UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-12762
MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact Name of Registrant as Specified in Charter)
TENNESSEE 62-1543819
(State of Incorporation) (I.R.S. Employer Identification Number)
6584 POPLAR AVENUE, SUITE 340
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
(901) 682-6600
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at July 31, 1998
------------------- ----------------------------
Common Stock, $.01 par value 18,796,331
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997
Consolidated Statements of Operations for the three and
six months ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. Financial Information
ITEM 1.
Mid-America Apartment Communities, Inc.
Consolidated Balance Sheets
June 30, 1998 (Unaudited) and December 31, 1997
(Dollars in thousands)
1998 1997
---------- ----------
Assets:
Real estate assets:
Land $ 116,276 $ 109,800
Buildings and improvements 1,094,828 1,027,853
Furniture, fixtures and equipment 23,826 21,886
---------- ----------
1,234,930 1,159,539
Less accumulated depreciation (96,383) (76,129)
---------- ----------
1,138,547 1,083,410
Construction in progress 43,741 33,717
Land held for future development 3,003 8,849
Commercial properties, net 8,824 8,728
---------- ----------
Real estate assets, net 1,194,115 1,134,704
Cash and cash equivalents 12,706 14,805
Restricted cash 11,423 13,397
Deferred financing costs, net 9,334 5,700
Other assets 24,176 25,264
---------- ----------
Total assets $1,251,754 $1,193,870
========== ==========
Liabilities and Shareholders' equity:
Liabilities:
Notes payable $ 648,927 $ 632,213
Accounts payable 7,764 10,098
Accrued expenses and other liabilities 22,781 22,885
Security deposits 4,737 4,509
---------- ----------
Total liabilities 684,209 669,705
---------- ----------
Minority interest 63,016 62,865
Shareholders' equity:
Preferred stock, $.01 par value,
20,000,000 shares authorized,
$25 per share liquidation preference:
2,000,000 shares at 9.5% Series A Cumulative 20 20
1,938,830 shares at 8.875% Series B Cumulative 19 19
2,000,000 shares at 9.375% Series C Cumulative 20 -
Common stock, $.01 par value
(authorized 50,000,000 shares; issued and
outstanding 18,784,769 and 18,476,046 shares at
June 30,1998 and December 31, 1997,
respectively) 188 185
Additional paid-in capital 555,332 500,492
Other (2,180) (1,045)
Accumulated deficit (48,870) (38,371)
---------- -----------
Total shareholders' equity 504,529 461,300
---------- -----------
Total liabilities and
shareholders' equity $1,251,754 $ 1,193,870
========== ===========
[FN]
See accompanying notes to consolidated financial statements.
<PAGE>
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations
Three and six months ended June 30, 1998 and 1997
(Dollars in thousands except per share data)
(Unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
Revenues:
Rental $ 51,113 $ 32,273 $101,043 $ 61,629
Other 788 447 1,458 930
Management and
development
income, net 265 0 647 0
-------- -------- -------- --------
Total revenues 52,166 32,720 103,148 62,559
-------- -------- -------- --------
Expenses:
Personnel 6,007 3,467 11,545 6,576
Building repairs
and maintenance 2,455 1,527 4,428 2,797
Real estate taxes
and insurance 5,367 3,393 10,766 6,537
Utilities 2,174 1,402 4,428 2,878
Landscaping 1,259 973 2,429 1,796
Other operating 1,979 1,600 4,168 2,852
Depreciation and
amortization 11,242 6,498 22,084 12,435
General and
administrative 2,377 1,600 4,993 3,016
Interest 11,676 6,587 22,664 13,097
Amortization ofdeferred
financing costs 593 212 1,139 410
-------- -------- -------- --------
Total expenses 45,129 27,259 88,644 52,394
-------- -------- -------- --------
Income before gain on
disposition of
properties,minority
interest in operating
partnership income and
extraordinary item 7,037 5,461 14,504 10,165
-------- -------- -------- --------
Gain on disposition
of properties 422 0 422 0
-------- -------- -------- --------
Income before minority
interest in operating
partnership income and
extraordinary item 7,459 5,461 14,926 10,165
-------- -------- -------- --------
Minority interest in
operating partnership
income 746 651 1,167 1,178
-------- -------- -------- --------
Net income before
extraordinary item 6,713 4,810 13,759 8,987
-------- -------- -------- --------
Extraordinary item -
loss on debt
extinguishment (619) 0 (990) 0
-------- -------- -------- --------
Net income 6,094 4,810 12,769 8,987
Dividends on preferred
shares 2,276 1,188 4,539 2,375
-------- -------- -------- --------
Net income available for
common shareholders $ 3,818 $ 3,622 $ 8,230 $ 6,612
======== ======== ======== ========
(Continued)
<PAGE>
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations (Continued)
Three and six months ended June 30, 1998 and 1997
(Dollars in thousands except per share data)
(Unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
------ ------ ------ ------
Net income available
per common share:
Basic (in thousands):
Average common
shares outstanding 18,693 13,356 18,622 12,392
------ ------ ------ ------
Basic earnings per share:
Net income available
per common share before
extraordinary item $ .24 $ .27 $ .50 $ .53
Extraordinary item (.04) 0 (.06) 0
------ ------ ------ ------
Net income available
per common share $ .20 $ .27 $ .44 $ .53
====== ====== ====== ======
Diluted (in thousands):
Average common
shares outstanding 18,693 13,356 18,622 12,392
Effect of dilutive
stock options 48 54 55 63
------ ------ ------ ------
Average dilutive common
shares outstanding 18,741 13,410 18,677 12,455
====== ====== ====== ======
Diluted earnings per share:
Net income available
per common share before
extraordinary item $ .24 $ .27 $ .49 $ .53
Extraordinary item (.04) 0 (.05) 0
------ ------ ------ ------
Net income available
per common share $ .20 $ .27 $ .44 $ .53
====== ====== ====== ======
[FN]
See accompanying notes to consolidated financial statements.
