Edgar Filing: MID AMERICA APARTMENT COMMUNITIES INC

MAA.6.30.2015 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

¨ 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 001-12762 (Mid-America Apartment Communities, Inc.)

Commission File Number 333-190028-01 (Mid-America Apartments, L.P.)

MID-AMERICA APARTMENT COMMUNITIES, INC.

MID-AMERICA APARTMENTS, L.P.

(Exact name of registrant as specified in its charter)



Tennessee (Mid-America Apartment Communities, Inc.)	62-1543819
Tennessee (Mid-America Apartments, L.P.)	62-1543816
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)



	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.
Mid-America Apartment Communities, Inc.	YES ý	NO o
Mid-America Apartments, L.P.	YES ý	NO o
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).
Mid-America Apartment Communities, Inc.	YES ý	NO o
Mid-America Apartments, L.P.	YES ý	NO o



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.
Mid-America Apartment Communities, Inc.
	Large accelerated filer ý	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
			(Do not check if a smaller reporting company)
Mid-America Apartments, L.P.
	Large accelerated filer o	Accelerated filer o	Non-accelerated filer ý	Smaller reporting company o
			(Do not check if a smaller reporting company)



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Mid-America Apartment Communities, Inc.	YES o	NO ý
Mid-America Apartments, L.P.	YES o	NO ý

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 at
Class	July 27, 2015
Common Stock, $0.01 par value	75,374,868

MID-AMERICA APARTMENT COMMUNITIES, INC.

MID-AMERICA APARTMENTS, L.P.

TABLE OF CONTENTS



		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.
Mid-America Apartment Communities, Inc.
	Condensed Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014 (Unaudited).	4
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 (Unaudited) and 2014 (Unaudited).	5
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 (Unaudited) and 2014 (Unaudited).	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 (Unaudited) and 2014 (Unaudited).	7
Mid-America Apartments, L.P.
	Condensed Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014 (Unaudited).	8
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 (Unaudited) and 2014 (Unaudited).	9
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 (Unaudited) and 2014 (Unaudited).	10
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 (Unaudited) and 2014 (Unaudited).	11

	Notes to Condensed Consolidated Financial Statements (Unaudited).	12
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	50
Item 4.	Controls and Procedures.	50

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	51
Item 1A.	Risk Factors.	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	51
Item 3.	Defaults Upon Senior Securities.	52
Item 4.	Mine Safety Disclosures.	52
Item 5.	Other Information.	52
Item 6.	Exhibits.	52
	Signatures.	53
	Exhibit Index.	55

Explanatory Note

This periodic report on Form 10-Q, or Report, combines the Reports for the quarter ended June 30, 2015 of Mid-America Apartment Communities, Inc., a Tennessee corporation and Mid-America Apartments, L.P., a Tennessee limited partnership, of which Mid-America Apartment Communities, Inc. is the sole general partner. Mid-America Apartment Communities, Inc. and its 94.7% owned subsidiary, Mid-America Apartments, L.P., are both required to file periodic Reports under the Securities Exchange Act of 1934, as amended.

Unless the context otherwise requires, all references in this Report to "MAA" refer only to Mid-America Apartment Communities, Inc., and not to any of its consolidated subsidiaries. Unless the context otherwise requires, all references in this Report to "we," "us," "our," or the "Company" refer collectively to Mid-America Apartment Communities, Inc., together with its consolidated subsidiaries, including Mid-America Apartments, L.P. Unless the context otherwise requires, the references in this Report to the "Operating Partnership" or "MAALP" refer to Mid-America Apartments, L.P. together with its consolidated subsidiaries. "Common stock" refers to the common stock of MAA and "shareholders" means the holders of shares of MAA’s common stock. The limited partnership interests of the Operating Partnership are referred to as "OP Units" and the holders of the OP Units are referred to as "unitholders".

As of June 30, 2015, MAA owned 75,375,027 units (or approximately 94.7%) of the limited partnership interests of the Operating Partnership. MAA conducts substantially all of its business and holds substantially all of its assets through the Operating Partnership, and by virtue of its ownership of the OP Units and being the Operating Partnership's sole general partner, MAA has the ability to control all of the day-to-day operations of the Operating Partnership.

We believe combining the Reports of MAA and the Operating Partnership, including the notes to the condensed consolidated financial statements, into this single Report results in the following benefits:


•	enhances investors' understanding of MAA and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business;


•	eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this Report applies to both MAA and the Operating Partnership; and


•	creates time and cost efficiencies through the preparation of one combined Report instead of two separate Reports.

Management operates MAA and the Operating Partnership as one business. The management of the Company is comprised of individuals who are officers of MAA and employees of the Operating Partnership. We believe it is important to understand the few differences between MAA and the Operating Partnership in the context of how MAA and the Operating Partnership operate as a consolidated company. MAA and the Operating Partnership are structured as an "umbrella partnership REIT," or UPREIT. MAA's interest in the Operating Partnership entitles MAA to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to MAA's percentage interest therein and entitles MAA to vote on substantially all matters requiring a vote of the limited partners. MAA's only material asset is its ownership of limited partner interests in the Operating Partnership; therefore, MAA does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time-to-time and guaranteeing certain debt of the Operating Partnership. The Operating Partnership holds, directly or indirectly, all of our real estate assets. Except for net proceeds from public equity issuances by MAA, which are contributed to the Operating Partnership in exchange for limited partner interests, the Operating Partnership generates the capital required by the Company's business through the Operating Partnership's operations, direct or indirect incurrence of indebtedness and issuance of partnership units.

