The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets:
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets:
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.Basis of Presentation and Principles of Consolidation and Significant Accounting Policies
Unless the context otherwise requires, all references to the “Company” refer collectively to Mid-America Apartment Communities, Inc., together with its consolidated subsidiaries, including Mid-America Apartments, L.P. Unless the context otherwise requires, all references to “MAA” refer only to Mid-America Apartment Communities, Inc., and not any of its consolidated subsidiaries. Unless the context otherwise requires, the references to the “Operating Partnership” or “MAALP” refer to Mid-America Apartments, L.P. together with its consolidated subsidiaries. “Common stock” refers to the common stock of MAA and, unless the context otherwise requires, “shareholders” refers to the holders of shares of MAA’s common stock. The common units of limited partnership interests in the Operating Partnership are referred to as “OP Units,” and the holders of the OP Units are referred to as “common unitholders”.
As of March 31, 2020, MAA owned 114,279,662 OP Units (or 96.6% of the total number of OP Units). MAA conducts substantially all of its business and holds substantially all of its assets, directly or indirectly, through the Operating Partnership, and by virtue of its ownership of the OP Units and being the Operating Partnership’s sole general partner, MAA has the ability to control all of the day-to-day operations of the Operating Partnership.
Management believes combining the notes to the condensed consolidated financial statements of MAA and the Operating Partnership results in the following benefits:
|
|
•
|
enhances a readers’ understanding of MAA and the Operating Partnership by enabling the reader to view the business as a whole in the same manner that management views and operates the business;
|
|
|
•
|
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both MAA and the Operating Partnership; and
|
|
|
•
|
creates time and cost efficiencies through the preparation of one combined set of notes instead of two separate sets.
|
MAA, an S&P 500 company, is a multifamily-focused, self-administered and self-managed real estate investment trust, or REIT. Management operates MAA and the Operating Partnership as one business. The management of the Company is comprised of individuals who are officers of MAA and employees of the Operating Partnership. Management believes it is important to understand the few differences between MAA and the Operating Partnership in the context of how MAA and the Operating Partnership operate as a consolidated company. MAA and the Operating Partnership are structured as an umbrella partnership REIT, or UPREIT. MAA’s interest in the Operating Partnership entitles MAA to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to MAA’s percentage interest therein and entitles MAA to vote on substantially all matters requiring a vote of the partners. MAA’s only material asset is its ownership of limited partnership interests in the Operating Partnership (other than cash held by MAA from time to time); therefore, MAA’s primary function is acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain debt of the Operating Partnership. The Operating Partnership holds, directly or indirectly, all of the Company’s real estate assets. Except for net proceeds from public equity issuances by MAA, which are contributed to the Operating Partnership in exchange for limited partnership interests, the Operating Partnership generates the capital required by the business through the Operating Partnership’s operations, direct or indirect incurrence of indebtedness and issuance of OP Units.
The presentations of MAA’s shareholders’ equity and the Operating Partnership’s capital are the principal areas of difference between the condensed consolidated financial statements of MAA and those of the Operating Partnership. MAA’s shareholders’ equity may include shares of preferred stock, shares of common stock, additional paid-in capital, cumulative earnings, cumulative distributions, noncontrolling interest, treasury shares, accumulated other comprehensive income and redeemable common stock. The Operating Partnership’s capital may include common capital and preferred capital of the general partner (MAA), limited partners’ common capital and preferred capital, noncontrolling interest, accumulated other comprehensive income and redeemable common units. Holders of OP Units (other than MAA) may require the Operating Partnership to redeem their OP Units from time to time, in which case the Operating Partnership may, at its option, pay the redemption price either in cash (in an amount per OP Unit equal, in general, to the average closing price of MAA’s common stock on the New York Stock Exchange, or NYSE, over a specified period prior to the redemption date) or by delivering one share of MAA’s common stock (subject to adjustment under specified circumstances) for each OP Unit so redeemed.
Organization of Mid-America Apartment Communities, Inc.
The Company owns, operates, acquires and selectively develops apartment communities primarily located in the Southeast, Southwest and Mid-Atlantic regions of the United States. As of March 31, 2020, the Company owned and operated 299 apartment communities through the Operating Partnership and its subsidiaries and had an ownership interest in one apartment community through an unconsolidated real estate joint venture. As of March 31, 2020, the Company had seven development communities under construction totaling 2,108 apartment units. Total expected costs for the seven development projects are $489.5 million, of which $184.6 million had been incurred through March 31, 2020. MAA expects to complete two of these developments in 2020, four developments in 2021
12
and one development in 2022. As of March 31, 2020, thirty-two of the Company’s apartment communities include retail components with approximately 630,000 square feet of gross leasable space. In addition, as of March 31, 2020, the Company also had four commercial properties with approximately 260,000 square feet of combined gross leasable area. The Company’s apartment communities and commercial properties were located across 16 states and the District of Columbia as of March 31, 2020.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared by the Company’s management in accordance with United States generally accepted accounting principles, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or the SEC. The condensed consolidated financial statements of MAA presented herein include the accounts of MAA, the Operating Partnership and all other subsidiaries in which MAA has a controlling financial interest. MAA owns, directly or indirectly, approximately 80% to 100% of all consolidated subsidiaries, including the Operating Partnership. The condensed consolidated financial statements of MAALP presented herein include the accounts of MAALP and all other subsidiaries in which MAALP has a controlling financial interest. MAALP owns, directly or indirectly, 80% to 100% of all consolidated subsidiaries. In management’s opinion, all adjustments necessary for a fair presentation of the condensed 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 Company invests in entities which may qualify as variable interest entities, or VIEs, and MAALP is considered a VIE. A VIE is a legal entity in which the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack the power to direct the activities of a legal entity as well as the obligation to absorb its expected losses or the right to receive its expected residual returns. MAALP is classified as a VIE, because the limited partners lack substantive kick-out rights and substantive participating rights. The Company consolidates all VIEs for which it is the primary beneficiary and uses the equity method to account for investments that qualify as VIEs but for which it is not the primary beneficiary. In determining whether the Company is the primary beneficiary of a VIE, management considers both qualitative and quantitative factors, including, but not limited to, those activities that most significantly impact the VIE’s economic performance and which party controls such activities. The Company uses the equity method of accounting for its investments in entities for which the Company exercises significant influence, but does not have the ability to exercise control. The factors considered in determining whether the Company has the ability to exercise control include ownership of voting interests and participatory rights of investors (see “Investments in Unconsolidated Affiliates” below).
Reclassifications
In order to present comparative financial statements, certain reclassifications have been made to the Condensed Consolidated Statements of Operations. Prior year amounts have been changed to conform to the Company’s current year presentation. As a result of these reclassifications, $0.8 million of expenses previously reported as “General and administrative expenses” for the three months ended March 31, 2019 have been reclassified to the “Other non-operating expense (income)” line item of the Condensed Consolidated Statements of Operations in this report.
