Form 10-Q for the period ending 6-30-2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE
ACT OF 1934
For
the
quarterly period ended June 30, 2006
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: 1-12762
MID-AMERICA
APARTMENT COMMUNITIES, INC.
(Exact
name of registrant as specified in its charter)
TENNESSEE
|
62-1543819
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
incorporation
or organization)
|
|
6584
POPLAR AVENUE, SUITE 300
|
38138
|
MEMPHIS,
TENNESSEE
|
(Zip
Code)
|
(Address
of principal executive offices)
|
|
(901)
682-6600
Registrant's
telephone number, including area code
(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.
[X]
Yes [
] No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer [X]
|
Accelerated
filer [ ]
|
Non-accelerated
filer [ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[
] Yes
[X] No
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
|
Number
of Shares Outstanding
|
Class
|
at
July 19, 2006
|
Common
Stock, $.01 par value
|
24,044,783
|
MID-AMERICA
APARTMENT COMMUNITIES, INC.
|
|
|
|
TABLE
OF CONTENTS
|
|
|
Page
|
|
PART
I - FINANCIAL INFORMATION
|
|
Item
1.
|
Financial
Statements
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2006 (Unaudited) and December
31, 2005
|
2
|
|
Condensed
Consolidated Statements of Operations for the three and six months
ended
June 30, 2006 and 2005 (Unaudited)
|
3
|
|
Condensed
Consolidated Statements of Cash Flows for the six months ended June
30,
2006 and 2005 (Unaudited)
|
4
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
5
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
Item
4.
|
Controls
and Procedures
|
26
|
|
|
|
|
PART
II - OTHER INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
27
|
Item
1A.
|
Risk
Factors
|
27
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
Item
3.
|
Defaults
Upon Senior Securities
|
28
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
Item
5.
|
Other
Information
|
28
|
Item
6.
|
Exhibits
|
28
|
|
Signatures
|
35
|
Mid-America
Apartment Communities, Inc.
|
Condensed
Consolidated Balance Sheets
|
June
30, 2006 (Unaudited) and December 31, 2005
|
(Dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
June
30, 2006
|
|
December
31, 2005
|
|
Assets:
|
|
|
|
|
|
|
|
Real
estate assets:
|
|
|
|
|
|
|
|
Land
|
|
$
|
190,862
|
|
$
|
179,523
|
|
Buildings
and improvements
|
|
|
1,813,395
|
|
|
1,740,818
|
|
Furniture,
fixtures and equipment
|
|
|
48,115
|
|
|
46,301
|
|
Capital
improvements in progress
|
|
|
2,981
|
|
|
4,175
|
|
|
|
|
2,055,353
|
|
|
1,970,817
|
|
Less
accumulated depreciation
|
|
|
(503,793
|
)
|
|
(473,421
|
)
|
|
|
|
1,551,560
|
|
|
1,497,396
|
|
|
|
|
|
|
|
|
|
Land
held for future development
|
|
|
1,366
|
|
|
1,366
|
|
Commercial
properties, net
|
|
|
7,156
|
|
|
7,345
|
|
Investments
in and advances to real estate joint venture
|
|
|
3,926
|
|
|
4,182
|
|
Real
estate assets, net
|
|
|
1,564,008
|
|
|
1,510,289
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
11,366
|
|
|
14,064
|
|
Restricted
cash
|
|
|
4,586
|
|
|
5,534
|
|
Deferred
financing costs, net
|
|
|
15,935
|
|
|
15,338
|
|
Other
assets
|
|
|
22,645
|
|
|
20,181
|
|
Goodwill
|
|
|
5,051
|
|
|
5,051
|
|
Assets
held for sale
|
|
|
7,328
|
|
|
-
|
|
Total
assets
|
|
$
|
1,630,919
|
|
$
|
1,570,457
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity:
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Notes
payable
|
|
$
|
1,125,235
|
|
$
|
1,140,046
|
|
Accounts
payable
|
|
|
5,986
|
|
|
3,278
|
|
Accrued
expenses and other liabilities
|
|
|
29,012
|
|
|
28,380
|
|
Security
deposits
|
|
|
7,209
|
|
|
6,429
|
|
Liabilities
associated with assets held for sale
|
|
|
290
|
|
|
-
|
|
Total
liabilities
|
|
|
1,167,732
|
|
|
1,178,133
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
31,935
|
|
|
29,798
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value, 20,000,000 shares authorized,
|
|
|
|
|
|
|
|
$166,863
or $25 per share liquidation preference:
|
|
|
|
|
|
|
|
9
1/4% Series F Cumulative Redeemable Preferred Stock,
|
|
|
|
|
|
|
|
3,000,000
shares authorized, 474,500 shares issued and outstanding
|
|
|
5
|
|
|
5
|
|
8.30%
Series H Cumulative Redeemable Preferred Stock,
|
|
|
|
|
|
|
|
6,200,000
shares authorized, 6,200,000 shares issued and outstanding
|
|
|
62
|
|
|
62
|
|
Common
stock, $.01 par value per share, 50,000,000 shares
authorized;
|
|
|
|
|
|
|
|
24,025,183
and 22,048,372 shares issued and outstanding at
|
|
|
|
|
|
|
|
June
30, 2006, and December 31, 2005, respectively
|
|
|
240
|
|
|
220
|
|
Additional
paid-in capital
|
|
|
757,581
|
|
|
671,885
|
|
Other
|
|
|
-
|
|
|
(2,422
|
)
|
Accumulated
distributions in excess of net income
|
|
|
(351,269
|
)
|
|
(314,352
|
)
|
Accumulated
other comprehensive income (loss)
|
|
|
24,633
|
|
|
7,128
|
|
Total
shareholders' equity
|
|
|
431,252
|
|
|
362,526
|
|
Total
liabilities and shareholders' equity
|
|
$
|
1,630,919
|
|
$
|
1,570,457
|
|
|
|
|
|
|
|
|
|
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, 2006 and
2005
|
(Dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
|
|
|
$
|
76,842
|
|
$
|
69,290
|
|
$
|
151,264
|
|
$
|
137,327
|
|
Other
property revenues
|
|
|
|
|
|
3,470
|
|
|
3,124
|
|
|
6,994
|
|
|
6,011
|
|
Total
property revenues
|
|
|
|
|
|
80,312
|
|
|
72,414
|
|
|
158,258
|
|
|
143,338
|
|
Management
fee income
|
|
|
|
|
|
52
|
|
|
103
|
|
|
104
|
|
|
221
|
|
Total
operating revenues
|
|
|
|
|
|
80,364
|
|
|
72,517
|
|
|
158,362
|
|
|
143,559
|
|
Property
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
|
|
|
9,437
|
|
|
8,633
|
|
|
18,456
|
|
|
16,907
|
|
Building
repairs and maintenance
|
|
|
|
|
|
2,947
|
|
|
2,631
|
|
|
5,383
|
|
|
4,912
|
|
Real
estate taxes and insurance
|
|
|
|
|
|
9,950
|
|
|
9,507
|
|
|
19,505
|
|
|
18,858
|
|
Utilities
|
|
|
|
|
|
4,573
|
|
|
4,038
|
|
|
9,258
|
|
|
8,157
|
|
Landscaping
|
|
|
|
|
|
2,132
|
|
|
1,950
|
|
|
4,222
|
|
|
3,878
|
|
Other
operating
|
|
|
|
|
|
3,629
|
|
|
3,470
|
|
|
7,035
|
|
|
6,840
|
|
Depreciation
|
|
|
|
|
|
19,515
|
|
|
18,244
|
|
|
38,286
|
|
|
36,135
|
|
Total
property operating expenses
|
|
|
|
|
|
52,183
|
|
|
48,473
|
|
|
102,145
|
|
|
95,687
|
|
Property
management expenses
|
|
|
|
|
|
3,464
|
|
|
2,892
|
|
|
5,975
|
|
|
5,700
|
|
General
and administrative expenses
|
|
|
|
|
|
2,682
|
|
|
2,163
|
|
|
6,043
|
|
|
4,819
|
|
Income
from continuing operations before non-operating items
|
|
|
|
|
|
22,035
|
|
|
18,989
|
|
|
44,199
|
|
|
37,353
|
|
Interest
and other non-property income
|
|
|
|
|
|
215
|
|
|
130
|
|
|
332
|
|
|
287
|
|
Interest
expense
|
|
|
|
|
|
(15,833
|
)
|
|
(14,404
|
)
|
|
(31,534
|
)
|
|
(28,073
|
)
|
Loss
on debt extinguishment
|
|
|
|
|
|
(1
|
)
|
|
(90
|
)
|
|
(551
|
)
|
|
(94
|
)
|
Amortization
of deferred financing costs
|
|
|
|
|
|
(504
|
)
|
|
(489
|
)
|
|
(989
|
)
|
|
(949
|
)
|
Minority
interest in operating partnership income
|
|
|
|
|
|
(408
|
)
|
|
(778
|
)
|
|
(821
|
)
|
|
(1,038
|
)
|
(Loss)
income from investments in real estate joint ventures
|
|
|
|
|
|
(35
|
)
|
|
(193
|
)
|
|
(119
|
)
|
|
125
|
|
Incentive
fee from real estate joint ventures
|
|
|
|
|
|
-
|
|
|
1,723
|
|
|
-
|
|
|
1,723
|
|
Net
gain (loss) on insurance and other settlement proceeds
|
|
|
|
|
|
225
|
|
|
(16
|
)
|
|
225
|
|
|
(9
|
)
|
Gain
on sale of non-depreciable assets
|
|
|
|
|
|
-
|
|
|
334
|
|
|
-
|
|
|
334
|
|
Gain
on disposition within real estate joint ventures
|
|
|
|
|
|
-
|
|
|
3,034
|
|
|
-
|
|
|
3,034
|
|
Income
from continuing operations
|
|
|
|
|
|
5,694
|
|
|
8,240
|
|
|
10,742
|
|
|
12,693
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
asset
impairment, settlement proceeds and gain on sale
|
|
|
|
|
|
198
|
|
|
102
|
|
|
276
|
|
|
94
|
|
Asset
impairment on discontinued operations
|
|
|
|
|
|
-
|
|
|
(149
|
)
|
|
-
|
|
|
(243
|
)
|
Net
loss on insurance and other settlement proceeds on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(25
|
)
|
Net
income
|
|
|
|
|
|
5,892
|
|
|
8,193
|
|
|
11,018
|
|
|
12,519
|
|
Preferred
dividend distribution
|
|
|
|
|
|
3,491
|
|
|
3,635
|
|
|
6,981
|
|
|
7,348
|
|
Net
income available for common shareholders
|
|
|
|
|
$
|
2,401
|
|
$
|
4,558
|
|
$
|
4,037
|
|
$
|
5,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
23,152
|
|
|
21,351
|
|
|
22,645
|
|
|
21,140
|
|
Effect
of dilutive stock options
|
|
|
|
|
|
222
|
|
|
274
|
|
|
228
|
|
|
279
|
|
Diluted
|
|
|
|
|
|
23,374
|
|
|
21,625
|
|
|
22,873
|
|
|
21,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available for common shareholders
|
|
|
|
|
$
|
2,401
|
|
$
|
4,558
|
|
$
|
4,037
|
|
$
|
5,171
|
|
Discontinued
property operations
|
|
|
|
|
|
(198
|
)
|
|
47
|
|
|
(276
|
)
|
|
174
|
|
Income
from continuing operations available for common
shareholders
|
|
|
|
|
$
|
2,203
|
|
$
|
4,605
|
|
$
|
3,761
|
|
$
|
5,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for common shareholders
|
|
|
|
|
$
|
0.09
|
|
$
|
0.22
|
|
$
|
0.17
|
|
$
|
0.25
|
|
Discontinued
property operations
|
|
|
|
|
|
0.01
|
|
|
(0.01
|
)
|
|
0.01
|
|
|
(0.01
|
)
|
Net
income available for common shareholders
|
|
|
|
|
$
|
0.10
|
|
$
|
0.21
|
|
$
|
0.18
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for common shareholders
|
|
|
|
|
$
|
0.09
|
|
$
|
0.21
|
|
$
|
0.17
|
|
$
|
0.25
|
|
Discontinued
property operations
|
|
|
|
|
|
0.01
|
|
|
-
|
|
|
0.01
|
|
|
(0.01
|
)
|
Net
income available for common shareholders
|
|
|
|
|
$
|
0.10
|
|
$
|
0.21
|
|
$
|
0.18
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
(1)
|
|
|
|
|
$
|
0.595
|
|
$
|
0.585
|
|
$
|
1.785
|
|
$
|
1.170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
Company declared and paid $1.19 per common share during the six months
ended June 30, 2006.
|
During
this same period the Company also declared an additional $0.595 per
common
share that will not be paid until July 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
Mid-America
Apartment Communities, Inc.
