,132 1,379,681
Less accumulated depreciation (172,768) (146,611)
- ----------------------------------------------------------------------------------------------
1,236,364 1,233,070
Land held for future development 1,366 1,710
Commercial properties, net 3,928 5,217
Investment in and advances to real estate joint venture 7,688 8,054
- ----------------------------------------------------------------------------------------------
Real estate assets, net 1,249,346 1,248,051
Cash and cash equivalents 18,373 14,092
Restricted cash 15,777 12,537
Deferred financing costs, net 9,870 10,272
Other assets 17,577 13,871
- ----------------------------------------------------------------------------------------------
Total assets $1,310,943 $1,298,823
==============================================================================================
Liabilities and Shareholders' Equity:
Liabilities:
Notes payable $ 776,512 $ 744,238
Accounts payable 2,148 2,122
Accrued expenses and other liabilities 28,893 23,199
Security deposits 4,741 4,739
Deferred gain on disposition of properties 4,418 4,581
- ----------------------------------------------------------------------------------------------
Total liabilities and deferred gain 816,712 778,879
Minority interest 52,886 56,060
Shareholders' equity:
Preferred stock, $.01 par value, 20,000,000 shares authorized,
$173,470,750 or $25 per share liquidation preference:
2,000,000 shares at 9.5% Series A Cumulative 20 20
1,938,830 shares at 8.875% Series B Cumulative 19 19
2,000,000 shares at 9.375% Series C Cumulative 20 20
1,000,000 shares at 9.5% Series E Cumulative 10 10
Common stock, $.01 par value (authorized 50,000,000 shares;
issued 17,480,722 and 17,971,960 shares at
September 30, 2000 and December 31, 1999, respectively) 175 180
Additional paid-in capital 551,273 562,547
Other (1,247) (1,053)
Accumulated distributions in excess of net income (108,925) (89,869)
Treasury stock at cost, 355,900 shares
at December 31, 1999 - (7,990)
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 441,345 463,884
- ----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,310,943 $1,298,823
==============================================================================================
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations
Three and nine months ended September 30, 2000 and 1999
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
----------- --------- ----------- ---------
Revenues:
Rental revenues $55,495 $55,760 $163,969 $166,584
Other property revenues 975 766 2,584 2,230
- --------------------------------------------------------------------------------------------------------
Total property revenues 56,470 56,526 166,553 168,814
Interest and other income 309 323 1,023 1,033
Management and deveopment income, net 187 149 549 572
Equity in earnings (loss) of real estate joint venture (29) (15) (179) 36
- --------------------------------------------------------------------------------------------------------
Total revenues 56,937 56,983 167,946 170,455
- --------------------------------------------------------------------------------------------------------
Expenses:
Property operating expenses:
Personnel 6,319 6,312 18,177 19,088
Building repairs and maintenance 2,780 2,783 7,350 7,630
Real estate taxes and insurance 6,387 6,308 19,017 18,679
Utilities 2,108 2,480 5,743 7,079
Landscaping 1,531 1,422 4,448 4,244
Other operating 2,904 2,521 7,867 7,562
Depreciation and amortization 12,737 12,195 38,854 37,336
- --------------------------------------------------------------------------------------------------------
34,766 34,021 101,456 101,618
General and administrative 3,700 3,844 11,226 9,993
Interest expense 13,006 12,116 37,544 36,312
Amortization of deferred financing costs 620 682 2,153 2,059
- --------------------------------------------------------------------------------------------------------
Total expenses 52,092 50,663 152,379 149,982
- --------------------------------------------------------------------------------------------------------
Income before gain on dispositions,
minority interest in operating partnership
income and extraordinary items 4,845 6,320 15,567 20,473
- --------------------------------------------------------------------------------------------------------
Gain on dispositions, net 1,119 5,125 10,504 5,457
- --------------------------------------------------------------------------------------------------------
Income before minority interest in operating
partnership income and extraordinary items 5,964 11,445 26,071 25,930
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Minority interest in operating partnership income 337 917 2,280 1,699
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Income before extraordinary items 5,627 10,528 23,791 24,231
