Document


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 September 30, 2018
or

¨    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 No.)
 
6815 Poplar Ave., Suite 500, Germantown, TN 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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth 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
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Mid-America Apartments, L.P.
 
 
 
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer  ý
Smaller reporting company o
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
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:
Mid-America Apartment Communities, Inc.
Number of Shares Outstanding at
Class
October 29, 2018
Common Stock, $0.01 par value
113,837,767



MID-AMERICA APARTMENT COMMUNITIES, INC.
MID-AMERICA APARTMENTS, L.P.

TABLE OF CONTENTS

 
 
 
Page
 PART I – FINANCIAL INFORMATION
Item 1.
 
Mid-America Apartment Communities, Inc.
 
 
 
 
 
 
 
 
 
 
Mid-America Apartments, L.P.
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 

1


Explanatory Note

This report combines the Quarterly Reports on Form 10-Q for the quarter ended September 30, 2018 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 96.5% owned subsidiary, Mid-America Apartments, L.P., are both required to file quarterly reports under the Securities Exchange Act of 1934, as amended.

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to "MAA" refer only to Mid-America Apartment Communities, Inc., and not any of its consolidated subsidiaries. Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q 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, all references in this Quarterly Report on Form 10-Q 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, "preferred stock" refers to the preferred stock of MAA and "shareholders" means the holders of shares of MAA’s common stock or preferred stock, as applicable. The common units of limited partnership interest in the Operating Partnership are referred to as "OP Units" and the holders of the OP Units are referred to as "common unitholders".

As of September 30, 2018, MAA owned 113,838,139 OP Units (96.5% of the total number of OP Units). 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 periodic reports of MAA and the Operating Partnership, including the notes to the condensed consolidated financial statements, into this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q applies to both MAA and the Operating Partnership; and
•
creates time and cost efficiencies through the preparation of one combined Quarterly Report on Form 10-Q instead of two separate reports.

MAA is a multifamily focused, self-administered and self-managed real estate investment trust, or REIT. Management operates MAA and the Operating Partnership as one business. 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 partners. MAA's only material asset is its ownership of OP Units in the Operating Partnership (other than cash held by MAA from time-to-time); 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 the 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 the Company's business through the Operating Partnership's operations, direct or indirect incurrence of indebtedness and issuance of OP 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, treasury shares, accumulated other comprehensive income and redeemable common stock. The Operating Partnership's capital may include common capital and preferred capital of the general partner (MAA), limited partners' common capital and preferred capital, noncontrolling interest, accumulated other comprehensive income and redeemable common units. Redeemable common units represent the number of outstanding limited partnership 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. Holders of OP Units (other than MAA and its subsidiaries) may require the Operating Partnership to redeem their OP Units from time to time, in which case the Operating Partnership may, at its option, pay the redemption price either in cash (in an amount per OP 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 prior to the redemption date) or by

2


delivering one share of MAA's common stock (subject to adjustment under specified circumstances) for each OP Unit so redeemed.

In order to highlight the material differences between MAA and the Operating Partnership, this Quarterly Report on Form 10-Q includes sections that separately present and discuss areas that are materially different between MAA and the Operating Partnership, including:

•
the condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q;
•
certain accompanying notes to the condensed consolidated financial statements, including Note 2 - Earnings per Common Share of MAA and Note 3 - Earnings per OP Unit of MAALP; Note 4 - MAA Equity and Note 5 - MAALP Capital; and Note 8 - Shareholders' Equity of MAA and Note 9 - Partners' Capital of MAALP;
•
the controls and procedures in Item 4 of this Quarterly Report on Form 10-Q; and
•
the certifications included as Exhibits 31 and 32 to this Quarterly Report on Form 10-Q.

In the sections that combine disclosures for MAA and the Operating Partnership, this Quarterly Report on Form 10-Q 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, in that we operate the business through the Operating Partnership.


3


PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements.

Mid-America Apartment Communities, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except share and per share data)
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
Real estate assets:
 
 
 
Land
$
1,868,828

 
$
1,836,417

Buildings and improvements and other
11,636,424

 
11,281,504

Development and capital improvements in progress
53,739

 
116,833

 
13,558,991

 
13,234,754

Less: Accumulated depreciation
(2,439,418
)
 
(2,075,071
)
 
11,119,573

 
11,159,683

Undeveloped land
31,849

 
57,285

Investment in real estate joint venture
44,619

 
44,956

Real estate assets, net
11,196,041

 
11,261,924

 
 
 
 
Cash and cash equivalents
46,139

 
10,750

Restricted cash
33,261

 
78,117

Other assets
134,246

 
135,807

Assets held for sale
9,300

 
5,321

Total assets
$
11,418,987

 
$
11,491,919

 
 
 
 
Liabilities and equity
 

 
 

Liabilities:
 

 
 

Unsecured notes payable
$
3,582,624

 
$
3,525,765

Secured notes payable
921,399

 
976,292

Accrued expenses and other liabilities
473,803

 
405,560

Total liabilities
4,977,826

 
4,907,617

 
 
 
 
Redeemable common stock
9,607

 
10,408

 
 
 
 
Shareholders' equity:
 

 
 

Preferred stock, $0.01 par value per share, 20,000,000 shares authorized; 8.50% Series I Cumulative Redeemable Shares, liquidation preference $50 per share, 867,846 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
9

 
9

Common stock, $0.01 par value per share, 145,000,000 shares authorized; 113,838,139 and 113,643,166 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively(1)
1,136

 
1,134

Additional paid-in capital
7,135,479

 
7,121,112

Accumulated distributions in excess of net income
(940,773
)
 
(784,500
)
Accumulated other comprehensive income
11,556

 
2,157

Total MAA shareholders' equity
6,207,407

 
6,339,912

Noncontrolling interests - Operating Partnership units
221,841

 
231,676

Total Company's shareholders' equity
6,429,248

 
6,571,588

Noncontrolling interest - consolidated real estate entity
2,306

 
2,306

Total equity
6,431,554

 
6,573,894

Total liabilities and equity
$
11,418,987

 
$
11,491,919

(1) 
Number of shares issued and outstanding represent total shares of common stock regardless of classification on the Condensed Consolidated Balance Sheets. The number of shares classified as redeemable common stock on the Condensed Consolidated Balance Sheets for September 30, 2018 and December 31, 2017 are 95,899 and 103,504, respectively.
 
