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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-12762
MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact Name of Registrant as Specified in Charter)
TENNESSEE 62-1543819
(State of Incorporation) (I.R.S. Employer Identification Number)
6584 POPLAR AVENUE, SUITE 340
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
(901) 682-6600
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at April 12, 1999
----- -----------------
Common Stock, $.01 par value 18,918,754
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (Unaudited)
and December 31, 1998
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 (Unaudited)
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (Unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. Financial Information
ITEM 1.
Mid-America Apartment Communities, Inc.
Consolidated Balance Sheets
March 31, 1999 (Unaudited) and December 31, 1998
(Dollars in thousands)
1999 1998
---- ----
Assets:
Real estate assets:
Land ............................................$ 121,038 $ 124,912
Buildings and improvements ...................... 1,157,451 1,184,611
Furniture, fixtures and equipment ............... 27,359 26,779
Construction in progress ........................ 67,995 75,776
- --------------------------------------------------------------------------------
1,373,843 1,412,078
Less accumulated depreciation ................... (124,471 (117,773)
- --------------------------------------------------------------------------------
1,249,372 1,294,305
Land held for future development ................ 11,877 11,781
Commercial properties, net ...................... 9,282 9,282
Investment in and advances to real
estate joint venture .......................... 5,549 --
- --------------------------------------------------------------------------------
Real estate assets, net .................... 1,276,080 1,315,368
Cash and cash equivalents ............................. 14,243 7,237
Restricted cash ....................................... 26,033 9,282
Deferred financing costs, net ......................... 9,912 10,359
Other assets .......................................... 25,199 24,181
- --------------------------------------------------------------------------------
Total assets .................................$ 1,351,467 $ 1,366,427
================================================================================
Liabilities and Shareholders' equity:
Liabilities:
Notes payable ...................................$ 741,537 $ 753,427
Accounts payable ................................ 6,731 10,384
Accrued expenses and other liabilities .......... 20,839 18,959
Security deposits ............................... 4,721 4,917
Deferred gain on sale of properties ............. 2,362 --
- --------------------------------------------------------------------------------
Total liabilities and deferred income ........ 776,190 787,687
Minority interest ..................................... 60,895 61,441
Shareholders' equity:
Preferred stock, $.01 par value, 20,000,000
shares authorized, $25 per share
liquidation preference:
2,000,000 shares at 9.5% Series A Cumulative . 20 20
1,938,830 shares at 8.875% Series B Cumulative 19 19
2,000,000 shares at 9.375% Series C Cumulative 20 20
1,000,000 shares at 9.5% Series E Cumulative . 10 10
Common stock, $.01 par value (authorized 50,000,0000
shares; issued and outstanding 18,919,269 and
18,879,691 shares at March 31, 1999 and
December 31, 1998, respectively) .. 189 189
Additional paid-in capital ...................... 584,001 583,154
Other ........................................... (2,053 (2,237)
Distributions in excess of earnings ............. (67,824 (63,876)
- --------------------------------------------------------------------------------
Total shareholders' equity ................... 514,382 517,299
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity ...$ 1,351,467 $ 1,366,427
================================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations (Continued)
Three months ended March 31, 1999 and 1998
(Dollars in thousands except per share data)
(Unaudited)
1999 1998
---- ----
Revenues:
Rental ..................................... $ 56,182 $ 49,930
Other ...................................... 661 670
Management and development income, net ..... 246 382
- --------------------------------------------------------------------------------
Total revenues ............................. 57,089 50,982
Equity in income from real estate joint venture . 21 --
Expenses:
Personnel .................................. 6,482 5,538
Building repairs and maintenance ........... 2,380 1,973
Real estate taxes and insurance ............ 6,083 5,399
Utilities .................................. 2,432 2,254
Landscaping ................................ 1,411 1,170
Other operating ............................ 2,462 2,189
Depreciation and amortization .............. 12,516 10,842
General and administrative ................. 3,139 2,616
Interest ................................... 12,001 10,988
Amortization of deferred financing costs ... 692 546
- --------------------------------------------------------------------------------
Total expenses ............................. 49,598 43,515
- --------------------------------------------------------------------------------
Income before gain on disposition of properties,
minority interest in operating partnership
income and extraordinary item ............... 7,512 7,467
- --------------------------------------------------------------------------------
Gain on sale of properties ...................... 4,698 --
- --------------------------------------------------------------------------------
Income before minority interest in operating
partnership income and extraordinary item .... 12,210 7,467
- --------------------------------------------------------------------------------