Noncontrolling Interests
As of March 31, 2020, the Company had two types of noncontrolling interests with respect to its consolidated subsidiaries, (1) noncontrolling interests related to the common unitholders of its Operating Partnership and (2) noncontrolling interests related to its consolidated real estate entities. The noncontrolling interests relating to the limited partnership interests in the Operating Partnership are owned by the holders of the Class A OP Units. MAA is the sole general partner of the Operating Partnership and holds all of the outstanding Class B OP Units. Net income (after allocations to preferred ownership interests) is allocated to MAA and the noncontrolling interests based on their respective ownership percentages of the Operating Partnership. Issuance of additional Class A OP Units or Class B OP Units changes the ownership percentage of both the noncontrolling interests and MAA. The issuance of Class B OP Units generally occurs when MAA issues common stock and the issuance proceeds are contributed to the Operating Partnership in exchange for Class B OP Units equal to the number of shares of MAA’s common stock issued. At each reporting period, the allocation between total MAA shareholders’ equity and noncontrolling interests is adjusted to account for the change in the respective percentage ownership of the underlying equity of the Operating Partnership. MAA’s Board of Directors established economic rights in respect to each Class A OP Unit that were equivalent to the economic rights in respect to each share of MAA common stock. See Note 9 for additional details.
The noncontrolling interests relating to the Company’s two consolidated real estate entities are owned by private real estate companies that are generally responsible for the development and construction of the apartment communities that are owned through the consolidated real estate entities with a noncontrolling interest. The entities were determined to be VIE’s with the Company designated as the primary beneficiary. As a result, the accounts of the entities are consolidated by the Company. As of March 31, 2020, the consolidated assets and liabilities of the Company’s consolidated real estate entities with a noncontrolling interest were $53.1 million and $4.9 million, respectively. As of December 31, 2019, the consolidated assets and liabilities of the Company’s consolidated real estate entities with a noncontrolling interest were $46.0 million and $3.2 million, respectively.
13
Investments in Unconsolidated Affiliates
The Company uses the equity method to account for its investments in a real estate joint venture and two technology-focused limited partnerships that qualify as a VIE. Management determined the Company is not the primary beneficiary in any of these investments but does have the ability to exert significant influence over the operations and financial policies of the real estate joint venture and considers its investment in the limited partnerships to be more than minor. The Company’s investment in the real estate joint venture was $43.7 million as of March 31, 2020 and December 31, 2019.
As of March 31, 2020 and December 31, 2019, the Company’s investments in the technology-focused limited partnerships were $13.9 million and $13.1 million, respectively, and are included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets. As of March 31, 2020, the Company was committed until February 2025 to make additional capital contributions totaling $23.8 million if and when called by the general partners of the limited partnerships.
Fair Value Measurements
The Company applies the guidance in Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, to the valuation of real estate assets recorded at fair value, to its impairment valuation analysis of real estate assets, to its disclosure of the fair value of financial instruments, principally indebtedness and to its derivative financial instruments. Fair value disclosures required under ASC Topic 820 as well as the Company’s derivative accounting policies are summarized in Note 7 utilizing the following hierarchy:
Level 1 - Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the assets or liability.
Revenue Recognition
The Company primarily leases multifamily residential apartments to residents under operating leases generally due on a monthly basis with terms of approximately one year or less. Rental revenues are recognized in accordance with ASC Topic 842, Leases, using a method that represents a straight-line basis over the term of the lease. In addition, in circumstances where a lease incentive is provided to tenants, the incentive is recognized as a reduction of rental revenues on a straight-line basis over the reasonably assured lease term. Rental revenues represent approximately 93% of the Company’s total revenues and include gross rents charged less adjustments for concessions and bad debt. Approximately 6% of the Company’s total revenues represent non-lease reimbursable property revenues from its residents for utility reimbursements, which are generally recognized and due on a monthly basis as residents obtain control of the service over the term of the lease. The remaining 1% of the Company’s total revenues represents other non-lease property revenues primarily driven by nonrefundable fees and commissions.
In accordance with ASC Topic 842, rental revenues and non-lease reimbursable property revenues meet the criteria to be aggregated into a single lease component and are reported on a combined basis in the line item “Rental revenues”, as presented in the disaggregation of the Company’s revenues in Note 11. Other non-lease property revenues are accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers, which requires revenue recognized outside of the scope of ASC Topic 842 to be recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Other non-lease property revenues are reported in the line item “Other property revenues”, as presented in the disaggregation of the Company’s revenues in Note 11.
Leases
The Company is the lessee under certain ground, office, equipment and other operational leases, all of which are accounted for as an operating lease in accordance with ASC Topic 842. The Company recognizes a right-of-use asset for the right to use the underlying asset for all leases where the Company is the lessee with terms of more than twelve months, and a related lease liability for the obligation to make lease payments. Expenses related to leases determined to be operating leases are recognized on a straight-line basis. As of March 31, 2020 and December 31, 2019, right-of-use assets recorded within “Other assets” totaled $53.4 million and $53.8 million, respectively, and related lease obligations recorded within “Accrued expenses and other liabilities” totaled $32.8 million and $33.1 million, respectively, in the Condensed Consolidated Balance Sheets. As of March 31, 2020, the Company’s operating leases had a weighted average remaining lease term of approximately 32 years and a weighted average discount rate of approximately 4.4%. Lease expense recognized for the three months ended March 31, 2020 and 2019 was immaterial to the Company. Cash paid for amounts included in the measurement of operating lease liabilities during the three months ended March 31, 2020 and 2019 was also immaterial.
14
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities and other financial instruments. The ASU requires entities to estimate a lifetime expected credit loss for most financial instruments, including trade receivables. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses is permitted. In November 2018, the FASB issued an amendment excluding operating lease receivables accounted for under ASC Topic 842 from the scope of the new credit losses standard. The Company adopted the standard on January 1, 2020. The adoption of ASU No. 2016-13 did not result in significant changes in the accounting for the Company’s approach to estimate credit losses on financial assets, as substantially all of the Company’s financial assets are operating lease receivables.
2.Earnings per Common Share of MAA
Basic earnings per share is computed by dividing net income available to MAA common shareholders by the weighted average number of common shares outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share. Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis with diluted earnings per share being the more dilutive of the treasury stock or two-class methods. OP Units are included in dilutive earnings per share calculations when the units are dilutive to earnings per share.
