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 September 30, 2010
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
|
|
MEMPHIS, TENNESSEE
|
38138
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(901)
682-6600
(Registrant's
telephone number, including area code)
N/A
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
þYes ¨ No
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).
þ Yes ¨ No
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of
“accelerated filer,” “large accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act
Large
accelerated filer þ
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨ (Do
not check if a smaller reporting
company)
|
Smaller
Reporting Company ¨
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
¨ Yes þ No
Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:
|
|
Number of Shares Outstanding
|
|
Class
|
|
at October 21, 2010
|
|
Common
Stock, $0.01 par value
|
|
|
34,184,668
|
|
MID-AMERICA
APARTMENT COMMUNITIES, INC.
TABLE
OF CONTENTS
|
|
|
|
Page
|
|
|
PART
I – FINANCIAL INFORMATION
|
|
|
Item
1.
|
|
Financial
Statements.
|
|
3
|
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and
December 31, 2009
|
|
3
|
|
|
Condensed
Consolidated Statements of Operations for the three and nine months ended
September 30, 2010 (Unaudited) and 2009 (Unaudited).
|
|
4
|
|
|
Condensed
Consolidated Statements of Cash Flows for the nine months ended September
30, 2010 (Unaudited) and 2009 (Unaudited).
|
|
5
|
|
|
Notes
to Condensed Consolidated Financial Statements
(Unaudited).
|
|
6
|
Item
2.
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
|
19
|
Item
3.
|
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
|
31
|
Item
4.
|
|
Controls
and Procedures.
|
|
31
|
Item 4T.
|
|
Controls
and Procedures.
|
|
32
|
|
|
|
|
|
|
|
PART
II – OTHER INFORMATION
|
|
|
Item
1.
|
|
Legal
Proceedings.
|
|
32
|
Item 1A.
|
|
Risk
Factors.
|
|
32
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
|
40
|
Item
3.
|
|
Defaults
Upon Senior Securities.
|
|
40
|
Item
4.
|
|
(Removed
and Reserved).
|
|
40
|
Item
5.
|
|
Other
Information.
|
|
40
|
Item
6.
|
|
Exhibits.
|
|
41
|
|
|
Signatures
|
|
42
|
Condensed
Consolidated Balance Sheets
September
30, 2010 (Unaudited) and December 31, 2009
(Dollars
in thousands, except per share data)
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
Assets:
|
|
|
|
|
|
|
Real
estate assets:
|
|
|
|
|
|
|
Land
|
|
$ |
270,980 |
|
|
$ |
255,425 |
|
Buildings
and improvements
|
|
|
2,509,193 |
|
|
|
2,364,918 |
|
Furniture,
fixtures and equipment
|
|
|
81,301 |
|
|
|
73,975 |
|
Capital
improvements in progress
|
|
|
3,735 |
|
|
|
10,517 |
|
|
|
|
2,865,209 |
|
|
|
2,704,835 |
|
Less
accumulated depreciation
|
|
|
(862,662 |
) |
|
|
(788,260 |
) |
|
|
|
2,002,547 |
|
|
|
1,916,575 |
|
|
|
|
|
|
|
|
|
|
Land
held for future development
|
|
|
1,306 |
|
|
|
1,306 |
|
Commercial
properties, net
|
|
|
8,163 |
|
|
|
8,721 |
|
Investments
in real estate joint ventures
|
|
|
15,571 |
|
|
|
8,619 |
|
Real
estate assets, net
|
|
|
2,027,587 |
|
|
|
1,935,221 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
100,091 |
|
|
|
13,819 |
|
Restricted
cash
|
|
|
2,426 |
|
|
|
561 |
|
Deferred
financing costs, net
|
|
|
14,329 |
|
|
|
13,369 |
|
Other
assets
|
|
|
22,519 |
|
|
|
19,731 |
|
Goodwill
|
|
|
4,106 |
|
|
|
4,106 |
|
Assets
held for sale
|
|
|
18,793 |
|
|
|
19 |
|
Total
assets
|
|
$ |
2,189,851 |
|
|
$ |
1,986,826 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
$ |
1,551,203 |
|
|
$ |
1,399,596 |
|
Accounts
payable
|
|
|
2,099 |
|
|
|
1,702 |
|
Fair
market value of interest rate swaps
|
|
|
60,070 |
|
|
|
51,160 |
|
Accrued
expenses and other liabilities
|
|
|
80,030 |
|
|
|
69,528 |
|
Security
deposits
|
|
|
7,181 |
|
|
|
8,789 |
|
Liabilities
associated with assets held for sale
|
|
|
417 |
|
|
|
23 |
|
Total
liabilities
|
|
|
1,701,000 |
|
|
|
1,530,798 |
|
|
|
|
|
|
|
|
|
|
Redeemable
stock
|
|
|
3,368 |
|
|
|
2,802 |
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value per share, 20,000,000 shares authorized, $25 per
share liquidation preference; 8.30% Series H Cumulative Redeemable
Preferred Stock, 6,200,000 shares authorized, 0 and 6,200,000 shares
issued and outstanding at September 30, 2010 and December 31, 2009,
respectively
|
|
|
- |
|
|
|
62 |
|
Common
stock, $0.01 par value per share, 50,000,000 shares authorized; 33,898,029
and 29,095,251 shares issued and outstanding at September 30, 2010 and
December 31, 2009, respectively (1)
|
|
|
338 |
|
|
|
290 |
|
Additional
paid-in capital
|
|
|
1,085,697 |
|
|
|
988,642 |
|
Accumulated
distributions in excess of net income
|
|
|
(559,610 |
) |
|
|
(510,993 |
) |
Accumulated
other comprehensive losses
|
|
|
(60,975 |
) |
|
|
(47,435 |
) |
Total
Mid-America Apartment Communities, Inc. shareholders'
equity
|
|
|
465,450 |
|
|
|
430,566 |
|
Noncontrolling
interest
|
|
|
20,033 |
|
|
|
22,660 |
|
Total
Equity
|
|
|
485,483 |
|
|
|
453,226 |
|
Total
liabilities and equity
|
|
$ |
2,189,851 |
|
|
$ |
1,986,826 |
|
(1)
|
Number
of shares issued and outstanding represent total shares of common stock
regardless of classification on the consolidated balance
sheet. The number of shares classified as redeemable stock on
the consolidated balance sheet for September 30, 2010 and December 31,
2009 are 57,792 and 58,038,
respectively.
|
See
accompanying notes to consolidated financial statements.
Condensed
Consolidated Statements of Operations (Unaudited)
Three
and nine months ended September 30, 2010 and 2009
(Dollars
in thousands, except per share data)
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$ |
92,842 |
|
|
$ |
89,220 |
|
|
$ |
274,199 |
|
|
$ |
268,011 |
|
Other
property revenues
|
|
|
8,356 |
|
|
|
5,701 |
|
|
|
23,073 |
|
|
|
15,009 |
|
Total
property revenues
|
|
|
101,198 |
|
|
|
94,921 |
|
|
|
297,272 |
|
|
|
283,020 |
|
Management
fee income
|
|
|
186 |
|
|
|
78 |
|
|
|
477 |
|
|
|
205 |
|
Total
operating revenues
|
|
|
101,384 |
|
|
|
94,999 |
|
|
|
297,749 |
|
|
|
283,225 |
|
Property
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
13,036 |
|
|
|
12,244 |
|
|
|
38,111 |
|
|
|
35,570 |
|
Building
repairs and maintenance
|
|
|
4,375 |
|
|
|
4,310 |
|
|
|
11,363 |
|
|
|
10,409 |
|
Real
estate taxes and insurance
|
|
|
11,068 |
|
|
|
11,368 |
|
|
|
34,287 |
|
|
|
34,411 |
|
Utilities
|
|
|
6,671 |
|
|
|
6,135 |
|
|
|
17,941 |
|
|
|
16,874 |
|
Landscaping
|
|
|
2,561 |
|
|
|
2,451 |
|
|
|
7,594 |
|
|
|
7,245 |
|
Other
operating
|
|
|
7,429 |
|
|
|
5,629 |
|
|
|
20,047 |
|
|
|
14,845 |
|
Depreciation
|
|
|
26,466 |
|
|
|
23,913 |
|
|
|
76,489 |
|
|
|
71,316 |
|
Total
property operating expenses
|
|
|
71,606 |
|
|
|
66,050 |
|
|
|
205,832 |
|
|
|
190,670 |
|
Acquisition
expenses
|
|
|
989 |
|
|
|
30 |
|
|
|
1,451 |
|
|
|
139 |
|
Property
management expenses
|
|
|
4,547 |
|
|
|
4,007 |
|
|
|
13,303 |
|
|
|
12,751 |
|
General
and administrative expenses
|
|
|
2,957 |
|
|
|
3,163 |
|
|
|
8,878 |
|
|
|
8,306 |
|
Income
from continuing operations before non-operating items
|
|
|
21,285 |
|
|
|
21,749 |
|
|
|
68,285 |
|
|
|
71,359 |
|
Interest
and other non-property income
|
|
|
217 |
|
|
|
161 |
|
|
|
618 |
|
|
|
309 |
|
Interest
expense
|
|
|
(13,598 |
) |
|
|
(14,371 |
) |
|
|
(41,482 |
) |
|
|
(43,072 |
) |
Loss
on debt extinguishment
|
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
|
|
(140 |
) |
Amortization
of deferred financing costs
|
|
|
(675 |
) |
|
|
(587 |
) |
|
|
(1,918 |
) |
|
|
(1,781 |
) |
Asset
impairment
|
|
|
(324 |
) |
|
|
- |
|
|
|
(1,914 |
) |
|
|
- |
|
Net
casualty gains (loss) and other settlement proceeds
|
|
|
350 |
|
|
|
(109 |
) |
|
|
979 |
|
|
|
(253 |
) |
Gain
on sale of non-depreciable assets
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
Income
from continuing operations before loss from real estate joint
ventures
|
|
|
7,255 |
|
|
|
6,842 |
|
|
|
24,568 |
|
|
|
26,423 |
|
Loss
from real estate joint ventures
|
|
|
(282 |
) |
|
|
(288 |
) |
|
|
(856 |
) |
|
|
(640 |
) |
Income
from continuing operations
|
|
|
6,973 |
|
|
|
6,554 |
|
|
|
23,712 |
|
|
|
25,783 |
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before gain on sale
|
|
|
- |
|
|
|
311 |
|
|
|
- |
|
|
|
1,058 |
|
Gain
(loss) on sale of discontinued operations
|
|
|
- |
|
|
|
13 |
|
|
|
(2 |
) |
|
|
2,600 |
|
Consolidated
net income
|
|
|
6,973 |
|
|
|
6,878 |
|
|
|
23,710 |
|
|
|
29,441 |
|
Net
income attributable to noncontrolling interests
|
|
|
224 |
|
|
|
260 |
|
|
|
889 |
|
|
|
1,536 |
|
Net
income attributable to Mid-America Apartment Communities,
Inc.
|
|
|
6,749 |
|
|
|
6,618 |
|
|
|
22,821 |
|
|
|
27,905 |
|
Preferred
dividend distributions
|
|
|
629 |
|
|
|
3,216 |
|
|
|
6,549 |
|
|
|
9,649 |
|
Premiums
and original issuance costs associated with the redemption of preferred
stock
|
|
|
2,576 |
|
|
|
- |
|
|
|
5,149 |
|
|
|
- |
|
Net
income available for common shareholders
|
|
$ |
3,544 |
|
|
$ |
3,402 |
|
|
$ |
11,123 |
|
|
$ |
18,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
33,312 |
|
|
|
28,364 |
|
|
|
31,039 |
|
|
|
28,186 |
|
Effect
of dilutive securities
|
|
|
101 |
|
|
|
77 |
|
|
|
101 |
|
|
|
6 |
|
Diluted
|
|
|
33,413 |
|
|
|
28,441 |
|
|
|
31,140 |
|
|
|
28,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available for common shareholders
|
|
$ |
3,544 |
|
|
$ |
3,402 |
|
|
$ |
11,123 |
|
|
$ |
18,256 |
|
Discontinued
property operations
|
|
|
- |
|
|
|
(324 |
) |
|
|
2 |
|
|
|
(3,658 |
) |
Income
from continuing operations available for common
shareholders
|
|
$ |
3,544 |
|
|
$ |
3,078 |
|
|
$ |
11,125 |
|
|
$ |
14,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations available for common
shareholders
|
|
$ |
0.11 |
|
|
$ |
0.11 |
|
|
$ |
0.36 |
|
|
$ |
0.51 |
|
Discontinued
property operations
|
|
|
- |
|
|
|
0.01 |
|
|
|
- |
|
|
|
0.13 |
|
Net
income available for common shareholders
|
|
$ |
0.11 |
|
|
$ |
0.12 |
|
|
$ |
0.36 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations available for common
shareholders
|
|
$ |
0.11 |
|
|
$ |
0.11 |
|
|
$ |
0.36 |
|
|
$ |
0.51 |
|
Discontinued
property operations
|
|
|
- |
|
|
|
0.01 |
|
|
|
- |
|
|
|
0.13 |
|
Net
income available for common shareholders
|
|
$ |
0.11 |
|
|
$ |
0.12 |
|
|
$ |
0.36 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
|
$ |
0.615 |
|
|
$ |
0.615 |
|
|
$ |
1.845 |
|
|
$ |
1.845 |
|
See
accompanying notes to consolidated financial statements.