See accompanying notes to condensed consolidated financial statements.

4


Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share data)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental and other property revenues
$
397,108

 
$
384,550

 
$
1,173,198

 
$
1,146,249

Expenses:
 

 
 

 
 

 
 

Operating expense, excluding real estate taxes and insurance
97,703

 
96,582

 
279,831

 
275,688

Real estate taxes and insurance
57,037

 
52,597

 
168,043

 
160,733

Depreciation and amortization
124,549

 
117,928

 
368,218

 
374,285

Total property operating expenses
279,289

 
267,107

 
816,092

 
810,706

Property management expenses
11,303

 
10,281

 
35,579

 
32,007

General and administrative expenses
6,380

 
8,361

 
25,723

 
30,735

Merger and integration related expenses
1,878

 
4,130

 
8,503

 
14,498

Income before non-operating items
98,258

 
94,671

 
287,301

 
258,303

Interest expense
(44,650
)
 
(39,940
)
 
(129,140
)
 
(115,005
)
(Loss) gain on sale of depreciable real estate assets
(23
)
 
58,844

 
(21
)
 
59,045

Gain (loss) on sale of non-depreciable real estate assets
959

 
(6
)
 
3,870

 
42

Other non-operating income
374

 
5,695

 
6,065

 
11,033

Income before income tax expense
54,918

 
119,264

 
168,075

 
213,418

Income tax expense
(616
)
 
(641
)
 
(1,826
)
 
(1,910
)
Income from continuing operations before real estate joint venture activity
54,302

 
118,623

 
166,249

 
211,508

Income from real estate joint venture
402

 
335

 
1,256

 
1,021

Net income
54,704

 
118,958

 
167,505

 
212,529

Net income attributable to noncontrolling interests
1,913

 
4,249

 
5,888

 
7,600

Net income available for shareholders
52,791

 
114,709

 
161,617

 
204,929

Dividends to MAA Series I preferred shareholders
922

 
922

 
2,766

 
2,766

Net income available for MAA common shareholders
$
51,869

 
$
113,787

 
$
158,851

 
$
202,163

 
 
 
 
 
 
 
 
Earnings per common share - basic:
 
 
 

 
 

 
 

Net income available for common shareholders
$
0.46

 
$
1.00

 
$
1.40

 
$
1.78

 
 
 
 
 
 
 
 
Earnings per common share - diluted:
 

 
 

 
 

 
 

Net income available for common shareholders
$
0.46

 
$
1.00

 
$
1.40

 
$
1.78

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.9225

 
$
0.8700

 
$
2.7675

 
$
2.6100


See accompanying notes to condensed consolidated financial statements.

5


Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
54,704

 
$
118,958

 
$
167,505

 
$
212,529

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gain (loss) from the effective portion of derivative instruments
4,245

 
90

 
10,797

 
(1,252
)
Reclassification adjustment for net (gains) losses included in net income for the effective portion of derivative instruments
(548
)
 
(33
)
 
(1,296
)
 
884

Total comprehensive income
58,401

 
119,015

 
177,006

 
212,161

Less: Comprehensive income attributable to noncontrolling interests
(2,040
)
 
(4,251
)
 
(6,223
)
 
(7,586
)
Comprehensive income attributable to MAA
$
56,361

 
$
114,764

 
$
170,783

 
$
204,575

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.



6


Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
Nine months ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
167,505

 
$
212,529

   Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

     Depreciation and amortization
369,223

 
374,947

     Loss (gain) on sale of depreciable real estate assets
21

 
(59,045
)
     Gain on sale of non-depreciable real estate assets
(3,870
)
 
(42
)
     Stock compensation expense
9,877

 
8,431

     Amortization of debt premium and debt issuance costs
(4,318
)
 
(8,035
)
     Net change in operating accounts and other
62,618

 
28,671

Net cash provided by operating activities
601,056

 
557,456

 
 
 
 
Cash flows from investing activities:
 

 
 

     Purchases of real estate and other assets
(112,656
)
 
(63,774
)
     Capital improvements, development and other
(192,520
)
 
(268,423
)
     Contributions to affiliates, including joint ventures
(1,500
)
 
(750
)
     Proceeds from disposition of real estate assets
18,918

 
89,857

Net cash used in investing activities
(287,758
)
 
(243,090
)
 
 
 
 
Cash flows from financing activities:
 

 
 

     Proceeds from lines of credit
780,000

 
580,000

Repayments of lines of credit
(820,000
)
 
(820,000
)
     Proceeds from notes payable
397,612

 
597,480

     Principal payments on notes payable
(346,239
)
 
(345,053
)
     Payment of deferred financing costs
(3,741
)
 
(5,355
)
     Repurchase of common stock
(2,912
)
 
(4,782
)
Debt prepayment and extinguishment costs
(3
)
 
(1,585
)
     Proceeds from issuances of common shares
488

 
1,007

     Exercise of stock options
916

 
432

     Distributions to noncontrolling interests
(11,286
)
 
(10,999
)
     Dividends paid on common shares
(314,834
)
 
