# MID AMERICA APARTMENT COMMUNITIES INC. (MAA) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MID AMERICA APARTMENT COMMUNITIES INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/912595/000095017024013275/maa-20231231.htm
Accession: 0000950170-24-013275
Filing date: 2024-02-09
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MAA/
All MD&A years: /company/MAA/mda/
Previous year: /company/MAA/mda/fy2022/ (FY 2022)
Next year: /company/MAA/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion analyzes the financial condition and results of operations of both MAA and the Operating Partnership, of which MAA is the sole general partner and in which MAA owned a 97.4% interest as of December 31, 2023. MAA conducts all of its business through the Operating Partnership and its various subsidiaries. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results, performance or achievements may differ materially from those expressed or implied by such forward-looking statements as a result of many factors, including, but not limited to, those under the heading “Risk Factors” in this Annual Report on Form 10-K.

MAA, an S&P 500 company, is a multifamily-focused, self-administered and self-managed real estate investment trust, or REIT. We own, operate, acquire and selectively develop apartment communities primarily located in the Southeast, Southwest and Mid-Atlantic regions of the U.S. As of December 31, 2023, we owned and operated 290 apartment communities (which does not include development communities under construction) through the Operating Partnership and its subsidiaries, and had an ownership interest in one apartment community through an unconsolidated real estate joint venture. In addition, as of December 31, 2023, we had five development communities under construction, and 34 of our apartment communities included retail components. Our apartment communities, including development communities under construction, were located across 16 states and the District of Columbia as of December 31, 2023.

We report in two segments, Same Store and Non-Same Store and Other. Our Same Store segment represents those apartment communities that have been owned and stabilized for at least 12 months as of the first day of the calendar year. Our Non-Same Store and Other segment includes recently acquired communities, communities being developed or in lease-up, communities that have been disposed of or identified for disposition, communities that have incurred a significant casualty loss and stabilized communities that do not meet the requirements to be Same Store communities. Also included in our Non-Same Store and Other segment are non-multifamily activities and storm related expenses related to hurricanes. Additional information regarding the composition of our segments is included in Note 13 to the consolidated financial statements included in this Annual Report on Form 10-K.

Overview

For the year ended December 31, 2023, net income available for MAA common shareholders was $549.1 million as compared to $633.7 million for the year ended December 31, 2022. Results for the year ended December 31, 2023 included $18.5 million of non-cash gain related to the fair value adjustment of the embedded derivative in the MAA Series I preferred shares and $3.5 million of non-cash gain, net of tax, from investments. Results for the year ended December 31, 2022 included $215.6 million of gain related to the sale of real estate assets and $29.9 million in net casualty gain primarily due to winter storm Uri, partially offset by $35.8 million of non-cash loss, net of tax, from investments and $21.1 million of non-cash loss related to the fair value adjustment of the embedded derivative in the MAA Series I preferred shares. Revenues for the year ended December 31, 2023 increased 6.4% as compared to the year ended December 31, 2022, driven by a 6.2% increase in our Same Store segment. Property operating expenses, excluding depreciation and amortization, for the year ended December 31, 2023 increased by 6.1% as compared to the year ended December 31, 2022, driven by a 6.5% increase in our Same Store segment. The primary drivers of these changes are discussed in the “Results of Operations” section.

Trends

During the year ended December 31, 2023, revenue growth for our Same Store segment continued to be primarily driven by growth in average effective rent per unit. The average effective rent per unit for our Same Store segment continued to increase from the prior year, up 7.0% for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Average effective rent per unit represents the average of gross rent amounts, after the effect of leasing concessions, for occupied apartment units plus prevalent market rates asked for unoccupied apartment units, divided by the total number of units. Leasing concessions represent discounts to the current market rate. We believe average effective rent per unit is a helpful measurement in evaluating average pricing; however, it does not represent actual rental revenue collected per unit.

For the year ended December 31, 2023, average physical occupancy for our Same Store segment was 95.6%, as compared to 95.8% for the year ended December 31, 2022. Average physical occupancy is a measurement of the total number of our apartment units that are occupied by residents, and it represents the average of the daily physical occupancy for the period.

An important part of our portfolio strategy is to maintain diversity of markets, submarkets, product types and price points in the Southeast, Southwest and Mid-Atlantic regions of the U.S. We have multifamily assets in 39 defined markets, with a presence in approximately 150 submarkets and a mixture of garden-style, mid-rise and high-rise communities. This diversity tends to mitigate exposure to economic issues, including supply and demand factors, in any one geographic market or area. We believe that a well-balanced portfolio, including both urban and suburban locations, with a broad range of monthly rent price points, will perform well in economic up cycles as well as better weather economic down cycles.

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Demand for apartments in our markets was solid during the fourth quarter of 2023, as evidenced by prospect traffic levels and the revenue growth achieved during the quarter. We believe demand for apartments is primarily driven by general economic conditions in our markets and is particularly correlated to job growth, population growth, household formation and in-migration over the long term. While our rent growth, occupancy and turnover trends in the fourth quarter of 2023 were solid, we continue to monitor pressures surrounding housing supply, inflation trends and general economic conditions. A worsening of the current environment could contribute to uncertain rent collections going forward, suppress demand for apartments and could drive lower rent growth on new leases and renewals than what we achieved in the year ended December 31, 2023. Current elevated supply levels are impacting rent growth performance in certain markets of our portfolio. While we expect this pressure to persist for another few quarters, we expect the demand side to continue to be more impactful over the long term. Supply chain and inflationary pressures have driven higher operating expenses during the year ended December 31, 2023, particularly in personnel, repairs and maintenance and real estate taxes, and this trend may continue going forward.