Condensed
Consolidated Statements of Cash Flows (Unaudited)
Nine
Months Ended September 30, 2010 and 2009
(Dollars
in thousands)
|
|
2010
|
|
|
2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Consolidated
net income
|
|
$ |
23,710 |
|
|
$ |
29,441 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of deferred financing costs
|
|
|
78,407 |
|
|
|
73,097 |
|
Stock
compensation expense
|
|
|
1,915 |
|
|
|
939 |
|
Redeemable
stock issued
|
|
|
296 |
|
|
|
253 |
|
Amortization
of debt premium
|
|
|
(270 |
) |
|
|
(270 |
) |
Loss
from investments in real estate joint ventures
|
|
|
856 |
|
|
|
640 |
|
Loss
on debt extinguishment
|
|
|
- |
|
|
|
140 |
|
Derivative
interest expense
|
|
|
405 |
|
|
|
685 |
|
Gain
on sale of non-depreciable assets
|
|
|
- |
|
|
|
(1 |
) |
Loss
(gain) on sale of discontinued operations
|
|
|
2 |
|
|
|
(2,600 |
) |
Asset
impairment
|
|
|
1,914 |
|
|
|
- |
|
Net
casualty (gains) loss and other settlement proceeds
|
|
|
(979 |
) |
|
|
253 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
(1,865 |
) |
|
|
(626 |
) |
Other
assets
|
|
|
(4,351 |
) |
|
|
(616 |
) |
Accounts
payable
|
|
|
399 |
|
|
|
(63 |
) |
Accrued
expenses and other
|
|
|
7,775 |
|
|
|
9,846 |
|
Security
deposits
|
|
|
(1,546 |
) |
|
|
(32 |
) |
Net
cash provided by operating activities
|
|
|
106,668 |
|
|
|
111,086 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of real estate and other assets
|
|
|
(215,068 |
) |
|
|
(17,949 |
) |
Improvements
to existing real estate assets
|
|
|
(31,722 |
) |
|
|
(34,326 |
) |
Renovations
to existing real estate assets
|
|
|
(4,763 |
) |
|
|
(6,004 |
) |
Development
|
|
|
- |
|
|
|
(5,340 |
) |
Distributions
from real estate joint ventures
|
|
|
1,607 |
|
|
|
108 |
|
Contributions
to real estate joint ventures
|
|
|
(9,739 |
) |
|
|
(2,729 |
) |
Proceeds
from disposition of real estate assets
|
|
|
71,421 |
|
|
|
14,372 |
|
Net
cash used in investing activities
|
|
|
(188,264 |
) |
|
|
(51,868 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
change in credit lines
|
|
|
15,000 |
|
|
|
35,694 |
|
Proceeds
from notes payable
|
|
|
137,881 |
|
|
|
- |
|
Principal
payments on notes payable
|
|
|
(1,004 |
) |
|
|
(44,323 |
) |
Payment
of deferred financing costs
|
|
|
(7,122 |
) |
|
|
(1,933 |
) |
Repurchase
of common stock
|
|
|
(891 |
) |
|
|
(833 |
) |
Proceeds
from issuances of common shares and units
|
|
|
247,104 |
|
|
|
25,329 |
|
Distributions
to noncontrolling interests
|
|
|
(4,284 |
) |
|
|
(4,604 |
) |
Dividends
paid on common shares
|
|
|
(56,172 |
) |
|
|
(51,836 |
) |
Dividends
paid on preferred shares
|
|
|
(7,622 |
) |
|
|
(9,649 |
) |
Redemption
of preferred stock
|
|
|
(155,022 |
) |
|
|
- |
|
Net
cash provided by (used in) financing activities
|
|
|
167,868 |
|
|
|
(52,155 |
) |
Net
increase in cash and cash equivalents
|
|
|
86,272 |
|
|
|
7,063 |
|
Cash
and cash equivalents, beginning of period
|
|
|
13,819 |
|
|
|
9,426 |
|
Cash
and cash equivalents, end of period
|
|
$ |
100,091 |
|
|
$ |
16,489 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
41,718 |
|
|
$ |
41,054 |
|
Supplemental
disclosure of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Conversion
of units to share of common stock
|
|
$ |
1,219 |
|
|
$ |
196 |
|
Accrued
construction in progress
|
|
$ |
2,165 |
|
|
$ |
2,476 |
|
Interest
capitalized
|
|
$ |
- |
|
|
$ |
173 |
|
Marked-to-market
adjustment on derivative instruments
|
|
$ |
(14,444 |
) |
|
$ |
18,229 |
|
Reclassification
of redeemable stock to liabilities
|
|
$ |
271 |
|
|
$ |
- |
|
See
accompanying notes to consolidated financial statements.
Mid-America
Apartment Communities, Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2010 (Unaudited) and 2009 (Unaudited)
1.
|
Consolidation
and Basis of Presentation
|
Mid-America
Apartment Communities, Inc., or we, is a self-administered real estate
investment trust, or REIT, that owns, acquires, renovates, develops and manages
apartment communities in the Sunbelt region of the United States. As of
September 30, 2010, we owned or owned interests in a total of 155 multifamily
apartment communities comprising 45,841 apartments located in 13 states,
including two communities comprising 626 apartments owned through our joint
venture, Mid-America Multifamily Fund I, LLC, and three communities comprising
1,085 apartments owned through our joint venture, Mid-America Multifamily Fund
II, LLC.
The
accompanying unaudited condensed consolidated financial statements have been
prepared by our management in accordance with U.S. generally accepted accounting
principles for interim financial information and applicable rules and
regulations of the Securities and Exchange Commission, or the SEC, and our
accounting policies in effect as of December 31, 2009 as set forth in our annual
consolidated financial statements, as of such date. The accompanying unaudited
condensed consolidated financial statements include the accounts of Mid-America
Apartment Communities, Inc. and its subsidiaries, including Mid-America
Apartments, L.P. In our opinion, all adjustments necessary for a fair
presentation of the condensed consolidated financial statements have been
included and all such adjustments were of a normal recurring nature. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the three and nine month periods
ended September 30, 2010 are not necessarily indicative of the results to be
expected for the full year. These financial statements should be read in
conjunction with our audited financial statements and notes thereto included in
our Annual Report on Form 10-K filed with the SEC on February 25,
2010.
The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent liabilities at the dates of the financial
statements and the amounts of revenues and expenses during the reporting
periods. Actual amounts realized or paid could differ from those
estimates.
As of
September 30, 2010, we owned or had an ownership interest in 155 multifamily
apartment communities in 13 different states from which we derived all
significant sources of earnings and operating cash flows. Senior management
evaluates performance and determines resource allocations by reviewing apartment
communities individually and in the following reportable operating
segments:
|
·
|
Large
market same store communities are generally communities in markets with a
population of at least 1 million that we have owned and have been
stabilized for at least a full 12 months and have not been classified as
held for sale.
|
|
·
|
Secondary
market same store communities are generally communities in markets with
populations of less than 1 million that we have owned and have been
stabilized for at least a full 12 months and have not been classified as
held for sale.
|
|
·
|
Non
same store communities and other includes recent acquisitions, communities
in development or lease-up, communities that have been classified as held
for sale and non multifamily activities which represent less than 1% of
our portfolio.
|
On the
first day of each calendar year, we determine the composition of our same store
operating segments for that year, which allows us to evaluate full
period-over-period operating comparisons. We utilize net operating income,
or NOI, in evaluating the performance. Total NOI represents total
property revenues less total property operating expenses, excluding
depreciation, for all properties held during the period regardless of their
status as held for sale. We believe NOI is a helpful tool in evaluating the
operating performance of our segments because it measures the core operations of
property performance by excluding corporate level expenses and other items not
related to property operating performance.
Revenues
and NOI for each reportable segment for the three and nine month periods ended
September 30, 2010 and 2009, were as follows (dollars in
thousands):
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Large
Market Same Store
|
|
$ |
44,942 |
|
|
$ |
44,910 |
|
|
$ |
134,118 |
|
|
$ |
135,321 |
|
Secondary
Market Same Store
|
|
|
43,670 |
|
|
|
42,774 |
|
|
|
130,111 |
|
|
|
127,782 |
|
Non-Same
Store and Other
|
|
|
12,586 |
|
|
|
7,237 |
|
|
|
33,043 |
|
|
|
19,917 |
|
Total
property revenues
|
|
|
101,198 |
|
|
|
94,921 |
|
|
|
297,272 |
|
|
|
283,020 |
|
Management
fee income
|
|
|
186 |
|
|
|
78 |
|
|
|
477 |
|
|
|
205 |
|
Total
operating revenues
|
|
$ |
101,384 |
|
|
$ |
94,999 |
|
|
$ |
297,749 |
|
|
$ |
283,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large
Market Same Store
|
|
$ |
24,791 |
|
|
$ |
24,938 |
|
|
$ |
75,069 |
|
|
$ |
78,212 |
|
Secondary
Market Same Store
|
|
|
24,337 |
|
|
|
24,172 |
|
|
|
74,160 |
|
|
|
74,464 |
|
Non-Same
Store and Other
|
|
|
6,930 |
|
|
|
4,001 |
|
|
|
18,700 |
|
|
|
12,106 |
|
Total
NOI
|
|
|
56,058 |
|
|
|
53,111 |
|
|
|
167,929 |
|
|
|
164,782 |
|
Discontinued
operations NOI included above
|
|
|
- |
|
|
|
(327 |
) |
|
|
- |
|
|
|
(1,116 |
) |
Management
fee income
|
|
|
186 |
|
|
|
78 |
|
|
|
477 |
|
|
|
205 |
|
Depreciation
|
|
|
(26,466 |
) |
|
|
(23,913 |
) |
|
|
(76,489 |
) |
|
|
(71,316 |
) |
Acquisition
expense
|
|
|
(989 |
) |
|
|
(30 |
) |
|
|
(1,451 |
) |
|
|
(139 |
) |
Property
management expense
|
|
|
(4,547 |
) |
|
|
(4,007 |
) |
|
|
(13,303 |
) |
|
|
(12,751 |
) |
General
and administrative expense
|
|
|
(2,957 |
) |
|
|
(3,163 |
) |
|
|
(8,878 |
) |
|
|
(8,306 |
) |
Interest
and other non-property income
|
|
|
217 |
|
|
|
161 |
|
|
|
618 |
|
|
|
309 |
|
Interest
expense
|
|
|
(13,598 |
) |
|
|
(14,371 |
) |
|
|
(41,482 |
) |
|
|
(43,072 |
) |
Gain
(loss) on debt extinguishment
|
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
|
|
(140 |
) |
Amortization
of deferred financing costs
|
|
|
(675 |
) |
|
|
(587 |
) |
|
|
(1,918 |
) |
|
|
(1,781 |
) |
Asset
impairment
|
|
|
(324 |
) |
|
|
- |
|
|
|
(1,914 |
) |
|
|
- |
|
Net
casualty gains (loss) and other settlement proceeds
|
|
|
350 |
|
|
|
(109 |
) |
|
|
979 |
|
|
|
(253 |
) |
Gain
on sale of non-depreciable assets
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
Loss
from real estate joint ventures
|
|
|
(282 |
) |
|
|
(288 |
) |
|
|
(856 |
) |
|
|
(640 |
) |
Discontinued
operations
|
|
|
- |
|
|
|
324 |
|
|
|
(2 |
) |
|
|
3,658 |
|
Net
income attributable to noncontrolling interests
|
|
|
(224 |
) |
|
|
(260 |
) |
|
|
(889 |
) |
|
|
(1,536 |
) |
Net
income attributable to Mid-America Apartment Communities,
Inc.
|
|
$ |
6,749 |
|
|
$ |
6,618 |
|
|
$ |
22,821 |
|
|
$ |
27,905 |
|
Assets
for each reportable segment as of September 30, 2010 and December 31, 2009, were
as follows (dollars in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
Large
Market Same Store
|
|
$ |
915,932 |
|
|
$ |
934,182 |
|
Secondary
Market Same Store
|
|
|
657,347 |
|
|
|
672,692 |
|
Non-Same
Store and Other
|
|
|
567,508 |
|
|
|
336,683 |
|
Corporate
assets
|
|
|
49,064 |
|
|
|
43,269 |
|
Total
assets
|
|
$ |
2,189,851 |
|
|
$ |
1,986,826 |
|
3.
|
Comprehensive
Income and Equity
|
Total
comprehensive income, equity and their components for the nine month periods
ended September 30, 2010, and 2009, were as follows (dollars in thousands,
except per share and per unit data):
|
|
|
|
|
|
|
|
Mid-America Apartment Communities, Inc.
Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Distributions
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
in Excess of
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
|
Total
|
|
|
Income
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Net Income
|
|
|
Loss
|
|
|
Interest
|
|
EQUITY
AT DECEMBER 31, 2009
|
|
$ |
453,226 |
|
|
|
|
|
$ |
62 |
|
|
$ |
290 |
|
|
$ |
988,642 |
|
|
$ |
(510,993 |
) |
|
$ |
(47,435 |
) |
|
$ |
22,660 |
|
Equity
Activity Excluding Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
and registration of common shares
|
|
|
247,008 |
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
246,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
repurchased and retired
|
|
|
(891 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(891 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in exchange for units
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,219 |
|
|
|
|
|
|
|
|
|
|
|
(1,219 |
) |
Redeemable
stock fair market value
|
|
|
(539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(539 |
) |
|
|
|
|
|
|
|
|
Adjustment
for Noncontrolling Interest Ownership in operating
partnership
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,418 |
) |
|
|
|
|
|
|
|
|
|
|
2,418 |
|
Amortization
of unearned compensation
|
|
|
1,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on common stock ($1.845 per share)
|
|
|
(59,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,201 |
) |
|
|
|
|
|
|
|
|
Dividends
on noncontrolling interest units ($1.845 per unit)
|
|
|
(4,215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,215 |
) |
Redemption
of preferred stock
|
|
|
(155,022 |
) |
|
|
|
|
|
(62 |
) |
|
|
|
|
|
|
(149,811 |
) |
|
|
(5,149 |
) |
|
|
|
|
|
|
|
|
Dividends
on preferred stock
|
|
|
(6,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,549 |
) |
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
23,710 |
|
|
|
23,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,821 |
|
|
|
|
|
|
|
889 |
|
Other comprehensive
loss - derivative instruments (cash flow hedges) (1)
|
|
|
(14,040 |
) |
|
|
(14,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,540 |
) |
|
|
(500 |
) |
Comprehensive
income
|
|
|
9,670 |
|
|
|
9,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
BALANCE SEPTEMBER 30, 2010
|
|
$ |
485,483 |
|
|
|
|
|
|
$ |
- |
|
|
$ |
338 |
|
|
$ |
1,085,697 |
|
|
$ |
(559,610 |
) |
|
$ |
(60,975 |
) |
|
$ |
20,033 |
|
(1) Total
other comprehensive loss – derivative instruments (cash flow hedges) for the
three months ended September 30, 2010 was a loss of $4,277, consisting of a $137
loss attributable to noncontrolling interests and a loss of $4,140 attributable
to Mid-America Apartment Communities, Inc.
|
|
|
|
|
|
|
|
Mid-America Apartment Communities, Inc.
Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Distributions
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
in Excess of
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
|
Total
|
|
|
Income
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Net Income
|
|
|
Income (Loss)
|
|
|
Interest
|
|
EQUITY
AT DECEMBER 31, 2008
|
|
$ |
442,617 |
|
|
|
|
|
$ |
62 |
|
|
$ |
282 |
|
|
$ |
954,127 |
|
|
$ |
(464,617 |
) |
|
$ |
(72,885 |
) |
|
$ |
25,648 |
|
Equity
Activity Excluding Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
and registration of common shares
|
|
|
25,286 |
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
25,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
repurchased and retired
|
|
|
(833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in exchange for units
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
(196 |
) |
Redeemable
stock fair market value
|
|
|
(464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(464 |
) |
|
|
|
|
|
|
|
|
Adjustment
for Noncontrolling Interest Ownership in operating
partnership
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(521 |
) |
|
|
|
|
|
|
|
|
|
|
521 |
|
Amortization
of unearned compensation
|
|
|
966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on common stock ($1.845 per share)
|
|
|
(52,215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,215 |
) |
|
|
|
|
|
|
- |
|
Dividends
on noncontrolling interest units ($1.845 per unit)
|
|
|
(4,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,593 |
) |
Dividends
on preferred stock
|
|
|
(9,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,649 |
) |
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
29,441 |
|
|
|
29,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,905 |
|
|
|
|
|
|
|
1,536 |
|
Other comprehensive
income - derivative instruments (cash flow hedges) (2)
|
|
|
18,914 |
|
|
|
18,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,795 |
|
|
|
1,119 |
|
Comprehensive
income
|
|
|
48,355 |
|
|
|
48,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
BALANCE SEPTEMBER 30, 2009
|
|
$ |
449,515 |
|
|
|
|
|
|
$ |
62 |
|
|
$ |
288 |
|
|
$ |
979,260 |
|
|
$ |
(499,040 |
) |
|
$ |
(55,090 |
) |
|
$ |
24,035 |
|
(2) Total
other comprehensive income – derivative instruments (cash flow hedges) for the
three months ended September 30, 2010 was a loss of $5,063, consisting of a
$191 loss attributable to noncontrolling interests and a loss of $4,872
attributable to Mid-America Apartment Communities, Inc.