<PAGE>
Mid-America Apartment Communities, Inc.
Consolidated Statements of Cash Flow
Six months ended June 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 12,769 $ 8,987
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 23,369 12,906
Minority interest in operating
partnership income 1,167 1,178
Extraordinary item 990 -
Gain on disposition of properties (422) -
Changes in assets and liabilities:
Restricted cash 1,974 267
Other assets 294 (447)
Accounts payable (2,360) 606
Accrued expenses and other
liabilities (122) (305)
Security deposits 228 275
-------- --------
Net cash provided by operating activities 37,887 23,467
-------- --------
Cash flows from investing activities:
Purchases of real estate assets (22,786) (63,846)
Proceeds from disposition of
real estate assets 5,435 -
Improvements to properties (10,290) (8,809)
Construction of units in progress
and future development (35,392) (6,573)
-------- --------
Net cash used in investing activities (63,033) (79,228)
-------- --------
Cash flows from financing activities:
Proceeds from notes payable 218,764 -
Net change in credit line (24,295) 9,761
Principal payments on notes payable (195,659) (1,193)
Deferred financing costs (4,979) (217)
Proceeds from issuances of
common shares and units 8,613 66,576
Proceeds from issuance of
preferred shares 48,330 -
Redemption of unitholder interests (104) (8)
Distributions to unitholders (3,089) (2,645)
Dividends paid on common shares (19,995) (12,977)
Dividends paid on preferred shares (4,539) (2,375)
-------- --------
Net cash provided by financing activities 23,047 56,922
-------- --------
Net increase (decrease) in cash
and cash equivalents (2,099) 1,161
-------- --------
Cash and cash equivalents,
beginning of period 14,805 4,053
Cash and cash equivalents, end of period $ 12,706 $ 5,214
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 23,038 $13,181
Supplemental disclosure of noncash investing
and financing activities:
Assumption of debt related to
property acquisitions $16,964 $24,090
Conversion of units for common shares $ 774 $ 870
Issuance of units related to property
acquisitions $ 338 $ -
Issuance of advances in exchange for
common shares and units $ 1,952 $ 720
[FN]
See accompanying notes to consolidated financial statements.
<PAGE>
MID-AMERICA APARTMENT COMMUNITIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the accounting policies in
effect as of December 31, 1997, as set forth in the annual
consolidated financial statements of Mid-America Apartment
Communities, Inc. ("MAAC" or the "Company"), as of such date. In
the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial statements have been
included and all such adjustments were of a normal recurring
nature. All significant intercompany accounts and transactions
have been eliminated in consolidation. The results of operations
for the six-month period ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
The Company has only limited involvement with derivative
financial instruments and does not use them for trading purposes.
The Company occasionally utilizes derivative financial
instruments as hedges in anticipation of future debt transactions
to manage well-defined interest rate risk or as interest rate
protection that hedges the interest rate risk of the Company's
variable rate debt by locking the effective rate on portions of
outstanding line of credit ("Credit Line").
During the fourth quarter of 1997, the Company amended the
Operating Partnership agreement, retroactive to January 1, 1997,
which eliminated the allocation of certain additional net income
from the Company to the Operating Partnership. As a result of this
amendment, minority interest in the operating partnership for the
prior year has been restated.
2. Borrowing Transactions
On March 6, 1998 the Company, through one of its subsidiaries,
issued $142 million aggregate principal amount of 6.376% Bonds
due 2003 (the Bonds). The Bonds are secured by a first priority
deed of trust, security agreement and assignment of rents and
leases in respect of the mortgaged properties. The net proceeds
from the sale of the Bonds were applied to the bridge notes
payable and utilized to fund costs of the issuance.