The presentation of MAA's shareholders' equity and the Operating Partnership's capital are the principal areas of difference between the consolidated financial statements of MAA and those of the Operating Partnership. MAA's shareholders' equity may include shares of preferred stock, shares of common stock, additional paid-in capital, cumulative earnings, cumulative distributions, noncontrolling interest, preferred units, treasury shares, accumulated other comprehensive income and redeemable common units. The Operating Partnership's capital may include common capital and preferred capital of the general partner (MAA), limited partners' preferred capital, limited partners' noncontrolling interest, accumulated other comprehensive income and redeemable common units. Redeemable common units represent the number of outstanding OP Units as of the date of the applicable balance sheet, valued for conversion at the greater of the closing market price of MAA's common stock or the aggregate value of the individual partners' capital balances. Holders of common units in the Operating Partnership (other than MAA and its entity affiliates) may require the Operating Partnership to redeem their common units, in which case the Operating Partnership may, at its option, pay the redemption price either in cash (in an amount per common unit equal, in general, to the average closing price of MAA’s common stock on the New York Stock Exchange, or "NYSE", over a specified period of time prior to the redemption date) or by delivering one share of our common stock (subject to adjustment under specified circumstances) for each common unit so redeemed.

In order to highlight the material differences between MAA and the Operating Partnership, this Report includes sections that separately present and discuss areas that are materially different between MAA and the Operating Partnership, including:


•	the consolidated financial statements in Item 1 of this Report;


•	certain accompanying notes to the financial statements, including Note 2 - Earnings per Common Share of MAA and Note 3 - Earnings per OP Unit of MAALP; and Note 9 - Shareholders' Equity of MAA and Note 10 - Partners' Capital of Mid-America Apartments, L.P.;


•	the certifications of the Chief Executive Officer and Chief Financial Officer of MAA included as Exhibits 31 and 32 to this Report.

In the sections that combine disclosure for MAA and the Operating Partnership, this Report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership (directly or indirectly through one of its subsidiaries) is generally the entity that enters into contracts, holds assets and issues debt, management believes this presentation is appropriate for the reasons set forth above and because the business is one enterprise and we operate the business through the Operating Partnership.

Mid-America Apartment Communities, Inc.

Condensed Consolidated Balance Sheets

June 30, 2015 and December 31, 2014

(Unaudited)

(Dollars in thousands, except share data)



	June 30, 2015			December 31, 2014
Assets:
Real estate assets:
Land	$	904,504		$	913,408
Buildings and improvements	6,705,727			6,781,210
Furniture, fixtures and equipment	214,943			214,742
Development and capital improvements in progress	69,975			80,772
	7,895,149			7,990,132
Less accumulated depreciation	(1,338,726		)	(1,358,400		)
	6,556,423			6,631,732

Undeveloped land	52,629			55,997
Corporate properties, net	8,331			7,988
Investments in real estate joint ventures	1,809			1,791
Assets held for sale	64,265			—
Real estate assets, net	6,683,457			6,697,508

Cash and cash equivalents	30,030			26,653
Restricted cash	53,406			28,181
Deferred financing costs, net	12,764			17,812
Other assets	62,149			61,119
Goodwill	1,607			2,321
Total assets	$	6,843,413		$	6,833,594

Liabilities and equity:
Liabilities:
Secured notes payable	$	1,413,793		$	1,592,116
Unsecured notes payable	2,028,451			1,932,399
Accounts payable	11,884			8,395
Fair market value of interest rate swaps	13,071			13,392
Accrued expenses and other liabilities	215,134			219,044
Security deposits	11,281			10,526
Liabilities associated with assets held for sale	1,216			—
Total liabilities	3,694,830			3,775,872

Redeemable stock	6,298			5,911

Shareholders' equity:
Common stock, $0.01 par value per share, 100,000,000 shares authorized; 75,375,027 and 75,267,675 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively ⁽¹⁾	754			752
Additional paid-in capital	3,622,323			3,619,270
Accumulated distributions in excess of net income	(647,413		)	(729,086		)
Accumulated other comprehensive income (loss)	952			(412		)
Total MAA shareholders' equity	2,976,616			2,890,524
Noncontrolling interest	165,669			161,287
Total equity	3,142,285			3,051,811
Total liabilities and equity	$	6,843,413		$	6,833,594


⁽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 on the consolidated balance sheet for June 30, 2015 and December 31, 2014 are 86,495 and 87,818, respectively.

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartment Communities, Inc.

