MID-AMERICA APARTMENT COMMUNITY, INC. The following discussion analyzes the financial condition and results of operations of both MAA and theOperating Partnership , of which MAA is the sole general partner and in which MAA owned a 97.3% interest as ofDecember 31, 2021 . MAA conducts all of its business through theOperating 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 ofthe United States . As ofDecember 31, 2021 , we owned and operated 290 apartment communities (which does not include development properties under construction) through theOperating Partnership and its subsidiaries, and we had an ownership interest in one apartment community through an unconsolidated real estate joint venture and had six development communities under construction. In addition, as ofDecember 31, 2021 , 33 of our apartment communities included retail components. Our apartment communities, including development communities under construction, were located across 16 states and theDistrict of Columbia as ofDecember 31, 2021 . We report in two segments, Same Store andNon-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. OurNon-Same Store and Other segment includes recently acquired communities, communities being developed or in lease-up, communities 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 ourNon-Same Store and Other segment are non-multifamily activities. 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 endedDecember 31, 2021 , net income available for MAA common shareholders was$530.1 million as compared to$251.3 million for the year endedDecember 31, 2020 . Results for the year endedDecember 31, 2021 included$221.2 million of gains related to the sale of real estate assets and$40.9 million of gain, net of tax, related to our investments in unconsolidated limited partnerships. Results for the year endedDecember 31, 2020 included$1.0 million of gains related to the sale of real estate assets and$4.8 million of gain, net of tax, related to our investments in unconsolidated limited partnerships. Revenues for the year endedDecember 31, 2021 increased 6.0% as compared to the year endedDecember 31, 2020 , driven by a 5.5% increase in our Same Store segment. Property operating expenses, excluding depreciation and amortization, for the year endedDecember 31, 2021 increased by 4.8% as compared to the year endedDecember 31, 2020 , driven by a 4.4% increase in our Same Store segment. The primary drivers of these changes are discussed in the "Results of Operations" section.
Trends
During the year endedDecember 31, 2021 , 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 5.2% for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . 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. In addition, for the year endedDecember 31, 2021 , average physical occupancy for our Same Store segment was 96.1%, as compared to 95.6% for the year ended year endedDecember 31, 2020 . 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 ofthe United States . This diversity tends to mitigate exposure to economic issues 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. Through our investment in 36 defined markets, we are diversified across markets, urban and suburban submarkets, and a variety of product types and monthly rent price points. 27 -------------------------------------------------------------------------------- Whilethe United States economy continues to recover from the effects of the COVID-19 pandemic, demand for apartments during the year endedDecember 31, 2021 was very strong, as evidenced by the accelerating rent growth we achieved. Demand for apartments is primarily driven by general economic conditions in our markets and is particularly correlated to job growth. While our rent growth trends and rent collection trends during the year endedDecember 31, 2021 were strong, we continue to monitor pressures surrounding supply chain challenges and inflation trends. A worsening of the current environment could contribute to uncertain rent collections going forward and suppress demand for apartments and would likely drive rent growth on new leases and renewals lower than what we achieved during the year endedDecember 31, 2021 . Elevated supply levels could further affect rent growth for our portfolio, particularly for apartment communities located in urban submarkets. To date, properties in suburban submarkets have been somewhat less impacted by supply, primarily because new development has been less prevalent in those submarkets. Supply chain and inflationary pressures would likely drive higher operating expenses, particularly in personnel and repairs and maintenance. With the COVID-19 pandemic still impacting the country and contributing more uncertainty than normal, we believe that our portfolio strategy of maintaining a diversity of markets, submarkets, product types and rent price points will serve the company better in this environment than a more concentrated portfolio profile. At a portfolio level, we have focused on using our pricing system to maintain strong occupancy. As previously noted, average physical occupancy for our Same Store segment for the year endedDecember 31, 2021 was 96.1%, which we believe positions us well to manage through the typically slower winter leasing season and progress toward the typically stronger spring and summer leasing season. Access to the financial markets remains strong, particularly for high credit rated borrowers. During 2021, we were able to efficiently raise capital through the debt market, and we positioned ourselves to access the equity market in the event we have such a need. However, a prolonged disruption of the markets or a decline in credit and financing conditions could negatively affect our ability to access capital necessary to fund our operations or refinance maturing debt in the future. The prospect of rising interest rates could negatively impact our borrowing costs for any variable rate borrowings or refinancing activity; however, as ofDecember 31, 2021 , the interest rate on all of our outstanding debt was fixed, and our fixed rate debt maturities in the year endingDecember 31, 2022 are not significant.