For the three months ended March 31, 2020 and 2019, MAA’s diluted earnings per share was computed using the treasury stock method as presented below (dollars and shares in thousands, except per share amounts):
|
|
|
Three months ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Calculation of Earnings per common share - basic
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,952
|
|
|
$
|
65,958
|
|
|
Net income attributable to noncontrolling interests
|
|
|
(1,304
|
)
|
|
|
(2,298
|
)
|
|
Unvested restricted stock (allocation of earnings)
|
|
|
(50
|
)
|
|
|
(87
|
)
|
|
Preferred dividends
|
|
|
(922
|
)
|
|
|
(922
|
)
|
|
Net income available for MAA common shareholders, adjusted
|
|
$
|
35,676
|
|
|
$
|
62,651
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
|
|
114,111
|
|
|
|
113,726
|
|
|
Earnings per common share - basic
|
|
$
|
0.31
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings per common share - diluted
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,952
|
|
|
$
|
65,958
|
|
|
Net income attributable to noncontrolling interests (1)
|
|
|
(1,304
|
)
|
|
|
(2,298
|
)
|
|
Preferred dividends
|
|
|
(922
|
)
|
|
|
(922
|
)
|
|
Net income available for MAA common shareholders, adjusted
|
|
$
|
35,726
|
|
|
$
|
62,738
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
|
|
114,111
|
|
|
|
113,726
|
|
|
Effect of dilutive securities
|
|
|
383
|
|
|
|
207
|
|
|
Weighted average common shares - diluted
|
|
|
114,494
|
|
|
|
113,933
|
|
|
Earnings per common share - diluted
|
|
$
|
0.31
|
|
|
$
|
0.55
|
|
|
(1)
|
For the three months ended March 31, 2020 and 2019, 4.1 million OP Units and their related income are not included in the diluted earnings per share calculations as they are not dilutive.
|
15
3.Earnings per OP Unit of MAALP
Basic earnings per common unit is computed by dividing net income available for common unitholders by the weighted average number of OP Units outstanding during the period. All outstanding unvested restricted unit awards contain rights to non-forfeitable distributions and participate in undistributed earnings with common unitholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per common unit. Diluted earnings per common unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units. Both the unvested restricted unit awards and other potentially dilutive common units, and the related impact to earnings, are considered when calculating earnings per common unit on a diluted basis with diluted earnings per common unit being the more dilutive of the treasury stock or two-class methods.
For the three months ended March 31, 2020 and 2019, MAALP’s diluted earnings per common unit was computed using the treasury stock method as presented below (dollars and units in thousands, except per unit amounts):
|
|
|
Three months ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Calculation of Earnings per common unit - basic
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,952
|
|
|
$
|
65,958
|
|
|
Unvested restricted stock (allocation of earnings)
|
|
|
(50
|
)
|
|
|
(87
|
)
|
|
Preferred unit distributions
|
|
|
(922
|
)
|
|
|
(922
|
)
|
|
Net income available for MAALP common unitholders, adjusted
|
|
$
|
36,980
|
|
|
$
|
64,949
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units - basic
|
|
|
118,176
|
|
|
|
117,837
|
|
|
Earnings per common unit - basic
|
|
$
|
0.31
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings per common unit - diluted
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,952
|
|
|
$
|
65,958
|
|
|
Preferred unit distributions
|
|
|
(922
|
)
|
|
|
(922
|
)
|
|
Net income available for MAALP common unitholders, adjusted
|
|
$
|
37,030
|
|
|
$
|
65,036
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units - basic
|
|
|
118,176
|
|
|
|
117,837
|
|
|
Effect of dilutive securities
|
|
|
383
|
|
|
|
207
|
|
|
Weighted average common units - diluted
|
|
|
118,559
|
|
|
|
118,044
|
|
|
Earnings per common unit - diluted
|
|
$
|
0.31
|
|
|
$
|
0.55
|
|
16
4.MAA Equity
Changes in MAA’s total equity and its components for the three months ended March 31, 2020 and 2019 were as follows (dollars in thousands):
|
|
|
Mid-America Apartment Communities, Inc. Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Distributions
in Excess of
Net Income
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Noncontrolling
Interests -
Operating
Partnership
|
|
|
Noncontrolling
Interests -
Consolidated
Real Estate
Entities
|
|
|
Total
Equity
|
|
|
EQUITY BALANCE DECEMBER 31, 2019
|
|
$
|
9
|
|
|
$
|
1,140
|
|
|
$
|
7,166,073
|
|
|
$
|
(1,085,479
|
)
|
|
$
|
(13,178
|
)
|
|
$
|
214,647
|
|
|
$
|
6,247
|
|
|
$
|
6,289,459
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,648
|
|
|
|
—
|
|
|
|
1,304
|
|
|
|
—
|
|
|
|
37,952
|
|
|
Other comprehensive income - derivative
instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
244
|
|
|
|
9
|
|
|
|
—
|
|
|
|
253
|
|
|
Issuance and registration of common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
Shares repurchased and retired
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,727
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,727
|
)
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71
|
|
|
Shares issued in exchange for common units
|
|
|
—
|
|
|
|
—
|
|
|
|
450
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(450
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Redeemable stock fair market value adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,111
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,111
|
|
|
Adjustment for noncontrolling interests in
Operating Partnership
|
|
|
—
|
|
|
|
—
|
|
|
|
(47
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of unearned compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
5,289
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,289
|
|
|
Dividends on preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(922
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(922
|
)
|
|
Dividends on common stock ($1.00 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(114,302
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(114,302
|
)
|
|
Dividends on noncontrolling interests units
($1.00 per unit)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,059
|
)
|
|
|
—
|
|
|
|
(4,059
|
)
|
|
Contribution from noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
401
|
|
|
|
401
|
|
|
EQUITY BALANCE MARCH 31, 2020
|
|
$
|
9
|
|
|
$
|
1,140
|
|
|
$
|
7,170,148
|
|
|
$
|
(1,160,944
|
)
|
|
$
|
(12,934
|
)
|
|
$
|
211,498
|
|
|
$
|
6,648
|
|
|
$
|
6,215,565
|
|
|
|
|
Mid-America Apartment Communities, Inc. Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Distributions
in Excess of
Net Income
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Noncontrolling
Interests -
Operating
Partnership
|
|
|
Noncontrolling
Interests -
Consolidated
Real Estate
Entities
|
|
|
Total
Equity
|
|
|
EQUITY BALANCE DECEMBER 31, 2018
|
|
$
|
9
|
|
|
$
|
1,136
|
|
|
$
|
7,138,170
|
|
|
$
|
(989,263
|
)
|
|
$
|
(212
|
)
|
|
$
|
220,043
|
|
|
$
|
2,306
|
|
|
$
|
6,372,189
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,660
|
|
|
|
—
|
|
|
|
2,298
|
|
|
|
—
|
|
|
|
65,958
|
|
|
Other comprehensive loss - derivative instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,088
|
)
|
|
|
(113
|
)
|
|
|
—
|
|
|
|
(3,201
|
)
|
|
Issuance and registration of common shares
|
|
|
—
|
|
|
|
1
|
|
|
|
1,128
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,129
|
|
|
Shares repurchased and retired
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,023
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,023
|
)
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
208
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
208
|
|
|