Condensed Consolidated Statements of Operations

Three and six months ended June 30, 2015 and 2014

(Unaudited)

(Dollars in thousands, except per share data)



	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Operating revenues:
Rental revenues	$	236,165		$	223,361		$	471,106		$	445,111
Other property revenues	22,726			21,883			46,337			44,285
Total property revenues	258,891			245,244			517,443			489,396
Management fee income	—			61			—			143
Total operating revenues	258,891			245,305			517,443			489,539
Property operating expenses:
Personnel	25,872			25,195			51,533			50,118
Building repairs and maintenance	7,778			7,533			14,403			14,298
Real estate taxes and insurance	32,805			30,829			66,126			62,103
Utilities	21,596			21,559			43,673			43,141
Landscaping	5,687			6,040			11,132			11,489
Other operating	7,118			6,742			14,638			14,377
Depreciation and amortization	74,396			69,631			147,508			159,644
Total property operating expenses	175,252			167,529			349,013			355,170
Acquisition expense	1,159			947			1,499			958
Property management expenses	6,986			9,579			15,478			16,590
General and administrative expenses	6,657			5,212			13,224			9,554
Merger related expenses	—			795			—			2,871
Integration related expenses	—			3,151			—			6,993
Income from continuing operations before non-operating items	68,837			58,092			138,229			97,403
Interest and other non-property income (expense)	29			899			(180		)	1,040
Interest expense	(29,528		)	(30,163		)	(59,459		)	(60,839		)
Loss on debt extinguishment	(3		)	—			(3,379		)	—
Amortization of deferred financing costs	(905		)	(1,174		)	(1,822		)	(2,485		)
Net casualty gain (loss) after insurance and other settlement proceeds	510			(295		)	490			(305		)
Gain on sale of depreciable real estate assets excluded from discontinued operations	105,182			3,658			135,410			6,222
Gain (loss) on sale of non-depreciable real estate assets	172			(22		)	172			535
Income before income tax expense	144,294			30,995			209,461			41,571
Income tax expense	(398		)	(523		)	(907		)	(793		)
Income from continuing operations before joint venture activity	143,896			30,472			208,554			40,778
(Loss) gain from real estate joint ventures	(23		)	2,919			(4		)	2,895
Income from continuing operations	143,873			33,391			208,550			43,673
Discontinued operations:
Loss from discontinued operations before gain on sale	—			(4		)	—			(51		)
Net casualty loss after insurance and other settlement proceeds on discontinued operations	—			(1		)	—			(3		)
Gain on sale of discontinued operations	—			—			—			5,481
Consolidated net income	143,873			33,386			208,550			49,100
Net income attributable to noncontrolling interests	7,574			1,773			10,984			2,621
Net income available for MAA common shareholders	$	136,299		$	31,613		$	197,566		$	46,479

Earnings per common share - basic:
Income from continuing operations available for common shareholders	$	1.81		$	0.42		$	2.62		$	0.55
Discontinued property operations	—			—			—			0.07
Net income available for common shareholders	$	1.81		$	0.42		$	2.62		$	0.62

Earnings per common share - diluted:
Income from continuing operations available for common shareholders	$	1.81		$	0.42		$	2.62		$	0.55
Discontinued property operations	—			—			—			0.07
Net income available for common shareholders	$	1.81		$	0.42		$	2.62		$	0.62

Dividends declared per common share	$	0.77		$	0.73		$	1.54		$	1.46

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartment Communities, Inc.

Condensed Consolidated Statements of Comprehensive Income

Three and six months ended June 30, 2015 and 2014

(Unaudited)

(Dollars in thousands)



	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Consolidated net income	$	143,873		$	33,386		$	208,550		$	49,100
Other comprehensive income:
Unrealized gain (loss) from the effective portion of derivative instruments	1,804			(7,403		)	(2,543		)	(8,400		)
Reclassification adjustment for net losses included in net income for the effective portion of derivative instruments	1,791			3,085			3,983			6,810
Total comprehensive income	147,468			29,068			209,990			47,510
Less: comprehensive loss attributable to noncontrolling interests	(7,764		)	(1,542		)	(11,060		)	(2,534		)
Comprehensive income attributable to MAA	$	139,704		$	27,526		$	198,930		$	44,976

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartment Communities, Inc.

Condensed Consolidated Statements of Cash Flows

Six months ended June 30, 2015 and 2014

(Unaudited)

(Dollars in thousands)



	Six months ended June 30,
	2015			2014
Cash flows from operating activities:
Consolidated net income	$	208,550		$	49,100
Adjustments to reconcile net income to net cash provided by operating activities:
Retail revenue accretion	(820		)	(12		)
Depreciation and amortization	149,587			162,099
Stock compensation expense	2,763			2,045
Redeemable stock issued	560			507
Amortization of debt premium	(10,339		)	(14,648		)
Loss (gain) from investments in real estate joint ventures	6			(2,878		)
Loss on debt extinguishment	2,785			—
Derivative interest (credit) expense	(1,021		)	402
Settlement of forward swaps	—			(3,625		)
Gain on sale of non-depreciable real estate assets	(172		)	(535		)
Gain on sale of depreciable real estate assets excluded from discontinued operations	(135,410		)	(6,222		)
Gain on sale of discontinued operations	—			(5,481		)
Net casualty (gain) loss and other settlement proceeds	(490		)	308
Changes in assets and liabilities:
Restricted cash	1,720			(5,183		)
Other assets	8,562			11,134
Accounts payable	344			229
Accrued expenses and other	(1,204		)	594
Security deposits	1,109			526
Net cash provided by operating activities	226,530			188,360
Cash flows from investing activities:
Purchases of real estate and other assets	(161,892		)	(141,795		)
Normal capital improvements	(48,099		)	(45,695		)
Construction capital and other improvements	(3,873		)	(5,271		)
Renovations to existing real estate assets	(12,747		)	(7,801		)
Development	(14,420		)	(46,346		)
Distributions from real estate joint ventures	6			11,541
Contributions to real estate joint ventures	(30		)	—
Proceeds from disposition of real estate assets	238,849			125,640
Funding of escrow for future acquisitions	(26,945		)	(16,742		)
Net cash used in investing activities	(29,151		)	(126,469		)
Cash flows from financing activities:
Net change in credit lines	(16,115		)	(181,183		)
Proceeds from notes payable	—			396,180
Principal payments on notes payable	(55,199		)	(230,952		)
Payment of deferred financing costs	(178		)	(3,395		)
Repurchase of common stock	(945		)	(336		)
Proceeds from issuances of common shares	184			575
Exercise of stock options	420			9,544
Distributions to noncontrolling interests	(6,443		)	(6,158		)
Dividends paid on common shares	(115,726		)	(109,414		)
Net cash used in financing activities	(194,002		)	(125,139		)
Net increase (decrease) in cash and cash equivalents	3,377			(63,248		)
Cash and cash equivalents, beginning of period	26,653			89,333
Cash and cash equivalents, end of period	$	30,030		$	26,085