Minority interest in operating partnership income 1,196 421
- --------------------------------------------------------------------------------
Net income before extraordinary item ............ 11,014 7,046
- --------------------------------------------------------------------------------
Extraordinary item - loss on debt extinguishment (67) (371)
- --------------------------------------------------------------------------------
Net income ...................................... 10,947 6,675
Dividends on preferred shares ................... 4,027 2,263
- --------------------------------------------------------------------------------
Net income available for common shareholders .... $ 6,920 $ 4,412
================================================================================
(Continued)
<PAGE>
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations (Continued)
Three months ended March 31, 1999 and 1998
(Dollars in thousands except per share data)
(Unaudited)
1999 1998
---- ----
Net income available per common share:
- --------------------------------------------------------------------------------
Basic (in thousands):
Average common shares outstanding 18,902 18,551
- --------------------------------------------------------------------------------
Basic earnings per share:
Net income available per common share
before extraordinary item $ 0.37 $ 0.26
Extraordinary item - (0.02)
- --------------------------------------------------------------------------------
Net income available per common share $ 0.37 $ 0.24
================================================================================
Diluted (in thousands):
Average common shares outstanding 18,902 18,551
Effect of dilutive stock options 27 62
- --------------------------------------------------------------------------------
Average dilutive common shares outstanding 18,929 18,613
================================================================================
Diluted earnings per share:
Net income available per common share
before extraordinary item $ 0.37 $ 0.26
Extraordinary item - (0.02)
- --------------------------------------------------------------------------------
Net income available per common share $ 0.37 $ 0.24
================================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
Mid-America Apartment Communities, Inc.
Consolidated Statements of Cash Flow
Three months ended March 31, 1999 and 1998
(Dollars in thousands)
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net income ...................................... $ 10,947 $ 6,675
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............ 13,208 11,460
Minority interest in operating
partnership income ..................... 1,196 421
Extraordinary item ....................... 67 371
Gain on sale of properties ............... (4,698) --
Changes in assets and liabilities:
Restricted cash ...................... (1,007) (224)
Other assets ......................... (1,410) (456)
Accounts payable ..................... (3,653) 1,389
Accrued expenses and other liabilities 1,894 (4,886)
Security deposits .................... (196) 174
- --------------------------------------------------------------------------------
Net cash provided by operating activities 16,348 14,924
Cash flows from investing activities:
Purchases of real estate assets .......... -- (18,714)
Improvements to properties ............... (7,013) (6,685)
Construction of units in progress and
future development ..................... (17,802) (11,688)
Proceeds from disposition of real
estate assets .......................... 64,588 --
Advance to real estate joint venture ..... (3,000) --
Escrow funding for tax free exchange ..... (15,744) --
Investment in real estate joint venture .. (2,549) --
- --------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities .................. 18,480 (37,087)
Cash flows from financing activities:
Net change in credit line ................ (19,685) 20,573
Proceeds from notes payable .............. 11,760 189,000
Principal payments on notes payable ...... (4,044) (175,654)
Deferred financing costs ................. (245) (3,235)
Proceeds from issuances of common
shares and units ....................... 1,007 2,532
Distributions to unitholders ............. (1,723) (1,477)
Dividends paid on common shares .......... (10,865) (9,703)
Dividends paid on preferred shares ....... (4,027) (2,263)
- --------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities ................... (27,822) 19,773
- --------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents ................... 7,006 (2,390)
Cash and cash equivalents, beginning of period ........ 7,237 14,805
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period .............. $ 14,243 $ 12,415
================================================================================
Supplemental disclosure of cash flow information:
Interest paid ...................................... $ 12,231 $ 11,019
Supplemental disclosure of noncash investing
and financing activities:
Conversion of units for common shares .............. $ -- $ 131
Issuance of advances in exchange for common
shares and units ................................. $ -- $ 1,450
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, 1998, as
set forth in the annual consolidated financial statements of Mid-America
Apartment Communities, Inc. ("MAAC" or the "Company"), as of such date. In the
opinion of management, all adjustments necessary for a fair presentation of the
consolidated financial statements have been included and all such adjustments
were of a normal recurring nature. All significant intercompany accounts and
transactions have been eliminated in consolidation. The results of operations
for the three-month period ended March 31, 1999 are not necessarily indicative
of the results to be expected for the full year.