(296,441
)
     Dividends paid on preferred shares
(2,766
)
 
(2,766
)
Net cash used in financing activities
(322,765
)
 
(308,062
)
 
 
 
 
Net (decrease) increase in cash, cash equivalents and restricted cash
(9,467
)
 
6,304

Cash, cash equivalents and restricted cash, beginning of period
88,867

 
121,800

Cash, cash equivalents and restricted cash, end of period
$
79,400

 
$
128,104

 
 
 
 
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets:
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Cash and cash equivalents
$
46,139

 
$
47,851

Restricted cash
33,261

 
80,253

Total cash, cash equivalents and restricted cash
$
79,400

 
$
128,104

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
111,439

 
$
123,735

Income taxes paid
2,746

 
2,256

 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 

 
 

Conversion of OP Units to shares of common stock
$
4,282

 
$
1,133

Accrued construction in progress
19,476

 
15,787

Interest capitalized
1,640

 
5,884

Mark-to-market adjustment on derivative instruments
7,956

 
12,035

See accompanying notes to condensed consolidated financial statements.

7



Mid-America Apartments, L.P.
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except unit data)
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
Real estate assets:
 
 
 
Land
$
1,868,828

 
$
1,836,417

Buildings and improvements and other
11,636,424

 
11,281,504

Development and capital improvements in progress
53,739

 
116,833

 
13,558,991

 
13,234,754

Less: Accumulated depreciation
(2,439,418
)
 
(2,075,071
)
 
11,119,573

 
11,159,683

Undeveloped land
31,849

 
57,285

Investment in real estate joint venture
44,619

 
44,956

Real estate assets, net
11,196,041

 
11,261,924

 
 
 
 
Cash and cash equivalents
46,139

 
10,750

Restricted cash
33,261

 
78,117

Other assets
134,246

 
135,807

Assets held for sale
9,300

 
5,321

Total assets
$
11,418,987

 
$
11,491,919

 
 
 
 
Liabilities and capital
 

 
 

Liabilities:
 

 
 

Unsecured notes payable
$
3,582,624

 
$
3,525,765

Secured notes payable
921,399

 
976,292

Accrued expenses and other liabilities
473,803

 
405,560

Due to general partner
19

 
19

Total liabilities
4,977,845

 
4,907,636

 
 
 
 
Redeemable common units
9,607

 
10,408

 
 
 
 
Operating Partnership capital:
 

 
 

Preferred units, 867,846 preferred units outstanding at September 30, 2018 and at December 31, 2017
66,840

 
66,840

Common units:
 
 
 
General partner, 113,838,139 and 113,643,166 OP Units outstanding at September 30, 2018 and December 31, 2017, respectively (1)
6,128,519

 
6,270,758

Limited partners, 4,114,276 and 4,191,586 OP Units outstanding at September 30, 2018 and December 31, 2017, respectively (1)
221,841

 
231,676

Accumulated other comprehensive income
12,029

 
2,295

Total operating partners' capital
6,429,229

 
6,571,569

Noncontrolling interest - consolidated real estate entity
2,306

 
2,306

Total capital
6,431,535

 
6,573,875

Total liabilities and capital
$
11,418,987

 
$
11,491,919

(1) 
Number of units outstanding represent total OP Units regardless of classification on the Condensed Consolidated Balance Sheets. The number of units classified as redeemable common units on the Condensed Consolidated Balance Sheets at September 30, 2018 and December 31, 2017 are 95,899 and 103,504, respectively.
See accompanying notes to condensed consolidated financial statements.

8


Mid-America Apartments, L.P.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per unit data)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental and other property revenues
$
397,108

 
$
384,550

 
$
1,173,198

 
$
1,146,249

Expenses:
 

 
 

 
 

 
 

Operating expense, excluding real estate taxes and insurance
97,703

 
96,582

 
279,831

 
275,688

Real estate taxes and insurance
57,037

 
52,597

 
168,043

 
160,733

Depreciation and amortization
124,549

 
117,928

 
368,218

 
374,285

Total property operating expenses
279,289

 
267,107

 
816,092

 
810,706

Property management expenses
11,303

 
10,281

 
35,579

 
32,007

General and administrative expenses
6,380

 
8,361

 
25,723

 
30,735

Merger and integration related expenses
1,878

 
4,130

 
8,503

 
14,498

Income before non-operating items
98,258

 
94,671

 
287,301

 
258,303

Interest expense
(44,650
)
 
(39,940
)
 
(129,140
)
 
(115,005
)
(Loss) gain on sale of depreciable real estate assets
(23
)
 
58,844

 
(21
)
 
59,045

Gain (loss) on sale of non-depreciable real estate assets
959

 
(6
)
 
3,870

 
42

Other non-operating income
374

 
5,695

 
6,065

 
11,033

Income before income tax expense
54,918

 
119,264

 
168,075

 
213,418

Income tax expense
(616
)
 
(641
)
 
(1,826
)
 
(1,910
)
Income from continuing operations before real estate joint venture activity
54,302

 
118,623

 
166,249

 
211,508

Income from real estate joint venture
402

 
335

 
1,256

 
1,021

Net income
54,704

 
118,958

 
167,505

 
212,529

Dividends to preferred unitholders
922

 
922

 
2,766

 
2,766

Net income available for MAALP common unitholders
$
53,782

 
$
118,036

 
$
164,739

 
$
209,763

 
 
 
 
 
 
 
 
Earnings per common unit - basic:
 
 
 
 
 

 
 

Net income available for common unitholders
$
0.46

 
$
1.00

 
$
1.40

 
$
1.78

 
 
 
 
 
 
 
 
Earnings per common unit - diluted:
 
 
 
 
 

 
 

Net income available for common unitholders
$
0.46

 
$
1.00

 
$
1.40

 
$
1.78

 
 
 
 
 
 
 
 
Distributions declared per common unit
$
0.9225

 
$
0.8700

 
$
2.7675

 
$
2.6100


See accompanying notes to condensed consolidated financial statements.