Access to the financial markets remains available for high-credit rated borrowers, such as ourselves. However, overall borrowing costs remain at elevated levels and we expect this trend to continue. As of December 31, 2023, 89.1% of our outstanding debt borrowings was subject to fixed rates. We may be further exposed to elevated interest rates as a result of additional variable rate borrowings or refinancing activities.

Results of Operations

For the year ended December 31, 2023, we achieved net income available for MAA common shareholders of $549.1 million, a 13.4% decrease as compared to the year ended December 31, 2022, and total revenue growth of $128.6 million, representing a 6.4% increase in property revenues as compared to the year ended December 31, 2022. The following discussion describes the primary drivers of the decrease in net income available for MAA common shareholders for the year ended December 31, 2023 as compared to the year ended December 31, 2022. A discussion of the results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is found in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 14, 2023, which is available free of charge on the SEC’s website at https://www.sec.gov and on our website at https://www.maac.com, on the “For Investors” page under “Filings and Financials—Annual Reports.”

Property Revenues

The following table reflects our property revenues by segment for the years ended December 31, 2023 and 2022 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","","December 31, 2022","","","Increase","","","% Increase"],["Same Store","","$","2,024,751","","","$","1,907,003","","","$","117,748","","","","6.2","%"],["Non-Same Store and Other","","","123,717","","","","112,863","","","","10,854","","","","9.6","%"],["Total","","$","2,148,468","","","$","2,019,866","","","$","128,602","","","","6.4","%"]]
[[/GREPCENT_TABLE]]

The increase in rental revenues for our Same Store segment for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was the primary driver of total property revenue growth. The Same Store segment generated a 6.2% increase in revenues for the year ended December 31, 2023, primarily the result of average effective rent per unit growth of 7.0% as compared to the year ended December 31, 2022, partially offset by lower average physical occupancy. The increase in property revenues from the Non-Same Store and Other segment for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily the result of increased revenues from completed development communities and acquired communities, partially offset by decreased revenues from disposed communities during the year ended December 31, 2022.

Property Operating Expenses

Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other operating expenses. The following table reflects our property operating expenses by segment for the years ended December 31, 2023 and 2022 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","","December 31, 2022","","","Increase","","","% Increase"],["Same Store","","$","717,812","","","$","674,110","","","$","43,702","","","","6.5","%"],["Non-Same Store and Other","","","50,329","","","","49,584","","","","745","","","","1.5","%"],["Total","","$","768,141","","","$","723,694","","","$","44,447","","","","6.1","%"]]
[[/GREPCENT_TABLE]]

The increase in property operating expenses for our Same Store segment for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by increases in real estate tax expense of $13.6 million, building repairs and maintenance of $8.4 million, personnel expense of $7.9 million, utilities expense of $6.1 million, insurance expense of $3.8 million and office operations expense of $2.5 million.

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Depreciation and Amortization

Depreciation and amortization expense for the year ended December 31, 2023 was $565.1 million, an increase of $22.1 million as compared to the year ended December 31, 2022. The increase was primarily driven by the recognition of depreciation expense associated with our completed development communities and capital spend activities made in the normal course of business during the year ended December 31, 2023, partially offset from decreased depreciation expense from disposed communities during the year ended December 31, 2022.

Other Income and Expenses

Property management expenses for the year ended December 31, 2023 were $67.8 million, an increase of $2.3 million as compared to the year ended December 31, 2022. General and administrative expenses for the year ended December 31, 2023 were $58.6 million, a decrease of $0.3 million as compared to the year ended December 31, 2022.

Interest expense for the year ended December 31, 2023 was $149.2 million, a decrease of $5.5 million as compared to the year ended December 31, 2022. The decrease was primarily due to a decrease in our average outstanding debt balance during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

For the year ended December 31, 2023, we did not dispose of any apartment communities. For the year ended December 31, 2022, we disposed of four apartment communities, resulting in a gain on sale of depreciable real estate assets of $214.8 million. During the year ended December 31, 2023, we disposed of one land parcel, resulting in the recognition of a negligible gain on sale of non-depreciable real estate assets. During the year ended December 31, 2022, we disposed of two land parcels resulting in a gain on sale of non-depreciable real estate assets of $0.8 million.

Other non-operating (income) expense for the year ended December 31, 2023 was $31.2 million of income, as compared to $42.7 million of expense for the year ended December 31, 2022. The income for the year ended December 31, 2023 was driven by $18.5 million of non-cash gain related to the fair value adjustment of the embedded derivative in the MAA Series I preferred shares, $4.4 million of non-cash gain from investments, $5.5 million of miscellaneous income and $3.4 million of interest income, partially offset by $1.0 million in net casualty loss. The expense for the year ended December 31, 2022 was driven by $45.4 million of non-cash loss from investments and $21.1 million of non-cash loss related to the fair value adjustment of the embedded derivative in the MAA Series I preferred shares, partially offset by $29.9 million in net casualty gain primarily due to winter storm Uri.

Non-GAAP Financial Measures

Funds from Operations and Core Funds from Operations

Funds from operations, or FFO, a non-GAAP financial measure, represents net income available for MAA common shareholders (computed in accordance with GAAP) excluding gains or losses on disposition of operating properties and asset impairment, plus depreciation and amortization of real estate assets, net income attributable to noncontrolling interests and adjustments for joint ventures. Because net income attributable to noncontrolling interests is added back, FFO, when used in this Annual Report on Form 10-K, represents FFO attributable to common shareholders and unitholders.

