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Fitch Affirms Mid-America Apartment Communities, Inc.'s IDR at 'BBB'; Outlook Stable



  Fitch Affirms Mid-America Apartment Communities, Inc.'s IDR at 'BBB';
  Outlook Stable

Business Wire

NEW YORK -- June 4, 2013

Fitch Ratings has affirmed the following ratings for Mid-America Apartment
Communities, Inc. and its operating partnership, Mid-America Apartments, L.P.
(collectively MAA, or the company), taking into consideration the planned
merger with Colonial Properties Trust (CLP):

Mid-America Apartment Communities, Inc.

--Issuer Default Rating (IDR) at 'BBB'.

Mid-America Apartments, L.P.

--IDR at 'BBB';

--Unsecured revolving credit facility at 'BBB';

--Senior unsecured term loans at 'BBB';

--Senior unsecured notes at 'BBB'.

The Rating Outlook is Stable.

Upon consummation of the merger, Colonial Realty Limited Partnership, the
operating partnership of CLP, will become a 100% wholly owned and guaranteed
subsidiary of Mid-America Apartments, L.P. Fitch anticipates that it will
assign a 'BBB' IDR and 'BBB' ratings to Colonial Realty Limited Partnership's
senior unsecured term loans and senior unsecured notes at that time.

KEY RATING DRIVERS

The rating affirmation is driven by Fitch's expectation that subsequent to the
merger with Colonial Properties Trust leverage and coverage metrics will
remain consistent with the 'BBB' rating level. The transaction will accelerate
MAA's shift toward a more unsecured borrowing strategy due to CLP's higher
level of unsecured debt. Separately, Fitch expects that MAA will complete an
inaugural public bond offering in 2H 2013 and a follow-up offering in 2014.
The ratings are also supported by healthy apartment fundamentals that are
expected to remain strong, albeit moderate, over the near term.

The ratings are further supported by the company's geographically diversified
portfolio of multifamily properties that outperformed its peers during both
the recent economic downturn and over the past 10 years generally (on a
standalone basis before giving effect to the CLP portfolio).

Offsetting these credit strengths are a focus on markets that are prone to
oversupply and potentially limited lender interest during periods of market
stress. Further, the merger with CLP entails integration risks, as it is the
largest property transaction ever executed by MAA and will approximately
double MAA's size.

The transaction will weaken MAA's credit metrics, as CLP has higher standalone
leverage and weaker coverage. However the combined entity will benefit from
cost synergies and the larger size should enhance capital markets access.
Integration risk may be mitigated given that the two companies operate in
similar markets, have similar asset quality and both use the same revenue
management system.

PRO FORMA COVERAGE AND LEVERAGE APPROPRIATE FOR RATING

Fitch projects that pro forma fixed-charge coverage will stabilize in the 3.0x
range through 2015, which is strong for the rating (pro forma coverage was
2.7x for the trailing-12 months (TTM) ended March 31, 2013). Fixed-charge
coverage for the TTM ended March 31, 2013 was 3.7x for MAA on a standalone
basis. Fixed-charge coverage was 3.1x and 2.6x for the years ended Dec. 31,
2011 and Dec. 31, 2010, respectively. Fitch defines fixed-charge coverage as
recurring operating EBITDA less Fitch's estimate of recurring capital
improvements, less straight-line rent adjustments divided by total interest
incurred.

Fitch expects pro forma leverage to be approximately 7.1x at close of the
merger, which is appropriate for the 'BBB' rating. Fitch projects that
leverage will decline to approximately 6.8x in 2014 and 6.4x in 2015 (pro
forma leverage was 7.0x as of March 31, 2013). MAA's leverage was 6.2x at
March 31, 2013, compared with 7.3x and 7.4x as of Dec. 31, 2011 and Dec. 31,
2010, respectively.

TRANSITION TO UNSECURED

MAA has historically been a secured borrower. However, in 2011 the company
shifted toward an unsecured borrowing model by issuing $135 million of senior
unsecured private placement notes and obtaining a $250 million unsecured
credit facility (subsequently upsized to $325 million). During 2012, the
company issued $175 million of unsecured private placement notes and obtained
a $150 million unsecured term loan. Unsecured debt represented 34% of total
debt as of March 31, 2013. Fitch expects the company to access the public
unsecured bond market in the fall of 2013 and issue $350 million - $400
million of 10-year notes. MAA will accelerate the shift to an unsecured
borrowing strategy through the merger with CLP. Pro forma for the merger, 47%
of total debt will be unsecured, vs. 33.5% currently for MAA standalone. Fitch
views this shift positively, as it diversifies sources of capital and
increases financial flexibility by broadening the company's unencumbered asset
pool.

The company benefits from a high level of unencumbered asset coverage of
unsecured debt. When applying a stressed 8.5% capitalization rate to
annualized first-quarter 2013 unencumbered net operating income (NOI), MAA's
unencumbered assets cover unsecured debt by 3.6x. Fitch estimates that this
ratio would decline to approximately 2.5x pro forma for the merger, which
would remain appropriate for the rating.

MANAGEABLE DEBT MATURITIES AND SLIGHTLY LOW LIQUIDITY

MAA has a manageable standalone debt maturity schedule with no debt maturing
in 2013 and $293 million, or 17.3%, of total debt maturing in 2014 and $176
million or 10.1% maturing in 2015. While the 2014 maturities are substantial,
these maturities facilitate the ability for MAA to replace secured debt with
unsecured debt and also provide an adequate use of proceeds to complete an
index-eligible (>$250 million) bond offering. Pro forma, MAA will have 3%, 14%
and 12% of total debt maturing in 2013, 2014 and 2015, excluding the credit
facilities.

