Notes to Condensed Consolidated Financial Statements
June 30, 2017
and
2016
(Unaudited)
1. Basis of Presentation and Principles of Consolidation and Significant Accounting Policies
Unless the context otherwise requires, all references to "we," "us," "our," or 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, all 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 "shareholders" means 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
June 30, 2017
, MAA owned
113,607,734
OP Units (or
96.4%
of the total number of OP Units). MAA conducts substantially all of its business and holds substantially all of its assets 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.
We believe combining the notes to the condensed consolidated financial statements of MAA and MAALP results in the following benefits:
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•
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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; and
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|
|
•
|
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.
|
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. We believe 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 partner interests in the Operating Partnership; therefore, MAA does not conduct business itself, other than 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 our real estate assets. Except for net proceeds from public equity issuances by MAA, which are contributed to the Operating Partnership in exchange for OP Units, the Operating Partnership generates the capital required by our business through the Operating Partnership's operations, direct or indirect incurrence of indebtedness, and issuance of OP units.
The presentation of MAA's shareholders' equity and the Operating Partnership's capital is the principal area 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 interests, preferred units, treasury shares, accumulated other comprehensive income and redeemable common units. The Operating Partnership's capital may include common capital and preferred capital of the general partner (MAA), limited partners' preferred capital, limited partners' noncontrolling interests, accumulated other comprehensive income and redeemable common units. Redeemable common units represent the number of outstanding OP Units as of the date of the applicable balance sheet, valued at the greater of the closing market price of MAA's common stock or the aggregate value of the individual partners' capital balances. Holders of OP Units (other than MAA and its corporate affiliates) may require us to redeem their OP Units from time to time, in which case we may, at our 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 over a specified period prior to the redemption date) or by delivering one share of our common stock (subject to adjustment under specified circumstances) for each OP Unit so redeemed.
Organization of Mid-America Apartment Communities, Inc.
On December 1, 2016, MAA completed a merger with Post Properties, Inc., or Post Properties. Pursuant to the Agreement and Plan of Merger, or the Merger Agreement, Post Properties merged with and into MAA, with MAA continuing as the surviving corporation, or the Parent Merger, and Post LP merged with and into MAALP, with MAALP continuing as the surviving entity, or the Partnership Merger. We refer to the Parent Merger, together with the Partnership Merger, as the Merger in this Report. Under the terms of the Merger Agreement, each share of Post Properties common stock was converted into the right to receive
0.71
of a newly issued share of MAA common stock including the right, if any, to receive cash in lieu of fractional shares of MAA common stock. In addition, each limited partner interest in Post LP designated as a "Class A Unit" automatically converted into the right to receive
0.71
of a newly issued partnership unit of MAALP. Also, each share of Post Properties 8 1/2% Series A Cumulative Redeemable Preferred Stock, which we refer to as the Post Properties Series A preferred stock, was automatically converted into the right to receive one newly issued share of MAA's 8.50% Series I Cumulative Redeemable Preferred Stock, $0.01 par value per share, which we refer to as MAA Series I preferred stock. Each newly issued share of MAA Series I preferred stock has the same rights, preferences, privileges, and voting powers as those of the Post Properties Series A preferred stock.
As of
June 30, 2017
, we owned and operated
304
apartment communities, comprising
100,237
apartments located in
16
states, through the Operating Partnership. As of
June 30, 2017
, we also owned a
35.0%
interest in an unconsolidated real estate joint venture. As of
June 30, 2017
, we had
six
development communities under construction totaling
1,766
units. Total expected costs for the development projects are
$396.1 million
, of which
$293.1 million
has been incurred through
June 30, 2017
. We expect to complete construction on two projects by the fourth quarter of 2017, two projects by the first quarter of 2018, one project by the third quarter of 2018, and one project by the fourth quarter of 2018.
Twenty-nine
of our multifamily properties include retail components with approximately
600,000
square feet of gross leasable area. We also have four wholly owned commercial properties, which we acquired through the Merger, with approximately
269,000
square feet of combined gross leasable area.
Basis of Presentation and Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements have been prepared by our 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 approximately
92.5%
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,
92.5%
to
100%
of all consolidated subsidiaries. In our 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.
We invest in entities which may qualify as variable interest entities, or VIEs, and the limited partnership 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. The limited partnership is classified as a VIE, since the limited partners lack substantive kick-out rights and substantive participating rights. We consolidate all VIEs for which we are the primary beneficiary and use the equity method to account for investments that qualify as VIEs but for which we are not the primary beneficiary. In determining whether we are the primary beneficiary of a VIE, we consider 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.
We use the equity method of accounting for our investments in entities for which we exercise significant influence, but do not have the ability to exercise control. The factors considered in determining that we do not have the ability to exercise control include ownership of voting interests and participatory rights of investors (see "Investment in Unconsolidated Real Estate Joint Ventures" below).
Noncontrolling Interests
At
June 30, 2017
, the Company had two types of noncontrolling interests, (1) noncontrolling interests related to the common unitholders of the Operating Partnership (see Note 11) and (2) noncontrolling interests related to its consolidated real estate entities (see "Investment in Consolidated Real Estate Joint Ventures" below).
Investment in Unconsolidated Real Estate Joint Ventures
Immediately prior to the effective date of the Merger, Post Properties together with other institutional investors, in a limited liability company, or the Apartment LLC, owned one apartment community located in Washington, D.C. Post Properties had a
35.0%
equity interest in this unconsolidated joint venture, which we retained immediately following the effectiveness of the Merger and as of
June 30, 2017
. We provide property and asset management services to the Apartment LLC for which we earn fees.
This joint venture was determined to be a VIE, but we are not designated as a primary beneficiary. As a result, we account for our investment in the Apartment LLC using the equity method of accounting as we are able to exert significant influence, but do not have a controlling interest in this joint venture. At
June 30, 2017
, our investment in the Apartment LLC totaled
$44.8 million
.
Investment in Consolidated Real Estate Joint Ventures
In 2015, Post Properties entered into a joint venture arrangement with a private real estate company to develop, construct and operate a
358
-unit apartment community in Denver, Colorado. At
June 30, 2017
, we owned a
92.5%
equity interest in the consolidated joint venture. In 2015, this joint venture acquired the land site and initiated the development of the apartment community. The venture partner will generally be responsible for the development and construction of the community and we will continue to manage the community upon its completion. This joint venture was determined to be a VIE with us designated as the primary beneficiary. As a result, the accounts of the joint venture are consolidated by us. At
June 30, 2017
, our consolidated assets, liabilities and equity included construction in progress of
$51.6 million
, land of
$14.5 million
, and accounts payable and accrued expenses of
$5.8 million
.
Assets Held for Sale
During June 2017, the criteria for classifying three apartment communities and one land parcel as held for sale were met, and as a result, the assets and liabilities for these properties were presented as held for sale in the Condensed Consolidated Balance Sheets. Additionally, we ceased recording depreciation and amortization following the held for sale designation for these properties. See Note 16 (Subsequent Events) for details on the July 2017 disposition of these properties.
2. Business Combinations
On December 1, 2016, we completed the Merger. As part of the Merger, we acquired
61
wholly-owned apartment communities comprising
24,138
units, including
269
apartment units in one community held in an unconsolidated entity, and
2,262
apartment units in
six
communities that were under development at the Merger date. Post Properties had operations in ten markets across the United States. In addition to the apartment communities, we also acquired
four
commercial properties, totaling approximately
269,000
square feet. The consolidated net assets and results of operations of Post Properties are included in our Consolidated Financial Statements from the closing date, December 1, 2016, going forward.
