Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion analyzes the financial condition and results of operations of both MAA and the Operating Partnership, of which MAA is the sole general partner and in which MAA owned a 97.4% interest as of September 30, 2023. MAA conducts all of its business through the Operating Partnership and its various subsidiaries. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

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 of the U.S. As of September 30, 2023, we owned and operated 290 apartment communities (which does not include development communities under construction) through the Operating Partnership and its subsidiaries, and had an ownership interest in one apartment community through an unconsolidated real estate joint venture. In addition, as of September 30, 2023, we had five development communities under construction, and 34 of our apartment communities included retail components. Our apartment communities, including development communities under construction, were located across 16 states and the District of Columbia as of September 30, 2023.

We report in two segments, Same Store and Non-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. Our Non-Same Store and Other segment includes recently acquired communities, communities being developed or in lease-up, communities that have been disposed of or 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 our Non-Same Store and Other segment are non-multifamily activities and storm-related expenses related to hurricanes. Additional information regarding the composition of our segments is included in Note 11 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Note Regarding Forward-Looking Statements

This and other sections of this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to our expectations for future periods. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future. Such forward-looking statements include, without limitation, statements regarding expected operating performance and results, property stabilizations, property acquisition and disposition activity, joint venture activity, development and renovation activity and other capital expenditures, and capital raising and financing activity, as well as lease pricing, revenue and expense growth, occupancy, interest rate and other economic expectations. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “forecasts,” “projects,” “assumes,” “will,” “may,” “could,” “should,” “budget,” “target,” “outlook,” “proforma,” “opportunity,” “guidance” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, as described below, which may cause our actual results, performance or achievements to be materially different from the results of operations, financial conditions or plans expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such forward-looking statements included in this Quarterly Report on Form 10-Q may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

The following factors, among others, could cause our actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements:

inability to generate sufficient cash flows due to unfavorable economic and market conditions, changes in supply and/or demand, competition, uninsured losses, changes in tax and housing laws or other factors;

exposure to risks inherent in investments in a single industry and sector;

adverse changes in real estate markets, including, but not limited to, the extent of future demand for multifamily units in our significant markets, barriers of entry into new markets which we may seek to enter in the future, limitations on our ability to increase or collect rental rates, competition, our ability to identify and consummate attractive acquisitions or development projects on favorable terms, our ability to consummate any planned dispositions in a timely manner on acceptable terms, and our ability to reinvest sale proceeds in a manner that generates favorable returns;

failure of development communities to be completed within budget and on a timely basis, if at all, to lease-up as anticipated or to achieve anticipated results;

unexpected capital needs;

material changes in operating costs, including real estate taxes, utilities and insurance costs, due to inflation and other factors;

inability to obtain appropriate insurance coverage at reasonable rates, or at all, or losses from catastrophes in excess of our insurance coverage;

ability to obtain financing at favorable rates, if at all, or refinance existing debt as it matures;

level and volatility of interest or capitalization rates or capital market conditions;

the effect of any rating agency actions on the cost and availability of new debt financing;

the impact of adverse developments affecting the U.S. or global banking industry, including bank failures and liquidity concerns, which could cause continued or worsening economic and market volatility, and regulatory responses thereto;

significant change in the mortgage financing market or other factors that would cause single-family housing or other alternative housing options, either as an owned or rental product, to become a more significant competitive product;

ability to continue to satisfy complex rules in order to maintain our status as a REIT for federal income tax purposes, the ability of the Operating Partnership to satisfy the rules to maintain its status as a partnership for federal income tax purposes, the ability of our taxable REIT subsidiaries to maintain their status as such for federal income tax purposes, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;

inability to attract and retain qualified personnel;

cyber liability or potential liability for breaches of our or our service providers’ information technology systems, or business operations disruptions;

potential liability for environmental contamination;

changes in the legal requirements we are subject to, or the imposition of new legal requirements, that adversely affect our operations;

extreme weather and natural disasters;

disease outbreaks and other public health events, and measures that are taken by federal, state, and local governmental authorities in response to such outbreaks and events;

impact of climate change on our properties or operations;

legal proceedings or class action lawsuits;

impact of reputational harm caused by negative press or social media postings of our actions or policies, whether or not warranted;

compliance costs associated with numerous federal, state and local laws and regulations; and

other risks identified in this Quarterly Report on Form 10-Q and in other reports we file with the Securities and Exchange Commission, or the SEC, or in other documents that we publicly disseminate.