|
Condensed
Consolidated Statements of Cash Flows
|
Six
Months Ended June 30, 2006 and 2005
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
11,018
|
|
$
|
12,519
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Gain
from discontinued operations before asset impairment,
settlement
|
|
|
|
|
|
|
|
proceeds
and
gain on sale
|
|
|
(276
|
)
|
|
(94
|
)
|
Depreciation
and amortization of deferred financing costs
|
|
|
39,275
|
|
|
37,084
|
|
Stock
compensation expense
|
|
|
646
|
|
|
392
|
|
Amortization
of debt premium
|
|
|
(930
|
)
|
|
(932
|
)
|
Loss
(income) from investments in real estate joint
ventures
|
|
|
119
|
|
|
(125
|
)
|
Minority
interest in operating partnership income
|
|
|
821
|
|
|
1,038
|
|
Loss
on debt extinguishment
|
|
|
551
|
|
|
94
|
|
Derivative
interest (income) expense
|
|
|
(120
|
)
|
|
-
|
|
Gain
on sale of non-depreciable assets
|
|
|
-
|
|
|
(334
|
)
|
Gain
on disposition within real estate joint ventures
|
|
|
-
|
|
|
(3,034
|
)
|
Incentive
fee from real estate joint ventures
|
|
|
-
|
|
|
(1,723
|
)
|
Net
loss on insurance and other settlement proceeds on
discontinued
|
|
|
|
|
|
|
|
operations
|
|
|
-
|
|
|
25
|
|
Asset
impairment on discontinued operations
|
|
|
-
|
|
|
243
|
|
Net
(gain) loss on insurance and other settlement
proceeds
|
|
|
(225
|
)
|
|
9
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
689
|
|
|
(1,225
|
)
|
Other
assets
|
|
|
2,741
|
|
|
5,555
|
|
Accounts
payable
|
|
|
2,874
|
|
|
1,672
|
|
Accrued
expenses and other
|
|
|
2,574
|
|
|
3,367
|
|
Security
deposits
|
|
|
780
|
|
|
453
|
|
Net
cash provided by operating activities
|
|
|
60,537
|
|
|
54,984
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of real estate and other assets
|
|
|
(82,213
|
)
|
|
(47,314
|
)
|
Improvements
to existing real estate assets
|
|
|
(17,802
|
)
|
|
(10,521
|
)
|
Distributions
from real estate joint ventures
|
|
|
137
|
|
|
14,755
|
|
Proceeds
from disposition of real estate assets
|
|
|
1,089
|
|
|
8,432
|
|
Net
cash used in investing activities
|
|
|
(98,789
|
)
|
|
(34,648
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Net
change in credit lines
|
|
|
1,659
|
|
|
(26,337
|
)
|
Proceeds
from notes payable
|
|
|
13,235
|
|
|
19,486
|
|
Principal
payments on notes payable
|
|
|
(28,737
|
)
|
|
(1,320
|
)
|
Payment
of deferred financing costs
|
|
|
(1,905
|
)
|
|
(493
|
)
|
Proceeds
from issuances of common shares and units
|
|
|
87,892
|
|
|
20,951
|
|
Distributions
to unitholders
|
|
|
(2,990
|
)
|
|
(3,067
|
)
|
Dividends
paid on common shares
|
|
|
(26,619
|
)
|
|
(24,725
|
)
|
Dividends
paid on preferred shares
|
|
|
(6,981
|
)
|
|
(7,348
|
)
|
Net
cash provided by financing activities
|
|
|
35,554
|
|
|
(22,853
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(2,698
|
)
|
|
(2,517
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
14,064
|
|
|
9,133
|
|
Cash
and cash equivalents, end of period
|
|
$
|
11,366
|
|
$
|
6,616
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
32,989
|
|
$
|
29,344
|
|
Supplemental
disclosure of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
Conversion
of
units to common shares
|
|
$
|
136
|
|
$
|
20
|
|
Issuance
of
restricted common shares
|
|
$
|
39
|
|
$
|
813
|
|
Marked-to-market
adjustment on derivative instruments
|
|
$
|
17,505
|
|
$
|
2,308
|
|
Fair
value adjustment on debt assumed
|
|
$
|
-
|
|
$
|
2,277
|
|
Reclass
of preferred stock from equity to liabilities
|
|
$
|
-
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
Mid-America
Apartment Communities, Inc.
Notes
to Condensed Consolidated Financial Statements
June
30, 2006 and 2005 (Unaudited)
1.
BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been
prepared by the management of Mid-America Apartment Communities, Inc. (the
“Company”) in accordance with generally accepted accounting principals for
interim financial information and applicable rules and regulations of the
Securities and Exchange Commission and the Company’s accounting policies in
effect as of December 31, 2005, as set forth in the Company’s annual
consolidated financial statements, as of such date. In the opinion of
management, 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 results of operations
for the three and six month periods ended June 30, 2006, are not necessarily
indicative of the results to be expected for the full year. These financial
statements should be read in conjunction with the Company’s audited financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2005.
RECLASSIFICATION
Certain
prior period amounts have been reclassified to conform to the 2006 presentation.
The reclassifications had no effect on net income available for common
shareholders.
2. STOCK
BASED COMPENSATION
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 123 (revised December 2004), Share-Based
Payment
(“Statement 123(R)”). Statement 123(R) replaces FASB Statement No. 123,
Accounting
for Stock-Based Compensation,
and
supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees.
Statement 123(R) requires compensation costs related to share-based payment
transactions be recognized in the financial statements. With limited exceptions,
the amount of compensation cost will be measured based on the grant-date fair
value of the equity or the liability instruments issued. In addition, liability
awards will be remeasured each reporting period. Compensation cost will be
recognized over the period that an employee provides service in exchange for
the
award. Statement 123(R) is effective as of the beginning of the first annual
reporting period that begins after June 15, 2005.
The
Company adopted Statement 123(R) effective January 1, 2006 using the “modified
prospective” method permitted by Statement 123(R) in which compensation cost is
recognized beginning with the effective date (a) based on the requirements
of
Statement 123(R) for all share-based payments granted after the effective date
and (b) based on the requirements of Statement 123 for all awards granted to
employees prior to the effective date of Statement 123(R) that remain unvested
on the effective date.
The
effect of adopting Statement 123(R) for the three months ending June 30, 2006
was an increase of approximately $81,500 in net income from continuing
operations and in net income with no increase to either basic or diluted
earnings per share. The effect of adopting Statement 123(R) for the six months
ending June 30, 2006 was an increase of approximately $268,400 in net income
from continuing operations and in net income with an increase of approximately
$0.01 to both basic and diluted earnings per share. The adoption of Statement
123(R) had no impact on cash flow from operations or cash flow from financing
activities.
The
modified prospective method of Statement 123(R) does not require prior periods
to be restated to reflect the amount of compensation cost that would have
been
reflected in the financial statements. The following table reflects the effect
on net income if Statement 123(R) had been used by the Company along with
the
applicable assumptions utilized in the Black-Scholes option pricing model
calculation for those periods in which option grants were issued (dollars
and
shares in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
Six
|
|
|
|
|
|
Months
|
|
Months
|
|
|
|
|
|
Ended
|
|
Ended
|
|
|
|
|
|
June
30, 2005
|
|
June
30, 2005
|
|
Net
income
|
|
|
|
|
$
|
8,193
|
|
$
|
12,519
|
|
Preferred
dividend distribution
|
|
|
|
|
|
3,635
|
|
|
7,348
|
|
Net
income available for
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
|
|
|
|
4,558
|
|
|
5,171
|
|
Add:
Stock-based employee
|
|
|
|
|
|
|
|
|
|
|
compensation
expense included
|
|
|
|
|
|
|
|
|
|
|
in
reported net income
|
|
|
|
|
|
-
|
|
|
-
|
|
Less:
Stock-based employee
|
|
|
|
|
|
|
|
|
|
|
compensation
expense from
|
|
|
|
|
|
|
|
|
|
|
employee
stock purchase plan discount
|
|
|
|
|
|
7
|
|
|
14
|
|
Less:
Stock-based employee
|
|
|
|
|
|
|
|
|
|
|
compensation
expense determined
|
|
|
|
|
|
|
|
|
|
|
under
fair value method of accounting
|
|
|
|
|
|
26
|
|
|
56
|
|
Pro
forma net income available for
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
|
|
|
$
|
4,525
|
|
$
|
5,101
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding - Basic
|
|
|
|
|
|
21,351
|
|
|
21,140
|
|
Average
common shares outstanding - Diluted
|
|
|
|
|
|
21,625
|
|
|
21,419
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic
as reported
|
|
|
|
|
$
|
0.21
|
|
$
|
0.24
|
|
Basic
pro forma
|
|
|
|
|
$
|
0.21
|
|
$
|
0.24
|
|
Diluted
as reported
|
|
|
|
|
$
|
0.21
|
|
$
|
0.24
|
|
Diluted
pro forma
|
|
|
|
|
$
|
0.21
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions:(1)
|
|
|
|
|
|
|
|
|
|
|
Risk
free interest rate
|
|
|
|
|
|
N/A
|
|
|
N/A
|
|
Expected
life - Years
|
|
|
|
|
|
N/A
|
|
|
N/A
|
|
Expected
volatility
|
|
|
|
|
|
N/A
|
|
|
N/A
|
|
Expected
dividends
|
|
|
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)No
grants were issued in the periods shown.
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plan
The
Mid-America Apartment Communities, Inc. Employee Stock Purchase Plan (the
“ESPP”) provides a means for employees to purchase common stock of the Company.
The Board of Directors has authorized the issuance of 150,000 shares for
the
plan. The ESPP is administered by the Compensation Committee of the Board
of
Directors who may annually grant options to employees to purchase annually
up to
an aggregate of 15,000 shares of common stock at a price equal to 85% of
the
market price of the common stock. Shares are purchased semi-annually on June
30
and December 31. During the three months ended June 30, 2006 and 2005, 2,235
and
2,349 shares, respectively,
were
purchased through the ESPP. Because it is not possible to reasonably estimate
fair value at the grant date, the Company estimates the compensation costs
based
on intrinsic values updated until the date of the settlement. Compensation
cost
recognized for the three and six months ending June 30, 2006 were approximately
$8,600 and $24,600, respectively.
Incentive
Plans Overview and Summary
The
Company’s stock compensation plans consist of the ESPP and a number of
incentives provided to attract and retain independent directors, executive
officers and key employees. Incentives are currently granted under the 2004
Stock Plan which was approved at the May 24, 2004 Annual Meeting of
Shareholders. This plan replaced the 1994 Restricted Stock and Stock Option
Plan
(collectively, the “Plans”) under which no further awards may be granted as of
January 31, 2004. The 1994 Restricted Stock and Stock Option
Plan allowed for the grant of restricted stock and stock options up to a
total
of 2.4 million shares. The 2004 Stock Plan allows for the grant of restricted
stock and stock options up to a total of 500,000 shares. The Company believes
that such awards better align the interests of its employees with those of
its
shareholders. Total compensation cost under the Plans was approximately $248,400
and $124,400 for the three months ended June 30, 2006 and 2005, respectively,
and approximately $370,400 and $200,000 for the six months ended June 30,
2006
and 2005, respectively. As of June 30, 2006, the total unrecognized compensation
cost related to the Plans was approximately $3.3 million. This cost is expected
to be recognized over the weighted average period of 4.5 years. Information
concerning specific grants under the Plans is listed below.
Options
All
option awards made under the Plans have been granted with the exercise price
equal to the market price on the day of grant. The options vest over five
years
of continuous service at a rate of 10%, 10%, 20%, 30% and 30%, and expire
10
years from grant date. Dividends are not paid on unexercised
options.
The
fair
value of each option award is estimated on the grant date using the
Black-Scholes method, which utilizes the assumptions noted in the following
table. Volatility is based on the historical volatility of the Company’s common
stock. Expected life of the option is estimated using historical data to
estimate option exercise and employee termination. The Company uses a U.S.
constant-maturity Treasury close to the same expected life of the option
to
represent the risk-free rate. Turnover is based on the historical rate at
which
options are exercised. The Company uses its current dividend yield at the
time
of grant to estimate the dividend yield over the life of the option. No options
were granted during the periods presented in the following table; therefore,
no
fair value was calculated.
|
|
Three
months ended June 30,
|
|
Six
months ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Volatility
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Expected
life
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Risk-free
rate
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Dividend
yield
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
A
summary
of option activity under the Plans as of June 30, 2006, and the changes during
the six months then ended follows:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
Options
|
|
Shares
|
|
Price
|
|
Life
|
|
Value
|
|
Outstanding
at January 1, 2006
|
|
|
398,052
|
|
$
|
24.83
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
(123,360
|
)
|
|
24.09
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(7,350
|
)
|
|
26.03
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2006
|
|
|
267,342
|
|
$
|
25.14
|
|
|
3.8
|
|
$
|
7,916,799
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,570
|
)
|
|
23.82
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(13,820
|
)
|
|
25.52
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2006
|
|
|
246,952
|
|
$
|
25.12
|
|
|
3.7
|
|
$
|
7,563,212
|
|
Exercisable
at June 30, 2006
|
|
|
174,847
|
|
$
|
24.96
|
|
|
2.9
|
|
$
|
5,383,478
|
|
The
total
intrinsic value of options exercised during the three months ended June 30,
2006
and 2005, was approximately $192,000 and $960,000, respectively. The total
intrinsic value of options exercised during the six months ended June 30,
2006
and 2005, was approximately $3.9 million and $3.3 million, respectively.
Cash
received from the exercise of options for the three and six months ended
June
30, 2006, was approximately $156,500 and $3.1 million,
respectively.
Executive
2000 Restricted Stock
In
2000,
the Company issued 10,750 restricted shares of common stock to executive
officers with a grant date fair value of $22.1875 per share. The grant date
fair
value was determined by the closing trading price of the Company’s shares on the
day prior to the date of the grant. These shares vest 10% each over ten years
through 2010. The executive officers have the option to accelerate the vesting
in lieu of bonuses. As of June 30, 2006, no shares have been vested early.
Recipients receive dividend payments on the shares of restricted stock prior
to
vesting.