Supplemental disclosure of cash flow information:
Interest paid	$	71,596		$	75,818
Income taxes paid	$	2,051		$	1,596
Supplemental disclosure of noncash investing and financing activities:
Conversion of units to shares of common stock	$	184		$	799
Accrued construction in progress	$	11,165		$	8,458
Interest capitalized	$	964		$	850
Marked-to-market adjustment on derivative instruments	$	2,484		$	1,633
Fair value adjustment on debt assumed	$	—		$	1,651
Loan assumption	$	—		$	31,692

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartments, L.P.

Condensed Consolidated Balance Sheets

June 30, 2015 and December 31, 2014

(Dollars in thousands, except unit data)



	June 30, 2015			December 31, 2014
Assets:
Real estate assets:
Land	$	904,504		$	913,408
Buildings and improvements	6,705,727			6,781,210
Furniture, fixtures and equipment	214,943			214,742
Development and capital improvements in progress	69,975			80,772
	7,895,149			7,990,132
Less accumulated depreciation	(1,338,726		)	(1,358,400		)
	6,556,423			6,631,732

Undeveloped land	52,629			55,997
Corporate properties, net	8,331			7,988
Investments in real estate joint ventures	1,809			1,791
Assets held for sale	64,265			—
Real estate assets, net	6,683,457			6,697,508

Cash and cash equivalents	30,030			26,653
Restricted cash	53,406			28,181
Deferred financing costs, net	12,764			17,812
Other assets	62,149			61,119
Goodwill	1,607			2,321
Total assets	$	6,843,413		$	6,833,594

Liabilities and Capital:
Liabilities:
Secured notes payable	$	1,413,793		$	1,592,116
Unsecured notes payable	2,028,451			1,932,399
Accounts payable	11,884			8,395
Fair market value of interest rate swaps	13,071			13,392
Accrued expenses and other liabilities	215,134			219,044
Security deposits	11,281			10,526
Due to general partner	19			19
Liabilities associated with assets held for sale	1,216			—
Total liabilities	3,694,849			3,775,891

Redeemable units	6,298			5,911

Capital:
General partner: 75,375,027 OP Units outstanding at June 30, 2015 and 75,267,675 OP Units outstanding at December 31, 2014 ⁽¹⁾	2,975,586			2,890,858
Limited partners: 4,186,369 OP Units outstanding at June 30, 2015 and 4,191,152 OP Units outstanding at December 31, 2014 ⁽¹⁾	165,616			161,310
Accumulated other comprehensive income (loss)	1,064			(376		)
Total capital	3,142,266			3,051,792
Total liabilities and capital	$	6,843,413		$	6,833,594


⁽¹⁾	Number of units outstanding represent total OP Units regardless of classification on the consolidated balance sheet. The number of units classified as redeemable units on the consolidated balance sheet at June 30, 2015 and December 31, 2014 are 86,495 and 87,818, respectively.

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartments, L.P.

Condensed Consolidated Statements of Operations

Three and six months ended June 30, 2015 and 2014

(Unaudited)

(Dollars in thousands, except per unit data)