9


Mid-America Apartments, L.P.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
54,704

 
$
118,958

 
$
167,505

 
$
212,529

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gain (loss) from the effective portion of derivative instruments
4,245

 
90

 
10,797

 
(1,252
)
Reclassification adjustment for net (gains) losses included in net income for the effective portion of derivative instruments
(548
)
 
(33
)
 
(1,296
)
 
884

Comprehensive income attributable to MAALP
$
58,401

 
$
119,015

 
$
177,006

 
$
212,161

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.


10


Mid-America Apartments, L.P.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
Nine months ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
167,505

 
$
212,529

   Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

     Depreciation and amortization
369,223

 
374,947

     Loss (gain) on sale of depreciable real estate assets
21

 
(59,045
)
     Gain on sale of non-depreciable real estate assets
(3,870
)
 
(42
)
     Stock compensation expense
9,877

 
8,431

     Amortization of debt premium and debt issuance costs
(4,318
)
 
(8,035
)
     Net change in operating accounts and other
62,618

 
28,671

Net cash provided by operating activities
601,056

 
557,456

 
 
 
 
Cash flows from investing activities:
 

 
 

     Purchases of real estate and other assets
(112,656
)
 
(63,774
)
     Capital improvements, development and other
(192,520
)
 
(268,423
)
     Contributions to affiliates, including joint ventures
(1,500
)
 
(750
)
     Proceeds from disposition of real estate assets
18,918

 
89,857

Net cash used in investing activities
(287,758
)
 
(243,090
)
 
 
 
 
Cash flows from financing activities:
 

 
 

     Proceeds from lines of credit
780,000

 
580,000

Repayments of lines of credit
(820,000
)
 
(820,000
)
     Proceeds from notes payable
397,612

 
597,480

     Principal payments on notes payable
(346,239
)
 
(345,053
)
     Payment of deferred financing costs
(3,741
)
 
(5,355
)
     Repurchase of common units
(2,912
)
 
(4,782
)
Debt prepayment and extinguishment costs
(3
)
 
(1,585
)
     Proceeds from issuances of common units
488

 
1,007

     Exercise of unit options
916

 
432

     Distributions paid on common units
(326,120
)
 
(307,440
)
     Distributions paid on preferred units
(2,766
)
 
(2,766
)
Net cash used in financing activities
(322,765
)
 
(308,062
)
 
 
 
 
Net (decrease) increase in cash, cash equivalents and restricted cash
(9,467
)
 
6,304

Cash, cash equivalents and restricted cash, beginning of period
88,867

 
121,800

Cash, cash equivalents and restricted cash, end of period
$
79,400

 
$
128,104

 
 
 
 
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets:
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Cash and cash equivalents
$
46,139

 
$
47,851

Restricted cash
33,261

 
80,253

Total cash, cash equivalents and restricted cash
$
79,400

 
$
128,104

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
111,439

 
$
123,735

Income taxes paid
2,746

 
2,256

 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 
 
 
Accrued construction in progress
$
19,476

 
$
15,787

Interest capitalized
1,640

 
5,884

Mark-to-market adjustment on derivative instruments
7,956

 
12,035


See accompanying notes to condensed consolidated financial statements.

11


Mid-America Apartment Communities, Inc. and Mid-America Apartments, L.P.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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

Unless the context otherwise requires, all references to 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, 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, unless the context otherwise requires, "shareholders" means the holders of shares of MAA’s common stock. The common units of limited partnership interests in the Operating Partnership are referred to as "OP Units," and the holders of the OP Units are referred to as "common unitholders".

As of September 30, 2018, MAA owned 113,838,139 OP Units (96.5% of the total number of OP Units). 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.

Management believes combining the notes to the condensed consolidated financial statements of MAA and the Operating Partnership results in the following benefits:

•
enhances 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; and
•
creates time and cost efficiencies through the preparation of one combined set of notes instead of two separate sets.

MAA is a multifamily focused, self-administered and self-managed real estate investment trust, or REIT. 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. Management believes 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 partners. MAA's only material asset is its ownership of OP Units 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 the Company's 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 the business through the Operating Partnership's operations, direct or indirect incurrence of indebtedness and issuance of OP Units.

The presentation of MAA's shareholders' equity and the Operating Partnership's capital are the principal areas of difference between the condensed 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, treasury shares, accumulated other comprehensive income and redeemable common stock. The Operating Partnership's capital may include common capital and preferred capital of the general partner (MAA), limited partners' common capital and preferred capital, 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. Holders of OP Units (other than MAA and its subsidiaries) may require the Operating Partnership to redeem their OP Units from time-to-time, in which case the Operating Partnership may, at its option, pay the redemption price either in cash (in an amount per OP 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 prior to the redemption date) or by delivering one share of MAA's common stock (subject to adjustment under specified circumstances) for each OP Unit so redeemed.


12


Organization of Mid-America Apartment Communities, Inc.

As of September 30, 2018, the Company owned and operated 303 apartment communities through the Operating Partnership. As of September 30, 2018, MAA also owned a 35.0% interest in an unconsolidated real estate joint venture and a 21.0% interest in an unconsolidated limited partnership. As of September 30, 2018, the Company had four development communities under construction totaling 717 apartment units. Total expected costs for these four development projects are $148.0 million, of which $45.7 million had been incurred through September 30, 2018. The Company expects to complete one of the developments in the fourth quarter of 2018, two developments in the second half of 2019, and one development in the second half of 2020. Thirty of the Company's multifamily properties include retail components with approximately 615,000 square feet of gross leasable space. The Company also has four wholly-owned commercial properties with approximately 260,000 square feet of combined gross leasable area.