FFO should not be considered as an alternative to net income available for MAA common shareholders or any other GAAP measurement, as an indicator of operating performance or as an alternative to cash flow from operating, investing and financing activities as a measure of liquidity. Management believes that FFO is helpful to investors in understanding our operating performance, primarily because its calculation excludes depreciation and amortization expense on real estate assets and gain on sale of depreciable real estate assets. We believe that GAAP historical cost depreciation of real estate assets is generally not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies. While our calculation of FFO is in accordance with the National Association of Real Estate Investment Trusts’, or NAREIT’s, definition, it may differ from the methodology for calculating FFO utilized by other REITs and, accordingly, may not be comparable to such other REITs.

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Core FFO represents FFO as adjusted for items that are not considered part of our core business operations, such as adjustments related to the fair value of the embedded derivative in the MAA Series I preferred shares; gain or loss on sale of non-depreciable assets; gain or loss on investments, net of tax; casualty related charges (recoveries), net; gain or loss on debt extinguishment; legal (recoveries), costs and settlements, net; COVID-19 related costs and mark-to-market debt adjustments. Because net income attributable to noncontrolling interests is added back to FFO, Core FFO, when used in this Annual Report on Form 10-K, represents Core FFO attributable to common shareholders and unitholders. Core FFO should not be considered as an alternative to net income available for MAA common shareholders, or any other GAAP measurement, as an indicator of operating performance or as an alternative to cash flow from operating, investing and financing activities as a measure of liquidity. Management believes that Core FFO is helpful in understanding our core operating performance between periods in that it removes certain items that by their nature are not comparable over periods and therefore tend to obscure actual operating performance from rental activities. While our definition of Core FFO may be similar to others in the industry, our methodology for calculating Core FFO may differ from that utilized by other REITs and, accordingly, may not be comparable to such other REITs.

The following table presents a reconciliation of net income available for MAA common shareholders to FFO and Core FFO for the years ended December 31, 2023 and 2022, as we believe net income available for MAA common shareholders is the most directly comparable GAAP measure (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2023","","","2022"],["Net income available for MAA common shareholders","","$","549,118","","","$","633,748"],["Depreciation and amortization of real estate assets","","","558,969","","","","535,835"],["Loss (gain) on sale of depreciable real estate assets","","","62","","","","(214,762",")"],["MAA\u2019s share of depreciation and amortization of real estate assets of real estate joint venture","","","615","","","","621"],["Net income attributable to noncontrolling interests","","","15,025","","","","17,340"],["FFO attributable to common shareholders and unitholders","","","1,123,789","","","","972,782"],["(Gain) loss on embedded derivative in preferred shares (1)","","","(18,528",")","","","21,107"],["Gain on sale of non-depreciable real estate assets","","","(54",")","","","(809",")"],["(Gain) loss on investments, net of tax (1)(2)","","","(3,531",")","","","35,822"],["Casualty related charges (recoveries), net (1)(3)","","","980","","","","(29,930",")"],["(Gain) loss on debt extinguishment (1)","","","(57",")","","","47"],["Legal (recoveries), costs and settlements, net (1)","","","(4,454",")","","","8,535"],["COVID-19 related costs (1)","","","\u2014","","","","575"],["Mark-to-market debt adjustment (4)","","","(25",")","","","77"],["Core FFO attributable to common shareholders and unitholders","","$","1,098,120","","","$","1,008,206"]]
[[/GREPCENT_TABLE]]

(1)
Included in “Other non-operating (income) expense” in the Consolidated Statements of Operations.

(2)
For the year ended December 31, 2023, gain on investments is presented net of tax expense of $0.9 million. For the the year ended December 31, 2022, loss on investments is presented net of tax benefit of $9.5 million.

(3)
For the year ended December 31, 2022, we recognized a gain of $29.0 million from the receipt of insurance proceeds that exceeded its casualty losses related to winter storm Uri.

(4)
Included in “Interest expense” in the Consolidated Statements of Operations.

Core FFO attributable to common shareholders and unitholders for the year ended December 31, 2023 was $1.1 billion, an increase of $89.9 million as compared to the year ended December 31, 2022, primarily as a result of an increase in property revenues of $128.6 million, partially offset by increases in property operating expenses, excluding depreciation and amortization, of $44.4 million and property management expenses of $2.3 million.

Net Debt, EBITDA, EBITDAre, and Adjusted EBITDAre

Net debt, a non-GAAP financial measure, represents unsecured notes payable and secured notes payable less cash and cash equivalents and 1031(b) exchange proceeds included in restricted cash. Management considers net debt a helpful tool in evaluating our debt position. Net debt should not be considered as an alternative to any GAAP measurement, as an indicator of operating performance or as an alternative to cash flow from operating, investing and financing activities as a measure of liquidity.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, a non-GAAP financial measure, represents net income (computed in accordance with GAAP) plus depreciation and amortization, interest expense, and income taxes. As an owner and operator of real estate, management considers EBITDA to be an important measure of performance from core operations because EBITDA does not include various expense items that are not indicative of operating performance. EBITDA should not be considered as an alternative to net income, or any other GAAP measurement, as an indicator of operating performance or as an alternative to cash flow from operating, investing and financing activities as a measure of liquidity.

