Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from   to ______

Commission File Number: 1-12762

MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)

TENNESSEE
62-1543819
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
  
 
 
6584 POPLAR AVENUE
  
MEMPHIS, TENNESSEE
38138
(Address of principal executive offices)
(Zip Code)

 (901) 682-6600
(Registrant's telephone number, including area code)

N/A
   (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þYes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes  ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes  þ No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

 
Number of Shares Outstanding
Class
at July 22, 2011
Common Stock, $0.01 par value
37,141,780
 
 
 
 

 

MID-AMERICA APARTMENT COMMUNITIES, INC.
 
TABLE OF CONTENTS
   
Page
 
PART I – FINANCIAL INFORMATION
  
Item 1.
Financial Statements.
  
 
Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010.
 3
 
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 (Unaudited) and 2010 (Unaudited).
 4
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 (Unaudited) and 2010 (Unaudited).
 5
 
Notes to Condensed Consolidated Financial Statements (Unaudited).
 6
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
 18
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 29
Item 4.
Controls and Procedures.
 30
Item 4T.
Controls and Procedures.
 30
     
     
 
PART II – OTHER INFORMATION
  
Item 1.
Legal Proceedings.
 30
Item 1A.
Risk Factors.
 30
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 40
Item 3.
Defaults Upon Senior Securities.
 40
Item 4.
(Removed and Reserved).
 40
Item 5.
Other Information.
 40
Item 6.
Exhibits.
 41
 
Signatures
 42
 
 
 
2
 
 
MAA
Condensed Consolidated  Balance  Sheets
June 30, 2011 (Unaudited) and December 31, 2010
(Dollars in thousands, except per share data)

   
June 30, 2011
    
December 31, 2010
  
Assets:
            
Real estate assets:
            
Land
   $ 312,384     $ 288,890  
Buildings and improvements
     2,733,279       2,564,887  
Furniture, fixtures and equipment
     86,519       83,251  
Capital improvements in progress
     31,437       11,501  
      3,163,619       2,948,529  
Less accumulated depreciation
     (937,334 )     (889,841 )
      2,226,285       2,058,688  
                 
Land held for future development
     1,306       1,306  
Commercial properties, net
     8,231       8,141  
Investments in real estate joint ventures
     17,613       17,505  
Real estate assets, net
     2,253,435       2,085,640  
                 
Cash and cash equivalents
     12,838       45,942  
Restricted cash
     1,627       1,514  
Deferred financing costs, net
     13,908       13,713  
Other assets
     21,752       25,133  
Goodwill
     4,106       4,106  
Assets held for sale
     5,855       -  
Total assets
   $ 2,313,521     $ 2,176,048  
                 
Liabilities and Shareholders' Equity:
                
Liabilities:
                
Notes payable
   $ 1,535,934     $ 1,500,193  
Accounts payable
     2,826       1,815  
Fair market value of interest rate swaps
     41,086       48,936  
Accrued expenses and other liabilities
     82,451       73,999  
Security deposits
     6,604       6,693  
Liabilities associated with assets held for sale
     178       20  
Total liabilities
     1,669,079       1,631,656  
                 
Redeemable stock
     4,142       3,764  
                 
Shareholders' equity:
                
Common stock, $0.01 par value per share, 50,000,000 shares authorized;
                
37,142,477 and 34,871,399 shares issued and outstanding at
                
June 30, 2011 and December 31, 2010, respectively (1)
     371       348  
Additional paid-in capital
     1,264,853       1,142,023  
Accumulated distributions in excess of net income
     (605,316 )     (575,021 )
Accumulated other comprehensive losses
     (42,268 )     (48,847 )
Total MAA shareholders' equity
     617,640       518,503  
Noncontrolling interest
     22,660       22,125  
Total equity
     640,300       540,628  
Total liabilities and equity
   $ 2,313,521     $ 2,176,048  
 
(1)
Number of shares issued and outstanding represent total shares of common stock regardless of classification on the consolidated balance sheet. The number of shares classified as redeemable stock or liability on the consolidated balance sheet for June 30, 2011 and December 31, 2010 are 62,601 and 62,234, respectively.

 
See accompanying notes to consolidated financial statements.
 
3
 
 
MAA
Condensed Consolidated Statements of Operations
Three and six months ended June 30, 2011 and 2010
(Unaudited)
(Dollars in thousands, except per share data)

   
Three months ended
    
Six months ended
  
   
June 30,
    
June 30,
  
 
  
2011
    
2010
    
2011
    
2010
  
Operating revenues:
                        
Rental revenues
   $ 100,924     $ 90,592     $ 198,369     $ 180,468  
Other property revenues
     9,302       7,648       18,484       14,616  
Total property revenues
     110,226       98,240       216,853       195,084  
Management fee income
     263       155       486       291  
Total operating revenues
     110,489       98,395       217,339       195,375  
Property operating expenses:
                                
