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, 1996
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 24, 1996
---------- ------------------
Common Stock, $.01 par value 10,946,616
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995
Consolidated Statements of Operations for the three and
nine months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements
Pro Forma Condensed Combined Statements of Operations of
Mid-America Apartment Communities, Inc. for the nine months
ended September 30, 1996 and 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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
PART I. Financial Information
ITEM 1.
Mid-America Apartment Communities, Inc.
Consolidated Balance Sheets
September 30, 1996 (Unaudited) and December 31, 1995
(Dollars in thousands)
1996 1995
--------- ----------
ASSETS:
Real estate assets:
Land $ 59,747 $ 57,456
Buildings and improvements 546,436 507,586
Furniture, fixtures and equipment 11,738 9,916
Construction in progress 6,575 3,830
--------- ---------
624,496 578,788
Less accumulated depreciation (44,590) (29,504)
--------- ---------
Real estate assets, net 579,906 549,284
Cash and cash equivalents 2,943 3,046
Restricted cash 7,483 4,118
Deferred financing costs, net 2,890 2,225
Other assets 6,893 6,594
--------- ---------
Total assets $ 600,115 $ 565,267
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Notes payable $ 347,541 $ 307,939
Accounts payable 1,132 1,403
Accrued expenses and other liabilities 13,128 10,146
Security deposits 2,502 2,452
---------- ---------
Total liabilities 364,303 321,940
Minority interest 39,623 41,049
Shareholders' equity:
Preferred stock (authorized 5,000,000 shares) - -
Common stock, $.01 par value (authorized 20,000,000
shares; issued and outstanding 10,946,016 and
10,936,832 shares at September 30, 1996 and
December 31, 1995, respectively) 109 109
Additional paid-in-capital 208,862 208,670
Unearned compensation (290) (381)
Accumulated deficit (12,492) (6,120)
--------- ---------
Total shareholders' equity 196,189 202,278
--------- ---------
Total liabilities and shareholders' equity $ 600,115 $ 565,267
========= =========
<FN>
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations
Three and nine months ended September 30, 1996 and 1995
(Unaudited)
(Dollars in thousands except per share data)
Three months ended Nine months ended
September 30, September 30,
---------------------- -------------------
1996 1995 1996 1995
Revenues:
Rental $ 27,740 $26,094 $81,527 $66,842
Other 573 355 1,212 1,013
-------- ------- ------- -------
Total revenues 28,313 26,449 82,739 67,855
Expenses:
Personnel 2,995 2,716 8,525 6,974
Building repairs and maintenance 1,484 1,892 3,894 4,213
Real estate taxes and insurance 2,900 2,867 8,812 7,443
Utilities 1,581 1,710 4,736 4,156
Landscaping 722 623 2,104 1,644
Other operating 1,354 1,171 3,589 2,816
Depreciation and amortization real estate assets 5,296 4,556 15,577 11,635
Depreciation and amortization non-real estate assets 44 26 114 78
General and administrative 1,542 1,268 4,621 3,401
Interest 6,713 6,143 19,502 16,579
Amortization of deferred financing costs 168 139 484 406
-------- ------- ------- -------
Total expenses 24,799 23,111 71,958 59,345
-------- ------- ------- -------
Income before gain on disposition of properties 3,514 3,338 10,781 8,510
Gain on disposition of properties (22) - 1,944 -
-------- ------- ------- -------
Income before minority interest in operating partnership 3,492 3,338 12,725 8,510
Minority interest in operating partnership income 644 616 2,341 1,791
-------- ------- ------- -------
Net income $ 2,848 $ 2,722 $ 10,384 $ 6,719
======== ======= ======= =======
Net income per common share $ 0.26 $ 0.25 $ 0.95 $ 0.71
======== ======= ======= =======
<FN>
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995
(Dollars in thousands)
(Unaudited)
Nine months ended September 30,
-------------------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 10,384 $ 6,719
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,264 12,203
Minority interest in operating partnership income 2,341 1,791
Gain on disposition of real estate assets (1,944) -
Changes in assets and liabilities:
Restricted cash (3,365) 3,850
Other assets (299) (1,547)
Accounts payable (271) 1,709
Accrued expenses and other liabilities 2,982 519
Security deposits 50 40
-------- ---------
Net cash provided by operating activities 26,142 25,284
Cash flows from investing activities:
Purchases of real estate assets (46,563) (15,561)
Proceeds from dispositions of real estate assets 16,749 -
Improvements to properties (12,754) (13,654)
Construction of new units (1,981) (4,511)
Payment for purchase of AFRI, net of cash acquired - 1,319
-------- ---------
Net cash used in investing activities (44,549) (32,407)
Cash flows from financing activities:
Proceeds from notes payable 55,020 22,764
Principal payments on notes payable (15,418) (1,558)
Deferred financing costs (967) (111)
Proceeds from issuances of common stock 177 -
Redemption of unitholder interests (26) -
Distributions to minority interest holders (3,741) (3,689)
Dividends paid (16,741) (12,878)
-------- --------
Net cash provided by financing activities 18,304 4,528
-------- --------
Net decrease in cash and cash equivalents (103) (2,595)
Cash and cash equivalents, beginning of period 3,046 4,980
-------- --------
Cash and cash equivalents, end of period $ 2,943 $ 2,385
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 18,178 $ 16,461
========= ========
<FN>
See accompanying notes to consolidated financial statements.