- --------------------------------------------------------------------------------------------------------
Extraordinary items - loss on debt extinguishment - - (204) (67)
- --------------------------------------------------------------------------------------------------------
Net income 5,627 10,528 23,587 24,164
Dividends on preferred shares 4,028 4,028 12,087 12,084
- --------------------------------------------------------------------------------------------------------
Net income available for common shareholders $ 1,599 $ 6,500 $ 11,500 $ 12,080
========================================================================================================
(Continued)
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations (Continued)
Three and nine months ended September 30, 2000 and 1999
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
----------- --------- ----------- ---------
Net income available per common share:
- --------------------------------------------------------------------------------------------------------
Basic (in thousands):
Average common shares outstanding 17,483 19,013 17,565 18,961
- --------------------------------------------------------------------------------------------------------
Basic earnings per share:
Net income available per common share $ 0.09 $ 0.34 $ 0.67 $ 0.64
before extraordinary item
Extraordinary item - - (0.02) -
- --------------------------------------------------------------------------------------------------------
Net income available per common share $ 0.09 $ 0.34 $ 0.65 $ 0.64
- --------------------------------------------------------------------------------------------------------
Diluted (in thousands):
Average common shares outstanding 17,483 19,013 17,565 18,961
Effect of dilutive stock options 85 15 60 45
- --------------------------------------------------------------------------------------------------------
Average dilutive common shares outstanding 17,568 19,028 17,625 19,006
- --------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Net income available per common share $ 0.09 $ 0.34 $ 0.67 $ 0.64
before extraordinary item
Extraordinary item - - (0.02) -
- --------------------------------------------------------------------------------------------------------
Net income available per common share $ 0.09 $ 0.34 $ 0.65 $ 0.64
- --------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
(Dollars in thousands)
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $23,587 $24,164
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 41,007 39,395
Equity in (earnings) loss of real estate joint venture 179 (36)
Minority interest in operating partnership income 2,280 1,699
Extraordinary items 204 67
Gain on dispositions (10,504) (5,457)
Changes in assets and liabilities:
Restricted cash (3,240) 687
Other assets (3,943) (982)
Accounts payable 26 (4,279)
Accrued expenses and other 5,869 10,988
Security deposits 2 (9)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 55,467 66,237
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of real estate assets (14,858) -
Improvements to properties (12,530) (26,441)
Construction of units in progress and future development (43,461) (50,339)
Proceeds from disposition of real estate assets 50,634 93,012
Proceeds from sale of development and construction assets - 18,199
Investment in and advances to real estate joint venture 187 (10,483)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (20,028) 23,948
- --------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in credit lines (49,312) (18,635)
Proceeds from notes payable 85,742 11,760
Principal payments on notes payable (13,965) (26,652)
Payment of deferred financing costs (1,751) (926)
Repurchase of common stock (6,084) -
Proceeds from issuances of common shares and units 2,039 1,272
Distributions to unitholders (5,184) (5,129)
Dividends paid on common shares (30,556) (32,582)
Dividends paid on preferred shares (12,087) (12,084)
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (31,158) (82,976)
- --------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,281 7,209
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period 14,092 7,237
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $18,373 $14,446
==============================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $40,017 $38,847
Supplemental disclosure of noncash investing and financing activities:
Assumption of debt related to property acquisitions $ 9,559 $ -
Conversion of units for common shares $ 232 $ 47
Issuance of advances in exchange for common shares and units $ 173 $ 97
Interest capitalized $ 2,950 $ 3,104
See accompanying notes to consolidated financial statements.