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.
|
Real
Estate Acquisitions
|
The
following communities were purchased during the first nine months of
2010:
|
|
Location
|
|
Number
|
|
|
Community
|
|
(Metropolitan Statistical Area: MSA)
|
|
of Units
|
|
Date Purchased
|
100%
Owned Communities
|
|
|
|
|
|
|
Grand
Cypress (1)
|
|
Cypress,
TX (Houston)
|
|
312
|
|
April
30, 2010
|
535
Brookwood
|
|
Simpsonville,
SC (Greenville)
|
|
256
|
|
June
24, 2010
|
Avondale
at Kennesaw Farms
|
|
Gallatin,
TN (Nashville)
|
|
288
|
|
June
29, 2010
|
Verandas
at Sam Ridley
|
|
Smyrna,
TN (Nashville)
|
|
336
|
|
August
12, 2010
|
Hue
|
|
Raleigh,
NC (Raleigh)
|
|
208
|
|
August
17, 2010
|
Times
Square at Craig Ranch
|
|
McKinney,
TX (Dallas)
|
|
313
|
|
August
26, 2010
|
La
Valencia at Starwood
|
|
Frisco,
TX (Dallas)
|
|
270
|
|
August
27, 2010
|
The
Venue at Stonebridge Ranch
(2)
|
|
McKinney,
TX (Dallas)
|
|
250
|
|
September
1, 2010
|
|
|
|
|
2,233
|
|
|
(1) On
July 13, 2010, we contributed Grand Cypress to Mid-America Multifamily Fund II,
LLC, one of our joint ventures.
(2) The
Venue at Stonebridge Ranch is classified as held for sale in our financial
statements because it was acquired with the intention of contributing the
community to Mid-America Multifamily Fund II, LLC, one of our joint
ventures. We plan to make this contribution in the fourth
quarter of 2010 when the permanent financing is completed.
On August
27, 2008, we purchased 215 units of the 234-unit Village Oaks apartments located
in the Tampa, Florida MSA. The remaining 19 units had previously been sold as
condominiums and we intend to acquire these units if they become available, and
operate them as apartment rentals with the rest of the community. During the
remainder of 2008 and during 2009, we acquired 11 of the remaining 19
units. During the first nine months of 2010, we have purchased an
additional two units.
5.
|
Discontinued
Operations
|
As part
of our portfolio strategy to selectively dispose of mature assets that no longer
meet our investment criteria and long-term strategic objectives, in July 2008,
we entered into marketing contracts to list the 440-unit River Trace apartments
in Memphis, Tennessee, the 96-unit Riverhills apartments in Grenada,
Mississippi, and the 304-unit Woodstream apartments in Greensboro, North
Carolina. All of these apartments were subsequently sold during 2009. In
accordance with accounting standards governing the disposal of long lived
assets, all of
these communities are considered discontinued operations in the accompanying
condensed consolidated financial statements.
The
following is a summary of discontinued operations for the three and nine month
periods ended September 30, 2010 and 2009, (dollars in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$ |
- |
|
|
$ |
728 |
|
|
$ |
- |
|
|
$ |
2,480 |
|
Other
revenues
|
|
|
- |
|
|
|
48 |
|
|
|
- |
|
|
|
101 |
|
Total
revenues
|
|
|
- |
|
|
|
776 |
|
|
|
- |
|
|
|
2,581 |
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses
|
|
|
- |
|
|
|
449 |
|
|
|
- |
|
|
|
1,465 |
|
Interest
expense
|
|
|
- |
|
|
|
16 |
|
|
|
- |
|
|
|
58 |
|
Total
expense
|
|
|
- |
|
|
|
465 |
|
|
|
- |
|
|
|
1,523 |
|
Income
from discontinued operations before gain on sale
|
|
|
- |
|
|
|
311 |
|
|
|
- |
|
|
|
1,058 |
|
Gain
(loss) on sale of discontinued operations
|
|
|
- |
|
|
|
13 |
|
|
|
(2 |
) |
|
|
2,600 |
|
Income
from discontinued operations
|
|
$ |
- |
|
|
$ |
324 |
|
|
$ |
(2 |
) |
|
$ |
3,658 |
|
6.
|
Share
and Unit Information
|
On
September 30, 2010, 33,898,029 common shares and 2,195,654 operating partnership
units were outstanding, representing a total of 36,093,683 shares and units.
Additionally, we had outstanding options for the purchase of 19,357 shares of
common stock at September 30, 2010, of which 8,795 were anti-dilutive. At
September 30, 2009, 28,835,783 common shares and 2,386,188 operating partnership
units were outstanding, representing a total of 31,221,971 shares and units.
Additionally, Mid-America had outstanding options for the purchase of 23,507
shares of common stock at September 30, 2009, of which 14,348 were
anti-dilutive.
On
November 3, 2006, we entered into a sales agreement with Cantor Fitzgerald &
Co. to sell up to 2,000,000 shares of our common stock, from time to time in
at-the-market offerings or negotiated transactions through a controlled equity
offering program. On July 3, 2008, and November 5, 2009, we entered into second
and third sales agreements with Cantor Fitzgerald & Co. with materially the
same terms for an additional 1,350,000 shares and 4,000,000 shares,
respectively. On August 26, 2010, we entered into sales agreements with Cantor
Fitzgerald & Co., Raymond James & Associates, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated with materially the same
terms as our previous at-the-market agreements for a combined total of 6,000,000
shares of our common stock.
During
the three months ended September 30, 2010, we issued 1,039,400 shares of common
stock through our at-the-market, or ATM, programs for net proceeds of $55.0
million. During the nine months ended September 30, 2010, we issued a total of
4,114,000 shares of common stock through our ATM programs for net proceeds of
$216.5 million.
During
the three months ended September 30, 2010, we issued 551,082 shares of common
stock through our Dividend and Distribution Reinvestment and Share Purchase
Program, or DRSPP. The shares were issued through a one-time waiver to the
optional cash purchase feature of the DRSPP. The issuance resulted in net
proceeds of $30.0 million.
On June
2, 2010, we redeemed 3,100,001 shares of the 6,200,000 issued and outstanding
shares of our 8.30% Series H Cumulative Redeemable Preferred Stock, or Series H.
On August 5, 2010, we redeemed the remaining 3,099,999 shares of the issued and
outstanding Series H. The Series H shares were redeemed for a $25 per share
redemption price plus any accrued and unpaid dividends through and including the
respective redemption date. The redemptions were funded by proceeds through
issuances of our common shares through our ATM and DRSPP programs.
On
September 30, 2010, we had total indebtedness of $1.6 billion, compared to $1.4
billion as of December 31, 2009. Our indebtedness as of September 30, 2010
consisted of both conventional and tax exempt debt. Borrowings were made through
individual property mortgages as well as company-wide secured credit
facilities.
As of
September 30, 2010, approximately 85% of our outstanding debt was borrowed
through secured credit facility relationships with Prudential Mortgage Capital,
which are credit enhanced by the Federal National Mortgage Association, or FNMA,
Financial Federal, which are credit enhanced by the Federal Home Loan Mortgage
Corporation, or Freddie Mac, and a $50 million bank facility with a syndicate of
banks.
We
utilize interest rate swaps and interest rate caps to help manage our current
and future interest rate risk and entered into 31 interest rate swaps and 21
interest rate caps as of September 30, 2010, representing notional amounts of
$785 million and $271 million, respectively.
The
following table summarizes our debt structure as of September 30, 2010 (dollars
in thousands):
|
|
Borrowed
|
|
|
Effective
|
|
|
Contract
|
|
|
Balance
|
|
|
Rate
|
|
|
Maturity
|
Fixed
Rate Debt
|
|
|
|
|
|
|
|
|
Individual
property mortgages
|
|
$ |
206,853 |
|
|
|
5.0 |
% |
|
2/25/2020
|
Tax-exempt
|
|
|
11,070 |
|
|
|
5.3 |
% |
|
12/1/2028
|
FNMA
conventional credit facilities
|
|
|
50,000 |
|
|
|
4.7 |
% |
|
3/31/2017
|
Credit
facility balances managed with interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
LIBOR-based
interest rate swaps
|
|
|
767,000 |
|
|
|
5.3 |
% |
|
1/2/2013
|
SIFMA-based
interest rate swaps
|
|
|
17,800 |
|
|
|
4.4 |
% |
|
10/15/2012
|
Total
fixed rate debt
|
|
|
1,052,723 |
|
|
|
5.2 |
% |
|
10/10/2014
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate Debt (1)
|
|
|
|
|
|
|
|
|
|
|
FNMA
conventional credit facilities
|
|
|
329,318 |
|
|
|
0.8 |
% |
|
11/19/2014
|
FNMA
tax-free credit facilities
|
|
|
72,715 |
|
|
|
1.1 |
% |
|
3/1/2014
|
Feddie
Mac credit facilities
|
|
|
81,247 |
|
|
|
0.8 |
% |
|
6/28/2013
|
Freddie
Mac mortgage
|
|
|
15,200 |
|
|
|
3.7 |
% |
|
12/10/2015
|
Total
variable rate debt
|
|
|
498,480 |
|
|
|
1.0 |
% |
|
8/1/2014
|
|
|
|
|
|
|
|
|
|
|
|
Total
Outstanding Debt
|
|
$ |
1,551,203 |
|
|
|
3.8 |
% |
|
9/18/2014
|
(1)
Includes capped balances.
8.
|
Derivatives
and Hedging Activities
|
Risk
Management Objective of Using Derivatives
We are
exposed to certain risk arising from both our business operations and economic
conditions. We principally manage our exposures to a wide variety of business
and operational risks through management of our core business activities. We
manage economic risks, including interest rate, liquidity and credit risk
primarily by managing the amount, sources and duration of our debt funding and
the use of derivative financial instruments. Specifically, we enter into
derivative financial instruments to manage exposures that arise from business
activities that result in the payment of future contractual and forecasted cash
amounts, principally related to our borrowings, the value of which are
determined by changing interest rates.
Cash
Flow Hedges of Interest Rate Risk
Our
objectives in using interest rate derivatives are to add stability to interest
expense and to manage our exposure to interest rate movements. To accomplish
this objective, we use interest rate swaps and interest rate caps as part of our
interest rate risk management strategy. Interest rate swaps designated as cash
flow hedges involve the receipt of variable amounts from a counterparty in
exchange for us making fixed-rate payments over the life of the agreements
without exchange of the underlying notional amount. Interest rate caps
designated as cash flow hedges involve the receipt of variable amounts from a
counterparty if interest rates rise above the strike rate on the contract in
exchange for an up front premium.
The
effective portion of changes in the fair value of derivatives designated and
that qualify as cash flow hedges is recorded in accumulated other comprehensive
income and is subsequently reclassified into earnings in the period that the
hedged forecasted transaction affects earnings. During the three and nine months
ended September 30, 2010 and 2009, such derivatives were used to hedge the
variable cash flows associated with existing variable-rate debt. The
ineffective portion of the change in fair value of the derivatives is recognized
directly in earnings. During the three months ended September 30, 2010 and 2009,
we recorded ineffectiveness of $86,000 and $68,000, respectively, and during the
nine months ended September 30, 2010 and 2009, $346,000 and $744,000,
respectively, as an increase to interest expense attributable to a mismatch in
the underlying indices of the derivatives and the hedged interest payments made
on our variable-rate debt.
We also
have nine interest rate caps, totaling a notional amount of $56.3
million, where only the changes in intrinsic value are recorded in accumulated
other comprehensive income. Changes in fair value of these interest
rate caps due to changes in time value (e.g. volatility, passage of time, etc.)
are excluded from effectiveness testing and are recognized directly in
earnings. During the three months ended September 30, 2010 and 2009,
we recorded a loss of $7,000 and a gain of less than $1,000, respectively, and
during the nine months ended September 30, 2010 and 2009, a loss of $37,000 and
a gain of $109,000, respectively, due to changes in the time value of these
interest rate caps.
Amounts
reported in accumulated other comprehensive income related to derivatives
designated in qualifying cash flow hedges will be reclassified to interest
expense as interest payments are made on our variable-rate debt. During the next
twelve months, we estimate that an additional $28.9 million will be reclassified
to earnings as an increase to interest expense, which primarily represents the
difference between our fixed interest rate swap payments and the projected
variable interest rate swap payments.
As of
September 30, 2010 we had the following outstanding interest rate derivatives
that were designated as cash flow hedges of interest rate risk:
Interest Rate Derivative
|
|
Number of Instruments
|
|
|
Notional
|
|
Interest
Rate Caps
|
|
21
|
|
|
$ |
270,651,000 |
|
Interest
Rate Swaps
|
|
31
|
|
|
$ |
784,800,000 |
|
Non-designated
Hedges
We do not
use derivatives for trading or speculative purposes and currently do not have
any derivatives that are not designated as qualifying accounting hedges under
ASC 815.
Tabular
Disclosure of Fair Values of Derivative Instruments on the Balance
Sheet
The table
below presents the fair value of our derivative financial instruments as well as
their classification on the Condensed Consolidated Balance Sheet as of September
30, 2010 and December 31, 2009, respectively:
Fair
Values of Derivative Instruments on the Condensed Consolidated Balance Sheet as
of
September
30, 2010 and December 31, 2009 (dollars in thousands)
|
|
Asset Derivatives
|
|
Liability Derivative
|
|
|
|
|
|
30-Sep-10
|
|
|
31-Dec-09
|
|
|
|
30-Sep-10
|
|
|
31-Dec-09
|
|
|
|
Balance
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
Derivatives designated as
|
|
Sheet
|
|
|
|
|
|
|
Sheet
|
|
|
|
|
|
|
hedging instruments
|
|
Location
|
|
Fair Value
|
|
|
Fair Value
|
|
Location
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
Other
assets
|
|
$ |
2,140 |
|
|
$ |
3,430 |
|
Fair
market value
of interest rate swaps
|
|
$ |
60,070 |
|
|
$ |
51,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives designated as hedging instruments
|
|
|
|
$ |
2,140 |
|
|
$ |
3,430 |
|
|
|
$ |
60,070 |
|
|
$ |
51,160 |
|
Tabular
Disclosure of the Effect of Derivative Instruments on the Statements of
Operations
The
tables below present the effect of our derivative financial instruments on the
Condensed Consolidated Statement of Operations for the three and nine months
ended September 30, 2010 and 2009, respectively.
