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, 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 October 31, 1999
----- -------------------
18,423,936
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
(Unaudited) and December 31, 1998
Consolidated Statements of Operations for the three and nine
months ended September 30, 1999 and 1998 (Unaudited)
Consolidated Statements of Cash Flows for the nine months
ended September 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
September 30, 1999 (Unaudited) and December 31, 1998
(Dollars in thousands)
1999 1998
---- ----
Assets:
Real estate assets:
Land ......................................................... $ 121,929 $ 124,912
Buildings and improvements ................................... 1,181,664 1,184,611
Furniture, fixtures and equipment ............................ 28,005 26,779
Construction in progress ..................................... 51,552 75,776
- --------------------------------------------------------------------------------------------------
1,383,150 1,412,078
Less accumulated depreciation ................................ (140,918) (117,773)
- --------------------------------------------------------------------------------------------------
1,242,232 1,294,305
Land held for future development ............................. 1,366 11,781
Commercial properties, net ................................... 4,324 9,282
Investment in and advances to real estate joint venture ...... 10,519 --
- --------------------------------------------------------------------------------------------------
Real estate assets, net ................................. 1,258,441 1,315,368
Cash and cash equivalents ........................................... 14,446 7,237
Restricted cash ..................................................... 18,082 9,282
Deferred financing costs, net ....................................... 9,226 10,359
Other assets ........................................................ 15,576 24,181
- --------------------------------------------------------------------------------------------------
Total assets .............................................. $ 1,315,771 $ 1,366,427
==================================================================================================
Liabilities and Shareholders' equity:
Liabilities and deferred gain:
Notes payable ................................................ $ 718,551 $ 753,427
Accounts payable ............................................. 2,713 10,384
Accrued expenses and other liabilities ....................... 27,774 18,959
Security deposits ............................................ 4,908 4,917
Deferred gain on disposition of properties ................... 4,737 --
- --------------------------------------------------------------------------------------------------
Total liabilities and deferred gain ....................... 758,683 787,687
Minority interest ................................................... 57,878 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 18,941,303 and 18,879,691 shares
at September 30, 1999 and December 31, 1998, respectively) 189 189
Additional paid-in capital ................................... 584,473 583,154
Other ........................................................ (1,140) (2,237)
Distributions in excess of earnings .......................... (84,381) (63,876)
- --------------------------------------------------------------------------------------------------
Total shareholders' equity ................................ 499,210 517,299
- --------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity ................ $ 1,315,771 $ 1,366,427
==================================================================================================
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations
Three and nine months ended September 30, 1999 and 1998
(Dollars in thousands except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental ................................... $ 55,956 $54,363 $ 167,178 $ 155,406
Other .................................... 893 909 2,669 2,367
Management and development income, net ... 149 814 572 1,461
Equity in earnings (loss) of joint venture (15) -- 36 --
- ------------------------------------------------------------------------------------------------
Total revenues ........................... 56,983 56,086 170,455 159,234
- ------------------------------------------------------------------------------------------------
Expenses:
Personnel ................................ 6,312 6,255 19,088 17,800
Building repairs and maintenance ......... 2,783 2,866 7,630 7,294
Real estate taxes and insurance .......... 6,308 5,504 18,679 16,270
Utilities ................................ 2,480 2,610 7,079 7,038
Landscaping .............................. 1,422 1,304 4,244 3,733
Other operating .......................... 2,521 2,480 7,562 6,648
Depreciation and amortization ............ 12,195 11,657 37,336 33,741
General and administrative ............... 3,844 3,423 9,993 8,416
Interest ................................. 12,116 11,630 36,312 34,294
Amortization of deferred financing costs . 682 593 2,059 1,732
- ------------------------------------------------------------------------------------------------
Total expenses ........................... 50,663 48,322 149,982 136,966
- ------------------------------------------------------------------------------------------------
Income before gain on dispositions,
minority interest in operating partnership
income and extraordinary item ............... 6,320 7,764 20,473 22,268
- ------------------------------------------------------------------------------------------------
Gain on dispositions,net ........................ 5,125 -- 5,457 422
- ------------------------------------------------------------------------------------------------
Income before minority interest in operating
partnership income and extraordinary item .... 11,445 7,764 25,930 22,690
- ------------------------------------------------------------------------------------------------
Minority interest in operating partnership income 917 610 1,699 1,777
- ------------------------------------------------------------------------------------------------
Income before extraordinary item ................ 10,528 7,154 24,231 20,913
- ------------------------------------------------------------------------------------------------
Extraordinary item - loss on debt extinguishment -- -- (67) (990)
- ------------------------------------------------------------------------------------------------
Net income ...................................... 10,528 7,154 24,164 19,923
Dividends on preferred shares ................... 4,028 3,435 12,084 7,974
- ------------------------------------------------------------------------------------------------
Net income available for common shareholders .... $ 6,500 $ 3,719 $ 12,080 $ 11,949
================================================================================================