	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Operating revenues:
Rental revenues	$	236,165		$	223,361		$	471,106		$	445,111
Other property revenues	22,726			21,883			46,337			44,285
Total property revenues	258,891			245,244			517,443			489,396
Management fee income	—			61			—			143
Total operating revenues	258,891			245,305			517,443			489,539
Property operating expenses:
Personnel	25,872			25,195			51,533			50,118
Building repairs and maintenance	7,778			7,533			14,403			14,298
Real estate taxes and insurance	32,805			30,829			66,126			62,103
Utilities	21,596			21,559			43,673			43,141
Landscaping	5,687			6,040			11,132			11,489
Other operating	7,118			6,742			14,638			14,377
Depreciation and amortization	74,396			69,631			147,508			159,644
Total property operating expenses	175,252			167,529			349,013			355,170
Acquisition expense	1,159			947			1,499			958
Property management expenses	6,986			9,579			15,478			16,590
General and administrative expenses	6,657			5,212			13,224			9,554
Merger related expenses	—			795			—			2,871
Integration related expenses	—			3,151			—			6,993
Income from continuing operations before non-operating items	68,837			58,092			138,229			97,403
Interest and other non-property income (expense)	29			899			(180		)	1,040
Interest expense	(29,528		)	(30,163		)	(59,459		)	(60,839		)
Loss on debt extinguishment	(3		)	—			(3,379		)	—
Amortization of deferred financing costs	(905		)	(1,174		)	(1,822		)	(2,485		)
Net casualty gain (loss) after insurance and other settlement proceeds	510			(295		)	490			(305		)
Gain on sale of depreciable real estate assets excluded from discontinued operations	105,182			3,658			135,410			6,222
Gain (loss) on sale of non-depreciable real estate assets	172			(22		)	172			535
Income before income tax expense	144,294			30,995			209,461			41,571
Income tax expense	(398		)	(523		)	(907		)	(793		)
Income from continuing operations before joint venture activity	143,896			30,472			208,554			40,778
(Loss) gain from real estate joint ventures	(23		)	2,919			(4		)	2,895
Income from continuing operations	143,873			33,391			208,550			43,673
Discontinued operations:
Loss from discontinued operations before gain on sale	—			(4		)	—			(51		)
Net casualty loss after insurance and other settlement proceeds on discontinued operations	—			(1		)	—			(3		)
Gain on sale of discontinued operations	—			—			—			5,481
Net income available for Mid-America Apartments, L.P. common unitholders	$	143,873		$	33,386		$	208,550		$	49,100

Earnings per common unit - basic:
Income from continuing operations available for common unitholders	$	1.81		$	0.42		$	2.62		$	0.55
Income from discontinued operations available for common unitholders	—			—			—			0.07
Net income available for common unitholders	$	1.81		$	0.42		$	2.62		$	0.62

Earnings per common unit - diluted:
Income from continuing operations available for common unitholders	$	1.81		$	0.42		$	2.62		$	0.55
Income from discontinued operations available for common unitholders	—			—			—			0.07
Net income available for common unitholders	$	1.81		$	0.42		$	2.62		$	0.62

Distributions declared per common unit	$	0.77		$	0.73		$	1.54		$	1.46

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartments, L.P.

Condensed Consolidated Statements of Comprehensive Income

Three and six months ended June 30, 2015 and 2014

(Unaudited)

(Dollars in thousands)



	Three months ended June 30,					Six months ended June 30,
	2015		2014			2015			2014
Net income available for Mid-America Apartments, L.P. common unitholders	$	143,873	$	33,386		$	208,550		$	49,100
Other comprehensive income:
Unrealized gain (loss) from the effective portion of derivative instruments	1,804		(7,403		)	(2,543		)	(8,400		)
Reclassification adjustment for net losses included in net income for the effective portion of derivative instruments	1,791		3,085			3,983			6,810
Comprehensive income attributable to Mid-America Apartments, L.P.	$	147,468	$	29,068		$	209,990		$	47,510

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartments, L.P.

Condensed Consolidated Statements of Cash Flows

Six months ended June 30, 2015 and 2014

(Unaudited)

(Dollars in thousands)



	Six months ended June 30,
	2015			2014
Cash flows from operating activities:
Consolidated net income	$	208,550		$	49,100
Adjustments to reconcile net income to net cash provided by operating activities:
Retail revenue accretion	(820		)	(12		)
Depreciation and amortization	149,587			162,099
Stock compensation expense	2,763			2,045
Redeemable units issued	560			507
Amortization of debt premium	(10,339		)	(14,648		)
Loss (gain) from investments in real estate joint ventures	6			(2,878		)
Loss on debt extinguishment	2,785			—
Derivative interest (credit) expense	(1,021		)	402
Settlement of forward swaps	—			(3,625		)
Gain on sale of non-depreciable real estate assets	(172		)	(535		)
Gain on sale of depreciable real estate assets excluded from discontinued operations	(135,410		)	(6,222		)
Gain on sale of discontinued operations	—			(5,481		)
Net casualty (gain) loss and other settlement proceeds	(490		)	308
Changes in assets and liabilities:
Restricted cash	1,720			(5,183		)
Other assets	8,562			11,134
Accounts payable	344			229
Accrued expenses and other	(1,204		)	594
Security deposits	1,109			526
Net cash provided by operating activities	226,530			188,360
Cash flows from investing activities:
Purchases of real estate and other assets	(161,892		)	(141,795		)
Normal capital improvements	(48,099		)	(45,695		)
Construction capital and other improvements	(3,873		)	(5,271		)
Renovations to existing real estate assets	(12,747		)	(7,801		)
Development	(14,420		)	(46,346		)
Distributions from real estate joint ventures	6			11,541
Contributions to real estate joint ventures	(30		)	—
Proceeds from disposition of real estate assets	238,849			125,640
Funding of escrow for future acquisitions	(26,945		)	(16,742		)
Net cash used in investing activities	(29,151		)	(126,469		)
Cash flows from financing activities:
Net change in credit lines	(16,115		)	(181,183		)
Proceeds from notes payable	—			396,180
Principal payments on notes payable	(55,199		)	(230,952		)
Payment of deferred financing costs	(178		)	(3,395		)
Repurchase of common units	(945		)	(336		)
Proceeds from issuances of common units	184			575
Exercise of unit options	420			9,544
Distributions paid on common units	(122,169		)	(115,572		)
Net cash used in financing activities	(194,002		)	(125,139		)
Net increase (decrease) in cash and cash equivalents	3,377			(63,248		)
Cash and cash equivalents, beginning of period	26,653			89,333
Cash and cash equivalents, end of period	$	30,030		$	26,085