New factors may also emerge from time to time that could have a material adverse effect on our business. Except as required by law, we undertake no obligation to publicly update or revise forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect events, circumstances or changes in expectations after the date on which this Quarterly Report on Form 10-Q is filed.

Overview of the Three Months Ended September 30, 2023

For the three months ended September 30, 2023, net income available for MAA common shareholders was $109.8 million as compared to $121.4 million for the three months ended September 30, 2022. Revenues for the three months ended September 30, 2023 increased 4.1% as compared to the three months ended September 30, 2022, driven by a 4.1% increase in our Same Store segment. Property operating expenses, excluding depreciation and amortization, for the three months ended September 30, 2023 increased by 4.1% as compared to the three months ended September 30, 2022, driven by a 4.7% increase in our Same Store segment. The drivers of these changes are discussed in the “Results of Operations” section.

Trends

During the three months ended September 30, 2023, 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 in our Same Store segment continued to increase from the prior year, up 4.5% for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. 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.

For the three months ended September 30, 2023, average physical occupancy for our Same Store segment was 95.7%, as compared to 95.8% for the three months ended September 30, 2022. 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 of the U.S. We have multifamily assets in 39 defined markets, with a presence in approximately 150 submarkets and a mixture of garden-style, mid-rise and high-rise communities. This diversity tends to mitigate exposure to economic issues, including supply and demand factors, 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.

Demand for apartments in our markets was solid during the third quarter of 2023, as evidenced by prospect traffic levels and the revenue growth achieved during the quarter. We believe demand for apartments is primarily driven by general economic conditions in our markets and is particularly correlated to job growth, population growth, household formation and in-migration over the long term. While our rent growth, occupancy and turnover trends in the third quarter of 2023 were solid, we continue to monitor pressures surrounding housing supply, inflation trends and general economic conditions. A worsening of the current environment could contribute to uncertain rent collections going forward, suppress demand for apartments and could drive lower rent growth on new leases and renewals than what we achieved in the three and nine months ended September 30, 2023. Current elevated supply levels are impacting rent growth in certain markets of our portfolio. While we expect this pressure to persist for another few quarters, we expect the demand side to continue to be more impactful over the long term. Supply chain and inflationary pressures have driven higher operating expenses during the three and nine months ended September 30, 2023, particularly in personnel, repairs and maintenance and real estate taxes, and this trend may continue going forward.

Access to the financial markets remains available for high-credit rated borrowers, such as ourselves. However, overall borrowing costs remain at elevated levels and we expect this trend to continue. As of September 30, 2023, all of our outstanding debt borrowings were subject to fixed rates. Our exposure to elevated interest rates will be a result of future variable rate borrowings or refinancing activities.

Results of Operations

Comparison of the three months ended September 30, 2023 to the three months ended September 30, 2022

For the three months ended September 30, 2023, we achieved net income available for MAA common shareholders of $109.8 million, a 9.5% decrease as compared to the three months ended September 30, 2022, and total revenue growth of $21.3 million, representing a 4.1% increase in property revenues as compared to the three months ended September 30, 2022. The following discussion describes the primary drivers of the decrease in net income available for MAA common shareholders for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Property Revenues

The following table reflects our property revenues by segment for the three months ended September 30, 2023 and 2022 (dollars in thousands):

		Three months ended September 30,
		2023				2022				Increase				% Increase
Same Store		$	510,879			$	490,851			$	20,028				4.1	%
Non-Same Store and Other			31,163				29,932				1,231				4.1	%
Total		$	542,042			$	520,783			$	21,259				4.1	%

The increase in rental revenues for our Same Store segment for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was the primary driver of total property revenue growth. The Same Store segment generated a 4.1% increase in revenues for the three months ended September 30, 2023, primarily the result of average effective rent per unit growth of 4.5% as compared to the three months ended September 30, 2022, partially offset by lower average physical occupancy. The increase in property revenues from the Non-Same Store and Other segment for the three months ended September 30, 2023 as compared to three months ended September 30, 2022 was primarily the result of increased revenues from recently completed development communities and recently acquired communities, partially offset by decreased revenues from recently disposed communities during the year ended December 31, 2022.