(Continued)
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations (Continued)
Three and nine months ended September 30, 1999 and 1998
(Dollars in thousands except per share data)
(Unaudited)
1999 1998 1999 1998
---- ---- ---- ----
Basic (in thousands):
Average common shares outstanding ....... 19,013 18,802 18,961 18,684
- -----------------------------------------------------------------------------------------------
Basic earnings per share:
Net income available per common share $ 0.34 $ 0.20 $ 0.64 $ 0.69
before extraordinary item
Extraordinary item ................ -- -- -- (0.05)
- -----------------------------------------------------------------------------------------------
Net income available per common share $ 0.34 $ 0.20 $ 0.64 $ 0.64
===============================================================================================
Diluted (in thousands):
Average common shares outstanding ....... 19,013 18,802 18,961 18,684
Effect of dilutive stock options ........ 15 40 45 50
- -----------------------------------------------------------------------------------------------
Average dilutive common shares outstanding 19,028 18,842 19,006 18,734
- -----------------------------------------------------------------------------------------------
Diluted earnings per share:
Net income available per common share $ 0.34 $ 0.20 $ 0.64 $ 0.69
before extraordinary item
Extraordinary item - loss on debt
extinguishment................. -- -- -- (0.05)
- -----------------------------------------------------------------------------------------------
Net income available per common share $ 0.34 $ 0.20 $ 0.64 $ 0.64
===============================================================================================
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Cash Flow
Nine months ended September 30, 1999 and 1998
(Dollars in thousands)
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net income ..............................................................................$ 24,164 $ 19,923
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................. 39,833 35,473
Equity in earnings of real estate joint venture ................................ (36) --
Minority interest in operating partnership income .............................. 1,699 1,777
Extraordinary item ............................................................. 67 990
Gain on dispositions, net ...................................................... (5,457) (422)
Changes in assets and liabilities:
Restricted cash ............................................................ 687 2,662
Other assets ............................................................... (1,420) (1,079)
Accounts payable ........................................................... (4,279) (2,794)
Accrued expenses and other liabilities ..................................... 10,988 4,184
Security deposits .......................................................... (9) 373
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ...................................... 66,237 61,087
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of real estate assets ................................................ -- (61,294)
Improvements to properties ..................................................... (26,441) (19,333)
Construction of units in progress and future development ....................... (50,339) (70,587)
Proceeds from disposition of real estate assets ................................ 102,544 5,438
Proceeds from sale of development and construction assets ...................... 18,199 --
Investment in and advances to real estate joint venture ........................ (10,483) --
Escrow funding for tax free exchange, net ...................................... (9,532) --
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities ............................ 23,948 (145,776)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in credit line ...................................................... (18,635) 58,394
Proceeds from notes payable .................................................... 11,760 218,759
Principal payments on notes payable ............................................ (26,652) (204,349)
Deferred financing costs ....................................................... (926) (5,068)
Proceeds from issuances of common shares and units ............................. 1,272 8,944
Proceeds from issuance of preferred shares ..................................... -- 47,974
Redemption of unitholder interests ............................................. -- (150)
Distributions to unitholders ................................................... (5,129) (4,775)
Dividends paid on common shares ................................................ (32,582) (30,339)
Dividends paid on preferred shares ............................................. (12,084) (7,974)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ............................ (82,976) 81,416
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ........................... 7,209 (3,273)
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period ................................................. 7,237 14,805
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period .......................................................$ 14,446 $ 11,532
======================================================================================================================
Supplemental disclosure of cash flow information:
Interest paid ...............................................................................$ 35,743 $ 34,453
Supplemental disclosure of noncash investing and financing activities:
Assumption of debt related to property acquisitions ........................................$ -- $ 16,965
Conversion of units for common shares .......................................................$ 47 $ 1,119
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 nine-month period ended September 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, containing 1,660 apartment units, 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
approximately $33.3 million, bringing the total proceeds from sales to the Joint
Venture to $97.9 million from 10 properties containing a total of 2,794
apartment units. The Company contributed additional capital and made an
additional loan to the Joint Venture related to this transaction bringing the
total investment in the Joint Venture to approximately $4.6 million and the
total loan to $3.4 million, $3 million at an interest rate of 10% and $.4
million at a rate of 7%, both for the life of the entity. The Company recognized
a gain of approximately $5.0 million and deferred gains for the Company's
retained interest of approximately $2.5 million which will be amortized over the
expected life of the entity. 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 September 30, 1999, 18,941,303 common shares and 3,011,011 operating
partnership units were outstanding, a total of 21,952,314 shares and units.
