(The following statement was released by the rating agency)
NEW YORK, June 02 (Fitch) Fitch Ratings has affirmed the
following ratings for
Mid-America Apartment Communities, Inc. and its operating
Mid-America Apartments, L.P. (collectively MAA, or the company),
Mid-America Apartment Communities, Inc.:
--Issuer Default Rating (IDR) at 'BBB'.
Mid-America Apartments, L.P.:
--IDR at 'BBB';
--Unsecured Revolving Credit Facility at 'BBB';
--Senior Unsecured Term Loans at 'BBB';
--Senior Unsecured Notes at 'BBB'.
The Rating Outlook has been revised to Positive from Stable.
KEY RATINGS DRIVERS
The affirmation of MAA's IDR at 'BBB' is driven by moderate
leverage and strong
coverage of fixed charges, combined with the Company's strong
and long-term track record of generating above-average cash flow
its stabilized property portfolio.
OUTLOOK REVISED TO POSITIVE FROM STABLE
The Outlook revision to Positive from Stable reflects the
credit risk profile and Fitch's expectation that management will
balance sheet to maintain credit metrics appropriate for 'BBB+'
through-the-cycle driven in large part by the lower volatility
results on a relative, historical basis. Further, MAA's
portfolio diversity and
competitive position in the Sunbelt region should continue to
operating performance over the next few years. In addition, the
lease-up of development projects should further bolster the
power over the next 12 to 24 months.
STRONG COVERAGE AND LEVERAGE
Fixed charge coverage for the quarter ended March 31, 2014 was
3.3x, which is
strong for the 'BBB' rating. Fixed charge coverage was 3.2x for
ended Dec. 31, 2013 and 3.6x for the 12 months ended 2012. Fitch
charge coverage will continue to improve toward 3.8x through
principally by lower fixed charges from retirement of higher
coupon secured and
senior unsecured notes. Fitch defines fixed charge coverage as
operating EBITDA less Fitch's estimate of recurring capital
by interest incurred and preferred stock distributions.
Similarly, MAA's net debt to recurring operating EBITDA was 6.2x
at March 31,
2014 compared to 6.2x and 6.3x as of Dec. 31, 2013 quarter end
and Dec. 31, 2012
year end respectively, which is one of the lowest in the
multifamily sector and
strong for a 'BBB' rated multifamily REIT in lower barrier to
Fitch projects that leverage will stabilize around 6.0x over the
months, which is strong for the 'BBB' rating level.
TRANSITION TO BECOMING UNSECURED ISSUER LARGELY COMPLETE
During 2013, the company continued the transition to an
model by completing an inaugural $350 million public unsecured
bond issuance in
October 2013. The transition was accelerated through the merger
Properties Trust wherein MAA assumed $452 million of senior
Post-merger, secured debt represented 52% of total debt as of
March 31, 2014
compared to 71% at Dec. 31, 2012. Fitch views this transition
positively, as it
diversifies sources of capital and increases financial
flexibility by broadening
the company's unencumbered asset pool.
SLIGHTLY ELEVATED DEBT MATURITIES & ADEQUATE LIQUIDITY
Near-term maturities are slightly elevated with $784.4 million
or 22.6% of debt
coming due through 2015 and another $680.6 million due by 2017.
$434.4 million of debt matures in 2018 or 12.5% of total debt.
that MAA's sources of liquidity (unrestricted cash, available
under its unsecured credit facilities, expected retained cash
operating activities after dividend distributions) exceed uses
of liquidity (pro
rata share of debt maturities, expected development and
expenditures) by $178 million from April 1, 2014 to Dec. 31,
2015, resulting in
a liquidity coverage ratio of 1.2x. Assuming 80% of secured debt
there would be a liquidity surplus of $495 million resulting in
coverage ratio of 1.9x, though Fitch views this scenario as less
the company's preference to continue reducing secured debt
Additionally, the company's adjusted FFO payout ratio continued
to trend down to
60% for the quarter ended March 31, 2014 from the 80% range in
allows the company to retain some operating cash flow to meet
needs. Fitch expects MAA to raise the dividend per share
modestly over the next
12-24 months in line with AFFO growth. Nonetheless, Fitch
expects the AFFO
payout ratio to remain in a conservative range.