Shares issued in exchange for common units
|
|
|
—
|
|
|
|
—
|
|
|
|
336
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(336
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Redeemable stock fair market value adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,351
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,351
|
)
|
|
Adjustment for noncontrolling interests in
Operating Partnership
|
|
|
—
|
|
|
|
—
|
|
|
|
(60
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
60
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of unearned compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
4,785
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,785
|
|
|
Dividends on preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(922
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(922
|
)
|
|
Dividends on common stock ($0.96 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(109,392
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(109,392
|
)
|
|
Dividends on noncontrolling interests units
($0.96 per unit)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,941
|
)
|
|
|
—
|
|
|
|
(3,941
|
)
|
|
Contribution from noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,860
|
|
|
|
2,860
|
|
|
EQUITY BALANCE MARCH 31, 2019
|
|
$
|
9
|
|
|
$
|
1,137
|
|
|
$
|
7,141,544
|
|
|
$
|
(1,037,268
|
)
|
|
$
|
(3,300
|
)
|
|
$
|
218,011
|
|
|
$
|
5,166
|
|
|
$
|
6,325,299
|
|
17
5.MAALP Capital
Changes in MAALP’s total capital and its components for the three months ended March 31, 2020 and 2019 were as follows (dollars in thousands):
|
|
|
Mid-America Apartments, L.P. Unitholders’ Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited
Partner
|
|
|
General
Partner
|
|
|
Preferred
Units
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Noncontrolling
Interests-
Consolidated
Real Estate
Entities
|
|
|
Total
Partnership
Capital
|
|
|
CAPITAL BALANCE DECEMBER 31, 2019
|
|
$
|
214,647
|
|
|
$
|
6,015,290
|
|
|
$
|
66,840
|
|
|
$
|
(13,584
|
)
|
|
$
|
6,247
|
|
|
$
|
6,289,440
|
|
|
Net income
|
|
|
1,304
|
|
|
|
35,726
|
|
|
|
922
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,952
|
|
|
Other comprehensive income - derivative instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
253
|
|
|
|
—
|
|
|
|
253
|
|
|
Issuance of units
|
|
|
—
|
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
Units repurchased and retired
|
|
|
—
|
|
|
|
(1,727
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,727
|
)
|
|
Exercise of unit options
|
|
|
—
|
|
|
|
71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71
|
|
|
General partnership units issued in exchange for limited partnership units
|
|
|
(450
|
)
|
|
|
450
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Redeemable units fair market value adjustment
|
|
|
—
|
|
|
|
3,111
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,111
|
|
|
Adjustment for limited partners’ capital at redemption value
|
|
|
56
|
|
|
|
(56
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of unearned compensation
|
|
|
—
|
|
|
|
5,289
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,289
|
|
|
Distributions to preferred unitholders
|
|
|
—
|
|
|
|
—
|
|
|
|
(922
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(922
|
)
|
|
Distributions to common unitholders ($1.00 per unit)
|
|
|
(4,059
|
)
|
|
|
(114,302
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(118,361
|
)
|
|
Contribution from noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
401
|
|
|
|
401
|
|
|
CAPITAL BALANCE MARCH 31, 2020
|
|
$
|
211,498
|
|
|
$
|
5,943,891
|
|
|
$
|
66,840
|
|
|
$
|
(13,331
|
)
|
|
$
|
6,648
|
|
|
$
|
6,215,546
|
|
|
|
|
Mid-America Apartments, L.P. Unitholders’ Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited
Partner
|
|
|
General
Partner
|
|
|
Preferred
Units
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Noncontrolling
Interests -
Consolidated
Real Estate
Entities
|
|
|
Total
Partnership
Capital
|
|
|
CAPITAL BALANCE DECEMBER 31, 2018
|
|
$
|
220,043
|
|
|
$
|
6,083,142
|
|
|
$
|
66,840
|
|
|
$
|
(161
|
)
|
|
$
|
2,306
|
|
|
$
|
6,372,170
|
|
|
Net income
|
|
|
2,298
|
|
|
|
62,738
|
|
|
|
922
|
|
|
|
—
|
|
|
|
—
|
|
|
|
65,958
|
|
|
Other comprehensive loss - derivative instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,201
|
)
|
|
|
—
|
|
|
|
(3,201
|
)
|
|
Issuance of units
|
|
|
—
|
|
|
|
1,129
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,129
|
|
|
Units repurchased and retired
|
|
|
—
|
|
|
|
(3,023
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,023
|
)
|
|
Exercise of unit options
|
|
|
—
|
|
|
|
208
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
208
|
|
|
General partnership units issued in exchange for limited partnership units
|
|
|
(336
|
)
|
|
|
336
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Redeemable units fair market value adjustment
|
|
|
—
|
|
|
|
(1,351
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,351
|
)
|
|
Adjustment for limited partners’ capital at redemption value
|
|
|
(53
|
)
|
|
|
53
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of unearned compensation
|
|
|
—
|
|
|
|
4,785
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,785
|
|
|
Distributions to preferred unitholders
|
|
|
—
|
|
|
|
—
|
|
|
|
(922
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(922
|
)
|
|
Distributions to common unitholders ($0.96 per unit)
|
|
|
(3,941
|
)
|
|
|
(109,392
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(113,333
|
)
|
|
Contribution from noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,860
|
|
|
|
2,860
|
|
|
CAPITAL BALANCE MARCH 31, 2019
|
|
$
|
218,011
|
|
|
$
|
6,038,625
|
|
|
$
|
66,840
|
|
|
$
|
(3,362
|
)
|
|
$
|
5,166
|
|
|
$
|
6,325,280
|
|
18
6.Borrowings
The following table summarizes the Company’s outstanding debt as of March 31, 2020 (dollars in thousands):
|
|
|
Balance
|
|
|
Weighted
Average
Effective Rate
|
|
|
Weighted Average
Contract Maturity
|
|
|
Unsecured debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate revolving credit facility
|
|
$
|
100,000
|
|
|
|
1.7
|
%
|
|
5/20/2023
|
|
|
Variable rate commercial paper program
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fixed rate senior notes
|
|
|
3,472,000
|
|
|
|
3.9
|
%
|
|
7/19/2026
|
|
|
Variable rate term loan
|
|
|
300,000
|
|
|
|
2.5
|
%
|
|
3/1/2022
|
|
|
Debt issuance costs, discounts, premiums and fair market value adjustments
|
|
|
(12,960
|
)
|
|
|
|
|
|
|
|
|
|
Total unsecured debt
|
|
$
|
3,859,040
|
|
|
|
3.7
|
%
|
|
|
|
|
|
Secured debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate property mortgages
|
|
$
|
628,077
|
|
|
|
4.5
|
%
|
|
4/17/2037
|
|
|
Debt issuance costs and fair market value adjustments
|
|
|
(3,424
|
)
|
|
|
|
|
|
|
|
|
|
Total secured debt
|
|
$
|
624,653
|
|
|
|
4.5
|
%
|
|
|
|
|
|
Total outstanding debt
|
|
$
|
4,483,693
|
|
|
|
3.8
|
%
|
|
|
|
|
Unsecured Revolving Credit Facility
In May 2019, MAALP entered into a $1.0 billion unsecured revolving credit facility with a syndicate of banks led by Wells Fargo Bank, National Association, or Wells Fargo, and fourteen other banks, which is referred to as the Credit Facility. The Credit Facility replaced MAALP’s previous unsecured revolving credit facility, and it includes an expansion option up to $1.5 billion. The Credit Facility bears an interest rate of the London Interbank Offered Rate, or LIBOR, plus a spread of 0.75% to 1.45% based on an investment grade pricing grid, and as of March 31, 2020, the interest rate was 1.7%. The Credit Facility matures in May 2023 with an option to extend for two additional six-month periods. As of March 31, 2020, MAALP had $100 million outstanding under the Credit Facility with another $2.7 million of capacity used to support outstanding letters of credit.