Additionally, MAAC had outstanding options for 1,164,469 shares of common stock
at September 30, 1999, of which 1,149,499 are not considered potential common
stock equivalents as they would be anti-dilutive.
5. Subsequent Events
On November 11, the Company announced the of sale Sailwinds at Lake Magdalene, a
798 unit community in Tampa, Florida, for $31.1 million. The Company expects to
record a gain of approximately $6.0 million on the transaction, and plans to use
the proceeds to pay down debt and to fund the continuation of the share
repurchase program.
6. Segment Information
At September 30, 1999, the Company owned, or had ownership interest, and
operated 131 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 to revenues and net operating income, 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:
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---------- --------- --------- ---------
Rental revenues ........................... $ 55,956 $ 54,363 $ 167,178 $ 155,406
Other property revenues ................... 572 651 1,636 1,741
--------- --------- --------- ---------
Total revenues ........................ $ 56,528 $ 55,014 $ 168,814 $ 157,147
--------- --------- --------- ---------
Property net operating income ............. $ 34,702 $ 33,995 $ 104,532 $ 98,364
Income (loss) from joint venture ......... (15) -- 36 --
Management and development income, net .... 149 814 572 1,461
Interest and other income ................. 321 258 1,033 626
Interest expense .......................... (12,116) (11,630) (36,312) (34,294)
General and administrative expenses ....... (3,844) (3,423) (9,993) (8,416)
Amortization of deferred financing costs .. (682) (593) (2,059) (1,732)
Depreciation and amortization ............. (12,195) (11,657) (37,336) (33,741)
--------- --------- --------- ---------
Income before gain on dispositions,
minority interest in operating
partnership income and extraordinary item $ 6,320 $ 7,764 $ 20,473 $ 22,268
========= ========= ========= =========
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, 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 September 30, 1999, the Company owned or had ownership interest in 34,733
units in 131 apartment communities, compared to 33,009 in 125 communities at
September 30, 1998.
Average monthly rental per apartment unit increased to $603 at September 30,
1999 from $587 at September 30, 1998. Overall occupancy at September 30, 1999
and 1998 was 95.2% and 94.3%, 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.
At its October 27, 1999 meeting, NAREIT approved the recommendations of its Best
Financial Practices Council with respect to clarifying the definition of FFO.
The Council recommends that FFO should include all operating results, both
recurring and non-recurring, except those results defined as "extraordinary"
under GAAP. The Company plans to adopt this definition effective January 1,
2000, and will reflect this clarification for all periods presented in
subsequent financial statements.
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 $289,000 and $221,000 at September 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 nine months ending September 30,
1999 and 1998 is calculated as follows (dollars in thousands):
Three months ending Nine months ending
September 30, September 30,
--------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net income available for common shareholders ...... $ 6,500 $ 3,719 $ 12,080 $ 11,949
Depreciation and amortization of real estate assets 12,096 11,608 37,043 33,520
Adjustment for joint venture depreciation ......... 254 -- 442 --
Minority interest ................................. 917 610 1,699 1,777
Gain on disposition of assets ..................... (5,125) -- (5,457) (422)
Extraordinary items ............................... -- -- 67 990
-------- -------- -------- --------
Funds from operations ............................. $ 14,642 $ 15,937 $ 45,874 $ 47,814
======== ======== ======== ========
Weighted average shares and units:
Basic ........................................... 22,024 21,803 21,972 21,673
Diluted ......................................... 22,039 21,841 22,017 21,721
RESULTS OF OPERATIONS (Dollars in 000's)
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Rental revenues for 1999 increased by $1,593 due primarily to increases of (i)
$871 from 8 communities acquired in 1998 and owned through September 30, 1999,
(ii) $3,503 from the development communities completed during 1998 and 1999, and
(iii) $1,226 from the communities owned throughout both periods. These increases
were partially offset by decreases of (i) $3,717 due to the sale of the 10
properties to the Joint Venture in 1999 and (ii) $290 due to the sale of Hidden
Oaks Apartments in 1999.
