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 June 30, 1999
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 July 31, 1999
----- ----------------
19,018,594
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998
Consolidated Statements of Operations for the three and six
months ended June 30, 1999 and 1998 (Unaudited)
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 (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
PART I. Financial Information
ITEM 1.
Mid-America Apartment Communities, Inc.
Consolidated Balance Sheets
June 30, 1999 (Unaudited) and December 31, 1998
(Dollars in thousands)
1999 1998
---- ----
Assets:
- -------
Real estate assets:
Land ............................................$ 123,305 $ 124,912
Buildings and improvements ...................... 1,197,688 1,184,611
Furniture, fixtures and equipment ............... 28,833 26,779
Construction in progress ........................ 45,677 75,776
- --------------------------------------------------------------------------------
1,395,503 1,412,078
Less accumulated depreciation ................... (136,227) (117,773)
- --------------------------------------------------------------------------------
1,259,276 1,294,305
Land held for future development ................ 1,366 11,781
Commercial properties, net ...................... 4,401 9,282
Investment in and advances to real
estate joint venture ........................ 5,578 --
- --------------------------------------------------------------------------------
Real estate assets, net .................... 1,270,621 1,315,368
Cash and cash equivalents ............................. 13,551 7,237
Restricted cash ....................................... 18,597 9,282
Deferred financing costs, net ......................... 9,615 10,359
Other assets .......................................... 10,861 24,181
- --------------------------------------------------------------------------------
Total assets .................................$ 1,323,245 $ 1,366,427
================================================================================
Liabilities and Shareholders' equity:
- -------------------------------------
Liabilities and deferred gain:
Notes payable ...................................$ 729,146 $ 753,427
Accounts payable ................................ 912 10,384
Accrued expenses and other liabilities .......... 22,315 18,959
Security deposits ............................... 4,950 4,917
Deferred gain on disposition of properties ...... 2,239 --
- --------------------------------------------------------------------------------
Total liabilities and deferred gain .......... 759,562 787,687
Minority interest ..................................... 58,633 61,441
Shareholders' equity:
Preferred stock, $.01 par value, 20,000,000
shares authorized,
$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, $.01 par value (authorized
50,000,000 shares;issued and outstanding
19,008,845 and 18,879,691 shares
at June 30, 1999 and December 31, 1998,
respectively) ............................... 190 189
Additional paid-in capital ...................... 584,852 583,154
Other ........................................... (1,263) (2,237)
Distributions in excess of earnings ............. (78,798) (63,876)
- --------------------------------------------------------------------------------
Total shareholders' equity ................... 505,050 517,299
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity ...$ 1,323,245 $ 1,366,427
================================================================================
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations
Three and six months ended June 30, 1999 and 1998
(Dollars in thousands except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental ........................................... $ 55,040 $ 51,113 $ 111,222 $ 101,043
Other ............................................ 1,115 788 1,776 1,458
Management and development income, net ........... 177 265 423 647
Equity in earnings of real estate joint venture .. 30 -- 51 --
- -----------------------------------------------------------------------------------------------------------
Total revenues ................................... 56,362 52,166 113,472 103,148
- -----------------------------------------------------------------------------------------------------------
Expenses:
Personnel ........................................ 6,294 6,007 12,776 11,545
Building repairs and maintenance ................. 2,467 2,455 4,847 4,428
Real estate taxes and insurance .................. 6,288 5,367 12,371 10,766
Utilities ........................................ 2,167 2,174 4,599 4,428
Landscaping ...................................... 1,411 1,259 2,822 2,429
Other operating .................................. 2,579 1,979 5,041 4,168
Depreciation and amortization .................... 12,625 11,242 25,141 22,084
General and administrative ....................... 3,010 2,377 6,149 4,993
Interest ......................................... 12,195 11,676 24,196 22,664
Amortization of deferred financing costs ......... 685 593 1,377 1,139
- -----------------------------------------------------------------------------------------------------------
Total expenses ................................... 49,721 45,129 99,319 88,644
- -----------------------------------------------------------------------------------------------------------
Income before gain on dispositions,
minority interest in operating partnership
income and extraordinary item ...................... 6,641 7,037 14,153 14,504
- -----------------------------------------------------------------------------------------------------------
Gain (loss) on dispositions,net ........................ (4,366) 422 332 422
- -----------------------------------------------------------------------------------------------------------
Income before minority interest in operating
partnership income and extraordinary item ........... 2,275 7,459 14,485 14,926