In anticipation of the March 6, 1998 Bond issuance discussed
above, the Company entered into four separate interest rate
contracts in 1997 with notional amounts aggregating $140 million,
the effect of which was to lock the interest rate on $140 million
of the Bonds at an average interest rate of 6.62%. On March 6,
1998 the Company realized a $1.4 million loss on the interest
rate contracts. The realized loss resulting from the change in
the market value of these contracts are amortized into interest
expense over the life of the related debt issuance.
3. Capital Transactions
During March, the Company issued 50,000 shares of common stock
and 100,000 umbrella parntership units to certain executive officers
of the Company at the then current market price. The Company
received approximately $3,583,000 cash and advanced the employees
approximately $632,000 secured by the common stock of the Company.
The advances bear interest at 5.59% per annum, have
annual principal payments of approximately $126,000 and have been
recorded in shareholders' equity in the accompanying consolidated
balance sheet.
Additionally, the Company issued 60,000 shares of common stock to
certain other officers of the Company at the then current market
price. The Company received approximately $817,500 cash and
advanced the employees approximately $817,500. The advances bear
interest of 7.5% and 8.25% per annum and are secured by the stock
of the Company. The advances have annual principal payments of
approximately $49,050 and have been classified as shareholders'
equity in the accompanying consolidated balance sheet.
In addition, the Company has agreed to pay a bonus to the
executive officers for as long as they remain employed by the
Company in an amount equal to the debt service on the advances
from the Company. The advances will become due and payable and
the bonus agreement will terminate if the employees voluntarily
terminate their employment with the Company. The Company has
agreed to pay a bonus to the other officers amounting to a total
of $49,050 annually for five years; these advances will become
due and payable if the employees terminate their employment with
the Company.
<PAGE>
During May, the Company issued an additional 100,000 shares of
common stock to certain executive officers of the Company at the
then current market price. The Company received approximately
$2,316,250 cash and advanced the employees approximately $408,750
secured by the common stock of the Company. The advances bear
interest at 5.69% per annum, and have been recorded in
shareholder's equity in the accompanying consolidated balance
sheet.
In a public offering completed June 25, 1998, the company issued
2.0 million shares of its Series C Cumulative Preferred Stock
("Series C Preferred Stock") at $25 per share for net proceeds of
approximately $48.3 million. The issue bears a dividend payable
quarterly at the annual rate of 9.375%, and is redeemable after
June 30, 2003 at a liquidation preference of $25 per share. The
securities have no stated maturity date and will not be subject
to any sinking fund or other mandatory redemption by the Company.
The Series C Preferred Stock is not convertible into the
Company's common stock or any other security of the Company, and
will be listed in the New York Stock Exchange under the symbol
"MAA PrC". The Company used the net proceeds to pay down its
Credit Line and to provide funds to acquire and develop
additional apartment units.
4. Real Estate Transactions
Property Acquisitions
On February 5, 1998, the Company acquired the 240-unit Walden Run
apartment community located in McDonough, Georgia for $13.4
million in cash funded by borrowings under the Company's Credit Line.
On February 26, 1998 the Company acquired the 152-unit Abbington
Place (formerly named Van Mark) apartment community located in
Huntsville, Alabama for $5.1 million in cash funded by borrowings
under the Company's Credit Line.
On May 6, 1998, the Company acquired the 200-unit Eagle Ridge
apartment community located in Birmingham, Alabama for $8.4
million less $6.4 million of assumed debt. The remaining $2.0
million was paid in UPREIT units and cash funded by the Company's
Credit Line.
On May 29, 1998, the Company acquired the 220-unit Georgetown
Grove apartment community located in Savannah, Georgia. The
property was purchased for $12.8 million consisting of the
assumption of existing debt of $10.5 million and cash of $2.3
million funded by the Company's Credit Line.
Property Disposition
On June 9, 1998, the Company sold the 212-unit Redford Park
apartment community located in Conroe, Texas for a total sales
price of $5.8 million. For financial reporting purposes, the
transaction involved a gain on disposition of approximately
$422,000 and a loss on early extinguishment of debt of
approximately $540,000, included in the accompanying financial
statements as an extraordinary item, net of minority interest.
5. Earnings Per Share
The Company adopted SFAS No. 128, "Earnings per Share", effective
for financial statements for periods ending after December 31,
1997. All prior period earnings per share data has been restated
to conform with the provisions of this statement.
At June 30, 18,784,769 common shares and 3,007,716 operating
partnership units were outstanding, a total of 21,792,485.