The total purchase price of approximately
$4.0 billion
was determined based on the number of shares of Post Properties' common stock, the number of shares of Post Properties’ Series A preferred stock, and shares of Post LP's Class A Units of limited partnership interest outstanding as of December 1, 2016, in addition to cash consideration provided by the Operating Partnership immediately prior to the Merger to pay off a
$300.0 million
Post LP unsecured term loan and a
$162.0 million
Post LP line of credit, both outstanding from Wells Fargo. In all cases in which MAA’s common stock price was a determining factor in arriving at final consideration for the Merger, the stock price used to determine the purchase price was the opening price of MAA’s common stock on December 1, 2016 (
$91.41
per share). The MAA Series I preferred stock consideration was valued at $
77.00
per share, which excluded a $
14.24
per share bifurcated call option (See Notes 8 & 9). The total purchase price also included
$2.0 million
of other consideration, a majority of which related to assumed stock compensation plans. As a result of the Merger, we issued approximately
38.0 million
shares of MAA common stock, approximately
80,000
OP Units, and approximately
868,000
newly issued shares of MAA Series I preferred stock.
The Merger has been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification, or ASC, 805,
Business Combinations
, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair values.
For larger, portfolio style acquisitions, like the Merger, management engages a third party valuation specialist to assist with the fair value assessment, which includes an allocation of the purchase price. Similar to management's methods, the third party uses cash flow analysis as well as an income approach and a market approach to determine the fair value of assets acquired. The
third party uses stabilized net operating income, or NOI, and market specific capitalization and discount rates. Management reviews the inputs used by the third party specialist as well as the allocation of the purchase price provided by the third party to ensure reasonableness and that the procedures are performed in accordance with management's policy. The allocation of the purchase price is based on management’s assessment, which may differ as more information becomes available. Subsequent adjustments made to the purchase price allocation, if any, are made within the allocation period, which typically does not exceed one year.
The allocation of the purchase price described above requires a significant amount of judgment and represents management's best estimate of the fair value as of the acquisition date. The following preliminary purchase price allocation for the Merger reflects updates primarily to increased derivative asset values on the preferred share bifurcated call option (included in "Other assets") offset by an adjustment to litigation reserves and real estate asset values from our December 31, 2016 estimates. Such preliminary purchase price allocation was based on our valuation as well as estimates and assumptions of the acquisition date fair value of the tangible and intangible assets acquired and liabilities assumed.
The purchase price was allocated as follows (in thousands):
|
|
|
|
|
Land
|
$
|
875,332
|
|
Buildings and improvements
|
3,397,496
|
|
Furniture, fixtures and equipment
|
81,243
|
|
Development and capital improvements in progress
|
183,881
|
|
Undeveloped land
|
24,200
|
|
Commercial properties, net
|
3,610
|
|
Investment in real estate joint venture
|
44,435
|
|
Lease intangible assets
|
53,192
|
|
Cash and cash equivalents
|
34,292
|
|
Restricted cash
|
3,608
|
|
Deferred costs and other assets, excluding lease intangible assets
|
42,052
|
|
Total assets acquired
|
4,743,341
|
|
|
|
Notes payable
|
(595,609)
|
|
Fair market value of interest rate swaps
|
(2,118)
|
|
Lease intangible liabilities
|
(1,661)
|
|
Accounts payable, accrued expenses, and other liabilities
|
(133,054)
|
|
Total liabilities assumed, including debt
|
(732,442
|
)
|
|
|
Noncontrolling interests - consolidated real estate entity
|
(2,306
|
)
|
|
|
Total purchase price
|
$
|
4,008,593
|
|
The purchase price accounting reflected in the accompanying financial statements is based upon estimates and assumptions that are subject to change within the measurement period, pursuant to ASC 805. See Note 12 for loss contingencies identified, measured, and included in "Accounts payable, accrued expenses, and other liabilities" in the allocation above. We have preliminarily completed our valuation procedures. Adjustments may still occur as the valuation and revised preliminary purchase allocation is finalized in areas such as real estate related assets and liabilities, equity investments, litigation reserves, debt and debt related instruments, and certain other acquired assets and liabilities assumed.
We incurred Merger and integration related expenses of
$10.4 million
for the
six months ended June 30, 2017
. These amounts were expensed as incurred and are included in the Condensed Consolidated Statements of Operations in the items titled "Merger related expenses", primarily consisting of severance and professional costs, and "Integration related expenses", primarily consisting of temporary systems, staffing, and facilities costs.
3. Earnings per Common Share of MAA
Basic earnings per share is computed by dividing net income available for MAA common shareholders by the weighted average number of shares outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common 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 our 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 they are dilutive to earnings per share. For the
three and six
months ended
June 30, 2017
and
2016
, MAA's basic earnings per share was computed using the two-class method, and MAA's diluted earnings per share was computed using the more dilutive of the treasury stock method or two-class method, as presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars and shares in thousands, except per share amounts)
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Shares Outstanding
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
113,403
|
|
|
75,277
|
|
|
113,371
|
|
|
75,263
|
|
|
Weighted average partnership units outstanding
|
—
|
|
(1)
|
—
|
|
(1)
|
—
|
|
(1)
|
—
|
|
(1)
|
Effect of dilutive securities
|
211
|
|
|
—
|
|
(2)
|
279
|
|
|
239
|
|
|
Weighted average common shares - diluted
|
113,614
|
|
|
75,277
|
|
|
113,650
|
|
|
75,502
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings per Share - basic
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
$
|
50,155
|
|
|
$
|
47,630
|
|
|
$
|
93,571
|
|
|
$
|
93,438
|
|
|
Net Income attributable to noncontrolling interests
|
(1,840
|
)
|
|
(2,486
|
)
|
|
(3,351
|
)
|
|
(4,881
|
)
|
|
Unvested restricted stock (allocation of earnings)
|
(76
|
)
|
|
(134
|
)
|
|
(149
|
)
|
|
(237
|
)
|
|
Preferred dividends
|
(922
|
)
|
|
—
|
|
|
(1,844
|
)
|
|
—
|
|
|
Net income available for common shareholders, adjusted
|
$
|
47,317
|
|
|
$
|
45,010
|
|
|
$
|
88,227
|
|
|
$
|
88,320
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
113,403
|
|
|
75,277
|
|
|
113,371
|
|
|
75,263
|
|
|
Earnings per share - basic
|
$
|
0.42
|
|
|
$
|
0.60
|
|
|
$
|
0.78
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings per Share - diluted
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
$
|
50,155
|
|
|
$
|
47,630
|
|
|
$
|
93,571
|
|
|
$
|
93,438
|
|
|
Net income attributable to noncontrolling interests
|
(1,840
|
)
|
(1)
|
(2,486
|
)
|
(1)
|
(3,351
|
)
|
(1)
|
(4,881
|
)
|
(1)
|
Unvested restricted stock (allocation of earnings)
|
—
|
|
|
(134
|
)
|
(2)
|
—
|
|
|
—
|
|
|
Preferred dividends
|
(922
|
)
|
|
—
|
|
|
(1,844
|
)
|
|
—
|
|
|
Net income available for common shareholders, adjusted
|
$
|
47,393
|
|
|
$
|
45,010
|
|
|
$
|
88,376
|
|
|
$
|
88,557
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - diluted
|
113,614
|
|
|
75,277
|
|
|
113,650
|
|
|
75,502
|
|
|
Earnings per share - diluted
|
$
|
0.42
|
|
|
$
|
0.60
|
|
|
$
|
0.78
|
|
|
$
|
1.17
|
|
|
(1)
For both the
three and six
months ended
June 30, 2017
and
June 30, 2016
,
4.2 million
OP Units and their related income are not included in the diluted earnings per share calculations as they are not dilutive.
(2)
For the
three
months ended
June 30, 2016
,
0.2 million
potentially dilutive securities and their related income are not included in the diluted earnings per share calculations as they are not dilutive.
