Mid-America Apartment Communities, Inc.:
--Issuer Default Rating (IDR) at 'BBB'.
--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 management team and long-term track record of generating above-average cash flow returns from its stabilized property portfolio.
OUTLOOK REVISED TO POSITIVE FROM STABLE
The Outlook revision to Positive from Stable reflects the improving overall credit risk profile and Fitch's expectation that management will manage the balance sheet to maintain credit metrics appropriate for 'BBB+' through-the-cycle driven in large part by the lower volatility of operating results on a relative, historical basis. Further, MAA's portfolio diversity and competitive position in the Sunbelt region should continue to support stable operating performance over the next few years. In addition, the completion and lease-up of development projects should further bolster the company's earnings power over the next 12 to 24 months.
STRONG COVERAGE AND LEVERAGE
Fixed charge coverage for the quarter ended
Similarly, MAA's net debt to recurring operating EBITDA was 6.2x at
TRANSITION TO BECOMING UNSECURED ISSUER LARGELY COMPLETE
During 2013, the company continued the transition to an unsecured borrowing model by completing an inaugural
SLIGHTLY ELEVATED DEBT MATURITIES & ADEQUATE LIQUIDITY
Near-term maturities are slightly elevated with
Additionally, the company's adjusted FFO payout ratio continued to trend down to 60% for the quarter ended
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 remain strong 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 sustainable low-to-mid 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 affordability and increasing attractiveness of homeownership.
LIMITED DEVELOPMENT EXPOSURE
The company maintains a modest unfunded development pipeline representing just 1.8% of total gross assets as of
STRONG RELATIVE OPERATING PERFORMANCE
The ratings are supported by MAA's long-tenured management team, conservative acquisition and development strategy, and lower property-level cash flow volatility through real estate cycles relative to many of its multifamily peers. 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 standard deviation of same-property NOI growth was 3.8% compared with 5.3% for these multifamily peers.
SUN BELT MARKETS ARE PRONE TO OVERBUILDING
Offsetting these ratings strengths is the company's exposure to assets in markets with limited supply constraints and barriers to entry.
MAA's properties are concentrated in the Sunbelt region, which has limited supply constraints and barriers to entry given the availability of land combined and more lenient zoning regulations. These factors have led to cycles of overbuilding in the region, negatively impacting supply / demand fundamentals. In this regard, supply constrained markets tend to outperform during periods of multifamily recoveries, as demand outpaces supply. Fitch expects that MAA's same-store NOI growth will be lower that of its peers over the next several years given that the sector continues to exhibit strong SSNOI growth nationally.
The following factors may have a positive impact on the ratings and/or Outlook:
--Demonstrated consistent access to the public unsecured bond market;
--Fitch's expectation of net debt to recurring operating EBITDA sustaining below 6.5x (leverage was 6.2x as of
--Fitch's expectation of fixed-charge coverage sustaining above 3.0x (coverage was 3.3x for quarter ended
--Maintenance of the ratio of unencumbered assets to net unsecured debt above 2.5x (asset coverage was 2.7x using a stressed 8.5% capitalization rate).
The following factors may have a negative impact on the ratings and/or Outlook:
--Fitch's expectation of leverage sustaining above 7.5x;
--Fitch's expectation of fixed-charge coverage sustaining below 2.0x;
--Unencumbered assets to unsecured debt sustaining below 2.0x;
--Liquidity coverage sustaining below 1.0x.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology',
--'Rating U.S. Equity REITs and REOCs (Sector Credit Factors)',
--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis',
--'Recovery Rating and Notching Criteria for Equity REITs',
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Criteria for Rating U.S. Equity REITs and REOCs
Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis
Recovery Ratings and Notching Criteria for Equity REITs
Source: Fitch Ratings
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