MID-AMERICA APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999 (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the accounting policies in effect as of December 31, 1999, as
set forth in the annual consolidated financial statements of Mid-America
Apartment Communities, Inc. ("MAAC" or the "Company"), as of such date. In the
opinion of management, all adjustments necessary for a fair presentation of the
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 results of operations
for the three and nine month periods ended September 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
2. Recent Accounting Pronouncements
In June 2000, FASB Statement 138, "Accounting for Derivative Instruments and
Hedging Activity-Deferral of Effective Date of FASB Statement 133", was issued.
This Statement shall be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company has only limited involvement with
derivative financial instruments, and does not use them for trading purposes.
This new accounting statement is not expected to have a material impact on the
Company's financial statements.
3. Real Estate Transactions
Property Dispositions
In February 2000, the Company sold the 120-unit Pine Trails Apartments, located
in Clinton, Mississippi, for approximately $2.8 million and the 248-unit
MacArthur Ridge Apartments, located in Irving, Texas, for approximately $12.0
million. The proceeds from both of these dispositions were used to pay down the
Company's outstanding lines of credit, (the Company has three outstanding credit
facilities, AmSouth, FNMA, and Compass collectively referred to as "Credit
Lines") to fund development, and to fund the Company's share repurchase program.
In April 2000, the Company sold the 176-unit Clearbrook Village Apartments for
approximately $7.8 million, the 253-unit Winchester Square Apartments for
approximately $8.0 million and the 624-unit McKellar Woods Apartments for
approximately $14.0 million, all located in Memphis, Tennessee. In connection
with the sale, the Company provided a $400,000 loan to the buyer of Clearbrook
Village Apartments repayable in ten years at a 7.5% interest rate. The proceeds
from these sales were used to fund two acquisitions to complete a 1031B exchange
transaction, to pay down the Company's Credit Lines, and to fund the Company's
share repurchase program.
In August 2000, the Company sold the 207-unit Whispering Oaks Apartments in
Little Rock, Arkansas, for approximately $6.0 million in cash. The proceeds were
mainly used to pay down the Company's outstanding Credit Lines and fund
development.
In connection with the dispositions discussed above, the Company recorded a gain
for financial reporting purposes of approximately $10.5 million for the nine
month period ended September 30, 2000.
Property Acquisitions
In April 2000 the Company acquired the 200-unit Huntington Chase Apartments
located in Warner Robins, Georgia for approximately $2.0 million in cash and
assumed a 6.85% note payable of $9.6 million. The Company also acquired the
240-unit Indigo Point Apartments located in Brandon, Florida for approximately
$11.7 million.
4. Share Repurchase Program
In connection with the Company's share repurchase program, the Company
repurchased and retired 100,000 shares of common stock during the third quarter
of 2000 for a cost of approximately $2.4 million at an average price per common
share of $23.997. Through September 30, 2000, the Company repurchased a total of
259,200 shares at a cost of approximately $6.1 million in 2000.
5. Share and Unit Information
At September 30, 2000, 17,480,722 common shares and 2,952,254 operating
partnership units were outstanding, a total of 20,432,976 shares and units.
Additionally, MAAC has outstanding options for 1,219,994 shares of common stock
at September 30, 2000.
6. Segment Information
At September 30, 2000, the Company owned or had ownership interest in, and
operated 127 apartment communities in 13 different states from which it derives
all significant sources of earnings and operating cash flows. The Company's
operational structure is organized on a decentralized basis, with individual
property managers having overall responsibility and authority regarding the
operations of their respective properties. Each property manager individually
monitors local and area trends in rental rates, occupancy percentages, and
operating costs. Property managers are given the on-site responsibility and
discretion to react to such trends in the best interest of the Company.
Management evaluates the performance of each individual property based on its
contribution of revenues and net operating income ("NOI"), which is composed of
property revenues less all operating costs including insurance and real estate
taxes. The Company's reportable segments are its individual properties because
each is managed separately and requires different operating strategy and
expertise based on the geographic location, community structure and quality,
population mix, and numerous other factors unique to each community.