A
summary
of the status of the Executive 2000 Restricted Stock nonvested shares as
of June
30, 2006, and the changes for the six months ended June 30, 2006, is presented
below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant-Date
|
|
Nonvested
Shares
|
|
Shares
|
|
Fair
Value
|
|
Nonvested
at January 1, 2006
|
|
|
5,375
|
|
$
|
22.19
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
(1,075
|
)
|
$
|
22.19
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at March 31, 2006
|
|
|
4,300
|
|
$
|
22.19
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at June 30, 2006
|
|
|
4,300
|
|
$
|
22.19
|
|
For
the
three and six months ended June 30, 2006, compensation costs related to the
nonvested shares granted was approximately $6,000 and $11,900, respectively.
As
of June 30, 2006 there was approximately $87,500 of total unrecognized
compensation cost related to nonvested shares granted. This cost is expected
to
be recognized over the
weighted
average period of 3.7 years. No shares vested during the three months ended
June
30, 2006.
Key
Managers 2002 Restricted Stock
In
2002,
the Company issued 97,881 restricted shares of common stock to key managers
with
a grant date fair value of $25.65 per share. The grant date fair value was
determined by the closing trading price of the Company’s shares on the day prior
to the date of the grant. As a result of three managers leaving the employment
of the Company, as of June 30, 2006, only 81,916 shares remain issued. These
shares will vest 20% a year for five consecutive years beginning in 2007.
Recipients receive dividend payments on the shares of restricted stock prior
to
vesting.
A
summary
of the status of the Key Management 2002 Restricted Stock nonvested shares
as of
June 30, 2006, and the changes for the six months ended June 30, 2006, is
presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant-Date
|
|
Nonvested
Shares
|
|
Shares
|
|
Fair
Value
|
|
Nonvested
at January 1, 2006
|
|
|
86,477
|
|
$
|
25.65
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at March 31, 2006
|
|
|
86,477
|
|
$
|
25.65
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
(4,561
|
)
|
$
|
25.65
|
|
Nonvested
at June 30, 2006
|
|
|
81,916
|
|
$
|
25.65
|
|
For
the
three and six months ended June 30, 2006, compensation costs related to the
nonvested shares granted was approximately $55,000 and $110,000, respectively.
As of June 30, 2006, there was approximately $1.2 million of total unrecognized
compensation cost related to nonvested shares granted. This cost is expected
to
be recognized over the weighted average period of 5.5 years. The total fair
value of shares forfeited in the three months ended June 30, 2006 is
approximately $117,000.
Executive
2005 Restricted Stock
In
2005,
the Company issued 8,852 restricted shares of common stock to executive
management under the 2004 Stock Plan with a grant date fair value of $38.50
per
share. These shares will vest in two equal amounts in 2006 and 2007. Recipients
will receive dividend payments on the shares of restricted stock prior to
vesting.
A
summary
of the status of the Executive 2005 Restricted Stock nonvested shares as
of June
30, 2006, and the changes for the six months ended June 30, 2006, is presented
below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant-Date
|
|
Nonvested
Shares
|
|
Shares
|
|
Fair
Value
|
|
Nonvested
at January 1, 2006
|
|
|
8,852
|
|
$
|
38.50
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
(4,426
|
)
|
$
|
38.50
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at March 31, 2006
|
|
|
4,426
|
|
$
|
38.50
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at June 30, 2006
|
|
|
4,426
|
|
$
|
38.50
|
|
For
the
three and six months ended June 30, 2006, compensation costs related to
the
nonvested shares granted was approximately $42,600 and $85,200, respectively.
As
of June 30, 2006, there was approximately $113,600 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements
granted. This cost is expected to be recognized over the weighted average
period
of 0.7 years. No shares vested during the three months ended June 30,
2006.
Director
2005 Restricted Stock Plan
Beginning
with the 2005 Annual Meeting of Shareholders, non-employee directors elected
to
the Board of Directors receive a grant of $75,000 worth of restricted shares
of
common stock. The shares vest in three equal installments over the director’s
three-year term. To begin the program, non-employee directors not sitting
for
re-election at the 2005 Annual Meeting of Shareholders received a pro-rata
grant
representing the number of years left in their term. In 2005, 8,596 shares
of
restricted stock were granted to non-employee directors with a grant date
fair
value of $40.71 per share. The grant date fair value is determined by the
closing trading price of the Company’s shares on the day prior to the date of
the grant.
A
summary
of the status of the Director Restricted Stock nonvested shares as of June
30,
2006, and the changes for the six months ended June 30, 2006, is presented
below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant-Date
|
|
Nonvested
Shares
|
|
Shares
|
|
Fair
Value
|
|
Nonvested
at January 1, 2006
|
|
|
8,596
|
|
$
|
40.71
|
|
Granted
|
|
|
73
|
|
$
|
56.60
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
(1,228
|
)
|
$
|
40.71
|
|
Nonvested
at March 31, 2006
|
|
|
7,441
|
|
$
|
40.87
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
3,757
|
|
$
|
41.02
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at June 30, 2006
|
|
|
3,684
|
|
$
|
40.71
|
|
For
the
three and six months ended June 30, 2006, compensation costs related to
the
nonvested shares granted was approximately $34,800 and $57,900, respectively.
As
of June 30, 2006, there was approximately $138,400 of total
unrecognized
compensation cost related to nonvested share-based compensation arrangements
granted. This cost is expected to be recognized over the weighted average
period
of 0.7 years. The total fair value of shares vesting during the three months
ended June 30, 2006, was approximately $154,100.
Director
2006 Restricted Stock Plan
At
the
2006 Annual Meeting of Shareholders 4,774 shares of restricted stock were
granted to non-employee directors with a grant date fair value of $52.34
per
share. The grant date fair value is determined by the closing trading price
of
the Company’s shares on the day prior to the date of the grant.
A
summary
of the status of the Director Restricted Stock nonvested shares as of June
30,
2006, and the changes for the six months ended June 30, 2006, is presented
below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant-Date
|
|
Nonvested
Shares
|
|
Shares
|
|
Fair
Value
|
|
Nonvested
at January 1, 2006
|
|
|
-
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at March 31, 2006
|
|
|
-
|
|
|
|
|
Granted
|
|
|
4,774
|
|
$
|
52.34
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at June 30, 2006
|
|
|
4,774
|
|
$
|
52.34
|
|
For
the
three and six months ended June 30, 2006, compensation costs related to
the
nonvested shares granted was approximately $9,500 and $9,500, respectively.
As
of June 30, 2006, there was approximately $240,400 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements
granted. This cost is expected to be recognized over the weighted average
period
of 1.6 years. No shares vested during the three months ended June 30, 2006.
The
fair market value of the shares granted during the three months ended June
30,
2006 is approximately $249,900.
Key
Managers 2005 Restricted Stock
In
2005,
the Board of Directors adopted the 2005 Key Management Restricted Stock
Plan
(the “2005 Plan”), a long-term incentive program for key managers and executive
officers. The 2005 Plan grants shares of restricted stock based on a sliding
scale of total shareholder return over three 12-month periods ending in
2006,
2007 and 2008. Any restricted stock earned will vest 100% three years after
the
date of the restricted stock issuance. Recipients will receive dividend
payments
on the shares of restricted stock during the restriction periods. There
is no
automatic vesting of the shares. Based
on
the Company’s performance from July 1, 2005, through June 30, 2006, 25,034
restricted shares of common stock were issued to key managers and executive
officers on June 30, 2006.
The
fair
value of the stock award was estimated on the grant date using a Monte
Carlo
simulation with the assumptions noted in the following table. Volatility
is
based on the historical volatility of the Company’s common stock. The expected
term of the 2005 Plan is based on the criteria for the plan and the expected
life of the awards. The Company uses a U.S. constant-maturity Treasury
with the
same term as the expected term of the 2005 Plan to represent the risk-free
rate.
Turnover is based on the historical experience for the key managers and
executive officers. The Company uses its current dividend yield at the
time of
grant to estimate the dividend yield over the life of the plan.
Volatility
|
|
17.10%
|
Expected
life in years
|
|
3
|
Risk-free
rate
|
|
3.77%
|
Dividend
yield
|
|
5.20%
|
A
summary
of the status of the 2005 Plan nonvested shares as of June 30, 2006, and
the
changes for the six months ended June 30, 2006, is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant-Date
|
|
Nonvested
Shares
|
|
Shares
|
|
Fair
Value
|
|
Nonvested
at January 1, 2006
|
|
|
36,691
|
|
$
|
45.42
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at March 31, 2006
|
|
|
36,691
|
|
$
|
45.42
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at June 30, 2006
|
|
|
36,691
|
|
$
|
45.42
|
|
For
the
three and six months ended June 30, 2006, compensation costs related to
the
nonvested shares granted was approximately $61,400 and $122,900, respectively.
As of June 30, 2006, there was approximately $1.3 million of total unrecognized
compensation cost related to nonvested share-based compensation arrangements
granted. The Company’s policy is to recognize compensation cost on a
straight-line basis over the requisite service period for an entire award
(rather than each portion of an award). Accordingly, the $1.3 million
unrecognized cost will be recognized over the weighted average period of
5.0
years. No shares vested during the three months ended June 30,
2006.
Long-Term
Performance Based Incentive Plan for Executive Officers
The
Compensation Committee by authorization of the Board of Directors of the
Company
submitted the Long-Term Performance Based Incentive Plan for Executive
Officers
(the "Long-Term Plan"), which was approved by shareholders on June 2, 2003.
The
Long-Term Plan allows executive management to earn performance units that
convert into shares of restricted stock based on achieving defined total
shareholder investment performance levels. Based on the Company’s performance
from January 1, 2003, through December 31, 2005, 74,894 restricted shares
of
common stock were issued to executive management on March 14, 2006. While
these
shares of restricted stock will be entitled to dividend payments, they
will not
be transferable or have voting privileges until they vest. Dependent upon
the
executive officer’s continued employment with the Company, these shares of
restricted stock will vest 20% annually from 2006 through 2010.
The
fair
value of the stock award was estimated on the grant date using a Monte
Carlo
simulation with the assumptions noted in the following table. Volatility
is
based on the historical volatility of the Company’s common stock. The expected
term of the Long-Term Plan is based on the criteria for the plan and the
expected life of the
awards.
The Company uses a U.S. constant-maturity Treasury for the same term as
the
expected term of the Long-Term Plan to represent the risk-free rate. Turnover
is
based on the historical experience for the key managers and executive officers.
The Company uses its current dividend yield at the time of grant to estimate
the
dividend yield over the life of the plan.
Volatility
|
|
6.38%
|
Expected
life in years
|
|
3
|
Risk-free
rate
|
|
1.99%
|
Dividend
yield
|
|
9.60%
|
A
summary
of the status of the Long-Term Plan nonvested shares as of June 30, 2006,
and
the changes for the six months ended June 30, 2006, is presented
below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant-Date
|
|
Nonvested
Shares
|
|
Shares
|
|
Fair
Value
|
|
Nonvested
at January 1, 2006
|
|
|
75,895
|
|
$
|
34.72
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at March 31, 2006
|
|
|
75,895
|
|
$
|
34.72
|
|
Granted
|
|
|
-
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
Nonvested
at June 30, 2006
|
|
|
75,895
|
|
$
|
34.72
|
|
For
the
six and three months ended June 30, 2006, compensation costs related to
the
nonvested shares granted was approximately $10,300 and $20,700, respectively.
As
of June 30, 2006, there was approximately $186,200 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements
granted. This unrecognized cost will be recognized over the weighted average
period of 4.5 years. No shares vested during the three months ended June
30,
2006.
3. COMPREHENSIVE
INCOME
Total
comprehensive income and its components for the three and six month periods
ended June 30, 2006 and 2005, were as follows (dollars in
thousands):
|
|
Three
months
|
|
Six
months
|
|
|
|
ended
June 30,
|
|
ended
June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,892
|
|
$
|
8,193
|
|
$
|
11,018
|
|
$
|
12,519
|
|
Marked-to-market
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
derivative instruments
|
|
|
7,088
|
|
|
(8,993
|
)
|
|
17,505
|
|
|
2,308
|
|
Total
comprehensive income
|
|
$
|
12,980
|
|
$
|
(800
|
)
|
$
|
28,523
|
|
$
|
14,827
|
|
The
marked-to-market adjustment on derivative instruments is based upon the
change
of interest rates available for derivative instruments with similar terms
and
remaining maturities existing at each balance sheet date.
4. DERIVATIVE
FINANCIAL INSTRUMENTS
In
the
normal course of business, the Company uses certain derivative financial
instruments to manage, or hedge, the interest rate risk associated with
the
Company’s variable rate debt or as hedges in anticipation of future debt
transactions to manage well-defined interest rate risk associated with
the
transaction.
The
Company does not use derivative financial instruments for speculative
or trading
purposes. Further, the Company has a policy of entering into contracts
with
major financial institutions based upon their credit rating and other
factors.
When viewed in conjunction with the underlying and offsetting exposure
that the
derivatives are designated to hedge, the Company has not sustained any
material
loss from those instruments nor does it anticipate any material adverse
effect
on its net income or financial position in the future from the use of
derivatives.
The
Company requires that derivative financial instruments designated as
cash flow
hedges be effective in reducing the interest rate risk exposure that
they are
designated to hedge. This effectiveness is essential for qualifying for
hedge
accounting. Instruments that meet the hedging criteria are formally designated
as hedging instruments at the inception of the derivative contract. The
Company
formally documents all relationships between hedging instruments and
hedged
items, as well as its risk-management objective and strategy for undertaking
the
hedge transaction. This process includes linking all derivatives that
are
designated as fair value or cash flow hedges to specific assets and liabilities
on the balance sheet or to specific firm commitments or forecasted transactions.
The Company also formally assesses, both at the inception of the hedging
relationship and on an ongoing basis, whether the derivatives used are
highly
effective in offsetting changes in fair values or cash flows of hedged
items.