Personnel
     13,581       12,623       26,663       24,890  
Building repairs and maintenance
     3,809       3,633       7,135       6,936  
Real estate taxes and insurance
     12,562       11,271       25,001       23,120  
Utilities
     6,372       5,636       12,507       11,200  
Landscaping
     2,702       2,504       5,384       5,000  
Other operating
     8,387       6,707       16,037       12,503  
Depreciation
     28,021       24,811       55,629       49,761  
Total property operating expenses
     75,434       67,185       148,356       133,410  
Acquisition expenses
     1,520       486       1,739       462  
Property management expenses
     5,194       4,479       10,338       8,756  
General and administrative expenses
     5,439       3,110       10,049       5,921  
Income from continuing operations before non-operating items
     22,902       23,135       46,857       46,826  
Interest and other non-property income
     114       86       349       401  
Interest expense
     (14,149 )     (13,982 )     (28,128 )     (27,863 )
Loss on debt extinguishment
     (48 )     -       (48 )     -  
Amortization of deferred financing costs
     (707 )     (648 )     (1,422 )     (1,243 )
Asset impairment
     -       (1,590 )     -       (1,590 )
Net casualty (loss) gains and other settlement proceeds
     (265 )     102       (406 )     258  
Loss on sale of non-depreciable assets
     -       -       (6 )     -  
Gain on properties contributed to joint ventures
     -       -       -       371  
Income from continuing operations before
                                
loss from real estate joint ventures
     7,847       7,103       17,196       17,160  
Loss from real estate joint ventures
     (178 )     (298 )     (423 )     (574 )
Income from continuing operations
     7,669       6,805       16,773       16,586  
Discontinued operations:
                                
Income from discontinued operations before loss on sale
     11       85       69       153  
Net loss on insurance and other settlement proceeds on
                                
discontinued operations
     -       -       (7 )     -  
Loss on sale of discontinued operations
     -       (2 )     -       (2 )
Consolidated net income
     7,680       6,888       16,835       16,737  
Net income attributable to noncontrolling interests
     252       228       563       665  
Net income attributable to MAA
     7,428       6,660       16,272       16,072  
Preferred dividend distributions
     -       2,704       -       5,920  
Premiums and original issuance costs associated with the
                                
redemption of preferred stock
     -       2,573       -       2,573  
Net income available for common shareholders
   $ 7,428     $ 1,383     $ 16,272     $ 7,579  
                                 
Earnings per common share - basic:
                                
Income from continuing operations
                                
available for common shareholders
   $ 0.20     $ 0.04     $ 0.45     $ 0.25  
Discontinued property operations
     -       -       -       -  
Net income available for common shareholders
   $ 0.20     $ 0.04     $ 0.45     $ 0.25  
                                 
Earnings per share - diluted:
                                
Income from continuing operations
                                
available for common shareholders
   $ 0.20     $ 0.04     $ 0.44     $ 0.25  
Discontinued property operations
     -       -       -       -  
Net income available for common shareholders
   $ 0.20     $ 0.04     $ 0.44     $ 0.25  
                                 
Dividends declared per common share
   $ 0.6275     $ 0.6150     $ 1.2550     $ 1.2300  

See accompanying notes to consolidated financial statements.
 
 
4
 
 
MAA
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2011 and 2010
(Unaudited)
(Dollars in thousands)

             
   
2011
    
2010
  
Cash flows from operating activities:
            
Consolidated net income
   $ 16,835     $ 16,737  
Adjustments to reconcile net income to net cash provided by operating activities:
                
                 
Depreciation and amortization of deferred financing costs
     57,318       51,266  
Stock compensation expense
     1,686       1,131  
Redeemable stock issued
     293       213  
Amortization of debt premium
     (180 )     (180 )
Loss from investments in real estate joint ventures
     423       574  
Loss on debt extinguishment
     48       -  
Derivative interest expense
     222       300  
Loss on sale of non-depreciable assets
     6       -  
Loss (gain) on sale of discontinued operations
     -       2  
Asset impairment
     -       1,590  
Net casualty loss (gains) and other settlement proceeds
     406       (258 )
Gain on properties contributed to joint ventures
     -       (371 )
Changes in assets and liabilities:
                
Restricted cash
     (113 )     (169 )
Other assets
     1,943       1,447  
Accounts payable
     1,012       (234 )
Accrued expenses and other
     3,714       (4,436 )
Security deposits
     (62 )     (696 )
Net cash provided by operating activities
     83,551       66,916  
Cash flows from investing activities:
                
Purchases of real estate and other assets
     (185,901 )     (69,718 )
Improvements to existing real estate assets
     (25,781 )     (21,901 )
Renovations to existing real estate assets
     (6,005 )     (3,552 )
Development
     (8,658 )     -  
Distributions from real estate joint ventures
     828       1,481  
Contributions to real estate joint ventures
     (1,373 )     (6,006 )
Proceeds from disposition of real estate assets
     320       48,074  
Net cash used in investing activities
     (226,570 )     (51,622 )
Cash flows from financing activities:
                