Property Operating Expenses

Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities and other operating expenses. The following table reflects our property operating expenses by segment for the three months ended September 30, 2023 and 2022 (dollars in thousands):

		Three months ended September 30,
		2023				2022				Increase (decrease)				% Increase (decrease)
Same Store		$	186,134			$	177,740			$	8,394				4.7	%
Non-Same Store and Other			13,089				13,683				(594	)			(4.3	)%
Total		$	199,223			$	191,423			$	7,800				4.1	%

The increase in property operating expenses for our Same Store segment for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was primarily driven by increases in building repairs and maintenance of $2.1 million, personnel expense of $1.9 million, real estate tax expense of $1.4 million, insurance expense of $1.2 million and utilities expense of $1.1 million.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended September 30, 2023 was $146.7 million, an increase of $9.8 million as compared to the three months ended September 30, 2022. The increase was primarily driven by the recognition of depreciation expense associated with our recently completed development communities and capital spend activities completed after September 30, 2022 in the normal course of business through September 30, 2023, partially offset by decreased depreciation expense from recently disposed communities during the year ended December 31, 2022.

Other Income and Expenses

Property management expenses for the three months ended September 30, 2023 were $16.3 million, consistent with the three months ended September 30, 2022. General and administrative expenses for the three months ended September 30, 2023 were $13.5 million, an increase of $1.3 million as compared to the three months ended September 30, 2022.

Interest expense for the three months ended September 30, 2023 was $36.7 million, a decrease of $2.0 million as compared to the three months ended September 30, 2022. The decrease was primarily due to a decrease in our average outstanding debt balance during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Other non-operating expense (income) for the three months ended September 30, 2023 was $16.5 million of expense as compared to $1.7 million of expense for the three months ended September 30, 2022, an increase of $14.8 million. The expense for the three months ended September 30, 2023 was driven by $11.3 million of non-cash loss related to the fair value adjustment of the embedded derivative in the MAA Series I preferred shares and $6.6 million of non-cash loss from investments, partially offset by $1.5 million of interest income on cash deposits. The expense for the three months ended September 30, 2022 was driven by $8.2 million of non-cash loss from investments and $0.4 million of non-cash loss related to the fair value adjustment of the embedded derivative, partially offset by $7.0 million in casualty recoveries related to winter storm Uri.

Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022

For the nine months ended September 30, 2023, we achieved net income available for MAA common shareholders of $389.6 million, an 11.7% decrease as compared to the nine months ended September 30, 2022, and total revenue growth of $114.3 million, representing a 7.7% increase in property revenues as compared to the nine months ended September 30, 2022. The following discussion describes the primary drivers of the decrease in net income available for MAA common shareholders for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Property Revenues

The following table reflects our property revenues by segment for the nine months ended September 30, 2023 and 2022 (dollars in thousands):

		Nine months ended September 30,
		2023				2022				Increase				% Increase
Same Store		$	1,516,394			$	1,408,979			$	107,415				7.6	%
Non-Same Store and Other			89,827				82,922				6,905				8.3	%
Total		$	1,606,221			$	1,491,901			$	114,320				7.7	%

The increase in rental revenues for our Same Store segment for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was the primary driver of total property revenue growth. The Same Store segment generated a 7.6% increase in revenues for the nine months ended September 30, 2023, primarily the result of average effective rent per unit growth of 8.7% as compared to the nine months ended September 30, 2022, partially offset by lower average physical occupancy. The increase in property revenues from the Non-Same Store and Other segment for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily the result of increased revenues from recently completed development communities and recently acquired communities, partially offset by decreased revenues from recently disposed communities during the year ended December 31, 2022.

Property Operating Expenses

Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities and other operating expenses. The following table reflects our property operating expenses by segment for the nine months ended September 30, 2023 and 2022 (dollars in thousands):

		Nine months ended September 30,
		2023				2022				Increase				% Increase
Same Store		$	539,274			$	505,544			$	33,730				6.7	%
Non-Same Store and Other			37,085				36,976				109				0.3	%
Total		$	576,359			$	542,520			$	33,839				6.2	%

The increase in property operating expenses for our Same Store segment for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily driven by increases in real estate tax expense of $11.2 million, building repairs and maintenance of $6.6 million, personnel expense of $6.3 million, utilities expense of $4.6 million, insurance expense of $2.6 million and office operations expense of $1.5 million.

Depreciation and Amortization

Depreciation and amortization expense for the nine months ended September 30, 2023 was $424.2 million, an increase of $19.4 million as compared to the nine months ended September 30, 2022. The increase was primarily driven by the recognition of depreciation expense associated with our recently completed development communities and capital spend activities completed after September 30, 2022 in the normal course of business through September 30, 2023, partially offset by decreased depreciation expense from recently disposed communities during the year ended December 31, 2022.