4. Earnings per OP Unit of MAALP
Basic earnings per OP 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 OP unit. Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units. A reconciliation of the numerators and denominators of the basic and diluted earnings per OP Unit computations for the
three and six
months ended
June 30, 2017
and
2016
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars and units in thousands, except per unit amounts)
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Units Outstanding
|
|
|
|
|
|
|
|
|
Weighted average common units - basic
|
117,619
|
|
|
79,436
|
|
|
117,589
|
|
|
79,424
|
|
|
Effect of dilutive securities
|
211
|
|
|
—
|
|
(1)
|
279
|
|
|
239
|
|
|
Weighted average common units - diluted
|
117,830
|
|
|
79,436
|
|
|
117,868
|
|
|
79,663
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings per Unit - basic
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
$
|
50,155
|
|
|
$
|
47,630
|
|
|
$
|
93,571
|
|
|
$
|
93,438
|
|
|
Unvested restricted stock (allocation of earnings)
|
(76
|
)
|
|
(134
|
)
|
|
(149
|
)
|
|
(237
|
)
|
|
Preferred unit distributions
|
(922
|
)
|
|
—
|
|
|
(1,844
|
)
|
|
—
|
|
|
Net income available for common unitholders, adjusted
|
$
|
49,157
|
|
|
$
|
47,496
|
|
|
$
|
91,578
|
|
|
$
|
93,201
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units - basic
|
117,619
|
|
|
79,436
|
|
|
117,589
|
|
|
79,424
|
|
|
Earnings per common unit - basic
|
$
|
0.42
|
|
|
$
|
0.60
|
|
|
$
|
0.78
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Earnings per Unit - diluted
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
$
|
50,155
|
|
|
$
|
47,630
|
|
|
$
|
93,571
|
|
|
$
|
93,438
|
|
|
Unvested restricted stock (allocation of earnings)
|
—
|
|
|
(134
|
)
|
(1)
|
—
|
|
|
—
|
|
|
Preferred unit distributions
|
(922
|
)
|
|
—
|
|
|
(1,844
|
)
|
|
—
|
|
|
Net income available for common unitholders, adjusted
|
$
|
49,233
|
|
|
$
|
47,496
|
|
|
$
|
91,727
|
|
|
$
|
93,438
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units - diluted
|
117,830
|
|
|
79,436
|
|
|
117,868
|
|
|
79,663
|
|
|
Earnings per common unit - diluted
|
$
|
0.42
|
|
|
$
|
0.60
|
|
|
$
|
0.78
|
|
|
$
|
1.17
|
|
|
(1)
For the
three
months ended
June 30, 2016
,
0.2 million
potentially dilutive securities and their related income are not included in the diluted earnings per share calculations as they are not dilutive.
5. MAA Equity
Changes in total equity and its components for the
six-month periods
ended
June 30, 2017
and
2016
were as follows (dollars in thousands, except per share and per unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Apartment Communities, Inc. Shareholders' Equity
|
|
|
|
|
|
|
|
Preferred Stock Amount
|
|
Common
Stock
Amount
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Distributions
in Excess of
Net Income
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Noncontrolling
Interest Operating Partnership
|
|
Noncontrolling Interest - Consolidated Real Estate Entity
|
|
Total
Equity
|
EQUITY BALANCE DECEMBER 31, 2016
|
$
|
9
|
|
|
$
|
1,133
|
|
|
$
|
7,109,012
|
|
|
$
|
(707,479
|
)
|
|
$
|
1,144
|
|
|
$
|
235,976
|
|
|
$
|
2,306
|
|
|
$
|
6,642,101
|
|
Net income attributable to controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
90,220
|
|
|
—
|
|
|
3,351
|
|
|
—
|
|
|
93,571
|
|
Other comprehensive income - derivative instruments (cash flow hedges)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(409
|
)
|
|
(16
|
)
|
|
—
|
|
|
(425
|
)
|
Issuance and registration of common shares
|
—
|
|
|
1
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Issuance and registration of preferred shares
|
—
|
|
|
—
|
|
|
2,007
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,007
|
|
Shares repurchased and retired
|
—
|
|
|
—
|
|
|
(4,782
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,782
|
)
|
Exercise of stock options
|
—
|
|
|
—
|
|
|
218
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
218
|
|
Shares issued in exchange for common units
|
—
|
|
|
—
|
|
|
265
|
|
|
—
|
|
|
—
|
|
|
(265
|
)
|
|
—
|
|
|
—
|
|
Shares issued in exchange for redeemable stock
|
—
|
|
|
—
|
|
|
1,482
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,482
|
|
Redeemable stock fair market value adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(719
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(719
|
)
|
Adjustment for noncontrolling interest ownership in operating partnership
|
—
|
|
|
—
|
|
|
123
|
|
|
—
|
|
|
—
|
|
|
(123
|
)
|
|
—
|
|
|
—
|
|
Amortization of unearned compensation
|
—
|
|
|
—
|
|
|
5,739
|
|
|
(114
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,625
|
|
Dividends on preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,844
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,844
|
)
|
Dividends on common stock ($1.74 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(197,680
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(197,680
|
)
|
Dividends on noncontrolling interest units ($1.74 per unit)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,328
|
)
|
|
—
|
|
|
(7,328
|
)
|
EQUITY BALANCE JUNE 30, 2017
|
$
|
9
|
|
|
$
|
1,134
|
|
|
$
|
7,114,079
|
|
|
$
|
(817,616
|
)
|
|
$
|
735
|
|
|
$
|
231,595
|
|
|
$
|
2,306
|
|
|
$
|
6,532,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Apartment Communities, Inc. Shareholders' Equity
|
|
|
|
|
|
|
|
|
Preferred Stock Amount
|
|
Common
Stock
Amount
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Distributions
in Excess of
Net Income
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Noncontrolling
Interest Operating Partnership
|
|
Noncontrolling Interest - Consolidated Real Estate Entity
|
|
Total
Equity
|
EQUITY BALANCE DECEMBER 31, 2015
|
|
$
|
—
|
|
|
$
|
753
|
|
|
$
|
3,627,074
|
|
|
$
|
(634,141
|
)
|
|
$
|
(1,589
|
)
|
|
$
|
165,726
|
|
|
$
|
—
|
|
|
$
|
3,157,823
|
|
Net income attributable to controlling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88,557
|
|
|
—
|
|
|
4,881
|
|
|
—
|
|
|
93,438
|
|
Other comprehensive loss - derivative instruments (cash flow hedges)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,561
|
)
|
|
(141
|
)
|
|
—
|
|
|
(2,702
|
)
|
Issuance and registration of common shares
|
|
—
|
|
|
1
|
|
|
185
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
186
|
|
Shares repurchased and retired
|
|
—
|
|
|
—
|
|
|
(1,742
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,742
|
)
|
Shares issued in exchange for common units
|
|
—
|
|
|
—
|
|
|
158
|
|
|
—
|
|
|
—
|
|
|
(158
|
)
|
|
—
|
|
|
—
|
|
Shares issued in exchange for redeemable stock
|
|
—
|
|
|
—
|
|
|
123
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
123
|
|
Redeemable stock fair market value adjustment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,518
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,518
|
)
|
Adjustment for noncontrolling interest ownership in operating partnership
|
|
—
|
|
|
—
|
|
|
(87
|
)
|
|
—
|
|
|
—
|
|
|
87
|
|
|
—
|
|
|
—
|
|
Amortization of unearned compensation
|
|
—
|
|
|
—
|
|
|
4,383
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,383
|
|
Dividends on common stock ($1.64 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(123,852
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(123,852
|
)
|
Dividends on noncontrolling interest units ($1.64 per unit)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,820
|
)
|
|
—
|
|
|
(6,820
|
)
|
EQUITY BALANCE JUNE 30, 2016
|
|
$
|
—
|
|
|
$
|
754
|
|
|
$
|
3,630,094
|
|
|
$
|
(670,954
|
)
|
|
$
|
(4,150
|
)
|
|
$
|
163,575
|
|
|
$
|
—
|
|
|
$
|
3,119,319
|
|
6. MAALP Capital
Changes in total capital and its components for the
six-month periods
ended
June 30, 2017
and
2016
were as follows (dollars in thousands, except per unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Apartments, L.P. Unitholders' Capital
|
|
|
|
|
|
Limited Partner
|
|
General Partner
|
|
Preferred Units
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Noncontrolling Interest - Consolidated Real Estate Entity
|
|
Total Partnership Capital
|
CAPITAL BALANCE DECEMBER 31, 2016
|
$
|
235,976
|
|
|
$
|
6,337,721
|
|
|
$
|
64,833
|
|
|
$
|
1,246
|
|
|
$
|
2,306
|
|
|
$
|
6,642,082
|
|
Net income attributable to controlling interest
|
3,351
|
|
|
88,376
|
|
|