- -----------------------------------------------------------------------------------------------------------
Minority interest in operating partnership income (loss) (414) 746 782 1,167
- -----------------------------------------------------------------------------------------------------------
Income before extraordinary item ....................... 2,689 6,713 13,703 13,759
- -----------------------------------------------------------------------------------------------------------
Extraordinary item - loss on debt extinguishment ...... -- (619) (67) (990)
- -----------------------------------------------------------------------------------------------------------
Net income ............................................. 2,689 6,094 13,636 12,769
Dividends on preferred shares .......................... 4,029 2,276 8,056 4,539
- -----------------------------------------------------------------------------------------------------------
Net income (loss) available for common shareholders .... $ (1,340) $ 3,818 $ 5,580 $ 8,230
===========================================================================================================
Basic (in thousands):
Average common shares outstanding .............. 18,967 18,693 18,935 18,622
- -----------------------------------------------------------------------------------------------------------
Basic earnings per share:
Net income (loss) available per common share $ (0.07)$ 0.24 $ 0.30 $ 0.50
before extraordinary item
Extraordinary item ....................... -- (0.04) (0.01) (0.06)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) available per common share $ (0.07)$ 0.20 $ 0.29 $ 0.44
- -----------------------------------------------------------------------------------------------------------
Diluted (in thousands):
Average common shares outstanding .............. 18,967 18,693 18,935 18,622
Effect of dilutive stock options ............... 37 48 20 55
- -----------------------------------------------------------------------------------------------------------
Average dilutive common shares outstanding ..... 19,004 18,741 18,955 18,677
- -----------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Net income (loss) available per common share $ (0.07)$ 0.24 $ 0.30 $ 0.49
before extraordinary item
Extraordinary item ....................... -- (0.04) (0.01) (0.05)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) available per common share $ (0.07)$ 0.20 $ 0.29 $ 0.44
===========================================================================================================
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Cash Flow
Six months ended June 30, 1999 and 1998
(Dollars in thousands)
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net income ....................................... $ 13,636 $ 12,769
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ............ 26,518 23,369
Equity in earnings of real estate
joint venture ........................... (51) --
Minority interest in operating
partnership income ...................... 782 1,167
Extraordinary item ....................... 67 990
Gain on dispositions, net ................ (332) (422)
Changes in assets and liabilities:
Restricted cash ...................... (1,616) 1,974
Other assets ......................... 528 294
Accounts payable ..................... (6,080) (2,360)
Accrued expenses and other
liabilities ........................ 5,529 (122)
Security deposits .................... 33 228
- --------------------------------------------------------------------------------
Net cash provided by operating activities 39,014 37,887
Cash flows from investing activities:
Purchases of real estate assets .......... -- (22,786)
Improvements to properties ............... (16,563) (10,290)
Construction of units in progress
and future development .................. (36,647) (35,392)
Proceeds from disposition of real
estate assets ........................... 69,184 5,435
Proceeds from sale of development
and construction assets ................. 19,100 --
Investment in and advances to real
estate joint venture .................... (6,027) --
Escrow funding for tax free exchange, net (7,744) --
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities .............................. 21,303 (63,033)
Cash flows from financing activities:
Net change in credit line ................ (18,747) (24,295)
Proceeds from notes payable .............. 11,760 218,764
Principal payments on notes payable ...... (15,945) (195,659)
Deferred financing costs ................. (633) (4,979)
Proceeds from issuances of common
shares and units ........................ 2,854 8,613
Proceeds from issuance of preferred shares (35) 48,330
Redemption of unitholder interests ....... -- (104)
Distributions to unitholders ............. (3,454) (3,089)
Dividends paid on common shares .......... (21,747) (19,995)
Dividends paid on preferred shares ....... (8,056) (4,539)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities .............................. (54,003) 23,047
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents ........................ 6,314 (2,099)
- --------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period ......... 7,237 14,805
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period ............... $ 13,551 $ 12,706
================================================================================
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Interest paid ....................................... $ 24,295 $ 23,038
Supplemental disclosure of noncash investing and
financing activities:
Assumption of debt related to property acquisitions $ -- $ 16,964
Conversion of units for common shares ............... $ 47 $ 774
Issuance of units related to property acquisitions .. $ -- $ 338
Issuance of advances in exchange for common shares
and units ......................................... $ 97 $ 1,952
See accompanying notes to consolidated financial statements.