Net change in credit lines
     (12,817 )     (55,000 )
Proceeds from notes payable
     150,350       19,500  
Principal payments on notes payable
     (101,612 )     (721 )
Payment of deferred financing costs
     (1,700 )     (5,731 )
Repurchase of common stock
     (2,260 )     (813 )
Proceeds from issuances of common shares
     125,737       161,999  
Distributions to noncontrolling interests
     (2,719 )     (2,927 )
Dividends paid on common shares
     (45,064 )     (36,198 )
Dividends paid on preferred shares
     -       (6,467 )
Redemption of preferred stock
     -       (77,510 )
Net cash provided by (used in) financing activities
     109,915       (3,868 )
Net (decrease) increase in cash and cash equivalents
     (33,104 )     11,426  
Cash and cash equivalents, beginning of period
     45,942       13,819  
Cash and cash equivalents, end of period
   $ 12,838     $ 25,245  
                 
Supplemental disclosure of cash flow information:
                
   Interest paid
   $ 28,034     $ 28,458  
Supplemental disclosure of noncash investing and financing activities:
                
   Conversion of units to shares of common stock
   $ 2,878     $ 1,190  
   Accrued construction in progress
   $ 6,775     $ 2,139  
   Interest capitalized
   $ 459     $ -  
   Marked-to-market adjustment on derivative instruments
   $ 6,587     $ (10,063 )
   Reclassification of  redeemable stock to liabilities
   $ 151     $ 269  
 
See accompanying notes to consolidated financial statements.
 
 
5
 
Mid-America Apartment Communities, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010
(Unaudited)

1. 
Consolidation and Basis of Presentation and Significant Accounting Policies

Consolidation and Basis of Presentation

Mid-America Apartment Communities, Inc., or we, or MAA, is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops and manages apartment communities in the Sunbelt region of the United States. As of June 30, 2011, we owned or owned interests in a total of 164 multifamily apartment communities comprising 48,189 apartments located in 13 states, including two communities comprising 626 apartments owned through our joint venture, Mid-America Multifamily Fund I, LLC, and five communities comprising 1,635 apartments owned through our joint venture, Mid-America Multifamily Fund II, LLC. In addition, we also had two development communities and a second phase to an existing community under construction totaling 950 units as of June 30, 2011. No units for the development projects were completed as of June 30, 2011 and they are therefore not included in the totals above.

The accompanying unaudited condensed consolidated financial statements have been prepared by our management in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and applicable rules and regulations of the Securities and Exchange Commission, or the SEC, and our accounting policies as set forth in our December 31, 2010 annual consolidated financial statements. The accompanying unaudited condensed consolidated financial statements include the accounts of MAA and its subsidiaries, including Mid-America Apartments, L.P.  In our opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included and all such adjustments were of a normal recurring nature except for those disclosed below. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and six month periods ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on February 24, 2011.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods.  Actual amounts realized or paid could differ from those estimates.
 
Out of Period Adjustment

In the three months ended June 30, 2011, we recorded a $1.8 million non-cash adjustment to general and administrative expenses related to restricted stock grants issued to certain employees. This error correction represents a cumulative adjustment for the 3.5 year period ended June 30, 2011, required by Accounting Standards Codification, or ASC, 718 to record expense under certain of our restricted stock grant based incentive plans using liability accounting rather than treating these grants as equity awards. We deemed the out of period portion of this adjustment to be immaterial to all periods presented. Liability accounting is required as a result of a past practice by MAA which allowed participants to sell shares of vested restricted stock back to MAA in excess of the amount required to cover the participant’s taxes upon vesting of the shares. This practice was discontinued after the end of the second quarter.
 
Earnings per Common Share

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares outstanding during the period.  All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two class method of computing basic earnings per share. Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis with our diluted earnings per share being the more dilutive of the treasury stock or two class methods.  Operating partnership units are included in dilutive earnings per share calculations when they are dilutive to earnings per share. For the three and six month periods ended June 30, 2011 and 2010, our basic earnings per share is computed using the two class method and our diluted earnings per share is computed using the treasury stock method as follows (dollars and shares in thousands, except per share amounts):
 
 
6
 
 
   
For the three months ended
      
For the six months ended
    
   
June 30,
      
June 30,
    
   
2011
    
2010
      
2011
    
2010
    
Shares Outstanding
                            
Weighted average common shares - basic
     36,836       30,628         36,274       29,883    
Weighted average partnership units outstanding
     1,982       -  
(1)
     2,041       -  
(1)
Effect of dilutive securities
     105       108         105       84    
Weighted average common shares - diluted
     38,923       30,736         38,420       29,967    
                                     
Calculation of Earnings per Share - basic
                                    
Net income available for common shareholders
   $ 7,428     $ 1,383       $ 16,272     $ 7,579    
Net income allocated to unvested restricted shares
     (2 )     (15 )
 
     (11 )     (44 )  
Net income available for common shareholders,
                                    
adjusted
   $ 7,426     $ 1,368       $ 16,261     $ 7,535    
                                     
Weighted average common shares - basic
     36,836       30,628         36,274       29,883    
Earnings per share - basic
   $ 0.20     $ 0.04       $ 0.45     $ 0.25    
                                     