The revenues and profits for the aggregated communities are summarized as
follows for the three and nine months ended as of September 30:
Three months Nine months
ended September 30, ended September 30,
--------------------- --------------------
2000 1999 2000 1999
---------- ---------- --------- ----------
Multifamily rental revenues $ 60,174 $ 59,629 $177,601 $173,408
Other multifamily revenues 1,022 810 2,721 2,298
------------------------------------------
Segment revenues 61,196 60,439 180,322 175,706
Reconciling items to consolidated revenues:
Joint venture revenues (4,726) (3,913) (13,769) (6,892)
Management and development income, net 187 149 549 572
Equity in earnings (loss) of real estate joint venture (29) (15) (179) 36
Interest income and other revenues 309 323 1,023 1,033
------------------------------------------
Total revenues $ 56,937 $ 56,983 $167,946 $170,455
==========================================
Multifamily net operating income $ 37,047 $ 36,917 $111,487 $108,587
Reconciling items to net income available for common shareholers:
Joint venture net operating income (2,606) (2,217) (7,536) (4,055)
Management and development income, net 187 149 549 572
Equity in earnings (loss) of real estate joint venture (29) (15) (179) 36
Interest and other income 309 323 1,023 1,033
Interest expense (13,006) (12,116) (37,544) (36,312)
General and administrative expenses (3,700) (3,844) (11,226) (9,993)
Depreciation and amortization (12,737) (12,195) (38,854) (37,336)
Amortization of deferred financing costs (620) (682) (2,153) (2,059)
Gain on dispositions 1,119 5,125 10,504 5,457
Extraordinary items, net - - (204) (67)
Minority interest in operating partnership (337) (917) (2,280) (1,699)
Dividends on preferred shares (4,028) (4,028) (12,087) (12,084)
------------------------------------------
Net income available for common shareholders $ 1,599 $ 6,500 $ 11,500 $ 12,080
==========================================
September 30, 2000 September 30, 1999
------------------ ------------------
Assets:
Multifamily real estate assets $1,510,682 $1,484,281
Accumulated depreciation - multifamily assets (177,708) (144,950)
--------------------------------------
Segment assets 1,332,974 1,339,331
--------------------------------------
Reconciling items to total assets:
Joint venture multifamily real estate assets, net (96,610) (97,099)
Land held for future development 1,366 1,366
Commercial properties, net 3,928 4,324
Investment in and advances to real estate joint venture 7,688 10,519
Cash and restricted cash 34,150 32,528
Deferred financing costs 9,870 9,226
Other assets 17,577 15,576
--------------------------------------
Total assets $1,310,943 $1,315,771
======================================
7. Subsequent Events
Property Dispositions
In October 2000, the Company sold the 44-unit Riverwind Apartments for
approximately $0.9 million, and the 72-unit 2000 Wynnton Apartments for
approximately $2.0 million, both located in Columbus, Georgia. The proceeds were
primarily used to pay down the Company's outstanding Credit Lines.
PART I. Financial Information
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three and nine months ended
September 30, 2000 and 1999. This discussion should be read in conjunction with
the financial statements appearing elsewhere in this report. These financial
statements include all adjustments, which are, in the opinion of management,
necessary to reflect a fair statement of the results for the interim periods
presented, and all such adjustments are of a normal recurring nature.
The total number of apartment units the Company owned or had an ownership
interest in, including the 10 properties containing 2,793 apartment units owned
by its 33.3% unconsolidated joint venture, at September 30, 2000 was 33,727 in
127 communities compared to the 34,733 units in 131 communities owned at
September 30, 1999. The average monthly rental per apartment unit for the
Company's non-development, owned units increased to $637 at September 30, 2000
from $603 at September 30, 1999. Occupancy for these same units at September 30,
2000 and 1999 was 95.4% and 95.2%, respectively.
FUNDS FROM OPERATIONS
Funds from operations ("FFO") represents net income (computed in accordance with
generally accepted accounting principles "GAAP") excluding extraordinary items,
minority interest in operating partnership income (loss), gain or loss on
disposition of real estate assets, and certain non-cash and other items,
(primarily depreciation and amortization), less preferred stock dividends.