When it is determined that a derivative has ceased to be a highly effective
hedge, the Company discontinues hedge accounting prospectively.
All
of
the Company’s derivative financial instruments are reported at fair value and
represented on the balance sheet, and are characterized as cash flow
hedges.
These transactions hedge the future cash flows of debt transactions through
interest rate swaps that convert variable payments to fixed payments
and
interest rate caps that limit the exposure to rising interest rates.
The
unrealized gains/losses in the fair value of these hedging instruments
are
reported on the balance sheet with a corresponding adjustment to accumulated
other comprehensive income, with any ineffective portion of the hedging
transactions reclassified to earnings. During the three and six month
periods
ended June 30, 2006 and 2005, the ineffective portion of the hedging
transactions was not significant.
5. SHARE
AND UNIT INFORMATION
In
May
2006, the Company closed on a public offering of 1,150,000 shares of
common
stock for which it received net proceeds of $59.5 million. The Company
used $10
million of the net proceeds to redeem its 8 5/8% Series G Cumulative
Redeemable
Preferred Stock and the remainder to pay down indebtedness under the
Company’s
FNMA facilities.
At
June
30, 2006, 24,025,183 common shares and 2,508,403 operating partnership
units
were outstanding, representing a total of 26,533,586 shares and units.
Additionally, the Company had outstanding options for 246,952 shares
of common
stock at June 30, 2006, of which 116,865 were anti-dilutive. At June
30, 2005,
21,518,146 common shares and 2,633,065 operating partnership units were
outstanding, representing a total of 24,151,211 shares and units. Additionally,
the Company had outstanding options for 425,900 shares of common stock
at June
30, 2005, of which 261,063 were anti-dilutive.
6. 8
5/8% SERIES G CUMULATIVE REDEEMABLE PREFERRED STOCK
In
2002,
the Company issued 8 5/8% Series G Cumulative Redeemable Preferred Stock
(“Series G”) with a $25.00 per share liquidation preference and a preferential
cumulative annual distribution of $2.15625 per share, payable monthly.
The
Company issued 400,000 shares of Series G in a direct placement with
private
investors (“Investors”) for which it received aggregate proceeds of $10 million.
On or after November 15, 2004, the Company or the Investors could give
the
required one-year notice to redeem or put, respectively, all or part
of the
Series G shares beginning on or after November 15, 2005, in increments
of $1
million. In the event the Investors elect to put all or a part of the
Series G
to the Company, the Company had the option to redeem all or a portion
of the
shares of the Series G in shares of common stock of the Company in lieu
of cash.
In
accordance with EITF D-98: Classification and Measurement of Redeemable
Securities, as of March 31, 2005, the Company classified the Series G
outside of
permanent equity as the Company determined that in the event of a put
by the
Investors, there were two possible circumstances which were not wholly
in
control of the Company that could require the Series G to be redeemed
by the
Company for cash as opposed to common stock, and thus the Series G should
be
presented outside of permanent equity. These circumstances were the delisting
of
the Company’s common stock from the New York Stock Exchange and the failure to
complete a registration of the Company’s common stock exchanged for the Series
G.
On
May
26, 2005, the Company gave the required one-year notice to redeem all
of the
issued and outstanding Series G shares on May 26, 2006. As a result,
in
accordance with Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and
Equity
(“Statement 150”), the Company classified the Series G as a liability within
notes payable as of May 26, 2005, on the accompanying condensed consolidated
financial statements. Statement 150 also requires that all subsequent
dividend
payments be classified as interest expense on the condensed consolidated
financial statements.
On
May,
26, 2006, the Company redeemed all 400,000 issued and outstanding shares
of the
Series G.
7. REAL
ESTATE ACQUISITIONS
On
April
27, 2006, the Company acquired the Grand Courtyard apartments, a 390-unit
community located in Dallas, Texas.
8. DISCONTINUED
OPERATIONS
As
part
of the Company’s disposition strategy to selectively dispose of mature assets
that
no
longer meet the Company’s investment criteria and long-term strategic
objectives,
as of
March 31, 2005, the Company was in negotiations to sell the Eastview
apartments, a 432-unit community located in Memphis, Tennessee. In accordance
with Statement No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets, (“Statement
144”) the
community was considered held for sale in the accompanying condensed
consolidated financial statements. The sale of the Eastview apartments
was
subsequently completed on April 1, 2005.
In
April
2006, the Company entered into an agreement to list the 184-unit Gleneagles
apartments and the 200-unit Hickory Farm apartments both located in Memphis,
Tennessee, for sale. In
accordance with Statement 144 these
communities were considered held for sale in the accompanying condensed
consolidated financial statements.
The
following is a summary of discontinued operations for the three and six months
ended June 30, 2006, and 2005, (dollars in thousands):
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$
|
606
|
|
$
|
597
|
|
$
|
1,229
|
|
$
|
1,796
|
|
Other
revenues
|
|
|
26
|
|
|
(11
|
)
|
|
51
|
|
|
32
|
|
Total
revenues
|
|
|
632
|
|
|
586
|
|
|
1,280
|
|
|
1,828
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses
|
|
|
334
|
|
|
481
|
|
|
802
|
|
|
1,602
|
|
Interest
expense
|
|
|
100
|
|
|
3
|
|
|
202
|
|
|
132
|
|
Asset
impairment
|
|
|
-
|
|
|
149
|
|
|
-
|
|
|
243
|
|
Total
expense
|
|
|
434
|
|
|
633
|
|
|
1,004
|
|
|
1,977
|
|
Gain
(loss) from discontinued operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gain
on sale and settlement proceeds
|
|
|
198
|
|
|
(47
|
)
|
|
276
|
|
|
(149
|
)
|
Net
loss on insurance and other settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
proceeds
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(25
|
)
|
Gain
(loss) from discontinued operations
|
|
$
|
198
|
|
$
|
(47
|
)
|
$
|
276
|
|
$
|
(174
|
)
|
9. SEGMENT
INFORMATION
At
June
30, 2006, the Company owned or had an ownership interest in 135 multifamily
apartment communities, including the apartment communities owned by the
Company’s joint venture, in 12 different states from which it derives all
significant sources of earnings and operating cash flows. The Company’s
operational structure is organized on a decentralized basis, with individual
property managers having overall responsibility and authority regarding the
operations of their respective properties. Each property manager individually
monitors local and area trends in rental rates, occupancy percentages, and
operating costs. Property managers are given the on-site responsibility and
discretion to react to such trends in the best interest of the Company. The
Company’s chief operating decision maker evaluates the performance of each
individual property based on its contribution to net operating income in order
to ensure that the individual property continues to meet the Company’s return
criteria and long-term investment goals. The Company defines each of its
multifamily communities as an individual operating segment. It has also
determined that all of its communities have similar economic characteristics
and
also meet the other criteria which permit the communities to be aggregated
into
one reportable segment, which is acquisition and operation of the multifamily
communities owned.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
following discussion and analysis of financial condition and results of
operations are based upon the Company’s condensed consolidated financial
statements, and the notes thereto, which have been prepared in accordance with
U.S. generally accepted accounting principles. The preparation of these
condensed consolidated financial statements requires the Company to make a
number of estimates and assumptions that affect the reported amounts and
disclosures in the condensed consolidated financial statements. On an ongoing
basis, the Company evaluates its estimates and assumptions based upon historical
experience and various other factors and circumstances. The Company believes
that its estimates and assumptions are reasonable in the circumstances; however,
actual results may differ from these estimates and assumptions.
The
Company believes that the estimates and assumptions that are most important
to
the portrayal of its financial condition and results of operations, in that
they
require the most subjective determinations, form the basis of accounting
policies deemed to be most critical. These critical accounting policies include
revenue recognition,
capitalization
of expenditures and depreciation of assets, impairment of long-lived assets,
including goodwill, and fair value of derivative financial
instruments.
Revenue
Recognition
The
Company leases multifamily residential apartments under operating leases
primarily with terms of one year or less. Rent
and
other property income is recorded when due from residents and is recognized
monthly as it is earned. Other property income consists primarily of utility
rebillings, other expense reimbursements, and administrative, application and
other fees charged to residents. Interest, management fees, and all other
sources of income are recognized as earned.
The
Company records all gains and losses on real estate in accordance with Statement
No. 66 Accounting
for Sales of Real Estate.
Capitalization
of expenditures and depreciation of assets
The
Company carries its real estate assets at their depreciated cost. Depreciation
is computed on a straight-line basis over the estimated useful lives of the
related assets, which range from 8 to 40 years for land improvements and
buildings, 5 years for furniture, fixtures, and equipment, and 3 to 5 years
for
computers and software, all of which are subjective determinations. Repairs
and
maintenance costs are expensed as incurred while significant improvements,
renovations, and replacements are capitalized. The cost to complete any deferred
repairs and maintenance at properties acquired by the Company in order to
elevate the condition of the property to the Company’s standards are capitalized
as incurred.
Impairment
of long-lived assets, including goodwill
The
Company accounts for long-lived assets in accordance with the provisions of
Statement No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(“Statement 144”) and evaluates its goodwill for impairment under Statement No.
142, Goodwill
and Other Intangible Assets
(“Statement 142”). The Company evaluates its goodwill for impairment on an
annual basis in the Company’s fiscal fourth quarter, or sooner if a goodwill
impairment indicator is identified. The Company periodically evaluates its
long-lived assets, including its investments in real estate and goodwill, for
indicators that would suggest that the carrying amount of the assets may not
be
recoverable. The judgments regarding the existence of such indicators are based
on factors such as operating performance, market conditions, and legal factors.
In
accordance with Statement 144, long-lived assets, such as real estate assets,
equipment, and purchased intangibles subject to amortization, are reviewed
for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of are separately presented in the balance sheet and reported at the lower
of
the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held
for sale are presented separately in the appropriate asset and liability
sections of the balance sheet.
Goodwill
is tested annually for impairment, and is tested for impairment more frequently
if events and circumstances indicate that the asset might be impaired. An
impairment loss is recognized to the extent that the carrying amount exceeds
the
asset’s fair value. This determination is made at the reporting unit level and
consists of two steps. First, the Company determines the fair value of a
reporting unit and compares it to its carrying amount. In the apartment
industry, the primary method used for determining fair value is to divide annual
operating cash flows by an appropriate capitalization rate. The Company
determines the appropriate capitalization rate by reviewing the prevailing
rates
in a property’s market or submarket. Second, if the carrying amount of a
reporting unit exceeds its fair value, an impairment loss is recognized for
any
excess of the carrying amount of the reporting unit’s goodwill over the implied
fair value of that goodwill. The implied fair value of goodwill is determined
by
allocating the fair value of the reporting unit in a manner similar to a
purchase price allocation, in accordance with Statement No. 141,
Business
Combinations.
The
residual fair value after this allocation is the implied fair value of the
reporting unit goodwill.
Fair
value of derivative financial instruments
The
Company utilizes certain derivative financial instruments, primarily interest
rate swaps and caps, during the normal course of business to manage, or hedge,
the interest rate risk associated with the Company’s variable rate debt or as
hedges in anticipation of future debt transactions to manage well-defined
interest rate risk associated with the transaction. The valuation of the
derivative financial instruments under Statement No. 133 Accounting
for Derivative Instruments and Hedging Activities,
as
amended, requires the Company to make estimates and judgments that affect the
fair value of the instruments.
In
order
for a derivative contract to be designated as a hedging instrument, the
relationship between the hedging instrument and the hedged item must be highly
effective. While the Company’s calculation of hedge effectiveness contains some
subjective determinations, the historical correlation of the cash flows of
the
hedging instruments and the underlying hedged item are measured by the Company
before entering into the hedging relationship and have been found to be highly
correlated.
The
Company measures ineffectiveness using the change in the variable cash flows
method at the inception of the hedge and for each reporting period thereafter,
through the term of the hedging instruments. Any amounts determined to be
ineffective are recorded in earnings. The change in fair value of the interest
rate swaps and caps designated as cash flow hedges are recorded to accumulated
other comprehensive income in the statement of shareholders’
equity.
OVERVIEW
OF THE THREE MONTHS ENDED JUNE 30, 2006
The
Company’s operating results for the three months ended June 30, 2006, benefited
from continued improvement in market conditions, helping the Company grow
occupancy and rental rates at the Company’s communities. The Company also
benefited from the increase in the number of apartments owned.
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Total
Portfolio (includes partial ownership in joint ventures)
|
|
|
|
|
|
|
|
Number
of apartment units
|
|
|
39,179
|
|
|
37,365
|
|
Number
of apartment communities
|
|
|
135
|
|
|
130
|
|
|
|
|
|
|
|
|
|
100%
Owned (excludes partial ownership in joint ventures)
|
|
|
|
|
|
|
|
Number
of apartment units
|
|
|
38,657
|
|
|
36,843
|
|
Number
of apartment communities
|
|
|
134
|
|
|
129
|
|
Average
monthly rent (excluding joint ventures)
|
|
$
|
711
|
|
$
|
688
|
|
Average
physical occupancy (excluding joint ventures)
|
|
|
95.0
|
%
|
|
94.2
|
%
|
Increasing
operating and administrative expenses offset some of the benefit of the revenue
increases. Rising interest rates and an increase in the Company’s owned assets
also caused interest expense to rise compared to the same period a year ago.
In
the first six months of 2006, the Company refinanced approximately $28 million
of debt, including the $10 million of the Company’s 8
5/8%
Series G Cumulative Redeemable Preferred Stock which
had
been reclassified as debt, in order to take advantage of lower interest rates.
As a result, the company wrote-off deferred finance costs of
$551,000.
The
following is a discussion of the consolidated financial condition and results
of
operations of the Company for the three and six months ended June 30, 2006.