Effect
of Derivative Instruments on the Condensed Consolidated Statements of Operations
for the
Three
and Nine months ended September 30, 2010 and 2009 (dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss Recognized in
|
|
Amount of Gain or
|
|
|
|
|
|
|
|
|
|
Location of Gain
|
|
Amount of Gain or
|
|
|
Income on Derivative
|
|
(Loss) Recognized in
|
|
|
|
Amount of Gain or (Loss)
|
|
|
or (Loss)
|
|
(Loss) Reclassified
|
|
|
(Ineffective Portion
|
|
Income on Derivative
|
|
|
|
Recognized in OCI on
|
|
|
Reclassified from
|
|
from Accumulated OCI
|
|
|
and Amount
|
|
(Ineffective Portion and
|
|
|
|
Derivative (Effective
|
|
|
Accumulated OCI
|
|
into Income (Effective
|
|
|
Excluded from
|
|
Amount Excluded from
|
|
Derivatives in Cash Flow
|
|
Portion)
|
|
|
into Income
|
|
Portion)
|
|
|
Effectiveness
|
|
Effectiveness Testing)
|
|
Hedging Relationships
|
|
2010
|
|
|
2009
|
|
|
(Effective Portion)
|
|
2010
|
|
|
2009
|
|
|
Testing)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
$ |
(12,241 |
) |
|
$ |
(13,751 |
) |
|
Interest
expense
|
|
$ |
(7,964 |
) |
|
$ |
(8,688 |
) |
|
Interest
expense
|
|
$ |
(93 |
) |
|
$ |
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives in cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
hedging
relationships
|
|
$ |
(12,241 |
) |
|
$ |
(13,751 |
) |
|
|
|
$ |
(7,964 |
) |
|
$ |
(8,688 |
) |
|
|
|
$ |
(93 |
) |
|
$ |
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
$ |
(40,030 |
) |
|
$ |
(3,699 |
) |
|
Interest
expense
|
|
$ |
(25,991 |
) |
|
$ |
(22,612 |
) |
|
Interest
expense
|
|
$ |
(383 |
) |
|
$ |
(635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives in cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
hedging
relationships
|
|
$ |
(40,030 |
) |
|
$ |
(3,699 |
) |
|
|
|
$ |
(25,991 |
) |
|
$ |
(22,612 |
) |
|
|
|
$ |
(383 |
) |
|
$ |
(635 |
) |
Credit-risk-related
Contingent Features
As of
September 30, 2010, derivatives that were in a net liability position and
subject to credit-risk-related contingent features had a termination value of
$65.8 million, which includes accrued interest but excludes any adjustment for
nonperformance risk. These derivatives had a fair value, gross of asset
positions, of $60.1 million at September 30, 2010.
Certain
of our derivative contracts contain a provision where if we default on any of
our indebtedness, including default where repayment of the
indebtedness has not been accelerated by the lender, then we could also be
declared in default on our derivative obligations. As of September 30, 2010, we
had not breached the provisions of these agreements. If we had
breached these provisions, we could have been required to settle our obligations
under the agreements at their termination value of $24.0 million.
Certain
of our derivative contracts are credit enhanced by either FNMA or Freddie
Mac. These derivative contracts require that our credit enhancing
party maintain credit ratings above a certain level. If our credit
support providers were downgraded below Baa1 by Moody’s or BBB+ by Standard
& Poor’s, or S&P, we may be required to either post 100 percent
collateral or settle the obligations at their termination value of $65.8 million
as of September 30, 2010. Both FNMA and Freddie Mac are currently
rated Aaa by Moody’s and AAA by S&P, and therefore, the provisions of this
agreement have not been breached and no collateral has been posted related to
these agreements as of September 30, 2010.
Although
our derivative contracts are subject to master netting arrangements, which serve
as credit mitigants to both us and our counterparties under certain situations,
we do not net our derivative fair values or any existing rights or obligations
to cash collateral on the consolidated balance sheet.
See also
discussions in Item 1. Financial Statements – Notes to Consolidated Financial
Statements, Note 9.
9.
|
Fair
Value Disclosure of Financial
Instruments
|
Cash and
cash equivalents, restricted cash, accounts payable, accrued expenses and other
liabilities and security deposits are carried at amounts that reasonably
approximate their fair value due to their short term nature.
Fixed
rate notes payable at September 30, 2010 and December 31, 2009, totaled $268
million and $81 million, respectively, and had estimated fair values of $254
million and $74 million (excluding prepayment penalties), respectively, based
upon interest rates available for the issuance of debt with similar terms and
remaining maturities as of September 30, 2010 and December 31, 2009. The
carrying value of variable rate notes payable (excluding the effect of interest
rate swap and cap agreements) at September 30, 2010 and December 31, 2009,
totaled $1,283 million and $1,318 million, respectively, and had estimated fair
values of $1,189 million and $1,193 million (excluding prepayment penalties),
respectively, based upon interest rates available for the issuance of debt with
similar terms and remaining maturities as of September 30, 2010 and December 31,
2009.
On
January 1, 2008, we adopted FASB ASC 820 Fair Value Measurements and
Disclosures, or ASC 820. ASC 820 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. ASC 820 applies to reported balances that are
required or permitted to be measured at fair value under existing accounting
pronouncements; accordingly, the standard does not require any new fair value
measurements of reported balances.
ASC 820
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. Therefore, a fair value measurement should be determined
based on the assumptions that market participants would use in pricing the asset
or liability. As a basis for considering market participant
assumptions in fair value measurements, ASC 820 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the
hierarchy).
Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities that we have the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs may include
quoted prices for similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and yield curves that
are observable at commonly quoted intervals. Level 3 inputs are unobservable
inputs for the asset or liability, which are typically based on an entity’s own
assumptions, as there is little, if any, related market activity. In instances
where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its
entirety. Our assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment, and considers factors
specific to the asset or liability.
Derivative financial
instruments
Currently,
we use interest rate swaps and interest rate caps (options) to manage our interest
rate risk. The valuation of these
instruments is determined using widely accepted valuation techniques, including
discounted cash flow analysis on the expected cash flows of each derivative.
This analysis reflects the contractual terms of the derivatives, including the
period to maturity, and uses observable market-based inputs, including interest
rate curves and implied volatilities. The fair values of interest rate swaps are
determined using the market standard methodology of netting the discounted
future fixed cash receipts (or payments) and the discounted expected variable
cash payments (or receipts). The variable cash payments (or receipts) are based
on an expectation of future interest rates (forward curves) derived from
observable market interest rate curves.
The fair
values of interest rate options are determined using the market standard
methodology of discounting the future expected cash receipts that would
occur if variable interest rates rise above the strike rate of the caps. The
variable interest rates used in the calculation of projected receipts on the cap
are based on an expectation of future interest rates derived from observable
market interest rate curves and volatilities.
To comply
with the provisions of ASC 820, we incorporate credit valuation adjustments to
appropriately reflect both our own nonperformance risk and the respective
counterparty’s nonperformance risk in the fair value measurements. In adjusting
the fair value of our derivative contracts for the effect of nonperformance
risk, we have considered the impact of netting and any applicable credit
enhancements, such as collateral postings, thresholds, mutual puts and
guarantees.
Although
we have determined that the majority of the inputs used to value our
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with our derivatives utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the likelihood of
default by ourself and our counterparties. In prior periods, we classified our
derivative valuations within the Level 3 fair value hierarchy because those
valuations contain certain Level 3 inputs (e.g. credit spreads). Commencing with
the nine months ended September 30, 2010, we determined that the significance of
the impact of the credit valuation adjustments made to our derivative contracts,
which determination was based on the fair value of each individual contract, was
not significant to the overall valuation. As a result, all of our derivatives
held as of September 30, 2010 were classified as Level 2 of the fair value
hierarchy or transferred from Level 3 to Level 2 at the beginning of the nine
months ended September 30, 2010.
The table
below presents a reconciliation of the beginning and ending balances of assets
and liabilities having fair value measurements based on significant other
observable inputs (Level 2) and significant unobservable inputs (Level 3) for
the nine months ended September 30, 2010.
Reconciliation
of Level 2 and Level 3 Fair Value Measurements for the
Nine
months ended September 30, 2010 (dollars in thousands)
|
|
Assets
|
|
|
Liabilities
|
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
fair value as of 12/31/2009
|
|
|
-
|
|
|
|
3,430
|
|
|
|
-
|
|
|
|
51,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
in
|
|
|
3,430
|
|
|
|
-
|
|
|
|
51,160
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase,
issuances and settlements
|
|
|
4,243
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
out
|
|
|
-
|
|
|
|
(3,430
|
)
|
|
|
-
|
|
|
|
(51,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loss
|
|
|
(5,533
|
)
|
|
|
-
|
|
|
|
(8,910
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
fair value as of 9/30/2010
|
|
|
2,140
|
|
|
|
-
|
|
|
|
60,070
|
|
|
|
-
|
|
The table
below presents our assets and liabilities measured at fair value on a recurring
basis as of September 30, 2010 and December 31, 2009, aggregated by the level in
the fair value hierarchy within which those measurements fall.
Assets
and Liabilities Measured at Fair Value on a Recurring Basis at September 30,
2010
(dollars
in thousands)
|
|
Quoted Prices in
Active Markets
for Identical
Assets and Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Balance at
September 30,
2010
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
— |
|
|
$ |
2,140 |
|
|
$ |
— |
|
|
$ |
2,140 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
— |
|
|
$ |
60,070 |
|
|
$ |
— |
|
|
$ |
60,070 |
|
Assets
and Liabilities Measured at Fair Value on a Recurring Basis at December 31,
2009
(dollars
in thousands)
|
|
Quoted Prices in
Active Markets
for Identical
Assets and Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Balance at
December 31,
2009
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,430 |
|
|
$ |
3,430 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
51,160 |
|
|
$ |
51,160 |
|
The fair
value estimates presented herein are based on information available to
management as of September 30, 2010 and December 31, 2009. These
estimates are not necessarily indicative of the amounts we could ultimately
realize. See also discussions in Item 1. Financial Statements – Notes
to Consolidated Financial Statements, Note 8.
During
the nine months ended September 30, 2010, we received an offer to purchase our
276-unit Cedar Mill apartment community. As a result of the offer received and
management’s reconsideration of its long-term intentions related to this
property, MAA determined that an impairment indicator existed. As the estimated
undiscounted future cash flows were no longer sufficient to recover the asset
carrying amount, we recorded an impairment charge of $1,914,000 during the nine
months ended September 30, 2010 to adjust the asset carrying value to estimated
fair value. The operations of the Cedar Mill community are included in our
secondary market same store operating segment.
11.
|
Recent
Accounting Pronouncements
|
Impact
of Recently Issued Accounting Standards
In June
2009, the FASB issued ASC 105-10, Generally Accepted Accounting
Principles – Overall, or ASC 105-10, which establishes the FASB
Accounting Standards Codification, or the Codification, as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. generally accepted accounting principles, or
GAAP. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC
accounting and reporting standards. All other non-grandfathered,
non-SEC accounting literature not included in the Codification is
non-authoritative. The FASB will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates, or
ASUs. The FASB will not consider ASUs as authoritative in their own
right. ASUs will serve only to update the Codification, provide background
information about the guidance and provide the basis for conclusions on the
change(s) in the Codification. We adopted ASC 105-10 effective July 1, 2009
and all references made to FASB guidance throughout this document have been
updated for the Codification.
In April
2008, the FASB issued ASC 825-10-65-1, Interim Disclosures About Fair
Market Value of Financial Instruments, or ASC 825-10-65-1, which extends
the disclosure requirements concerning the fair value of financial instruments
to interim financial statements of publicly traded companies. ASC 825-10-65-1 is
effective for interim financial periods ending after June 15, 2009, and the
required disclosures are included in Note 9 to the condensed consolidated
financial statements.
In June
2008, the FASB issued ASC 810-10-05, Amendments to FASB Interpretation
No. 46(R), or ASC 810-10-05, which amends events that would require
reconsidering whether an entity is a variable interest entity; it amends the
criteria used to determine the primary beneficiary of a variable interest
entity; and it expands disclosures about an enterprise’s involvement in variable
interest entities. ASC 810-10-05 is effective for annual
reporting periods beginning after November 15, 2009 and earlier application is
prohibited. We adopted ASC 810-10-05 effective January 1, 2010. The adoption did
not have a material impact on our consolidated financial condition or results of
operations taken as a whole.
Real
Estate Acquisitions
On
October 26, 2010, we purchased a 39.8-acre parcel of land in Franklin, Tennessee
and entered into an agreement with a third party to develop a 428-unit apartment
community on the site.
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The
following discussion should be read in conjunction with the condensed
consolidated financial statements and notes appearing elsewhere in this
report. Historical results and trends that might appear in the
condensed consolidated financial statements should not be interpreted as being
indicative of future operations.
Forward
Looking Statements
We
consider this and other sections of this Quarterly Report on Form 10-Q to
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
with respect to our expectations for future periods. Forward looking statements
do not discuss historical fact, but instead include statements related to
expectations, projections, intentions or other items related to the
future. Such forward-looking statements include, without limitation,
statements concerning property acquisitions and dispositions, development and
renovation activity as well as other capital expenditures, capital raising
activities, rent growth, occupancy and rental expense growth. Words
such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,”
“estimates” and variations of such words and similar expressions are intended to
identify such forward-looking statements. Such statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements to be materially different from the
results of operations or plans expressed or implied by such forward-looking
statements. Such factors include, among other things, unanticipated
adverse business developments affecting us, or our properties, adverse changes
in the real estate markets and general and local economies and business
conditions. Although we believe that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore such forward-looking statements
included in this report may not 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 us or any other person that the results or conditions
described in such statements or our objectives and plans will be
achieved.
The
following factors, among others, could cause our future results to differ
materially from those expressed in the forward-looking statements:
|
·
|
inability
to generate sufficient cash flows due to market conditions, changes in
supply and/or demand, competition, uninsured losses, changes in tax and
housing laws, or other factors;
|
|
·
|
failure
of new acquisitions to achieve anticipated results or be efficiently
integrated into us;
|
|
·
|
failure
of development communities to be completed, if at all, on a timely
basis;
|
|
·
|
failure
of development communities to lease-up as
anticipated;
|
|
·
|
inability
of a joint venture to perform as
expected;
|
|
·
|
inability
to acquire additional or dispose of existing apartment units on favorable
economic terms;
|
|
·
|
unexpected
capital needs;
|
|
·
|
increasing
real estate taxes and insurance
costs;
|
|
·
|
losses
from catastrophes in excess of our insurance
coverage;
|
|
·
|
inability
to acquire funding through the capital
markets;
|
|
·
|
the
availability of credit, including mortgage financing, and the liquidity of
the debt markets, including a material deterioration of the financial
condition of the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation;
|
|
·
|
changes
in interest rate levels, including that of variable rate debt, such as
extensively used by us;
|
|
·
|
loss
of hedge accounting treatment for interest rate swaps and interest rate
caps;
|
|
·
|
the
continuation of the good credit of our interest rate swap and cap
providers;
|
|
·
|
inability
to meet loan covenants;
|
|
·
|
significant
decline in market value of real estate serving as collateral for mortgage
obligations;
|
|
·
|
inability
to pay required distributions to maintain REIT status due to required debt
payments;
|
|
·
|
imposition
of federal taxes if we fail to qualify as a REIT under the Internal
Revenue Code in any taxable year or foregone opportunities to ensure REIT
status;
|
|
·
|
inability
to attract and retain qualified
personnel;
|
|
·
|
potential
liability for environmental
contamination;
|
|
·
|
adverse
legislative or regulatory tax changes;
and
|
|
·
|
litigation
and compliance costs associated with laws requiring access for disabled
persons.
|
Critical
Accounting Policies and Estimates
The
following discussion and analysis of financial condition and results of
operations are based upon our condensed consolidated financial statements, and
the notes thereto, which have been prepared in accordance with U.S. generally
accepted accounting principles, or GAAP. The preparation of these condensed
consolidated financial statements requires us 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, we evaluate our
estimates and assumptions based upon historical experience and various other
factors and circumstances. We believe that our estimates and assumptions are
reasonable under the circumstances; however, actual results may differ from
these estimates and assumptions.