MID-AMERICA APARTMENT COMMUNITIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1. The accompanying unaudited consolidated financial statements
have been prepared in accordance with the accounting policies in
effect as of December 31, 1995, as set forth in the annual
consolidated financial statements of Mid-America Apartment
Communities, Inc. ("MAAC" or the "Company"), as of such date with
the exception of Note 2 below. 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 nine-month period ended
September 30, 1996 are not necessarily indicative of the results
to be expected for the full year.
The accompanying 1996 financial statements include the 12
apartment communities acquired through the June 29, 1995 merger
of America First REIT, Inc. ("AFR"). The former stockholders of
AFR were issued 2,331,030 shares of MAA common stock for their
interests in AFR. The operating results of the acquired
properties were included in consolidated net income commencing
July 1, 1995.
2. Capital expenditures are those made for assets having a
useful life in excess of one year. In conjunction with
acquisitions of properties, the Company's policy is to provide in
its acquisition budgets adequate funds to complete any deferred
maintenance items to bring the properties to the required
standard and/or to stabilize.
In 1995, the Company completed a review of its capital
expenditure and depreciation policy. Effective January 1, 1996,
the Company implemented a new policy whose primary changes are
as follows:
a) increase minimum dollar amounts to capitalize from $500 to
$1,000,
b) for stabilized properties, capitalize replacement purchases
for major appliances and carpeting of an entire unit which was
previously expensed, and
c) reduce depreciation life for certain assets from 20 years to
10 to 15 years.
The Company believes that the newly adopted accounting policy is
preferable because it is consistent with policies currently being
used by the majority of the largest apartment REITs in the
industry and provides a better matching of expenses with the
estimated benefit period. The policy has been implemented
prospectively effective January 1, 1996.
3. Primary earnings per share is computed based upon 10,944,683
weighted average shares outstanding during the period from
January 1, 1996 through September 30, 1996, and 10,944,269 for
the period January 1, 1995 through September 30, 1995. Fully
diluted earnings per share is not presented as the dilution is
not materially different as compared to primary earnings per
share.
At September 30, 1996 10,946,016 common shares and 2,444,952
operating partnership units were outstanding, a total of
13,390,968. Additionally, MAAC has outstanding options of
340,150 shares of common stock which increased weighted average
shares outstanding during the period January 1, 1996 through
September 30, 1996 by 40,517 shares and the period January 1,
1995 through September 30, 1995 by 42,308 shares.
4. Subsequent Events
Issuance of Series A Cumulative Preferred Stock and Property
Acquisition
On October 10, 1996, the Company sold 2,000,000 shares of
its 9.5% Series A Cumulative Preferred Stock ("Series A Preferred
Stock") in a public offering. The $47,900,000 of net proceeds
were used to acquire the 240-unit Napa Valley apartment community
for approximately $9,700,000 and to pay down the Company's line
of credit. The apartment community is located across the street
from the Company's 260-unit Calais Forest apartment community in
Little Rock, Arkansas.
5. Pro Forma Condensed Combined Statements of Operations (Unaudited)
The unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ending September 30, 1996 has been
prepared as if the 1996 acquisitions, dispositions, and the October
issuance of the Series A Preferred Stock and the acquisition of
Napa Valley apartments had occurred at the beginning of the period
presented.