Other Income and Expenses

Property management expenses for the nine months ended September 30, 2023 were $50.3 million, an increase of $1.9 million as compared to the nine months ended September 30, 2022. General and administrative expenses for the nine months ended September 30, 2023 were $43.3 million, a decrease of $0.8 million as compared to the nine months ended September 30, 2022.

Interest expense for the nine months ended September 30, 2023 was $110.7 million, a decrease of $6.0 million as compared to the nine months ended September 30, 2022. The decrease was primarily due to a decrease in our average outstanding debt balance during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, we did not dispose of any apartment communities. For the nine months ended September 30, 2022, we disposed of two apartment communities, resulting in gains on sale of depreciable assets of $132.0 million.

Other non-operating expense (income) for the nine months ended September 30, 2023 was $4.0 million of income as compared to $19.2 million of expense for the nine months ended September 30, 2022, an increase of $23.2 million. The income for the nine months ended September 30, 2023 was driven by $3.0 million of interest income, $1.0 million of miscellaneous income, and $0.7 million of non-cash gain from investments, partially offset by $1.9 million of non-cash loss related to the fair value adjustment of the embedded derivative in the MAA Series I preferred shares. The expense for the nine months ended September 30, 2022 was driven by $39.3 million of non-cash loss from investments and $10.4 million of non-cash loss related to the fair value adjustment of the embedded derivative, partially offset by $29.2 million in casualty recoveries related to winter storm Uri.

Non-GAAP Financial Measures

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 with U.S. 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 Quarterly Report on Form 10-Q, represents FFO attributable to common shareholders and unitholders.

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 and gain on sale of depreciable 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 the National 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 on investments, net of tax; casualty related charges (recoveries), net; gain or loss on debt extinguishment; legal costs and settlements, net; COVID-19 related costs; and mark-to-market debt adjustments. Because net income attributable to noncontrolling interests is added back to FFO, Core FFO, when used in this Quarterly Report on Form 10-Q, represents Core FFO attributable to common shareholders and unitholders.

Core 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 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 from rental activities. 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.

The following table presents a reconciliation of net income available for MAA common shareholders to FFO attributable to common shareholders and unitholders and Core FFO attributable to common shareholders and unitholders for the three and nine months ended September 30, 2023 and 2022, as we believe net income available for MAA common shareholders is the most directly comparable GAAP measure (dollars in thousands):

		Three months ended September 30,								Nine months ended September 30,
		2023				2022				2023				2022
Net income available for MAA common shareholders		$	109,810			$	121,389			$	389,564			$	441,049
Depreciation and amortization of real estate assets			145,278				135,023				419,532				399,366
Loss (gain) on sale of depreciable real estate assets			75				1				61				(131,963	)
MAA’s share of depreciation and amortization of real estate assets of real estate joint venture			153				156				456				466
Net income attributable to noncontrolling interests			3,000				3,392				10,633				12,025
FFO attributable to common shareholders and unitholders			258,316				259,961				820,246				720,943
Loss on embedded derivative in preferred shares (1)			11,250				425				1,863				10,364
Gain on sale of non-depreciable real estate assets			—				(431	)			(54	)			(809	)
Loss (gain) on investments, net of tax (1) (2)			5,166				6,470				(603	)			31,036
Casualty related charges (recoveries), net (1) (3)			217				(7,046	)			588				(29,171	)
(Gain) loss on debt extinguishment(1)			(57	)			47				(57	)			47
Legal costs and settlements, net (1)			—				—				(1,600	)			535
COVID-19 related costs (1)			—				60				—				502
Mark-to-market debt adjustment (4)			—				19				(25	)			90
Core FFO attributable to common shareholders and unitholders		$	274,892			$	259,505			$	820,358			$	733,537

(1)

Included in “Other non-operating expense (income)” in the Condensed Consolidated Statements of Operations.

(2)

For the three months ended September 30, 2023 and 2022 and the nine months ended September 30, 2022, loss on investments is presented net of tax benefit of $1.4 million, $1.7 million and $8.3 million, respectively. For the nine months ended September 30, 2023, gain on investments is presented net of tax expense of $0.1 million.

(3)

For the three and nine months ended September 30, 2022, we recognized gains of $7.2 million and $27.6 million, respectively, from the receipt of insurance proceeds that exceeded our casualty losses related to winter storm Uri.