Calculation of Earnings per Share - diluted
                                    
Net income available for common shareholders
   $ 7,428     $ 1,383       $ 16,272     $ 7,579    
Net income attributable to noncontrolling interests
     252       -  
(1)
     563       -  
(1)
Adjusted net income available for
                                    
common shareholders
   $ 7,680     $ 1,383       $ 16,835     $ 7,579    
                                     
Weighted average common shares - diluted
     38,923       30,736         38,420       29,967    
Earnings per share - diluted
   $ 0.20     $ 0.04       $ 0.44     $ 0.25    
 
(1) Operating partnership units are not included in dilutive earnings per share calculations for the three or six month periods ended June 30, 2010, as they were not dilutive.
 
 
2. 
Segment Information

As of June 30, 2011, we owned or had an ownership interest in 164 multifamily apartment communities in 13 different states from which we derived all significant sources of earnings and operating cash flows. Senior management evaluates performance and determines resource allocations by reviewing apartment communities individually and in the following reportable operating segments:

 
·
Large market same store communities are generally communities in markets with a population of at least 1 million that we have owned and have been stabilized for at least a full 12 months and have not been classified as held for sale.

 
·
Secondary market same store communities are generally communities in markets with populations of less than 1 million that we have owned and have been stabilized for at least a full 12 months and have not been classified as held for sale.

 
·
Non same store communities and other includes recent acquisitions, communities in development or lease-up, communities that have been classified as held for sale and non multifamily activities, which represent less than 1% of our portfolio.

On the first day of each calendar year, we determine the composition of our same store operating segments for that year, which allows us to evaluate full period-over-period operating comparisons.  We utilize net operating income, or NOI, in evaluating the performance of the segments.  Total NOI represents total property revenues less total property operating expenses, excluding depreciation, for all properties held during the period regardless of their status as held for sale. We believe NOI is a helpful tool in evaluating the operating performance of our segments because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance.
 
 
7
 

 
Revenues and NOI for each reportable segment for the three and six month periods ended June 30, 2011 and 2010, were as follows (dollars in thousands):
 
   
Three months ended
    
Six months ended
  
   
June 30,
    
June 30,
  
   
2011
    
2010
    
2011
    
2010
  
Revenues
                        
Large Market Same Store
   $ 50,492     $ 48,551     $ 100,397     $ 96,736  
Secondary Market Same Store
     46,863       44,809       93,099       89,045  
Non-Same Store and Other
     12,871       4,880       23,357       9,303  
Total property revenues
     110,226       98,240       216,853       195,084  
Management fee income
     263       155       486       291  
Total operating revenues
   $ 110,489     $ 98,395     $ 217,339     $ 195,375  
                                 
NOI
                                
Large Market Same Store
   $ 28,684     $ 27,672     $ 57,346     $ 55,080  
Secondary Market Same Store
     26,897       25,531       54,064       51,361  
Non-Same Store and Other
     7,385       2,891       13,071       5,430  
Total NOI
     62,966       56,094       124,481       111,871  
Discontinued operations NOI included above
     (153 )     (228 )     (355 )     (436 )
Management fee income
     263       155       486       291  
Depreciation
     (28,021 )     (24,811 )     (55,629 )     (49,761 )
Acquisition expense
     (1,520 )     (486 )     (1,739 )     (462 )
Property management expense
     (5,194 )     (4,479 )     (10,338 )     (8,756 )
General and administrative expense
     (5,439 )     (3,110 )     (10,049 )     (5,921 )
Interest and other non-property income
     114       86       349       401  
Interest expense
     (14,149 )     (13,982 )     (28,128 )     (27,863 )
Loss on debt extinguishment
     (48 )     -       (48 )     -  
Amortization of deferred financing costs
     (707 )     (648 )     (1,422 )     (1,243 )
Asset impairment
     -       (1,590 )     -       (1,590 )
Net casualty gains (loss) and other settlement proceeds
     (265 )     102       (406 )     258  
Loss on sale of non-depreciable assets
     -       -       (6 )     -  
Gain on properties contributed to joint ventures
     -       -       -       371  
Loss from real estate joint ventures
     (178 )     (298 )     (423 )     (574 )
Discontinued operations
     11       83       62       151  
Net income attributable to noncontrolling interests
     (252 )     (228 )     (563 )     (665 )
Net income attributable to MAA
   $ 7,428     $ 6,660     $ 16,272     $ 16,072  
 
 
8
 
Assets for each reportable segment as of June 30, 2011 and December 31, 2010, were as follows (dollars in thousands):
 
   
June 30,
    
December 31,
  
   
2011
    
2010
  
Assets
            
Large Market Same Store
   $ 1,030,579     $ 1,044,321  
Secondary Market Same Store
     676,674       683,389  
Non-Same Store and Other
     560,438       359,606  
Corporate assets
     45,830       88,732  
Total assets
   $ 2,313,521     $ 2,176,048  
 