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EBITDAre is composed of EBITDA adjusted for the gain or loss on sale of depreciable assets and adjustments to reflect our share of EBITDAre of an unconsolidated affiliate. As an owner and operator of real estate, management considers EBITDAre to be an important measure of performance from core operations because EBITDAre does not include various expense items that are not indicative of operating performance. While our definition of EBITDAre is in accordance with NAREIT’s definition, it may differ from the methodology utilized by other REITs to calculate EBITDAre and, accordingly, may not be comparable to such other REITs. EBITDAre should not be considered as an alternative to net income, or any other GAAP measurement, as an indicator of operating performance or as an alternative to cash flow from operating, investing and financing activities as a measure of liquidity.

Adjusted EBITDAre is comprised of EBITDAre further adjusted for items that are not considered part of our core operations such as adjustments related to the fair value of the embedded derivative in the MAA Series I preferred shares; gain or loss on sale of non-depreciable assets; gain or loss on investments; casualty related charges (recoveries), net; gain or loss on debt extinguishment; legal (recoveries), costs and settlements, net; and COVID-19 related costs. As an owner and operator of real estate, management considers Adjusted EBITDAre to be an important measure of performance from core operations because Adjusted EBITDAre does not include various income and expense items that are not indicative of operating performance. Our computation of Adjusted EBITDAre may differ from the methodology utilized by other REITs to calculate Adjusted EBITDAre. Adjusted EBITDAre should not be considered as an alternative to net income, or any other GAAP measurement, as an indicator of operating performance or as an alternative to cash flow from operating, investing and financing activities as a measure of liquidity.

Management monitors its debt levels to a ratio of net debt to Adjusted EBITDAre in order to maintain our investment grade credit ratings. We believe this is an important factor in the management of our debt levels to maintain an optimal capital structure, and it is also considered in the assignment of our credit ratings. Adjusted EBITDAre is measured on a trailing twelve-month basis.

The following table presents a reconciliation of unsecured notes payable and secured notes payable to net debt as of December 31, 2023 and 2022, as we believe unsecured notes payable and secured notes payable, combined, is the most directly comparable GAAP measure (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","","December 31, 2022"],["Unsecured notes payable","","$","4,180,084","","","$","4,050,910"],["Secured notes payable","","","360,141","","","","363,993"],["Total debt","","","4,540,225","","","","4,414,903"],["Cash and cash equivalents","","","(41,314",")","","","(38,659",")"],["1031(b) exchange proceeds included in Restricted cash (1)","","","\u2014","","","","(9,186",")"],["Net debt","","$","4,498,911","","","$","4,367,058"]]
[[/GREPCENT_TABLE]]

(1)
Included in Restricted cash in the Consolidated Balance Sheets.

The following table presents a reconciliation of net income to EBITDA, EBITDAre and Adjusted EBITDAre for the years ended December 31, 2023 and 2022, as we believe net income is the most directly comparable GAAP measure (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","December 31, 2023","","","December 31, 2022"],["Net income","","$","567,831","","","$","654,776"],["Depreciation and amortization","","","565,063","","","","542,998"],["Interest expense","","","149,234","","","","154,747"],["Income tax expense (benefit)","","","4,744","","","","(6,208",")"],["EBITDA","","","1,286,872","","","","1,346,313"],["Loss (gain) on sale of depreciable real estate assets","","","62","","","","(214,762",")"],["Adjustments to reflect MAA\u2019s share of EBITDAre of unconsolidated affiliates","","","1,350","","","","1,357"],["EBITDAre","","","1,288,284","","","","1,132,908"],["(Gain) loss on embedded derivative in preferred shares (1)","","","(18,528",")","","","21,107"],["Gain on sale of non-depreciable real estate assets","","","(54",")","","","(809",")"],["(Gain) loss on investments (1)","","","(4,449",")","","","45,357"],["Casualty related charges (recoveries), net (1) (2)","","","980","","","","(29,930",")"],["(Gain) loss on debt extinguishment (1)","","","(57",")","","","47"],["Legal (recoveries), costs and settlements, net (1)","","","(4,454",")","","","8,535"],["COVID-19 related costs (1)","","","\u2014","","","","575"],["Adjusted EBITDAre","","$","1,261,722","","","$","1,177,790"]]
[[/GREPCENT_TABLE]]

(1)
Included in “Other non-operating (income) expense” in the Consolidated Statements of Operations.

(2)
For the year ended December 31, 2022, we recognized a gain of $29.0 million from the receipt of insurance proceeds that exceeded our casualty losses related to winter storm Uri.

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Our net debt to Adjusted EBITDAre ratio as of December 31, 2023 was 3.6x, as compared to a ratio of 3.7x as of December 31, 2022. The change in the ratio was primarily due to an increase of $83.9 million in Adjusted EBITDAre for the year ended December 31, 2023 as compared to the year ended December 31, 2022 and an increase of $131.9 million in comparing net debt as of December 31, 2023 to net debt as of December 31, 2022. The increase in Adjusted EBITDAre was primarily due to an increase in property revenues, partially offset by an increase in property operating expenses, while the increase in net debt was primarily due to an increase in unsecured notes payable and a decrease in cash and cash equivalents.

Liquidity and Capital Resources

Overview

Our cash flows from operating, investing and financing activities, as well as general economic and market conditions, are the principal factors affecting our liquidity and capital resources.

