Same-Store NOI Is Up 3.7% Year Over Year for MAA

Same-store revenue rises 3.6%, while expenses climb 3.4%.

Mid-America Apartment Communities, Inc., or MAA, (NYSE: MAA) announced operating results for the quarter ended September 30, 2016.

Here's the company's release:

Net Income Available for Common Shareholders

For the quarter ended September 30, 2016, net income available for MAA common shareholders was $84.3 million, or $1.12 per diluted common share, compared to $91.7 million, or $1.22 per diluted common share, for the quarter ended September 30, 2015. Results for the quarter ended September 30, 2016 included $47.7 million, or $0.63 per diluted common share, of gains related to the sale of real estate assets and $3.9 million, or $0.05 per diluted common share, of merger costs related to the pending merger transaction with Post Properties, Inc., as compared to $54.6 million, or $0.73 per diluted common share, of gains related to the sale of real estate assets for the quarter ended September 30, 2015 and no merger related costs.

For the nine months ended September 30, 2016, net income available for MAA common shareholders was $172.8 million, or $2.29 per diluted common share, compared to $289.3 million, or $3.84 per diluted common share, for the nine months ended September 30, 2015. Results for the nine months ended September 30, 2016 included $50.7 million, or $0.64 per diluted common share, of gains related to the sale of real estate assets and $3.9 million, or $0.05 per diluted common share, of merger costs related to the pending merger transaction with Post Properties, Inc., as compared to $190.2 million, or $2.53 per diluted common share, of gains related to the sale of real estate assets for the nine months ended September 30, 2015 and no merger related costs.

Funds from Operations (FFO)

For the quarter ended September 30, 2016, FFO was $117.3 million, or $1.47 per diluted common share and unit, or per Share, compared to $114.5 million, or $1.44 per Share, for the quarter ended September 30, 2015. Core Funds from Operations, or Core FFO, which further adjusts FFO for items that are not considered part of our core business operations, for the quarter ended September 30, 2016 was $118.6 million, or $1.49 per Share, as compared to $109.9 million, or $1.38 per Share, for the quarter ended September 30, 2015.

For the nine months ended September 30, 2016, FFO was $359.2 million, or $4.51 per Share, compared to $333.8 million, or $4.20 per Share, for the nine months ended September 30, 2015. Core FFO for the nine months ended September 30, 2016 was $351.8 million, or $4.42 per Share, as compared to $323.1 million, or $4.06 per Share, for the nine months ended September 30, 2015.

A reconciliation of FFO and Core FFO to net income available for MAA common shareholders, and an expanded discussion of the components of FFO and Core FFO, can be found later in this release.

Eric Bolton, Chairman and Chief Executive Officer, said, "Results for the quarter were at the top end of our prior guidance reflecting continued solid leasing conditions across the portfolio. During the quarter we were successful in closing on opportunistic acquisitions of two recently developed properties. In addition, we completed the disposition of seven older properties in line with our strategy of steadily recycling capital and strengthening our long-term earnings profile.

We are progressing towards a close of the merger of MAA and Post Properties in line with our expectations and timeframes set out upon the August announcement of the merger agreement. We anticipate that all of the conditions to closing the transaction should be satisfied to permit a closing on or about December 1, 2016. Preliminary integration efforts are underway and we remain very enthusiastic about the opportunities surrounding the combination of the two companies."