We
believe that the estimates and assumptions listed below are most important to
the portrayal of our financial condition and results of operations because they
require the greatest subjective determinations and 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
We lease
multifamily residential apartments under operating leases primarily with terms
of one year or less. Rental revenues are recognized using a method that
represents a straight-line basis over the term of the lease and other revenues
are recorded when earned.
We record
all gains and losses on real estate in accordance with accounting standards
governing the sale of real estate.
Capitalization
of expenditures and depreciation of assets
We carry
real estate assets at 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, 3 to 5 years for computers and software, and
6 months for acquired leases, 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 us in order to
elevate the condition of the property to our standards are capitalized as
incurred.
Development
costs are capitalized in accordance with accounting standards for costs and
initial rental operations of real estate projects and standards for the
capitalization of interest cost.
Impairment
of long-lived assets, including goodwill
We
account for long-lived assets in accordance with the provisions of accounting
standards for the impairment or disposal on long-lived assets and evaluate our
goodwill for impairment under accounting standards for goodwill and other
intangible assets. We evaluate goodwill for impairment on at least an annual
basis, or more frequently if a goodwill impairment indicator is identified. We
periodically evaluate long-lived assets, including 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.
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 on
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 for goodwill 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, we determine the fair
value of a reporting unit and compare 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. We
determine 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 accounting standards for 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
We
utilize certain derivative financial instruments, primarily interest rate swaps
and interest rate caps, during the normal course of business to manage, or
hedge, the interest rate risk associated with our variable rate debt or as
hedges in anticipation of future debt transactions to manage well-defined
interest rate risk associated with the transaction.
In order
for a derivative contract to be designated as a hedging instrument, changes in
the hedging instrument must be highly effective at offsetting changes in the
hedged item. The historical correlation of the hedging instruments and the
underlying hedged items are assessed before entering into the hedging
relationship and on a quarterly basis thereafter, and have been found to be
highly effective.
We
measure ineffectiveness using the change in the variable cash flows method for
interest rate swaps and the hypothetical derivative method for interest rate
caps for each reporting period 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 the intrinsic value or fair
value of interest rate caps designated as cash flow hedges are recorded to
accumulated other comprehensive income in the statement of shareholders’
equity.
The
valuation of our derivative financial instruments is determined using widely
accepted valuation techniques, including discounted cash flow analysis on the
expected cash flows of each derivative. The fair values of
interest rate swaps are determined using the market standard methodology of
netting the discounted future fixed cash payments and the discounted expected
variable cash receipts. The variable cash receipts are based on an
expectation of future interest rates (forward curves) derived from observable
market interest rate curves. The fair values of interest rate caps are
determined using the market standard methodology of discounting the future
expected cash receipts that would occur if variable interest rates rise above
the strike rate of the interest rate caps. The variable interest rates
used in the calculation of projected receipts on the interest rate cap are based
on an expectation of future interest rates derived from observable market
interest rate curves and volatilities. Additionally, we
incorporate credit valuation adjustments to appropriately reflect both our own
nonperformance risk and the respective counterparty’s nonperformance risk in the
fair value measurements. Changes in the fair values of our
derivatives are primarily the result of fluctuations in interest rates. See
Notes 8 and 9 of the accompanying Condensed Consolidated Financial
Statements.
Overview
of the Three Months Ended September 30, 2010
During
the three months ended September 30, 2010 we continued to absorb the effects of
reduced pricing on new leases in our portfolio to maintain occupancy as compared
to the three months ended September 30, 2009; however, rental prices on leases
to new residents have been increasing since January 2010. While same store
property revenues and core same store expenses were both up in the three months
ended September 30, 2010 from the three months ended September 30, 2009,
affecting both was the introduction in 2010 of a new bulk cable program. This
new program requires revenues and expenses to be to recorded gross on the
condensed consolidated statements of operations, rather than netted together in
revenues as our previous program allowed, resulting in increased revenue and
expense comparisons over the prior period. Property revenues also benefited from
acquisitions made during 2009 and 2010, as well as the completion and leaseup of
some development communities.
Generally,
the same store portfolio consists of those properties that we have owned and
have been stabilized for at least a full 12 months and have not been classified
as held for sale. This allows us to evaluate full period over period operating
comparisons. Within the same store portfolio we further classify communities as
belonging to either our large market same store or secondary market same store
group generally based on market population. Communities not included in the same
store portfolio would include recent acquisitions, communities in development or
lease-up, communities undergoing extensive renovations or communities that have
been classified as held for sale.
The
following is a discussion of our consolidated financial condition and results of
operations for the three and nine month periods ended September 30, 2010. 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 September 30, 2010 to the Three Months Ended September
30, 2009
Property
revenues for the three months ended September 30, 2010 were approximately $101.2
million, an increase of $6.3 million from the three months ended September 30,
2009 due to (i) a $0.9 million increase in property revenues from our secondary
market same store group primarily as a result of a $1.2 million increase from
our new bulk cable program and (ii) a $5.4 million increase in property
revenues from our non-same store and other group, mainly as a result of
acquisitions.
Property
operating expenses include costs for property personnel, property personnel
bonuses, building repairs and maintenance, real estate taxes and insurance,
utilities, landscaping and depreciation. Property operating expenses, excluding
depreciation, for the three months ended September 30, 2010 were approximately
$45.1 million, an increase of approximately $3.0 million from the three months
ended September 30, 2009 due primarily to increases in property operating
expenses of (i) $0.2 million from our large market same store group, (ii) $0.7
million from our secondary market same store group, and (iii) $2.1 million
from our non-same store and other group, mainly as a result of acquisitions. The
increases in the large and secondary market same store groups include $1.0
million and $1.2 million, respectively, related to the accounting for our new
bulk cable program.
Depreciation
expense for the three months ended September 30, 2010 was approximately $26.5
million, an increase of approximately $2.6 million from the three
months ended September 30, 2009 primarily due to the increases in depreciation
expense of (i) $0.3 million from our large market same store group, (ii) $0.4
million from our secondary market same store group, and (iii) $1.9 million
from our non-same store and other group, mainly as a result of acquisitions.
Increases of depreciation expense from our large and secondary market same store
groups resulted from asset additions made during the normal course of
business.
Interest
expense for the three months ended September 30, 2010 was approximately $13.6
million, a decrease of $0.8 million from the three months ended September 30,
2009. The decrease was primarily related to the decrease in our average cost of
debt from 4.35% for the three months ended September 30, 2009 to 3.74% for the
three months ended September 30, 2010. The decrease in our average
cost of debt was partially offset by an increase in our average debt outstanding
from the three months ended September 30, 2009 to the three months ended
September 30, 2010 of approximately $159.2 million.
Primarily
as a result of the foregoing, net income attributable to Mid-America Apartment
Communities, Inc. increased by approximately $0.1 million in the three months
ended September 30, 2010 from the three months ended September 30,
2009.
On June
2, 2010, we redeemed 3,100,001 shares of the 6,200,000 shares of our 8.30%
Series H Cumulative Redeemable Preferred Stock, or Series H. During the three
months ended September 30, 2010, we redeemed all of the remaining and
outstanding shares of Series H, resulting in a recognition of approximately $2.6
million on the condensed consolidated statements of operation representing the
write-off of premiums and original issuance. The redemption also resulted in the
decrease of preferred dividends from $3.2 million for the three months ended
September 30, 2009 to $0.6 million for the three months ended September 30,
2010.
Comparison
of the Nine Months Ended September 30, 2010 to the Nine Months Ended September
30, 2009
Property
revenues for the nine months ended September 30, 2010 were approximately $297.3
million, an increase of $14.3 million from the nine months ended September 30,
2009 due to an increase in property revenues of (i) $2.3 million from our
secondary market same store group primarily as a result of a $3.0 million
increase related to the accounting for our new bulk cable program, and (ii)
$13.2 million from our non-same store and other group, mainly as a result of
acquisitions. These increases were partially offset by a decrease of $1.2
million from our large market same store group.
Property
operating expenses include costs for property personnel, property personnel
bonuses, building repairs and maintenance, real estate taxes and insurance,
utilities, landscaping and depreciation. Property operating expenses, excluding
depreciation, for the nine months ended September 30, 2010 were approximately
$129.3 million, an increase of approximately $10.0 million from the nine months
ended September 30, 2009 due primarily to increases in property operating
expenses of (i) $2.0 million from our large market same store group, (ii) $2.6
million from our secondary market same store group, and (iii) $5.4 million from
our non-same store and other group, mainly as a result of acquisitions. The
increases in the large and secondary market same store groups include $2.7
million and $3.0 million, respectively, related to the accounting for our new
bulk cable program.
Depreciation
expense for the nine months ended September 30, 2010 was approximately $76.5
million, an increase of approximately $5.2 million from the nine
months ended September 30, 2009 primarily due to the increases in depreciation
expense of (i) $0.7 million from our large market same store group, (ii) $1.0
million from our secondary market same store group, and (iii) $3.5 million
from our non-same store and other group, mainly as a result of acquisitions.
Increases of depreciation expense from our large and secondary market same store
groups resulted from asset additions made during the normal course of
business.
During
the nine months ended September 30, 2010, we recorded an asset impairment
charge of approximately $1.9 million related to one of our original initial
public offering communities. This community is part of our secondary market same
store segment. Fair value of the community was determined by an
offer. No asset impairment charges were recorded during the nine months
ended September 30, 2009.
For the
nine months ended September 30, 2009, we recorded approximately $2.6 million of
gains related to the sale of the Riverhills and Woodstream apartments. We did
not sell any properties during the nine months ended September 30,
2010.
Primarily
as a result of the foregoing, net income attributable to Mid-America Apartment
Communities, Inc. decreased by approximately $5.1 million in the nine months
ended September 30, 2010 from the nine months ended September 30,
2009.
During
the nine months ended September 30, 2010, we redeemed all of the 6,200,000
issued and outstanding shares of our 8.30% Series H Cumulative Redeemable
Preferred Stock, or Series H, resulting in the recognition of approximately $5.1
million on the condensed consolidated statements of operations representing the
write-off of premiums and original issuance costs. The redemption also resulted
in the decrease of preferred dividends from $9.6 million for the nine months
ended September 30, 2009 to $6.5 million for the nine months ended September 30,
2010.
Funds
From Operations and Net Income
Funds
from operations, or FFO, represents net income attributable to Mid-America
Apartment Communities, Inc. (computed in accordance with GAAP), excluding
extraordinary items, gains or losses 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, or 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 SEC’s Staff Policy Statement relating to Emerging Issues Task Force
Topic D-42 concerning the calculation of earnings per share for the redemption
of preferred stock, we include the amount recorded to retire preferred stock in
excess of carrying values in our FFO calculation.
Our
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 attributable to
Mid-America Apartment Communities, Inc. 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. We believe that FFO is helpful to investors in understanding our
operating performance in that such calculation excludes depreciation expense on
real estate assets. We believe 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. Our 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 attributable to
Mid-America Apartment Communities, Inc. for the three and nine month periods
ended September 30, 2010, and 2009 (dollars and shares in
thousands):
|
|
Three months
|
|
|
Nine months
|
|
|
|
ended September 30,
|
|
|
ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
income attributable to Mid-America Apartment Communities,
Inc.
|
|
$ |
6,749 |
|
|
$ |
6,618 |
|
|
$ |
22,821 |
|
|
$ |
27,905 |
|
Depreciation
of real estate assets
|
|
|
25,950 |
|
|
|
23,419 |
|
|
|
74,951 |
|
|
|
69,832 |
|
Net
casualty (gain) loss and other settlement proceeds
|
|
|
(350 |
) |
|
|
109 |
|
|
|
(979 |
) |
|
|
253 |
|
(Gain)
loss on sales of discontinued operations
|
|
|
- |
|
|
|
(13 |
) |
|
|
2 |
|
|
|
(2,600 |
) |
Depreciation
of real estate assets of real estate joint ventures
|
|
|
512 |
|
|
|
241 |
|
|
|
1,384 |
|
|
|
690 |
|
Preferred
dividend distribution
|
|
|
(629 |
) |
|
|
(3,216 |
) |
|
|
(6,549 |
) |
|
|
(9,649 |
) |
Net
income attributable to noncontrolling interests
|
|
|
224 |
|
|
|
260 |
|
|
|
889 |
|
|
|
1,536 |
|
Premiums
and original issuance costs associated with the redemption of preferred
stock
|
|
|
(2,576 |
) |
|
|
- |
|
|
|
(5,149 |
) |
|
|
- |
|
Funds
from operations
|
|
$ |
29,880 |
|
|
$ |
27,418 |
|
|
$ |
87,370 |
|
|
$ |
87,967 |
|
FFO for
the three month period ended September 30, 2010 increased approximately $2.5
million from the three months ended September 30, 2009 primarily as a result of
the increase in property revenues of approximately $6.3 million discussed above
that was only partially offset by the $3.0 million increase in property
operating expenses. FFO for the three months ended September 30, 2010 was also
impacted by a decrease in preferred dividends of $2.6 million from the three
months ended September 30, 2009 due to the redemption of the Series H shares.
This decrease was materially offset by the recognition of approximately $2.6
million on the condensed consolidated statements of operations representing the
write-off of premiums and original issuance costs for the Series H
redemption.
FFO for
the nine month period ended September 30, 2010 decreased approximately $0.6
million from the nine months ended September 30, 2009. The increase in property
revenues of approximately $14.3 million for the nine month period ended
September 30, 2010 from the nine month period ended September 30, 2009 discussed
above was only partially offset by the $10.0 million increase in property
operating expenses over the same period. FFO for the nine months ended September
30, 2010 was impacted by a $1.9 million asset impairment charge related to one
of our original initial public offering communities. FFO for the nine months
ended September 30, 2010 was also impacted by a decrease in preferred dividends
of $3.1 million from the nine months ended September 30, 2009 due to the
redemption of the Series H shares. This decrease was more than offset by the
recognition of approximately $5.1 million on the condensed consolidated
statements of operations representing the write-off of premiums and original
issuance costs for the Series H redemption.