Unsecured Commercial Paper
In May 2019, MAALP established an unsecured commercial paper program whereby MAALP may issue unsecured commercial paper notes with varying maturities not to exceed 397 days up to a maximum aggregate principal amount outstanding of $500.0 million. As of March 31, 2020, MAALP had no balance outstanding under the commercial paper program. For the three months ended March 31, 2020, the average daily borrowings outstanding under the commercial paper program were $67.9 million.
Unsecured Senior Notes
As of March 31, 2020, MAALP had $3.25 billion of publicly issued unsecured senior notes outstanding and $222.0 million of privately placed unsecured senior notes outstanding. The unsecured senior notes had maturities at issuance ranging from ten to twelve years, with a weighted average of 6.3 years remaining until maturity as of March 31, 2020.
Unsecured Term Loan
As of March 31, 2020, MAALP maintained one term loan with a syndicate of banks, led by Wells Fargo. The term loan has a balance of $300.0 million and matures in March 2022. The term loan has a variable interest rate of LIBOR plus a spread of 0.90% to 1.75% based on the Company’s credit ratings.
Secured Property Mortgages
As of March 31, 2020, MAALP had $628.1 million of fixed rate conventional property mortgages with a weighted average interest rate of 4.50% and a weighted average maturity in 2037.
Guarantees
As of March 31, 2020, MAA fully and unconditionally guaranteed $222.0 million of the privately placed senior unsecured notes issued by MAALP.
19
7.Financial Instruments and Derivatives
Financial Instruments Not Carried at Fair Value
Cash and cash equivalents, restricted cash and accrued expenses and other liabilities are carried at amounts that reasonably approximate their fair value due to their short term nature.
Fixed rate notes payable as of March 31, 2020 and December 31, 2019, totaled $4.1 billion and had estimated fair values of $4.4 billion and $4.5 billion (excluding prepayment penalties) as of March 31, 2020 and December 31, 2019, respectively. The carrying values of variable rate debt (excluding the effect of interest rate swap agreements) as of March 31, 2020 and December 31, 2019, totaled $0.4 billion and had estimated fair values of $0.4 billion (excluding prepayment penalties) as of March 31, 2020 and December 31, 2019. The fair values of fixed rate debt are determined by using the present value of future cash outflows discounted with the applicable current market rate plus a credit spread. The fair values of variable rate debt are determined using the stated variable rate plus the current market credit spread. The variable rates reset every 30 to 90 days, and management concluded these rates reasonably estimate current market rates.
Financial Instruments Measured at Fair Value on a Recurring Basis
As of March 31, 2020, the Company had one outstanding series of cumulative redeemable preferred stock, which is referred to as the MAA Series I preferred stock (see Note 8). The Company has recognized a derivative asset related to the redemption feature embedded in the MAA Series I preferred stock. The derivative asset is valued using widely accepted valuation techniques, including a discounted cash flow analysis in which the perpetual value of the preferred shares is compared to the value of the preferred shares assuming the call option is exercised, with the value of the bifurcated call option as the difference between the two values. The analysis reflects the contractual terms of the redeemable preferred shares, which are redeemable at the Company’s option beginning on October 1, 2026 and at the redemption price of $50.00 per share. The Company uses various inputs in the analysis, including trading data available on the preferred shares, coupon yields on preferred stock issuances from REITs with similar credit ratings as MAA and treasury rates to determine the fair value of the bifurcated call option.
The redemption feature embedded in the MAA Series I preferred stock is reported as a derivative asset in “Other assets” in the accompanying Condensed Consolidated Balance Sheets and is adjusted to its fair value at each reporting date, with a corresponding non-cash adjustment to “Other non-operating expense (income)” in the accompanying Condensed Consolidated Statements of Operations. As a result of adjustments of non-cash expense recorded to reflect the change in fair value of the derivative asset during the three months ended March 31, 2020, the fair value of the embedded derivative asset decreased to $8.9 million as of March 31, 2020 as compared to $36.5 million as of December 31, 2019.
Periodically, the Company uses interest rate swaps to add stability to interest expense and to manage, or hedge, its exposure to interest rate movements associated with anticipated future debt transactions and variable rate debt. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
Management incorporates credit valuation adjustments to appropriately reflect both its nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the derivative contracts for the effect of nonperformance risk, the Company considers the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Based on guidance issued by the FASB, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
As of March 31, 2020, the Company did not have any outstanding interest rate derivatives designated as cash flow hedges of interest rate risk. The fair value of interest rate derivative contracts designated as hedging instruments recorded in “Other assets” in the accompanying Condensed Consolidated Balance Sheets as of December 31, 2019 was $0.1 million. The Company’s interest rate derivative contracts designated as hedging instruments and their related gains and losses are reported in “Net change in operating accounts and other operating activities” in the accompanying Condensed Consolidated Statements of Cash Flows.
The Company has determined the majority of the inputs used to value its outstanding debt and its embedded derivative fall within Level 2 of the fair value hierarchy, and as a result, the fair value valuation of its debt and embedded derivative held as of March 31, 2020 and December 31, 2019 were classified as Level 2 in the fair value hierarchy.