On December 1, 2016, MAA completed a merger with Post Properties, Inc., or Post Properties. Pursuant to the Agreement and Plan of Merger, Post Properties merged with and into MAA, with MAA continuing as the surviving corporation and Post Apartment Homes, L.P. merged with and into MAALP, with MAALP continuing as the surviving entity.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared by the Company's 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 92.5% to 100% of all consolidated subsidiaries, including the Operating Partnership. 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, 92.5% to 100% of all consolidated subsidiaries. In management's 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.
 
The Company invests in entities which may qualify as variable interest entities, or VIEs, and MAALP is considered a 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. MAALP is classified as a VIE, since the limited partners lack substantive kick-out rights and substantive participating rights. The Company consolidates all VIEs for which it is the primary beneficiary and uses the equity method to account for investments that qualify as VIEs but for which it is not the primary beneficiary. In determining whether the Company is the primary beneficiary of a VIE, management considers both 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. The Company uses the equity method of accounting for its investments in entities for which the Company exercises significant influence, but does not have the ability to exercise control. The factors considered in determining whether the Company has the ability to exercise control include ownership of voting interests and participatory rights of investors (see "Investment in Unconsolidated Affiliates" below).

Changes in Presentation

Please refer to the Company's Current Report on Form 8-K, filed with the SEC on September 26, 2018, that retrospectively revised certain financial information and related disclosures included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, for discussions of the changes in presentation in the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows, which are applicable for this Quarterly Report on Form 10-Q.

Noncontrolling Interests

At September 30, 2018, the Company had two types of noncontrolling interests with respect to its consolidated subsidiaries, (1) noncontrolling interests related to the common unitholders of its Operating Partnership (see Note 9) and (2) noncontrolling interest related to its consolidated real estate entity (see "Investment in Consolidated Real Estate Entity" below).




13


Investment in Unconsolidated Affiliates

The Company, together with other institutional investors in a limited liability company, or the Apartment LLC, indirectly owns one apartment community, Post Massachusetts Avenue, located in Washington, D.C.  The Company owns a 35.0% equity interest in the unconsolidated real estate joint venture as of September 30, 2018 and provides property and asset management services to the Apartment LLC for which it earns fees. The joint venture was determined to be a VIE, but the Company is not designated as a primary beneficiary. As a result, the Company accounts for its investment in the Apartment LLC using the equity method of accounting, as the Company is able to exert significant influence over the joint venture but does not have a controlling interest.  At September 30, 2018, the Company's investment in the Apartment LLC totaled $44.6 million.  

During September 2017, a subsidiary of the Operating Partnership invested in a limited partnership, Real Estate Technology Ventures, L.P. As of September 30, 2018, the Operating Partnership indirectly owns approximately 21.0% of the limited partnership. The limited partnership was determined to be a VIE, but the Company is not designated as a primary beneficiary. As a result, the Company accounts for its investment in the limited partnership using the equity method of accounting as the investment is considered more than minor. At September 30, 2018, the Company's investment in the limited partnership totaled $2.5 million. As of September 30, 2018, the Company was committed to make additional capital contributions totaling $12.0 million if and when called by the general partner of the limited partnership prior to September 2022.

Investment in Consolidated Real Estate Entity

At September 30, 2018, the Company owned a 92.5% equity interest in a consolidated real estate joint venture to develop, construct and operate a 359-unit apartment community in Denver, Colorado, along with a private real estate company. The venture partner was generally responsible for the development and construction of the community, and the Company will continue to manage the community as construction was completed during the nine months ended September 30, 2018. The entity was determined to be a VIE with the Company designated as the primary beneficiary.  As a result, the accounts of the entity are consolidated by the Company.  At September 30, 2018, the consolidated assets, liabilities and equity included buildings and improvements and other, net of accumulated depreciation of $70.3 million; land of $14.9 million; and accrued expenses and other liabilities of $1.1 million.

Assets Held for Sale

The criteria for classifying two land parcels as held for sale were met during August 2018; however, the sale of the two land parcels is not expected to close until the fourth quarter of 2018. As a result, the two land parcels were classified as held for sale as of September 30, 2018. The Randal Park land parcel that comprised the asset held for sale balance as of December 31, 2017, was sold during the first quarter of 2018 as detailed in Note 12.

Fair Value Measurements

The Company applies the guidance in Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements and Disclosures, to the valuation of real estate assets recorded at fair value, if any; to its impairment valuation analysis of real estate assets; to its disclosure of the fair value of financial instruments, principally indebtedness; and to its derivative financial instruments.  Fair value disclosures required under ASC Topic 820 are summarized in Note 7 utilizing the following hierarchy:

Level 1 - Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the assets or liability.
Revenue from Contracts with Customers

The Company primarily leases multifamily residential apartments under operating leases generally with terms of one year or less, which are recorded as operating leases. Rental lease revenues are recognized in accordance with ASC Topic 840, Leases, using a method that represents a straight-line basis over the term of the lease. Rental income represents approximately 93% of the Company's total revenues and includes gross market rent less adjustments for concessions, vacancy loss and bad debt.

Other non-lease revenues represent the remaining 7% of the Company's total revenues and are primarily driven by utility reimbursement revenue from its tenants. The Company's primary sources of reimbursement revenue are from water and cable utility services, which produced $29.2 million and $22.4 million, respectively, of revenues during the nine months ended September 30, 2018, and $28.5 million and $22.9 million of revenues, respectively, during the nine months ended September 30, 2017.