Trends
During
the three months ended September 30, 2010, rental demand for apartments improved
when compared to the same period last year and the three months ended June 30,
2010. This was evident through higher physical occupancy as compared
to the same period last year and the sequential prior quarter as well as pricing
increases on new leases signed as compared to the sequential prior
quarter. However, we have maintained this momentum with job
formation, one of the primary drivers of apartment demand, continuing to be slow
to return. The job losses that have occurred across the nation and
our markets continue to cause us to be cautious about apartment demand and
pricing in the near term.
An
important part of our portfolio strategy is to maintain a broad diversity of
markets across the Sunbelt region of the United States. The diversity of markets
tends to mitigate exposure to economic issues in any one geographic market or
area. We have found that a well diversified portfolio, including both large and
select secondary markets, has tended to perform well in “up” cycles as well as
weather “down” cycles better. At the end of the three months ended September 30,
2010, we were invested in over 48 separate markets, with 61% of our gross assets
in large markets and 39% of our gross assets in select secondary
markets. No more than 10% of gross assets are located in any one
market, further diversifying our portfolio.
We also
continue to benefit on the supply side. Supply declined in 2009 and
continues to run well below historical new supply delivery averages. Competition
from condominiums reverting back to rental units, or new condominiums being
converted to rental, was not a major factor in our portfolio because most of our
submarkets have not been primary areas for condominium development. We have
found the same to be true for rental competition from single family homes. We
have avoided committing a significant amount of capital to markets where most of
the excessive inflation in house prices has occurred. We saw significant rental
competition from condominiums or single family houses in only a few of our
submarkets. We expect this relative new supply compression to be an
even larger factor over the next several quarters as supply that did come to
market before the slowdown moves further away from the lease up stage and new
supply remains limited.
Our focus
during the three months ended September 30, 2010 was on maintaining the strong
occupancy performance we captured in the three months ended June 30,
2010 and pushing pricing where possible. Through these efforts, our same
store occupancy at September 30, 2010 was 50 basis points higher than at
September 30, 2009 and effective rent per unit was up 40 basis points as
compared to the sequential prior quarter. This was the first
sequential quarter increase in effective rents in seven quarters.
Overall
same store revenues increased 1.1% for the three months ended September 30, 2010
from the three months ended September 30, 2009. This included an increase of
$2.2 million due to our new bulk cable program. With cable expense netted into
cable revenues, same store revenues decreased 1.1% over this period. We believe
that this year over year decline in same store revenue will reverse and turn
positive in late 2010 into early 2011, as rents continue to rebound from
declines seen in 2009 and early 2010. We expect more robust revenue growth will
resume after the economic growth returns and, most importantly, when sustainable
job growth resumes. We also believe reduced availability of financing for new
apartment construction will likely limit new apartment construction over the
next few quarters, and more sustainable credit terms for residential mortgages
should work to favor rental demand at existing multi-family properties. At the
same time, we expect long-term demographic trends, including the growth of prime
age groups for rentals, immigration and population movement to the southeast and
southwest will continue to build apartment rental demand for our
markets.
While not
currently expected, should the economy fall into a deeper recession, the limited
new supply of apartments and the more disciplined mortgage financing for single
family home buying should lessen the impact to some degree, but a weak economy
and employment market would nevertheless limit rent growth
prospects.
We
continue to develop improved products, operating systems and procedures that
enable us to capture more revenues. The continued roll-out of
ancillary services (such as our bulk cable program), improved collections and
utility reimbursements enable us to capture increased revenue dollars. We also
actively work on improving processes and products to reduce expenses, such as
new web-sites and internet access for our residents that enable them to transact
their business with us more simply and effectively.
During
the three months ended September 30, 2010, we continued to have the benefit of
lower interest rates resulting from a continued strong market for Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation debt
securities. Short term interest rates continue to be at historically
low levels, and as a result, we are forecasting a continuation of favorable
interest rates in the near term with the expectation of rising rates as the
economy improves.
Liquidity
and Capital Resources
Net cash
flow provided by operating activities decreased from $111.1 million for the nine
months ended September 30, 2009 to $106.7 million for the nine months ended
September 30, 2010. This change was a result of various items, including changes
in cash flows associated with the timing of interest payments.
Net cash
used in investing activities was approximately $51.9 million during the nine
months ended September 30, 2009 compared to $188.3 million during the nine
months ended September 30, 2010, mainly related to acquisition activity. In the
nine months ended September 30, 2009, acquisition cash outflows of $17.9 million
were mainly related to the acquisition of the Sky View Ranch apartments. In the
nine months ended September 30, 2010, acquisition cash outflows of $215.1
million were mainly related to the acquisition of eight communities. The
increase in cash outflows due to acquisitions was partially offset by an
increase in cash inflows from disposition activity. In the nine months ended
September 30, 2009, we had cash inflows of $14.4 million, mainly related to the
sale of two communities. During the nine months ended September 30, 2010, we had
cash inflows of approximately $71.4 million, mainly related to the contribution
of two communities into one of our joint ventures.
Net cash
used in financing activities was approximately $52.2 million for the nine months
ended September 30, 2009, compared to net cash provided by financing activities
of approximately $167.9 million during the nine months ended September 30, 2010.
During the nine months ended September 30, 2010, we received proceeds of
approximately $247.1 million primarily from the issuance of shares of common
stock through our at-the-market program, or ATM and a waiver through our
Dividend and Distribution Reinvestment and Share Purchase Plan, or DRSPP. We
used $155.0 million of these proceeds to fund the redemption of our 8.30% Series
H Cumulative Redeemable Preferred Stock, or Series H. During the nine months
ended September 30, 2010, we received cash inflows of approximately $137.9
million related to the refinancing of debt and mortgages put in place on
previously unencumbered assets.
The
weighted average interest rate at September 30, 2010 for the $1.6 billion of
debt outstanding was 3.8%, compared to the weighted average interest rate of
4.5% on $1.3 billion of debt outstanding at September 30, 2009. We utilize both
conventional and tax exempt debt to help finance our activities. Borrowings are
made through individual property mortgages as well as company-wide secured
credit facilities. We utilize fixed rate borrowings, interest rate swaps and
interest rate caps to manage our current and future interest rate risk. More
details on our borrowings can be found in the schedules presented later in this
section.
On March
31, 2010, we refinanced a $50 million bank facility with a syndicate of banks
led by Regions Bank that was scheduled to mature on May 24, 2010. The facility
was replaced with a $50 million bank facility with similar features with the
same banks. The facility has a contract maturity date of March 31, 2012 with the
option to extend the term for one year.
On August
17, 2010, we entered into a $29.5 million conventional mortgage for a previously
unencumbered asset. The note has a seven year term and a fixed interest rate of
4.11%.
On
September 30, 2010, we entered into conventional mortgages for four properties
which were previously unencumbered for a total of $88.9 million. The notes have
a ten year term and a fixed interest rate of 4.4%.
At
September 30, 2010, we had secured credit facility relationships with Prudential
Mortgage Capital, which are credit enhanced by the Federal National Mortgage
Association, or FNMA, Financial Federal, which are credit enhanced by the
Federal Home Loan Mortgage Corporation, or Freddie Mac, and the $50 million bank
facility with a syndicate of banks. Together, these credit facilities provided a
total line capacity of approximately $1.4 billion with all but $9.9 million
collateralized and available to borrow at September 30, 2010. We had total
borrowings outstanding under these credit facilities of $1.3 billion at
September 30, 2010.
Approximately
66% of our outstanding obligations at September 30, 2010 were borrowed through
facilities with/or credit enhanced by FNMA, also referred to as the FNMA
Facilities. The FNMA Facilities have a combined line limit of $1.04 billion, all
of which was collateralized and available to borrow at September 30, 2010. We
had total borrowings outstanding under the FNMA Facilities of approximately
$1.02 billion at September 30, 2010. Various traunches of the FNMA Facilities
mature from 2011 through 2018. The FNMA Facilities provide for both fixed and
variable rate borrowings. The interest rate on the majority of the variable
portion is based on the FNMA Discount Mortgage Backed Security, or DMBS, rate,
which are credit-enhanced by FNMA and are typically sold every 90 days by
Prudential Mortgage Capital at interest rates approximating three-month LIBOR
less a spread that has averaged 0.16% over the life of the FNMA Facilities, plus
a credit enhancement fee of 0.49% to 0.67%. We have seen more volatility in the
spread between the DMBS and three-month LIBOR since late 2007 than was
historically prevalent. While we believe this recent volatility is an anomaly
and believe that this spread will return to more historic levels, we cannot
forecast when or if the uncertainty and volatility in the market may
change.
Approximately
19% of our outstanding obligations at September 30, 2010 were borrowed through
facilities with/or credit enhanced by Freddie Mac, also referred to as the
Freddie Mac Facilities. The Freddie Mac Facilities have a combined line limit of
$300 million, of which $298 million was collateralized and available to borrow
at September 30, 2010. We had total borrowings outstanding under the Freddie Mac
Facilities of approximately $298 million at September 30, 2010. The Freddie Mac
facilities mature in 2011 and 2014. The interest rate on the Freddie Mac
Facilities renews every 30 or 90 days and is based on the Freddie Mac Reference
Bill Rate on the date of renewal, which has historically approximated the
equivalent 30 or 90-day LIBOR, plus a credit enhancement fee of 0.65% to 0.69%.
The Freddie Mac Reference Bill rate has traded consistently below LIBOR, and the
historical average spread is 0.35% below LIBOR.
Each of
our secured credit facilities is subject to various covenants and conditions on
usage, and is subject to periodic re-evaluation of collateral. If we 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 our
liquidity. In the event of a reduction in real estate values, the amount of
available credit could be reduced. Moreover, if we were to fail to make a
payment or violate a covenant under a credit facility, one or more of our
lenders could declare a default after applicable cure periods, 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.
The
following schedule details the line limits, collateralized availability and the
outstanding balances of our various borrowings as of September 30, 2010 (in
thousands):
|
|
Line
|
|
|
Amount
|
|
|
Amount
|
|
|
|
Limit
|
|
|
Collateralized
|
|
|
Borrowed
|
|
FNMA
Credit Facilities
|
|
$ |
1,044,429 |
|
|
$ |
1,044,429 |
|
|
$ |
1,019,833 |
|
Freddie
Mac Credit Facilities
|
|
|
300,000 |
|
|
|
298,247 |
|
|
|
298,247 |
|
Regions
Credit Facility
|
|
|
50,000 |
|
|
|
41,867 |
|
|
|
- |
|
Other
Borrowings
|
|
|
233,123 |
|
|
|
233,123 |
|
|
|
233,123 |
|
Total
Debt
|
|
$ |
1,627,552 |
|
|
$ |
1,617,666 |
|
|
$ |
1,551,203 |
|
As of
September 30, 2010, we had entered into interest rate swaps totaling a notional
amount of $785 million. To date, these swaps have proven to be highly effective
hedges. We also entered into interest rate cap agreements totaling a notional
amount of approximately $271 million as of September 30, 2010. Four major banks
provide over 98% of our derivative fair value, all of which have high investment
grade ratings from Moody’s and S&P.
The
following schedule outlines our variable versus fixed rate debt, including the
impact of interest rate swaps and caps, outstanding as of September 30, 2010 (in
thousands):
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Years to
|
|
|
|
|
|
|
Principal
|
|
|
Contract
|
|
|
Effective
|
|
|
|
Balance
|
|
|
Maturity
|
|
|
Rate
|
|
Conventional
- Fixed Rate or Swapped
|
|
$ |
1,023,853 |
|
|
|
3.9 |
|
|
|
5.2 |
% |
Tax-free
- Fixed Rate or Swapped
|
|
|
28,870 |
|
|
|
8.2 |
|
|
|
4.7 |
% |
Conventional
- Variable Rate
(1)
|
|
|
227,829 |
|
|
|
3.9 |
|
|
|
1.0 |
% |
Conventional
- Variable Rate - Capped (2)
|
|
|
197,936 |
|
|
|
5.5 |
|
|
|
0.8 |
% |
Tax-free
- Variable Rate - Capped (2)
|
|
|
72,715 |
|
|
|
1.7 |
|
|
|
1.1 |
% |
Total
Debt Outstanding
|
|
$ |
1,551,203 |
|
|
|
4.0 |
|
|
|
3.8 |
% |
(1) Includes
a $15 million mortgage with an imbedded cap at a 7% rate.
(2) When
the capped rates are not reached, the average rate represents the rate on the
underlying variable debt.
The
following schedule outlines the contractual maturity dates of our total
borrowing capacity as of September 30, 2010 (in thousands):
|
|
Line Limit
|
|
|
|
|
|
|
|
|
|
Credit Facilities
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
Freddie Mac
|
|
|
Regions
|
|
|
Other
|
|
|
Total
|
|
2010
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
2011
|
|
|
80,000 |
|
|
|
100,000 |
|
|
|
- |
|
|
|
- |
|
|
|
180,000 |
|
2012
|
|
|
80,000 |
|
|
|
- |
|
|
|
50,000 |
|
|
|
- |
|
|
|
130,000 |
|
2013
|
|
|
203,193 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
203,193 |
|
2014
|
|
|
321,236 |
|
|
|
200,000 |
|
|
|
- |
|
|
|
17,878 |
|
|
|
539,114 |
|
2015
|
|
|
120,000 |
|
|
|
- |
|
|
|
- |
|
|
|
52,396 |
|
|
|
172,396 |
|
Thereafter
|
|
|
240,000 |
|
|
|
- |
|
|
|
- |
|
|
|
162,849 |
|
|
|
402,849 |
|
Total
|
|
$ |
1,044,429 |
|
|
$ |
300,000 |
|
|
$ |
50,000 |
|
|
$ |
233,123 |
|
|
$ |
1,627,552 |
|
The
following schedule outlines the interest rate maturities of our outstanding
interest rate swap agreements and fixed rate debt as of September 30, 2010 (in
thousands):
|
|
Swap Balances
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
Fixed Rate
|
|
|
|
|
|
Contract
|
|
|
|
LIBOR
|
|
|
SIFMA
|
|
|
Facility
|
|
|
Balances
|
|
|
Balance
|
|
|
Rate
|
|
2010
|
|
$ |
50,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
50,000 |
|
|
|
6.2 |
% |
2011
|
|
|
158,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
158,000 |
|
|
|
5.2 |
% |
2012
|
|
|
150,000 |
|
|
|
17,800 |
|
|
|
- |
|
|
|
- |
|
|
|
167,800 |
|
|
|
5.1 |
% |
2013
|
|
|
190,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
190,000 |
|
|
|
5.2 |
% |
2014
|
|
|
144,000 |
|
|
|
- |
|
|
|
- |
|
|
|
17,878 |
|
|
|
161,878 |
|
|
|
5.7 |
% |
2015
|
|
|
75,000 |
|
|
|
- |
|
|
|
- |
|
|
|
37,196 |
|
|
|
112,196 |
|
|
|
5.6 |
% |
Thereafter
|
|
|
- |
|
|
|
- |
|
|
|
50,000 |
|
|
|
162,849 |
|
|
|
212,849 |
|
|
|
4.7 |
% |
Total
|
|
$ |
767,000 |
|
|
$ |
17,800 |
|
|
$ |
50,000 |
|
|
$ |
217,923 |
|
|
$ |
1,052,723 |
|
|
|
5.2 |
% |
During
the nine months ended September 30, 2010, we sold 4,114,000 shares of common
stock through our ATM program generating net proceeds of approximately $216.5
million. We also sold an additional 551,082 shares of common stock through a
waiver issued through our DRSPP for net proceeds of approximately $30.0
million during the nine months ended September 30, 2010,
During
the nine months ended September 30, 2010, we used some of the proceeds raised by
sales of common stock to redeem all of the 6,200,000 issued and outstanding
shares of our Series H for $155.0 million plus the accrued and unpaid dividends
owed through and including the redemption dates.