This
discussion should be read in conjunction with the condensed consolidated
financial statements appearing elsewhere in this report. These financial
statements include all adjustments, which are, in the opinion of management,
necessary to reflect a fair statement of the results for the interim period
presented, and all such adjustments are of a normal recurring
nature.
RESULTS
OF OPERATIONS
COMPARISON
OF THE THREE MONTHS ENDED JUNE 30, 2006 TO THE THREE MONTHS ENDED JUNE 30,
2005
Property
revenues for the three months ended June 30, 2006, increased by approximately
$7,898,000 from the three months ended June 30, 2005, due to (i) a $1,966,000
increase in property revenues from the three properties acquired in
2006
(the
“2006 Acquisitions”), (ii) a $1,839,000 increase in property revenues from the
two properties acquired after the first quarter of 2005 (the “Two 2005
Acquisitions”), and (iii) $4,093,000 increase in property revenues from all
other communities.
The
increase in property revenues from all other communities was generated primarily
by the Company’s same store portfolio and was driven by a 13% reduction in
vacancy and a 10% increase in utility reimbursements from the second quarter
of
2005 to the second quarter of 2006.
Property
operating expenses include costs for property personnel, building repairs and
maintenance, real estate taxes and insurance, utilities, landscaping and other
property related costs. Property
operating expenses for the three months ended June 30, 2006, increased by
approximately $2,439,000 from the three months ended June 30, 2005, due
primarily to increases of property operating expenses of (i) $884,000 from
the
2006 Acquisitions, (ii) $738,000 from the Two 2005 Acquisitions, and (iii)
$817,000 from all other communities. The increase in property operating expenses
from all other communities consisted primarily of the Company’s same store
portfolio and was driven by an increase in maintenance salaries due to higher
occupancy levels.
Depreciation
expense increased by approximately $1,271,000 primarily due to the increases
of
depreciation expense of (i) $510,000
from the 2006 Acquisitions, (ii) $441,000 from the Two 2005 Acquisitions, (iii)
$105,000 from the addition of the amortization of fair market value of leases
of
acquired communities and (iv) $215,000 from all other communities. Increases
of
depreciation expense from all other communities resulted from asset additions
made during the normal course of business.
Property
management expenses increased by approximately $572,000 from the second quarter
of 2005 to the second quarter of 2006 primarily related to an increase in
personnel incentives as a result of property performances. General
and administrative expenses increased by approximately $519,000 over this same
period with a partial increase attributable to a rise in salaries, but no
individual items accounting for any significant amount of the
increase.
Interest
expense increased approximately $1,429,000 in the three months ended June 30,
2006, from the three months ended June 30, 2005, primarily due to the increase
in the amount of debt outstanding of $1.09 billion at June 30, 2005, to $1.13
billion at June 30, 2006, and the increase in the Company’s average borrowing
cost from 5.2% over the three months ended June 30, 2005, to 5.5% over the
three
months ended June 30, 2006.
In
the
three months ended June 30, 2005, the Company benefited from the sale of two
properties which it 33.33% owned through a joint venture. The sale of these
properties resulted in a gain to the Company of approximately $3,034,000 as
well
as an incentive fee of $1,723,000. In this same period, the Company recorded
a
gain of approximately $334,000 from the sale of land.
Primarily
as a result of the foregoing, net income decreased by approximately $2,301,000
in the second three months of 2006 from the second three months of
2005.
COMPARISON
OF THE SIX MONTHS ENDED JUNE 30, 2006 TO THE SIX MONTHS ENDED JUNE 30,
2005
Property
revenues for the six months ended June 30, 2006, increased by approximately
$14,920,000 from the six months ended June 30, 2005, due to (i) a $2,573,000
increase in property revenues from the 2006
Acquisitions, (ii) a $4,465,000 increase in property revenues from the three
properties acquired in 2005 (the “2005 Acquisitions”), and (iii) $7,882,000
increase in property revenues from all other communities.
The
increase in property revenues from all other communities was generated primarily
by the Company’s same store portfolio and was driven by increased occupancy
levels over 2005, increased utility reimbursements and a decrease in net
delinquencies.
Property
operating expenses include costs for property personnel, building repairs and
maintenance, real estate taxes and insurance, utilities, landscaping and other
property related costs. Property
operating expenses for the six months ended June 30, 2006, increased by
approximately $4,307,000 from the six months ended June 30, 2005, due primarily
to increases of property operating expenses of (i) $1,108,000 from the 2006
Acquisitions, (ii) $1,706,000 from the 2005 Acquisitions, and (iii) $1,493,000
from all other communities. The increase in property operating expenses from
all
other communities consisted primarily of the Company’s same store portfolio and
was driven by an increase in personnel expense as higher occupancy drove
overtime and contract expenses above the levels experienced in the prior
year.
Depreciation
expense increased by approximately $2,151,000 primarily due to the increases
of
depreciation expense of (i) $633,000
from the 2006 Acquisitions, (ii) $828,000 from the 2005 Acquisitions, and (iii)
$880,000 from all other communities. Increases of depreciation expense from
all
other communities resulted from asset additions made during the normal course
of
business. These increases were partially offset by a net decrease in
depreciation expense of (i) $190,000 from the expiration of the amortization
of
fair market value of leases of acquired communities.
Property
management expenses increased by approximately $275,000 from the first six
months of 2005 to the first six months of 2006 primarily related to an increase
in personnel incentives and franchise and excise taxes both resulting from
improved property operations. General
and administrative expenses increased by approximately $1,224,000 over this
same
period partially related to increased salaries and an increase in cash bonuses
earned related to 2005 performance results as determined by the Board of
Directors.
Interest
expense increased approximately $3,461,000 in the six months ended June 30,
2006, from the six months ended June 30, 2005, primarily due to the increase
in
the amount of debt outstanding of $1.09 billion at June 30, 2005, to $1.13
billion at June 30, 2006, and the increase in the Company’s average borrowing
cost from 5.1% over the six months ended June 30, 2005, to 5.5% over the six
months ended June 30, 2006.
In
the
first six months of 2006, the Company refinanced the debt on four of its
communities primarily to take advantage of the lower interest rate environment.
This resulted in a loss on debt extinguishment of approximately $551,000.
In
the
six months ended June 30, 2005, the Company benefited from the sale of two
properties which it 33.33% owned through a joint venture. The sale of these
properties resulted in a gain to the Company of approximately $3,034,000 as
well
as an incentive fee of $1,723,000. In this same period, the Company recorded
a
gain of approximately $334,000 from the sale of land.
Primarily
as a result of the foregoing, net income decreased by approximately $1,501,000
in the first six months of 2006 from the first six months of 2005.
FUNDS
FROM OPERATIONS AND NET INCOME
Funds
from operations (“FFO”) represents net income (computed in accordance with U.S.
generally accepted accounting principles, or “GAAP”) excluding extraordinary
items, minority interest in Operating Partnership income, gain on disposition
of
real estate assets, plus depreciation of real estate, and adjustments for joint
ventures to reflect FFO on the same basis. This definition of FFO is in
accordance with the National Association of Real Estate Investment Trust’s
(“NAREIT”) definition. Disposition of real estate assets includes sales of
discontinued operations as well as proceeds received from insurance and other
settlements from property damage.
In
response to the Securities and Exchange Commission’s Staff Policy Statement
relating to EITF Topic D-42 concerning the calculation of earnings per share
for
the redemption of preferred stock, the Company has included the amount charged
to retire preferred stock in excess of carrying values in its FFO
calculation.
The
Company's policy is to expense the cost of interior painting, vinyl flooring,
and blinds as incurred for stabilized properties. During the stabilization
period for acquisition properties, these items are capitalized as part of the
total repositioning program of newly acquired properties, and, thus are not
deducted in calculating FFO.
FFO
should not be considered as an alternative to net income or any other GAAP
measurement of performance, as an indicator of operating performance or as
an
alternative to cash flow from operating, investing, and financing
activities
as a measure of liquidity. The Company believes that FFO is helpful to investors
in understanding the Company's operating performance in that such calculation
excludes depreciation expense on real estate assets. The Company believes that
GAAP historical cost depreciation of real estate assets is generally not
correlated with changes in the value of those assets, whose value does not
diminish predictably over time, as historical cost depreciation implies. The
Company’s calculation of FFO may differ from the methodology for calculating FFO
utilized by other REITs and, accordingly, may not be comparable to such other
REITs.
The
following table is a reconciliation of FFO to net income for the three and
six
months ended June 30, 2006, and 2005 (dollars and shares in
thousands):
|
|
Three
months
|
|
Six
months
|
|
|
|
ended
June 30,
|
|
ended
June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
income
|
|
$
|
5,892
|
|
$
|
8,193
|
|
$
|
11,018
|
|
$
|
12,519
|
|
Depreciation
of real estate assets
|
|
|
19,171
|
|
|
17,909
|
|
|
37,604
|
|
|
35,469
|
|
Net
(gain) loss on insurance and other settlement proceeds
|
|
|
(225
|
)
|
|
16
|
|
|
(225
|
)
|
|
9
|
|
Gain
on dispositions within real estate joint ventures
|
|
|
-
|
|
|
(3,034
|
)
|
|
-
|
|
|
(3,034
|
)
|
Net
loss on insurance and other settlement proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
discontinued operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25
|
|
Depreciation
of real estate assets of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
|
1
|
|
|
160
|
|
|
160
|
|
|
318
|
|
Depreciation
of real estate assets of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
real
estate joint ventures
|
|
|
121
|
|
|
115
|
|
|
261
|
|
|
247
|
|
Preferred
dividend distribution
|
|
|
(3,491
|
)
|
|
(3,635
|
)
|
|
(6,981
|
)
|
|
(7,348
|
)
|
Minority
interest in operating partnership income
|
|
|
408
|
|
|
778
|
|
|
821
|
|
|
1,038
|
|
Funds
from operations
|
|
$
|
21,877
|
|
$
|
20,502
|
|
$
|
42,658
|
|
$
|
39,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares and units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,662
|
|
|
23,984
|
|
|
25,160
|
|
|
23,774
|
|
Diluted
|
|
|
25,884
|
|
|
24,258
|
|
|
25,387
|
|
|
24,053
|
|
Net
income for the three and six months ended June 30, 2006, decreased as the gains
recorded in 2005 and the increase in interest expense more than offset improved
property performance. FFO for the same periods increased as the impact of the
2005 gains is eliminated as well as the impact from increased depreciation
expense partially resulting from new acquisitions.
TRENDS
In
the
second quarter of 2006, property performance continued to show the benefit
of
improving market conditions, which was strong throughout most of the Company’s
markets. Areas that had been weak for several years, especially
Atlanta,
Dallas, and Austin, continued to show improved demand, and Houston, which
recovered in the latter half of 2005, continued to be strong.
The
Company believes that the primary driver of demand by apartment residents is
job
formation, and this continued to show solid momentum in most of the Company’s
larger metro areas. Some of the smaller and mid-size markets in which the
Company operates, such as Jackson, MS, Jacksonville, FL, and Columbus, GA
remained reasonably strong during the market downturn that preceded this period,
and continued to show solid performance. At the same time, the Company has
noticed that in some of its markets, supply pressures have been surprisingly
muted, and it believes that two factors are at work. In some markets, especially
in Florida, some apartment communities have been taken off the rental market
and
converted to condominiums. Construction and development costs for new apartments
also seem to have risen substantially for a variety of reasons, and this has
made the economics of building apartments to compete with the Company’s
properties less attractive. Rising interest rates have impacted developers’
costs, and this may also have reduced the amount of competition that we face
from single-family homes. The cooling of housing markets may also have caused
some first time home buyers to delay their purchases.
The
Company faces cost pressures from increasing operating expenses, especially
insurance and real estate tax costs, as well as increasing prices on materials
that it uses in maintaining its apartments.
The
Company believes that this situation of improved demand, a reduced rate of
increase in supply, and reduced competition from single family homes, even
while
somewhat offset by rising expenses, will continue to contribute to better
operating results for the balance of the year.
LIQUIDITY
AND CAPITAL RESOURCES
Net
cash
flow provided by operating activities increased by approximately $5.5 million
from $55.0 million in the first six months of 2005 to $60.5 million in the
first
six months of 2006 primarily resulting from an increase in cash flows from
improved property operations during the first six months of 2006 over the same
period in 2005 which were only partially offset by increased interest expenses.
Net
cash
used in investing activities increased during the first six months of 2006
from
the first six months of 2005 to approximately $98.8 million from $34.6 million
mainly related to the additional $34.9 million of cash used for acquisitions
in
the first six months of 2006 over 2005. During the first six months of 2005,
the
Company received distributions from its real estate joint ventures of $14.8
million which included the Company’s portion from the sale of two properties in
one of its joint ventures, a payoff to the Company of a mezzanine loan and
an
incentive fee. Distributions from real estate joint ventures for the first
six
months of 2006 totaled only $137,000.
The
first
six months of 2006 provided net cash from financing activities of $35.6 million
while the first six months of 2005 used net cash for financing activities of
$22.9 million. This change was driven by a $66.9 million increase in proceeds
from issuances of common shares over these periods as the Company raised $59.5
million from a public offering in May 2006. Part of the proceeds were then
used
to partially pay down outstanding debt under the Company’s credit facilities
which accounts for the $28.0 million change from $26.3 million increase in
credit lines in the first six months of 2005 to $1.7 million decrease in credit
lines over the same period in 2006.