2. Real Estate Transactions
Joint Venture Transaction
In March 1999 the Company entered into an agreement to form a joint venture (the
"Joint Venture) with Blackstone Real Estate Estate Acquisitions, LLC, a
subsidiary of an investment management firm located in New York city, to own and
operate apartment communities. The Company simultaneously sold 6 apartment
communities to the newly formed Joint Venture for approximately $64.6 million in
cash and, for book purposes, recognized a gain of approximately $4.7 million and
deferred gains for the Company's retained interest of approximately $2.4
million. The Company retained a 33 percent ownership in the Joint Venture and
will continue to manage the properties for a 4% fee. The Company contributed
capital of approximately $2.6 million and loaned the Joint Venture $3.0 million
at an interest rate of 10% for the life of the entity. The net proceeds from the
transaction were used to pay down the Company's line of credit (the "Credit
Line") and to fund a cash escrow reserve related to the planned tax free
exchange of a portion of the properties. The agreement provides that income and
cash flows generated by the Joint Venture will be allocated based on respective
ownership percentages. The Company accounts for its investment in the Joint
Venture using the equity method of accounting. The Company plans to sell an
additional 4 apartment communities to the Joint Venture later in the year. The
proceeds from any such transaction are expected to be used to pay down the
Company's Credit Line.
3. Earnings Per Share
At March 31, 1999, 18,919,269 common shares and 3,010,986 operating partnership
units were outstanding, a total of 21,930,255 shares and units. Additionally,
MAAC has outstanding options for 1,165,769 shares of common stock at March 31,
1999.
4. Segment Information
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", in 1998. At March 31, 1999, the Company owned and
operated 131 apartment communities in 13 different states from which it derives
all significant sources of earnings and operating cash flows. The Company's
operational structure is organized on a decentralized basis, with individual
property managers having overall responsibility and authority regarding the
operations of their respective properties. Each property manager individually
monitors local and area trends in rental rates, occupancy percentages, and
operating costs. Property managers are given the on-site responsibility and
discretion to react to such trends in the best interest of the Company.
Management evaluates the performance of each individual property based on its
contribution of revenues and net operating income ("NOI"), which is composed of
property revenues less all operating costs including insurance and real estate
taxes. The Company's reportable segments are its individual properties because
each is managed separately and requires different operating strategy and
expertise based on the geographic location, community structure and quality,
population mix and numerous other factors unique to each community.
<PAGE>
The revenues and profits for the aggregated communities are summarized as
follows for the three months ended as of March 31:
1999 1998
-------- --------
Rental Revenues ............................ $ 56,182 $ 49,930
Other Property Revenues .................... 496 474
-------- --------
Total Revenues ......................... $ 56,678 $ 50,404
======== ========
Property Net Operating Income .............. $ 35,428 $ 31,881
Equity in income from real estate
joint venture ............................ 21 --
Development and construction income, net ... 246 382
Interest and other income .................. 165 196
Interest Expense ........................... (12,001) (10,988)
General and administrative expenses ........ (3,139) (2,616)
Amortization of deferred financing costs ... (692) (546)
Depreciation and amortization .............. (12,516) (10,842)
-------- --------
Net income before gain on disposition of
properties, minority interest in operating
partnership income and extraordinary item $ 7,512 $ 7,467
======== ========
5. Subsequent Events
Property Disposition
In April 1999 the Company sold the 240-unit Hidden Oaks Apartments located in
Albany, Georgia for $6.1 million. The Company provided a $500,000 loan to the
seller repayable in five years at 7.5% interest rate. The twenty year old
property was acquired in 1997 as part of the merger with Flournoy Development
Company ("FDC merger"). The proceeds from the sale were used to pay off the
outstanding loan related to the property of $2.43 million and to pay down the
Company's Credit Line.
<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 months ended March 31, 1999
and 1998. This discussion should be read in conjunction with the financial
statements appearing elsewhere in this report. These financial statements
include all adjustments, which are, in the opinion of management, necessary to
reflect a fair statement of the results for the interim periods presented, and
all such adjustments are of a normal recurring nature.