Adjustments for the unconsolidated joint venture are made to include the
Company's portion of FFO in the calculation. The Company computes FFO in
accordance with NAREIT's definition which reflects the recommendations of
NAREIT's Best Financial Practices Council that FFO should include all operating
results, both recurring and non-recurring, except those defined as
"extraordinary" under GAAP. The Company's FFO calculation reflects this
definition for all periods presented. The Company's policy is to expense the
cost of interior painting, vinyl flooring, and blinds as incurred for stabilized
properties. During the stabilization period for acquisition properties, these
items are capitalized because they are necessary for the continued use of the
property, and, thus, are not deducted in calculating FFO.
FFO should not be considered as an alternative to net income or any other GAAP
measurement of performance, as an indicator of operating performance or as an
alternative to cash flow from operating, investing, and financing activities as
a measure of liquidity. The Company believes that FFO is helpful in
understanding the Company's results of operations in that such calculation
reflects the Company's ability to support interest payments and general
operating expenses before the impact of certain activities such as changes in
other assets and accounts payable. The Company's calculation of FFO may differ
from the methodology for calculating FFO utilized by other REITs and,
accordingly, may not be comparable to such other REITs. Depreciation expense
includes approximately $358,000 and $289,000 at September 30, 2000 and 1999,
respectively, which relates to computer software, office furniture and fixtures
and other assets found in other industries and which is required to be
recognized, for purposes of computing funds from operations.
Funds from operations for the three and nine months ended September 30, 2000 and
1999 is calculated as follows (in thousands):
Three months Nine months
ended September 30, ended September 30,
2000 1999 2000 1999
---------- --------- ---------- ----------
Net income available for common shareholders $ 1,599 $ 6,500 $11,500 $12,080
Depreciation and amortization - real property 12,570 12,100 38,496 37,047
Adjustment for joint venture depreciation 303 250 902 438
Minority interest in operating pertnership 337 917 2,280 1,699
(Gain) on dispositions, net (1,119) (5,125) (10,504) (5,457)
Extraordinary items - - 204 67
------------------------------------------
Funds from operations $13,690 $14,642 $42,878 $45,874
==========================================
Weighted average shares and units:
Basic 20,435 22,024 20,522 21,972
Diluted 20,520 22,039 20,582 22,017
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Property revenues for 2000 decreased by approximately $56,000 due primarily to
decreases of (i) $593,000 due to the sale of 4 properties to the BRE/MAAC
Associates L.L.C. joint venture ("Joint Venture") in 1999 and (ii) $1,408,000
due to the sale of Sailwinds at Lake Magdalene Apartments and Regency Club
Apartments in 1999 ("1999 Dispositions") and (iii) $2,289,000 due to the sale of
Clearbrook Village, McKellar Woods, Winchester Square, MacArthur Ridge, Pine
Trails and Whispering Oaks Apartment Communities in 2000 ("2000 Dispositions").
These decreases were partially offset by increases in rental revenue of (i)
$906,000 from the purchase of Huntington Chase Apartments and Indigo Point
Apartments in 2000 and (ii) $1,913,000 from the communities in development
("Development Communities") and (iii) $1,415,000 from the communities owned
throughout both periods.
Property operating expenses for 2000 increased approximately $203,000 due
primarily to increases of (i) $371,000 from the purchase of Huntington Chase
Apartments and Indigo Point Apartments in 2000 and (ii) $836,000 from
Development Communities and (iii) $1,030,000 from the communities owned
throughout both periods. These increases were partially offset by decreases in
operating expenses of (i) $257,000 due to the sale of 4 properties to the Joint
Venture in 1999 and (ii) $738,000 due to 1999 Dispositions and (iii) $1,039,000
due to 2000 Dispositions.