 
3. 
Comprehensive Income and Equity

Total comprehensive income, equity and their components for the six month periods ended June 30, 2011, and 2010, were as follows (dollars in thousands, except per share and per unit data):

   
Mid-America Apartment Communities, Inc. Shareholders
              
                     
Accumulated
    
Accumulated
              
   
Preferred
    
Common
    
Additional
    
Distributions
    
Other
              
   
Stock
    
Stock
    
Paid-In
    
in Excess of
    
Comprehensive
    
Noncontrolling
    
Total
  
   
Amount
    
Amount
    
Capital
    
Net Income
    
Income (Loss)
    
Interest
    
Equity
  
EQUITY BALANCE DECEMBER 31, 2010
   $ -     $ 348     $ 1,142,023     $ (575,021 )   $ (48,847 )   $ 22,125     $ 540,628  
Comprehensive income:
                                                        
Net income
     -       -       -       16,272       -       563       16,835  
Other comprehensive income - derivative instruments (cash flow hedges)
     -       -       -       -       6,579       230       6,809  
Comprehensive income
     -       -       -       -       -       -       23,644  
Issuance and registration of common shares
     -       21       125,679       -       -       -       125,700  
Shares repurchased and retired
     -       -       (2,260 )     -       -       -       (2,260 )
Exercise of stock options
     -       -       38       -       -       -       38  
Shares issued in exchange for units
     -       2       2,876       -       -       (2,878 )     -  
Redeemable stock fair market value
     -       -       -       (235 )     -       -       (235 )
Adjustment for Noncontrolling Interest Ownership in operating partnership
     -       -       (5,189 )     -       -       5,189       -  
Amortization of unearned compensation
     -       -       1,686       -       -       -       1,686  
Dividends on common stock ($1.2550 per share)
     -       -       -       (46,332 )     -       -       (46,332 )
Dividends on noncontrolling interest units ($1.2550 per unit)
     -       -       -       -       -       (2,569 )     (2,569 )
EQUITY BALANCE JUNE 30, 2011
   $ -     $ 371     $ 1,264,853     $ (605,316 )   $ (42,268 )   $ 22,660     $ 640,300  
 
 
 
9
 
 

   
Mid-America Apartment Communities, Inc. Shareholders
        
                     
Accumulated
    
Accumulated
              
   
Preferred
    
Common
    
Additional
    
Distributions
    
Other
              
   
Stock
    
Stock
    
Paid-In
    
in Excess of
    
Comprehensive
    
Noncontrolling
    
Total
  
   
Amount
    
Amount
    
Capital
    
Net Income
    
Income (Loss)
    
Interest
    
Equity
  
EQUITY BALANCE DECEMBER 31, 2009
   $ 62     $ 290     $ 988,642     $ (510,993 )   $ (47,435 )   $ 22,660     $ 453,226  
Comprehensive income:
                                                        
Net income
     -       -       -       16,072       -       665       16,737  
Other comprehensive income - derivative instruments (cash flow hedges)
     -       -       -       -       (9,401 )     (362 )     (9,763 )
Comprehensive income
     -       -       -       -       -       -       6,974  
Issuance and registration of common shares
     -       32       161,931       -       -       -       161,963  
Shares repurchased and retired
     -       -       (813 )     -       -       -       (813 )
Exercise of stock options
     -       -       33       -       -       -       33  
Shares issued in exchange for units
     -       -       1,190       -       -       (1,190 )     -  
Redeemable stock fair market value
     -       -       -       (154 )     -       -       (154 )
Adjustment for Noncontrolling Interest Ownership in operating partnership
     -       -       (3,053 )     -       -       3,053       -  
Amortization of unearned compensation
     -       -       1,123       -       -       -       1,123  
Dividends on common stock ($1.2300 per share)
       -       -       (38,157 )     -       -       (38,157 )
Dividends on noncontrolling interest units ($1.2300 per unit)
     -       -       -       -       -       (2,861 )     (2,861 )
Redemption of preferred stock
     (31 )     -       (74,906 )     (2,573 )     -       -       (77,510 )
Dividends on preferred stock
     -       -       -       (5,920 )     -       -       (5,920 )
EQUITY BALANCE JUNE 30, 2010
   $ 31     $ 322     $ 1,074,147     $ (541,725 )   $ (56,836 )   $ 21,965     $ 497,904  
 
4. 
Real Estate Acquisitions

The following communities were purchased during the quarter ended June 30, 2011:
 
     
Location
  
Number
    
Community
  
(Metropolitan Statistical Area (MSA))
of Units
  
Date Purchased
100% Owned Communities
            
 
The Retreat at Magnolia Parke
  
Gainesville, FL
  
        204
  
April 20, 2011
 
Atlantic Crossing
  
Jacksonville, FL
  
        200
  
April 29, 2011
 
Hamptons at Hunton Park
  
Glen Allen, VA (Richmond)
  
        300
  
June 1, 2011
 
Avala at Savannah Quarters
  
Pooler, GA (Savannah)
  
        256
  
June 13, 2011
 
Tattersall at Tapestry Park
  
Jacksonville, FL
  
        279
  
June 23, 2011
 
On May 4, 2011, we also purchased a land parcel and contracted to build a 312-unit community in Little Rock, Arkansas.