Supplemental disclosure of cash flow information:
Interest paid	$	71,596		$	75,818
Income taxes paid	$	2,051		$	1,596
Supplemental disclosure of noncash investing and financing activities:
Accrued construction in progress	$	11,165		$	8,458
Interest capitalized	$	964		$	850
Marked-to-market adjustment on derivative instruments	$	2,484		$	1,633
Fair value adjustment on debt assumed	$	—		$	1,651
Loan assumption	$	—		$	31,692

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartment Communities, Inc. and Mid-America Apartments, L.P.

Notes to Condensed Consolidated Financial Statements

June 30, 2015 and 2014

(Unaudited)

1. Basis of Presentation and Principles of Consolidation and Significant Accounting Policies

Unless the context otherwise requires, all references to "we," "us," "our," or the "Company" refer collectively to Mid-America Apartment Communities, Inc., together with its consolidated subsidiaries, including the Mid-America Apartments, L.P. Unless the context otherwise requires, all references to "MAA" refer only to Mid-America Apartment Communities, Inc., and not any of its consolidated subsidiaries. Unless the context otherwise requires, the references to the "Operating Partnership" or "MAALP" refer to Mid-America Apartments, L.P. together with its consolidated subsidiaries. "Common stock" refers to the common stock of MAA and "shareholders" means the holders of shares of MAA’s common stock. The limited partnership interests of the Operating Partnership are referred to as "OP Units" and the holders of the OP Units are referred to as "unitholders".

We believe combining the notes to the consolidated financial statements of MAA and MAALP results in the following benefits:


•	enhances a readers' understanding of MAA and the Operating Partnership by enabling the reader to view the business as a whole in the same manner that management views and operates the business;


•	eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both MAA and the Operating Partnership.

Management operates MAA and the Operating Partnership as one business. The management of the Company is comprised of individuals who are officers of MAA and employees of the Operating Partnership. We believe it is important to understand the few differences between MAA and the Operating Partnership in the context of how MAA and the Operating Partnership operate as a consolidated company. MAA and the Operating Partnership are structured as an "umbrella partnership REIT," or UPREIT. MAA's interest in the Operating Partnership entitles MAA to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to MAA's percentage interest therein and entitles MAA to vote on substantially all matters requiring a vote of the limited partners. MAA's only material asset is its ownership of limited partner interests in the Operating Partnership; therefore, MAA does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain debt of the Operating Partnership. The Operating Partnership holds, directly or indirectly, all of our real estate assets. Except for net proceeds from public equity issuances by MAA, which are contributed to the Operating Partnership in exchange for OP Units, the Operating Partnership generates the capital required by our business through the Operating Partnership's operations, direct or indirect incurrence of indebtedness and issuance of partnership units.

The presentation of MAA's shareholders' equity and the Operating Partnership's capital are the principal areas of difference between the consolidated financial statements of MAA and those of the Operating Partnership. MAA's shareholders' equity may include shares of preferred stock, shares of common stock, additional paid-in capital, cumulative earnings, cumulative distributions, noncontrolling interest, preferred units, treasury shares, accumulated other comprehensive income and redeemable common units. The Operating Partnership's capital may include common capital and preferred capital of the general partner (MAA), limited partners' preferred capital, limited partners' noncontrolling interest, accumulated other comprehensive income and redeemable common units. Redeemable common units represent the number of outstanding OP Units as of the date of the applicable balance sheet, valued at the greater of the closing market price of MAA's common stock or the aggregate value of the individual partners' capital balances. Each redeemable OP Unit may be redeemed by the holder thereof for either cash equal to the fair market value of one share of common stock of MAA at the time of such redemption or, at the option of MAA, one share of common stock of MAA.

As of June 30, 2015, we owned and operated 254 apartment communities comprising 79,977 apartments located in 14 states principally through the Operating Partnership.

As of June 30, 2015, we had four development communities under construction totaling 806 units, with 115 units completed. Total expected costs for the development projects are $118.8 million, of which $55.1 million has been incurred through June 30, 2015. We expect to complete construction on the first project by the third quarter of 2015, the second project by the fourth quarter of 2015, the third project by the third quarter of 2016, and the fourth project by the second quarter of 2017. Five of our multifamily properties include retail components with approximately 163,000 square feet of gross leasable area. We also have one wholly owned commercial property, which we acquired through our merger with Colonial Properties Trust, or Colonial, with approximately 196,000 square feet of gross leasable area, excluding tenant owned anchor stores, and one partially owned commercial property with approximately 30,000 square feet of gross leasable area.