The
weighted average interest rate at June 30, 2006, for the $1.13 billion of debt
outstanding was 5.6% compared to 5.3% on $1.09 billion of debt outstanding
at
June 30, 2005. The Company utilizes both conventional and tax exempt debt to
help finance its activities. Borrowings are made through individual property
mortgages and secured credit facilities. The Company utilizes fixed rate
borrowings, interest rate swaps and interest rate caps to manage its current
and
future interest rate risk. More details on the Company’s borrowings can be found
in the schedule presented later in this section.
At
June
30, 2006, the Company had secured credit facilities relationships with
Prudential Mortgage Capital which are credit enhanced by the Federal National
Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“Freddie
MAC”), and a group of banks led by AmSouth Bank. Together, these credit
facilities provided a total borrowing capacity and availability to borrow of
$1.1 billion at June 30, 2006. The Company had total borrowings outstanding
under these credit facilities of $935 million at June 30, 2006.
Approximately
72% of the Company’s outstanding obligations at June 30, 2006, were borrowed
through facilities with/or credit enhanced by FNMA (the “FNMA Facilities”). The
FNMA Facilities have a combined line limit of $950 million, $947 million of
which was available to borrow at June 30, 2006. The Company had total borrowings
outstanding under the FNMA Facilities of $806 million at June 30, 2006. Various
traunches of the facilities mature from 2010 through 2014. The FNMA Facilities
provide for both fixed and variable rate borrowings. The interest rate on the
majority of the variable portion renews every 90 days and is based on the FNMA
Discount Mortgage Backed Security (“DMBS”) rate on the date of renewal, which
has typically approximated three-month LIBOR less an average spread of 0.04%
over the life of the FNMA Facilities, plus a credit enhancement fee of 0.62%
to
0.795%.
Each
of
the Company’s secured credit facilities is subject to various covenants and
conditions on usage, and are subject to periodic re-evaluation of collateral.
If
the Company were to fail to satisfy a condition to borrowing, the available
credit under one or more of the facilities could not be drawn, which could
adversely affect the Company’s liquidity. In the event of a reduction in real
estate values the amount of available credit could be reduced. Moreover, if
the
Company were to fail to make a payment or violate a covenant under a credit
facility, after applicable cure
periods
one or more of its lenders could declare a default, accelerate the due date
for
repayment of all amounts outstanding and/or foreclose on properties securing
such facilities. Any such event could have a material adverse effect on the
Company.
On
May
26, 2005, the Company gave the required one year notice to redeem all of the
issued and outstanding shares of its 8 5/8% Series G Cumulative Redeemable
Preferred Stock (“Series G”), for the total redemption price of $10 million. As
a result, in accordance with Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and
Equity,
the
Company classified the Series G as a liability within notes payable as of May
26, 2005, on the accompanying condensed consolidated financial statements.
On
May 26, 2006, the Company completed the redemption of the Series G.
As
of
June 30, 2006, the Company had interest rate swaps in effect totaling a notional
amount of $694 million. To date, these swaps have proven to be highly effective
hedges. The Company had also entered into a forward interest rate swap with
a
notional amount of $10 million that goes into effect on July 7, 2006. As of
June
30, 2006, the Company had interest rate cap agreements totaling a notional
amount of approximately $42 million.
Summary
details of the debt outstanding at June 30, 2006, follow in the table
below:
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance/
|
|
Average
|
|
Average
|
|
Average
|
|
|
|
Line
|
|
Line
|
|
Notional
|
|
Interest
|
|
Rate
|
|
Contract
|
|
|
|
Limit
|
|
Availability
|
|
Amount
|
|
Rate
|
|
Maturity
|
|
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMBINED
DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate or Swapped
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
|
|
|
|
|
|
$
|
876,062,701
|
|
|
5.7
|
%
|
|
5/19/2011
|
|
|
5/19/2011
|
|
Tax
Exempt
|
|
|
|
|
|
|
|
|
73,640,000
|
|
|
4.3
|
%
|
|
1/27/2012
|
|
|
1/27/2012
|
|
Subtotal
Fixed
Rate or Swapped
|
|
|
|
|
|
|
|
|
949,702,701
|
|
|
5.6
|
%
|
|
6/7/2011
|
|
|
6/7/2011
|
|
Variable
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
|
|
|
|
|
|
|
122,651,575
|
|
|
6.0
|
%
|
|
8/25/2006
|
|
|
5/9/2012
|
|
Tax
Exempt
|
|
|
|
|
|
|
|
|
10,855,004
|
|
|
4.5
|
%
|
|
7/15/2006
|
|
|
5/30/2020
|
|
Conventional
-
Capped
|
|
|
|
|
|
|
|
|
17,936,000
|
|
|
6.0
|
%
|
|
11/13/2009
|
|
|
11/13/2009
|
|
Tax
Exempt -
Capped
|
|
|
|
|
|
|
|
|
24,090,000
|
|
|
4.3
|
%
|
|
11/25/2009
|
|
|
11/25/2009
|
|
Subtotal
Variable
Rate
|
|
|
|
|
|
|
|
|
175,532,579
|
|
|
5.7
|
%
|
|
8/17/2006
|
|
|
3/11/2013
|
|
Total
Combined Debt Outstanding
|
|
|
|
|
|
|
|
$
|
1,125,235,280
|
|
|
5.6
|
%
|
|
9/6/2010
|
|
|
9/15/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNDERLYING
DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual
Property Mortgages/Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
Fixed Rate
|
|
|
|
|
|
|
|
$
|
133,062,701
|
|
|
4.8
|
%
|
|
3/5/2015
|
|
|
3/5/2015
|
|
Tax
Exempt Fixed Rate
|
|
|
|
|
|
|
|
|
12,310,000
|
|
|
5.2
|
%
|
|
12/1/2028
|
|
|
12/1/2028
|
|
Tax
Exempt Variable Rate
|
|
|
|
|
|
|
|
|
4,760,004
|
|
|
4.7
|
%
|
|
7/15/2006
|
|
|
6/1/2028
|
|
FNMA
Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Free Borrowings
|
|
$
|
91,515,000
|
|
$
|
91,515,000
|
|
|
91,515,000
|
|
|
4.3
|
%
|
|
7/15/2006
|
|
|
3/1/2014
|
|
Conventional
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate Borrowings
|
|
|
110,000,000
|
|
|
110,000,000
|
|
|
110,000,000
|
|
|
7.2
|
%
|
|
1/10/2009
|
|
|
1/10/2009
|
|
Variable
Rate Borrowings
|
|
|
748,485,000
|
|
|
745,314,000
|
|
|
604,318,000
|
|
|
6.0
|
%
|
|
8/30/2006
|
|
|
4/2/2013
|
|
Subtotal
FNMA Facilities
|
|
|
950,000,000
|
|
|
946,829,000
|
|
|
805,833,000
|
|
|
5.9
|
%
|
|
12/20/2006
|
|
|
10/11/2012
|
|
Freddie
Mac Credit Facility I
|
|
|
100,000,000
|
|
|
96,404,000
|
|
|
96,404,000
|
|
|
5.9
|
%
|
|
9/7/2006
|
|
|
7/1/2011
|
|
Freddie
Mac Credit Facility II
|
|
|
200,000,000
|
|
|
29,825,000
|
|
|
29,825,000
|
|
|
5.9
|
%
|
|
8/1/2006
|
|
|
6/2/2014
|
|
AmSouth
Credit Facility
|
|
|
40,000,000
|
|
|
30,203,438
|
|
|
3,040,575
|
|
|
7.0
|
%
|
|
7/31/2006
|
|
|
5/24/2007
|
|
Union
Planters Bank
|
|
|
|
|
|
|
|
|
40,000,000
|
|
|
6.2
|
%
|
|
7/30/2006
|
|
|
4/1/2009
|
|
Total
Underlying Debt Outstanding
|
|
|
|
|
|
|
|
$
|
1,125,235,280
|
|
|
5.7
|
%
|
|
2/16/2008
|
|
|
2/4/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEDGING
INSTRUMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIBOR
indexed
|
|
|
|
|
|
|
|
$
|
633,000,000
|
|
|
4.8
|
%
|
|
10/14/2010
|
|
|
|
|
LIBOR
indexed (forward swap)
|
|
|
|
|
|
|
|
|
10,000,000
|
|
|
5.7
|
%
|
|
3/1/2014
|
|
|
|
|
BMA
indexed
|
|
|
|
|
|
|
|
|
61,330,000
|
|
|
3.3
|
%
|
|
9/10/2008
|
|
|
|
|
Total
Interest Rate Swaps
|
|
|
|
|
|
|
|
$
|
704,330,000
|
|
|
4.7
|
%
|
|
8/25/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Caps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIBOR
indexed
|
|
|
|
|
|
|
|
$
|
17,936,000
|
|
|
6.2
|
%
|
|
11/13/2009
|
|
|
|
|
BMA
indexed
|
|
|
|
|
|
|
|
|
24,090,000
|
|
|
6.0
|
%
|
|
11/25/2009
|
|
|
|
|
Total
Interest Rate Caps
|
|
|
|
|
|
|
|
$
|
42,026,000
|
|
|
6.1
|
%
|
|
11/19/2009
|
|
|
|
|
The
Company believes that it has adequate resources to fund its current operations,
annual refurbishment of its properties, and incremental investment in new
apartment properties. The Company is relying on the efficient operation
of the
financial markets to finance debt maturities, and also is heavily reliant
on the
creditworthiness of FNMA, which provides credit enhancement for approximately
$806 million of the Company’s debt. The interest rate market for FNMA DMBS,
which in the Company’s experience is highly correlated with three-month LIBOR
interest rates, is also an important component of the Company’s liquidity and
interest rate swap effectiveness. In the event that the FNMA DMBS market
becomes
less efficient, or the credit of FNMA becomes impaired, the Company would
seek
alternative sources of debt financing.
For
the
six months ended June 30, 2006, the Company’s net cash provided by operating
activities exceeded improvements to existing real estate assets, distributions
to unitholders, and dividends paid on common and preferred shares by
approximately $6.1 million. This compares to coverage of approximately $9.3
million for the same period in 2005. While the Company has sufficient liquidity
to permit distributions at current rates through additional borrowings, if
necessary, any significant deterioration in operations could result in the
Company’s financial resources to be insufficient to pay distributions to
shareholders at the current rate, in which event the Company would be required
to reduce the distribution rate.
The
following table reflects the Company’s total contractual cash obligations which
consists of its long-term debt and operating leases as of June 30, 2006,
(dollars in 000’s):
|
|
Payments
Due by Period
|
|
Contractual
Obligations
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Thereafter
|
|
Total
|
|
Long-Term
Debt
(1)
|
|
$
|
21,912
|
|
$
|
7,023
|
|
$
|
109,900
|
|
$
|
106,201
|
|
$
|
121,268
|
|
$
|
758,931
|
|
$
|
1,125,235
|
|
Operating
Lease
|
|
|
2
|
|
|
4
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10
|
|
Total
|
|
$
|
21,914
|
|
$
|
7,027
|
|
$
|
109,904
|
|
$
|
106,201
|
|
$
|
121,268
|
|
$
|
758,931
|
|
$
|
1,125,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Represents
principal payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OFF-BALANCE
SHEET ARRANGEMENTS
At
June
30, 2006 and 2005, the Company did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance, special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. The Company’s joint ventures
with Crow Holdings were established to acquire multifamily properties. In
addition, the Company does not engage in trading activities involving
non-exchange traded contracts. As such, the Company is not materially exposed
to
any financing, liquidity, market, or credit risk that could arise if it had
engaged in such relationships. The Company does not have any relationships
or
transactions with persons or entities that derive benefits from their
non-independent relationships with the Company or its related parties other
than
those disclosed in Item 8. Financial Statements and Supplementary Data - Notes
to Consolidated Financial Statements Note 13 in the Company’s 2005 Annual Report
on Form 10-K.
The
Company’s investment in its real estate joint venture is unconsolidated and is
recorded on the equity method as the Company does not have a controlling
interest.
INSURANCE
Management
believes that the property and casualty insurance program in place provides
appropriate insurance coverage for financial protection against insurable risks.
The Company renegotiated its insurance programs July 1, 2006, and because of
the
significant reduction in available insurance for windstorm events and resulting
large increase in cost, purchased property insurance with limits reduced from
prior years. The Company self-insures the first $500,000 of individual property
losses, and, if greater, the first 10% of property losses caused by named
windstorms and earthquakes, with a limit per event of $40 million for windstorm
and earthquake damage. According to the Company’s risk consultant, approximately
20% of the Company’s property value is located in “Wind Tier 1” risk areas
(predominately certain parts of Florida) and 12% in the New Madrid earthquake
risk zone. The Company does not own any direct coastal frontage property. The
largest loss event from windstorm damage (tornado) the Company has experienced
was $3.9 million in 1999. The Company experienced combined total losses of
$2.2
million from windstorms in 2004 and 2005, with the biggest loss ($1.1 million)
from Hurricane Francis in 2004. The Company’s insurance program is subject to
review by its principal lenders.
INFLATION
Substantially
all of the resident leases at the Company’s communities allow, at the time of
renewal, for adjustments in the rent payable hereunder, and thus may enable
the
Company to seek rent increases. Almost all leases are for one year or less.
The
short-term nature of these leases generally serves to reduce the risk to the
Company of the adverse effects of inflation.
IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS
In
December 2004, the FASB issued Statement No. 153, Exchanges
of Nonmonetary Assets, an amendment of APB Opinion No. 29
(“Statement 153”). Statement 153 was a result of a joint effort by the FASB and
the IASB to improve financial reporting by eliminating certain narrow
differences between their existing accounting standards. Statement 153 amends
APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. Statement 153
is
applied prospectively for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The adoption of Statement 153 did not
have a material impact on the Company’s consolidated financial condition or
results of operations taken as a whole.