The total number of apartment units owned at March 31, 1999 was 34,571 in 131
apartment communities, compared to 31,306 in 118 communities at March 31, 1998.
Average monthly rental per apartment unit increased to $598 at March 31, 1999
from $573 at March 31, 1998. Overall occupancy at March 31, 1999 and 1998 was
94.0% and 94.6%, respectively.
FUNDS FROM OPERATIONS
Funds from operations ("FFO") represents net income (computed in accordance with
GAAP) excluding extraordinary items, minority interest in Operating Partnership
income, gain or loss on disposition of real estate assets, and certain non-cash
and other items, primarily depreciation and amortization, less preferred stock
dividends. Adjustments for the unconsolidated joint venture are made to include
the Company's portion of FFO in the calculation. The Company computes FFO in
accordance with NAREIT's current definition, which eliminates amortization of
deferred financing costs and depreciation of non-real estate assets as items
added back to net income when computing FFO. FFO should not be considered as an
alternative to net income or any other GAAP measurement of performance, as an
indicator of operating performance or as an alternative to cash flow from
operating, investing, and financing activities as a measure of liquidity. The
Company believes that FFO is helpful in understanding the Company's results of
operations in that such calculation reflects cash flow from operating activities
and the Company's ability to support interest payments and general operating
expenses before the impact of certain activities such as changes in other assets
and accounts payable. The Company's calculation of FFO may differ from the
methodology for calculating FFO utilized by other REITs and, accordingly, may
not be comparable to such other REITs. Depreciation expense includes $99,000 and
$24,000 at March 31, 1999 and 1998, respectively, which relates to computer
software, office furniture and fixtures and other assets found in other
industries and which is required to be recognized, for purposes of computing
funds from operations.
<PAGE>
Funds from operations (FFO) for the three months ending March 31, 1999 and 1998
is calculated as follows (dollars in thousands):
1999 1998
-------- -------
Net income available for common shareholders ...... $ 6,920 $ 4,412
Depreciation and amortization of real estate assets 12,417 10,818
Minority interest ................................. 1,196 421
Gain on disposition of properties ................. (4,698) --
Extraordinary items ............................... 67 371
-------- -------
Funds from Operations ............................. $ 15,902 $16,022
======== =======
Weighted average shares and units:
Basic ........................................... 21,914 21,484
Diluted ......................................... 22,941 21,546
RESULTS OF OPERATIONS (Dollars in 000's)
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THE THREE MONTHS ENDED MARCH
31, 1998
Total revenues for 1999 increased by $6,107 due primarily to increases of (i)
$3,495 from the 10 communities acquired in 1998, (ii) $2,555 from the
development communities completed during 1998 and 1999, and (iii) $465 from the
communities owned throughout both periods. The majority of the remaining
difference is due to decreases of (i) $263 due to the sale of Redford Park
Apartments in 1998 and (ii) $136 in management and development income, net.
Property operating expenses for 1998 increased by $2,727 due primarily to (i)
$1,391 from the 10 communities acquired in 1998, (ii) $928 from the development
communities completed during 1998 and 1999 and (iii) $577 from the communities
owned throughout both periods. These increases were slightly offset by a
decrease of $169 from the sale of Redford Park Apartments in 1998.
General and administrative expense increased by $523 for the three months ended
March 31, 1999 mainly due to the addition and expansion of certain
administrative functions related to the Company's portfolio growth.
Depreciation and amortization expense increased by $1,674 primarily due to (i)
$694 from the 10 communities acquired in 1998, (ii) $355 from the development
communities completed during 1998 and 1999, (iii) $550 from the communities
owned throughout both periods, and (iv) $75 from additional depreciation related
to corporate assets.
Interest expense increased $1,103 during the three months ended March 31, 1999
due primarily to property acquisitions, new financing transactions related to
the FDC merger, and additional funding of the development properties.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased from $14,924 for the three
months ended March 31, 1998 to $16,348 for the three months ended March 31,
1999. The increase in net cash flow was primarily related to growth in income
and cash flow related to property acquisitions and development.