We expect that our primary uses of cash will be to fund our ongoing operating needs, to fund our ongoing capital spending requirements, which relate primarily to our development, redevelopment and property repositioning activities, to repay maturing borrowings, to fund the future acquisition of assets and to pay shareholder dividends. We expect to meet our cash requirements through net cash flows from operating activities, existing unrestricted cash and cash equivalents, borrowings under our commercial paper program and our revolving credit facility, the future issuance of debt and equity and the future disposition of assets.

We historically have had positive net cash flows from operating activities. We believe that future net cash flows generated from operating activities, existing unrestricted cash and cash equivalents, borrowing capacity under our current commercial paper program and revolving credit facility, and our ability to issue debt and equity will provide sufficient liquidity to fund the cash requirements for our business over the next 12 months and the foreseeable future.

As of December 31, 2023, we had $791.8 million of combined unrestricted cash and cash equivalents and available capacity under our revolving credit facility.

Cash Flows from Operating Activities

Net cash provided by operating activities was $1.1 billion for the year ended December 31, 2023, an increase of $78.7 million as compared to the year ended December 31, 2022. The increase in operating cash flows was primarily driven by our operating performance.

Cash Flows from Investing Activities

Net cash used in investing activities was $775.3 million for the year ended December 31, 2023 as compared to $405.2 million for the year ended December 31, 2022. The primary drivers of the change were as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Primary drivers of cash (outflow) inflow during the year ended December 31,","","","Increase (Decrease)"],["","","2023","","","2022","","","in Net Cash"],["Purchases of real estate and other assets","","$","(223,453",")","","$","(271,428",")","","$","47,975"],["Capital improvements and other","","","(341,224",")","","","(296,176",")","","","(45,048",")"],["Development costs","","","(198,152",")","","","(172,124",")","","","(26,028",")"],["Contributions to affiliates","","","(16,636",")","","","(13,849",")","","","(2,787",")"],["Proceeds from real estate asset dispositions","","","2,946","","","","320,491","","","","(317,545",")"],["Net proceeds from insurance recoveries","","","945","","","","27,312","","","","(26,367",")"]]
[[/GREPCENT_TABLE]]

The decrease in cash outflows for purchases of real estate and other assets was driven by the nature of the real estate assets acquired during the year ended December 31, 2023 as compared to the year ended December 31, 2022. During the year ended December 31, 2023, we acquired two apartment communities. During the year ended December 31, 2022, we acquired two apartment communities, and closed on the pre-purchase of a multifamily development community. The increase in cash outflows for capital improvements and other was primarily driven by increased capital spend relating to our revenue enhancing capital expenditures and recurring capital replacements, partially offset by decreased property redevelopment and repositioning activities and decreased reconstruction-related capital expenditures relating to winter storms during the year ended December 31, 2023 as compared to the year ended December 31, 2022. The increase in cash outflows for development costs was driven by increased development spend during the year ended December 31, 2023 as compared to the year ended December 31, 2022. The increase in cash outflows for contributions to affiliates was driven by a larger amount of investments made in the technology-focused limited partnerships during the year ended December 31, 2023 as compared to the year ended December 31, 2022. The decrease in cash inflows from proceeds from real estate asset dispositions resulted from the disposition of one land parcel during the year ended December 31, 2023 as compared to the disposition of four multifamily communities and two land parcels during the year ended December 31, 2022. The decrease in cash inflows from net proceeds from insurance recoveries was driven by decreased insurance reimbursements received for storm-related casualty claims during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

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Cash Flows from Financing Activities

Net cash used in financing activities was $367.9 million for the year ended December 31, 2023 as compared to $722.8 million for the year ended December 31, 2022. The primary drivers of the change were as follows (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Primary drivers of cash inflow (outflow) during the year ended December 31,","","","Increase (Decrease)"],["","","2023","","","2022","","","in Net Cash"],["Net change in commercial paper","","$","475,000","","","$","20,000","","","$","455,000"],["Principal payments on notes payable","","","(353,861",")","","","(126,401",")","","","(227,460",")"],["Payment of deferred financing costs","","","(2",")","","","(5,516",")","","","5,514"],["Distributions to noncontrolling interests","","","(17,671",")","","","(14,927",")","","","(2,744",")"],["Dividends paid on common shares","","","(651,717",")","","","(539,605",")","","","(112,112",")"],["Proceeds from issuances of common shares","","","205,070","","","","1,083","","","","203,987"],["Acquisition of noncontrolling interests","","","(15,757",")","","","(43,070",")","","","27,313"],["Net change in other financing activities","","","(5,279",")","","","(10,646",")","","","5,367"]]
[[/GREPCENT_TABLE]]

The increase in cash inflows related to the net change in commercial paper resulted from the increase in net borrowings of $475.0 million on our commercial paper program during the year ended December 31, 2023 as compared to the increase in net borrowings of $20.0 million on our commercial paper program during the year ended December 31, 2022. The increase in cash outflows from principal payments on notes payable primarily resulted from the retirement of $350.0 million of unsecured senior notes during the year ended December 31, 2023 as compared to the retirement of $125.0 million of unsecured senior notes during the year ended December 31, 2022. The decrease in cash outflows related to payment of deferred financing costs resulted from negligible deferred financing costs during the year ended December 31, 2023 as compared to the closing costs of $5.5 million during the year ended December 31, 2022 related to the amendment of our unsecured revolving credit facility. The increase in cash outflows from distributions to noncontrolling interests and dividends paid on common shares primarily resulted from the increase in the dividend rate to $5.600 per share during the year ended December 31, 2023 as compared to the dividend rate of $4.675 per share during the year ended December 31, 2022. The increase in cash inflows related to the proceeds from issuances of common shares resulted from the proceeds from the settlement of two forward sale agreements with respect to a total of 1.1 million shares at a forward price per share of $185.23 during the year ended December 31, 2023. The decrease in cash outflows from the acquisition of noncontrolling interests resulted from the acquisition of a 5% noncontrolling interest of a consolidated real estate entity for $15.8 million during the year ended December 31, 2023 compared to the acquisition of a 20% noncontrolling interest of a consolidated real estate entity for $43.1 million during the year ended December 31, 2022. The decrease in cash outflows from the net change in other financing activities was primarily driven by fewer shares of MAA’s common stock surrendered by employees to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares during the year ended December 31, 2023 as compared to year ended December 31, 2022.