14


Other non-lease revenues are recognized in accordance with ASC Topic 606, Revenue Recognition, as a result of the Company's January 1, 2018 adoption of Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers, using the modified retrospective approach. The guidance requires that revenue (outside of the scope of lease revenue accounting rules) is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. While ASU 2014-09 requires additional disclosure regarding the nature and timing of the Company's non-lease revenue transactions, which is provided here in Note 1 as well as Note 11, the adoption of the ASU did not have a material impact on the Company's consolidated financial statements or the Company's internal accounting policies and did not result in an opening adjustment to retained earnings. In addition, the Company elected the available practical expedients to the ASU’s requirement for disclosure on remaining performance obligations, which allow an entity to avoid disclosing the amount of the remaining performance obligations for contracts with an original expected duration of less than one year or those that meet the practical expedient in ASC 606-10-55-18 that permits the entity to recognize revenue as invoiced. See Note 11 for the disaggregation of the Company's revenues in accordance with ASU 2014-09.

Impact of Recently Adopted Accounting Standards on Condensed Consolidated Statements of Cash Flows

Effective January 1, 2018, the Company adopted ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (a
Consensus of the FASB Emerging Issues Task Force), which clarifies how certain types of cash receipts and cash payments are to be presented and classified on the statement of cash flows. Management determined that three of the eight transactions in the ASU are relevant to the Company and its cash flows and include debt prepayment and extinguishment costs, proceeds from the settlement of insurance claims and distributions received from equity method investees. Upon adoption of ASU 2016-15, net cash provided by operating activities increased by $1.8 million, net cash used in investing activities decreased by $0.2 million, and net cash used in financing activities decreased by $1.6 million in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017.

The Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (A Consensus of the FASB Emerging Issues Task Force), effective January 1, 2018. The ASU required restricted cash to be presented within cash and cash equivalents when reconciling the beginning and ending amounts in the statement of cash flow with retrospective adjustments to all periods presented. The Company previously reported the change in restricted cash within the operating and investing activities in the consolidated statement of cash flows. Upon adoption, cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 increased by approximately $80.3 million to reflect the restricted cash balances. Additionally, net cash provided by operating activities increased by $2.6 million for the nine months ended September 30, 2017, while net cash used in investing activities decreased by $10.6 million for the nine months ended September 30, 2017.

Recently Issued Accounting Pronouncements
The Company believes the following recent accounting pronouncement is relevant to the readers of the Company's financial statements and could have a material effect on the Company's consolidated financial statements.
In 2016, the Financial Accounting Standard Board, or FASB, issued a new lease accounting standard, ASU 2016-02, Leases (Topic 842), which amends existing accounting standards and establishes new principles, presentation and disclosure requirements for lease accounting for both the lessee and lessor. Under the new standard, lessors will use an approach that is substantially equivalent to existing guidance but aligned with the newly adopted revenue recognition standard, while lessees will be required to record most leases on the balance sheet and recognize lease expense in the income statement in a manner similar to current practice. The new standard requires a lessee to recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for all leases with terms of more than twelve months. Expenses related to leases determined to be operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile in which interest and amortization are presented separately in the income statement.
Management anticipates the Company will elect to apply the modified retrospective transition approach upon adoption of ASU 2016-02 on January 1, 2019, which allows the Company to recognize a cumulative-effect adjustment to the opening balance of retained earnings as of the date of adoption. Management does not anticipate any significant changes in the accounting for the Company's lease revenues upon adoption of the new lease standard as the Company’s residential and retail/commercial leases, where it is the lessor, will continue to be accounted for as operating leases, and management anticipates the election of an available practical expedient that provides lessors an option not to separate lease and non-lease components when certain criteria are met and instead account for those components as a single component.  

15


The Company is the lessee under certain corporate office and ground leases and will be required to recognize a right-of-use asset and a corresponding lease obligation on its consolidated balance sheet for those leases on January 1, 2019.  Management currently anticipates the Company's corporate office leases will continue to be accounted for as operating leases under the new standard.  Based on its anticipated election of available practical expedients, the Company will not be required to reassess the classification of existing ground leases; therefore, these leases will continue to be accounted for as operating leases. Management estimates the Company will recognize total right-of-use assets and related lease obligations at an amount that is less than $40.0 million on January 1, 2019, with an immaterial impact to its results of operations as compared to the current lease accounting standard. However, the ultimate impact of the standard will depend on the Company's lease portfolio as of the adoption date. The Company will continue to evaluate the impact of the standard on its consolidated financial statements and related disclosures.

2.    Earnings per Common Share of MAA

Basic earnings per share is computed by dividing net income available to MAA common shareholders by the weighted average number of common shares outstanding during the period.  All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with 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 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 the units are dilutive to earnings per share. For the three and nine months ended September 30, 2018 and 2017, MAA's basic earnings per share was computed using the two-class method, and MAA's diluted earnings per share was 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 September 30,
 
Nine months ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
Calculation of Earnings per Common Share - basic
 
 
 
 
 

 
 

 
Net income
$
54,704

 
$
118,958

 
$
167,505

 
$
212,529

 
Net income attributable to noncontrolling interests
(1,913
)
 
(4,249
)
 
(5,888
)
 
(7,600
)
 
Unvested restricted stock (allocation of earnings)
(69
)
 
(181
)
 
(211
)
 
(337
)
 
Preferred dividends
(922
)
 
(922
)
 
(2,766
)
 
(2,766
)
 
Net income available for common shareholders, adjusted
$
51,800

 
$
113,606

 
$
158,640

 
$
201,826

 
 
 
 
 
 
 
 
 
 
Weighted average common shares - basic
113,671

 
113,434

 
113,620

 
113,392

 
Earnings per common share - basic
$
0.46

 
$
1.00

 
$
1.40

 
$
1.78

 
 