General and administrative expense decreased by approximately $144,000 over the
three months ended September 30, 1999. A large portion of this decrease is
related to reduced bonus payments during the period for property support
functions as compared to the prior year. Another portion relates to reduced
franchise tax expense as compared to the prior year quarter, mainly due to the
repeal of prior year legislation in the state of Tennessee, which legislation
had increased franchise tax exposure for 1999. Franchise tax expense for the
third quarter of 1999 was increased to provide for the year-to-date obligation.
Based on current plans, the Company expects general and administrative expenses
for the full year of 2000 to increase by approximately 3% to 4% over 1999.
Depreciation and amortization expense increased by approximately $542,000
primarily due to (i) $184,000 from the purchase of Huntington Chase Apartments
and Indigo Point Apartments in 2000 and (ii) $690,000 from Development
Communities and (iii) $649,000 from the communities owned throughout both
periods. These increases were partially offset by depreciation and amortization
expense decreases of (i) $102,000 due to the sale of 4 properties to the Joint
Venture in 1999 and (ii) $376,000 due to 1999 Dispositions and (iii) $503,000
due to 2000 Dispositions.
Interest expense increased $890,000 over the three months ended September 30,
1999 mainly related to additional funding required for new development and the
Company's share repurchase program, which impacted the Company's variable rate
Credit Lines. During the current quarter, the Company fixed the interest rate on
$115 million of its variable rate conventional debt through moving $65 million
into long-term permanent financing and an additional $50 million through
interest rate swap agreements. At September 30, 2000 the Company's overall
average debt cost was 7.15%, with unswapped variable rate conventional debt
comprising 9% of the outstanding debt.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Property revenues for 2000 decreased by approximately $2,261,000 due primarily
to decreases of (i) $6,710,000 due to the sale of 10 properties to the Joint
Venture in 1999 and (ii) $4,561,000 due to 1999 Dispositions along with the sale
of Hidden Oaks Apartments also in 1999 and (iii) $4,291,000 due to 2000
Dispositions. These decreases were partially offset by increases in rental
revenue of (i) $1,548,000 from the purchase of Huntington Chase Apartments and
Indigo Point Apartments in 2000 and (ii) $6,666,000 from Development Communities
and (iii) $5,087,000 from the communities owned throughout both periods.
Property operating expenses for 2000 decreased approximately $1,680,000 due
primarily to decreases of (i) $2,759,000 due to the sale of 10 properties to the
Joint Venture in 1999 and (ii) $2,236,000 to 1999 Dispositions along with the
sale of Hidden Oaks Apartments also in 1999 and (iii) $1,913,000 due to 2000
Dispositions. These decreases were partially offset by increases in operating
expenses of (i) $609,000 from the purchase of Huntington Chase Apartments and
Indigo Point Apartments in 2000 and (ii) $2,425,000 from Development Communities
and (iii) $2,194,000 from the communities owned throughout both periods.
General and administrative expense increased by approximately $1,233,000 over
the nine months ended September 30, 1999. The majority of the increase for the
first nine months of the year, as compared to the prior year, is related to the
bonus plan for property support staff. During the current year both the accrual
rate and actual payments required by the plan are more evenly incurred and paid
throughout the year, due to changes in the plan for the current year. Based on
current plans, the Company expects general and administrative expenses for the
full year of 2000 to increase by approximately 3% to 4% over 1999.
Depreciation and amortization expense increased by approximately $1,518,000
primarily due to (i) $307,000 from the purchase of Huntington Chase Apartments
and Indigo Point Apartments in 2000 and (ii) $2,152,000 from Development
Communities and (iii) $2,693,000 from the communities owned throughout both
periods. These increases were partially offset by depreciation and amortization
expense decreases of (i) $1,244,000 due to the sale of 10 properties to the
Joint Venture in 1999 and (ii) $1,181,000 due to 1999 Dispositions along with
the sale of Hidden Oaks Apartments also in 1999 and (iii) $830,000 due to 2000
Dispositions and (iiii) $379,000 due to the dissolution of the Flournoy Service
Corporation.