(4)

Included in “Interest expense” in the Condensed Consolidated Statements of Operations.

Core FFO attributable to common shareholders and unitholders for the three months ended September 30, 2023 was $274.9 million, an increase of $15.4 million as compared to the three months ended September 30, 2022, primarily as a result of an increase in property revenues of $21.3 million and a decrease in interest expense of $2.0 million, partially offset by increases in property operating expenses, excluding depreciation and amortization, of $7.8 million.

Core FFO attributable to common shareholders and unitholders for the nine months ended September 30, 2023 was $820.4 million, an increase of $86.8 million as compared to the nine months ended September 30, 2022, primarily as a result of an increase in property revenues of $114.3 million and a decrease in interest expense of $6.0 million, partially offset by increases in property operating expenses, excluding depreciation and amortization, of $33.8 million.

Net Debt, EBITDA, EBITDAre, and Adjusted EBITDAre

Net debt, a non-GAAP financial measure, represents unsecured notes payable and secured notes payable less cash and cash equivalents and 1031(b) exchange proceeds included in restricted cash. Management considers net debt a helpful tool in evaluating our debt position. Net debt should not be considered as an alternative to any 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.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, a non-GAAP financial measure, represents net income (computed in accordance with GAAP) plus depreciation and amortization, interest expense, and income taxes. As an owner and operator of real estate, management considers EBITDA to be an important measure of performance from core operations because EBITDA does not include various expense items that are not indicative of operating performance. EBITDA should not be considered as an alternative to net income, 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.

EBITDAre is composed of EBITDA adjusted for the gain or loss on sale of depreciable assets and adjustments to reflect our share of EBITDAre of an unconsolidated affiliate. As an owner and operator of real estate, management considers EBITDAre to be an important measure of performance from core operations because EBITDAre does not include various expense items that are not indicative of operating performance. While our definition of EBITDAre is in accordance with NAREIT’s definition, it may differ from the methodology utilized by other REITs to calculate EBITDAre and, accordingly, may not be comparable to such other REITs. EBITDAre should not be considered as an alternative to net income, 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.

Adjusted EBITDAre is comprised of EBITDAre further adjusted for items that are not considered part of our core 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 on investments; casualty related charges (recoveries), net; gain or loss on debt extinguishment; legal costs and settlements, net; and COVID-19 related costs. As an owner and operator of real estate, management considers Adjusted EBITDAre to be an important measure of performance from core operations because Adjusted EBITDAre does not include various income and expense items that are not indicative of operating performance. Our computation of Adjusted EBITDAre may differ from the methodology utilized by other REITs to calculate Adjusted EBITDAre. Adjusted EBITDAre should not be considered as an alternative to net income, 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 monitors its debt levels to a ratio of net debt to Adjusted EBITDAre in order to maintain our investment grade credit ratings. We believe this is an important factor in the management of our debt levels to maintain an optimal capital structure, and it is also considered in the assignment of our credit ratings. Adjusted EBITDAre is measured on a trailing twelve-month basis.

The following table presents a reconciliation of unsecured notes payable and secured notes payable to net debt as of September 30, 2023 and December 31, 2022, as we believe unsecured notes payable and secured notes payable, combined, is the most directly comparable GAAP measure (dollars in thousands):

		September 30, 2023				December 31, 2022
Unsecured notes payable		$	4,034,153			$	4,050,910
Secured notes payable			360,110				363,993
Total debt			4,394,263				4,414,903
Cash and cash equivalents			(161,897	)			(38,659	)
1031(b) exchange proceeds included in Restricted cash (1)			—				(9,186	)
Net debt		$	4,232,366			$	4,367,058

(1)

Included in Restricted cash in the Condensed Consolidated Balance Sheets.

