Mid-America Apartment Communities, Inc. (MAA) is a self-administered and self-managed real estate investment trust (REIT) headquartered in Memphis, TN. The company's current portfolio consists of 40,248 wholly owned apartment units spread across the Sunbelt region. The company s largest markets are Dallas (8.7% of total gross assets), Memphis (8.6%), Jacksonville (7.9%), Atlanta (7.4%), and Houston (7.2%). All of its business activities acquisition, development, redevelopment, property management, and disposition are carried out through its operating partnership, Mid-America Apartments, L.P. In May 2007, the company established a joint venture, Mid-America Multifamily Fund I, LLC, ("Fund I"). MAA will own a 1/3 interest in the JV which plans to acquire $500 million of apartment properties over the next 3 years.
Mid-America once again had a solid quarter 3Q FFO was $0.91 per share, $0.04 ahead of the midpoint of company guidance. YTD, FFO was $2.62 per share, 4.8% higher than the same period last year. 2007 FFO growth can be attributed to strong same store operating performance and in part to a one-time incentive-fee received from the sale of a Crow joint venture property ($0.04 per share) in the 1st quarter of this year. MAA sold its remaining JV property with Crow Holdings in January, which resulted in a promote fee ($1.0 million) and gain on sale ($5.4 million).
Total same store revenue was up 4.2% vs. 3Q 2006, as average rent per square unit increased 2.1% vs. 3Q 2006 and concessions dropped 26% over the same time frame. Total same store NOI increased 7.1% year-over-year. Physical occupancy stood at 96.4% at the end of the 3rd quarter, up 0.6% year-over-year and 1.2% sequentially. Average rent per unit increased to approximately $734 per unit. The operating environment is still good for multi family landlords, and the company is seeing a decrease in move outs due to home purchase, which is a good sign that the battered housing market will continue to benefit residential REITs. Same store operating expenses increased 3.6% in the quarter vs. the 3rd quarter last year. The company is incurring more expenses due to higher traffic and turn costs as more apartments are being made ready for move-in. Real estate taxes continue to rise and MAA is projecting a 2.5% increase in property taxes for the full year 2007 compared to 2006.
Mid-America defines its markets in three tiers high growth (48% of total gross assets), growth and income (36% of total gross assets) and stable income (16% of total gross assets). About 42% of MAA's operating same store NOI comes from high growth markets, 41% comes from growth and income markets and 18% comes from stable income markets. Having a diversified presence in different types of markets helps mitigate risk and decreases volatility in the event of a slowdown in any one product type. Smaller markets often have good fundamentals in select sub-markets with very limited new supply added. MAA continues to focus on diversification and will continue to invest capital all three market tiers.
In the company's high growth markets, which include Dallas, Atlanta, Houston, Nashville and Tampa, same store revenue and NOI increased 4.9% and 9.1% respectively in the 3rd quarter 2007 compared to the 3rd quarter 2006. The strongest NOI increases came from Dallas (up 22.8% 3Q 2007 vs. 3Q 2006), Houston (11.2%), and Greenville (10.7%). In the growth and income segment, which include Memphis, Austin, Jacksonville, and Jackson, same store revenue and NOI increased 5.2% and 8.6% year-over-year respectively. Same store NOI increases were highest in Austin (up 20.7% 3Q 2007 vs.3Q 2006), Memphis (19.3%), and Jackson, MS (12.0%). In the company's stable income markets, which include Lexington, KY and Columbus, GA same store revenue and NOI increased 3.6% and 4.8% year-over-year respectively. MAA's Florida markets continue to struggle, as more and more once for sale product in now being put back into the market as rentals, which has added competition in the company's Jacksonville and Tampa markets. The company expects same store NOI growth to fall in the range of 5.50% - 6.00%, which would put the company in line with peer group averages and at the top end of prior guidance.
MAA is an active rehabber of its older properties. 1,507 units have been redeveloped so far this year and the company has been able to increase rents about 15% on its rehabbed units. The company has targeted another 14,000 units for possible rehab in the future. We view rehabbing as a prudent use of capital which can generate attractive returns. We favor upgrading existing properties vs. chasing high priced acquisitions. On the development front, MAA has substantially completed the construction of Brier Creek Phase II in Raleigh, a 200-unit development property which is now about 67% leased. The company began construction on two other properties in the 3rd quarter, St Augustine II (124 apartments in Jacksonville, Florida) and Copper Ridge I (216 apartments in Dallas, Texas).
In September the company completed the acquisition of the Farmington Village (a 280-unit apartment community) in Charleston. The property was 78% occupied at the end of the 3rd quarter. Also in the quarter the company purchased Chalet at Fall Creek (a 268-unit apartment community) in Houston. On the disposition side the company sold Somerset and Woodridge, two older properties in Jackson, MS for $14.6 million.
MAA has a healthy balance sheet with debt to gross assets of 53%, which is slightly down from the year earlier quarter. The company's fixed charge coverage improved to 2.30x up from 2.17x in 3Q 2006. The company has little exposure to floating rate debt, which now stands at about 3% of total debt outstanding, so MAA will not be materially affected if rates rise. MAA's average cost of debt is low, current at about 5.6%.
AFFO (funds from operations after recurring capital expenditures) was $0.71 per share in the 3rd quarter, a $0.14 per share increase from last year's comparable period. MAA is currently covering its quarterly dividend (recently raised to $0.605 per share) with AFFO, and we could see another increase in early 2008. MAA anticipates AFFO to fall in the range of $2.77 to $2.97 per share in 2007, which would represent an 11% increase at the midpoint of guidance.