Debt

The following schedule reflects our outstanding debt as of December 31, 2023 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Principal Balance","","","Average Years to Rate Maturity","","","Weighted Average Effective Rate"],["Unsecured debt"],["Fixed rate senior notes","","$","3,700,000","","","","5.9","","","","3.3","%"],["Variable rate commercial paper","","","495,000","","","","0.1","","","","5.7","%"],["Debt issuance costs, discounts, premiums and fair market value adjustments","","","(14,916",")"],["Total unsecured debt","","$","4,180,084","","","","5.2","","","","3.6","%"],["Secured debt"],["Fixed rate property mortgages","","$","363,293","","","","25.1","","","","4.4","%"],["Debt issuance costs","","","(3,152",")"],["Total secured debt","","$","360,141","","","","25.1","","","","4.4","%"],["Total debt","","$","4,540,225","","","","6.8","","","","3.6","%"]]
[[/GREPCENT_TABLE]]

37

The following schedule presents the contractual maturity dates of our outstanding debt, net of debt issuance costs, discounts, premiums and fair market value adjustments as of December 31, 2023 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Commercial Paper \u207d\u00b9\u207e & Revolving Credit Facility \u207d\u00b2\u207e","","","Senior Notes","","","Property Mortgages","","","Total"],["2024","","$","495,000","","","$","399,659","","","$","\u2014","","","$","894,659"],["2025","","","\u2014","","","","398,547","","","","\u2014","","","","398,547"],["2026","","","\u2014","","","","297,973","","","","\u2014","","","","297,973"],["2027","","","\u2014","","","","597,334","","","","\u2014","","","","597,334"],["2028","","","\u2014","","","","397,303","","","","\u2014","","","","397,303"],["2029","","","\u2014","","","","557,747","","","","\u2014","","","","557,747"],["2030","","","\u2014","","","","297,887","","","","\u2014","","","","297,887"],["2031","","","\u2014","","","","445,645","","","","\u2014","","","","445,645"],["2032","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["2033","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["Thereafter","","","\u2014","","","","292,989","","","","360,141","","","","653,130"],["Total","","$","495,000","","","$","3,685,084","","","$","360,141","","","$","4,540,225"]]
[[/GREPCENT_TABLE]]

(1)
There was $495.0 million outstanding under MAALP’s commercial paper program as of December 31, 2023. Under the terms of the program, MAALP may issue up to a maximum aggregate amount outstanding at any time of $625.0 million. For the three months ended December 31, 2023, there were $495.0 million of borrowings under the commercial paper program. For the year ended December 31, 2023, average daily borrowings outstanding under the commercial paper program were $95.1 million.

(2)
There were no borrowings outstanding under MAALP’s $1.25 billion unsecured revolving credit facility as of December 31, 2023.

The following schedule reflects the maturities and average effective interest rates of our outstanding fixed rate debt, net of debt issuance costs, discounts, premiums and fair market value adjustments, as of December 31, 2023 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Fixed Rate Debt","","","Average Effective Rate"],["2024","","$","399,659","","","","4.0","%"],["2025","","","398,547","","","","4.2","%"],["2026","","","297,973","","","","1.2","%"],["2027","","","597,334","","","","3.7","%"],["2028","","","397,303","","","","4.2","%"],["2029","","","557,747","","","","3.7","%"],["2030","","","297,887","","","","3.1","%"],["2031","","","445,645","","","","1.8","%"],["2032","","","\u2014","","","","\u2014"],["2033","","","\u2014","","","","\u2014"],["Thereafter","","","653,130","","","","3.8","%"],["Total","","$","4,045,225","","","","3.4","%"]]
[[/GREPCENT_TABLE]]

Unsecured Revolving Credit Facility & Commercial Paper

MAALP has entered into an unsecured revolving credit facility with a borrowing capacity of $1.25 billion and an option to expand to $2.0 billion. The revolving credit facility bears interest at an adjusted Secured Overnight Financing Rate plus a spread of 0.70% to 1.40% based on an investment grade pricing grid. The revolving credit facility has a maturity date in October 2026 with an option to extend for two additional six-month periods. As of December 31, 2023, there was no outstanding balance under the revolving credit facility, while $4.5 million of capacity was used to support outstanding letters of credit.

MAALP has established an unsecured commercial paper program, whereby it can issue unsecured commercial paper notes with varying maturities not to exceed 397 days up to a maximum aggregate principal amount outstanding of $625.0 million. As of December 31, 2023, there were $495.0 million of borrowings outstanding under the commercial paper program.

Unsecured Senior Notes

As of December 31, 2023, MAALP had $3.7 billion of publicly issued unsecured senior notes outstanding.

In October 2023, MAALP retired $350.0 million of publicly issued unsecured senior notes at maturity using available cash on hand and borrowings under the commercial paper program.