1,844
|
|
|
—
|
|
|
—
|
|
|
93,571
|
|
Other comprehensive income - derivative instruments (cash flow hedges)
|
—
|
|
|
—
|
|
|
—
|
|
|
(425
|
)
|
|
—
|
|
|
(425
|
)
|
Issuance of units
|
—
|
|
|
16
|
|
|
2,007
|
|
|
—
|
|
|
—
|
|
|
2,023
|
|
Units repurchased and retired
|
—
|
|
|
(4,782
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,782
|
)
|
Exercise of unit options
|
—
|
|
|
218
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
218
|
|
General partner units issued in exchange for limited partner units
|
(265
|
)
|
|
265
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Units issued in exchange for redeemable units
|
—
|
|
|
1,482
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,482
|
|
Redeemable units fair market value adjustment
|
—
|
|
|
(719
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(719
|
)
|
Adjustment for limited partners' capital at redemption value
|
(139
|
)
|
|
139
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of unearned compensation
|
—
|
|
|
5,625
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,625
|
|
Distributions to preferred unitholders
|
—
|
|
|
—
|
|
|
(1,844
|
)
|
|
—
|
|
|
—
|
|
|
(1,844
|
)
|
Distributions ($1.74 per unit)
|
(7,328
|
)
|
|
(197,680
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(205,008
|
)
|
CAPITAL BALANCE JUNE 30, 2017
|
$
|
231,595
|
|
|
$
|
6,230,661
|
|
|
$
|
66,840
|
|
|
$
|
821
|
|
|
$
|
2,306
|
|
|
$
|
6,532,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-America Apartments, L.P. Unitholders' Capital
|
|
|
|
|
|
Limited Partner
|
|
General Partner
|
|
Preferred Units
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Noncontrolling Interest - Consolidated Real Estate Entity
|
|
Total Partnership Capital
|
CAPITAL BALANCE DECEMBER 31, 2015
|
$
|
165,726
|
|
|
$
|
2,993,696
|
|
|
$
|
—
|
|
|
$
|
(1,618
|
)
|
|
$
|
—
|
|
|
$
|
3,157,804
|
|
Net income attributable to controlling interest
|
4,881
|
|
|
88,557
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
93,438
|
|
Other comprehensive loss - derivative instruments (cash flow hedges)
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,702
|
)
|
|
—
|
|
|
(2,702
|
)
|
Issuance of units
|
—
|
|
|
186
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
186
|
|
Units repurchased and retired
|
—
|
|
|
(1,742
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,742
|
)
|
General partner units issued in exchange for limited partner units
|
(158
|
)
|
|
158
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Units issued in exchange for redeemable units
|
—
|
|
|
123
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
123
|
|
Redeemable units fair market value adjustment
|
—
|
|
|
(1,518
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,518
|
)
|
Adjustment for limited partners' capital at redemption value
|
(54
|
)
|
|
54
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of unearned compensation
|
—
|
|
|
4,383
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,383
|
|
Distributions ($1.64 per unit)
|
(6,820
|
)
|
|
(123,852
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(130,672
|
)
|
CAPITAL BALANCE JUNE 30, 2016
|
$
|
163,575
|
|
|
$
|
2,960,045
|
|
|
$
|
—
|
|
|
$
|
(4,320
|
)
|
|
$
|
—
|
|
|
$
|
3,119,300
|
|
7. Borrowings
The weighted average interest rate at
June 30, 2017
for the
$4.6 billion
of debt outstanding was
3.6%
, compared to the weighted average interest rate of
3.5%
on
$4.5 billion
of debt outstanding at
December 31, 2016
. Our debt consists of an unsecured revolving credit facility, unsecured term loans, senior unsecured notes, a secured credit facility with Fannie Mae, and secured property mortgages. We utilize fixed rate borrowings, interest rate swaps, and interest rate caps to manage our current and future interest rate risk. More details on our borrowings can be found in the schedules presented later in this Note 7.
At
June 30, 2017
, we had
$3.0 billion
of senior unsecured notes and term loans fixed at an average interest rate of
3.8%
,
$300.0 million
of variable rate term loans with an average interest rate of
2.0%
, and a
$1.0 billion
variable rate revolving credit facility with an average interest rate of
2.1%
with
$160.0 million
borrowed at
June 30, 2017
. Additionally, we had
$110.0 million
of secured variable rate debt outstanding at an average interest rate of
1.6%
and
$50.0 million
of capped secured variable rate debt
at an average interest rate of
1.6%
. The interest rate on all other secured debt, totaling
$970.0 million
, was hedged or fixed at an average interest rate of
3.6%
.
Unsecured Revolving Credit Facility
We maintain a
$1.0 billion
unsecured credit facility with a syndicate of banks led by KeyBank National Association, or the KeyBank Facility. The KeyBank Facility includes an expansion option up to
$1.5 billion
. The KeyBank Facility bears an interest rate of LIBOR plus a spread of
0.85%
to
1.55%
based on an investment grade pricing grid and is currently bearing interest at
2.13%
. The KeyBank Facility expires in April 2020 with an option to extend for an additional six months. At
June 30, 2017
, we had
$160.0 million
actually borrowed under this facility, and another approximately
$2.3 million
of the facility used to support letters of credit.
Unsecured Term Loans
We also maintain four term loans with a syndicate of banks, one led by KeyBank National Association, or KeyBank, two by Wells Fargo Bank, N.A., or Wells Fargo, and one by U.S. Bank National Association, or U.S. Bank, respectively. The KeyBank term loan has a balance of
$150.0 million
, matures in 2021, and has a variable interest rate of LIBOR plus a spread of
0.90%
to
1.75%
based on our credit ratings. The Wells Fargo term loans have balances of
$250.0 million
and
$300.0 million
, respectively, mature in 2018 and 2022, respectively, and have variable interest rates of LIBOR plus a spread of
0.90
% to
1.90
% and
0.90%
to
1.75
%, respectively. The U.S. Bank term loan has a balance of
$150.0 million
, matures in 2020, and has a variable interest rate of LIBOR plus a spread of
0.90%
to
1.90%
based on our credit ratings.
Senior Unsecured Notes
As of
June 30, 2017
, we had approximately
$2.2 billion
(face value) of publicly issued notes and
$310 million
of private placement notes. These senior unsecured notes had maturities at issuance ranging from
five
to
twelve years
, averaging
6.9
years remaining until maturity as of
June 30, 2017
.
On May 9, 2017, the Operating Partnership publicly issued
$600.0 million
in aggregate principal amount of notes, maturing on June 1, 2027 with an interest rate of
3.60%
per annum, or the 2027 Notes. The purchase price paid by the initial purchasers was
99.58%
of the principal amount. The 2027 Notes are general unsecured senior obligations of the Operating Partnership and rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership. Interest on the 2027 Notes is payable on June 1 and December 1 of each year, beginning on December 1, 2017. The net proceeds from the offering, after deducting the original issue discount of approximately
$2.5
million and underwriting commissions and expenses of approximately
$3.9
million, were approximately
$593.6
million. The 2027 Notes have been reflected net of discount and debt issuance costs in the Condensed Consolidated Balance Sheet. In connection with the issuance of the 2027 Notes, we cash settled
$300
million in forward interest rate swap agreements, entered into earlier in the year to effectively lock the interest rate on the planned transaction, which produced an effective interest rate of
3.68%
over the ten year life of the 2027 Notes.
Secured Credit Facility
We maintain a
$160.0 million
secured credit facility with Prudential Mortgage Capital, which is credit enhanced by Fannie Mae, or the Fannie Mae Facility. The Fannie Mae Facility has maturities from 2017 through 2018. Borrowings under the Fannie Mae Facility totaled
$160.0 million
at
June 30, 2017
, all of which was variable rate at an average interest rate of
1.6%
. The available borrowing capacity at
June 30, 2017
was
$160.0 million
.
Secured Property Mortgages
At
June 30, 2017
, we had
$1.0 billion
of fixed rate conventional property mortgages with an average interest rate of
4.0%
and an average maturity in 2019.