The following table presents a reconciliation of net income to EBITDA, EBITDAre and Adjusted EBITDAre for the trailing twelve months ended September 30, 2023 and December 31, 2022, as we believe net income is the most directly comparable GAAP measure (dollars in thousands):

		Twelve Months Ended
		September 30, 2023				December 31, 2022
Net income		$	601,899			$	654,776
Depreciation and amortization			562,412				542,998
Interest expense			148,739				154,747
Income tax expense (benefit)			3,138				(6,208	)
EBITDA			1,316,188				1,346,313
Gain on sale of depreciable real estate assets			(82,738	)			(214,762	)
Adjustments to reflect the Company’s share of EBITDAre of an unconsolidated affiliate			1,349				1,357
EBITDA****re			1,234,799				1,132,908
Loss on embedded derivative in preferred shares (1)			12,606				21,107
Gain on sale of non-depreciable real estate assets			(54	)			(809	)
Loss on investments (1)			5,322				45,357
Casualty related recoveries, net (1) (2)			(171	)			(29,930	)
(Gain) loss on debt extinguishment (1)			(57	)			47
Legal costs and settlements, net (1)			6,400				8,535
COVID-19 related costs (1)			73				575
Adjusted EBITDA****re		$	1,258,918			$	1,177,790

(1)

Included in “Other non-operating expense (income)” in the Condensed Consolidated Statements of Operations.

(2)

For the twelve months ended September 30, 2023 and December 31, 2022, we recognized a gain of $1.4 million and $29.0 million, respectively, from the receipt of insurance proceeds that exceeded our casualty losses related to winter storm Uri.

Our net debt to Adjusted EBITDAre ratio as of September 30, 2023 was 3.4x, as compared to a ratio of 3.7x as of December 31, 2022. The change in the ratio was primarily due to an increase of $81.1 million in Adjusted EBITDAre for the trailing twelve months ended September 30, 2023 as compared to the trailing twelve months ended December 31, 2022 and a decrease of $134.7 million in comparing net debt as of September 30, 2023 to net debt as of December 31, 2022. The increase in Adjusted EBITDAre was primarily due to an increase in property revenues, partially offset by an increase in property operating expenses, while the decrease in net debt was primarily due to an increase in cash and cash equivalents.

Liquidity and Capital Resources

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 September 30, 2023, we had $1.4 billion of combined unrestricted cash and cash equivalents and available capacity under our revolving credit facility.

Cash Flows from Operating Activities

Net cash provided by operating activities was $872.3 million for the nine months ended September 30, 2023 as compared to $807.3 million for the nine months ended September 30, 2022. 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 $428.5 million for the nine months ended September 30, 2023 as compared to $414.6 million for the nine months ended September 30, 2022. The primary drivers of the change were as follows (dollars in thousands):

		Primary drivers of cash (outflow) inflow
		during the nine months ended September 30,								Increase (Decrease)
		2023				2022				in Net Cash
Purchases of real estate and other assets		$	(12,450	)		$	(252,628	)		$	240,178
Capital improvements and other			(261,069	)			(219,221	)			(41,848	)
Development costs			(151,145	)			(124,262	)			(26,883	)
Contributions to affiliates			(7,505	)			(11,100	)			3,595
Proceeds from real estate asset dispositions			2,948				165,827				(162,879	)
Net proceeds from insurance recoveries			680				26,385				(25,705	)

The decrease in cash outflows for purchases of real estate and other assets was driven by the nature of the real estate assets acquired during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. We acquired one land parcel during the nine months ended September 30, 2023 as compared to two apartment communities and three land parcels during the nine months ended September 30, 2022. The increase in cash outflows for capital improvements and other was primarily driven by increased capital spend relating to our property redevelopment activities and increased reconstruction-related capital expenditures during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increase in cash outflows for development costs was primarily driven by increased development activity during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The decrease in cash outflows for contributions to affiliates was driven by a lesser amount of investments made in the technology-focused limited partnerships during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The decrease in cash inflows from proceeds from real estate asset dispositions resulted from the disposition of one land parcel during the nine months ended September 30, 2023 as compared to the disposition of two multifamily communities and two land parcels during the nine months ended September 30, 2022. The decrease in cash inflows from net proceeds from insurance recoveries was driven by less insurance reimbursement received for storm-related casualty claims during the nine months ended September 30, 2023 as compared to the insurance reimbursements received for storm-related casualty claims during the nine months ended September 30, 2022.