MID-AMERICA APARTMENT COMMUNITIES, INC.
NOTES TO FINANCIAL STATEMENTS
(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, 1998, 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 six-month period ended June 30, 1999 are not necessarily
indicative of the results to be expected for the full year.
2. Real Estate Transactions
Joint Venture Transaction
In March 1999 the Company entered into an agreement to form a joint venture (the
"Joint Venture") with Blackstone Real Estate Acquisitions, LLC ("Blackstone"), a
subsidiary of an investment management firm located in New York city, to own and
operate apartment communities. The Company simultaneously sold 6 apartment
communities to the newly formed Joint Venture for approximately $64.6 million in
cash and, for book purposes, recognized a gain of approximately $4.4 million and
deferred gains for the Company's retained interest of approximately $2.2 million
which will be amortized over the life of the Joint Venture. The Company retained
a 33 percent ownership in the Joint Venture and will continue to manage the
properties for fee of 4% of revenues. The Company contributed capital of
approximately $2.6 million and loaned the Joint Venture a total of $3.0 million
at an interest rate of 10% for the life of the entity. The net proceeds from the
transaction were used to pay down the Company's line of credit (the "Credit
Line") and to fund a cash escrow reserve related to the planned tax free
exchange of a portion of the properties. The agreement provides that income and
cash flows generated by the Joint Venture are to be allocated based on
respective ownership percentages. The Company accounts for its investment in the
Joint Venture using the equity method of accounting.
In August 1999, the Company closed the second portion of the Joint Venture
transaction with Blackstone. The Company sold four additional properties
containing 1,134 apartment units to the Joint Venture, for proceeds of $33.3
million, bringing the total proceeds from sales to the venture to $97.9 million
from 10 properties containing a total of 2,794 apartment units. The Company
contributed additional capital to the Joint Venture related to this transaction
bringing the total investment in the Joint Venture to approximately $4.6
million. The remaining proceeds were used to pay down the Company's Credit Line
and to fund its development pipeline. After this transaction, the Company
continues to own a 33 percent interest in the Joint Venture.
Property Disposition
In April 1999 the Company sold the 240-unit Hidden Oaks Apartments located in
Albany, Georgia for $6.1 million. The Company provided a $500,000 loan to the
seller repayable in five years at 7.5% interest rate. The twenty year old
property was acquired in 1997 as part of the merger with Flournoy Development
Company ("FDC merger"). The proceeds from the sale were used to pay off the
outstanding loan related to the property of $2.43 million and to pay down the
Company's Credit Line.
3. Sale of Development, Construction and Fee Management Business
On June 30, 1999, the Company sold its development, construction and fee
management businesses acquired in connection with the November 1997 FDC merger
back to the principals of Flournoy Development Company ("Flournoy"). The Company
received net proceeds of $19.1 million for these assets and recorded a net loss
for book purposes of approximately $4.0 million, relating mainly to the
write-off of goodwill related to the original purchase transaction. In the
transaction, Flournoy reacquired the development businesses, related fixed
assets including single family development, land and property held for sale, and
the fee management business of 5,131 tax credit apartment units. The Company has
contracted with Flournoy to complete the remaining portion of its development
pipeline.