On February 7, 2017, we paid off a
$15.8 million
mortgage associated with the Grand Cypress apartment community. The loan was scheduled for maturity in August 2017.
On May 31, 2017, we paid off a
$156.4
million mortgage associated with the following apartment communities: CG at Edgewater, CG at Madison, CG at Seven Oaks, CG at Town Park, CG at Barrett Creek, CG at River Oaks, and CG at Huntersville. The loan was scheduled for maturity in June 2019.
In addition to these payoffs, we paid
$6.0 million
associated with property mortgage principal amortizations during the
six months ended June 30, 2017
.
Guarantees
MAA fully and unconditionally guarantees the following debt incurred by the Operating Partnership:
|
|
•
|
$160.0 million
of the Fannie Mae Facility, of which
$160.0 million
has been borrowed as of
June 30, 2017
; and
|
|
|
•
|
$310.0 million
of the privately placed senior unsecured notes, all of which has been borrowed as of
June 30, 2017
.
|
Total Outstanding Debt
The following table summarizes our indebtedness at
June 30, 2017
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Borrowed
Balance
|
|
Effective
Rate
|
|
Average Contract
Maturity
|
Fixed Rate Secured Debt
|
|
|
|
|
|
Individual property mortgages
|
$
|
950,145
|
|
|
4.0
|
%
|
|
9/2/2019
|
Total fixed rate secured debt
|
$
|
950,145
|
|
|
4.0
|
%
|
|
9/2/2019
|
|
|
|
|
|
|
Variable Rate Secured Debt
(1)
|
|
|
|
|
|
|
|
Fannie Mae conventional credit facility
|
160,000
|
|
|
1.6
|
%
|
|
6/1/2018
|
Total variable rate secured debt
|
$
|
160,000
|
|
|
1.6
|
%
|
|
6/1/2018
|
|
|
|
|
|
|
Fair market value adjustments and debt issuance costs
|
19,851
|
|
|
|
|
|
Total Secured Debt
|
$
|
1,129,996
|
|
|
3.6
|
%
|
|
6/27/2019
|
|
|
|
|
|
|
Unsecured Debt
|
|
|
|
|
|
|
|
Variable rate revolving credit facility
|
160,000
|
|
|
2.1
|
%
|
|
4/15/2020
|
Variable rate term loan
|
300,000
|
|
|
2.0
|
%
|
|
8/29/2020
|
Term loans fixed with swaps
|
550,000
|
|
|
3.1
|
%
|
|
4/17/2018
|
Fixed rate bonds
|
2,460,000
|
|
|
4.0
|
%
|
|
5/20/2024
|
Fair market value adjustments, debt issuance costs and discounts
|
(26,944
|
)
|
|
|
|
|
Total Unsecured Debt
|
$
|
3,443,056
|
|
|
3.6
|
%
|
|
11/20/2022
|
|
|
|
|
|
|
Total Outstanding Debt
|
$
|
4,573,052
|
|
|
3.6
|
%
|
|
12/29/2021
|
(1)
Includes capped balances.
8. Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future contractual and forecasted cash amounts, principally related to our borrowings, the value of which are determined by changing interest rates, related cash flows and other factors.
Cash Flow Hedges of Interest Rate Risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we use interest rate swaps and interest rate caps as part of our interest rate
risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the
three and six
months ended
June 30, 2017
and
2016
, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of fixed-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.
During the
three months ended June 30, 2017
and
2016
, we recorded ineffectiveness of
$11,000
(increase to interest expense) and
$120,000
(increase to interest expense), respectively, and during the
six months ended June 30, 2017
and
2016
, we recorded ineffectiveness of
$14,000
(increase to interest expense) and
$163,000
(increase to interest expense), respectively, mainly attributable to a mismatch in the underlying indices of the derivatives and the hedged interest payments made on our variable-rate debt and due to the designation of acquired interest rate swaps with a non-zero fair value at inception.
Amounts reported in "Accumulated other comprehensive income" related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate or fixed-rate debt. During the next twelve months, we estimate that an additional
$130,000
will be reclassified to earnings as an
increase
to Interest expense, which primarily represents the difference between our fixed interest rate swap payments and the projected variable interest rate swap receipts.
As of
June 30, 2017
, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
Interest Rate Derivative
|
|
Number of Instruments
|
|
Notional Amount
|
Interest Rate Caps
|
|
2
|
|
$
|
50,000,000
|
|
Interest Rate Swaps
|
|
10
|
|
$
|
550,000,000
|
|
The fair value of our interest rate derivatives designated as hedging instruments at
June 30, 2017
included
$1.9 million
of asset derivatives reported in Other assets and
$3.6 million
of liability derivatives reported in the Fair market value of interest rate swaps in the Condensed Consolidated Balance Sheet. The fair value of our interest rate derivatives designated as hedging instruments at
December 31, 2016
included
$2.4 million
of asset derivatives reported in "Other assets" and
$7.6 million
of liability derivatives reported in "Fair market value of interest rate swaps" in the Condensed Consolidated Balance Sheet.
Bifurcated Embedded Derivatives
Additionally, as a result of the Merger (see Note 2), on December 1, 2016, we issued
867,846
shares of MAA Series I preferred stock as consideration. These shares are redeemable, at our option, on and after October 1, 2026, at the redemption price per share of
$50
(see Note 10).
This redemption feature embedded in the MAA Series I preferred stock was evaluated in accordance with ASC 815,
Derivatives and Hedging
, and we determined that we were required to bifurcate the value associated with this feature from its host instrument, the perpetual preferred shares, and account for it as a freestanding derivative on the balance sheet at fair value as a result of the call option.
Thus, the redemption feature embedded in the MAA Series I preferred stock is reported as a derivative asset in "Other assets" on the accompanying Condensed Consolidated Balance Sheets and is adjusted to its fair value at each reporting date, with a corresponding adjustment to Other non-property income or expense. The embedded derivative for these preferred shares was initially recorded at a fair value of
$10.8 million
at the date of the Merger and as of December 31, 2016 and then subsequently adjusted to fair value of
$14.1 million
at
June 30, 2017
. This
$3.3 million
year-to-date increase includes a purchase price allocation adjustment of
$1.6 million
related to the Merger opening balance sheet date, which was recorded in the
six months ended
June 30, 2017
, as well as
$1.7 million
year-to-date mark to market adjustments to record the change in fair value of the derivative asset in the
six months ended
June 30, 2017
.
Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Statements of Operations for the
three and six
months ended
June 30, 2017
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Amount of Gain or (Loss)
Recognized in
OCI on Derivative
(Effective Portion)
|
|
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
|
|
Amount of (Loss)
Reclassified from
Accumulated
OCI into Interest Expense
(Effective Portion)
|
|
Location of
(Loss) Recognized in
Income on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
|
|
Amount of (Loss) Recognized in Interest Expense (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
|
Three months ended June 30,
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(3,863
|
)
|
|
$
|
(1,314
|
)
|
|
Interest Expense
|
|
$
|
(246
|
)
|
|
$
|
(1,131
|
)
|
|
Interest Expense
|
|
$
|
(11
|
)
|
|
$
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
(1,343
|
)
|
|
$
|
(5,019
|
)
|
|
Interest Expense
|
|
$
|
(918
|
)
|
|
$
|
(2,317
|
)
|
|
Interest Expense
|
|
$
|
(14
|
)
|
|
$
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss Recognized in Income on Derivative
|
|
Amount of Loss Recognized in Income on Derivative
|
Three months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock embedded derivative
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other non-property income
|
|
$
|
(633
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock embedded derivative
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other non-property income
|
|
$
|
1,720
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-Risk-Related Contingent Features
As of
June 30, 2017
, derivatives that were in a net liability position and subject to credit-risk-related contingent features had a termination value of
$3.8 million
, which included accrued interest but excluded any adjustment for nonperformance risk. These derivatives had a fair value, gross of asset positions, of
$3.6 million
at
June 30, 2017
.