Interest expense increased $1,232,000 over the nine months ended September 30,
1999 mainly related to additional funding required for new development and the
Company's share repurchase program, which impacted the Company's variable rate
Credit Lines. During the current quarter, the Company fixed the interest rate on
$115 million of its variable rate conventional debt through moving $65 million
into long-term permanent financing and an additional $50 million through
interest rate swap agreements. At September 30, 2000 the Company's overall
average debt cost was 7.15%, with unswapped variable rate conventional debt
comprising 9% of the outstanding debt.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities decreased $10,770,000 for the nine
months ended September 30, 2000 as compared to the same period one year earlier.
Of this decrease, $7,253,000 is related to changes in operating assets and
liabilities, as well as a $4,906,000 decrease in income before gain on
dispositions, minority interest in operating partnership income, and
extraordinary items.
Net cash from investing activities decreased by $43,976,000 from a source of
$23,948,000 for the nine months ended September 30, 1999 to a use of $20,028,000
for the nine months ended September 30, 2000. The main components of this
decrease relate to (i) $14,858,000 real estate purchased during 2000, verses
none for the same period in 1999 and (ii) $42,378,000 less in proceeds from
assets sales in 2000. These decreases were partially offset by (i) $13,911,000
less spending on property improvements, (ii) $6,878,000 less funding required
for development as compared to the prior year, and (iii) $7,716,000 net cash
provided in the prior year from the sale of development and construction assets
and decreases in investment in and advances to real estate joint venture.
The Company sold six properties during the current year for approximately $50.6
million in cash and used $14.8 million of the proceeds to purchase two
replacement properties to complete 1031B exchange transactions. The remaining
proceeds were used to fund development and pay down the Credit Lines. Also, the
Company reduced its funding for improvements to existing properties to $12.5
million, which is a significant reduction from the prior year reflecting the
Company's current focus on the share repurchase program. The Company also funded
$43.5 million of construction on development. Three of the four communities
remaining in development are currently under lease-up, of which two communities
have received all units for leasing. The Company expects to fund an additional
$26.5 million to complete the remaining units, which are expected to be fully
completed by the first quarter of 2001.
As of September 30, 2000 the Company's communities in various stages of
development and lease-up are summarized as follows ($'s in 000's):
Apartment Units
-----------------------
Current
Total Estimated Cost to
Location Units Cost Date Completed Occupied
----------------- ----------- ----------- ---------- ----------- -----------
Development Communities:
In Lease-up:
Grand Reserve Lexington Lexington, KY 370 33,136 30,730 370 155
Kenwood Club at the Park Katy(Houston), TX 320 17,962 17,335 320 213
Reserve at Dexter Lake Phase II Memphis, TN 244 16,670 15,597 220 168
Grande View Nashville Nashville, TN 433 35,822 28,598 129 97
----------------------------------------------------------
1,367 $103,590 $92,260 1,039 633
----------------------------------------------------------
Under Construction:
Reserve at Dexter Lake Phase III Memphis, TN 244 16,830 1,652 - -
----------------------------------------------------------
244 16,830 1,652 - -
----------------------------------------------------------
Total Units Currently Under Development 1,611 $120,420 $93,912 1,039 633
==========================================================
Actual capital expenditures for development of communities and capital
improvements for the nine months ended September 30, 2000 are summarized below:
(Dollars in thousands)
Community development $ 43,461
Recurring capital at stabilized properties 9,811
Revenue enhancing projects at stabilized properties 1,943
Corporate additions and improvements 776
---------
$ 55,991
=========
In June 1999 the Company sold it's investment in the development and
construction businesses acquired in connection with the 1997 Flournoy merger.
Subsequent to selling these businesses, the Company's future funding commitment
to new development and construction has been significantly reduced from
approximately $85 million at September 30, 1999 to approximately $27 million at
September 30, 2000.
Net cash used by financing activities decreased by $51,818,000 from $82,976,000
in 1999 to $31,158,000 for the same period in 2000. This decrease was primarily
due to borrowing and repayment activity of the Credit Lines and notes payable
partially offset by the Company's share repurchase program.