We
believe that we have adequate resources to fund our current operations, annual
refurbishment of our properties, and incremental investment in new apartment
properties. We rely on the efficient operation of the financial markets to
finance debt maturities, and on FNMA and Freddie Mac, or the Agencies, who have
now been placed into conservatorship by the United States government, and
whose securities are now implicitly government-guaranteed. The Agencies provide
credit enhancement for approximately $1.3 billion of our outstanding debt as of
September 30, 2010. The Federal Housing Finance Agency, or FHFA, which was
appointed conservator of the Agencies, recognizes the importance of multifamily
housing finance for healthy secondary market and housing affordability, and
expects FNMA and Freddie Mac to continue underwriting and financing sound
multifamily business.
The
interest rate markets for FNMA DMBS and Freddie Mac Reference Bills, which in
our experience are highly liquid and highly correlated with three-month LIBOR
interest rates, are also an important component of our liquidity and interest
rate swap and cap effectiveness. Prudential Mortgage Capital, a
delegated underwriting and servicing lender for Fannie Mae, markets 90-day
Fannie Mae Discount Mortgage Backed Securities monthly, and is obligated to
advance funds to us at DMBS rates plus a credit spread under the terms of the
credit agreements between Prudential and us. Financial Federal, a Freddie Mac
Program Plus Lender and Servicer, is obligated to advance funds under the terms
of credit agreements between Financial Federal and us.
For the
nine months ended September 30, 2010 and September 30, 2009, our net cash
provided by operating activities was in excess of funding improvements to
existing real estate assets, distributions to unitholders, and dividends paid on
common and preferred shares by approximately $6.9 million and $10.7 million,
respectively. While we have sufficient liquidity to permit distributions at
current rates through additional borrowings, if necessary, any significant
deterioration in operations could result in our financial resources being
insufficient to pay distributions to shareholders at the current rate, in which
event we would be required to reduce the distribution rate.
The
following table reflects our total contractual cash obligations which consist of
our long-term debt and operating leases as of September 30, 2010, (dollars in
thousands):
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations (1)
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
Long-Term Debt
(2)
|
|
$ |
902 |
|
|
$ |
183,833 |
|
|
$ |
84,212 |
|
|
$ |
198,117 |
|
|
$ |
538,965 |
|
|
$ |
545,174 |
|
|
$ |
1,551,203 |
|
Fixed Rate or Swapped
Interest (3)
|
|
|
12,506 |
|
|
|
44,048 |
|
|
|
34,970 |
|
|
|
27,360 |
|
|
|
18,083 |
|
|
|
52,728 |
|
|
|
189,695 |
|
Operating
Lease
|
|
|
5 |
|
|
|
17 |
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32 |
|
Total
|
|
$ |
13,413 |
|
|
$ |
227,898 |
|
|
$ |
119,192 |
|
|
$ |
225,477 |
|
|
$ |
557,048 |
|
|
$ |
597,902 |
|
|
$ |
1,740,930 |
|
(1)
|
Fixed
rate and swapped interest are shown in this table. The average interest
rates of variable rate debt are shown in preceeding
tables.
|
(2)
|
Represents
principal payments.
|
(3)
|
Swapped
interest is subject to the ineffective portion of cash flow hedges as
described in Note 8 to the financial
statements.
|
Off-Balance
Sheet Arrangements
At
September 30, 2010, and 2009, we did not have any relationships with
unconsolidated entities or financial partnerships established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. Mid-America Multifamily Fund I, LLC, one of our joint
ventures, was established to acquire $500 million of apartment communities with
redevelopment upside offering value creation opportunity through capital
improvements, operating enhancements and restructuring in-place financing. As of
September 30, 2010, Mid-America Multifamily Fund I, LLC owned two properties but
does not expect to acquire any additional communities. Mid-America Multifamily
Fund II, LLC, our other joint venture, was established to acquire $250 million
of apartment communities with redevelopment upside offering value creation
opportunity through capital improvements, operating enhancements and
restructuring in-place financing. As of September 30, 2010, Mid-America
Multifamily Fund II, LLC, or Fund II, owned three properties. In addition, we do
not engage in trading activities involving non-exchange traded contracts. As
such, we are not materially exposed to any financing, liquidity, market or
credit risk that could arise if we had engaged in such relationships. We do not
have any relationships or transactions with persons or entities that derive
benefits from their non-independent relationships with us or our related parties
other than those disclosed in Item 8. Financial Statements and Supplementary
Data - Notes to Consolidated Financial Statements, Note 13 in our 2009 Annual
Report on Form 10-K filed on February 25, 2010.
Our
investments in our real estate joint ventures are unconsolidated and are
recorded using the equity method as we do not have a controlling
interest.
Insurance
We
renegotiated our insurance programs effective July 1, 2010. We believe that the
property and casualty insurance program in place provides appropriate insurance
coverage for financial protection against insurable risks such that any
insurable loss experienced that can be reasonably anticipated would not have a
significant impact on our liquidity, financial position or results of
operation.
Inflation
Substantially
all of the resident leases at our communities allow, at the time of renewal, for
adjustments in the rent payable hereunder, and thus may enable us 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 of the adverse effects of
inflation.
Impact
of Recently Issued Accounting Standards
In June
2009, the FASB issued ASC 105-10, Generally Accepted Accounting
Principles – Overall, or ASC 105-10, which establishes the FASB
Accounting Standards Codification, or the Codification, as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. generally accepted accounting principles, or
GAAP. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC
accounting and reporting standards. All other non-grandfathered,
non-SEC accounting literature not included in the Codification is
non-authoritative. The FASB will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates, or
ASUs. The FASB will not consider ASUs as authoritative in their own
right. ASUs will serve only to update the Codification, provide background
information about the guidance and provide the basis for conclusions on the
change(s) in the Codification. We adopted ASC 105-10 effective July 1, 2009
and all references made to FASB guidance throughout this document have been
updated for the Codification.
In April
2008, the FASB issued ASC 825-10-65-1, Interim Disclosures About Fair
Market Value of Financial Instruments, or ASC 825-10-65-1, which extends
the disclosure requirements concerning the fair value of financial instruments
to interim financial statements of publicly traded companies. ASC 825-10-65-1 is
effective for interim financial periods ending after June 15, 2009, and the
required disclosures are included in Note 9 to the condensed consolidated
financial statements.
In June
2008, the FASB issued ASC 810-10-05, Amendments to FASB Interpretation
No. 46(R), or ASC 810-10-05, which amends events that would require
reconsidering whether an entity is a variable interest entity; it amends the
criteria used to determine the primary beneficiary of a variable interest
entity; and it expands disclosures about an enterprise’s involvement in variable
interest entities. ASC 810-10-05 is effective for annual
reporting periods beginning after November 15, 2009 and earlier application is
prohibited. We adopted ASC 810-10-05 effective January 1, 2010. The adoption did
not have a material impact on our consolidated financial condition or results of
operations taken as a whole.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk.
|
We are
exposed to interest rate changes associated with our credit facilities and other
variable rate debt as well as refinancing risk on our fixed rate debt. Our
involvement with derivative financial instruments is limited to managing our
exposure to changes in interest rates and we do not expect to use them for
trading or other speculative purposes.
There
have been no material changes in our market risk as disclosed in the 2009 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 are
incorporated by reference herein.
Item
4.
|
Controls
and Procedures.
|
Management’s
Evaluation of Disclosure Controls and Procedures
Our
management, under the supervision and with the participation of our principal
executive and financial officers, has evaluated the effectiveness of our
disclosure controls and procedures in ensuring that the information required to
be disclosed in our filings under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms, including ensuring
that such information is accumulated and communicated to our management as
appropriate to allow timely decisions regarding required disclosure. Based on
such evaluation, our principal executive and financial officers have concluded
that such disclosure controls and procedures were effective as of September 30,
2010 (the end of the period covered by this Quarterly Report on Form
10-Q).
Changes
in Internal Controls
During
the three months ended September 30, 2010, there were no changes in our internal
control over financial reporting that materially affected, or that are
reasonably likely to materially affect, our internal control over financial
reporting.
Item
4T.
|
Controls
and Procedures.
|
Not
applicable
PART
II – OTHER INFORMATION
Item
1.
|
Legal
Proceedings.
|
None.
We have
identified the following additional risks and uncertainties that may have a
material adverse effect on our business, financial condition or results of
operations. Investors should carefully consider the risks described
below before making an investment decision. Our business faces
significant risks and the risks described below may not be the only risks we
face. Additional risks not presently known to us or that we currently believe
are immaterial may also significantly impair our business operations. If any of
these risks occur, our business, results of operations or financial condition
could suffer, the market price of our common stock could decline and you could
lose all or part of your investment in our common stock.
Economic
slowdown in the United States and downturns in the housing and real estate
markets may adversely affect our financial condition and results of
operations
Significant
declines in economic growth, both in the United States and globally, such that
we have experienced in the second half of 2008 and through the nine months ended
September 30, 2010, may impact our financial condition and results of
operations. Recently, both the real estate industry and the broader United
States economy have experienced unfavorable conditions which adversely affected
our revenues. Factors such as weakened economies and related reduction in
spending, falling home prices and mounting job losses, price volatility, and/or
dislocations and liquidity disruptions in the financial and credit markets
could, among other things, impede the ability of our tenants and other parties
with which we conduct business to perform their contractual obligations, which
could lead to an increase in defaults by our tenants and other contracting
parties, which could adversely affect our revenues. Furthermore, our ability to
lease our properties at favorable rates, or at all, is adversely affected by
increases in supply and deterioration in multifamily markets and is dependent
upon the overall level of spending in the economy, which is adversely affected
by, among other things, job losses and unemployment levels, recession, personal
debt levels, downturns in the housing market, stock market volatility and
uncertainty about the future. With regard to our ability to lease our
multifamily properties, the increasing rental of excess for-sale condominiums
and single family homes, which increases the supply of multifamily units and
housing alternatives, may reduce our ability to lease our multifamily units and
depress rental rates in certain markets. When we experience a downturn, we
cannot predict how long demand and other factors in the real estate market will
remain unfavorable, but if the markets remain weak over extended periods of time
or deteriorate significantly, our ability to lease our properties or our ability
to increase or maintain rental rates in certain markets may
weaken.
Failure
to generate sufficient cash flows could limit our ability to pay distributions
to shareholders
Our
ability to generate sufficient cash flow in order to pay distributions to our
shareholders depends on our ability to generate funds from operations in excess
of capital expenditure requirements and/or to have access to the markets for
debt and equity financing. Funds from operations and the value of our apartment
communities may be insufficient because of factors which are beyond our control.
Such events or conditions could include:
|
·
|
competition
from other apartment communities;
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overbuilding
of new apartment units or oversupply of available apartment units in our
markets, which might adversely affect apartment occupancy or rental rates
and/or require rent concessions in order to lease apartment
units;
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conversion
of condominiums and single family houses to rental
use;
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·
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weakness
in the overall economy which lowers job growth and the associated demand
for apartment housing;
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increases
in operating costs (including real estate taxes and insurance premiums)
due to inflation and other factors, which may not be offset by increased
rents;
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inability
to initially, or subsequently after lease terminations, rent apartments on
favorable economic terms;
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inability
to complete or lease-up development communities on a timely basis, if at
all;
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changes
in governmental regulations and the related costs of
compliance;
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·
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changes
in laws including, but not limited to, tax laws and housing laws including
the enactment of rent control laws or other laws regulating multifamily
housing;
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withdrawal
of Government support of apartment financing through its financial backing
of the Federal National Mortgage Association, or FNMA, or the Federal Home
Loan Mortgage Corporation, or Freddie
Mac;
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an
uninsured loss, including those resulting from a catastrophic storm,
earthquake, or act of terrorism;
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changes
in interest rate levels and the availability of financing, borrower credit
standards, and down-payment requirements which could lead renters to
purchase homes (if interest rates decrease and home loans are more readily
available) or increase our acquisition and operating costs (if interest
rates increase and financing is less readily available);
and
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the
relative illiquidity of real estate
investments.
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At times,
we rely on external funding sources to fully fund the payment of distributions
to shareholders and our capital investment program (including our existing
property expansion developments). While we have sufficient liquidity to permit
distributions at current rates through additional borrowings if necessary, any
significant and sustained deterioration in operations could result in our
financial resources being insufficient to pay distributions to shareholders at
the current rate, in which event we would be required to reduce the distribution
rate. Any decline in our funds from operations could adversely affect our
ability to make distributions to our shareholders or to meet our loan covenants
and could have a material adverse effect on our stock price.
Our
financing could be impacted by negative capital market conditions
Over the
past two years, domestic financial markets have experienced unusual volatility
and uncertainty. Liquidity has tightened in financial markets, including the
investment grade debt, the CMBS, commercial paper, and equity capital markets. A
large majority of apartment financing, and as of September 30, 2010, 85% of our
outstanding debt, is provided by or credit-enhanced by FNMA and Freddie Mac,
which are now under the conservatorship of the United States government. We have
seen an increase in the volatility of short term interest rates and changes in
historic relationships between LIBOR (which is the basis for the majority of the
payments to us by our swap counterparties) and the actual interest rate we pay
through the FNMA Discount Mortgage Backed Security, or DMBS, and the Freddie Mac
Reference Bill programs, which we believe to be temporary. This creates a risk
that our interest expense will fluctuate to a greater extent than it has in the
past, and it makes forecasting more difficult. Were our credit arrangements with
Prudential Mortgage Capital, credit-enhanced by FNMA, or with Financial Federal,
credit-enhanced by Freddie Mac, to fail, or their ability to lend money to
finance apartment communities to become impaired, we would have to seek
alternative sources of capital, which might not be available on terms acceptable
to us, if at all. In addition, any such event would most likely cause our
interest costs to rise. This could also cause our interest rate swaps
and caps to become ineffective, triggering a default in one or more of our
credit agreements. If any of the foregoing events were to occur, it could have a
material adverse affect on our business, financial condition and
prospects.
Various
traunches of our credit facilities with FNMA and Freddie Mac mature from 2011
through 2018, and we anticipate that replacement facilities will be at a higher
cost and have less attractive terms, if available at all.