4. Earnings Per Share
At June 30, 1999, 19,008,845 common shares and 3,011,011 operating partnership
units were outstanding, a total of 22,019,856 shares and units. Additionally,
MAAC has outstanding options for 1,164,469 shares of common stock at June 30,
1999.
5. Segment Information
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", in 1998. At June 30, 1999, the Company owned, or had
ownership interest, and operated 130 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 six months ended as of June 30:
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Rental revenues ................... $ 55,040 $ 51,113 $ 111,222 $ 101,043
Other property revenues ........... 568 616 1,064 1,090
--------- --------- --------- ---------
Total revenues ................ $ 55,608 $ 51,729 $ 112,286 $ 102,133
--------- --------- --------- ---------
Property net operating income ..... $ 34,402 $ 32,488 $ 69,830 $ 64,369
Income from unconsolidated
Joint Venture ................... 30 -- 51 --
Development and construction
income, net ..................... 177 265 423 647
Interest and other income ......... 547 172 712 368
Interest expense .................. (12,195) (11,676) (24,196) (22,664)
General and administrative expenses (3,010) (2,377) (6,149) (4,993)
Amortization of deferred
financing costs ................. (685) (593) (1,377) (1,139)
Depreciation and amortization ..... (12,625) (11,242) (25,141) (22,084)
--------- --------- --------- ---------
Income before gain on dispositions,
minority interest in operating
partnership income and
extraordinary item .............. $ 6,641 $ 7,037 $ 14,153 $ 14,504
========= ========= ========= =========
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 six months ended June 30,
1999 and 1998. 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.
At June 30, 1999, the Company owned or had ownership interest in 34,825 units in
130 apartment communities, compared to 31,791 in 120 communities at June 30,
1998.
Average monthly rental per apartment unit increased to $595 at June 30, 1999
from $575 at June 30, 1998. Overall occupancy at June 30, 1999 and 1998 was
95.0% and 94.9%, respectively.
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
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 current definition, which eliminates amortization of
deferred financing costs and depreciation of non-real estate assets as items
added back to net income when computing 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 cash flow from operating activities
and 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 $194,000
and $172,000 at June 30, 1999 and 1998, 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 (FFO) for the three and six months ending June 30, 1999
and 1998 is calculated as follows (dollars in thousands):
Three months ending Six months ending
June 30, June 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Net income (loss) available
for common shareholders ........ $ (1,340) $ 3,818 $ 5,580 $ 8,230
Depreciation and amortization of
real estate assets ............. 12,530 11,094 24,947 21,912
Adjustment for Joint Venture
depreciation ................... 188 -- 188 --
Minority interest ................ (414) 746 782 1,167
(Gain) loss on disposition
of assets ...................... 4,366 (422) (332) (422)
Extraordinary items .............. -- 619 67 990
-------- -------- -------- --------
Funds from operations ............ $ 15,330 $ 15,855 $ 31,232 $ 31,877
======== ======== ======== ========
Weighted average shares and units:
Basic .......................... 21,978 21,725 21,946 21,605
Diluted ........................ 23,014 21,773 22,966 21,660
RESULTS OF OPERATIONS (Dollars in 000's)
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 TO THE THREE MONTHS ENDED JUNE
30, 1998
During 1998 the Company acquired ten properties. Of these properties, two were
sold to the Joint Venture in March 1999. The following discussion includes the
information relating to these properties in the Joint Venture portion.
Total revenues for 1999 increased by $4,196 due primarily to increases of (i)
$2,391 from 8 communities acquired in 1998 and owned through June 30, 1999, (ii)
$3,042 from the development communities completed during 1998 and 1999, and
(iii) $1,450 from the communities owned throughout both periods. These increases
were partially offset by decreases of (i) $2,361 due to the sale of the 6
properties to the Joint Venture in 1999 and (ii) $444 due to the sale of Redford
Park Apartments in 1998 and Hidden Oaks Apartments in 1999.