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In January 2024, MAALP publicly issued $350.0 million in aggregate principal amount of unsecured senior notes due March 2034 with a coupon rate of 5.000% per annum and at an issue price of 99.019%. Interest is payable semi-annually in arrears on March 15 and September 15 of each year, commencing September 15, 2024. The proceeds from the sale of the notes were used to repay borrowings on the commercial paper program. The notes have an effective interest rate of 5.123%.

Secured Property Mortgages

MAALP maintains secured property mortgages with various life insurance companies. As of December 31, 2023, MAALP had $363.3 million of secured property mortgages outstanding.

In July 2023, MAALP retired $3.0 million remaining on a mortgage associated with an apartment community prior to its June 2025 maturity.

For more information regarding our debt capital resources, see Note 5 to the consolidated financial statements included in this Annual Report on Form 10-K.

Equity

As of December 31, 2023, MAA owned 116,694,124 OP Units, comprising a 97.4% limited partnership interest in MAALP, while the remaining 3,143,972 outstanding OP Units were held by limited partners of MAALP other than MAA. Holders of OP Units (other than MAA) 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 NYSE over a specified period prior to the redemption date) or by delivering one share of MAA’s common stock (subject to adjustment under specified circumstances) for each OP Unit so redeemed. MAA has registered under the Securities Act the 3,143,972 shares of its common stock that, as of December 31, 2023, were issuable upon redemption of OP Units, in order for those shares to be sold freely in the public markets.

In August 2021, MAA entered into two 18-month forward sale agreements with respect to a total of 1.1 million shares of its common stock at an initial forward sale price of $190.56 per share, which is net of issuance costs. In January 2023, MAA settled its two forward sale agreements with respect to all 1.1 million shares at a forward price per share of $185.23, which is inclusive of adjustments made to reflect the then-current federal funds rate, the amount of dividends paid to holders of MAA common stock and commissions paid to sales agents, for net proceeds of $203.7 million. We have used these proceeds primarily to fund our development and redevelopment activities.

The Company has entered into an equity distribution agreement to establish an at-the-market, or ATM, share offering program, which allows MAA to sell shares of its common stock from time to time to or through its sales agents into the existing market at current market prices, and to enter into separate forward sales agreements to or through its forward purchasers. Under its ATM program, MAA has the authority to issue up to an aggregate of 4.0 million shares of its common stock, at such times to be determined by MAA. MAA has no obligation to issue shares through the ATM program. During the years ended December 31, 2023 and 2022, MAA did not sell any shares of common stock under its ATM program. As of December 31, 2023, there were 4.0 million shares remaining under the ATM program.

For more information regarding our equity capital resources, see Note 8 and Note 9 to the consolidated financial statements included in this Annual Report on Form 10-K.

Material Cash Requirements

The following table summarizes material cash requirements as of December 31, 2023 related to contractual obligations, which consist of principal and interest on our debt obligations and right-of-use lease liabilities (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","2024","","","2025","","","2026","","","2027","","","2028","","","Thereafter","","","Total"],["Debt obligations (1)","","$","895,000","","","$","400,000","","","$","300,000","","","$","600,000","","","$","400,000","","","$","1,963,293","","","$","4,558,293"],["Fixed rate interest","","","126,936","","","","118,061","","","","103,099","","","","88,161","","","","70,061","","","","509,926","","","","1,016,244"],["Right-of-use lease liabilities (2)","","","2,951","","","","2,919","","","","2,968","","","","3,002","","","","1,583","","","","55,605","","","","69,028"],["Total","","$","1,024,887","","","$","520,980","","","$","406,067","","","$","691,163","","","$","471,644","","","$","2,528,824","","","$","5,643,565"]]
[[/GREPCENT_TABLE]]

(1)
Represents principal payments gross of debt issuance costs, discounts, premiums and fair market value adjustments.

(2)
Primarily comprised of a ground lease underlying one apartment community we own and the lease of our corporate headquarters.

As of December 31, 2023, we also had obligations, which are not reflected in the table above, to make additional capital contributions to six technology-focused limited partnerships in which we hold equity interests. The capital contributions may be called by the general partners at any time after giving appropriate notice. As of December 31, 2023, we had committed to make additional capital contributions totaling up to $33.6 million if and when called by the general partners of the limited partnerships.

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We have other material cash requirements that do not represent contractual obligations, but that we expect to incur in the ordinary course of our business.

As of December 31, 2023, we had five development communities under construction totaling 1,970 apartment units once complete. Total expected costs for the five development projects are $647.3 million, of which $391.6 million had been incurred through December 31, 2023. In addition, our property redevelopment and repositioning activities are ongoing, and we incur expenditures relating to recurring capital replacements, which typically include scheduled carpet replacement, new roofs, HVAC units, plumbing, concrete, masonry and other paving, pools and various exterior building improvements. For the year ending December 31, 2024, we expect that our total capital expenditures relating to our development activities, our property redevelopment and repositioning activities and recurring capital replacements will be in line with our total capital expenditures for the year ended December 31, 2023. We expect to have additional development projects in the future.

During the year ended December 31, 2023, we acquired two multifamily apartment communities for approximately $210 million, acquired two land parcels for future development for approximately $13 million, and purchased the noncontrolling interest of a consolidated real estate entity for approximately $16 million. These activities were funded from borrowings under the commercial paper program and available cash on hand. In January 2024, we issued $350.0 million of unsecured senior notes, the proceeds of which were used to pay down outstanding borrowings under the commercial paper program.