Certain of our derivative contracts contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of
June 30, 2017
, we had not breached the provisions of these agreements. If we had breached these provisions, we could have been required to settle our obligations under the agreements at the termination value of
$3.8 million
.
Although our derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on the Condensed Consolidated Balance Sheets.
We did not have any asset or liability derivative balances that were offsetting that would have resulted in reported net derivative balances differing from the recorded gross amount of derivative assets of
$1.9 million
and
$2.4 million
(excluding the preferred stock embedded derivative) as of
June 30, 2017
and
December 31, 2016
, respectively, in addition to gross recorded derivative liabilities of
$3.6 million
and
$7.6 million
as of
June 30, 2017
and
December 31, 2016
, respectively.
Other Comprehensive Income
MAA's other comprehensive income consists entirely of gains and losses attributable to the effective portion of our cash flow hedges. The chart below shows the change in the balance for the
six months ended June 30, 2017
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component
|
|
|
Affected Line Item in the Condensed Consolidated Statements Of Operations
|
|
Gains and Losses on Cash Flow Hedges
|
For the six months ended June 30,
|
|
|
2017
|
|
2016
|
Beginning balance
|
|
|
|
$
|
1,144
|
|
|
$
|
(1,589
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
|
(1,343
|
)
|
|
(5,019
|
)
|
Amounts reclassified from accumulated other comprehensive income (interest rate contracts)
|
|
Interest expense
|
|
918
|
|
|
2,317
|
|
Net current-period other comprehensive (loss) income attributable to noncontrolling interests
|
|
|
|
16
|
|
|
141
|
|
Net current-period other comprehensive income (loss) attributable to MAA
|
|
|
|
(409
|
)
|
|
(2,561
|
)
|
Ending balance
|
|
|
|
$
|
735
|
|
|
$
|
(4,150
|
)
|
See also discussions in Note 9 (Fair Value Disclosure of Financial Instruments) to the Condensed Consolidated Financial Statements.
9. Fair Value Disclosure of Financial Instruments
Cash and cash equivalents, restricted cash, accounts payable, accrued expenses and other liabilities and security deposits are carried at amounts that reasonably approximate their fair value due to their short term nature.
We apply Financial Accounting Standard Board, or FASB, ASC 820
Fair Value Measurements and Disclosures,
or ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.
ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Fixed rate notes payable at
June 30, 2017
and
December 31, 2016
, totaled
$3.40 billion
and
$3.00 billion
, respectively, and had estimated fair values of
$3.55 billion
and
$3.13 billion
(excluding prepayment penalties), respectively, as of
June 30, 2017
and
December 31, 2016
. The carrying values of variable rate notes payable (excluding the effect of interest rate swap and cap agreements) at
June 30, 2017
and
December 31, 2016
, totaled
$1.2 billion
and
$1.5 billion
, respectively, and had estimated fair values of
$1.2 billion
and
$1.5 billion
(excluding prepayment penalties), respectively, as of
June 30, 2017
and
December 31, 2016
. The valuation of our debt is determined using widely accepted valuation techniques, including discounted cash flow
analysis on the expected cash flows of each debt instrument. This analysis reflects the contractual terms of the debt, and uses observable market-based inputs, including interest rate curves and credit spreads. 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. Our variable rates reset every
30
to
90
days and we conclude that these rates reasonably estimate current market rates. We have determined that inputs used to value our debt fall within Level 2 of the fair value hierarchy and therefore our fair market valuation of debt is considered Level 2 in the fair value hierarchy.
Financial Instruments Carried at Fair Value
Currently, we use interest rate swaps and interest rate caps (options)
to manage our interest rate
risk.
The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. 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.
The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. In conjunction with the FASB's fair value measurement guidance, we made an accounting policy election to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
The derivative asset related to the redemption feature embedded in the MAA Series I preferred stock issued in connection with Merger is valued using widely accepted valuation techniques, including discounted cash flow analysis in which the perpetual value of the preferred shares is compared to the value with the call option giving the value of the bifurcated call option as the difference between the two values. This analysis reflects the contractual terms of the redeemable preferred shares, redeemable at the Company's option, on
October 1, 2026
, reflecting the redemption price per share,
$50
, as the price at which the preferred stock is redeemable. The analysis uses observable market-based inputs, including discount rates based on trading data available on the preferred shares to interpolate an as called value and adjusted based treasury rates to determine the present value of cash flows for the called value and the perpetual value in addition to market data available on the preferred shares to interpolate an as called value and discount rate and again adjusted from there to determine the perpetual discount rate using the applicable treasury rates.
We have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, and as a result, all of our derivatives held as of
June 30, 2017
and
December 31, 2016
were classified as Level 2 in the fair value hierarchy.
The table below presents our assets and liabilities measured at fair value on a recurring basis as of
June 30, 2017
and
December 31, 2016
, aggregated by the level in the fair value hierarchy within which those measurements fall.
Assets and Liabilities Measured at Fair Value on a Recurring Basis at
June 30, 2017
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Balance at June 30, 2017
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivative contracts
|
Other assets
|
$
|
—
|
|
|
$
|
1,897
|
|
|
$
|
—
|
|
|
$
|
1,897
|
|
Preferred Stock embedded derivative
|
Other assets
|
—
|
|
|
14,083
|
|
|
—
|
|
|
14,083
|
|
Total
|
|
$
|
—
|
|
|
$
|
15,980
|
|
|
$
|
—
|
|
|
$
|
15,980
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest derivative rate contracts
|
Fair market value of interest rate swaps
|
$
|
—
|
|
|
$
|
3,626
|
|
|
$
|
—
|
|
|
$
|
3,626
|
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis at
December 31, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Balance at December 31, 2016
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivative contracts
|
Other assets
|
$
|
—
|
|
|
$
|
2,364
|
|
|
$
|
—
|
|
|
$
|
2,364
|
|
Preferred Stock embedded derivative
|
Other assets
|
—
|
|
|
10,783
|
|
|
—
|
|
|
10,783
|
|
Total
|
|
$
|
—
|
|
|
$
|
13,147
|
|
|
$
|
—
|
|
|
$
|
13,147
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest derivative rate contracts
|
Fair market value of interest rate swaps
|
$
|
—
|
|
|
$
|
7,562
|
|
|
$
|
—
|
|
|
$
|
7,562
|
|
The fair value estimates presented herein are based on information available to management as of
June 30, 2017
and
December 31, 2016
. These estimates are not necessarily indicative of the amounts we could ultimately realize. See also discussions in Note 8 (Derivatives and Hedging Activities) to the Condensed Consolidated Financial Statements.
10. Shareholders' Equity of MAA
On
June 30, 2017
,
113,607,734
shares of common stock of MAA and
4,215,678
OP Units in the Operating Partnership (excluding the OP Units held by MAA) were issued and outstanding, representing a total of
117,823,412
common shares and units. At
June 30, 2016
,
75,524,086
shares of common stock of MAA and
4,159,003
OP Units in the Operating Partnership (excluding OP Units held by MAA) were issued and outstanding, representing a total of
79,683,089
common shares and units. There were
108,438
options to acquire shares of MAA common stock outstanding as of
June 30, 2017
compared to
39,084
outstanding options as of
June 30, 2016
.
During the
six months ended June 30, 2017
,
47,956
shares of MAA common stock were acquired from employees to satisfy minimum tax withholding obligations that arose upon vesting of restricted stock granted pursuant to approved plans. During the
six months ended June 30, 2016
,
18,988
shares were acquired for that purpose. During the
six
months ended
June 30, 2017
, we issued
10,340
shares related to the exercise of stock options. These exercises resulted in proceeds of
$0.4 million
. During the
six months ended June 30, 2016
there were
no
stock options exercised.
Preferred Stock
As of
June 30, 2017
, 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
|
|
|
|
|
(per share)
|
|
|
|
(per share)
|
|
(per share)
|
|
(per share)
|
Series I
|
|
867,846
|
|
$50.00
|
|
10/1/2026
|
|
$50.00
|
|
8.50%
|
|
$4.25
|
(1)
The total liquidation preference for 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.