Additionally, MAAC has outstanding options for 833,337 and
516,325 shares of common stock at June 30, 1998 and 1997.
6. Reclassification
Certain prior year amounts have been reclassified to conform
with 1998 presentation. The reclassifications had no effect
on shareholders' equity or net income available for common
shareholders.
7. Recent Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity," was issued effective for years
beginning after June 15, 1999. This new accounting statement is
not expected to have a material impact on the Company's
consolidated financial statements. The Company will adopt this
accounting standard in 2000.
<PAGE>
8. Subsequent Events
On July 21, 1998, the Company purchased the 1,001-unit L&B
Apartment Portfolio for approximately $38.3 million, which
included Courtyards at Campbell and Deer Run in Dallas, Texas,
Highwood in Plano, Texas, and Northwood Place in Arlington,
Texas. The transaction was all cash which was funded through the
Company's Credit Line.
<PAGE>
PART I. Financial Information
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of the consolidated financial
condition and results of operations of the Company for the
three and six months ended June 30, 1998 and 1997. This
discussion should be read in conjunction with all of the
financial statements appearing elsewhere in this report.
These financial statements include all adjustments, which
are, in the opinion of management, necessary to reflect a
fair statement of the results for the interim periods
presented, and all such adjustments are of a normal
recurring nature.
The total number of apartment units owned at June 30, 1998
was 31,791 in 120 apartment communities, compared to 21,482
in 80 communities at June 30, 1997. Through the November
25, 1997 merger with Flournoy Development Company ("FDC"),
the Company acquired 30 communities containing 8,641
apartment units including 950 apartment units under
development. The FDC Merger was accounted for using the
purchase method of accounting. Accordingly, the operating
results for these 30 communities are included in the
Company's financial statements for periods subsequent to
November 25, 1997.
Average monthly rental per apartment unit increased to $575
at June 30, 1998 from $540 at June 30, 1997. Overall
occupancy at June 30, 1998 and 1997 was 94.9% and 94.1%,
respectively. For the properties acquired through the FDC
merger, average monthly rental per apartment unit was $617
and average occupancy was 94.5% at June 30, 1998.
FUNDS FROM OPERATIONS
Funds from operations ("FFO") represents net income
(computed in accordance with GAAP) excluding extraordinary
items, minority interest in Operating Partnership income,
gain or loss on disposition of real estate assets, and
certain non-cash items, primarily depreciation and
amortization, less preferred stock dividends. The Company
computes FFO in accordance with NAREIT's current definition,
which eliminates amortization of deferred financing costs
and depreciation of non-real estate assets as items added
back to net income when computing FFO. FFO should not be
considered as an alternative to net income or any other GAAP
measurement of performance, as an indicator of operating
performance or as an alternative to cash flows from
operating, investing, and financing activities as a measure
of liquidity. The Company believes that FFO is helpful in
understanding the Company's results of operations in that
such calculation reflects cash flow from operating
activities and the Company's ability to support interest
payments and general operating expenses before the impact of
certain activities such as changes in other assets and
accounts payable. The Company's calculation of FFO may
differ from the methodology for calculating FFO utilized by
other REITs and, accordingly, may not be comparable to such
other REITs. Depreciation expense includes $148,000 and
$43,000 for the three months ended June 30, 1998 and 1997,
respectively, and $172,000 and $85,000 for the six months
ended June 30, 1998 and 1997, respectively, which relates
to computer software, office furniture and fixtures and other
assets found in other industries and which is required to
be recognized, for purposes of funds from operations
computations, as expenses in the calculation of net income.
For the three months ended June 30, 1998, FFO increased by
approximately $5,127,000 or 48%, when compared to the three
months ended June 30, 1997. The increase was primarily
attributable to an approximate $19,446,000 increase in
revenues, which was partially offset by additional expenses
mainly associated with the increase in the number of
apartment units owned by the Company. On a per share basis,
FFO increased approximately 8% from $.68 per share for the
three months ended June 30, 1997 to $.73 per share for the
same period in 1998.
<PAGE>
For the six months ended June 30, 1998, FFO increased by
approximately $11,737,000 or 58%, when compared to the six
months ended June 30, 1997. The increase was primarily
attributable to an approximate $40,589,000 increase in
revenues, which was partially offset by additional expenses
mainly associated with the increase in the number of
apartment units owned by the Company. On a per share basis,
FFO increased approximately 9% from $1.36 per share for the
six months ended June 30, 1997 to $1.48 per share for the
same period in 1998.