The acquisitions were funded by common stock issuances through our at-the-market program and borrowings under our current credit facilities.

5. 
Discontinued Operations

As part of our portfolio strategy to selectively dispose of mature assets that no longer meet our investment criteria and long-term strategic objectives, and in accordance with accounting standards governing the disposal of long lived assets, the 260-unit Lodge at Timberglen apartments in Dallas, Texas is considered a discontinued operation in the accompanying condensed consolidated financial statements.
 
 
10
 

 
The following is a summary of discontinued operations for the three and six month periods ended July 30, 2011 and 2010, (dollars in thousands):

   
Three Months Ended
    
Six Months Ended
  
   
July 30,
    
July 30,
  
   
2011
    
2010
    
2011
    
2010
  
Revenues
                        
Rental revenues
   $ 441     $ 457     $ 877     $ 889  
Other revenues
     50       49       102       101  
Total revenues
     491       506       979       990  
Expenses
                                
Property operating expenses
     338       278       624       554  
Depreciation
     134       132       267       262  
Interest expense
     8       11       19       21  
Total expense
     480       421       910       837  
Income from discontinued operations before
                                
gain on sale
     11       85       69       153  
Net loss on insurance and other settlement
                                
proceeds on discontinued operations
     -       -       (7 )     -  
Loss on sale of discontinued operations
     -       (2 )     -       (2 )
Income from discontinued operations
   $ 11     $ 83     $ 62     $ 151  

6. 
Share and Unit Information

On June 30, 2011, 37,142,477 common shares and 1,951,819 operating partnership units were issued and outstanding, representing a total of 39,094,296 shares and units. Additionally, we had outstanding options for the purchase of 14,457 shares of common stock at June 30, 2011. At June 30, 2010, 32,299,493 common shares and 2,198,090 operating partnership units were outstanding, representing a total of 34,497,583 shares and units. Additionally, MAA had outstanding options for the purchase of 21,557 shares of common stock at June 30, 2010.

On November 3, 2006, we entered into a sales agreement with Cantor Fitzgerald & Co. to sell up to 2,000,000 shares of our common stock, from time to time in at-the-market, or ATM, offerings or negotiated transactions through a controlled equity offering program. On July 3, 2008, and November 5, 2009, we entered into second and third sales agreements with Cantor Fitzgerald & Co. with materially the same terms for an additional 1,350,000 shares and 4,000,000 shares, respectively. On August 26, 2010, we entered into sales agreements with Cantor Fitzgerald & Co., Raymond James & Associates, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated with materially the same terms as our previous at-the-market agreements for a combined total of 6,000,000 shares of our common stock.

During the three and six month periods ended June 30, 2011, we issued 528,674 shares and 1,522,473 shares of common stock, respectively,  through our ATM programs for net proceeds of $34.1 million and $95.3 million, respectively. During the three and six month periods ended June 30, 2010, we issued a total of 2,503,600 shares and 3,074,600 shares of common stock, respectively through our ATM programs for net proceeds of $131.6 million and $161.5 million, respectively.

During the three and six month periods ended June 30, 2011, we issued 151 shares and 495,387 shares of common stock, respectively, through the optional cash purchase feature of our Dividend and Distribution Reinvestment and Share Purchase Program, or DRSPP. The issuances resulted in net proceeds of $10.2 thousand and $30.0 million, respectively. During the three and six month periods ended June 30, 2010 we issued 187 shares and 521 shares of common stock, respectively, through our DRSPP resulting in net proceeds of $10.3 thousand and $27.5 thousand, respectively.
 
 
 
11
 
 
During the three months ended March 31, 2011, 25,082 shares of MAA’s common stock were acquired from employees to satisfy tax withholding obligations that arose upon vesting of restricted stock granted pursuant to approved plans. No such acquisitions occurred during the three month period ended June 30, 2011.

7. 
Notes Payable

On June 30, 2011 and December 31, 2010, we had total indebtedness of $1,535,934,000 and $1,500,193,000, respectively. Our indebtedness as of June 30, 2011 consisted of both conventional and tax exempt debt. Borrowings were made through individual property mortgages as well as company-wide secured credit facilities.

On June 1, 2011, we paid off our $100 million credit facility with Financial Federal, which was credit enhanced by the Federal Home Loan Mortgage Corporation, or Freddie Mac, and was scheduled to mature on July 1, 2011. Also on June 1, 2011, we closed on a ten-year $128 million note through an insurance company. The note has a fixed interest rate of 5.08%

As of June 30, 2011, approximately 75% of our outstanding debt was borrowed through secured credit facility relationships with Prudential Mortgage Capital, which are credit enhanced by the Federal National Mortgage Association, or FNMA, Financial Federal, which are credit enhanced by Freddie Mac, and a $50 million bank facility with a syndicate of banks.