11. Partners' Capital of MAALP
Operating Partnership Units
Interests in MAALP are represented by OP Units. As of
June 30, 2017
, there were
117,823,412
OP Units outstanding,
113,607,734
or
96.4%
of which were owned by MAA, MAALP's general partner. The remaining
4,215,678
OP Units were owned by non-affiliated limited partners, or Class A Limited Partners. As of
June 30, 2016
, there were
79,683,089
OP Units outstanding,
75,524,086
or
94.8%
of which were owned by MAA and
4,159,003
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 the Operating Partnership subject to the restrictions specifically contained within the Operating Partnership'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 the Operating Partnership's assets; and distribution of Operating Partnership 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. MAA may delegate these and other powers granted if MAA, the general partner, remains in supervision of the designee.
Under the Partnership Agreement, the Operating Partnership may issue Class A Units and Class B Units. Class A Units may only be held by limited partners who are not affiliated with MAA, in its capacity as general partner of the Operating Partnership, while Class B Units may only be held by MAA, in its capacity as general partner of the Operating Partnership, and as of
June 30, 2017
, a total of
4,215,678
Class A Units in the Operating Partnership were held by limited partners unaffiliated with MAA, while a total of
113,607,734
Class B Units were held by MAA. In general, the limited partners do not have the power to participate in the management or control of the Operating Partnership'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 Units is also limited by the Partnership Agreement.
Net income (after allocations to preferred ownership interests) is allocated to the general partner and limited partners based on their respective ownership percentages of the Operating Partnership. Issuance or redemption of additional Class A Units or Class B Units changes the relative ownership percentage of the partners. The issuance of Class B Units generally occurs when MAA issues common stock and the proceeds from that issuance are contributed to the Operating Partnership 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, the Operating Partnership generally redeems an equal number of Class B 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 the Operating Partnership. Holders of the Class A Units may require MAA to redeem their Class A Units, in which case MAA may, at its option, pay the redemption price either in cash (in an amount per Class A Unit equal, in general, to the average closing price of MAA's common stock on the New York Stock Exchange 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 Unit so redeemed.
At
June 30, 2017
, a total of
4,215,678
Class A Units were outstanding and redeemable for
4,215,678
shares of MAA common stock, with an approximate value of
$444.2 million
, based on the closing price of MAA’s common stock on the New York Stock Exchange, or NYSE, on
June 30, 2017
of
$105.38
per share. At
June 30, 2016
, a total of
4,159,003
Class A Units were outstanding and redeemable for
4,159,003
shares of MAA common stock, with an approximate value of
$442.5 million
, based on the closing price of MAA’s common stock on the NYSE on
June 30, 2016
of
$106.40
per share.
The Operating Partnership pays the same per unit distribution in respect to the OP Units as the per share dividend MAA pays in respect to its common stock.
12. Legal Proceedings
In September 2010, the United States Department of Justice, or DOJ, filed suit against Post Properties (and by virtue of the Merger, MAA) in the United States District Court for the District of Columbia alleging that certain of Post Properties’ apartments violated accessibility requirements of the Fair Housing Act, or FHA, and the Americans with Disabilities Act of 1990, or ADA. The DOJ is seeking, among other things, an injunction against MAA, requiring MAA to retrofit the properties and comply with FHA and ADA standards in future design and construction, as well as monetary damages and civil penalties. No trial date has been set.
We are subject to various legal proceedings and claims that arise in the ordinary course of our 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 currently believes the final outcome of such matters will not have any additional material adverse effect on our financial position, results of operations or cash flows.
Loss Contingencies
The outcomes of the claims, disputes and legal proceedings described or referenced above are subject to significant uncertainty. We record an accrual for loss contingencies when a loss is probable and the amount of the loss can be reasonably estimated. We review these accruals quarterly and make revisions based on changes in facts and circumstances. When a loss contingency is not both probable and reasonably estimable, we do 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 we disclose a reasonable estimate of the possible loss, or range of loss, if such reasonable estimate can be made. If we 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 that we consider in this assessment, including with respect to the matters disclosed in this Note, 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, our experience in similar matters, the facts available to us at the time of assessment, and how we intend to respond, or have responded, to the proceeding or claim. Our assessment of these factors may change over time as individual proceedings or claims progress. For matters where we are 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 expected ultimately to be resolved through negotiation and settlement have not reached the point where we believe a reasonable estimate of loss, or range of loss, can be made. In such instances, we believe 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
June 30, 2017
and
December 31, 2016
, the Company's accrual for loss contingencies was
$38.9 million
and
$42.1 million
in the aggregate, respectively.
13. Segment Information
As of
June 30, 2017
, we owned or had ownership interest in
305
multifamily apartment communities in
16
different states and the District of Columbia from which we derived all significant sources of earnings and operating cash flows. Senior management evaluates performance and determines resource allocations of each of our apartment communities on a Large Market Same Store, Secondary Market 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 our apartment communities generally has similar economic characteristics, facilities, services, and tenants. The following are the three reportable operating segments for MAA and the Operating Partnership:
|
|
•
|
Large market same store communities are generally communities in markets with a population of at least
1 million
and at least
1%
of the total public multifamily REIT units that we have owned and have been stabilized for at least a full
12
months.
|
|
|
•
|
Secondary market same store communities are generally communities in markets with populations of more than
1 million
but less than
1%
of the total public multifamily REIT units or markets with populations of less than
1 million
that we have owned and have been stabilized for at least a full
12
months.
|
|
|
•
|
Non-same store communities and other includes recent acquisitions, communities in development or lease-up, communities that have been identified for disposition, and communities that have undergone a significant casualty loss. Also included in non-same store communities are non-multifamily activities.
|
On the first day of each calendar year, we determine the composition of our same store operating segments for that year as well as adjust the previous year, which allows us to evaluate full period-over-period operating comparisons. Properties in development or lease-up will be added to the same store portfolio on the first day of the calendar year after they have 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 our same store portfolio.
We utilize NOI in evaluating the performance of the 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. We believe NOI is a helpful tool in evaluating the operating performance of our segments because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance.
Note that all properties acquired from Post Properties have been placed in our Non-Same Store and Other operating segment, as the properties are recent acquisitions and have not been owned and stabilized for at least 12 months as of the first day of the current calendar year.