On June 29, 1995, through the merger (the "Merger") of AFR, the
Company acquired 12 apartment communities containing 3,212 units
located in six states. The unaudited Pro Forma Condensed
Combined Statement of Operations for the nine months ending
September 30, 1995 is presented as if the above transactions described
and the Merger had been consummated on January 1, 1995. The Merger
has been accounted for under the purchase method in accordance
with Accounting Principles Board Opinion No. 16. The unaudited
Pro Forma Condensed Combined Statement of Operations for the nine
months ending September 30, 1996 and 1995 have been prepared as if
the Company had qualified as a REIT, distributed all of its taxable
income and, therefore, incurred no federal income tax expense during
the nine months ended September 30, 1996 and 1995. In the opinion
of the Company's management, all adjustments necessary to reflect the
effects of these transaction have been made.
This unaudited Pro Forma Condensed Combined Statement of
Operations is presented for comparative purposes only and is not
necessarily indicative of what the actual result of operations of
the Company would have been for the period presented had the
transaction described above been consummated on January 1, 1995,
nor does it purport to represent the results for future periods.
This unaudited Pro Forma Condensed Combined Statement of
Operations should be read in conjunction with, and is qualified
in its entirety by, the respective historical consolidated
financial statements and notes thereto of MAAC and of AFR.
Mid-America Apartment Communities, Inc.
Pro Forma Condensed Combined Statements of Operations
for the nine months ended September 30, 1996 and 1995
(In thousands except per share data)
(Unaudited)
Nine Months Ending Nine Months Ending
September 30, 1996 September 30, 1995
---------------------- ----------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
Revenues:
Rental $ 81,527 $ 84,923 $ 66,842 $ 80,498
Interest and other 1,212 1,223 1,013 1,225
-------- -------- -------- --------
Total revenues 82,739 86,146 67,855 81,723
Expenses:
Personnel 8,525 8,881 6,974 8,370
Building repairs/maintenance, utilities,
landscaping, and other operating 14,323 14,735 12,829 15,620
Real estate taxes and insurance 8,812 9,172 7,443 8,933
Depreciation and amortization - real estate assets 15,577 16,236 11,635 16,100
Depreciation and amortization - non-real estate assets 114 117 78 117
General and administrative 4,621 4,655 3,401 4,007
Interest 19,502 18,355 16,579 18,191
Amortization of deferred financing costs 484 484 406 436
-------- -------- -------- --------
Total expenses 71,958 72,635 59,345 71,774
-------- -------- -------- --------
Income before gain on disposition of properties 10,781 13,511 8,510 9,949
Gain on disposition of properties 1,944 - - -
-------- -------- -------- --------
Income before minority interest in
operating partnership 12,725 13,511 8,510 9,949
Minority interest in operating partnership 2,341 2,467 1,791 1,817
Net income $ 10,384 $ 11,044 $ 6,719 $ 8,132
======== ======== ======== ========
Net income per common share $ 0.95 $ 1.01 $ 0.71 $ 0.74
======== ======== ======== ========
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 Mid-America Apartment
Communities, Inc. (the "Company") for the three and nine months
ended September 30, 1996 and 1995. This discussion should be read
in conjunction with all of 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.
Funds from Operations
Funds from Operations ("FFO") represents net income (computed in
accordance with GAAP) excluding extraordinary items, minority
interest in Operating Partnership income, gain or loss on
disposition of real estate assets, and certain non-cash items,
primarily depreciation and amortization, less preferred stock
dividends. FFO is computed in accordance with the definition
adopted by the National Association of Real Estate Investment
Trusts ("NAREIT"). 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
flows from operating, investing, and financing activities as a
measure of liquidity. The Company believes that FFO is helpful in
understanding a property portfolio in that such calculation
reflects cash flow from operating activities and the properties'
ability to support interest payments and general operating
expenses before the impact of certain activities such as changes
in other assets and accounts payable.
In March 1995, NAREIT modified the definition of FFO to
eliminate amortization of deferred financing costs and
depreciation of non-real estate assets as items added back to net
income when computing FFO. The Company implemented the new
method of calculating FFO effective as of the NAREIT-suggested
adoption date of January 1, 1996.
For the three months ended September 30, 1996, FFO increased by
$916,000 or 11.6%, when compared to the same period a year
earlier. The increase was primarily attributable to a $1,864,000
increase in revenues, which was partially offset by increases in
expenses associated with the increase in the number of units
owned by the Company. On a per share basis, FFO increased 11.9%
from $0.59 per share (adjusted only for new NAREIT FFO
definition) for the three months ending September 30, 1995 to
$0.66 per share for the same period in 1996.