Property operating expenses for 1999 increased by $1,965 due primarily to (i)
$942 from 8 communities acquired in 1998 and owned through June 30, 1999, (ii)
$1,113 from the development communities completed during 1998 and 1999 and (iii)
$1,139 from the communities owned throughout both periods. These increases were
offset by decreases of (i) $942 due to the sale of 6 properties to the Joint
Venture in 1999 and (ii) $368 from the sale of Redford Park Apartments in 1998
and Hidden Oaks Apartments in 1999.
Depreciation and amortization expense increased by $1,383 primarily due to (i)
$498 from 8 communities acquired in 1998 and owned through June 30, 1999, (ii)
$705 from the development communities completed during 1998 and 1999 and (iii)
$731 from the communities owned throughout both periods. These increases were
offset by reductions of (i) $453 related to the sale of 6 properties to the
Joint Venture in 1999 and (ii) $98 from the sale of Redford Park Apartments in
1998 and Hidden Oaks Apartments in 1999.
General and administrative expense increased by $633 for the three months ended
June 30, 1999 mainly due to the addition and expansion of certain training and
administrative functions to support the Company's portfolio growth.
Interest expense increased $519 during the three months ended June 30, 1999 due
primarily to increased debt related to the 10 property acquisitions in 1998 and
additional Credit Line funding to complete the new development properties.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED JUNE 30,
1998
During 1998 the Company acquired ten properties. Of these properties, two were
sold to the Joint Venture in March 1999. The following discussion includes the
information relating to these properties in the Joint Venture portion.
Total revenues for 1999 increased by $10,324 due primarily to increases of (i)
$5,250 from the 8 communities acquired in 1998 and owned through June 30, 1999,
(ii) $5,598 from the development communities completed during 1998 and 1999, and
(iii) $2,297 from the communities owned throughout both periods. These increases
were partially offset by decreases of (i) $2,351 due to the sale of 6 properties
to the Joint Venture in 1999 and (ii) $745 from the sale of Redford Park
Apartments in 1998 and Hidden Oaks Apartments in 1999.
Property operating expenses for 1999 increased by $4,692 due primarily to (i)
$2,572 from the 8 communities acquired in 1998 and owned through June 30, 1999,
(ii) $2,040 from the development communities completed during 1998 and 1999 and
(iii) $970 from the communities owned throughout both periods. These increases
were offset by decreases of (i) $522 due to the sale of 6 properties to the
Joint Venture in 1999 and (ii) $368 from the sale of Redford Park Apartments in
1998 and Hidden Oaks Apartments in 1999.
Depreciation and amortization expense increased by $3,057 primarily due to (i)
$1,089 from the 8 communities acquired in 1998 and owned through June 30, 1999,
(ii) $1,060 from the development communities completed during 1998 and 1999, and
(iii) $1,786 from the communities owned throughout both periods. These increases
were offset by decreases of (i) $316 due to the sale of 6 properties to the
Joint Venture in 1999 and (ii) $563 from the sale of Redford Park Apartments in
1998 and Hidden Oaks Apartments in 1999.
General and administrative expense increased by $1,156 for the six months ended
June 30, 1999 mainly due to the addition and expansion of certain training and
administrative functions to support the Company's portfolio growth.
Interest expense increased $1,532 during the six months ended June 30, 1999 due
primarily increased debt related to the 10 property acquisitions in 1998 and
additional Credit Line funding to complete the new development properties.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased from $37,887 for the six
months ended June 30, 1998 to $39,014 for the six months ended June 30, 1999.
The increase in net cash flow was primarily related to growth in income and cash
flow related to property acquisitions and new development.