Reclassifications

In order to present comparative financial statements, certain reclassifications have been made to prior period numbers. In our Form 10-Q for the three and six months ended June 30, 2014, we reported approximately $0.3 million and $0.7 million, respectively, in permits and fees and general maintenance costs in the Other operating expense line of our Condensed Consolidated Statement of Operations. These costs have been reclassified to Building repairs and maintenance for the three and six months ended June 30, 2014, presented in the Condensed Consolidated Statement of Operations included in this Report. In our Form 10-Q for the three and six months ended June 30, 2014, we also reported approximately $8.3 million and $16.4 million, respectively, primarily for cable TV, trash removal, and telephone costs, in the Other operating expense line of our Condensed Consolidated Statement of Operations. These costs have been reclassified to Utilities for the three and six months ended June 30, 2014, presented in the Condensed Consolidated Statement of Operations included in this Report. In our Form 10-K for the year ended December 31, 2014, we reported approximately $36.5 million as Assets held for sale, excluded from Real estate assets, net. These assets have been reclassified to Assets held for use within the applicable line items in the Condensed Consolidated Balance Sheet included in this Report. See further discussion on the held for sale reclassification in Note 12 to these condensed consolidated financial statements. These changes have been made in order to provide better insight into our property operating expenses and balance sheet position.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared by our management in accordance with United States generally accepted accounting principles, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or the SEC. The condensed consolidated financial statements of MAA presented herein include the accounts of MAA, the Operating Partnership, and all other subsidiaries in which MAA has a controlling financial interest. MAA owns approximately 95% to 100% of all consolidated subsidiaries. The condensed consolidated financial statements of MAALP presented herein include the accounts of MAALP and all other subsidiaries in which MAALP has a controlling financial interest. MAALP owns, directly or indirectly, 100% of all consolidated subsidiaries. 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. All significant intercompany accounts and transactions have been eliminated in consolidation.

We invest in entities which may qualify as variable interest entities, or VIE. A VIE is a legal entity in which the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack the power to direct the activities of a legal entity as well as the obligation to absorb its expected losses or the right to receive its expected residual returns. We consolidate all VIEs for which we are the primary beneficiary and use the equity method to account for investments that qualify as VIEs but for which we are not the primary beneficiary. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including but not limited to, those activities that most significantly impact the VIE's economic performance and which party controls such activities.

We use the equity method of accounting for our investments in entities for which we exercise significant influence, but do not have the ability to exercise control. These entities are not variable interest entities. The factors considered in determining that we do not have the ability to exercise control include ownership of voting interests and participatory rights of investors.

2. Earnings per Common Share of MAA

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. OP Units are included in dilutive earnings per share calculations when they are dilutive to earnings per share. For the three and six months ended June 30, 2015 and 2014, MAA's basic earnings per share is computed using the two-class method, and our diluted earnings per share is computed using the more dilutive of the treasury stock method or two-class method, as presented below:



(dollars and shares in thousands, except per share amounts)	Three months ended June 30,								Six months ended June 30,
	2015				2014				2015				2014
Shares Outstanding
Weighted average common shares - basic	75,168				74,948				75,157				74,876
Weighted average partnership units outstanding	—			⁽¹⁾	—			⁽¹⁾	—			⁽¹⁾	—			⁽¹⁾
Effect of dilutive securities	—			⁽²⁾	—			⁽²⁾	—			⁽²⁾	162
Weighted average common shares - diluted	75,168				74,948				75,157				75,038

Calculation of Earnings per Share - basic
Income from continuing operations	$	143,873			$	33,391			$	208,550			$	43,673
Income from continuing operations attributable to noncontrolling interests	(7,574		)		(1,773		)		(10,984		)		(2,332		)
Income from continuing operations allocated to unvested restricted shares	(337		)		(64		)		(446		)		(81		)
Income from continuing operations available for common shareholders, adjusted	$	135,962			$	31,554			$	197,120			$	41,260

Income from discontinued operations	$	—			$	(5	)		$	—			$	5,427
Income from discontinued operations attributable to noncontrolling interest	—				—				—				(289		)
Income from discontinued operations allocated to unvested restricted shares	—				—				—				(10		)
Income from discontinued operations available for common shareholders, adjusted	$	—			$	(5	)		$	—			$	5,128

Weighted average common shares - basic	75,168				74,948				75,157				74,876
Earnings per share - basic	$	1.81			$	0.42			$	2.62			$	0.62

Calculation of Earnings per Share - diluted
Income from continuing operations	$	143,873			$	33,391			$	208,550			$	43,673
Income from continuing operations attributable to noncontrolling interests	(7,574		)	⁽¹⁾	(1,773		)	⁽¹⁾	(10,987		)	⁽¹⁾	(2,332		)	⁽¹⁾
Income from continuing operations allocated to unvested restricted shares	(337		)	⁽²⁾	(64		)	⁽²⁾	(446		)	⁽²⁾	—
Income from continuing operations available for common shareholders, adjusted	$	135,962			$	31,554			$	197,117			$	41,341

Income from discontinued operations	$	—			$	(5	)		$	—			$	5,427
Income from discontinued operations attributable to noncontrolling interest	—				—				—				(289		)	⁽¹⁾
Income from discontinued operations allocated to unvested restricted shares	—				—				—				—
Income from discontinued operations available for common shareholders, adjusted	$	—			$	(5	)		$	—			$	5,138

Weighted average common shares - diluted	75,168				74,948				75,157				75,038
Earnings per share - diluted	$	1.81			$	0.42			$	2.62			$	0.62

⁽¹⁾ For both the three and six months ended June 30, 2015 and 2014, 4.2 million operating partnership units and their related income are not included in the diluted earnings per share calculations as they are not dilutive.