Funds from operations (FFO) for the three and six months ending June 30,
1998 and 1997 are calculated as follows: (dollars in thousands):
Three months ending Six months ending
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net income available for
common shareholders $ 3,818 $ 3,622 $ 8,230 $ 6,612
Depreciation and amortization
of real estate assets 11,094 6,455 21,912 12,350
Minority interest 746 651 1,167 1,178
Gain on disposition of properties (422) - (422) -
Extraordinary items 619 - 990 -
------- ------- ------- -------
Funds from Operations $ 15,855 $ 10,728 $ 31,877 $ 20,140
======= ======= ======= =======
Funds from Operations
per common share $ 0.73 $ 0.68 $ 1.48 $ 1.36
======== ======== ======== ========
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 TO THE THREE
MONTHS ENDED JUNE 30, 1997
Total revenues for 1998 increased by approximately
$19,446,000 due primarily to (i) approximately $2,670,000
from the 12 communities acquired in 1997, (ii) approximately
$13,230,000 from the 30 completed communities acquired
through the FDC Merger, (iii) approximately $1,044,000 from
the 4 communities acquired in 1998, (iv) approximately
$1,296,000 from the communities owned at December 31,
1996, (v) approximately $952,000 from the development
units completed in 1998 and (vi) approximately $265,000 from
management and development income, net.
Property operating expenses for 1998 increased by
approximately $6,879,000, due primarily to (i) approximately
$926,000 from the 12 communities acquired in 1997, (ii)
approximately $4,663,000 from the 30 completed communities
acquired through the FDC merger, (iii) approximately
$371,000 from the 4 communities acquired in 1998, (iv)
approximately $501,000 from the communities owned at
December 31, 1996, and (v) approximately $398,000 from the
development units completed in 1998. As a percentage of
revenues, operating expenses decreased to 36.9% for the
three months ended June 30, 1998 from 37.8% for the same
period last year. This decrease reflects slight relative
reductions in taxes and insurance, utility, and landscaping
expenses.
General and administrative expense increased by
approximately $777,000 for the three months ended June 30,
1998, but decreased as a percentage of revenues to 4.6% from
4.9% for the same period last year. The increase in cost is
primarily attributable to additional overhead, professional
fees and training costs associated with the growth of the
business due to the FDC merger and other property
acquisitions.
Depreciation and amortization expense increased by
approximately $4,744,000 primarily due to (i) approximately
$627,000 from the 12 communities acquired in 1997, (ii)
approximately $3,077,000 from the 30 completed communities
acquired through the FDC Merger, (iii) approximately
$230,000 from the 4 communities acquired in 1998, (iv)
approximately $573,000 from additional capital expenditures
on communities owned at December 31, 1996, and (v)
approximately $179,000 from development units completed
during the 1998. Amortization of costs in excess of
fair value of net assets acquired for the three months ended
June 30, 1998 was approximately $365,000.
Interest expense increased approximately $5,089,000 during
the three months ended June 30, 1998 due primarily to
property acquisitions and new financing transactions related
to the FDC merger. The Company reduced its average borrowing
cost to 7.2% at June 30, 1998 as compared to 7.9% at June
30, 1997. The average maturity on the Company's debt was
12.2 and 9.0 years at June 30, 1998 and 1997, respectively.
The gain on disposition of assets for the three months ended
June 30, 1998, was related to the sale of Redford Park
Apartments, which was offset by a loss on early
extinguishment of the related debt. For the three months
ended June 30, 1998 the Company recorded a total
extraordinary loss of approximately $619,000 on the early
extinguishment of debt, net of minority interest, related
primarily to repayment of the mortgage for Redford Park
Apartments and the refunding of bonds secured by Sterling
Ridge Apartments.
<PAGE>
As a result of the foregoing, income before minority
interest in operating partnership income for the three
months ended June 30, 1998 increased approximately
$1,998,000 or 37% over the same period a year earlier.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX
MONTHS ENDED JUNE 30, 1997
Total revenues for 1998 increased by approximately
$40,589,000, due primarily to (i) approximately $7,825,000
from the 12 communities acquired in 1997, (ii) approximately
$27,183,000 from the 30 completed communities acquired
through the FDC Merger, (iii) approximately $1,407,000 from
the 4 communities acquired in 1998, (iv) approximately
$2,027,000 from the communities owned at December 31, 1996,
(v) approximately $1,409,000 from the development
units completed in 1998 and (vi) approximately $647,000 from
management and development income, net.
Property operating expenses for 1998 increased by
approximately $14,328,000, due primarily to (i)
approximately $2,791,000 from the 12 communities acquired in
1997, (ii) approximately $9,468,000 from the 30 completed
communities acquired through the FDC merger, (iii)
approximately $511,000 from the 4 communities acquired in
1998, (iv) approximately $825,000 from the communities owned
at December 31, 1996, and (v) approximately $679,000
from the development units completed in 1998. As a
percentage of revenues, operating expenses decreased
slightly to 36.6% for the six months ended June 30, 1998
from 37.5% for the same period last year. This decrease
reflects slight relative reductions in repair and
maintenance, utility, and landscaping expenses.