Results of Operations
For the year endedDecember 31, 2021 , we achieved net income available for MAA common shareholders of$530.1 million , a 111.0% increase as compared to the year endedDecember 31, 2020 , and total revenue growth of$100.1 million , representing a 6.0% increase in property revenues as compared to the year endedDecember 31, 2020 . The following discussion describes the primary drivers of the increase in net income available for MAA common shareholders for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . A discussion of the results of operations for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 is found in Item 7 of Part II of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onFebruary 18, 2021 , which is available free of charge on theSEC'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 year ended
December 31, 2021 December 31, 2020 Increase % Change
Same Store $ 1,702,741 $ 1,613,369 $ 89,372 5.5 %
Non-Same Store and
Other 75,341 64,615 10,726 16.6 %
Total $ 1,778,082 $ 1,677,984 $ 100,098 6.0 %
The increase in property revenues for our Same Store segment for the year ended
December 31, 2021 as compared to the year ended December 31, 2020 was the
primary driver of total property revenue growth. The Same Store segment
generated a 5.5% increase in revenues for the year ended December 31, 2021 ,
primarily a result of average effective rent per unit growth of 5.2% as compared
to the year ended December 31, 2020 . The increase in property revenues from the
Non-Same Store and Other segment for the year ended December 31, 2021 as
compared to the year ended December 31, 2020 was primarily the result of
increased revenues from recently completed development communities. These
increases were partially offset by decreased revenues from the disposition of
seven multifamily communities during the year ended December 31, 2021 .
28
--------------------------------------------------------------------------------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 year endedDecember 31, 2021 (dollars in thousands): December 31, 2021 December 31, 2020 Increase % Change Same Store $ 638,433 $ 611,450 $ 26,983 4.4 %Non-Same Store and Other 32,732 29,021 3,711 12.8 % Total $ 671,165 $ 640,471 $ 30,694 4.8 % The increase in property operating expenses for our Same Store segment for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 was primarily driven by increases in real estate tax expense of$7.0 million , insurance expense of$6.2 million , building repairs and maintenance of$5.6 million , personnel expense of$4.4 million and utilities expense of$2.7 million . The increase in property operating expenses from theNon-Same Store and Other segment for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 was primarily the result of increased property operating expenses from recently completed development communities. These increases were partially offset by decreased property operating expenses from the disposition of seven multifamily communities during the year endedDecember 31, 2021 .