For the nine months ended September 30, 1996, FFO increased by
$6,213,000 or 30.8%, when compared to the same period a year
earlier. The increase was primarily attributable to a $14,884,000
increase in revenues, which was partially offset by increases in
expenses associated with the increase in the number of units
owned by the Company. On a per share basis, FFO increased 16.6%
from $1.69 per share (adjusted only for new NAREIT FFO
definition) for the nine months ending September 30, 1995 to
$1.97 per share for the same period in 1996.
Capital Expenditures
Capital expenditures are those made for assets having a useful
life in excess of one year. In conjunction with acquisitions of
properties, the Company's policy is to provide in its acquisition
budgets adequate funds to complete any deferred maintenance items
in order to bring the properties to the Company's quality
standards and/or to stabilize.
Following a review of its capital expenditure and depreciation
policy, effective January 1, 1996, the Company implemented a new
policy of which the primary changes are as follows:
a) Increase minimum dollar amounts to capitalize from $500 to
$1,000,
b) for stabilized properties, capitalize replacement purchases
for major appliances and carpeting of an entire unit which
was previously expensed, and
c) reduce depreciation life for certain assets from 20 years to
10 to 15 years.
The Company believes that the newly adopted accounting policy is
preferable because it is consistent with policies currently being
used by the majority of the largest apartment REITs in the
industry and provides a better matching of expenses with the
estimated benefit period. The policy has been implemented
prospectively effective January 1, 1996.
The following table presents the impact on 1995 net income of the
Company's new capitalization policy and NAREIT's new FFO
definition.
Impact of Change in Accounting Policy and NAREIT's new FFO Definition on 1995 Income
(Unaudited)
Three Months Ending September 30, 1995 Nine Months Ending September 30, 1995
----------------------------------------- -----------------------------------------
With new With new
With new NAREIT FFO With new NAREIT FFO
NAREIT FFO definition* and NAREIT FFO definition* and
1995 DATA: As Reported definition* capital policy As Reported definition* capital policy
- ---------------------------------- ----------- ----------- --------------- ----------- ----------- ---------------
Net income before minority interest $ 3,338 $ 3,338 $ 3,338 $ 8,510 $ 8,510 $ 8,510
Change for capitalization policy
as if in effect at 1/1/95 - - 394 - - 841
Additional depreciation due to
change in capitalization policy - - (79) - - (168)
------- ------- ------- ------- ------- -------
Adjusted net income before
minority interest 3,338 3,338 3,653 8,510 8,510 9,183
Depreciation and amortization of:
Real estate assets 4,556 4,556 4,635 11,635 11,635 11,803
Non-real estate assets 26 - - 78 - -
Deferred financing costs 139 - - 406 - -
------- ------- ------- ------- ------- -------
FFO $ 8,059 $ 7,894 $ 8,288 $20,629 $20,145 $20,986
======= ======= ======= ======= ======= =======
1995 FFO per average share $ 0.60 $ 0.59 $ 0.61 $ 1.73 $ 1.69 $ 1.75
======= ======= ======= ======= ======= =======
<FN>
As recommended by NAREIT, the Company adopted the modified definition of FFO on January 1, 1996.
Results of Operations
Comparison of three months ended September 30, 1996 to the three
months ended September 30, 1995
The total number of apartment units owned at September 30, 1996
was 18,992 in 72 apartment communities, compared to 18,157 in 70
communities at September 30, 1995. Rental revenue per average
unit increased to $525.88 at September 30, 1996 from $504.89 at
September 30, 1995. Weighted average occupancy at September 30,
1996 and 1995 was 98.1% and 96.8%, respectively.
For the 14,911 stabilized units owned on September 30, 1996 and
1995, weighted average occupancy was 98.0% and 97.0%,
respectively. Average rental rate per unit increased 3.6% to
$516.55 as of September 30, 1996 compared to a year earlier.
Total revenues for the quarter ended September 30, 1996 increased
by $1,864,000 due primarily to the increased occupancy and
average rental rates achieved of which $467,000, or 2.2% from
revenue increases at 14,911 stabilized units owned throughout
both periods. Expenses increased by $1,688,000, which was
primarily attributable to (i) an increase in general and
administrative expense due to opening of new training center,
interest expense and depreciation due to the continued growth of
the Company, and (ii) $41,000 or a 0.5% increase in operating
expenses at the 14,911 apartment stabilized units owned
throughout both periods. As a percentage of revenues, real
estate taxes and insurance decreased for the three months ended
September 30, 1996 compared to the same period a year earlier.