⁽²⁾ For both the three and six months ended June 30, 2015 and the three months ended June 30, 2014, 0.2 million potentially dilutive securities and their related income are not included in the diluted earnings per share calculations as they are not dilutive.

3. Earnings per OP Unit of MAALP

Basic earnings per OP Unit is computed by dividing net income available for common unitholders by the weighted average number of units outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common unitholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per OP unit. Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units. A reconciliation of the numerators and denominators of the basic and diluted earnings per unit computations for the three and six months ended June 30, 2015 and 2014 is presented below:



(dollars and units in thousands, except per unit amounts)	Three months ended June 30,								Six months ended June 30,
	2015				2014				2015				2014
Units Outstanding
Weighted average OP Units - basic	79,356				79,156				79,346				79,090
Effect of dilutive securities	—			⁽¹⁾	—			⁽¹⁾	—			⁽¹⁾	162
Weighted average OP Units - diluted	79,356				79,156				79,346				79,252

Calculation of Earnings per Unit - basic
Income from continuing operations	$	143,873			$	33,391			$	208,550			$	43,673
Income from continuing operations allocated to unvested restricted shares	(337		)		(64		)		(446		)		(81		)
Income from continuing operations available for common unitholders, adjusted	$	143,536			$	33,327			$	208,104			$	43,592

Income from discontinued operations	$	—			$	(5	)		$	—			$	5,427
Income from discontinued operations allocated to unvested restricted shares	—				—				—				(10		)
Income from discontinued operations available for common unitholders, adjusted	$	—			$	(5	)		$	—			$	5,417

Weighted average OP Units - basic	79,356				79,156				79,346				79,090
Earnings per unit - basic:	$	1.81			$	0.42			$	2.62			$	0.62

Calculation of Earnings per Unit - diluted
Income from continuing operations	$	143,873			$	33,391			$	208,550			$	43,673
Income from continuing operations allocated to unvested restricted shares	(337		)	⁽¹⁾	(64		)	⁽¹⁾	(446		)	⁽¹⁾	—
Income from continuing operations available for common unitholders, adjusted	$	143,536			$	33,327			$	208,104			$	43,673

Income from discontinued operations	$	—			$	(5	)		$	—			$	5,427
Income from discontinued operations allocated to unvested restricted shares	—				—				—				—
Income from discontinued operations available for common unitholders, adjusted	$	—			$	(5	)		$	—			$	5,427

Weighted average OP Units - diluted	79,356				79,156				79,346				79,252
Earnings per unit - diluted:	$	1.81			$	0.42			$	2.62			$	0.62

⁽¹⁾ For both the three and six months ended June 30, 2015 and the three months ended June 30, 2014, 0.2 million potentially dilutive securities and their related income are not included in the diluted earnings per share calculations as they are not dilutive.

4. MAA Equity

Total equity and its components for the six-month periods ended June 30, 2015 and 2014 were as follows (dollars in thousands, except per share and per unit data):



	Mid-America Apartment Communities, Inc. Shareholders Equity
	Common Stock Amount		Additional Paid-In Capital			Accumulated Distributions in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Equity
EQUITY BALANCE DECEMBER 31, 2014	$	752	$	3,619,270		$	(729,086	)	$	(412	)	$	161,287		$	3,051,811
Net income						197,566						10,984			208,550
Other comprehensive income - derivative instruments (cash flow hedges)									1,364			76			1,440
Issuance and registration of common shares	2		182												184
Shares repurchased and retired	—		(945		)										(945		)
Exercise of stock options	—		420												420
Shares issued in exchange for units	—		184									(184		)	—
Redeemable stock fair market value adjustment						173									173
Adjustment for noncontrolling interest ownership in operating partnership			45									(45		)	—
Amortization of unearned compensation			3,167												3,167
Dividends on common stock ($1.54 per share)						(116,066		)				—			(116,066		)
Dividends on noncontrolling interest units ($1.54 per unit)												(6,449		)	(6,449		)
EQUITY BALANCE JUNE 30, 2015	$	754	$	3,622,323		$	(647,413	)	$	952		$	165,669		$	3,142,285



	Mid-America Apartment Communities, Inc. Shareholders Equity
	Common Stock Amount		Additional Paid-In Capital			Accumulated Distributions in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Equity
EQUITY BALANCE DECEMBER 31, 2013	$	747	$	3,599,549		$	(653,593	)	$	108		$	166,726		$	3,113,537
Net income						46,479						2,621			49,100
Other comprehensive loss - derivative instruments (cash flow hedges)									(1,503		)	(87		)	(1,590		)
Issuance and registration of common shares	2		573												575
Shares repurchased and retired	—		(336		)										(336		)
Exercise of stock options	2		9,542												9,544
Shares issued in exchange for units	—		799									(799		)	—
Shares issued in exchange for redeemable stock			998												998
Redeemable stock fair market value adjustment						(848		)							(848		)
Adjustment for noncontrolling interest ownership in operating partnership			51									(51		)	—
Amortization of unearned compensation			2,045												2,045
Dividends on common stock ($1.46 per share)						(109,680		)