Depreciation and Amortization
Depreciation and amortization expense for the year endedDecember 31, 2021 was$533.4 million , an increase of$22.6 million as compared to the year endedDecember 31, 2020 . The increase was primarily driven by the recognition of depreciation expense associated with our development and capital spend activities made in the normal course of business during the year endedDecember 31, 2021 . Other Income and Expenses Property management expenses for the year endedDecember 31, 2021 were$55.7 million , an increase of$3.4 million as compared to the year endedDecember 31, 2020 . General and administrative expenses for the year endedDecember 31, 2021 were$52.9 million , an increase of$6.0 million as compared to the year endedDecember 31, 2020 . Interest expense for the year endedDecember 31, 2021 was$156.9 million , a decrease of$10.7 million as compared to the year endedDecember 31, 2020 . The decrease was primarily due to a decrease of 27 basis points in our effective interest rate during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . The decrease in our effective interest rate was primarily due to debt retirements during the year endedDecember 31, 2021 , which were retired with proceeds from unsecured debt issuances with lower effective interest rates over the same period. For the year endedDecember 31, 2021 , we disposed of seven apartment communities, resulting in a gain on sale of depreciable real estate assets of$220.4 million . We did not dispose of any apartment communities during the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , we disposed of five land parcels resulting in a gain on sale of non-depreciable real estate assets of$0.8 million . During the year endedDecember 31, 2020 , we disposed of one land parcel resulting in a gain on sale of non-depreciable real estate assets of$1.0 million . Other non-operating income for the year endedDecember 31, 2021 was$33.9 million of income, as compared to$4.9 million of income for the year endedDecember 31, 2020 . The increase was primarily driven by$51.7 million of non-cash gain from unconsolidated limited partnerships compared to$5.6 million of non-cash gain from unconsolidated limited partnerships during the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , we also recognized$4.6 million of non-cash expense related to the fair value adjustment of the embedded derivative in the MAA Series I preferred shares compared to the recognition of$2.6 million of non-cash income related to the adjustment of the embedded derivative during the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , we recognized$13.4 million in debt extinguishment costs. Expense recognized related to debt extinguishments during the year endedDecember 31, 2020 was negligible. During the year endedDecember 31, 2021 , we recognized$1.3 million of COVID-19 related expenses compared to$3.5 million of COVID-19 related expenses during the year endedDecember 31, 2020 .
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 withthe United States generally accepted accounting principles, or 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 the Company. 29 -------------------------------------------------------------------------------- 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. 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 theNational 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. 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 from unconsolidated limited partnerships, net casualty gain or loss, gain or loss on debt extinguishment, legal costs and settlements, COVID-19 related costs and mark-to-market debt adjustments. 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. Core FFO should not be considered as an alternative to net income available for MAA common shareholders as an indicator of operating performance. We believe 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. The following table presents a reconciliation of net income available for MAA common shareholders to FFO and Core FFO for the years endedDecember 31, 2021 and 2020, as we believe net income available for MAA common shareholders is the most directly comparable GAAP measure (dollars in thousands): Year ended
2021 2020
Net income available for MAA common shareholders
526,220 504,364
Gain on sale of depreciable real estate assets (220,428 ) (9 ) Depreciation and amortization of real estate assets of real estate joint venture 616
612
Net income attributable to noncontrolling interests 16,911
9,053
FFO attributable to the Company 853,422
765,294
Loss (income) from embedded derivative in preferred shares (1)
4,560 (2,562 )
Gain on sale of non-depreciable real estate assets (811 ) (1,024 ) Gain from unconsolidated limited partnerships, net of tax (1)(2)
(40,875 ) (4,757 )
Net casualty loss and other settlement proceeds (3) 1,524 484
Loss on debt extinguishment (1) 13,391
344
Legal costs and settlements, net (1) (2,167 ) (38 ) COVID-19 related costs (1) 1,301
3,536