General and administrative expense increased by
approximately $1,977,000 for the six months ended June 30,
1998, but remained relatively constant at 4.8% of revenues.
The increase in cost is primarily attributable to additional
overhead, professional fees and training costs associated
with the growth of the business due to the FDC merger and
other property acquisitions.
Depreciation and amortization expense increased by
approximately $9,649,000 primarily due to (i) approximately
$1,749,000 from the 12 communities acquired in 1997, (ii)
approximately $6,203,000 from the 30 completed communities
acquired through the FDC Merger, (iii) approximately
$313,000 from the 4 communities acquired in 1998, (iv)
approximately $1,020,000 from additional capital
expenditures on communities owned at December 31, 1996,
and (v) approximately $352,000 from development units
completed during the 1998. Amortization of costs in excess
of fair value of net assets acquired for the six months ended
June 30, 1998 was approximately $731,000.
Interest expense increased approximately $9,567,000 during
the six months ended June 30, 1998 due primarily to property
acquisitions and new financing transactions related to the
FDC merger. The Company reduced its average borrowing cost
to 7.2% at June 30, 1998 as compared to 7.9% at June 30,
1997. The average maturity on the Company's debt was 12.2
and 9.0 years at June 30, 1998 and 1997, respectively.
The gain on disposition of assets for the six months ended
June 30, 1998, was related to the sale of Redford Park
Apartments, which was offset by a loss on early
extinguishment of the related debt. For the six months
ended June 30, 1998 the Company recorded a total
extraordinary loss of approximately $990,000 on the early
extinguishment of debt, net of minority interest, related
primarily to repayment of the mortgage for Redford Park
Apartments and certain other debt.
As a result of the foregoing, income before minority
interest in operating partnership income for the six months
ended June 30, 1998 increased approximately $4,761,000 or
47% over the same period a year earlier.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased from
approximately $23,467,000 for the six months ended June 30,
1997 to approximately $ 37,887,000 for the six months ended
June 30, 1998. The increase in net cash flow was primarily
related to growth in net income and depreciation and
amortization due to the FDC merger and other property
acquisitions.
Net cash used in investing activities decreased from
approximately $79,228,000 for the six months ended June 30,
1997 to approximately $63,033,000 for the six months ended
June 30, 1998. The decrease was primarily due to the
acquisition of 1,830 apartment units in 1997 for
approximately $63,846,000, net of debt acquired, as compared
to the acquisition of 812 apartment units in 1998 for
approximately $22,786,000, net of debt acquired. Capital
improvements to existing properties totaled approximately
$10,290,000 for the six months ended June 30, 1998, compared
to approximately $8,809,000 for the same period in 1997. Of
the $10,290,000 capital improvements approximately
$3,303,000 was for recurring capital expenditures, including
carpet and appliances, approximately $2,717,000 was for
revenue enhancing projects, approximately $3,836,000 was for
acquisition capital with the remaining balance for corporate
and other miscellaneous expenditures. Recurring capital
expenditures for the six months ended June 30, 1998 averaged
15 cents per share, compared to 25 cents per share
for the same period in 1997 and compared to 1997's
full year of 47 cents per share. Construction in progress
for new apartment units increased from approximately
$6,573,000 for the six months ended June 30, 1997 to
approximately $35,392,000 for the comparable period in 1998.