Property operating expenses for 1999 increased by $807 due primarily to (i) $451
from 8 communities acquired in 1998 and owned through September 30, 1999, (ii)
$1,066 from the development communities completed during 1998 and 1999 and (iii)
$817 from the communities owned throughout both periods. These increases were
offset by decreases of (i) $1,385 due to the sale of 10 properties to the Joint
Venture in 1999 and (ii) $142 from the sale of Hidden Oaks Apartments in 1999.
Depreciation and amortization expense increased by $538 primarily due to (i)
$309 from 8 communities acquired in 1998 and owned through September 30, 1999,
(ii) $455 from the development communities completed during 1998 and 1999 and
(iii) $495 from the communities owned throughout both periods. These increases
were offset by reductions of (i) $667 related to the sale of 10 properties to
the Joint Venture in 1999 and (ii) $54 from the sale of Hidden Oaks Apartments
in 1999.
General and administrative expense increased by $421 for the three months ended
September 30, 1999 mainly due to (i) $197 from the addition and expansion of
certain training and administrative functions to support the Company's portfolio
growth and (ii) $220 from increased franchise and excise taxes related to recent
legislative changes in the state of Tennessee.
Interest expense increased $486 during the three months ended September 30, 1999
due primarily to increased debt related to the 10 property acquisitions in 1998.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Rental revenues for 1999 increased by $11,772 due primarily to increases of (i)
$6,104 from the 8 communities acquired in 1998 and owned through September 30,
1999, (ii) $9,057 from the development communities completed during 1998 and
1999, and (iii) $3,054 from the communities owned throughout both periods. These
increases were partially offset by decreases of (i) $5,418 due to the sale of 10
properties to the Joint Venture in 1999 and (ii) $1,025 from the sale of Redford
Park Apartments in 1998 and Hidden Oaks Apartments in 1999.
Property operating expenses for 1999 increased by $5,499 due primarily to (i)
$2,592 from the 8 communities acquired in 1998 and owned through September 30,
1999, (ii) $5,785 from the development communities completed during 1998 and
1999 and (iii) $1,959 from the communities owned throughout both periods. These
increases were partially offset by decreases of (i) $2,011 due to the sale of 10
properties to the Joint Venture in 1999 and (ii) $529 from the sale of Redford
Park Apartments in 1998 and Hidden Oaks Apartments in 1999.
Depreciation and amortization expense increased by $3,595 primarily due to (i)
$1,397 from the 8 communities acquired in 1998 and owned through September 30,
1999, (ii) $1,516 from the development communities completed during 1998 and
1999, and (iii) $2,879 from the communities owned throughout both periods. These
increases were offset by decreases of (i) $2,011 due to the sale of 10
properties to the Joint Venture in 1999 and (ii) $186 from the sale of Redford
Park Apartments in 1998 and Hidden Oaks Apartments in 1999.
General and administrative expense increased by $1,577 for the nine months ended
September 30, 1999 mainly due to (i) $1,258 from the addition and expansion of
certain training and administrative functions to support the Company's portfolio
growth and (ii) $220 from increased franchise and excise taxes related to recent
legislative changes in the state of Tennessee.
Interest expense increased $2,018 during the nine months ended September 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 $61,087 for the nine
months ended September 30, 1998 to $66,237 for the nine months ended September
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, as
well as, increased property tax accruals pending payments due in late 1999 and
early 2000.
