OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to Mid-America Apartments, L.P.'s 10-year senior unsecured notes due 2025. Fitch expects the company to use proceeds of the issuance to repay debt and for general corporate purposes. The Rating Outlook is Positive. A full list of MAA's ratings follows at the end of the release.

KEY RATING DRIVERS
The assigned rating and the issuer's Positive Outlook reflect that while MAA's recent, targeted and forecast metrics are largely consistent with a higher rating, further improvements would allow for their maintenance through the business cycle. The ratings also consider that despite MAA's portfolio focusing on markets with lower barriers to new supply, reported operating results have been less volatile as measured by the standard deviation of median multifamily REIT same store net operating income (SSNOI) growth.

DELEVERING & TRANSITION TO BECOME AN UNSECURED ISSUER COMPLETE
Over the past few years, MAA has made a concerted effort to reduce leverage, unencumber its portfolio and become a regular issuer of public unsecured notes. The transition was inspired by the issuer's interest in diversifying its capital sources following the Global Financial Crisis and the then uncertainty surrounding Fannie Mae and Freddie Mac.

The transition has largely been completed with leverage at 5.8x at third quarter 2015 (3Q15), down from 6.5x for 2014 and 7.4x for 2011. Cash-based leverage metrics for 2013 were not meaningful due to the timing effects of the merger with Colonial Properties Trust (CLP). Fitch assumes MAA will manage toward current levels and metrics should improve modestly over the next 12 to 24 months assuming only modest growth in operating cash flows. Fitch views leverage sustaining below 6.5x as consistent with a 'BBB+' rating for MAA's portfolio. Similarly fixed-charge coverage has been sustained and is expected to remain in the low-mid-3x range (3.6x for 3Q15, up from 3.2x for 2014), exceeding the 3x level that Fitch views as consistent with a 'BBB+' rating.

Fitch defines leverage as debt less readily available cash-to-recurring operating EBITDA; and fixed charge coverage as recurring operating EBITDA less maintenance capital expenditures-to-total interest incurred.

MAA's outstanding debt was 60% unsecured and 90% fixed-rate or hedged at Sept. 30, 2015, and each metric should improve pro forma for the issuance. Moreover, unencumbered NOI comprises 69% of total property NOI, up from 34% at 1Q12. Combined, Fitch views MAA's capital access and contingent liquidity as being consistent with a higher rating. Unencumbered assets (assuming a stressed 8.5% capitalization rate) cover unsecured debt by 2.5x.

ADEQUATE LIQUIDITY
Fitch projects MAA's sources of liquidity cover its uses by 2.0x for the period Oct. 1, 2015 to Dec. 31, 2016 pro forma for the issuance assuming no access to the capital markets. MAA's liquidity generally benefits from its well-staggered debt maturities (less than 17% matures in any one year through 2019) and conservative dividend payout ratio. MAA's dividends comprised 66% of both 3Q15 and 72% of 2014 adjusted funds from operations. Fitch calculates liquidity as sources (unrestricted cash of $10 million, availability under the recently expanded and extended $750 million unsecured revolving credit facility due 2020 after extension options and approximately $200 million of retained cash flow from operating activities per year) to uses (total debt maturities, remaining development expenditures and recurring maintenance capital expenditures.

FAVORABLE PROPERTY FUNDAMENTALS
MAA's SSNOI growth has accelerated in 2015 to 7.1% YTD from 3.2% in 2014 and 5.2% in 2013. Fitch anticipates that fundamentals will remain strong but moderate for the foreseeable future due to increasing supply and a slowing growth rate in asking rents in MAA's markets. Fitch's Base Case assumes SSNOI growth of 5% in 2015, 3% in 2016 and 2.5% in 2017.

The ratings are supported by 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 1999-2015 (YTD), MAA's SSNOI growth averaged 2.5% with a standard deviation of 3.7% compared with 2.8% growth and a standard deviation of 4.5% for its multifamily REIT peers.

LIMITED DEVELOPMENT EXPOSURE
The company maintains a modest unfunded development pipeline representing less than 1% of total gross assets as of Sept. 30, 2015. The company is primarily an acquirer as opposed to a developer; it has limited in-house development staff and thus contracts out development projects, which Fitch views positively, especially given MAA's markets which are prone to overbuilding. MAA also actively redevelops properties and historically has targeted yields of 10%, primarily through interior rehab. The redevelopment of existing properties generally carries a lower market risk due to the proven locations and existing tenant base, and provides the highest risk-adjusted returns over the longer term.

SUNBELT MARKETS PRONE TO OVERBUILDING
Offsetting these strengths is the company's exposure to assets in Sunbelt markets with limited supply and barriers to entry, given the availability of land and more lenient zoning regulations. These factors have led to cycles of overbuilding in the region, with a negative impact on supply / demand fundamentals. In this regard, supply-constrained markets tend to outperform during periods of multifamily recoveries, as demand outpaces supply. Fitch expects that MAA's SSNOI growth will be lower that of its peers over the next several years given that the sector continues to exhibit strong SSNOI growth nationally.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for MAA include:

--Accommodative Operating Environment: Fitch assumes MAA's operating fundamentals will remain positive, moderating towards historical averages while maintaining recurring operating EBITDA margins;
--Capital Recycling: Fitch assumes investments will be offset with a similar amount of dispositions and that while relative yields may result in dilution on an earnings basis, they will be neutral on a cashflow basis after considering maintenance capital expenditures;
--Continued Unsecured Issuances: Fitch has assumed that MAA will not issue any common stock but will issue $250 million of senior unsecured notes per year through 2017.

RATING SENSITIVITIES
The following factors may have a positive impact on the ratings and/or 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 5.8x as of Sept. 30, 2015);
--Fitch's expectation of fixed-charge coverage sustaining above 3.0x (coverage was 3.6x for quarter ended Sept. 30, 2015);
--Maintenance of the ratio of unencumbered assets-to-net unsecured debt above 2.5x (asset coverage was 2.5x using a stressed 8.5% capitalization rate).

The following factors may have a negative impact on the ratings and/or 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.

FULL LIST OF RATING ACTIONS

Fitch currently rates MAA as follows:

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'.