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Mid-America Apartment Communities Inc. Message Board

  • Al_at_MAAC Al_at_MAAC Aug 1, 2000 4:11 PM Flag

    MAA Earnings Release information

    Please refer to the Investor section of our
    website, www.maac.net, for the 2nd quarter earnings
    release and amplifying details provided in the
    supplemental data pages.

    An on-line replay and
    transcript of the related conference call with analysts is
    also available.

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    • As always we, me at least, always welcome your
      opinions and insight.

      As far as the Texas market
      and job formation, one of that regions major
      industries, energy, seems to be starting a perhaps robust,
      and hopefully long lived, upsurge. This will
      hopefully help both job formation and real estate prices in
      general there over the next several years.

      I also
      like paying tax on my dividends at the 20% rate versus
      higher rates, so I for one welcome MAA's capital gains
      in addition to normal operating income.

      I
      have one other opinion concerning the analysts' lack
      of confidence in MAA. Perhaps with MAA the analysts
      are able to look beyond their normal one or two
      quarters into the future. Just maybe in MAA's case they
      are looking an entire year into MAA's future and have
      grave concerns with MAA's ability to replace such a
      capable CEO.

    • Explanation? No.

      Opinion? Yes. The present
      antipathy is probably due mostly to the focus on earnings
      vis-a-vis intrinsic share value building. (I believe that
      all of the analysts covering MAA, and others as well,
      concur that our shares trade well below even their
      liquidation, or NAV, value.)

      Our earnings dip of '99
      and slow FFO recovery growth prospects are unexciting
      to many...yet underemphasize or even ignore the
      intrinsic value per share (along with FFO) that's being
      built as we bring to production nearly $300 million of
      new development, this year and through 2002.


      Another factor of importance: the southeast/Texas markets
      are tougher for now than west coast and northeast.
      The southeast/Texas apartment REITs have, as a group,
      been hammered pretty hard for the past couple of years
      (MAA's relative market share performance in that group
      is in the middle of the pack) while the coastal and
      northeast REIT share prices have been on a roll.


      More power to them, but some of those markets have a
      history of booms and busts and/or less than enviable job
      growth. On the other hand, the southeast-Texas markets,
      while always highly competitive, have and may well
      continue to have the highest job formations in the country
      - real drivers to apartment demand and performance.
      Who knows: some day, just as in 1994-1997, the
      southeast and Texas may well come back into favor over
      other regions.

      These are classic "voting machine
      versus weighing machine" issues. Our business is about
      long-term compounding of intrinsic value. We'll just keep
      plugging away, striving always to deliver intrinsic value
      per share (and safe, solid cash flow) in all that we
      do, for the long haul.

      (In response to the
      posted comment about our free cash flow and dividend
      coverage: in just the past couple of years, we've
      profitably sold over $150 million of assets, capturing
      millions of dollars of cash in those transactions. We've
      been hammered pretty hard for not having the FAD to
      cover dividend in 1999 and (to much less extent)
      2000...and yet, we're a REIT that has profitably and
      systematically sold 2% or 3% of our portfolio each year (and has
      an award winning, fully capitalized, only 11.7 year
      average age portfolio to show for it). The substantial
      cash from those sales is just as good as any other
      cash in meeting our obligations. The incomplete
      assessment of dividend safety/coverage (i.e., based only on
      FAD or FCF, ignoring property sales which are an
      ongoing part of the business) may continue to dissipate,
      in any event, as earnings recover from 1999's
      disappointments in this and coming years.)

      (Also,
      pertaining to our variable rate debt: see today's news
      release for particulars. As another routine part of the
      business, and as a company with an extensive development
      pipeline, it's pretty normal to build the short term line,
      then periodically convert that to fixed rate debt as
      favorable rate windows can be taken advantage of, as now.)

    • Good, sensible, realistic analysis. That 15%
      true, overall return on good real estate is a realistic
      expectation over the long haul for most good companies.
      Looking backward (no forward projections from me!), MAA
      has certainly provided at least that much on a
      compounded annual basis - whether you want to consider the
      value growth per share, plus dividend; or the earnings
      growth per share, plus dividend (each are Ben Graham's
      "weighing machine", not the stock market's more whimsical
      "voting machine" and its predominant focus on short term
      earnings (FFO in the case of REITs) only rather than
      value.

      Further, I'd suggest that most REITs fall, generally, into
      either of these classes: high dividend and slower
      FFO/FAD growth, OR low dividend and higher FFO/FAD
      growth. A company paying a 10% dividend gives up the use
      of the "excess" (what's THAT??) cash paid out to its
      owners - and with among the highest ROA's in the
      apartment business, we don't have that capital to generate
      earnings. A company such as that can and should grow its
      value per share and its FAD/FFO around, say, 5% or so
      annually - for a combined return (2/3 of which is cold
      hard cash) of around 15%.

      The company
      retaining the cash - not paying as much out to its owners -
      can in turn put the "extra" retained cash to work
      (at, generally, its ROA) and create a little more
      earnings juice (though not necessarily share value)...but
      the cash is, obviously, then unavailable for the
      owners. A company like that might sustain, over the long
      haul, earnings growth of, say, 8% or so and pay out a
      dividend of perhaps 7% - for the same 15% return. This
      stock (presently) commands a higher multiple in the
      voting machine...