The Company currently has under construction or in initial
lease-up 10 new communities and additions to 6 existing
communities that will contain an aggregate of 3,819 units,
of which 1,024 units have been completed and are in lease-
up. The Company's communities in various stages of
development and lease-up are summarized as follows ($'s in
000's):
<TABLE>
<CAPTION>
Estimated
Total Units Est. Current Cost to
Location Units Compl. Cost Yr Costs Complete
- ------------------- --------------- ------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Paddock Club III Jacksonville,FL 120 120 $ 6,244 0 0
Lincoln on Green II Memphis,TN 234 234 13,890 1,131 0
Paddock Club Mandarin, 288 288 16,431 2,359 16
Enclave Whisperwood Columbus,GA 154 154 9,057 2,654 741
Completing,leasing:
Paddock Club II Huntsville,AL 192 144 10,806 4,513 803
Terraces at
Fieldstone Conyers,GA 316 84 17,509 7,565 6,984
Under Construction:
Paddock Club Gainesville,FL 264 17,756 4,576 11,046
Reserve at
Dexter Lake Memphis, TN 252 16,846 5,947 9,110
Terraces at
Towne Lake II Cherokee,GA 238 14,289 1,468 11,480
Paddock Club Brandon,FL 132 8,227 429 6,985
Paddock Club Montgomery,AL 208 13,680 412 12,350
Paddock Club Panama City,FL 254 15,526 2,053 13,260
Pre-development:
St. Augustine II Jacksonville,FL 124 7,226 238 6,804
Paddock Club Murfreesboro,TN 240 15,253 219 15,034
Terraces at
Bellevue Nashville,TN 433 30,781 107 30,674
Terraces at
Haymaker Lexington,KY 370 30,607 348 30,259
Other land and
development 1,373
----- ------ -------- ------- --------
3,819 1,024 $244,128 $35,392 $155,546
----- ------ -------- ------- --------
Net cash provided by financing activities decreased from
approximately $56,922,000 during the six months ended June
30, 1997 to approximately $23,047,000 for the six months
ended June 30, 1998. On March 6, 1998 the Partnership
issued $142,000,000 aggregate principal amount of 6.376%
Bonds due 2003 (the Bonds). The net proceeds from the sale
of the Bonds were applied to the bridge notes payable and
utilized to fund costs of the issuance. Additionally, the
Company refinanced approximately $29,100,000 of various rate
notes payable with a new $36,200,000 seven year amortizing
note payable at 7.0%, and acquired a new short-term note
payable for $25,000,000 at 6.4% which was used to pay down
the Credit Line. The Company also refunded $4,760,000 of
bonds secured by Sterling Ridge Apartments. The new thirty
year bonds have a variable interest rate (currently 5.5%)
compared to the previous fixed rate of 8.75%. Due to these
transactions, the sources and
uses of cash related to notes payable and the Credit Line
during the period virtually offset. Issuance of equity
offerings and dividend distributions were the majority of
the decrease as compared to the 1997. During the six months
ended June 30, 1998, the Company received total proceeds of
approximately $56,943,000 from equity transactions,
comprised of an issuance of its Series C Preferred shares
(approximately $48,330,000) and issuance of common shares
and units (approximately $8,613,000), a decrease from the
proceeds of approximately $66,576,000 from issuance of
common shares and units during the six months ended June 30,
1997. Additionally, total distributions for dividends on
common and preferred shares increased to approximately
$24,534,000 for the six months ended June 30, 1998, from
approximately $15,352,000.
At June 30, 1998, the Company had approximately $20,930,000
outstanding on the Credit Line and approximately $78,004,000
(including the Credit Line) of floating rate debt at an
average interest rate of 6.1%; all other debt was fixed rate
term debt at an average interest rate of 7.3%. The weighted
average interest rate and weighted average maturity at June
30, 1998 for the approximately $648,927,000 of notes payable
were 7.2% and 12.2 years, respectively. In March 1998, the
Company increased its credit limit under the Credit Line
from $110,000,000 to $200,000,000. The Company expects to
use the Credit Line for future acquisitions, development,
and to provide letters of credit as credit enhancements for
tax-exempt bonds. The Credit Line is secured and is subject
to borrowing base calculations that effectively reduce the
maximum amount that may be borrowed under the Credit Line to
approximately $143,389,000 as of the date of this report.
The Company believes that cash provided by operations is
adequate and anticipates that it will continue to be
adequate in both the short and long-term to meet operating
requirements (including recurring capital expenditures at
the communities) and payment of distributions by the Company
in accordance with REIT requirements under the Internal
Revenue Code.
Actual and planned capital expenditures for development of
communities, acquisition of assets and community
improvements for 1998 are summarized below:
Actual Current
To Date Forecast
----------- ------------
Community development $35,392,000 $100,000,000
Property acquisitions 40,008,000 130,000,000
Recurring capital at stabilized
properties 3,303,000 8,377,000
Revenue enhancing projects at 2,717,000 9,763,000
stabilized properties
Capital improvements to pre-
stabilized properties (includes
$2,357,000 for former FDC
properties) 3,836,000 5,232,000
Corporate additions and improvements 434,000 500,000
----------- ------------
$85,690,000 $253,872,000
=========== ============
The Company expects to meet its long term liquidity
requirements, such as scheduled mortgage debt maturities,
property developments and acquisitions, expansions and non-
recurring capital expenditures, through long and medium-term
collateralized and uncollateralized fixed rate borrowings,
issuance of debt or additional equity securities in the
Company and the Credit Line.
INSURANCE
In the opinion of management, property and casualty
insurance is in place which provides adequate coverage to
provide financial protection against normal insurable risks
such that it believes that any loss experienced would not
have a significant impact on the Company's liquidity,
financial position, or results of operations.
INFLATION
Substantially all of the resident leases at the communities
allow, at the time of renewal, for adjustments in the rent
payable thereunder, and thus may enable the Company to seek
rent increases. The substantial majority of these leases are
for one year or less. The short-term nature of these leases
generally serves to reduce the risk to the Company of the
adverse effects of inflation.