We utilize interest rate swaps and interest rate caps to help manage our current and future interest rate risk and entered into 25 interest rate swaps and 21 interest rate caps as of June 30, 2011, representing notional amounts of $651,800,000 and $270,651,000, respectively.

The following table summarizes our debt structure as of June 30, 2011 (dollars in thousands):

   
Borrowed
    
Effective
  
Contract
   
Balance
    
Rate
  
Maturity
Fixed Rate Debt
              
Individual property mortgages
   $ 354,756       5.0 %
7/2/2020
Tax-exempt
     10,715       5.3 %
12/1/2028
FNMA conventional credit facilities
     50,000       4.7 %
3/31/2017
Credit facility balances managed with interest rate swaps
            
LIBOR-based interest rate swaps
     634,000       5.2 %
5/18/2013
SIFMA-based interest rate swaps
     17,800       4.4 %
10/15/2012
Total fixed rate debt
     1,067,271       5.1 %
1/28/2016
                   
Variable Rate Debt (1)
                  
FNMA conventional credit facilities
     314,318       0.8 %
8/16/2014
FNMA tax-free credit facilities
     72,715       0.9 %
7/23/2031
Feddie Mac credit facilities
     64,247       0.7 %
7/1/2014
Freddie Mac mortgage
     15,200       3.6 %
12/10/2015
Bank facility
     2,183       5.0 %
3/31/2012
Total variable rate debt
     468,663       0.9 %
4/6/2017
                   
Total Outstanding Debt
   $ 1,535,934       3.8 %
6/8/2016
 
(1) Includes capped balances.
 
 
12
 

8. 
Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

We are exposed to certain risk arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future contractual and forecasted cash amounts, principally related to our borrowings, the value of which are determined by changing interest rates.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we use interest rate swaps and interest rate caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up front premium.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and six months ended June 30, 2011 and 2010, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended June 30, 2011 and 2010, we recorded ineffectiveness of $101,000 and $155,000, respectively, and during the six months ended June 30, 2011 and 2010, $96,000 and $259,000, respectively, as an increase to interest expense attributable to a mismatch in the underlying indices of the derivatives and the hedged interest payments made on our variable-rate debt.

During the six months ended June 30, 2011, we also had eight interest rate caps with a total notional amount of $51.2 million, (two of these caps with a collective notional of $19.5 million matured during the first quarter of 2011), where only the changes in intrinsic value are recorded in accumulated other comprehensive income.  Changes in fair value of these interest rate caps due to changes in time value (e.g. volatility, passage of time, etc.) are excluded from effectiveness testing and are recognized directly in earnings.  During the three months ended June 30, 2011 and 2010, we recorded a loss of $3,000 and a gain of less than $1,000, respectively, and during the six months ended June 30, 2011 and 2010, we recorded a  loss of $6,000 and $31,000, respectively, due to changes in the time value of these interest rate caps.

Amounts reported in accumulated other comprehensive income related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next twelve months, we estimate that an additional $23.0 million will be reclassified to earnings as an increase to interest expense, which primarily represents the difference between our fixed interest rate swap payments and the projected variable interest rate swap payments.
 
 
13
 

 
As of June 30, 2011 we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate Derivative
Number of Instruments
Notional
Interest Rate Caps
21
 $           270,651,000
Interest Rate Swaps
25
 $           651,800,000

Non-designated Hedges

We do not use derivatives for trading or speculative purposes and currently do not have any derivatives that are not designated as qualifying accounting hedges under Accounting Standards Codification, or ASC, 815.

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of our derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of June 30, 2011 and December 31, 2010, respectively:


Fair Values of Derivative Instruments on the Condensed Consolidated Balance Sheet as of
June 30, 2011 and December 31, 2010 (dollars in thousands)
 
   
Asset Derivatives
  
Liability Derivative
  
       
30-Jun-11
    
31-Dec-10
      
30-Jun-11
    
31-Dec-10
  
   
Balance
            
Balance
            
Derivatives designated as
  
Sheet
            
Sheet
            
hedging instruments
  
Location
  
Fair Value
    
Fair Value
  
Location
  
Fair Value
    
Fair Value
  
                               
                 
Fair market
            
                 
value of
            
                 
interest rate
            
Interest rate contracts
  
Other assets
   $ 2,445     $ 3,641  
swaps
   $ 41,086     $ 48,936  
                                       
Total derivatives designated as
                                      
hedging instruments
       $ 2,445     $ 3,641       $ 41,086     $ 48,936  
 
 
14
 

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Operations

The tables below present the effect of our derivative financial instruments on the Consolidated Statement of Operations for the three and six months ended June 30, 2011 and 2010, respectively.

