S&P Upgrades Mid-America Apartment (MAA) to 'BBB+' Amid Completed Merger; Outlook Stable

S&P Global Ratings raised its corporate credit rating and senior unsecured debt ratings on Mid-America Apartment Communities Inc. (NYSE: MAA) to 'BBB+' from 'BBB'. The outlook is stable.

Additionally, we assigned a 'BBB-' rating to MAA's series I preferred stock.

Subsequently, we are withdrawing our ratings on Post Properties Inc., including the 'BBB' long-term corporate credit rating at the company's request. Prior to withdrawal, the ratings were on CreditWatch with positive implications, where we placed them on Aug. 15, 2016. MAA has assumed of all of Post's previously rated debt.

"The upgrade of Memphis, Tenn.-based MAA reflects the improvement of the combined credit metrics following the closing of its $3.6 billion all-equity financed acquisition of Post Properties Inc. We expect debt/EBITDA to be in the low-5x range, FCC to be in the mid- to high-4x range, and debt/capital (undepreciated basis) to be in the low 30% range in fiscal 2017," said credit analyst Nader Abadi.

The stable outlook reflects our expectation for steady operating performance as evidenced by a smooth integration of the Post portfolio, continued same-store revenue growth, occupancy in the mid- to high-90% area, and NOI gains in the mid-single digits percent area. Pro forma for the transaction, we xpect MAA to maintain debt to EBITDA in the low-5x range, and FCC above the 4x range.

We could lower our corporate credit rating if the company pursues leveraged acquisitions resulting in debt to EBITDA approaching the 6x range, or if operating performances deteriorates as a result in integration stumbles, or missteps in development projects.

Ratings improvement is unlikely over the next two years without the company undertaking a meaningful strategic shift into high barrier markets, or if the company pursues significant deleveraging, such that debt to EBITDA declines to below 2.5x for a sustained period.

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