We typically declare cash dividends on MAA’s common stock on a quarterly basis, subject to approval by MAA’s Board of Directors. We expect to pay quarterly dividends at an annual rate of $5.88 per share of MAA common stock during the year ending December 31, 2024. The timing and amount of future dividends will depend on actual cash flows from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986 and other factors as MAA’s Board of Directors deems relevant. MAA’s Board of Directors may modify our dividend policy from time to time.

Inflation

Our resident leases at our apartment communities allow for adjustments in the rental rate at the time of renewal, which may enable us to seek rent increases. The majority of our leases are for one year or less. The short-term nature of these leases generally serves to reduce our risk to adverse effects of inflation on our revenue. During the year ended December 31, 2023, we experienced inflationary pressures that drove higher operating expenses, primarily in real estate taxes, building repairs and maintenance and personnel expenses.

Critical Accounting Estimates

A critical accounting estimate is one that is both important to our financial condition and results of operations and that involves some degree of uncertainty. The preceding discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may differ from these estimates and assumptions.

We believe that the estimates and assumptions summarized below are most important to the portrayal of our financial condition and results of operations because they involve a significant level of estimation uncertainty and they have had, or are reasonably likely to have, a material impact on our financial condition or results of operations.

Acquisition of real estate assets

We account for our acquisitions of investments in real estate as asset acquisitions in accordance with Accounting Standards Codification Topic 805, Business Combinations, which requires the cost of the real estate acquired to be allocated to the individual acquired tangible assets, consisting of land, buildings and improvements and other, and identified intangible assets, consisting of the value of in-place leases and other contracts, on a relative fair value basis. In calculating the asset value of acquired tangible and intangible assets, management may use significant subjective inputs, including forecasted net operating income, or NOI, and market specific capitalization and discount rates. Management analyzes historical stabilized NOI to determine its estimate for forecasted NOI. Management estimates the market capitalization rate by analyzing the market capitalization rates for sold properties with comparable ages in similarly sized markets. Management allocates the purchase price of the asset acquisition based on the relative fair value of the individual components as a proportion of the total assets acquired.

40

Impairment of long-lived assets

We account for long-lived assets in accordance with the provisions of accounting standards for the impairment or disposal of long-lived assets. Management periodically evaluates long-lived assets, including investments in real estate, for indicators that would suggest that the carrying amount of the assets may not be recoverable. The judgments regarding the existence of such indicators are based on factors such as operating performance, market conditions and legal factors. Long-lived assets, such as real estate assets, equipment, right-of-use lease assets and purchased intangibles subject to amortization, are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, or an asset group. Management generally considers the individual assets of an apartment community to collectively represent an asset group. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated future undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Management calculates the fair value of an asset by dividing estimated future annual cash flow by a market capitalization rate. No material impairment losses were recognized during the years ended December 31, 2023 and 2022.

Our impairment assessments may contain uncertainties because they require management to make assumptions and to apply judgment to estimate future undiscounted cash flows and the fair value of the assets. Key assumptions used in estimating future cash flows and the fair value of an asset include projecting an apartment community’s NOI, estimating asset useful lives, disposition dates and recurring capital expenditures, as well as selecting an appropriate market capitalization rate. Management considers its apartment communities’ historical stabilized NOI performance, local market economics and the business environment impacting our apartment communities as the basis in projecting forecasted NOI, which management believes is representative of future cash flows. Management estimates the market capitalization rate by analyzing the market capitalization rates for sold properties with comparable ages in similarly sized markets. These estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance.

Valuation of embedded derivative

The redemption feature embedded in the MAA Series I preferred stock is reported as a derivative asset and is adjusted to its fair value at each reporting date, with a corresponding non-cash adjustment to the income statement. The derivative asset related to the redemption feature is valued using widely accepted valuation techniques, including a discounted cash flow analysis in which the perpetual value of the preferred shares is compared to the value of the preferred shares assuming the call option is exercised, with the value of the bifurcated call option as the difference between the two values. The analysis reflects the contractual terms of the redeemable preferred shares, which are redeemable at our option beginning on October 1, 2026 and at the redemption price of $50 per share. We use various significant inputs in the analysis, including trading data available on the preferred shares, estimated coupon yields on preferred stock instruments from REITs with similar credit ratings as MAA and treasury rates to determine the fair value of the bifurcated call option. As a result of the adjustments recorded to reflect the change in fair value of the derivative asset, the fair value of the embedded derivative asset increased to $31.9 million as of December 31, 2023 as compared to $13.4 million as of December 31, 2022, an increase in value of the asset of $18.5 million.

Arriving at the valuation of the embedded derivative requires a significant amount of subjective judgment by management, and the valuation of the embedded derivative is highly sensitive to changes in certain inputs in the analysis. For example, changes in the inputs of the trading data available on the preferred shares, estimated coupon yields on preferred stock instruments from REITs with similar credit ratings as MAA and treasury rates could cause the valuation of the embedded derivative to materially change from the recorded balance as of December 31, 2023. For instance, holding all other assumptions constant, a $1 decrease in the trading price of the preferred shares as of December 31, 2023 would result in a decrease in fair value of the embedded derivative asset of approximately $9 million.

Significant Accounting Policies

For more information regarding our significant accounting policies, including the accounting polices related to the critical accounting estimates discussed above as well as a brief description of recent accounting pronouncements that could have a material impact on our financial statements, see Note 1 to the consolidated financial statements included in this Annual Report on Form 10-K.

41