      ...but if the dividends from
      the higher payout company are reinvested in its own
      shares, the net present value per share under almost any
      model you come up favors the higher cash payout
      company.

      The companies paying out high dividends presently get
      hammered in the market place, but there's no logical
      reason for that. The real estate companies pushing the
      earnings envelope must, often, take significantly higher
      risks (high physical, pyramiding growth and its
      inevitable slowing as that geometry takes over; or high
      development at a time when markets are peaking; or
      acquisition of lower quality properties to boost short-term
      earnings, adding stuff to a portfolio which must, sooner or
      later, be hard to sell at an acceptable price and whose
      long-term prospects aren't very enticing).

      Many,
      perhaps most, of our owners seem pleased, over long
      periods of time, with our combination of prudent growth
      and a solid cash payout. Perhaps someday the markets
      will reward this combination more than at present.

    • of the stories being told by analysts and
      brokers. They are told REIT's are "growth" stocks. REIT's
      are not growth stocks, but are capable of a 15%
      compound return (which is a homerun in real estate). The
      only thing that is keeping faster growth for some
      REITs is a low cost of equity, but at some point in the
      economic/stock market cycle their price will decline making the
      cost of equity higher than the return on real
      estate...and the game will end. The formula is real simple:
      either the cost of equity (measured by yield on the
      stock) must be lower than the yield available on real
      etate or the cost of debt must be lower than the yield
      available on real estate. If neither is true, then any REIT
      is limited to internal growth(no more than 5-7% per)
      year plus the current yield. Sooner or later ALL REITs
      will be "captured" during a down cycle and the
      relatively high valuations for a few REITs will end. Then
      they will all be priced like MAA. These stories about
      new technology, like charging for DSL access in
      apartments, substantially helping growth in earnings for
      REITs is hog wash. All this being said, a well run apt.
      REIT might resonably trade at an 8-9% yield in the
      current, reflecting no work being done by the investor (my
      case). Otherwise, if I can get substantially higher
      yields on apts. by direct ownership and operation, then
      I move out of the stock market and into the real
      estate market. A type of arbitrage if you will. MAA can
      get a better valuation by creating investor belief in
      the consistency and certainty of future growth in
      FFO. That and patience that rewards will eventually
      follow. All the other machinations are mere subterfuge,
      easily recognized by experienced investors. MAA is a
      good long term buy at this time. "Flippers" should
      look elsewhere.

    • Suggest you go to the Investors section of our
      web page and see the mid-year 2000 position update
      posted there, which delves into our strategy for
      capturing value. While we're all frustrated at the market's
      reluctance (so far) to reflect our true value, (a) we're
      creating that value, and sooner or later it will be
      acknowledged, and (b) while 10% last year and 12% or so this
      year (overall return) isn't especially exciting,
      neither is it something to fall on your sword about. A
      realistic long-term expectation of FFO growth per share is
      around 5%-7% annually (without taking exceptional risks)
      which, coupled with a large and growing cash dividend
      payout, would continue to yield our long-term owners
      (though not necessarily traders) a prolonged overall
      annual return in the mid-teens (of which about 2/3
      cash). Doubling each five years (which is what that
      does) is a fine return, in my books. We have done that,
      and believe that the strategy which we have in place
      will lead us to continue to do so...and that, over
      time, the market will ackowledge and reward it.

    • you're right.
      the medical business
      sucks.

      i realized that a long time ago, and used my
      knowledge of medicine to see the value in a little company
      called HGSI. loaded up a few thousand shares at
      11...cashed out half my position at 220 18 months later, and
      retired from medicine at 35.

      You as a value
      investor should know that there is absolutely no value to
      the methodology unless there is a catalyst to unlock
      the value in the shares...i.e., make the stock price
      go UP. sometimes shares remain cheap FOREVER unless
      a catalyst acts upon them.

      I'm just
      wondering what Mr. Cates is doing to get the share price
      up, other than passively waiting for the analyst
      community to notice MAA.

      This is no personal knock
      against Mr. Cates...he seems to be a fine, upstanding,
      truthful man.

      I just want the company to unlock the
      hidden value...somehow.

    • It astounds me in a profession (medical) where
      lack of control of costs have shot through the roof
      and quality of care in general has hit all time
      lows.It makes it hard for the true dedicated to continue
      in this atmosphere. HMO and PPO 's have had to come
      in to control costs when medical people have let
      outsiders take control of their profession. With medical
      costs for 10yrs way out of line with any other group if
      anyone needs PR and repairing a sector your in it . If
      you would also come 1 year to the stockholders
      meeting like a good caring doc checking on his patients
      pain. Your eyes and ears would be treated to 3 men
      dedicated to building the finest apartment reit in the
      world. A look at any of the properties they own would
      make you realize George,Eric and Simon are building
      value to your stock. I've been on this train longer
      than 3 yrs and am an outsider with a large position. I
      like buying quality below book value and knowing the
      people who have 95% of their own asset's,in the stock
      are running the locomotive at a safe pace and are not
      flashy ostentatious PR boys!

 
MAA
74.20-0.18(-0.24%)Jul 25 4:04 PMEDT

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