 
 
 
 
 
 
 
 
Calculation of Earnings per Common Share - diluted
 
 
 
 
 

 
 

 
Net income
$
54,704

 
$
118,958

 
$
167,505

 
$
212,529

 
Net income attributable to noncontrolling interests
(1,913
)
(1) 
(4,249
)
(1) 
(5,888
)
(1) 
(7,600
)
(1) 
Preferred dividends
(922
)
 
(922
)
 
(2,766
)
 
(2,766
)
 
Net income available for common shareholders, adjusted
$
51,869

 
$
113,787

 
$
158,851

 
$
202,163

 
 
 
 
 
 
 
 
 
 
Weighted average common shares - basic
113,671

 
113,434

 
113,620

 
113,392

 
Weighted average partnership units outstanding
—

(1) 
—

(1) 
—

(1) 
—

(1) 
Effect of dilutive securities
239

 
219

 
201

 
270

 
Weighted average common shares - diluted
113,910

 
113,653

 
113,821

 
113,662

 
Earnings per common share - diluted
$
0.46

 
$
1.00

 
$
1.40

 
$
1.78

 

(1) For the three and nine months ended September 30, 2018, 4.1 million OP Units and their related income are not included in the diluted earnings per share calculations as they are not dilutive. For the three and nine months ended September 30, 2017, 4.2 million OP Units and their related income are not included in the diluted earnings per share calculations as they are not dilutive.


16


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 OP Units outstanding during the period. All outstanding unvested restricted unit awards contain rights to non-forfeitable distributions 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 OP Unit computations for the three and nine months ended September 30, 2018 and 2017 is presented below (dollars and units in thousands, except per unit amounts):

 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Calculation of Earnings per Common Unit - basic
 
 
 
 
 

 
 

Net income
$
54,704

 
$
118,958

 
$
167,505

 
$
212,529

Unvested restricted stock (allocation of earnings)
(69
)
 
(181
)
 
(211
)
 
(337
)
Preferred unit distributions
(922
)
 
(922
)
 
(2,766
)
 
(2,766
)
Net income available for common unitholders, adjusted
$
53,713

 
$
117,855

 
$
164,528

 
$
209,426

 
 
 
 
 
 
 
 
Weighted average common units - basic
117,796

 
117,643

 
117,768

 
117,607

Earnings per common unit - basic
$
0.46

 
$
1.00

 
$
1.40

 
$
1.78

 
 
 
 
 
 
 
 
Calculation of Earnings per Common Unit - diluted
 
 
 
 
 

 
 

Net income
$
54,704

 
$
118,958

 
$
167,505

 
$
212,529

Preferred unit distributions
(922
)
 
(922
)
 
(2,766
)
 
(2,766
)
Net income available for common unitholders, adjusted
$
53,782

 
$
118,036

 
$
164,739

 
$
209,763

 
 
 
 
 
 
 
 
Weighted average common shares - basic
117,796

 
117,643

 
117,768

 
117,607

Effect of dilutive securities
239

 
219

 
201

 
270

Weighted average common units - diluted
118,035

 
117,862

 
117,969

 
117,877

Earnings per common unit - diluted
$
0.46

 
$
1.00

 
$
1.40

 
$
1.78





17


4.    MAA Equity

Changes in total equity and its components for the nine months ended September 30, 2018 and 2017 were as follows (dollars in thousands):

  
Mid-America Apartment Communities, Inc. Shareholders' Equity
 
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Distributions in Excess of Net Income
 
Accumulated
Other
Comprehensive
Income
 
Noncontrolling
Interests - Operating Partnership
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total
Equity
EQUITY BALANCE DECEMBER 31, 2017
$
9

 
$
1,134

 
$
7,121,112

 
$
(784,500
)
 
$
2,157

 
$
231,676

 
$
2,306

 
$
6,573,894

Net income attributable to controlling interests
—

 
—

 
—

 
161,617

 
—

 
5,888

 
—

 
167,505

Other comprehensive income - derivative instruments
—

 
—

 
—

 
—

 
9,166

 
335

 
—

 
9,501

Issuance and registration of common shares
—

 
1

 
(272
)
 
—

 
—

 
—

 
—

 
(271
)
Shares repurchased and retired
—

 
—

 
(2,912
)
 
—

 
—

 
—

 
—

 
(2,912
)
Exercise of stock options
—

 
—

 
916

 
—

 
—

 
—

 
—

 
916

Shares issued in exchange for common units
—

 
1

 
4,282

 
—

 
—

 
(4,283
)
 
—

 
—

Shares issued in exchange for redeemable stock
—

 
—

 
1,915

 
—

 
—

 
—

 
—

 
1,915

Redeemable stock fair market value adjustment
—

 
—

 
—

 
121

 
—

 
—

 
—

 
121

Adjustment for noncontrolling interests in Operating Partnership
—

 
—

 
561

 
—

 
—

 
(561
)
 
—

 
—

Cumulative adjustment due to adoption of ASU 2017-12
—

 
—

 
—

 
(233
)
 
233

 
—

 
—

 
—

Amortization of unearned compensation
—

 
—

 
9,877

 
—

 
—

 
—

 
—

 
9,877

Dividends on preferred stock
—

 
—

 
—

 
(2,766
)
 
—

 
—

 
—

 
(2,766
)
Dividends on common stock
—

 
—

 
—

 
(315,012
)
 
—

 
—

 
—

 
(315,012
)
Dividends on noncontrolling interests units
—

 
—

 
—

 
—

 
—

 
(11,214
)
 
—

 
(11,214
)
EQUITY BALANCE SEPTEMBER 30, 2018
$
9

 
$
1,136

 
$
7,135,479

 
$
(940,773
)
 