Mark-to-market debt adjustments (4) 270 75 Core FFO$ 830,615 $ 761,352 (1) Included in "Other non-operating income" in the Consolidated Statements of Operations. (2) For the year endedDecember 31, 2021 ,$51.7 million of gain from unconsolidated limited partnerships is offset by$10.8 million of income tax expense. For the year endedDecember 31, 2020 ,$5.6 million of gain from unconsolidated limited partnerships is offset by$0.8 million of income tax expense. (3) During the year endedDecember 31, 2021 , we incurred$26.0 million in casualty losses related to winter storm Uri (primarily building repairs, landscaping and asset write-offs). We expect the majority of the casualty losses to be reimbursed through insurance coverage. A receivable has been recognized in "Other non-operating income" for the amount of the recorded losses that we expect to be recovered. Additional costs related to the storm that are not expected to be recovered through insurance coverage, along with other unrelated casualty losses and recoveries, are also reflected in this adjustment. The adjustment is primarily included in "Other non-operating income" in the Consolidated Statements of Operations. (4) Included in "Interest expense" in the Consolidated Statements of Operations. Core FFO for the year endedDecember 31, 2021 was$830.6 million , an increase of$69.3 million as compared to the year endedDecember 31, 2020 , primarily as a result of an increase in property revenues of$100.1 million and a decrease in interest expense of$10.7 million . The increases to Core FFO were offset by increases in property operating expenses, excluding depreciation and amortization, of$30.7 million , general and administrative expenses of$6.0 million and property management expenses of$3.4 million . 30 --------------------------------------------------------------------------------
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
Cash Flows from Operating Activities
Net cash provided by operating activities was$895.0 million for the year endedDecember 31, 2021 as compared to$823.9 million for the year endedDecember 31, 2020 . 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$253.6 million for the year endedDecember 31, 2021 as compared to$484.7 million for the year endedDecember 31, 2020 . The primary drivers of the change were as follows (dollars in thousands): Primary drivers of cash (outflow) inflow Increase during the year ended December 31, (Decrease) 2021 2020 in Net Cash Purchases of real estate and other assets $ (46,028 ) $ (56,965 ) $ 10,937 Capital improvements and other (279,635 ) (225,506 ) (54,129 ) Development costs (231,642 ) (201,435 ) (30,207 ) Proceeds from disposition of real estate assets 307,891 4,175 303,716 The decrease in cash outflows for purchases of real estate and other assets was driven by acquisition activity during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . The increase in cash outflows for capital improvements and other was primarily driven by reconstruction related capital spend due to winter storm Uri in addition to increased redevelopment capital spend during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . The increase in cash outflows for development costs was driven by increased development activity during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . The increase in cash inflows related to proceeds from disposition of real estate assets was driven by the disposition of seven multifamily apartment communities during the year endedDecember 31, 2021 as compared to no apartment community dispositions during the year endedDecember 31, 2020 . 31 --------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net cash used in financing activities was
Primary drivers of cash (outflow) inflow (Decrease)
during the year ended December 31, Increase
2021 2020 in Net Cash
Net change in commercial paper $ (172,000 ) $ 102,000
594,423 447,593 146,830
Principal payments on notes
payable (467,153 ) (441,108 ) (26,045 )
Dividends paid on common shares (470,401 ) (457,355 ) (13,046 )
Net change in other financing
activities (6,142 ) (1,126 ) (5,016 )
The increase in cash outflows related to the net change in commercial paper
resulted from the decrease in net borrowings of $172.0 million on our commercial
paper program during the year ended December 31, 2021 as compared to the
increase in net borrowings of $102.0 million on our commercial paper program
during the year ended December 31, 2020 . The increase in cash inflows related to
proceeds from notes payable primarily resulted from the issuance of $600.0
million of unsecured senior notes during the year ended December 31, 2021 as
compared to the issuance of $450.0 million of unsecured senior notes during the
year ended December 31, 2020 . The increase in cash outflows from principal
payments on notes payable primarily resulted from the retirement of $222.0
million of privately placed unsecured senior notes, $125.0 million of publicly
issued unsecured senior notes and $118.6 million of property mortgages during
the year ended December 31, 2021 as compared to the retirement of a $300.0
million term loan and $135.7 million of property mortgages during the year ended
December 31, 2020 . The increase in cash outflows from dividends paid on common
shares primarily resulted from the increase in the dividend rate to $4.10 per
share during the year ended December 31, 2021 as compared to the dividend rate
of $4.00 per share during the year ended December 31, 2020 . The increase in cash
outflows from the net change in other financing activities was primarily driven
by increased debt extinguishment costs paid during the year ended December 31,
2021 as compared to the year ended December 31, 2020 , partially offset by
increased cash inflows from contributions received from the noncontrolling
interests related to our consolidated real estate entities.