Cash Flow Hedges of Interest Rate Risk
The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in “Accumulated other comprehensive (loss) income” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. As long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument
20
qualifies for hedge accounting treatment, there is no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses is recognized in the period in which hedged transactions impact earnings, regardless of whether or not economic mismatches exist in the hedging relationship. Amounts reported in “Accumulated other comprehensive (loss) income” related to derivatives designated as qualifying cash flow hedges are reclassified to interest expense as interest payments are made on the Company’s variable rate or fixed rate debt. During the next twelve months, the Company estimates that an additional $1.1 million will be reclassified to earnings as an increase to “Interest expense”, which primarily represents the difference between the fixed interest rate swap payments and the projected variable interest rate swap receipts.
Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
The tables below present the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (dollars in thousands):
|
Derivatives in Cash Flow
Hedging Relationships
|
|
Loss Recognized in
OCI on Derivative
|
|
|
Location of
(Loss) Gain Reclassified
from Accumulated
|
|
Net (Loss) Gain
Reclassified from Accumulated
OCL into Interest Expense(1)
|
|
|
Three months ended March 31,
|
|
2020
|
|
|
2019
|
|
|
OCL into Income
|
|
2020
|
|
|
2019
|
|
|
Interest rate contracts
|
|
$
|
—
|
|
|
$
|
(2,456
|
)
|
|
Interest expense
|
|
$
|
(253
|
)
|
|
$
|
745
|
|
|
(1)
|
See the Condensed Consolidated Statements of Comprehensive Income for changes in accumulated other comprehensive loss as these changes are presented net of the allocation to noncontrolling interests.
|
|
Derivatives Not Designated as Hedging Instruments
|
|
Location of Loss Recognized in
|
|
Loss Recognized in
Earnings on Derivative
|
|
|
Three months ended March 31,
|
|
Income on Derivative
|
|
2020
|
|
|
2019
|
|
|
Preferred stock embedded derivative
|
|
Other non-operating expense (income)
|
|
$
|
(27,638
|
)
|
|
$
|
(524
|
)
|
8.Shareholders’ Equity of MAA
As of March 31, 2020, 114,279,662 shares of common stock of MAA and 4,058,657 OP Units (excluding the OP Units held by MAA) were issued and outstanding, representing a total of 118,338,319 common shares and units. As of March 31, 2019, 113,916,208 shares of common stock of MAA and 4,105,171 OP Units (excluding the OP Units held by MAA) were issued and outstanding, representing a total of 118,021,379 common shares and units. Options to purchase 19,845 shares of MAA’s common stock were outstanding as of March 31, 2020, compared to 87,788 outstanding options as of March 31, 2019. During the three months ended March 31, 2020 and 2019, MAA issued 918 common shares and 2,827 common shares, respectively, related to the exercise of stock options. These exercises resulted in net proceeds of $0.1 million and $0.2 million, respectively.
Preferred Stock
As of March 31, 2020, MAA had one outstanding series of cumulative redeemable preferred stock which has the following characteristics:
|
Description
|
|
Outstanding
Shares
|
|
|
Liquidation
Preference(1)
|
|
|
Optional
Redemption
Date
|
|
Redemption
Price(2)
|
|
|
Stated
Dividend
Yield
|
|
|
Approximate
Dividend
Rate
|
|
|
Series I
|
|
|
867,846
|
|
|
$
|
50.00
|
|
|
10/1/2026
|
|
$
|
50.00
|
|
|
|
8.50
|
%
|
|
$
|
4.25
|
|
|
(1)
|
The total liquidation preference for the outstanding preferred stock is $43.4 million.
|
|
(2)
|
The redemption price is the price at which the preferred stock is redeemable, at MAA’s option, for cash.
|
See Note 7 for details of the valuation of the derivative asset related to the redemption feature embedded in the MAA Series I preferred stock.
At-the-Market Share Offering Program
The Company has entered into separate distribution agreements with each of J.P. Morgan Securities LLC, BMO Capital Markets Corp. and KeyBanc Capital Markets Inc. to establish an at-the-market share offering program, or ATM program, allowing MAA to sell shares of its common stock from time to time into the existing market at current market prices or through negotiated transactions. Under the ATM program, MAA has the authority to issue up to an aggregate of 4.0 million shares of its common stock, at such times to be determined by MAA. The ATM program currently has a maturity of September 28, 2021. MAA has no obligation to issue shares through the ATM program.
During the three months ended March 31, 2020 and 2019, MAA did not sell any shares of common stock under its ATM program. As of March 31, 2020, there were 3.9 million shares remaining to be issued under the ATM program.
21
9.Partners’ Capital of MAALP
Common units of limited partnership interests in MAALP are represented by OP Units. As of March 31, 2020, there were 118,338,319 OP Units outstanding, 114,279,662, or 96.6%, of which represent Class B OP Units (common units issued to or held by MAALP’s general partner or any of its subsidiaries), which were owned by MAA, MAALP’s general partner. The remaining 4,058,657 OP Units were Class A OP Units owned by Class A limited partners. As of March 31, 2019, there were 118,021,379 OP Units outstanding, 113,916,208, or 96.5%, of which were owned by MAA and 4,105,171 of which were owned by the Class A limited partners.
MAA, as the sole general partner of MAALP, has full, complete and exclusive discretion to manage and control the business of MAALP subject to the restrictions specifically contained within MAALP’s agreement of limited partnership, or the Partnership Agreement. Unless otherwise stated in the Partnership Agreement, this power includes, but is not limited to, acquiring, leasing or disposing of any real property; constructing buildings and making other improvements to properties owned; borrowing money, modifying or extinguishing current borrowings, issuing evidence of indebtedness and securing such indebtedness by mortgage, deed of trust, pledge or other lien on MAALP’s assets; and distribution of MAALP’s cash or other assets in accordance with the Partnership Agreement. MAA can generally, at its sole discretion, issue and redeem OP Units and determine the consideration to be received or the redemption price to be paid, as applicable. The general partner may delegate these and other powers granted if the general partner remains in supervision of the designee.
Under the Partnership Agreement, MAALP may issue Class A OP Units and Class B OP Units. Class A OP Units are any OP Units other than Class B OP Units, while Class B OP Units are those issued to or held by MAALP’s general partner or any of its subsidiaries. In general, the limited partners do not have the power to participate in the management or control of MAALP’s business except in limited circumstances, including changes in the general partner and protective rights if the general partner acts outside of the provisions provided in the Partnership Agreement. The transferability of Class A OP Units is also limited by the Partnership Agreement.