Net cash from investing activities increased by $84,336 from a usage of $63,033
for six months ended June 30, 1998 to a source of $21,303 for the six months
ended June 30, 1999. The increase is primarily related to the sale of the six
Joint Venture properties and one additional property for total net proceeds of
$69,184, along with the sale of the development and construction assets for net
proceeds of $19,100 during the period. These cash inflows were partially offset
by the equity investment, cash advance, and escrow reserves related to the Joint
Venture transaction. Additionally, 4 properties were purchased during the first
six months of 1998 for a net $22,786, whereas, no properties were purchased
during 1999.
As of June 30, 1999 the Company's communities in various stages of development
and lease-up are summarized as follows ($'s in 000's):
Units
Current ----------------------------
Total Budgeted Cost to Comp-
Location Units Cost Date leted Leased Occupied
-------- ----- ---- ---- ----- ------ --------
- ----------------------------------------------------------------------------------------------------------------------------------
Completed Communities :
In Lease-up
Terraces at Fieldstone .......................... Conyers, GA 316 $ 17,458 $ 17,170 316 292 274
Paddock Club Gainesville ........................ Gainesville, FL 264 17,688 17,657 264 248 195
Terraces at Towne Lake Phase II ................. Cherokee County, GA 238 13,921 13,291 238 161 156
Paddock Club Brandon Phase II ................... Brandon, FL 132 8,313 8,009 132 129 112
Reserve at Dexter Lake .......................... Memphis, TN 252 17,398 17,247 252 181 163
Paddock Club Panama City ........................ Panama City, FL 254 15,536 15,060 254 124 112
Paddock Club Montgomery ......................... Montgomery, AL 208 14,117 13,933 208 98 60
- ----------------------------------------------------------------------------------------------------------------------------------
Total Completed Communities ................. 1,664 $104,431 $102,367 1,664 1,233 1,072
==================================================================================================================================
Development Communities:
In Lease-up:
Paddock Club Murfreesboro ....................... Murfreesboro, TN 240 15,963 12,045 88 46 27
Under Construction:
Grand Reserve Lexington ......................... Lexington, KY 370 31,992 8,695 -- -- --
Grande View Nashville ........................... Nashville, TN 433 35,209 5,393 -- -- --
Reserve at Dexter Lake Phase II ................. Memphis, TN 244 16,440 1,791 -- -- --
Kenwood Club at the Park ........................ Katy(Houston), TX 320 18,853 2,149 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Units Under Construction 1,367 $102,494 $ 18,028 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
In Pre-Development:
St. Augustine at the Lake Phase II Jacksonville, FL 124 8,720 515 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Units Under Development ................... 1,731 127,177 30,588 88 46 27
==================================================================================================================================
=
Total Units in Lease-up and Under Development ... 3,395 231,608 132,955 1,752 1,279 1,099
==================================================================================================================================
Actual capital expenditures for development of communities, acquisition of
assets and community improvements for 1999 are summarized below:
Community development $36,647
Recurring capital at stabilized properties 6,024
Revenue enhancing projects at stabilized properties 5,110
Capital improvements to pre-stabilized properties 5,020
Corporate additions and improvements 409
---------------
$53,210
===============
Following the November 1997 FDC merger, the Company anticipated a certain amount
of capital spending necessary to bring the 7,691 apartment units acquired to the
standards of the Company's overall portfolio. As of June 30, 1999, all of this
anticipated spending was not yet completed for various reasons mainly relating
to the integration of the Flournoy companies and increased development activity.
The Company considers these units to be pre-stabilized until the spending is
complete and the units are repositioned at the level of the overall portfolio.