Highlights

During the third quarter, MAA entered into an agreement and plan of merger with Post Properties, Inc., an Atlanta, Georgia-based REIT operating in the multifamily sector, pursuant to which Post Properties will merge into MAA, in a stock-for-stock transaction.
Same Store NOI for the third quarter increased 3.7% as compared to the same period in the prior year, based on a 3.6% increase in revenue and a 3.4% increase in property operating expenses.
Average Effective Rent per Unit for the Same Store Portfolio increased to $1,046 during the third quarter, a 4.2% increase as compared to the same period in the prior year, while Average Physical Occupancy was at 96.4% for the third quarter compared to 96.5% for the prior year.
Resident turnover for the Same Store Portfolio remained low for the third quarter at 51.3% on a rolling twelve month basis.
During the third quarter, MAA acquired two properties, a 352-unit community located in Houston, Texas, and a 336-unit community located in Greenville, South Carolina.
During the third quarter, MAA sold seven properties, which were located in Winston-Salem, North Carolina; Charlotte, North Carolina; Greensboro, North Carolina and Huntsville, Alabama, containing 1,924 units. With the sale of the properties in Winston-Salem, North Carolina and Greensboro, North Carolina, MAA has exited two markets within the secondary market segment of the portfolio.
During the third quarter, MAA completed one expansion development project, located in Charleston, South Carolina, and currently has a total of three expansion development projects underway, containing 550 units, with a total projected cost of approximately $81.8 million.
As of the end of the third quarter, three properties remained in lease-up, including a development project completed during the quarter and a recently acquired community, with average quarter-end physical occupancy of 76.5% for the group.
Year-to-date MAA has completed renovation of 5,463 units under its redevelopment program, achieving average rental rate increases of 10.4% above non-renovated units.
During the third quarter, Fitch Ratings upgraded our senior unsecured rating to BBB+ with a stable outlook. Additionally Standard & Poor's Ratings Services placed our ratings, including our BBB (stable outlook) corporate credit ratings on CreditWatch with positive implications to reflect the anticipated additional scale and improvement in financial leverage from the announcement of the pending merger transaction with Post Properties.
Third Quarter Same Store Portfolio Operating Results

Same Store Portfolio revenue growth of 3.6% during the third quarter was primarily produced by a 4.2% increase in Average Effective Rent per Unit, as compared to the same period in the prior year. Average Physical Occupancy for the Same Store Portfolio was 96.4% for the third quarter as compared to 96.5% in the same period of the prior year. Operating expenses increased 3.4% for the third quarter, with the largest portion of the growth related to property taxes, partially offset by declining insurance costs and marketing expenses.

A reconciliation of NOI, including Same Store NOI, to net income available for MAA common shareholders, and an expanded discussion of the components of NOI, can be found later in this release.

Acquisition and Disposition Activity
During the third quarter, MAA acquired two new communities, Yale at 6th, a 352-unit community located in Houston, Texas and Innovation Apartment Homes, a 336-unit community located in Greenville, South Carolina, for a combined purchase price of $133.3 million. These acquisitions bring the year-to-date purchase price for new acquisition properties, consisting of four properties containing 1,324 units, to $264.1 million.

During the third quarter, MAA closed on the disposition of seven multifamily properties averaging 22 years of age for a combined sales price of $152.0 million. The properties were located in Winston-Salem, North Carolina; Charlotte, North Carolina; Greensboro, North Carolina and Huntsville, Alabama. With the sale of the properties in Winston-Salem, North Carolina and Greensboro, North Carolina, MAA has exited two markets within the secondary market segment of the portfolio.

Development and Lease-up Activity
As of the end of the third quarter, MAA had three development communities, all representing expansions of current communities owned, under construction with a total projected cost of $81.8 million, and an expected average stabilized NOI yield of 7.5%. During the third quarter, MAA funded $12.8 million of construction costs leaving an estimated $33.2 million to be funded on current development projects. MAA had three communities remaining in lease-up as of the end of the third quarter: Residences at Fountainhead, located in Tempe, Arizona, which was acquired in lease-up during the second quarter; Innovation Apartment Homes, located in Greenville, South Carolina, which was acquired in lease-up during the third quarter; and River's Walk II, a development community located in Charleston, South Carolina, which was completed during the third quarter. Physical occupancy for the three communities averaged 76.5% at the end of the third quarter.

Redevelopment Activity
MAA continues its interior redevelopment program at select communities throughout the portfolio. During the third quarter, MAA redeveloped a total of 2,242 units at an average cost of $4,359 per unit, bringing the total units renovated during the year to 5,463, achieving average rental rate increases of 10.4% above non-renovated units.

Capital Expenditures
Recurring capital expenditures totaled $14.2 million for the third quarter of 2016, or approximately $0.18 per Share, as compared to $15.8 million, or $0.20 per Share, for the same period in 2015. These expenditures led to Core Adjusted Funds from Operations, or Core AFFO, of $1.31 per Share, for the third quarter of 2016, compared to $1.18 per Share for the same period in 2015.