Debt
The following schedule reflects our debt outstanding as ofDecember 31, 2021 (dollars in thousands): Principal Average Years to Balance Rate Maturity Effective Rate Unsecured debt Fixed rate senior notes$ 4,175,000 7.1 3.3 % Debt issuance costs, discounts, premiums and fair market value adjustments (23,625 ) Total unsecured debt$ 4,151,375 7.1 3.3 % Secured debt Fixed rate property mortgages$ 368,555 26.8 4.4 % Debt issuance costs (3,240 ) Total secured debt$ 365,315 26.8 4.4 % Total debt$ 4,516,690 8.7 3.4 % 32
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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
Revolving Credit Facility
& Commercial Paper ?¹? Public
?²? Bonds Secured Total
2022 $ - $ 124,827 $ - $ 124,827
2023 - 348,834 - 348,834
2024 - 398,024 - 398,024
2025 - 396,999 5,425 402,424
2026 - 296,430 - 296,430
2027 - 595,762 - 595,762
2028 - 396,087 - 396,087
2029 - 560,415 - 560,415
2030 - 297,196 - 297,196
2031 - 444,323 - 444,323
Thereafter - 292,478 359,890 652,368
Total $ - $ 4,151,375 $ 365,315 $ 4,516,690
(1)
There were no borrowings outstanding under MAALP's commercial paper program as
of December 31, 2021 . Under the terms of the program, MAALP may issue up to a
maximum aggregate amount outstanding at any time of $500.0 million . For the year
ended December 31, 2021 , average daily borrowings outstanding under the
commercial paper program were $217.8 million .
(2)
There were no borrowings outstanding under MAALP's $1.0 billion unsecured
revolving credit facility as of December 31, 2021 . The unsecured revolving
credit facility has a maturity date of May 2023 plus two six-month extensions.
The following schedule reflects the interest rate maturities of our outstanding
fixed rate debt, net of debt issuance costs, discounts, premiums and fair market
value adjustments as of December 31, 2021 (dollars in thousands):
Fixed Rate Debt Effective Rate
2022 $ 124,827 3.3 %
2023 348,834 4.2 %
2024 398,024 4.0 %
2025 402,424 4.2 %
2026 296,430 1.2 %
2027 595,762 3.7 %
2028 396,087 4.2 %
2029 560,415 3.7 %
2030 297,196 3.1 %
2031 444,323 1.8 %
Thereafter 652,368 3.8 %
Total $ 4,516,690 3.4 %
Unsecured Revolving Credit Facility & Commercial Paper
InMay 2019 , MAALP closed on a$1.0 billion unsecured revolving credit facility with a syndicate of banks led byWells Fargo Bank, National Association , and fourteen other banks, which we refer to as the Credit Facility. The Credit Facility replaced our previous unsecured revolving credit facility and includes an expansion option up to$1.5 billion . The Credit Facility bears an interest rate of LIBOR, plus a spread of 0.75% to 1.45% based on an investment grade pricing grid. The Credit Facility matures inMay 2023 with an option to extend for two additional six-month periods. As ofDecember 31, 2021 , there was no outstanding balance under the Credit Facility, while$4.0 million of capacity was used to support outstanding letters of credit. The Credit Facility serves as our primary source of short-term liquidity. Certain tenors of the USD LIBOR (one-week and two-month) ceased publication as ofDecember 31, 2021 , and all remaining tenors of the USD LIBOR (one, three, six and 12-month) will cease to be published afterJune 30, 2023 . Currently, our exposure to the phase-out of LIBOR is limited to the Credit Facility. The terms of the Credit Facility allow for the transition to an alternate benchmark interest rate, including SOFR, to replace any outstanding USD LIBOR borrowings at the time USD LIBOR is no longer published. InMay 2019 , MAALP 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 amount outstanding of$500.0 million . As ofDecember 31, 2021 , there were no outstanding borrowings under the commercial paper program. 33 --------------------------------------------------------------------------------
Unsecured Senior Notes
As of
In