FAVORABLE PROPERTY FUNDAMENTALS
MAA's same-property NOI growth was 5.2% in 2013, following 6.6%
and 4.9% in 2012
and 2011, respectively. Fitch anticipates that fundamentals will
but moderate for the foreseeable future due to increasing supply
and a slowing
growth rate in asking rents in MAA's markets. Fitch estimates
SSNOI growth will
moderate from the highs seen in 2012 and 2013 to more
single digit growth of 2-3%. Fitch projects same-property NOI
growth of 2.5% in
2014, 2% in 2015 and 2.5% in 2016. Moderating growth will be
driven primarily by
ample supply of apartment rentals, decreasing rental
increasing attractiveness of homeownership.
LIMITED DEVELOPMENT EXPOSURE
The company maintains a modest unfunded development pipeline
1.8% of total gross assets as of March 31, 2014. The company is
acquirer as opposed to a developer; it has limited in-house
and thus contracts out development projects, which Fitch views
especially given MAA's markets which are prone to overbuilding.
actively redevelops properties and historically has targeted
yields of 10%,
primarily through interior rehab. MAA completed the renovations
of over 2,500
units in 2013 achieving 11% rental rate increases on average.
The company is
expanding the redevelopment program as a result of the Colonial
merger and aims
to complete redevelopment on approximately 4,000 units in 2014.
redevelopment of existing properties generally carries a lower
market risk due
to the proven locations, existing tenant base and provides the
risk-adjusted returns over the longer term.
STRONG RELATIVE OPERATING PERFORMANCE
The ratings are supported by MAA's long-tenured management team,
acquisition and development strategy, and lower property-level
volatility through real estate cycles relative to many of its
For 2001-2013, MAA's same-property NOI growth averaged 2.2%
compared with 1.5%
for a select group of sunbelt-focused multifamily peers, and the
deviation of same-property NOI growth was 3.8% compared with
5.3% for these
SUN BELT MARKETS ARE PRONE TO OVERBUILDING
Offsetting these ratings strengths is the company's exposure to
markets with limited supply constraints and barriers to entry.
MAA's properties are concentrated in the Sunbelt region, which
supply constraints and barriers to entry given the availability
of land combined
and more lenient zoning regulations. These factors have led to
overbuilding in the region, negatively impacting supply / demand
In this regard, supply constrained markets tend to outperform
during periods of
multifamily recoveries, as demand outpaces supply. Fitch expects
same-store NOI growth will be lower that of its peers over the
years given that the sector continues to exhibit strong SSNOI
The following factors may have a positive impact on the ratings
--Demonstrated consistent access to the public unsecured bond
--Fitch's expectation of net debt to recurring operating EBITDA
6.5x (leverage was 6.2x as of March 31, 2014);
--Fitch's expectation of fixed-charge coverage sustaining above
was 3.3x for quarter ended March 31, 2014);
--Maintenance of the ratio of unencumbered assets to net
unsecured debt above
2.5x (asset coverage was 2.7x using a stressed 8.5%
The following factors may have a negative impact on the ratings
--Fitch's expectation of leverage sustaining above 7.5x;
--Fitch's expectation of fixed-charge coverage sustaining below
--Unencumbered assets to unsecured debt sustaining below 2.0x;
--Liquidity coverage sustaining below 1.0x.
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', May 28, 2014;
--'Rating U.S. Equity REITs and REOCs (Sector Credit Factors)',
Feb. 26, 2014;
--'Treatment and Notching of Hybrids in Nonfinancial Corporate
and REIT Credit
Analysis', Dec. 23, 2013;
--'Recovery Rating and Notching Criteria for Equity REITs', Nov.
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and
Criteria for Rating U.S. Equity REITs and REOCs
Treatment and Notching of Hybrids in Non-Financial Corporate and
Recovery Ratings and Notching Criteria for Equity REITs
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