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Mid-America Apartment Communities Inc. Message Board

  • trenttrautman trenttrautman Dec 3, 2003 8:26 PM Flag

    Latest purchase.

    I'm not sure I entirely get it.

    We issue 400,000 shares @ $0.58 dividend per quarter. That's a cost of $232,000 quarterly and $928,000 annually.

    In return we get this asset, roughly valued at around 12 million (or is it more? the press release really isn't clear in that regard). So lets say this asset makes about 8% cash return annually. Just a number I pulled out of my particular significance here...just a number I didn't think was too terrible, or too good.

    So if we make 8% on this 12 million that's $960,000 cash annually.

    Resulting in a net difference annually of $32,000 by performing this operation. That's about .3% of the total asset value contribution in cash per year. Equity dillution is about 2% by my calculations. In this scenario it doesn't look like it's worth it.

    Now if this asset were larger (as the press release would indicate), there would be some kind of leverage here that would increase our risk, and also increase our return. Debt seems to cost about 6% a year.

    So lets say it's a $24 million (50-50 debt and cash) asset @ 8% that's $1,920,000 a year, minus $928,000 for dividend expenses, minus $720,000 for interest expense. Leaving $272,000 annually.

    That's 2.3% on our equity dillution of 2%.

    Eh?!? Is that worth it? Does this makes sense, or am I just completely stupid here? Can eric or zebra or somebody more wise than myself clear this up?


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    • Eric may have said it already in his note but over time rents will go up as well as property values which should be a good thing for MAA value as well as the dividend.

    • We'll get into more specifics on the transaction in our normal quarterly earnings you can imagine, rules regarding information disclosure have become a huge issue over the last year or so and I can't get into too much detail on this message board without necessitating a more (expensive) formal communication process to get underway.

      What I can say about your analysis and question is this -

      1. Our primary focus remains strengthening your dividend coverage, both currently and over the long haul...through a combination of adding new earning assets and operating the existing properties as effectively as possible.
      2. Of course any capital deployment, new or existing, must meet strict underwriting standards, exceed defined return on investment hurdles, as well as add to AFFO per share for existing owners above a defined threshold - tests and hurdles we've developed with your Board of Directors over the last 10 years. We only put your capital out, or raise new capital, if we add to your existing shareholder value (and remember, your Board and management have a lot of their net worth in MAA as well!).
      3. We forecast that this most recent acquisition (a new $40.2 million development, still in its intial lease up, in a new high growth corridor of Jacksonville) will be immediately accretive to AFFO, adding approximately one-half a cent/share in AFFO in 2004 (the property is still leasing up and thus not yet fully productive), two cents/share in AFFO in 2005 and higher levels after that. I need to add here, this is a forward-looking statement that incorporates assumptions about the future which we discuss in our prior earnings release and filings with the SEC. One of the more significant assumptions is that we believe that the apartment markets will recover.

      I hope this gives you some degree of a response to your question...we'll address in more detail in our Q4 release of financials and results.

      Eric Bolton
      Mid-America Apts.

      • 1 Reply to ericbolton_maa
      • Eric,

        Once again, thankyou for your response. Always a pleasure to hear from you and your insightful comments. Your comments were quite helpful in understanding this deal. Reading tuesdays press release was unaware that this was a property in lease-up...although when I go back and read the press release again, you did say it was "new". :)

        If I read between the lines a little bit here (if I may), and think about the assumption I think I have a fair idea about what might be going on. Such a property might be a bargain if A)The previous owner was anxious to get cash out of the property due to some circumstance that would cause them to be impatient. B)The buyer of the property had access to cheap capital (say the stock was at an all time high). C) The buyer could be patient. D)The assumption about the markets recovering is correct, and the property will lease-up.

        Indeed, I think I agree with that assumption. I also believe you folks have significant experience with lease ups as well.

        I appreciate the candid reply Eric. I look forward to the quarterly with great pleasure.


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