$
11,556

 
$
221,841

 
$
2,306

 
$
6,431,554


  
Mid-America Apartment Communities, Inc. Shareholders' Equity
 
 
 
 
 
 
 
Preferred Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Distributions
in Excess of
Net Income
 
Accumulated
Other
Comprehensive
Income 
 
Noncontrolling
Interests - Operating Partnership
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total
Equity
EQUITY BALANCE DECEMBER 31, 2016
$
9

 
$
1,133

 
$
7,109,012

 
$
(707,479
)
 
$
1,144

 
$
235,976

 
$
2,306

 
$
6,642,101

Net income attributable to controlling interests
—

 
—

 
—

 
204,929

 
—

 
7,600

 
—

 
212,529

Other comprehensive loss - derivative instruments
—

 
—

 
—

 
—

 
(354
)
 
(14
)
 
—

 
(368
)
Issuance and registration of common shares
—

 
1

 
153

 
—

 
—

 
—

 
—

 
154

Issuance and registration of preferred shares
—

 
—

 
2,007

 
—

 
—

 
—

 
—

 
2,007

Shares repurchased and retired
—

 
—

 
(4,782
)
 
—

 
—

 
—

 
—

 
(4,782
)
Exercise of stock options
—

 
—

 
218

 


 
—

 
—

 
 
 
218

Shares issued in exchange for common units
—

 
—

 
1,133

 
—

 
—

 
(1,133
)
 
—

 
—

Shares issued in exchange for redeemable stock
—

 
—

 
1,482

 
—

 
—

 
—

 
—

 
1,482

Redeemable stock fair market value adjustment
—

 
—

 
—

 
(870
)
 
—

 
—

 
—

 
(870
)
Adjustment for noncontrolling interests in Operating Partnership
—

 
—

 
54

 
—

 
—

 
(54
)
 
—

 
—

Amortization of unearned compensation
—

 
—

 
8,552

 
(114
)
 
—

 
—

 
—

 
8,438

Dividends on preferred stock
—

 
—

 
—

 
(2,766
)
 
—

 
—

 
—

 
(2,766
)
Dividends on common stock
—

 
—

 
—

 
(296,535
)
 
—

 
—

 
—

 
(296,535
)
Dividends on noncontrolling interests units
—

 
—

 
—

 
—

 
—

 
(10,982
)
 
—

 
(10,982
)
EQUITY BALANCE SEPTEMBER 30, 2017
$
9

 
$
1,134

 
$
7,117,829

 
$
(802,835
)
 
$
790

 
$
231,393

 
$
2,306

 
$
6,550,626



18


5.    MAALP Capital

Changes in total capital and its components for the nine months ended September 30, 2018 and 2017 were as follows (dollars in thousands):

 
Mid-America Apartments, L.P. Unitholders' Capital
 
 
 
 
 
Limited Partner
 
General Partner
 
Preferred Units
 
Accumulated
Other
Comprehensive
Income
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total Partnership Capital
CAPITAL BALANCE DECEMBER 31, 2017
$
231,676

 
$
6,270,758

 
$
66,840

 
$
2,295

 
$
2,306

 
$
6,573,875

Net income
5,888

 
158,851

 
2,766

 
—

 
—

 
167,505

Other comprehensive income - derivative instruments
—

 
—

 
—

 
9,501

 
—

 
9,501

Issuance of units
—

 
(271
)
 
—

 
—

 
—

 
(271
)
Units repurchased and retired
—

 
(2,912
)
 
—

 
—

 
—

 
(2,912
)
Exercise of unit options
—

 
916

 
—

 
—

 
—

 
916

General partner units issued in exchange for limited partner units
(4,283
)
 
4,283

 
—

 
—

 
—

 
—

Units issued in exchange for redeemable units
—

 
1,915

 
—

 
—

 
—

 
1,915

Redeemable units fair market value adjustment
—

 
121

 
—

 
—

 
—

 
121

Adjustment for limited partners' capital at redemption value
(226
)
 
226

 
—

 
—

 
—

 
—

Cumulative adjustment due to adoption of ASU 2017-12
—

 
(233
)
 
—

 
233

 
—

 
—

Amortization of unearned compensation
—

 
9,877

 
—

 
—

 
—

 
9,877

Distributions to preferred unitholders
—

 
—

 
(2,766
)
 
—

 
—

 
(2,766
)
Distributions to common unitholders
(11,214
)
 
(315,012
)
 
—

 
—

 
—

 
(326,226
)
CAPITAL BALANCE SEPTEMBER 30, 2018
$
221,841

 
$
6,128,519

 
$
66,840

 
$
12,029

 
$
2,306

 
$
6,431,535


  
Mid-America Apartments, L.P. Unitholders' Capital
 
 
 
 
 
Limited Partner
 
General Partner
 
Preferred Units
 
Accumulated
Other
Comprehensive
Income
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total Partnership Capital
CAPITAL BALANCE DECEMBER 31, 2016
$
235,976

 
$
6,337,721

 
$
64,833

 
$
1,246

 
$
2,306

 
$
6,642,082

Net income
7,600

 
202,163

 
2,766

 
—

 
—

 
212,529

Other comprehensive income - derivative instruments
—

 
—

 
—

 
(368
)
 
—

 
(368
)
Issuance of units
—

 
154

 
2,007

 
—

 
—

 
2,161

Units repurchased and retired
—

 
(4,782
)
 
—

 
—

 
—

 
(4,782
)
Exercise of unit options
—

 
218

 
—

 
—

 
—

 
218

General partner units issued in exchange for limited partner units
(1,133
)
 
1,133

 
—

 
—

 
—

 
—

Units issued in exchange for redeemable units
—

 
1,482