Repair and maintenance expense decreased also as a percentage of
revenue primarily due to a reduction in air conditioning, heating
and interior painting costs which management contributes to its
emphasis of training service technicians, and to the change in
the capitalization policy detailed above. Utility costs
decreased from 6.5% of revenue to 5.6% of revenue for the three
months ended September 30, 1996 compared to the same period a
year earlier due to the installation of 6,021 water meters and the
completion of the electricity metering at Sailwinds of Lake
Magdalene. During the quarter ended September 30, 1996, the
Company recorded $22,000 of expenses to reduce the previously
recorded gain for the disposition of two apartment communities.
As a result of the foregoing, income before minority interest for
the three months ended September 30, 1996 increased $154,000 over
the same period a year earlier.
Comparison of nine months ended September 30, 1996 to the nine
months ended September 30, 1995
The total number of apartment units owned at September 30, 1996
was 18,992 in 72 apartment communities, compared to 18,157 in 70
communities at September 30, 1995. Rental revenue per average
unit increased to $525.88 at September 30, 1996 from $504.89 at
September 30, 1995. Weighted average occupancy at September 30,
1996 and 1995 was 98.1% and 96.8%, respectively.
Total revenues for the nine months ended September 30, 1996
increased by $14,884,000 due primarily to the acquisition of 12
properties on June 29, 1995. Expenses increased by $12,613,000,
which was primarily attributable to (i) the 12 properties
acquired on June 29, 1995, and (ii) an increase in general and
administrative expense due to the opening of the new training
center, interest expense and depreciation due to the continued
growth of the Company. As a percentage of revenues, real estate
taxes and insurance and interest costs decreased for the nine
months ended September 30, 1996 compared to the same period a
year earlier while personnel costs, landscaping costs, and other
operating costs increased an insignificant amount for these same
periods. Repair and maintenance expense decreased also as a
percentage of revenue primarily due to a reduction in air
conditioning, heating and interior painting costs which
management contributes to its emphasis of training service
technicians, and to the change in the capitalization policy
detailed above. Utility costs decreased from 6.1% of revenue to
5.7% of revenue for the nine months ended September 30, 1996
compared to the same period a year earlier due to the
installation of 6,021 water meters and the completion of the
electricity metering at Sailwinds of Lake Magdalene. During the
nine months ended September 30, 1996, the Company recorded a
$1,944,000 gain for the disposition of two apartment communities.
As a result of the foregoing, income before minority interest for
the nine months ended September 30, 1996 increased $4,215,000
over the same period a year earlier.
Liquidity and Capital Resources
Net cash provided by operating activities increased from
$25,284,000 for the period January 1, 1995 through September 30,
1995 to $26,142,000 for the period January 1, 1996 through
September 30, 1996. The increase in net cash flow was primarily
due to an increase in net income and accrued expenses and
liabilities. This increase in net cash flow provided by operating
activities was offset by an increase in restricted cash due to an
increase in tax-exempt bond financing requiring additional cash
reserves and increases in other mortgage escrows and replacement
reserves and the gain recorded for the disposition of two apartment
communities.
Net cash used in investing activities increased from
$32,407,000 in the period January 1, 1995 through September 30,
1995 to $44,549,000 for the period January 1, 1996 through
September 30, 1996. The increase was primarily due to the
acquisition of 1,232 apartment units in 1996 for $46,563,000
versus 520 apartment units in 1995 for $15,561,000. This
increase in net cash flow used in investing activities was offset
by the sale of two apartment communities in May and June of 1996
for $16,769,000. Capital improvements to existing properties
totaled $12,754,000 in the period January 1, 1996 through
September 30, 1996, compared to $13,654,000 for the same period
in 1995. $5,380,000 of capital improvements during the nine
months ending September 30, 1996 was for "recurring" capital
expenditures, including carpet and appliances. For the 14,911
stabilized units, "recurring capital" averaged $322 per unit, or
$429 annualized. Construction in progress for new units decreased
from $4,511,000 for the period January 1, 1995 through September
30, 1995 to $1,981,000 for the comparable period in 1996, due
primarily to the completion of the 122-unit development in
Jackson, Tennessee which began leasing during the third quarter
of 1995.