In
December 2004, the FASB issued Statement No. 123 (revised December 2004),
Share-Based
Payment
(“Statement 123(R)”). Statement 123(R) replaces FASB Statement No. 123,
Accounting
for Stock-Based Compensation,
and
supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees.
Statement 123(R) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited
exceptions, the amount of compensation cost will be measured based on the grant
date fair value of the equity or the liability instruments issued. In addition,
liability awards will be remeasured each reporting period. Compensation cost
will be recognized over the period that an employee provides service in exchange
for the award. Statement 123(R) is effective as of the beginning of the first
annual reporting period that begins after June 15, 2005. The Company adopted
Statement 123(R) effective January 1, 2006, utilizing the modified prospective
transition method. The adoption of Statement 123(R) did not have a material
impact on the Company’s consolidated financial condition or results of
operations taken as a whole.
In
March
2005, the SEC issued SAB 107 to provide public companies additional guidance
in
applying the provisions of Statement 123(R). Among other things, SAB 107
describes the SEC staff's expectations in determining the assumptions that
underlie the fair value estimates and discusses the interaction of Statement
123(R) with certain existing SEC guidance. The guidance is also beneficial
to
users of financial statements in analyzing the information provided under
statement 123(R). SAB 107 was applied upon the adoption of Statement
123(R).
In
March
2005, the FASB issued Interpretation No. 47, Accounting
for Conditional Asset Retirement Obligations-an interpretation of FASB Statement
No. 143
(“Interpretation 47”). Interpretation 47 clarifies that the term conditional
asset retirement obligation as used in FASB Statement No. 143, Accounting
for Asset Retirement Obligations,
(“Statement 143”) refers to a legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement are conditional on
a
future event that may or may not be within the control of the entity.
Interpretation 47 is effective no later than the end of fiscal years ending
after December 15, 2005, (December 31, 2005, for calendar-year enterprises).
Retrospective application for interim financial information is permitted but
is
not required. The adoption of Interpretation 47 did not have a material impact
on the Company's consolidated financial condition or results of operations
taken
as a whole.
In
June
2005, the FASB ratified EITF 04-5: Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights
(“EITF
04-5”). EITF 04-5 provides a framework for determining whether a general partner
is required to consolidate limited partners. The new framework is significantly
different than the guidance in SOP 78-9 and would make it more difficult for
a
general partner to overcome the presumption that it controls the limited
partnership, requiring the limited partner to have substantive “kick-out” or
“participating” rights. Kick-out rights are the right to dissolve or liquidate
the partnership or to otherwise remove the general partner without cause and
participating rights are the right to effectively participate in significant
decisions made in the ordinary course of the partnership’s business. EITF 04-5
became effective immediately for all newly formed limited partnerships and
existing limited partnerships
which
are
modified. The guidance will become effective for existing limited partnerships
which are not modified the beginning of the first reporting period in fiscal
years beginning after December 15, 2005. The adoption of EITF 04-5 did not
have
a material impact on the Company's consolidated financial condition or results
of operations taken as a whole.
RISKS
ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This
and
other sections of this Quarterly Report contain certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created thereby. These
statements include, but are not limited to, statements about anticipated
market
conditions, expected growth rates of revenues and expenses, planned asset
dispositions, disposition pricing, planned acquisitions and developments,
property financings, expected interest rates and planned capital expenditures.
Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this report on Form 10-Q will prove to be accurate.
In
light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not
be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
This
information has been omitted as there have been no material changes in the
Company’s market risk as disclosed in the 2005 Annual Report on Form 10-K except
for the changes as discussed under Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations under the “Liquidity and
Capital Resources” section, which is incorporated by reference
herein.
Item
4. Controls
and Procedures
MANAGEMENT’S
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The
Company maintains disclosure controls and procedures that are designed to
ensure
that information required to be disclosed in the Company’s filings under the
Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and
forms, and to ensure that such information is accumulated and communicated
to
the Company’s management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. Management necessarily applied its judgment in assessing the
costs
and benefits of such controls and procedures, which, by their nature, can
provide only reasonable assurance regarding management's control objectives.
The
Company also has an investment in an unconsolidated entity which is not under
its control. Consequently, the Company’s disclosure controls and procedures with
respect to this entity are necessarily more limited than those it maintains
with
respect to its consolidated subsidiaries.
Our
management, with the participation of our principal executive officer and
financial officers has evaluated the effectiveness of the design and operation
of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e)
and 15d-15(e) of the Exchange Act. Based on their evaluation as of June 30,
2006, our Chief Executive Officer and Chief Financial Officer have concluded
that the Company’s disclosure controls and procedures were effective as of June
30, 2006, in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) that is required to be
included in the Company’s Exchange Act filings.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During
the three months ended June 30, 2006, there were no significant changes in
the
Company’s internal control over financial reporting that materially affected, or
that are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal
Proceedings
None.
Item
1A. Risk
Factors
In
addition to the risk factors previously disclosed under “Item 1A. Risk Factors”
in the Company’s Annual Report on Form 10-K for the year ended December 31,
2005, the Company is subject to the following tax-related risks.
FAILURE
TO MAKE REQUIRED DISTRIBUTIONS WOULD SUBJECT THE COMPANY TO INCOME TAXATION
In
order
to qualify as a REIT, each year the Company must distribute to stockholders
at
least 90% of its REIT taxable income (determined without regard to the dividend
paid deduction and by excluding net capital gains). To the extent that the
Company satisfies the distribution requirement, but distributes less than 100%
of taxable income, it will be subject to federal corporate income tax on the
undistributed income. In addition, the Company will incur a 4% nondeductible
excise tax on the amount, if any, by which the distributions in any year are
less than the sum of:
· |
85%
of ordinary income for that year;
|
· |
95%
of capital gain net income for that year; and
|
· |
100%
of undistributed taxable income from prior years.
|
Differences
in timing between the recognition of income and the related cash receipts or
the
effect of required debt amortization payments could require the Company to
borrow money or sell assets to pay out enough of the taxable income to satisfy
the distribution requirement and to avoid corporate income tax and the 4%
nondeductible excise tax in a particular year.
COMPLYING
WITH REIT REQUIREMENTS MAY CAUSE THE COMPANY TO FORGO OTHERWISE ATTRACTIVE
OPPORTUNITIES OR ENGAGE IN MARGINAL INVESTMENT OPPORTUNITIES
To
qualify as a REIT for federal income tax purposes, the Company must continually
satisfy tests concerning, among other things, the sources of income, the nature
and diversification of assets, the amounts distributed to shareholders and
the
ownership of the Company’s stock. In order to meet these tests, the Company may
be required to forgo attractive business or investment opportunities or engage
in marginal investment opportunities. Thus, compliance with the REIT
requirements may hinder the Company’s ability to operate solely on the basis of
maximizing profits.
THE
TAXATION OF CORPORATE DIVIDENDS MAY ADVERSELY AFFECT THE VALUE OF THE COMPANY’S
STOCK
The
Jobs
and Growth Tax Relief Reconciliation Act of 2003, among other things, generally
reduced to 15% the maximum marginal rate of tax payable by domestic noncorporate
taxpayers on dividends received from a regular C corporation for tax years
2003
through 2008. This reduced tax rate does not apply, however, to dividends paid
to domestic noncorporate taxpayers by a REIT on its stock, except for certain
limited amounts. Although the earnings of a REIT that are distributed to its
stockholders are generally subject to less federal income taxation than earnings
of a non-REIT C corporation that are distributed to its stockholders net of
corporate-level income tax, this legislation could cause domestic noncorporate
investors to view the stock of regular C corporations as more attractive
relative to the stock of a REIT than was the case prior to the enactment of
the
legislation, because the dividends from regular C corporations are now generally
taxed at a lower rate while dividends from REITs are generally taxed at the
same
rate as the domestic noncorporate taxpayer’s ordinary income. The more favorable
tax rates applicable to regular corporate dividends could cause domestic
noncorporate investors to perceive investments in REITs to be relatively less
attractive than investments in the stocks of non-REIT corporations that pay
dividends, which could adversely affect the value of the stock of REITs,
including the Company’s stock.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
of Matters to a Vote of Security Holders
The
annual meeting of the shareholders of the Company was held on May 16,
2006.
Nominees
George E. Cates, John S. Grinalds, Simon R.C. Wadsworth and Mary E. McCormick
were elected to serve as directors by a plurality of votes cast at the meeting.
Shares on this proposal were voted as follows:
|
|
For
|
|
Withheld
|
George
E. Cates
|
|
19,592,256
|
|
142,407
|
John
S. Grinalds
|
|
19,671,281
|
|
63,382
|
Simon
R.C. Wadsworth
|
|
18,578,247
|
|
1,156,416
|
Mary
E. McCormick
|
|
19,690,910
|
|
43,753
|
Ernst
& Young LLP was ratified as the Company’s independent registered public
accounting firm for the 2006 fiscal year by a majority of the shares represented
at the meeting. Shares on this proposal were voted as follows:
|
|
For
|
|
Against
|
|
Abstain
|
Ernst
& Young LLP
|
|
19,678,789
|
|
28,588
|
|
27,285
|
Item
5. Other
Information
None.
Item
6. Exhibits
(a)
|
The
following exhibits are filed as part of this
report.
|
Exhibit
Number
|
Exhibit
Description
|
3.1
|
Amended
and Restated Charter of Mid-America Apartment Communities, Inc.
dated as
of January 10, 1994, as filed with the Tennessee Secretary of State
on
January 25, 1994 (Filed as Exhibit 3.1 to the Registrant’s Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and incorporated
herein by reference).
|
3.2
|
Articles
of Amendment to the Charter of Mid-America Apartment Communities,
Inc.
dated as of January 28, 1994, as filed with the Tennessee Secretary
of
State on January 28, 1994 (Filed as Exhibit 3.2 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 1996
and
incorporated herein by reference).
|
3.3
|
Mid-America
Apartment Communities, Inc. Articles of Amendment to the Amended
and
Restated Charter Designating and Fixing the Rights and Preferences
of a
Series of Preferred Stock dated as of October 9, 1996, as filed
with the
Tennessee Secretary of State on October 10, 1996 (Filed as Exhibit
1 to
the Registrant’s Registration Statement on Form 8-A filed with the
Commission on October 11, 1996 and incorporated herein by
reference).
|
3.4
|
Mid-America
Apartment Communities, Inc. Articles of Amendment to the Amended
and
Restated Charter dated November 17, 1997, as filed with the Tennessee
Secretary of State on November 18, 1997 (Filed as Exhibit 3.6 to
the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference).
|
3.5
|
Mid-America
Apartment Communities, Inc. Articles of Amendment to the Amended
and
Restated Charter Designating and Fixing the Rights and Preferences
of a
Series of Shares of Preferred Stock dated as of November 17, 1997,
as
filed with the Tennessee Secretary of State on November 18, 1997
(Filed as
Exhibit 4.1 to the Registrant’s Registration Statement on Form 8-A/A filed
with the Commission on November 19, 1997 and incorporated herein
by
reference).
|
3.6
|
Mid-America
Apartment Communities, Inc. Articles of Amendment to the Amended
and
Restated Charter Designating and Fixing the Rights and Preferences
of a
Series of Shares of Preferred Stock dated as of June 25, 1998, as
filed
with the Tennessee Secretary of State on June 30, 1998 (Filed as
Exhibit
4.3 to the Registrant’s Registration Statement on Form 8-A/A filed with
the Commission on June 26, 1998 and incorporated herein by reference).
|
3.7
|
Mid-America
Apartment Communities, Inc. Articles of Amendment to the Amended
and
Restated Charter Designating and Fixing the Rights and Preferences
of A
Series of Shares of Preferred Stock dated as of December 24, 1998,
as
filed with the Tennessee Secretary of State on December 30, 1998
(Filed as
Exhibit 3.7 to the Registrant’s Registration Statement on Form S-3/A (File
Number 333-112469) and incorporated herein by
reference).
|
3.8
|
Mid-America
Apartment Communities, Inc. Articles of Amendment to the Amended
and
Restated Charter Designating and Fixing the Rights and Preferences
of a
Series of Shares of Preferred Stock dated as of October 11, 2002,
as filed
with the Tennessee Secretary of State on October 14, 2002 (Filed
as
Exhibit 4.3 to the Registrant’s Registration Statement on Form 8-A/A filed
with the Commission on October 11, 2002 and incorporated herein by
reference).
|
3.9
|
Mid-America
Apartment Communities, Inc. Articles of Amendment to the Amended
and
Restated Charter Designating and Fixing the Rights and Preferences
of a
Series of Shares of Preferred Stock dated as of October 28, 2002,
as filed
with the Tennessee Secretary of State on October 28, 2002 (Filed
as
Exhibit 3.9 to the Registrant’s Registration Statement on Form S-3/A (File
Number 333-112469) and incorporated herein by
reference).
|
3.10
|
Mid-America
Apartment Communities, Inc. Articles of Amendment to the Amended
and
Restated Charter Designating and Fixing the Rights and Preferences
of a
Series of Shares of Preferred Stock dated as of August 7, 2003, as
filed
with the Tennessee Secretary of State on August 7, 2003 (Filed as
Exhibit
3.10 to the Registrant’s Registration Statement on Form S-3/A (File Number
333-112469) and incorporated herein by reference).
|
3.11
|
Bylaws
of Mid-America Apartment Communities, Inc. (Filed as an Exhibit to
the
Registrant’s Registration Statement on Form S-11 (File Number 33-69434)
and incorporated herein by reference).
|
3.12
|
First
Amendment to the Bylaws of Mid-America Apartment Communities, Inc.