Revenues and NOI for each reportable segment for the
three- and six-
month periods ended
June 30, 2017
and
2016
were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
|
|
Large Market Same Store
|
$
|
167,712
|
|
|
$
|
162,487
|
|
|
$
|
333,971
|
|
|
$
|
322,679
|
|
Secondary Market Same Store
|
87,231
|
|
|
84,770
|
|
|
173,377
|
|
|
168,863
|
|
Non-Same Store and Other
|
127,848
|
|
|
24,979
|
|
|
254,351
|
|
|
49,710
|
|
Total operating revenues
|
$
|
382,791
|
|
|
$
|
272,236
|
|
|
$
|
761,699
|
|
|
$
|
541,252
|
|
|
|
|
|
|
|
|
|
NOI:
|
|
|
|
|
|
|
|
|
|
|
|
Large Market Same Store
|
$
|
104,098
|
|
|
$
|
101,108
|
|
|
$
|
208,845
|
|
|
$
|
200,635
|
|
Secondary Market Same Store
|
54,544
|
|
|
52,745
|
|
|
108,781
|
|
|
106,139
|
|
Non-Same Store and Other
|
78,180
|
|
|
15,428
|
|
|
156,831
|
|
|
30,642
|
|
Total NOI
|
236,822
|
|
|
169,281
|
|
|
474,457
|
|
|
337,416
|
|
Depreciation and amortization
|
(126,360
|
)
|
|
(75,742
|
)
|
|
(256,357
|
)
|
|
(150,870
|
)
|
Acquisition expenses
|
—
|
|
|
(421
|
)
|
|
—
|
|
|
(1,134
|
)
|
Property management expenses
|
(10,745
|
)
|
|
(8,310
|
)
|
|
(21,726
|
)
|
|
(17,313
|
)
|
General and administrative expenses
|
(9,534
|
)
|
|
(7,014
|
)
|
|
(22,374
|
)
|
|
(13,596
|
)
|
Merger related expenses
|
(978
|
)
|
|
—
|
|
|
(3,849
|
)
|
|
—
|
|
Integration costs
|
(3,229
|
)
|
|
—
|
|
|
(6,519
|
)
|
|
—
|
|
Interest and other non-property income
|
650
|
|
|
62
|
|
|
3,329
|
|
|
94
|
|
Interest expense
|
(38,481
|
)
|
|
(32,039
|
)
|
|
(75,065
|
)
|
|
(64,250
|
)
|
Gain on debt extinguishment/modification
|
2,217
|
|
|
—
|
|
|
2,340
|
|
|
3
|
|
Gain on sale of depreciable real estate assets
|
274
|
|
|
68
|
|
|
201
|
|
|
823
|
|
Net casualty (loss) gain after insurance and other settlement proceeds
|
(240
|
)
|
|
1,760
|
|
|
(331
|
)
|
|
813
|
|
Income tax expense
|
(618
|
)
|
|
(457
|
)
|
|
(1,269
|
)
|
|
(745
|
)
|
Gain on sale of non-depreciable real estate assets
|
48
|
|
|
543
|
|
|
48
|
|
|
2,170
|
|
Gain (loss) from real estate joint ventures
|
329
|
|
|
(101
|
)
|
|
686
|
|
|
27
|
|
Net income attributable to noncontrolling interests
|
(1,840
|
)
|
|
(2,486
|
)
|
|
(3,351
|
)
|
|
(4,881
|
)
|
Preferred Dividends
|
(922
|
)
|
|
—
|
|
|
(1,844
|
)
|
|
—
|
|
Net income available for MAA common shareholders
|
$
|
47,393
|
|
|
$
|
45,144
|
|
|
$
|
88,376
|
|
|
$
|
88,557
|
|
Assets for each reportable segment as of
June 30, 2017
and
December 31, 2016
, were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Assets:
|
|
|
|
Large Market Same Store
|
$
|
4,060,183
|
|
|
$
|
4,126,885
|
|
Secondary Market Same Store
|
1,741,902
|
|
|
1,768,183
|
|
Non-Same Store and Other
|
5,550,019
|
|
|
5,479,780
|
|
Corporate assets
|
182,025
|
|
|
229,643
|
|
Total assets
|
$
|
11,534,129
|
|
|
$
|
11,604,491
|
|
14. Real Estate Acquisitions and Dispositions
The following chart shows our acquisition activity for the
six months ended June 30, 2017
:
|
|
|
|
|
|
|
|
Community
|
|
Market
|
|
Units
|
|
Date Acquired
|
Charlotte at Midtown
|
|
Nashville, TN
|
|
279
|
|
March 16, 2017
|
The following chart shows our disposition activity for the
six months ended June 30, 2017
:
|
|
|
|
|
|
|
|
Community
|
|
Market
|
|
Acres
|
|
Date Sold
|
Lakewood Ranch - Outparcel
|
|
Tampa, FL
|
|
12
|
|
April 7, 2017
|
Post Alexander - Outparcel
|
|
Atlanta, GA
|
|
1
|
|
June 12, 2017
|
15. Recent Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements that could have a material effect on our financial statements:
|
|
|
|
|
Standard
|
Description
|
Date of Adoption
|
Effect on the Financial Statements or Other Significant Matters
|
ASU 2014-09,
Revenue from Contracts with Customers
|
This ASU establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services as outlined in a five-step model whereby revenue is recognized as performance obligations within a contract are satisfied. Income from lease contracts is specifically excluded from this ASU.
|
This ASU is effective for annual reporting periods beginning after December 15, 2017, as a result of a deferral of the effective date arising from the issuance of ASU 2015-14,
Revenue from Contracts with Customers - Deferral of the Effective Date
. Early adoption is permitted.
|
The amendments may be applied using the full retrospective transition method resulting in adjustments to each prior period presented as of the date of initial application or by using the modified retrospective transition method with a cumulative effect recognized as of the date of initial application. We currently expect to adopt ASU 2014-09 effective January 1, 2018, using the modified retrospective approach. We have identified our revenue streams and are in the process of evaluating the impact on our consolidated financial statements and internal accounting processes; however, the majority of our revenue is derived from real estate lease contracts.
|
ASU 2016-02,
Leases
|
This ASU amends existing accounting standards for lease accounting and establishes the principles for lease accounting for both the lessee and lessor. The amendment requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendment also requires certain quantitative and qualitative disclosures about leasing arrangements.
|
This ASU is effective for annual reporting periods beginning after December 15, 2018; however, early adoption is permitted.
|
The standard must be adopted using a modified retrospective transition and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently evaluating the impact this standard may have on our consolidated financial statements and related disclosures upon adoption.
|
ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
|
This ASU amends existing accounting standards for certain aspects of share-based payments to employees. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur.
|
This ASU is effective for annual reporting periods beginning after December 15, 2016. We adopted this guidance effective January 1, 2017.
|
We adopted this standard effective January 1, 2017, using the modified retrospective transition method, with a cumulative-effect adjustment to retained earnings, and there was no material effect on our consolidated financial position or results of operations taken as a whole.
|
|
|
|
|
|
Standard
|
Description
|
Date of Adoption
|
Effect on the Financial Statements or Other Significant Matters
|
ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
|
This ASU clarifies how several specific cash receipts and cash payments are to be presented and classified on the statement of cash flows, including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration made after a business combination, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of predominance principle.
|
This ASU is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted.
|
Each amendment in this standard must be applied prospectively, retrospectively, or as of the beginning of the earliest comparative period presented in the year of adoption, depending on the type of amendment. We expect to adopt ASU 2016-15 as of January 1, 2018, and we are currently evaluating the impact this standard may have on our consolidated financial statements upon adoption.
|
ASU 2016-18,
Statement of Cash Flows (Topic 230):Restricted Cash (A Consensus of the FASB Emerging Issues Task Force)
|
This ASU requires restricted cash to be presented with cash and cash equivalents when reconciling the beginning and ending amounts in the statements of cash flows.
|
This ASU is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted.
|
The update should be applied retrospectively to each period presented. We expect to adopt ASU 2016-18 as of January 1, 2018. We currently report the change in restricted cash within the operating and investing activities in our consolidated statement of cash flows. Upon adoption in Q1 2018, cash and cash equivalents reported in our consolidated statements of cash flows for the six months ended June 30, 2017 will increase by approximately $27.9 million to reflect the restricted cash balances. Additionally, net cash used in investing activities will decrease by $58.3 million for the six months ended June 30, 2017.
|
ASU 2017-01,
Clarifying the Definition of a Business (Topic 805)
|
This ASU clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business.
|
This ASU is effective for interim and annual periods beginning after December 15, 2017. We early adopted this standard effective January 1, 2017.
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We adopted this standard as of January 1, 2017 and the adoption did not require any additional disclosures. We believe most of our future acquisitions of operating properties will qualify as asset acquisitions and most future transaction costs associated with these acquisitions will be capitalized. Through the second quarter of 2017, acquisition costs totaling $0.6 million related to our acquisition of Charlotte at Midtown were capitalized and allocated to the assets acquired based on the relative fair market value of those underlying assets.
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16. Subsequent Events
Dispositions
During July 2017, we sold
three
multifamily properties that were classified as held for sale as of
June 30, 2017
. See Footnote 1, "Basis of Presentation and Principles of Consolidation and Significant Accounting Policies," for details on the held for sale classification of these properties. The following table lists the communities that were disposed during July 2017:
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Community
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Market
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Units
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Closing Date
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Operating Segment
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Paddock Club Lakeland
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Lakeland, FL
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464
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July 13, 2017
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Non-same store and other
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Paddock Club Montgomery
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Montgomery, AL
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208
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July 20, 2017
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Non-same store and other
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Northwood Place
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Arlington, TX
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270
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July 20, 2017
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Non-same store and other
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We expect to recognize total net gains on the sale of real estate assets of approximately
$60 million
in the third quarter of 2017 in connection with the sale of these properties.
Financing
On July 17, 2017, we paid off
$150
million of senior unsecured notes upon maturity.