Net cash from investing activities increased by $55,567 from a usage of $37,087
for the three months ended March 31, 1998 to a source of $18,480 for the three
months ended March 31, 1999. The increase was primarily related to the sale of 6
properties to the Joint Venture for net cash proceeds of $64,588, of which
$15,744 was used to fund an escrow reserve to effectuate a tax free exchange
related to the sale, $3,000 was advanced to the Joint Venture at an interest
rate of 10%, and $2,549 was invested in the Joint Venture. Additionally, two
properties were purchased during the first three months of 1998 for $18,714;
whereas, no properties were purchased during 1999. The majority of the remaining
difference is related to $6,114 additional development spending for the first
three months of 1999 as compared to the same period a year earlier.
As of March 31, 1999 the Company's communities in various stages of development
and lease-up are summarized as follows ($'s in 000's):
<TABLE>
Apartments
Current ----------------------------------
Total Budgeted Cost to Comp-
Location Units Cost Date leted Leased Occupied
<S> <C> <C> <C> <C> <C> <C>
Completed Communities :
In Lease-up
Terraces at Fieldstone Conyers, GA 316 17,458 17,097 316 231 218
Paddock Club Gainesville Gainesville, FL 264 17,488 17,067 264 140 124
Terraces at Towne Lake Phase II Cherokee County, GA 238 14,083 12,659 238 146 130
Paddock Club Brandon Phase II Brandon, FL 132 8,313 7,512 132 92 80
-------------------------------------------------------------------
Total Completed Communities 950 $ 57,342 $ 54,335 950 609 552
===================================================================
Development Communities:
In Lease-up:
Reserve at Dexter Lake Memphis, TN 252 16,976 16,128 196 121 87
Paddock Club Panama City Panama City, FL 254 15,536 13,659 216 82 67
Paddock Club Montgomery Montgomery, AL 208 13,832 12,411 136 84 57
-------------------------------------------------------------------
714 $ 46,344 $ 42,198 548 287 211
-------------------------------------------------------------------
Under Construction:
Paddock Club Murfreesboro Murfreesboro, TN 240 15,535 7,695 - 41 -
Grand Reserve Lexington Lexington, KY 370 30,034 4,953 - - -
Grande View Nashville Nashville, TN 433 34,407 3,636 - - -
-------------------------------------------------------------------
1,043 $ 79,976 $ 16,284 - 41 -
-------------------------------------------------------------------
In Pre-Development:
St. Augustine at the Lake Phase IIJacksonville, FL 124 8,290 527 - - -
Reserve at Dexter Lake Phase II Memphis, TN 244 16,068 177 - - -
Paddock Club Melbourne Melbourne, FL 300 18,591 1,227 - - -
Kenwood Club at the Park Katy(Houston), TX 320 18,129 1,237 - - -
-------------------------------------------------------------------
988 $ 61,078 $ 3,168 - - -
===================================================================
Total Units Currently Under Development 2,745 $ 187,398 $ 61,650 548 328 211
===================================================================
</TABLE>
<PAGE>
Capital improvements to existing properties totaled $7,013 for the three months
ended March 31, 1999, compared to $6,685 for the same period last year.
Following the November 1997 FDC merger, the Company anticipated a certain amount
of capital spending necessary to bring the 7,691 apartment units acquired to the
standards of the Company's overall portfolio. As of March 31, 1999, all of this
anticipated spending was not yet completed for various reasons mainly relating
to the integration the Flournoy companies and increased development activity.
The Company considers these units to be pre-stabilized until the spending is
complete and the units are repositioned at the level of the overall portfolio.
The Company expects this spending to be complete and these properties to be
stablizezed by the beginning of the third quarter 1999.
Actual capital expenditures for development of communities, acquisition of
assets and community improvements for 1999 are summarized below:
Actual
To Date
---------------
Community development $17,802
Recurring capital at stabilized properties 2,442
Revenue enhancing projects at stabilized properties 2,133
Capital improvements to pre-stabilized properties 2,222
Corporate additions and improvements 216
---------------
$24,815
===============
Net cash from financing activities decreased by $47,595 from a source of $19,773
in 1998 to a usage of $27,822 for the same period in 1999. The majority of this
decrease relates to a net $40,258 reduction in cash flow related to the Credit
Line. During the first three months of 1999, the Company also paid-off the
8.625% loan of $2,706 related to Eastview Apartments and refinanced the property
with a new loan of $11,760 at an interest rate of 7.32%.