Net cash from investing activities increased from a usage of $145,776 for the
nine months ended September 30, 1998 to a source of $23,948 for the nine months
ended September 30, 1999. During 1998, the Company funded its acquisition and
development activities with additional debt and equity offerings. During 1999,
the Company ceased its acquisition activities due to changing market conditions
and funded the equity portion of its development activities through asset sales
verses equity offerings. Approximately $61 million of the increase in cash from
investing activities is related to the discontinued acquisition activity in
1999. Another $100 million of the increase represents the combined net cash
proceeds from transactions related to the Companies asset sale activity.
Spending on development properties also decreased just over $20 million in 1999
due to the Company's strategic decision to reduce its commitment to future
development in order to fund its share repurchase program.
Net cash from financing activities decreased from a source of $81,416 in 1998 to
a usage of $82,976 for the same period in 1999. As mentioned above, the Company
used $56.9 million in equity offerings during 1998 to fund its acquisition and
development activities, verses $1.3 million in equity proceeds for 1999. Also,
the Company paid a net $33.5 million down on outstanding debt during 1999,
mainly through proceeds from the Joint Venture transaction. The Company also
distributed a total of $6.7 million more to holders of its operating partnership
units, common shares, and preferred shares in 1999 verses the same period in
1998, with $4.1 of the increase relating to the additional preferred shares
issued in 1999.
During the third quarter 1999, the Company announced a common share repurchase
program approved by the Board of Directors. As of October 31, 1999, the Company
had repurchased over 548,000 common shares with proceeds from the Credit Line.
The Company has plans to sell certain properties to ultimately fund this and
additional share repurchases.
As of September 30, 1999 the Company's communities in various stages of
development and lease-up are summarized as follows (dollars in 000's):
Current Units
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 $ 17,203 316 313 309
Paddock Club Gainesville Gainesville, FL 264 17,688 17,678 264 250 232
Terraces at Towne Lake Phase II Cherokee County, GA 238 13,921 13,309 238 226 223
Paddock Club Brandon Phase II Brandon, FL 132 8,313 8,013 132 123 122
Reserve at Dexter Lake Memphis, TN 252 17,398 17,307 252 230 213
Paddock Club Panama City Panama City, FL 254 15,536 15,128 254 179 160
Paddock Club Montgomery Montgomery, AL 208 14,192 14,171 208 188 179
-----------------------------------------------------------------------
Total Completed Communities 1,664 $ 104,506 $ 102,809 1,664 1,509 1,438
=======================================================================
Development Communities:
In Lease-up:
Paddock Club Murfreesboro Murfreesboro, TN 240 15,963 15,298 216 171 152
Grand Reserve Lexington Lexington, KY 370 32,724 15,894 10 8 -
-----------------------------------------------------------------------
610 $ 48,687 $ 31,192 226 179 152
=======================================================================
Under Construction:
Grande View Nashville Nashville, TN 433 35,258 9,091 - - -
Reserve at Dexter Lake Phase II Memphis, TN 244 16,510 4,203 - - -
Kenwood Club at the Park Katy(Houston), TX 320 18,833 8,082 - - -
-----------------------------------------------------------------------
997 $ 70,601 $ 21,376 - - -
=======================================================================
Total Units 3,271 $ 223,794 $ 155,377 1,890 1,688 1,590
=======================================================================
Actual capital expenditures for development of communities, acquisition of
assets and community improvements for 1999 are summarized below:
Community development $50,339
Recurring capital at stabilized properties 9,772
Revenue enhancing projects at stabilized properties 7,288
Capital improvements to pre-stabilized properties 8,005
Corporate additions and improvements 1,376
---------------
$76,780
===============
At September 30, 1999 the Company had $98 million outstanding on the Credit Line
and $151 million (including the Credit Line) of floating rate debt at an average
interest rate of 6.2%. All other debt was fixed rate term debt at an average
interest rate of 7.3%. The weighted average interest rate and weighted average
maturity at September 30, 1999 for the total $718,551 of notes payable
outstanding were 7.01% 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 $181,564 as of September
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,
including both corporate and property level 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) was substantially 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
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 6/30/99.
(b) Reports on Form 8-K
Form Events Reported Date of Report Date Filed
---- --------------- -------------- ----------
8-K Approval of common share repurchase 9/9/1999 9/10/1999
program.
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: 11/12/1999 /S/Simon R.C. Wadsworth
---------- -----------------------
Simon R.C. Wadsworth
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)