Net income of MAALP (after allocations to preferred ownership interests) is allocated to the general partner and limited partners based on their respective ownership percentages of MAALP. Issuance or redemption of additional Class A OP Units or Class B OP Units changes the relative ownership percentage of the partners. The issuance of Class B OP Units generally occurs when MAA issues common stock and the proceeds from that issuance are contributed to MAALP in exchange for the issuance to MAA of a number of OP Units equal to the number of shares of common stock issued. Likewise, if MAA repurchases or redeems outstanding shares of common stock, MAALP generally redeems an equal number of Class B OP Units with similar terms held by MAA for a redemption price equal to the purchase price of those shares of common stock. At each reporting period, the allocation between general partner capital and limited partner capital is adjusted to account for the change in the respective percentage ownership of the underlying capital of MAALP. Holders of the Class A OP Units may require MAA to redeem their Class A OP Units, in which case MAA may, at its option, pay the redemption price either in cash (in an amount per Class A OP Unit equal, in general, to the average closing price of MAA’s common stock on the NYSE over a specified period prior to the redemption date) or by delivering one share of MAA common stock (subject to adjustment under specified circumstances) for each Class A OP Unit so redeemed.
As of March 31, 2020, a total of 4,058,657 Class A OP Units were outstanding and redeemable for 4,058,657 shares of MAA common stock, with an approximate value of $418.2 million, based on the closing price of MAA’s common stock on March 31, 2020 of $103.03 per share. As of March 31, 2019, a total of 4,105,171 Class A OP Units were outstanding and redeemable for 4,105,171 shares of MAA common stock, with an approximate value of $448.8 million, based on the closing price of MAA’s common stock on March 31, 2019 of $109.33 per share. MAALP pays the same per unit distributions in respect to the OP Units as the per share dividends MAA pays in respect to its common stock.
As of March 31, 2020, MAALP had one outstanding series of cumulative redeemable preferred units, or the MAALP Series I preferred units. The MAALP Series I preferred units have the same characteristics as the MAA Series I preferred stock described in Note 8. As of March 31, 2020, 867,846 units of the MAALP Series I preferred units were outstanding.
22
10.Commitments and Contingencies
Leases
The Company’s leases include a ground lease expiring in 2074 related to one of its apartment communities and an office lease expiring in 2028 related to its corporate headquarters. Both leases contain stated rent increases that generally compensate for the impact of inflation. The Company also has other commitments related to immaterial office and equipment operating leases.
The table below reconciles undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease obligations recorded on the Condensed Consolidated Balance Sheets as of March 31, 2020 (in thousands):
|
|
|
Operating Leases
|
|
|
2020
|
|
$
|
2,121
|
|
|
2021
|
|
|
2,854
|
|
|
2022
|
|
|
2,885
|
|
|
2023
|
|
|
2,875
|
|
|
2024
|
|
|
2,853
|
|
|
Thereafter
|
|
|
65,863
|
|
|
Total minimum lease payments
|
|
|
79,451
|
|
|
Net present value adjustments
|
|
|
(46,637
|
)
|
|
Operating lease obligations
|
|
$
|
32,814
|
|
Legal Proceedings
In June 2016, plaintiffs Cathi Cleven and Tara Cleven, on behalf of a purported class of plaintiffs, filed a complaint against MAA and the Operating Partnership in the United States District Court for the Western District of Texas, Austin Division. In January 2017, Areli Arellano and Joe L. Martinez joined the lawsuit as additional plaintiffs. The lawsuit alleges that the Company (but not Post Properties (see the description of the Brown class action lawsuit below)) charged late fees at its Texas properties that violate Section 92.019 of the Texas Property Code, or Section 92.019, which provides that a landlord may not charge a tenant a late fee for failing to pay rent unless, among other things, the fee is a reasonable estimate of uncertain damages to the landlord that are incapable of precise calculation and result from the late payment of rent. The plaintiffs are seeking monetary damages and attorneys’ fees and costs. In September 2018, the District Court certified a class proposed by the plaintiffs. Additionally, in September 2018, the District Court denied the Company’s motion for summary judgment and granted the plaintiffs’ motion for partial summary judgment. Because the District Court certified a class prior to granting the plaintiffs’ motion for partial summary judgment, the District Court’s ruling applies to the entire class. In October 2018, the Fifth Circuit Court of Appeals accepted the Company’s petition to review the District Court’s order granting class certification. In September 2019, the Fifth Circuit Court of Appeals heard the Company’s oral arguments. The Company also intends to appeal the District Court’s order granting plaintiff’s motion for summary judgment to the Fifth Circuit Court of Appeals if permission to appeal is granted. The Company will continue to vigorously defend the action and pursue such appeals. Management estimates that the Company’s maximum exposure in the lawsuit, given the class certification and summary judgment ruling, is $54.6 million, which includes both potential damages and attorneys’ fees but excludes any prejudgment interest that may be awarded.
In April 2017, plaintiff Nathaniel Brown, on behalf of a purported class of plaintiffs, filed a complaint against the Operating Partnership, as the successor by merger to Post Properties’ primary operating partnership, and MAA in the United States District Court for the Western District of Texas, Austin Division. The lawsuit alleges that Post Properties (and, following the Post Properties merger in December 2016, the Operating Partnership) charged late fees at its Texas properties that violate Section 92.019. The plaintiffs are seeking monetary damages and attorney’s fees and costs. In September 2018, the District Court certified a class proposed by the plaintiff. Additionally, in September 2018, the District Court denied the Company’s motion for summary judgment and granted the plaintiff’s motion for partial summary judgment. Because the District Court certified a class prior to granting the plaintiff’s motion for partial summary judgment, the District Court’s ruling applies to the entire class. In October 2018, the Fifth Circuit Court of Appeals accepted the Company’s petition to review the District Court’s order granting class certification. In September 2019, the Fifth Circuit Court of Appeals heard the Company’s oral arguments. The Company also intends to appeal the District Court’s order granting plaintiff’s motion for summary judgment to the Fifth Circuit Court of Appeals if permission to appeal is granted. The Company will continue to vigorously defend the action and pursue such appeals. Management estimates that the Company’s maximum exposure in the lawsuit, given the class certification and summary judgment ruling, is $8.4 million, which includes both potential damages and attorneys’ fees but excludes any prejudgment interest that may be awarded.
The Company is subject to various other legal proceedings and claims that arise in the ordinary course of its business operations. Matters which arise out of allegations of bodily injury, property damage and employment practices are generally covered by insurance. While the resolution of these other matters cannot be predicted with certainty, management does not currently believe that such matters, either individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows in the event of a negative outcome.
23
Loss Contingencies
The outcomes of claims, disputes and legal proceedings are subject to significant uncertainty. The Company records an accrual for loss contingencies when a loss is probable and the amount of the loss can be reasonably estimated. The Company also accrues an estimate of defense costs expected to be incurred in connection with legal matters. Management reviews these accruals quarterly and makes revisions based on changes in facts and circumstances. When a loss contingency is not both probable and reasonably estimable, management does not accrue the loss. However, if the loss (or an additional loss in excess of the accrual) is at least a reasonable possibility and material, then management discloses a reasonable estimate of the possible loss, or range of loss, if such reasonable estimate can be made. If the Company cannot make a reasonable estimate of the possible loss, or range of loss, then a statement to that effect is disclosed.