Net cash provided by financing activities increased from
$4,528,000 during the period January 1, 1995 through September
30, 1995 to $18,304,000 for the period January 1, 1996 through
September 30, 1996. During the nine months ended September 30,
1996, notes payable increased $55,020,000 due primarily to (i)
$37,076,000 of net funds needed to acquire four apartment
communities and (ii) $16,520,000 refunding of tax exempt bonds
secured by three apartment communities . This increase in net
cash flow provided by financing activities was offset by the
$13,480,000 payoff of two mortgages that had matured and
$3,863,000 of additional dividends paid due to the shares issued
with the June 29, 1995 merger with AFR.
During 1996, the Company negotiated a $65,000,000 unsecured line
of credit and paid off the $18 million outstanding on the secured
line of credit. At September 30, 1996, the Company had
$56,028,000 outstanding on the new line of credit. At September
30, 1996, the Company had $72,800,000 (including the line of
credit) of floating rate debt at an average interest rate of
6.88%; all other debt (79%) was fixed rate term debt at an
average interest rate of 8.15%. Excluding the floating rate line
of credit, 94.2% of the debt was fixed rate. The weighted
average interest rate at September 30, 1996 for the $347,400,000
of notes payable was 7.88% with a maturity of 11 years.
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
capital expenditures required to maintain the communities) and
payment of distributions by the Company in accordance with REIT
requirements.
Planned capital expenditures on property improvements and
expansion projects for the full year 1996 presently total $22.2
million, of which $15.3 million was expended in the nine month
period ended September 30, 1996. The Company expects to meet
its long term liquidity requirements, such as scheduled mortgage
debt maturities, property acquisitions, expansions and non-
budgeted capital improvements, through long and medium term
collateralized and uncollateralized fixed rate borrowings,
issuance of debt or additional equity securities in the Company
and the Company's line of credit.
In October, the Company used the $47,900,000 of net proceeds from
the Series A Preferred Stock which closed in October for the
October 17, 1996 acquisition of Napa Valley apartments and the
balance to reduce the amount outstanding on the unsecured line
of credit. The Company is currently negotiating to increase the
unsecured line of credit from $65,000,000 to $90,000,000 and
anticipates to use the line of credit for future acquisitions and
development. The Company anticipates that its interest payments
for the 12 month period ending December 31, 1996 will
approximate $25,700,000.
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 properties
allow, at the time of renewal, for adjustments in the rent
payable thereunder, and thus may enable the Company to seek
increases in rents. 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
affects of inflation.
Risks Associated with Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, which are
intended to be covered by the safe harbors created thereby.
These statements include the plans and objectives of management
for future operations, including plans and objectives relating to
capital expenditures and rehabilitation costs on the apartment
communities. The forward-looking statements included herein are
based on current expectations that involve numerous risks and
uncertainties which are discussed below. 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 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.
Risk Factors and Uncertainties including, but not limited to:
* risks associated with competition for acquisition
opportunities, construction, lease-up and financing risks,
* real estate investment risks such as:
(i) general risks related to the ability of the Company's
properties to generate sufficient funds available for
distribution to shareholder;
(ii) operating risks such as competition from existing
apartment communities, alternative housing and potential
overbuilding of housing;
(iii) dependence on the economies of the metropolitan areas
where the Company's properties are located;
(iv) increases in operating costs (including real estate
taxes and insurance) due to inflation and other factors, which
increases may not necessarily be offset by increased rents, and
(v) potential losses in the event of a casualty or title loss
that is not insured, insurable or economically insurable, all of
which could adversely affect the value of the Company's apartment
communities.
* potential fluctuations in interest rates or the availability of debt
capital impacting the cost of financing and the ability of the Company
to refinance scheduled debt maturities,
* potential increase in market interest rates that may result in higher
yields on other financial instruments, which could adversely affect the
market price of the Company's common stock, and
* taxation of the Company as a regular corporation if it fails to qualify
as a REIT in any taxable year.
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 or Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Form Events Reported Financial Statements Date of Report Date Filed
- ---- --------------- -------------------- -------------- ----------
8-K Filing of audited Historical Summary of 8-7-96 8-7-96
statements related Gross Income and
to purchase Operating Expenses
Savannah Creek,
Crosswinds, and
Sutton Place Apartments
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: November 14, 1996 /s/George E. Cates
------------------- -------------------------------------
George E. Cates
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1996 /s/Simon R.C. Wadsworth
------------------- -------------------------------------
Simon R.C. Wadsworth
Executive Vice President
(Principal Financial and Accounting Officer)