At March 31, 1999 the Company had $97,329 outstanding on the Credit Line and
$154,354 (including the Credit Line) of floating rate debt at an average
interest rate of 6.3%; 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 March 31, 1999 for the $741,537 of notes payable were 7.1% and 10.9
years, respectively. The Company expects to use the Credit Line to fund future
development and to provide letters of credit as credit enhancements for
tax-exempt bonds. The Credit Line is secured and is subject to borrowing base
calculations that effectively reduce the maximum amount that may be borrowed
under the Credit Line to $174,983 as of April 30, 1999.
The Company believes that cash provided by operations is adequate and
anticipates that it will continue to be adequate in both the short and long-term
to meet operating requirements (including recurring capital expenditures at the
communities) and payment of distributions by the Company in accordance with REIT
requirements under the Internal Revenue Code.
The Company expects to meet its long term liquidity requirements, such as
scheduled mortgage debt maturities, property developments and acquisitions,
expansions and non-recurring capital expenditures, through long and medium-term
collateralized and uncollateralized fixed rate borrowings, issuance of debt or
additional equity securities in the Company, potential asset sales and joint
venture transactions, and the Credit Line.
INSURANCE
In the opinion of management, property and casualty insurance is in place which
provides adequate coverage to provide financial protection against normal
insurable risks such that it believes that any loss experienced would not have a
significant impact on the Company's liquidity, financial position, or results of
operations.
INFLATION
Substantially all of the resident leases at the communities allow, at the time
of renewal, for adjustments in the rent payable thereunder, and thus may enable
the Company to seek rent increases. The substantial majority of these leases are
for one year or less. The short-term nature of these leases generally serves to
reduce the risk to the Company of the adverse effects of inflation.
YEAR 2000
In older computer programs, to conserve storage space, only two digits were used
to identify the year. This set up has created a date sequence problem. The
computer may not know that 00 comes after 99, moreover it may not know if 00 is
1900 or 2000("Y2K"). The business risk of this problem is that calculations or
processes that are date dependent may not yield the correct answer or work at
all.
Software vendors have certified all of the mission critical applications; these
vendors provide the software used for financial, network, property management
and telephone systems used by the Company. The Company does not own any in-house
development programs that require replacing or re-writing of code.
The Company has performed a thorough assessment of its personal computers and
desktop software. All mission critical desktop hardware and software are
believed to be compliant. Remediation of non-compliant hardware and software
(none of which is mission-critical) is expected to be completed by the end of
the third quarter 1999.
The Company estimates that the total Y2K project cost is nominal, as systems
have been upgraded and become Y2K compliant as part of its normal course of
business. The Company believes that its Y2K initiatives are adequate to address
reasonably likely Y2K issues.
Management believes that hardware and software upgrades made over the last few
years will reduce the possibility of interruptions to the operation. However,
the Company is dependent on the utilities infrastructure within the United
States. The most likely worst case scenario would be that the Company might
experience disruption in its operations if any of the third-party suppliers
reported a system failure.
The Y2K contingency plan is the final phase of the project. The Company
maintains contingency plans in the normal course of business designed to be
deployed in the event of various potential business interruptions. Although the
Company believes that its contingency plans and Y2K project will reduce the risk
of significant operations disruption, due to general uncertainty over Y2K
readiness of the Company's third-party suppliers, the Company is unable to
determine at this time whether the consequences of the Y2K system failures will
have a material impact.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. These statements include the plans and
objectives of management for future operations, including plans and objectives
relating to capital expenditures, rehabilitation costs on the apartment
communities, and future development. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this report on Form 10-Q will prove
to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
This information has been omitted as there have been no material changes in the
Company's market risk as disclosed in the 1998 Annual Report on Form 10-K.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report.
(27) Financial Data Schedule for the period ended 3/31/99
(b) Reports on Form 8-K
Form Events Reported Date of Report Date Filed
---- --------------- -------------- ----------
8-K Sale of Preferred Series E 12/29/98 1/11/99
<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: 5/14/99 /s/ Simon R.C. Wadsworth
------------------ --------------------------------------
Simon R.C. Wadsworth
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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<LEGEND>
This schedule contains summary information extracted from the Balance Sheet at
March 31, 1999 and Statement of Operations for the three months ended March 31,
1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
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<NAME> Mid America Apartment Communities, Inc.
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