UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
May 1, 2001
Date of Report (Date of earliest event reported)
MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact Name of Registrant as Specified in Charter)
TENNESSEE 1-12762 62-1543819
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification Number)
6584 POPLAR AVENUE, SUITE 340
MEMPHIS, TENNEESSEE 38138
(Address of principal executive offices)
(901) 682-6600
(Registrant's telephone number, including area code)
(Former name or address, if changed since last report)
ITEM 7. Financial Statements and Exhibits
c. Exhibits
Exhibit 99.1 Press Release
Exhibit 99.2 Supplemental Data
ITEM 9. Regulation FD
Mid America Apartment Communities, Inc. (MAA)
1st Quarter 2001 Earnings Release Conference Call Transcript
May 1, 2001
Welcome to this commentary on Mid-America's first quarter earnings. This is
George Cates, CEO. With me are Eric Bolton, President and COO and Simon
Wadsworth, CFO. We'll repeat only a few highlights from that release yesterday.
For a copy of the release and supplemental data, please contact Michelle Sargent
at Mid-America or check our web-site at www.maac.net.
Let me note that we will make some forward-looking statements. Refer to the
safe-harbor language included in our press release and our 34-Act filings with
the SEC which describe certain risk factors that may impact future results. This
call is being recorded and members of the press may be participating.
Highlights of yesterday's release are:
o FFO for the quarter was 69 cents/share, 1 cent ahead of estimates, aided by
a gain on sale of surplus land
o Same store NOI increased 2.8% - in line with expectations and forecasts
o Our markets are steady
o We see just a few pockets of over-building, offset by others of strength
o The development pipeline is almost complete. As lease-up concludes over the
next two years we will continue to grow value, earnings, and add to
dividend coverage and financial strength.
o Our award-winning portfolio is in outstanding condition and our business is
sound
o So far this year, we've completed another $3 million of share repurchases
o We continue to grow share value through selective asset sales and
deployment of that capital into alternative investments, including share
repurchase
Eric Bolton:
Revenue growth improved this quarter as same store revenue results exceeded the
performance of the prior three quarters. Overall portfolio occupancy at quarter
end was only slightly below last year, due mainly to softness in the Memphis
market. Memphis group occupancy averaged 93% throughout the quarter, versus
95.6% for the same period last year. While demand remains steady, as is typical
for most of our markets, the Memphis market has experienced excess new
construction since late last year. This imbalance dampened market performance,
coming as it did during the slow winter months. While we expect the Memphis
market to remain somewhat soft for the balance of the year, absorption should
pick up seasonally during the summer months.
Lease-up concessions at new properties in the Memphis market are generally
running in the range of up to 2 months. We expect concessions to begin to drop
by the latter part of the year. There was a temporary occupancy dip in our
Jackson, TN market in March, but we expect this group of properties,
representing only 3% of our portfolio, to gain strength over the next few
months. In our fourth quarter report we commented that there was some market
softness in Jackson, MS. We ended the first quarter at 94.2% occupancy in that
market and foresee improving conditions in Jackson.
Generally all of our other markets are in stable condition. Our Georgia
properties, and all of our Texas markets, are performing well. The Florida
portfolio is steady and performing at a satisfactory level, as are the
Carolinas. In general, markets continue to behave in the normal pattern of being
out of balance for only short periods, but they are still slightly tougher than
a year ago. We remain very comfortable with our southeastern, south central and
Texas regional focus. The mild weakness in our Memphis market, representing only
12% of our portfolio, is limited to a few sub-markets.
We are comfortable with the strength evident in the diversified performance of
our portfolio. Unlike other regions of the country where the demand side of the
equation can be very volatile, the southeast and south central regions provide a
healthier and steady demand for multifamily housing. While developers will tend
to oversupply markets at times, we do see more overall capital discipline than
in prior cycles, due in part to the abundance of good market information now
available; no lenders really want a bloody nose. As a result, we believe our
regional focus will, over time, continue to provide the best risk adjusted
returns for our owners.
Lease-up at our new development properties remain on track and as forecast. At
quarter-end, we were 82% leased at the three fully completed properties and
expect those 932 units to be stabilized in the third quarter. We have posted
strong leasing results at our new property in Lexington over the past 60 days
and expect to be fully stabilized there during early 2002. We near completion of
the lease-ups at Kenwood Club in west Houston and the second of three phases of
Dexter Lake in Memphis. While we continue to compete with fairly aggressive
concessions in Memphis, we believe that we have properly accounted for those in
our forecast. We will start taking delivery of the third phase units this June
and now forecast this 740-unit development to be fully stabilized in the second
half of 2002. Our Nashville lease-up continues to perform well with
stabilization forecast in the first quarter of 2002.