Cash Flows from Financing Activities

Net cash used in financing activities was $329.4 million for the nine months ended September 30, 2023 as compared to $469.7 million for the nine months ended September 30, 2022. The primary drivers of the change were as follows (dollars in thousands):

		Primary drivers of cash (outflow) inflow
		during the nine months ended September 30,								(Decrease) Increase
		2023				2022				in Net Cash
Net (payments of) proceeds from commercial paper		$	(20,000	)		$	125,000			$	(145,000	)
Principal payments on notes payable			(3,861	)			(126,043	)			122,182
Payment of deferred financing costs			—				(5,473	)			5,473
Distributions to noncontrolling interests			(13,266	)			(10,968	)			(2,298	)
Dividends paid on common shares			(488,354	)			(395,258	)			(93,096	)
Proceeds from issuances of common shares			204,743				761				203,982
Acquisition of noncontrolling interests			—				(43,070	)			43,070
Net change in other financing activities			(5,945	)			(11,929	)			5,984

The increase in cash outflows related to net change in commercial paper resulted from the $20.0 million repayment of our commercial paper borrowings during the nine months ended September 30, 2023 as compared to the net borrowings of $125.0 million on our commercial paper program during the nine months ended September 30, 2022. The decrease in cash outflows from principal payments on notes payable primarily resulted from the retirement of $3.0 million of a secured property mortgage prior to its maturity during the nine months ended September 30, 2023 as compared to the retirement of $125.0 million of unsecured senior notes during the nine months ended September 30, 2022. The decrease in cash outflows related to payment of deferred financing costs resulted from no new deferred financing costs during the nine months ended September 30, 2023 as compared to the closing costs of $5.5 million during the nine months ended September 30, 2022 related to the amendment of our unsecured revolving credit facility. The increase in cash outflows from distributions to noncontrolling interests and dividends paid on common shares primarily resulted from the increase in the dividend rate to $4.200 per share during the nine months ended September 30, 2023 as compared to the dividend rate of $3.425 per share during the nine months ended September 30, 2022. The increase in cash inflows related to the proceeds from issuances of common shares resulted from the proceeds from the settlement of two forward sale agreements with respect to a total of 1.1 million shares at a forward price per share of $185.23 during the nine months ended September 30, 2023. The decrease in cash outflows from the acquisition of noncontrolling interests resulted from the acquisition of the noncontrolling interest of a consolidated real estate entity for $43.1 million during the nine months ended September 30, 2022. The decrease in cash outflows from the net change in other financing activities was primarily driven by fewer shares of MAA’s common stock surrendered by employees to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Debt

The following schedule reflects our outstanding debt as of September 30, 2023 (dollars in thousands):

		Principal Balance				Average Years to Rate Maturity				Average Effective Rate
Unsecured debt
Fixed rate senior notes		$	4,050,000				5.6				3.4	%
Debt issuance costs, discounts, premiums and fair market value adjustments			(15,847	)
Total unsecured debt		$	4,034,153				5.6				3.4	%
Secured debt
Fixed rate property mortgages		$	363,293				25.3				4.4	%
Debt issuance costs			(3,183	)
Total secured debt		$	360,110				25.3				4.4	%
Total debt		$	4,394,263				7.2				3.4	%

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 September 30, 2023 (dollars in thousands):

		Commercial Paper & Revolving Credit Facility**⁽¹⁾⁽²⁾**				Senior Notes				Property Mortgages				Total
2023		$	—			$	349,986			$	—			$	349,986
2024			—				399,455				—				399,455
2025			—				398,355				—				398,355
2026			—				297,780				—				297,780
2027			—				597,138				—				597,138
2028			—				397,151				—				397,151
2029			—				558,082				—				558,082
2030			—				297,802				—				297,802
2031			—				445,481				—				445,481
2032			—				—				—				—
Thereafter			—				292,923				360,110				653,033
Total		$	—			$	4,034,153			$	360,110			$	4,394,263

(1)

As of September 30, 2023, no borrowings were outstanding under MAALP’s unsecured commercial paper program. Under the terms of the program, MAALP may issue up to a maximum aggregate amount outstanding at any time of $625.0 million. For the three months ended September 30, 2023, there were no daily borrowings outstanding under the commercial paper program**.**

(2)

There were no borrowings outstanding under MAALP’s $1.25 billion unsecured revolving credit facility as of September 30, 2023.

The following schedule reflects the maturities and average effective interest rates of our outstanding fixed rate debt, net of debt issuance costs, discounts, premiums and fair market value adjustments, as of September 30, 2023 (dollars in thousands):

		Fixed Rate Debt				Average Effective Rate
2023		$	349,986				4.2	%
2024			399,455				4.0	%
2025			398,355				4.2	%
2026			297,780				1.2	%
2027			597,138				3.7	%
2028			397,151				4.2	%
2029			558,082				3.7	%
2030			297,802				3.1	%
2031			445,481				1.8	%
2032			—				—
Thereafter			653,033				3.8	%
Total		$	4,394,263				3.4	%

Unsecured Revolving Credit Facility & Commercial Paper

MAALP has entered into an unsecured revolving credit facility with a borrowing capacity of $1.25 billion and an option to expand to $2.0 billion. The revolving credit facility bears interest at an adjusted Secured Overnight Financing Rate plus a spread of 0.70% to 1.40% based on an investment grade pricing grid. The revolving credit facility has a maturity date in October 2026 with an option to extend for two additional six-month periods. As of September 30, 2023, there was no outstanding balance under the revolving credit facility, while $4.5 million of capacity was used to support outstanding letters of credit.