Net cash from financing activities decreased by $77,050 from a source of $23,047
in 1998 to a usage of $54,003 for the same period in 1999. The majority of this
decrease relates to net proceeds during the prior year of $48,330 from issuance
of preferred shares. Additionally, a net $27,290 reduction in cash flow is
related to refinancing and other notes payable transactions. During the first
six months of 1999, the Company paid-off the 8.625% loan of $2,706 related to
Eastview Apartments and refinanced the property with a new loan of $11,760 at an
interest rate of 7.32%. Additionally during the period, the Company paid $5,000
toward a short-term note totaling $25,000, paid-off a $3,581 note payable
relating to Woodbridge Apartments, and paid-off the $2,418 note payable relating
to Hidden Oaks Apartments, which was sold the during period. These transactions
along with normal principal payments represented a use of cash totaling $4,185.
During the same period in 1998, the Company issued $142,000 in Bonds and
refinanced various other notes payable, which after normal principal payments
generated net proceeds of $23,105.
At June 30, 1999 the Company had $98,266 outstanding on the Credit Line and
$150,149 (including the Credit Line) of floating rate debt at an average
interest rate of 5.8%; all other debt was fixed rate term debt at an average
interest rate of 7.2%. The weighted average interest rate and weighted average
maturity at June 30, 1999 for the total $729,146 of notes payable outstanding
were 6.96% and 10.7 years, respectively. The Company expects to use the Credit
Line to fund future development and to provide letters of credit as credit
enhancements for tax-exempt bonds. The Credit Line is secured and is subject to
borrowing base calculations that effectively reduce the maximum amount that may
be borrowed under the Credit Line to $187,023 as of June 30, 1999.
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
communities) and payment of distributions by the Company in accordance with REIT
requirements under the Internal Revenue 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, issuance of debt or
additional equity securities in the Company, potential asset sales and joint
venture transactions, and additional borrowings under the Credit Line.
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.
YEAR 2000
In older computer programs, to conserve storage space, only two digits were used
to identify the year. This set up has created a date sequence problem. The
computer may not know that 00 comes after 99, moreover it may not know if 00 is
1900 or 2000("Y2K"). The business risk of this problem is that calculations or
processes that are date dependent may not yield the correct answer or work at
all.
Software vendors have certified all of the mission critical applications; these
vendors provide the software used for financial, network, property management
and telephone systems used by the Company. The Company does not own any in-house
development programs that require replacing or re-writing of code.
The Company has performed a thorough assessment of its personal computers and
desktop software. All mission critical desktop hardware and software are
believed to be compliant. Remediation of non-compliant hardware and software
(none of which is mission-critical) is expected to be completed by the end of
the third quarter 1999.
The Company estimates that the total Y2K project cost is nominal, as systems
have been upgraded and become Y2K compliant as part of its normal course of
business. The Company believes that its Y2K initiatives are adequate to address
reasonably likely Y2K issues.
Management believes that hardware and software upgrades made over the last few
years will reduce the possibility of interruptions to the operation. However,
the Company is dependent on the utilities infrastructure within the United
States. The most likely worst case scenario would be that the Company might
experience disruption in its operations if any of the third-party suppliers
reported a system failure.
The Y2K contingency plan is the final phase of the project. The Company
maintains contingency plans in the normal course of business designed to be
deployed in the event of various potential business interruptions. Although the
Company believes that its contingency plans and Y2K project will reduce the risk
of significant operations disruption, due to general uncertainty over Y2K
readiness of the Company's third-party suppliers, the Company is unable to
determine at this time whether the consequences of the Y2K system failures will
have a material impact.
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 the plans and
objectives of management for future operations, including plans and objectives
relating to capital expenditures, rehabilitation costs on the apartment
communities, and future development. 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 1998 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
The annual meeting of the shareholders of the Company was held on
June 3, 1999.
H. Eric Bolton, O. Mason Hawkins, and Ralph Horn were elected
directors at the meeting by approximately 94% of the shares
represented at the meeting.
KPMG LLP was ratified as the Company's independent auditors for
1999 by approximately 99% of the shares represented at the
meeting.
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.
(27.1) Financial Data Schedule for the period ended 6/30/99.
(b) Reports on Form 8-K
None.
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: 8/16/99 /s/ Simon R. C. Wadsworth
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Simon R.C. Wadsworth
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
/