At September 30, 2000 the Company's Credit Lines consisted of a $295 million
credit facility with FNMA (Prudential Mortgage serves as the DUS lender for the
FNMA facility), an $85 million facility with a group of banks led by AmSouth
Bank, and a $20 million unsecured facility with Compass Bank. As of September
30, 2000 the Company had amounts outstanding under those Credit Lines of
$185,850,000, $20,000,000, and $3,240,000, respectively.
Two of the facilities in the Credit Lines are subject to borrowing base
calculations that effectively reduce the maximum amount that may be borrowed.
The total amount that could be borrowed under the Credit Lines at September 30,
2000 was approximately $288.0 million.
During the first nine months of 2000, the Company borrowed an additional $72.6
million under the FNMA facility, of which $65 million was converted to permanent
fixed rate debt during the current quarter, as provided by the facility. The
remainder was used to pay-down the other facilities and fund development. The
Company also entered into two interest rate swap agreements, totaling $50
million, to effectively lock the interest rate on a portion of the outstanding
FNMA variable rate facility at approximately 7.4%. At September 30, 2000,
approximately 9% of the Company's outstanding debt consisted of unswapped
conventional variable rate arrangements.
During the first nine months of 2000, the Company also paid $1,751,000 in
deferred financing costs related to the changes in the Credit Lines and notes
payable, repurchased $6,084,000 in common shares related to its share repurchase
program, and distributed a total of $47,827,000 in total dividends to owners of
its partnership units, common shares, and preferred shares. During this current
period, the Company also received a total $2,039,000 in funds from purchases of
common shares under management incentive programs and the dividend reinvestment
plan.
The weighted average interest rate and weighted average maturity for the $776.5
million of total debt outstanding at September 30, 2000 were 7.16% and 10.9
years, respectively.
The Company believes that cash provided by operations is adequate and
anticipates that it will continue to be adequate in both the short and long-term
to meet operating requirements (including recurring capital expenditures at the
apartment communities) and payment of distributions by the Company in accordance
with REIT requirements under the applicable tax code.
The Company expects to meet its long term liquidity requirements, such as
scheduled mortgage debt maturities, property developments and acquisitions,
expansions and non-recurring capital expenditures, through long and medium-term
collateralized and uncollateralized fixed rate borrowings, fundings from the
Company's Credit Lines, potential asset sales, and joint venture transactions.
INSURANCE
In the opinion of management, property and casualty insurance is in place which
provides adequate coverage to provide financial protection against normal
insurable risks such that it believes that any loss experienced would not have a
significant impact on the Company's liquidity, financial position, or results of
operations.
INFLATION
Substantially all of the resident leases at the communities allow, at the time
of renewal, for adjustments in the rent payable thereunder, and thus may enable
the Company to seek rent increases. The substantial majority of these leases are
for one year or less. The short-term nature of these leases generally serves to
reduce the risk to the Company of the adverse effects of inflation.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. These statements include, but are not limited
to, the plans and objectives of management for future operations, including
plans and objectives relating to capital expenditures, rehabilitation costs on
the apartment communities, future development, anticipated growth rates of
revenues and expenses, and anticipated share repurchases. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there can
be no assurance that the forward-looking statements included in this report on
Form 10-Q will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
This information has been omitted as there have been no material changes in the
Company's market risk as disclosed in the 1999 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report.
(27) Financial Data Schedule for the period ended 9/30/00
(b) Reports on Form 8-K
Form Event Reported Date of Report Date Filed
8-K Fixed rate on $65 million of 8-28-2000 9-1-2000
debt and executed swap for a
further $25 million.
8-K Executed a $25 million swap 9-5-2000 9-6-2000
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MID-AMERICA APARTMENT COMMUNITIES, INC.
Date: 11/14/2000 /s/Simon R.C. Wadsworth
Simon R.C. Wadsworth
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)