MAALP has 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 principal amount outstanding of $625.0 million. As of September 30, 2023, there were no borrowings outstanding under the commercial paper program.

Unsecured Senior Notes

As of September 30, 2023, MAALP had $4.1 billion of publicly issued unsecured senior notes outstanding.

In October 2023, MAALP retired $350.0 million of publicly issued unsecured senior notes at maturity using available cash on hand and borrowings under the commercial paper program.

Secured Property Mortgages

MAALP maintains secured property mortgages with various life insurance companies. As of September 30, 2023, MAALP had $363.3 million of secured property mortgages outstanding.

In July 2023, MAALP retired $3.0 million remaining on a mortgage associated with an apartment community prior to its June 2025 maturity.

For more information regarding our debt capital resources, see Note 6 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Equity

As of September 30, 2023, MAA owned 116,686,730 OP Units, comprising a 97.4% limited partnership interest in MAALP, while the remaining 3,147,780 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 3,147,780 shares of its common stock that, as of September 30, 2023, were issuable upon redemption of OP Units, in order for those shares to be sold freely in the public markets.

In August 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 is net of issuance costs. In January 2023, MAA settled its two forward sale agreements with respect to the total of 1.1 million shares at a forward price per share of $185.23, which is inclusive of adjustments made to reflect the then-current federal funds rate, the amount of dividends paid to holders of MAA common stock and commissions paid to sales agents, for net proceeds of $203.7 million. We have primarily used these proceeds to fund our development and redevelopment activities.

The Company has entered into an equity distribution agreement to establish an at-the-market, or ATM, share offering program, which allows 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 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 nine months ended September 30, 2023 and 2022, MAA did not sell any shares of common stock under its ATM program. As of September 30, 2023, there were 4.0 million shares remaining under the ATM program.

For more information regarding our equity capital resources, see Note 8 and Note 9 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Material Cash Requirements

As of September 30, 2023, we had $396.3 million of outstanding debt obligations that will mature in the year ending December 31, 2023, including the $350.0 million of publicly issued unsecured senior notes retired in October 2023, and we were obligated to make $46.3 million of additional interest payments on fixed rate debt obligations in the year ending December 31, 2023. For a schedule of the maturity dates of our outstanding debt beyond 2023, see the “Liquidity and Capital Resources - Debt” section above. As of September 30, 2023, we also had obligations to make additional capital contributions to five technology-focused limited partnerships in which we hold equity interests. The capital contributions may be called by the general partners at any time after giving appropriate notice. As of September 30, 2023, we had committed to make additional capital contributions totaling up to $37.7 million if and when called by the general partners of the limited partnerships.

We have other material cash requirements that do not represent contractual obligations, but that we expect to incur in the ordinary course of our business.

As of September 30, 2023, we had five development communities under construction totaling 1,970 apartment units once complete. Total expected costs for the five development projects are $642.7 million, of which $346.3 million had been incurred through September 30, 2023. In addition, our property redevelopment 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 ending December 31, 2023, 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 ended December 31, 2022. We expect to have additional development projects in the future.

We typically declare cash dividends on MAA’s common stock on a quarterly basis, subject to approval by MAA’s Board of Directors. The current annual dividend rate is $5.60 per common share. The timing and amount of future dividends will depend on actual cash flows from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986 and other factors as MAA’s Board of Directors deems relevant. MAA’s Board of Directors may modify our dividend policy from time to time.

For information regarding our material cash requirements as of December 31, 2022, see Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 14, 2023.

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 on our revenue. During the three and nine months ended September 30, 2023, we experienced inflationary pressures that drove higher operating expenses, primarily in real estate taxes, building repairs and maintenance and personnel expenses.

Critical Accounting Estimates

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 14, 2023, for discussions of our critical accounting estimates. During the three months ended September 30, 2023, there were no material changes to these estimates.