Redevelopment, revenue enhancing and other capital expenditures during the third quarter were $20.8 million, as compared to $21.9 million for the same period in 2015. These expenditures led to Funds Available for Distribution, or FAD, of $83.5 million for the third quarter of 2016, compared to $72.2 million for the same period in 2015.

Recurring capital expenditures totaled $42.6 million for the nine months ended September 30, 2016, or approximately $0.54 per Share, as compared to $48.3 million, or $0.61 per Share, for the same period in 2015. These expenditures led to Core AFFO, of $3.88 per Share, for the nine months ended September 30, 2016, compared to $3.45 per Share for the same period in 2015.

Redevelopment, revenue enhancing and other capital expenditures during the nine months ended September 30, 2016, were $57.8 million, as compared to $52.4 million for the same period in 2015. These expenditures led to FAD of $251.4 million for the nine months ended September 30, 2016, compared to $222.4 million for the same period in 2015.

A reconciliation of FFO, Core FFO, Core AFFO and FAD to net income available for MAA common shareholders, and an expanded discussion of the components of FFO, Core FFO, Core AFFO and FAD, can be found later in this release.

Balance Sheet
As of September 30, 2016;

Total debt to Total Market Capitalization was 31.4% (based on the September 30, 2016 closing stock price), compared to 32.2% as of December 31, 2015;
Net Debt to Gross Assets (based on gross book value at September 30, 2016) was 39.7%, compared to 40.6% as of December 31, 2015;
Total debt outstanding was $3.4 billion at an average effective interest rate of 3.6%;
90.7% of total debt was fixed or hedged against rising interest rates for an average of 4.5 years;
Fixed charge coverage ratio (Recurring EBITDA divided by interest expense adjusted for mark-to-market debt adjustment) was 4.35x and Net Debt to Recurring EBITDA was 5.55x;
Approximately $569.5 million combined cash and capacity under MAA's unsecured credit facility was available; and
Unencumbered assets increased to 74.6% of Gross Real Estate Assets, as compared to 72.8% as of December 31, 2015.

A reconciliation of EBITDA and Recurring EBITDA to consolidated net income, and an expanded discussion of the components of EBITDA and Recurring EBITDA, can be found later in this release.

In addition, a reconciliation of the following items and an expanded discussion of their components can be found later in this release:

Net Debt to Unsecured notes payable and Secured notes payable;
Gross Assets to Total assets; and
Gross Real Estate Assets to Real estate assets, net.

Merger Related Activities
Closing and integration activities related to the recently announced pending merger of MAA and Post Properties are progressing well. During the third quarter, MAA incurred $3.9 million, or $0.05 per Share, of costs which were primarily legal and advisory costs.

91st Consecutive Quarterly Common Dividend Declared
MAA declared its 91st consecutive quarterly common dividend at an annual rate of $3.28 per common share, which will be paid on October 31, 2016 to holders of record on October 14, 2016.

2016 Core FFO and Core AFFO per Share Guidance
MAA provides guidance on Core FFO per Share and Core AFFO per Share, which are non-GAAP measures, but does not forecast net income available for common shareholders per diluted common share. It is not reasonable to accurately predict the timing and certainty of acquisitions and dispositions that would materially affect depreciation, capital gains or losses, merger and acquisition expenses and net income attributable to noncontrolling interests or to forecast extraordinary items, which, combined, generally represent the difference between net income available for common shareholders and Core FFO. Based on historical experience, the dollar amount of that unavailable information could be significant.

MAA is updating and increasing prior guidance for full year Core FFO, now projected to be in a range of $5.86 to $5.96 per Share, or $5.91 at the midpoint. Core AFFO is now projected to be in the range of $5.16 to $5.26 per Share, or $5.21 at the midpoint. The range for full year NOI growth for the Same Store Portfolio remains at 4.75% to 5.25%. These guidance ranges exclude the impact of closing the pending merger with Post Properties. Should the merger close on December 1, 2016, as expected, we expect our full year Core FFO per Share and Core AFFO per Share to be toward the bottom end of the ranges provided. Further details of our full year expectations, excluding the impact of closing the pending merger with Post Properties, can be found in supplemental materials with this release.