dated
May 2, 2006 (Filed as Exhibit 3.12 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2006 and incorporated herein
by
reference).
|
4.1
|
Form
of Common Share Certificate (Filed as Exhibit 4.1 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31,
1997 and
incorporated herein by reference).
|
4.2
|
Form
of 9.5% Series A Cumulative Preferred Stock Certificate (Filed as
Exhibit
2 to the Registrant’s Registration Statement on Form 8-A filed with the
Commission on October 11, 1996 and incorporated herein by
reference).
|
4.3
|
Form
of 8 7/8% Series B Cumulative Preferred Stock Certificate (Filed
as
Exhibit 4.3 to the Registrant’s Registration Statement on Form 8-A/A filed
with the Commission on November 19, 1997 and incorporated herein
by
reference).
|
4.4
|
Form
of 9 3/8% Series C Cumulative Preferred Stock Certificate (Filed
as
Exhibit 4.2 to the Registrant’s Registration Statement on Form 8-A/A filed
with the Commission on June 26, 1998 and incorporated herein by
reference).
|
4.5
|
Form
of 9.5% Series E Cumulative Preferred Stock Certificate (Filed as
Exhibit
4.5 to the Registrant’s Registration Statement on Form S-3/A (File Number
333-112469) and incorporated herein by reference).
|
4.6
|
Form
of 9 ¼% Series F Cumulative Preferred Stock Certificate (Filed as Exhibit
4.2 to the Registrant’s Registration Statement on Form 8-A/A filed with
the Commission on October 11, 2002 and incorporated herein by
reference).
|
4.7
|
Form
of 8.30% Series G Cumulative Preferred Stock Certificate (Filed as
Exhibit
4.7 to the Registrant’s Registration Statement on Form S-3/A (File Number
333-112469) and incorporated herein by reference).
|
4.8
|
Form
of 8.30% Series H Cumulative Preferred Stock Certificate (Filed as
Exhibit
4.8 to the Registrant’s Registration Statement on Form S-3/A (File Number
333-112469) and incorporated herein by reference).
|
10.1
|
Second
Amended and Restated Agreement of Limited Partnership of Mid-America
Apartments, L.P., a Tennessee limited partnership (Filed as Exhibit
10.1
to the Registrant’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 and incorporated herein by
reference).
|
10.2
†
|
Employment
Agreement between the Registrant and H. Eric Bolton, Jr. (Filed as
Exhibit
10.8 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 and incorporated herein by
reference).
|
10.3
†
|
Employment
Agreement between the Registrant and Simon R.C. Wadsworth (Filed
as
Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 and incorporated herein by
reference).
|
10.4
†
|
Fourth
Amended and Restated 1994 Restricted Stock and Stock Option Plan
(Filed as
Exhibit A to the Registrant’s Proxy Statement filed on April 24, 2002 and
incorporated herein by reference).
|
10.5
|
AmSouth
Revolving Credit Agreement (Amended and Restated) dated July 17,
2003
(Filed as Exhibit 10.10 to the Registrant’s Registration Statement on Form
S-3/A (File Number 333-112469) and incorporated herein by
reference).
|
10.6
|
First
Amendment to Amended and Restated Revolving Credit Agreement (AmSouth)
dated May 19, 2004 (Filed as Exhibit 10.10 to the Registrant’s Annual
Report on Form 10-K/A for the fiscal year ended December 31, 2004
and
incorporated herein by reference).
|
10.7
|
Second
Amendment to Amended and Restated Revolving Credit Agreement (AmSouth)
dated May 23, 2005 (Filed as Exhibit 10.7 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2005 and
incorporated herein by reference).
|
10.8
|
Second
Amended and Restated Master Credit Facility Agreement by and among
Prudential Multifamily Mortgage, Inc., Mid-America Apartment Communities,
Inc. and Mid-America Apartments, L.P., dated March 30, 2004 (Filed
as
Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2005 and incorporated herein by
reference).
|
10.9
|
First
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated March 31,
2004
(Filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2004 and incorporated herein
by
reference).
|
10.10
|
Second
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated April 30,
2004
(Filed as Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2004 and incorporated herein
by
reference).
|
10.11
|
Third
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated August
3, 2004
(Filed as Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2004 and incorporated herein
by
reference).
|
10.12
|
Fourth
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated August
31, 2004
(Filed as Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2004 and incorporated herein
by
reference).
|
10.13
|
Fifth
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated October
1, 2004
(Filed as Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2004 and incorporated herein
by
reference).
|
10.14
|
Sixth
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated December
1, 2004
(Filed as Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2004 and incorporated herein
by
reference).
|
10.15
|
Seventh
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated December
15,
2004 (Filed as Exhibit 10.19 to the Registrant’s Annual Report on Form
10-K/A for the fiscal year ended December 31, 2004 and incorporated
herein
by reference).
|
10.16
|
Eighth
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated March 31,
2005
(Filed as Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2005 and incorporated herein by
reference).
|
10.17
|
Ninth
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated September
23,
2005 (Filed as Exhibit 10.17 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2005 and incorporated
herein
by reference).
|
10.18
|
Tenth
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated December
16,
2005 (Filed as Exhibit 10.18 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2005 and incorporated
herein
by reference).
|
10.19
|
Eleventh
Amendment to Second Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc. and Mid-America Apartments, L.P., dated February
22,
2006 (Filed as Exhibit 10.19 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2005 and incorporated
herein
by reference).
|
10.20
|
Third
Amended and Restated Master Credit Facility Agreement by and among
Prudential Multifamily Mortgage, Inc., Mid-America Apartment Communities,
Inc., Mid-America Apartments, L.P. and Mid-America Apartments of
Texas,
L.P., dated March 30, 2004 (Filed as Exhibit 10.20 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2005 and
incorporated herein by reference).
|
10.21
|
First
Amendment to Third Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc., Mid-America Apartments, L.P. and Mid-America Apartments
of Texas, L.P. dated March 31, 2004 (Filed as Exhibit 10.21 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2005 and incorporated herein by
reference).
|
10.22
|
Second
Amendment to the Third Amended and Restated Master Credit Facility
Agreement by and among Prudential Multifamily Mortgage, Inc., Mid-America
Apartment Communities, Inc., Mid-America Apartments, L.P. and Mid-America
Apartments of Texas, L.P. dated as of August 3, 2004 (Filed as Exhibit
10.21 to the Registrant’s Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2004 and incorporated herein by
reference).
|
10.23
|
Third
Amendment to the Third Amended and Restated Master Credit Facility
Agreement by and among Prudential Multifamily Mortgage, Inc., Mid-America
Apartment Communities, Inc., Mid-America Apartments, L.P. and Mid-America
Apartments of Texas, L.P. dated as of December 1, 2004 (Filed as
Exhibit
10.22 to the Registrant’s Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2004 and incorporated herein by
reference).
|
10.24
|
Fourth
Amendment to Third Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc., Mid-America Apartments, L.P. and Mid-America Apartments
of Texas, L.P. dated March 31, 2005 (Filed as Exhibit 10.24 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2005 and incorporated herein by reference).
|
10.25
|
Fifth
Amendment to Third Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc., Mid-America Apartments, L.P. and Mid-America Apartments
of Texas, L.P. dated September 23, 2005 (Filed as Exhibit 10.25 to
the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2005 and incorporated herein by reference).
|
10.26
|
Sixth
Amendment to Third Amended and Restated Master Credit Facility Agreement
by and among Prudential Multifamily Mortgage, Inc., Mid-America Apartment
Communities, Inc., Mid-America Apartments, L.P. and Mid-America Apartments
of Texas, L.P. dated February 22, 2006 (Filed as Exhibit 10.26 to
the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2005 and incorporated herein by reference).
|
10.27
|
Master
Reimbursement Agreement by and among Fannie Mae, Mid-America Apartments,
L.P. and Fairways- Columbia, L.P. dated June 1, 2001 (Filed as Exhibit
10.17 to the Registrant’s Registration Statement on Form S-3/A (File
Number 333-112469) and incorporated herein by
reference).
|
10.28
|
Amendment
No. 1 to Master Reimbursement Agreement by and among Fannie Mae,
Mid-America Apartments, L.P. and Fairways-Columbia, L.P. dated December
24, 2002 (Filed as Exhibit 10.18 to the Registrant’s Registration
Statement on Form S-3/A (File Number 333-112469) and incorporated
herein
by reference).
|
10.29
|
Amendment
No. 2 to Master Reimbursement Agreement by and among Fannie Mae,
Mid-America Apartments, L.P. and Fairways-Columbia, L.P. dated May
30,
2003 (Filed as Exhibit 10.19 to the Registrant’s Registration Statement on
Form S-3/A (File Number 333-112469) and incorporated herein by
reference).
|
10.30
|
Amendment
No. 3 to Master Reimbursement Agreement by and among Fannie Mae,
Mid-America Apartments, L.P., Mid-America Apartment Communities,
Inc. and
Mid-America Apartments of Texas, L.P. dated March 2, 2004 (Filed
as
Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2005 and incorporated herein by
reference).
|
10.31
|
Amendment
No. 4 to Master Reimbursement Agreement by and among Fannie Mae,
Mid-America Apartments, L.P., Mid-America Apartment Communities,
Inc. and
Mid-America Apartments of Texas, L.P. dated November 17, 2005 (Filed
as
Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2005 and incorporated herein by
reference).
|
10.32
|
Amendment
No. 5 to Master Reimbursement Agreement by and among Fannie Mae,
Mid-America Apartments, L.P., Mid-America Apartment Communities,
Inc. and
Mid-America Apartments of Texas, L.P. dated February 23, 2006 (Filed
as
Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2005 and incorporated herein by
reference).
|
10.33
|
Consent,
Modification, Assumption of Indemnity Obligations and Release Agreement
dated November 4, 2004, (Sunset Valley Apartments, Texas) (Filed
as
Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2004 and incorporated herein by
reference).
|
10.34
|
Consent,
Modification, Assumption of Indemnity Obligations and Release Agreement
dated November 4, 2004 (Village Apartments, Texas) (Filed as Exhibit
10.29
to the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2004 and incorporated herein by
reference).
|
10.35
|
Consent,
Modification, Assumption of Indemnity Obligations and Release Agreement
dated November 4, 2004, (Coral Springs Apartments, Florida) (Filed
as
Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2004 and incorporated herein by
reference).
|
10.36
|
Credit
Agreement dated September 28, 1998 by and among Jefferson Village,
L.P.,
Jefferson at Sunset Valley, L.P. and JPI Coral Springs, L.P. (Filed
as
Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2004 and incorporated herein by
reference).
|
10.37
|
Credit
Agreement by and among Mid-America Apartment Communities, Inc.,
Mid-America Apartments L.P. and Mid-America Apartments of Texas,
L.P. and
Financial Federal Savings Bank dated June 29, 2004 (Filed as Exhibit
10.1
to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004 and incorporated herein by reference).
|
10.38
|
Master
Credit Facility Agreement by and among Mid-America Apartments, L.P.,
Mid-America Apartment Communities, Inc., Mid-America Apartments of
Texas,
L.P. and Prudential Multifamily Mortgage, Inc. dated March 2, 2004
(Filed
as Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2005 and incorporated herein by
reference).
|
10.39
|
Amendment
No. 1 to Master Credit Facility Agreement by and among Mid-America
Apartments, L.P., Mid-America Apartment Communities, Inc., Mid-America
Apartments of Texas, L.P. and Prudential Multifamily Mortgage, Inc.
dated
November 17, 2005 (Filed as Exhibit 10.39 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2005 and
incorporated herein by reference).
|
10.40
|
Amendment
No. 2 to Master Credit Facility Agreement by and among Mid-America
Apartments, L.P., Mid-America Apartment Communities, Inc., Mid-America
Apartments of Texas, L.P. and Prudential Multifamily Mortgage, Inc.
dated
February 23, 2006 (Filed as Exhibit 10.40 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2005 and
incorporated herein by reference).
|
10.41
|
Credit
Agreement by and among Mid-America Apartment Communities, Inc.,
Mid-America Apartments L.P. and Mid-America Apartments of Texas,
L.P. and
Financial Federal Savings Bank dated June 2, 2006 (Filed as Exhibit
10 to
the Registrant’s Current Report on Form 8-K filed on June 7, 2006 and
incorporated herein by reference).
|
10.42†
|
Mid-America
Apartment Communities, Inc. Non-Qualified Deferred Compensation Plan
for
Outside Company Directors as Amended Effective January, 1 2005 (Filed
as
Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2004 and incorporated herein by reference).
|
10.43†
|
Mid-America
Apartment Communities Non-Qualified Deferred Compensation Retirement
Plan
as Amended Effective January 1, 2005 (Filed as Exhibit 10.34 to the
Registrant’s Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2004 and incorporated herein by reference).
|
10.44
†
|
Mid-America
Apartment Communities 2005 Key Management Restricted Stock Plan (Filed
as
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May
20, 2005 and incorporated herein by reference).
|
10.45†
|
Form
of Restricted Stock Agreement (Filed as Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K filed on March 11, 2005 and incorporated
herein
by reference).
|
10.46†
|
2006
Executive Annual Bonus Program (Filed as Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed on March 20, 2006 and incorporated
herein
by reference).
|
14
|
Code
of Ethics (Filed as Exhibit 14.1 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2003 and incorporated
herein
by reference).
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
†
Management contract or compensatory plan or
arrangement.
|
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned thereunto duly authorized.
MID-AMERICA
APARTMENT COMMUNITIES, INC.
Date:
August 3, 2006 /s/Simon
R.C. Wadsworth
Simon
R.C. Wadsworth
Executive
Vice President and
Chief
Financial Officer
(Principal
Financial and Accounting Officer)