Effect of Derivative Instruments on the Consolidated Statement of Operations for the
Three and Six Months Ended June 30, 2011 and 2010 (dollars in thousands)


               
Location of Gain or
      
               
(Loss Recognized in
      
       
Location of Gain
      
Income on Derivative
  
Amount of Gain or
  
       
or (Loss)
  
Amount of Gain or
  
(Ineffective Portion
  
(Loss) Recognized in
  
   
Amount of Gain or (Loss)
  
Reclassified from
  
(Loss) Reclassified
  
and Amount
  
Income on Derivative
  
   
Recognized in OCI on
  
Accumulated OCI
  
from Accumulated OCI
  
Excluded from
  
(Ineffective Portion and
  
Derivatives in Cash Flow
  
Derivative (Effective
  
into Income
  
into Income (Effective
  
Effectiveness
  
Amount Excluded from
  
Hedging Relationships
  
Portion)
  
(Effective Portion)
  
Portion)
  
Testing)
  
Effectiveness Testing)
  
   
2011
    
2010
      
2011
    
2010
      
2011
    
2010
  
                                         
Three months ended June 30,
                                        
                                         
Interest rate contracts
   $ (8,026 )   $ (14,955 )
Interest expense
   $ (7,374 )   $ (8,624 )
Interest expense
   $ (104 )   $ (154 )
                                                     
Total derivatives in cash flow
                                                    
hedging relationships
   $ (8,026 )   $ (14,955 )     $ (7,374 )   $ (8,624 )     $ (104 )   $ (154 )
                                                     
Six months ended June 30,
                                                    
                                                     
Interest rate contracts
   $ (8,202 )   $ (27,788 )
Interest expense
   $ (15,012 )   $ (18,026 )
Interest expense
   $ (102 )   $ (290 )
                                                     
Total derivatives in cash flow
                                                    
hedging relationships
   $ (8,202 )   $ (27,788 )     $ (15,012 )   $ (18,026 )     $ (102 )   $ (290 )
  
Credit-risk-related Contingent Features

As of June 30, 2011, derivatives that were in a net liability position and subject to credit-risk-related contingent features had a termination value of $45.4 million, which includes accrued interest but excludes any adjustment for nonperformance risk. These derivatives had a fair value, gross of asset positions, of $41.1 million at June 30, 2011.

Certain of our derivative contracts contain a provision where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of June 30, 2011, we had not breached the provisions of these agreements.  If we had breached these provisions, we could have been required to settle our obligations under the agreements at their termination value of $18.7 million.

Certain of our derivative contracts are credit enhanced by either FNMA or Freddie Mac.  These derivative contracts require that our credit enhancing party maintain credit ratings above a certain level.  If our credit support providers were downgraded below Baa1 by Moody’s or BBB+ by Standard & Poor’s, or S&P, we may be required to either post 100 percent collateral or settle the obligations at their termination value of $45.4 million as of June 30, 2011.  Both FNMA and Freddie Mac are currently rated Aaa by Moody’s and AAA by S&P, and therefore, the provisions of this agreement have not been breached and no collateral has been posted related to these agreements as of June 30, 2011.

Although our derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheet.

See also Note 9.
 
 
15
 

 
9. 
Fair Value Disclosure of Financial Instruments

Cash and cash equivalents, restricted cash, accounts payable, accrued expenses and other liabilities and security deposits are carried at amounts that reasonably approximate their fair value due to their short term nature.

Fixed rate notes payable at June 30, 2011 and December 31, 2010, totaled $415 million and $267 million, respectively, and had estimated fair values of $312 million and $238 million (excluding prepayment penalties), respectively, based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of June 30, 2011 and December 31, 2010. The carrying value of variable rate notes payable (excluding the effect of interest rate swap and cap agreements) at June 30, 2011 and December 31, 2010, totaled $1,121 million and $1,233 million, respectively, and had estimated fair values of $1,037 million and $1,151 million (excluding prepayment penalties), respectively, based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of June 30, 2011 and December 31, 2010.

On January 1, 2008, we adopted Financial Accounting Standards Board, or FASB, ASC 820 Fair Value Measurements and Disclosures, or ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
 
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Derivative financial instruments

Currently, we use interest rate swaps and interest rate caps (options) to manage our interest rate risk.  The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
 
 
16
 

 
To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourself and our counterparties. In prior periods, we classified our derivative valuations within the Level 3 fair value hierarchy because those valuations contain certain Level 3 inputs (e.g. credit spreads). Commencing with the year ended December 31, 2010, we determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held as of June 30, 2011 and December 31, 2010 were classified as Level 2 of the fair value hierarchy.

The table below presents our assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall.
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis at June 30, 2011
(dollars in thousands)

                         
   
Quoted Prices in
Active Markets
for Identical
Assets and Liabilities (Level 1)
    
Significant
Other
Observable
Inputs (Level 2)
    
Significant
Unobservable
Inputs (Level 3)
    
Balance at
June 30, 2011
  
Assets
                        
Derivative financial instruments
   $ —     $ 2,445     $ —     $ 2,445  
Liabilities
                                
Derivative financial instruments
   $ —     $ 41,086     $ —     $ 41,086  


Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2010
(dollars in thousands)