InAugust 2021 , MAALP publicly issued$300 million in aggregate principal amount of unsecured senior notes maturingSeptember 2026 with a coupon rate of 1.100% per annum. Interest will be paid semi-annually onMarch 15 andSeptember 15 of each year beginningMarch 15, 2022 . InAugust 2021 , MAALP also publicly issued$300 million in aggregate principal amount of unsecured senior notes maturingSeptember 2051 with a coupon rate of 2.875% per annum. Interest will be paid semi-annually onMarch 15 andSeptember 15 of each year beginningMarch 15, 2022 . InSeptember 2021 , MAALP retired a$117.0 million tranche of privately placed unsecured senior notes due inNovember 2022 , a$125.0 million portion of the$250.0 million in aggregate principal amount of publicly issued unsecured senior notes due inDecember 2022 , a$12.3 million tranche of privately placed unsecured senior notes due inJuly 2023 and a$20.0 million tranche of privately placed unsecured senior notes due inNovember 2024 . We incurred$13.4 million in prepayment penalties and write-offs of unamortized costs resulting from the debt retirements. These costs are included in "Other non-operating income" in the accompanying Consolidated Statements of Operations for the year endedDecember 31, 2021 . Secured Property Mortgages MAALP maintains secured property mortgages with various life insurance companies. As ofDecember 31, 2021 , MAALP had$368.6 million of secured property mortgages with a weighted average interest rate of 4.4%. InFebruary 2021 , MAALP retired a$118.6 million mortgage associated with eight apartment communities prior to itsJune 2021 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 ofDecember 31, 2021 , MAA owned 115,336,876 OP Units, comprising a 97.3% limited partnership interest in MAALP, while the remaining 3,206,118 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 3,206,118 shares of its common stock that, as ofDecember 31, 2021 , were issuable upon redemption of OP Units, in order for those shares to be sold freely in the public markets. InAugust 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 price is net of issuance costs. Under the forward sale agreements, the forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor equal to a specified daily rate less a spread and will be decreased based on amounts related to dividends on MAA's common stock during the term of the forward sale agreements. No shares had been settled under the forward sale agreements as ofDecember 31, 2021 . Subject to certain conditions, we generally have the right to elect cash or net share settlement under the forward sale agreements, although we expect to settle the forward sale agreements entirely by the full physical delivery of shares of MAA's common stock in exchange for cash proceeds. We intend to use any cash proceeds upon settlement of the forward sale agreements to fund our development and redevelopment activities, among other potential uses. InNovember 2021 , the Company entered into an equity distribution agreement to establish a new ATM program, replacing MAA's previous ATM program and allowing 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 current 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 endedDecember 31, 2021 and 2020, MAA did not sell any shares of common stock under its ATM program. As ofDecember 31, 2021 , there were 4.0 million shares remaining under the current 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. 34 --------------------------------------------------------------------------------
Material Cash Requirements
The following table summarizes material cash requirements as ofDecember 31, 2021 related to contractual obligations, which consist of principal and interest on our debt obligations and right-of-use lease obligations (dollars in thousands): 2022 2023 2024 2025 2026 Thereafter Total Debt obligations (1)$ 126,401 $ 351,481 $ 401,566 $ 400,815 $ 300,000 $ 2,963,292 $ 4,543,555 Fixed rate interest 154,229 149,027 127,021 118,070 103,099 666,554 1,318,000 Right-of-use lease obligations (2) 2,894 2,885 2,862 2,872 2,920 59,993 74,426 Total$ 283,524 $ 503,393 $ 531,449 $ 521,757 $ 406,019 $ 3,689,839 $ 5,935,981
(1)
Represents principal payments gross of discounts, premiums, debt issuance costs and fair market value adjustments of debt assumed. (2) Primarily comprised of a ground lease underlying one apartment community we own and the lease of our corporate headquarters. As ofDecember 31, 2021 , we also had contractual obligations, which are not reflected in the table above, to make additional capital contributions to two technology-focused limited partnerships in which we hold equity interests. The capital contributions may be called by the general partners at any time untilFebruary 2025 after giving appropriate notice. As ofDecember 31, 2021 , we had committed to make additional capital contributions totaling up to$16.0 million if and when called by the general partners of the limited partnerships and untilFebruary 2025 .