Operating expenses remain under good control. Same store property operating
expenses were only 1.9% above last year. Despite the high utility bills of the
hard winter from electricity and gas, overall utility expenses rose only 3.2%
for the quarter as water costs continued to post year over year declines as a
result of our resident billing program. Notable areas of expense pressure were
health insurance costs and marketing expenses reflective of market conditions.
We announced recently a new initiative with Bell South that will provide high
speed DSL internet access service to most of our customers. Installation is
underway, and we expect to have the service and revenue sharing components of
this new program fully operational by yearend. During the second quarter we also
plan to start initial testing of a new internet based resident services program.
This new service is designed to provide a fully automated internet based
platform for providing resident move-in services and products. As is our policy
for evolving technologies, this will involve no commitment of Mid-America
capital.
Simon Wadsworth. Apart from the 1 cent of FFO from the sale of surplus land,
results for the quarter were in line with expectations. We anticipated the small
reduction in FFO when compared to last year, primarily resulting from last
year's second-quarter sales of several older, mature assets at a higher cap
rates, and their replacement mostly with new development, not yet fully
productive. Further, with the completion of two large new properties during the
softest part of the leasing season, we have been carrying almost the full fixed
charge of these development properties before the arrival of their new revenue.
As Eric mentioned in the press release, we believe that same store growth will
be in the 2.0% to 2 3/4% range for the year, and our forecasts are built on 2
1/4% same store NOI growth for the balance of the year. There is considerable
uncertainty not only in the lease-up of our development properties, but also in
real estate taxes; many properties are being reappraised this year. Health
insurance costs are also increasing well above inflation, and along with the
expected increases in property and casualty insurance, cost pressures will
continue.
Note that in the presentation of our financials we are breaking out property
management expense from company G & A expense. This brings our reporting in line
with other REITs. Property performance bonuses are included in this new category
of property management expense. We've reformatted the prior year, and of course
this makes no difference to current or past reported net income or FFO.
We have several refinancings scheduled, including approximately $60 million of
various permanent mortgages and $17.5 million of tax-free bonds. We are also
reducing our bank credit facility by $15 million (to $70 million) as we
increasingly utilize lower cost Fannie Mae financing. We presently plan to fix
the rate through swaps or fixed rate financing on much of this , and we
anticipate a favorable FFO impact of approximately 3 1/2 cents per share
annualized, with benefits beginning in June and the full impact being realized
in November . We anticipated this change last year and thus incorporated these
refinancings into our forecast previously.
We have two properties which we are negotiating to sell for $22 million. The
buyers are paying an 8.5% cap rate of this year's cash flow (assuming 4%
management costs, and $350/unit reserves). After selling expenses, we should
realize an 8.8% cap rate. As is typical of most sales, these properties are
significantly older than the portfolio average. The pricing of such planned
sales again confirms our view of our net asset value at a level 15 to 20% above
our stock price.
George Cates. Our $300 million new development pipeline nears completion. With
its steadily increasing stabilization, we continue to gain considerably more
balance sheet flexibility as the year develops. We persistently explore options
to create share value, and to capture it for our owners.
Insiders continue to be buyers of Mid-America shares. As owners of 16% of the
business, we believe that our stock is the place to be, including during a
possible recession. The last serious real estate recession came in 1989-93 and
our predecessor continued to grow revenues and NOI throughout that rough period.
Given our stable and diversified markets; our major reduction in new development
exposure since 1999; and the outstanding condition of our portfolio, we are well
positioned to provide a large, growing, and well-covered dividend and continued
solid value growth.
Our flexible strategy remains sound, acknowledging the reality and taking
advantage of real estate cycles. We acquired about $800 million of properties
when that added to share value. We acquired another public REIT and a private
portfolio and a development/construction company for about $425 million when
those major transactions were called for, and exited development prudently and
only after adding $300 million of productive new development. We were among the
earliest to repurchase shares, funded in part through asset sales, when that
opportunity for share value growth arose.
No single-purpose strategy - whether development, size for its own sake, or
aggressive acquisition - can add to share value for very long. As opposed to
those risky strategies, our flexible strategy, focused on the most prudent use
of capital at a given segment of the cycle, increasingly shows its worth as we
continue to deliver a solid true return to our owners (with about 2/3 of that
return as cash), and with a return on assets in the top tier of the industry.
Our strategy is serving our owners well.
We invite your questions.
(Q&A followed)
SIGNATURES
Pursuant to the requirements of the Securities Exchnage 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: May 1, 2001 /s/Simon R.C. Wadsworth
Simon R.C. Wadsworth
Executive Vice President
(Principal Financial and Accounting Officer)