Pro forma, and assuming that MAA upsizes its credit facility to $500 million
from $325 million to account for a larger portfolio, Fitch calculates that
MAA's sources of liquidity (unrestricted cash, available capacity under its
unsecured credit facility, and expected retained cash flows from operating
activities after dividends) fall short of uses of liquidity (pro rata share of
debt maturities and expected development and recurring capital expenditures)
by $117 million from April 1, 2013 to Dec. 31, 2014, resulting in a liquidity
coverage ratio of 0.9x. This liquidity coverage ratio is low for a 'BBB' IDR;
however, Fitch expects the company will have good access to the capital
markets to address debt maturities, mitigating refinance risk.

Additionally, the company's adjusted FFO payout ratio has trended down from
the 80% range in 2008-2010, to 66% in 2012, thus increasing retained cash
flows. Post-merger, Fitch expects the ratio to be in the 68%-70% range, which
would still enable the combined entity to retain meaningful cash flows.

HEALTHY PROPERTY FUNDAMENTALS

The ratings are supported by robust multifamily fundamentals in MAA's markets.
MAA's same-property NOI growth was 6.6% in 2012, following 4.9% in 2011. CLP's
same-property NOI growth was stronger, at 7.6% and 7.3% in 2012 and 2011,
respectively. Fitch anticipates that fundamentals will remain strong, although
will moderate for the foreseeable future due to modest job growth and
favorable demographics in MAA's markets. Fitch projects same-property NOI
growth of 5% in 2013, 3.3% in 2014 and 3.1% in 2015. Fitch does not anticipate
a material difference in same-property NOI growth from the inclusion of the
CLP portfolio.

DEVELOPMENT EXPOSURE TO INCREASE TEMPORARILY

MAA maintained a limited development pipeline, representing just 2.6% of gross
assets as of March 31, 2013. Remaining projected expenditures to complete the
pipeline total only 1.2% of gross assets. The company does not maintain
in-house development staff but instead contracts out for third-party
development, thus minimizing construction risk and general and administrative
costs. Fitch views this approach toward development positively, especially
given MAA's markets, which are prone to periods of overbuilding. CLP's
development pipeline represented 3.7% of gross assets with 2.1% of remaining
spend. Additionally, CLP has approximately $124 million (3.1% of gross assets)
of land held for development/investment. Over time, MAA plans to reduce the
combined development and land exposure, while also winding down CLP's
development staff.

The ratings also point to the strength of MAA's long-tenured management team,
conservative acquisition and development strategy, and lower property-level
cash flow volatility through real estate cycles relative to many of its
multifamily peers. For 2001-2012, MAA's same-property NOI growth averaged 1.9%
compared with 1.8% for its multifamily peers, and the standard deviation was
3.9% compared with 4.9% for a select group of multifamily peers.

Offsetting these ratings strengths is the company's exposure to assets in
markets with limited supply constraints and barriers to entry.

SUNBELT MARKETS PRONE TO OVERBUILDING

MAA's assets pro forma for the CLP merger are concentrated in the Sun Belt
region, which has limited supply constraints and barriers to entry given the
availability of land combined with lenient zoning regulations. These factors
have led to cycles of overbuilding in the region, negatively impacting
supply/demand fundamentals. In that vein, supply-constrained markets tend to
outperform during periods of multifamily recoveries, as demand outpaces
supply. Fitch expects that the company's same-property NOI growth will be
below that of its peers over the next few years.

RATING SENSITIVITIES

The following factors may result in positive momentum on the ratings and/or
Rating Outlook:

--Demonstrated consistent access to the public unsecured bond market;

--Fitch's expectation of net debt to recurring operating EBITDA sustaining
below 6.5x (leverage was 6.2x as of March 31, 2013, but is expected to be
approximately 7.1x pro forma the merger);

--Fitch's expectation of fixed-charge coverage sustaining above 3.0x (coverage
was 3.7x for the trailing 12 months ended March 31, 2013, but is expected to
decline to approximately 3.0x pro forma the merger);

--Maintenance of the ratio of unencumbered assets to unsecured debt above 2.5x
(asset coverage was 3.6x using an 8.5% capitalization rate, but is expected to
be approximately 2.5x pro forma the merger).

The following factors may have a negative impact on the ratings and/or Rating
Outlook:

--Fitch's expectation of leverage sustaining above 7.5x.

--Fitch's expectation of fixed-charge coverage sustaining below 2.0x.

--Unencumbered assets to unsecured debt sustaining below 2.0x.

--Liquidity coverage sustaining below 1.0x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Criteria for Rating U.S. Equity REITs and REOCs' (Feb. 26, 2013);

--'Recovery Rating and Notching Criteria for Equity REITs' (Nov. 12, 2012);

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012).

Applicable Criteria and Related Research:

Recovery Rating and Notching Criteria for Equity REITs ¬タモ Effective May 12,
2011 to May 3, 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628490

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Criteria for Rating U.S. Equity REITs and REOCs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700091

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792833

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
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DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
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OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
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ON THE FITCH WEBSITE.

Contact:

Fitch Ratings
Primary Analyst
George Hoglund, CFA, +1 212-908-9149
Associate Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Steven Marks, +1 212-908-9161
Managing Director
or
Committee Chairperson
Robert Curran, +1 212-908-0515
Managing Director
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com
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