We have other material cash requirements that do not represent contractual obligations, but we expect to incur in the ordinary course of our business.
As ofDecember 31, 2021 , we had six development communities under construction totaling 2,021 apartment units once complete. Total expected costs for the six development projects are$460.5 million , of which$273.7 million had been incurred throughDecember 31, 2021 . We expect to have additional development projects in the future. In addition, our property development 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 endingDecember 31, 2022 , 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 endedDecember 31, 2021 . 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$4.35 per share of MAA common stock during the year endingDecember 31, 2022 .
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.
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
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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. During the years ended December 31, 2021 and 2020, we did not
acquire any real estate assets that required us to allocate the cost of the real
estate asset to the individual acquired tangible and intangible assets.
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 undiscounted future 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 cash flows by a market capitalization rate. No material impairment losses were recognized during the years endedDecember 31, 2021 and 2020. Our impairment assessments contain uncertainties because they require management to make assumptions and to apply judgment to estimate future 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.
Loss contingencies
The outcomes of claims, disputes and legal proceedings are subject to
significant uncertainty. Management records an accrual for loss contingencies
when a loss is probable and the amount of the loss can be reasonably estimated.
We also accrue an estimate of defense costs expected to be incurred in
connection with legal matters. Management reviews these accruals quarterly and
makes revisions based on changes in facts and circumstances. When a loss
contingency is not both probable and reasonably estimable, then we do not accrue
the loss. However, for material loss contingencies, if the unrecorded loss (or
an additional loss in excess of the accrual) is at least a reasonable
possibility and material, then management discloses a reasonable estimate of the
possible loss, or range of loss, if such reasonable estimate can be made. If we
cannot make a reasonable estimate of the possible loss, or range of loss, then a
statement to that effect is disclosed.
The assessment of whether a loss is probable or a reasonable possibility, and
whether the loss or range of loss is reasonably estimable, often involves a
series of complex and qualitative judgments about future events. Among the
factors that we consider in this assessment, including with respect to the
matters disclosed in this Annual Report on Form 10-K, are the nature of existing
legal proceedings and claims, the asserted or possible damages or loss
contingency (if reasonably estimable), the progress of the matter, existing law
and precedent, the opinions or views of legal counsel and other advisers, our
experience in similar matters, the facts available to us at the time of
assessment, and how we intend to respond, or have responded, to the proceeding
or claim. Management's assessment of these factors may change over time as
individual proceedings or claims progress. For matters where we are not
currently able to reasonably estimate a range of reasonably possible loss, the
factors that have contributed to this determination include the following: (i)
the damages sought are indeterminate; (ii) the proceedings are in the early
stages; (iii) the matters involve novel or unsettled legal theories or a large
or uncertain number of actual or potential cases or parties; and/or (iv)
discussions with the parties in matters that are expected ultimately to be
resolved through negotiation and settlement have not reached the point where we
believe a reasonable estimate of loss, or range of loss, can be made. In such
instances, management believes that there is considerable uncertainty regarding
the timing or ultimate resolution of such matters, including a possible eventual
loss or business impact, if any.
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--------------------------------------------------------------------------------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 onOctober 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, coupon yields on preferred stock issuances 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 decreased to$34.5 million as ofDecember 31, 2021 as compared to$39.0 million as ofDecember 31, 2020 , a decrease in value of the asset of$4.5 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, coupon yields on preferred stock issuances 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 ofDecember 31, 2021 . For instance, holding all other assumptions constant, a$1 decrease in the trading price of the preferred shares as ofDecember 31, 2021 would result in a decrease in fair value of the embedded derivative asset of approximately$6 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.
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