The assessment of whether a loss is probable or a reasonable possibility, and whether the loss or range of loss is reasonably estimable, often involves a series of complex judgments about future events. Among the factors considered in this assessment, are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if reasonably estimable), the progress of the matter, existing law and precedent, the opinions or views of legal counsel and other advisers, management’s experience in similar matters, the facts available to management at the time of assessment, and how the Company intends to respond, or has responded, to the proceeding or claim. Management’s assessment of these factors may change over time as individual proceedings or claims progress. For matters where management is not currently able to reasonably estimate a range of reasonably possible loss, the factors that have contributed to this determination include the following: (i) the damages sought are indeterminate; (ii) the proceedings are in the early stages; (iii) the matters involve novel or unsettled legal theories or a large or uncertain number of actual or potential cases or parties; and/or (iv) discussions with the parties in matters that are ultimately expected to be resolved through negotiation and settlement have not reached the point where management believes a reasonable estimate of loss, or range of loss, can be made. The Company believes that there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss or business impact, if any.
As of March 31, 2020 and December 31, 2019, the Company’s accrual for loss contingencies relating to unresolved legal matters was $8.6 million in the aggregate. The loss contingencies are presented in “Accrued expenses and other liabilities” in the accompanying Condensed Consolidated Balance Sheets.
11.Segment Information
As of March 31, 2020, the Company owned and operated 299 multifamily apartment communities in 16 different states from which it derived all significant sources of earnings and operating cash flows. The Company views each consolidated apartment community as an operating segment. The Company’s chief operating decision maker, which is the Company’s Chief Executive Officer, evaluates performance and determines resource allocations of each of the apartment communities on a Same Store and Non-Same Store and Other basis, as well as an individual apartment community basis. This is consistent with the aggregation criteria under GAAP as each of the apartment communities generally has similar economic characteristics, facilities, services, and tenants.
The following reflects the two reportable segments for the Company:
|
|
•
|
Same Store communities are communities that the Company has owned and have been stabilized for at least a full 12 months.
|
|
|
•
|
Non-Same Store and Other includes recent acquisitions, communities in development or lease-up, communities that have been identified for disposition and communities that have incurred a significant casualty loss. Also included in Non-Same Store and Other are non-multifamily activities.
|
On the first day of each calendar year, the Company determines the composition of its Same Store and Non-Same Store and Other reportable segments for that year as well as adjusts the previous year, which allows the Company to evaluate full period-over-period operating comparisons. Properties in development or lease-up are added to the Same Store portfolio on the first day of the calendar year after a community has been owned and stabilized for at least a full 12 months. Communities are considered stabilized after achieving 90% occupancy for 90 days. Communities that have been identified for disposition are excluded from the Same Store portfolio.
The chief operating decision maker utilizes net operating income, or NOI, in evaluating the performance of its operating segments. Total NOI represents total property revenues less total property operating expenses, excluding depreciation and amortization, for all properties held during the period regardless of their status as held for sale. Management believes that NOI is a helpful tool in evaluating the operating performance of the segments because it measures the core operations of property performance by excluding corporate level expenses and other items not directly related to property operating performance.
24
Revenues and NOI for each reportable segment for the three months ended March 31, 2020 and 2019 were as follows (in thousands):
|
|
|
Three months ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Same Store
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
389,707
|
|
|
$
|
373,465
|
|
|
Other property revenues
|
|
|
2,655
|
|
|
|
3,066
|
|
|
Total Same Store revenues
|
|
|
392,362
|
|
|
|
376,531
|
|
|
Non-Same Store and Other
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
|
25,700
|
|
|
|
24,475
|
|
|
Other property revenues
|
|
|
36
|
|
|
|
172
|
|
|
Total Non-Same Store and Other revenues
|
|
|
25,736
|
|
|
|
24,647
|
|
|
Total rental and other property revenues
|
|
$
|
418,098
|
|
|
$
|
401,178
|
|
|
Net Operating Income:
|
|
|
|
|
|
|
|
|
|
Same Store NOI
|
|
$
|
249,287
|
|
|
$
|
237,838
|
|
|
Non-Same Store and Other NOI
|
|
|
15,639
|
|
|
|
13,963
|
|
|
Total NOI
|
|
|
264,926
|
|
|
|
251,801
|
|
|
Depreciation and amortization
|
|
|
(126,388
|
)
|
|
|
(122,789
|
)
|
|
Property management expenses
|
|
|
(14,643
|
)
|
|
|
(13,842
|
)
|
|
General and administrative expenses
|
|
|
(13,264
|
)
|
|
|
(12,337
|
)
|
|
Interest expense
|
|
|
(43,482
|
)
|
|
|
(45,700
|
)
|
|
Loss on sale of depreciable real estate assets
|
|
|
(29
|
)
|
|
|
(13
|
)
|
|
(Loss) gain on sale of non-depreciable real estate assets
|
|
|
(376
|
)
|
|
|
8,963
|
|
|
Other non-operating (expense) income
|
|
|
(28,532
|
)
|
|
|
119
|
|
|
Income tax expense
|
|
|
(667
|
)
|
|
|
(641
|
)
|
|
Income from real estate joint venture
|
|
|
407
|
|
|
|
397
|
|
|
Net income attributable to noncontrolling interests
|
|
|
(1,304
|
)
|
|
|
(2,298
|
)
|
|
Dividends to MAA Series I preferred shareholders
|
|
|
(922
|
)
|
|
|
(922
|
)
|
|
Net income available for MAA common shareholders
|
|
$
|
35,726
|
|
|
$
|
62,738
|
|
Assets for each reportable segment as of March 31, 2020 and December 31, 2019 were as follows (in thousands):
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Same Store
|
|
$
|
9,893,148
|
|
|
$
|
9,975,880
|
|
|
Non-Same Store and Other
|
|
|
1,107,843
|
|
|
|
1,049,029
|
|
|
Corporate assets
|
|
|
154,986
|
|
|
|
205,541
|
|
|
Total assets
|
|
$
|
11,155,977
|
|
|
$
|
11,230,450
|
|
12.Real Estate Acquisitions and Dispositions
The following table reflects the Company’s acquisition activity for the three months ended March 31, 2020:
|
Land Acquisition
|
|
Market
|
|
Acres
|
|
|
Date Acquired
|
|
Georgetown
|
|
Austin, TX
|
|
|
22
|
|
|
January 2020
|
The Company did not dispose of any apartment communities, land parcels or commercial properties during the three months ended March 31, 2020.
25