YEAR 2000
The Company has conducted a review of its computer operating
systems and has identified those areas that could be
affected by the "Year 2000" issue and has developed a plan
to resolve this issue. The Company believes that by
modifying certain existing hardware and software and, in
other cases, converting to new application systems, the Year
2000 problem can be resolved without significant operational
difficulties. The Company has initiated formal
communications with all of its significant suppliers to
determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. Management has
assessed the Year 2000 compliance expense and believe that
the related potential effect on the Company's business,
financial condition and results of operations should be
immaterial. The Company is expensing all costs associated
with the Year 2000 issue as the costs are incurred.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-
looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby.
These statements include the plans and objectives of
management for future operations, including plans and
objectives relating to capital expenditures and
rehabilitation costs on the apartment communities. Although
the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be
no assurance that the forward-looking statements included in
this report on Form 10-Q will prove to be accurate. In light
of the significant uncertainties inherent in the forward-
looking statements included herein, the inclusion of such
information should not be regarded as a representation by
the Company or any other person that the objectives and
plans of the Company will be achieved.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held
on June 4, 1998.
John J. Byrne, III, Robert F. Fogelman, John F. Flournoy
and John S. Grinalds were elected directors at the meeting
by approximately 99% of the shares represented at the
meeting.
KPMG Peat Marwick LLP was ratified the Company's
independent auditors for 1998 by approximately 99% of the
shares represented at the meeting.
Item 5. Other Information
None.
Item 6. Exhibits or Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Date of Date
Form Events Reported Financial Statements Report Filed
- ------ ------------------ -------------------- ------- -------
8-K(A) Filing of audited statements Historical Summary of 2-26-98 5-26-98
related to purchase of Gross Income and Direct
Van Mark Apartments. Operating Expenses.
8-K Purchase consummation of To be filed. 5-8-98 5-26-98
Eagle Ridge Apartments.
8-K Purchase consummation of To be filed. 5-29-98 6-12-98
Georgetown Grove Apartments.
8-K Pro Forma financial information Unaudited ProForma 6-12-98 6-12-98
for Flournoy Development Condensed Combined
Company merger, recent Statement of Operations
acquisitions, and debt For the Year Ended
equity transactions. December 31, 1997.
8-K Information regarding Not applicable. 3-6-98 6-16-98
documents filed for
Mid-America Capital Partners,
L.P., a wholly owned special
Purpose entity.
8-K Sale of Redford Park Apartments. Not applicable. 6-9-98 6-24-98
8-K Information regarding issuance Not applicable. 6-26-98 6-29-98
of Series C Preferred shares.
Information regarding anticipated Not applicable. 6-26-98 6-29-98
Acquisition of four Texas
apartment communities.
Resignation of John J. Byrne, III Not applicable. 6-26-98 6-29-98
as independent director.
8-K Underwriters agreement relating Not applicable. 6-25-98 7-1-98
to issuance of Series C Preferred
shares.
8-K Appointment of Michael Starnes Not applicable. 7-20-98 7-28-98
as independent director.
8-K(A) Filing of audited statements Historical Summary of 5-8-98 7-30-98
related to purchase of Gross Income and Direct
Eagle Ridge Apartments. Operating Expenses.
8-K(A) Filing of audited statements Historical Summary of 5-29-9 8-12-98
related to purchase of Gross Income and Direct
Georgetown Grove Apartments. Operating Expenses.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MID-AMERICA APARTMENT COMMUNITIES,
INC.
Date: August 14, 1998
Simon R.C. Wadsworth
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 24,129 10,485
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 33,510 9,430
<PP&E> 1,244,830 745,211
<DEPRECIATION> 97,459 61,897
<TOTAL-ASSETS> 1,251,754 683,314
<CURRENT-LIABILITIES> 0 15,914
<BONDS> 648,927 347,897
0 0
59 20
<COMMON> 188 134
<OTHER-SE> 504,282 294,222
<TOTAL-LIABILITY-AND-EQUITY> 1,251,754 703,229
<SALES> 101,043 61,629
<TOTAL-REVENUES> 103,148 62,559
<CGS> 37,764 23,436
<TOTAL-COSTS> 37,764 23,436
<OTHER-EXPENSES> 27,794 15,861
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 22,664 13,097
<INCOME-PRETAX> 14,926 10,165
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 13,759 8,987
<DISCONTINUED> 0 0
<EXTRAORDINARY> (990) 0
<CHANGES> 0 0
<NET-INCOME> 12,769 8,987
<EPS-PRIMARY> 0.44 0.53
<EPS-DILUTED> 0.44 0.53
</TABLE>