A
change in United States government policy with regard to FNMA and Freddie Mac
could seriously impact our financial condition
The
United States government has committed preferred equity to FNMA and Freddie Mac,
placing them in conservatorship and the Treasury Department increased FNMA and
Freddie Mac’s portfolio caps which are required to be reduced over time. Through
expansion of their off-balance sheet lending products (which form the large
majority of our borrowing), we believe that FNMA and Freddie Mac balance sheet
limitations will not restrict their support of lending to the multifamily
industry or to us in particular. Statements supporting their involvement in
apartment lending by the heads of multifamily lending of FNMA, Freddie Mac, and
their regulator have been reiterated. Should this support change, it would have
a material adverse affect on both us and the multifamily industry, and we would
seek alternative sources of funding. This could jeopardize the effectiveness of
our interest rate swaps, require us to post collateral up to the market value of
the interest rate swaps, and either of these occurrences could potentially cause
a breach in one or more of our loan covenants, and through reduced loan
availability, impact the value of multifamily assets, which could impair the
value of our properties.
A
change in the value of our assets could cause us to experience a cash shortfall,
to be in default of our loan covenants, or to incur a charge for the impairment
of assets
We borrow
on a secured basis from FNMA, Freddie Mac, and Regions Bank. A significant
reduction in the value of our assets could require us to post additional
collateral. While we believe that we have significant excess collateral and
capacity, future asset values are uncertain. If we were unable to meet a request
to add collateral to a credit facility, this would have a material adverse
affect on our liquidity and our ability to meet our loan covenants. We may
determine that the value of an individual asset, or group of assets, was
irrevocably impaired, and that we may need to record a charge to write-down the
value of the asset to reflect its current value.
Debt
level, refinancing and loan covenant risk may adversely affect our financial
condition and operating results and our ability to maintain our status as a
REIT
At
September 30, 2010, we had total debt outstanding of $1.6 billion. Payments of
principal and interest on borrowings may leave us with insufficient cash
resources to operate the apartment communities or to pay distributions that are
required to be paid in order for us to maintain our qualification as a REIT. We
currently intend to limit our total debt to a range of approximately 45% to 55%
of the undepreciated book value of our assets, although our charter and bylaws
do not limit our debt levels. Circumstances may cause us to exceed that target
from time-to-time. As of September 30, 2010, our ratio of debt to undepreciated
book value was approximately 51%. Our Board of Directors can modify this policy
at any time, which could allow us to become more highly leveraged and decrease
our ability to make distributions to our shareholders. In addition, we must
repay our debt upon maturity, and the inability to access debt or equity capital
at attractive rates could adversely affect our financial condition and/or our
funds from operations. We rely on FNMA and Freddie Mac, which we refer to as the
Agencies, for the majority of our debt financing and have agreements with the
Agencies and with other lenders that require us to comply with certain
covenants, including maintaining adequate collateral that is subject to
revaluation quarterly. The breach of any one of these covenants would place us
in default with our lenders and may have serious consequences on our
operations.
Interest
rate hedging may be ineffective
We rely
on the financial markets to refinance debt maturities, and also are heavily
reliant on the Agencies, which provide credit or credit enhancement for
approximately $1.3 billion of our outstanding debt as of September 30, 2010. The
debt is provided under the terms of credit facilities with Prudential Mortgage
Capital (credit-enhanced by FNMA) and Financial Federal (credit-enhanced by
Freddie Mac). We pay fees to the credit facility providers and the Agencies plus
interest which is based on the FNMA DMBS rate, and the Freddie Mac Reference
Bill Rate. The Agencies have been placed into conservatorship by the U.S.
Government (under the supervision of the Federal Housing Finance Agency), which
has committed $200 billion of capital to each, if needed.
The
interest rate market for the FNMA DMBS rate and the Freddie Mac Reference Bill
Rate, both of which have been highly correlated with LIBOR interest rates, are
also an important component of our liquidity and interest rate swap and cap
effectiveness. In our experience, the FNMA DMBS rate has historically averaged
16 basis points below three-month LIBOR, and the Freddie Mac Reference Bill rate
has averaged 35 basis points below the associated LIBOR rate, but in the past 3
years the spreads increased significantly and have been more volatile than we
have historically seen. We cannot forecast when or if the uncertainty and
volatility in the market may change. Continued unusual volatility over a period
of time could cause us to lose hedge accounting treatment for our interest rate
swaps and caps, resulting in material changes to our consolidated statements of
operations and balance sheet, and potentially cause a breach with one of our
debt covenants.
Fluctuations
in interest rate spreads between the DMBS and Reference Bill rates and
three-month LIBOR causes ineffectiveness to flow through interest expense in the
current period if in an overhedged position, and together with the unrecognized
ineffectiveness, reduces the effectiveness of the swaps and caps.
We also
rely on the credit of the counterparties that provide swaps and caps to hedge
the interest rate risk on our credit facilities. We use four major banks to
provide approximately 98% of our derivative fair value, all of which have high
investment grade ratings from Moody’s and S&P. In the event that one of our
derivative providers should suffer a significant downgrade of its credit rating
or fail, our swaps or caps may become ineffective, in which case the value of
the swap or cap would be adjusted to fair value in the current period, possibly
causing a substantial loss sufficient to cause a breach with one of our debt
covenants.
One
or more interest rate swap or cap counterparties could default, causing us
significant financial exposure
We enter
into interest rate swap and interest rate cap agreements only with
counterparties that are highly rated (A+ or above by Standard & Poors, or
Aa3 or above by Moody’s). We also try to diversify our risk amongst several
counterparties. In the event one or more of these counterparties were to go into
liquidation or to experience a significant rating downgrade, this could cause us
to liquidate the interest rate swap or to lose the interest rate protection of
an interest rate cap. Liquidation of an interest rate swap could cause us to be
required to pay the swap counter party the net present value of the swap, which
may represent a significant current period cash charge, possibly sufficient to
cause us to breach one or more loan covenants.
Variable
interest rates may adversely affect funds from operations
At
September 30, 2010, effectively $228 million of our debt bore interest at a
variable rate and was not hedged by interest rate swaps or caps. We may incur
additional debt in the future that also bears interest at variable rates.
Variable rate debt creates higher debt service requirements if market interest
rates increase, which would adversely affect our funds from operations and the
amount of cash available to pay distributions to shareholders. Our $1.0 billion
secured credit facilities with Prudential Mortgage Capital, credit enhanced by
FNMA, are predominately floating rate facilities. We also have credit facilities
with Freddie Mac totaling $300 million that are variable rate facilities. At
September 30, 2010, a total of $1.3 billion was outstanding under these
facilities. These facilities represent the majority of the variable interest
rates we were exposed to at September 30, 2010. Large portions of the interest
rates on these facilities have been hedged by means of a number of interest rate
swaps and caps. Upon the termination of these swaps and caps, we will be exposed
to the risks of varying interest rates.
Losses
from catastrophes may exceed our insurance coverage
We carry
comprehensive liability and property insurance on our communities and intend to
obtain similar coverage for communities we acquire in the future. Some losses,
generally of a catastrophic nature, such as losses from floods, hurricanes or
earthquakes, are subject to limitations, and thus may be uninsured. We exercise
our discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to maintaining appropriate insurance on our
investments at a reasonable cost and on suitable terms. If we suffer a
substantial loss, our insurance coverage may not be sufficient to pay the full
current market value or current replacement value of our lost investment.
Inflation, changes in building codes and ordinances, environmental
considerations and other factors also might make it infeasible to use insurance
proceeds to replace a property after it has been damaged or
destroyed.
Increasing
real estate taxes and insurance costs may negatively impact financial
condition
As a
result of our substantial real estate holdings, the cost of real estate taxes
and insuring our apartment communities is a significant component of expense.
Real estate taxes and insurance premiums are subject to significant increases
and fluctuations, which can be widely outside of our control. If the costs
associated with real estate taxes and insurance should rise, our financial
condition could be negatively impacted, and our ability to pay our dividend
could be affected.
Property
insurance limits may be inadequate and deductibles may be excessive in the event
of a catastrophic loss or a series of major losses, and may cause a breach of
loan covenants
We have a
significant proportion of our assets in areas exposed to windstorms and to the
New Madrid seismic zone. A major wind or earthquake loss, or series of losses,
could require that we pay significant deductibles as well as additional amounts
above the per occurrence limit of our insurance for these risks. We may then be
judged to have breached one or more of our loan covenants, and any of the
foregoing events could have a material adverse effect on our assets, financial
condition, and results of operation.
Issuances
of additional debt or equity may adversely impact our financial
condition
Our
capital requirements depend on numerous factors, including the occupancy and
turnover rates of our apartment communities, development and capital
expenditures, costs of operations and potential acquisitions. We cannot
accurately predict the timing and amount of our capital requirements. If our
capital requirements vary materially from our plans, we may require additional
financing sooner than anticipated. Accordingly, we could become more leveraged,
resulting in increased risk of default on our obligations and in an increase in
our debt service requirements, both of which could adversely affect our
financial condition and ability to access debt and equity capital markets in the
future. If we issue additional equity securities to obtain additional financing,
the interest of our existing shareholders could be diluted.
We
are dependent on key personnel
Our
success depends in part on our ability to attract and retain the services of
executive officers and other personnel. There is substantial competition for
qualified personnel in the real estate industry, and the loss of several of our
key personnel could have an adverse effect on us.
New
acquisitions may fail to perform as expected and, failure to integrate acquired
communities and new personnel could create inefficiencies
We intend
to actively acquire and improve multifamily communities for rental operations.
We may underestimate the costs necessary to bring an acquired community up to
standards established for our intended market position. Additionally, to grow
successfully, we must be able to apply our experience in managing our existing
portfolio of apartment communities to a larger number of properties. We must
also be able to integrate new management and operations personnel as our
organization grows in size and complexity. Failures in either area will result
in inefficiencies that could adversely affect our overall
profitability.
We
may not be able to sell communities when appropriate
Real
estate investments are relatively illiquid and generally cannot be sold quickly.
We may not be able to change our portfolio promptly in response to economic or
other conditions. Further, we own seven communities, which are subject to
restrictions on sale and are required to be exchanged through a 1031b tax-free
exchange, unless we pay the tax liability of the contributing partners. This
inability to respond promptly to changes in the performance of our investments
could adversely affect our financial condition and ability to make distributions
to our security holders.
Environmental
problems are possible and can be costly
Federal,
state and local laws and regulations relating to the protection of the
environment may require a current or previous owner or operator of real estate
to investigate and clean up hazardous or toxic substances or petroleum product
releases at such community. The owner or operator may have to pay a governmental
entity or third parties for property damage and for investigation and clean-up
costs incurred by such parties in connection with the contamination. These laws
typically impose clean-up responsibility and liability without regard to whether
the owner or operator knew of or caused the presence of the contaminants. Even
if more than one person may have been responsible for the contamination, each
person covered by the environmental laws may be held responsible for all of the
clean-up costs incurred. In addition, third parties may sue the owner or
operator of a site for damages and costs resulting from environmental
contamination emanating from that site. All of our communities have been the
subject of environmental assessments completed by qualified independent
environmental consultant companies. These environmental assessments have not
revealed, nor are we aware of, any environmental liability that we believe would
have a material adverse effect on our business, results of operations, financial
condition or liquidity. Over the past several years, there have been an
increasing number of lawsuits against owners and managers of multifamily
properties alleging personal injury and property damage caused by the presence
of mold in residential real estate.
Some of
these lawsuits have resulted in substantial monetary judgments or settlements.
We cannot be assured that existing environmental assessments of our communities
reveal all environmental liabilities, that any prior owner of any of our
properties did not create a material environmental condition not known to us, or
that a material environmental condition does not otherwise exist.
Our
ownership limit restricts the transferability of our capital stock
Our
charter limits ownership of our capital stock by any single shareholder to 9.9%
of the value of all outstanding shares of our capital stock, both common and
preferred. The charter also prohibits anyone from buying shares if the purchase
would result in our losing REIT status. This could happen if a share transaction
results in fewer than 100 persons owning all of our shares or in five or fewer
persons, applying certain broad attribution rules of the Internal Revenue Code
of 1986, as amended, or the Code, owning 50% or more of our shares. If you
acquire shares in excess of the ownership limit or in violation of the ownership
requirements of the Code for REITs, we:
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will
consider the transfer to be null and
void;
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will
not reflect the transaction on our
books;
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may
institute legal action to enjoin the
transaction;
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will
not pay dividends or other distributions with respect to those
shares;
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·
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will
not recognize any voting rights for those
shares;
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will
consider the shares held in trust for our benefit;
and
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will
either direct you to sell the shares and turn over any profit to us, or we
will redeem the shares. If we redeem the shares, you will be paid a price
equal to the lesser of the price you paid for the shares; or the average
of the last reported sales prices on the New York Stock Exchange on the
ten trading days immediately preceding the date fixed for redemption by
our Board of Directors.
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If you
acquire shares in violation of the limits on ownership described
above:
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you
may lose your power to dispose of the
shares;
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·
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you
may not recognize profit from the sale of such shares if the market price
of the shares increases; and
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·
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you
may be required to recognize a loss from the sale of such shares if the
market price decreases.
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Provisions
of our charter and Tennessee law may limit the ability of a third party to
acquire control of us
Ownership
Limit
The 9.9%
ownership limit discussed above may have the effect of precluding acquisition of
control of us by a third party without the consent of our Board of
Directors.
Preferred
Stock
Our
charter authorizes our Board of Directors to issue up to 20,000,000 shares of
preferred stock. The Board of Directors may establish the preferences and rights
of any preferred shares issued. The issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in our shareholders’ best interests. At June 30, 2010, we
had 3,099,999 shares of 8.30% Series H Cumulative Redeemable Preferred Stock
issued and outstanding. On August 5, 2010, we redeemed of all of the issued and
outstanding shares of the 8.30% Series H Cumulative Redeemable Preferred
Stock.
Tennessee
Anti-Takeover Statutes
As a
Tennessee corporation, we are subject to various legislative acts, which impose
restrictions on and require compliance with procedures designed to protect
shareholders against unfair or coercive mergers and acquisitions. These statutes
may delay or prevent offers to acquire us and increase the difficulty of
consummating any such offers, even if our acquisition would be in our
shareholders’ best interests.
Our
investments in joint ventures may involve risks
Investments
in joint ventures may involve risks that may not otherwise be present in our
direct investments such as:
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the
potential inability of our joint venture partner to
perform;
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the
joint venture partner may have economic or business interests or goals
which are inconsistent with or adverse to
ours;
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the
joint venture partner may take actions contrary to our requests or
instructions or contrary to our objectives or policies;
and
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the
joint venturers may not be able to agree on matters relating to the
property they jointly own.
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Although
each joint owner will have a right of first refusal to purchase the other
owner’s interest, in the event a sale is desired, the joint owner may not have
sufficient resources to exercise such right of first refusal.
Market
interest rates and low trading volume may have an adverse effect on the market
value of our common shares
The
market price of shares of a REIT may be affected by the distribution rate on
those shares, as a percentage of the price of the shares, relative to market
interest rates. If market interest rates increase, prospective purchasers of our
shares may expect a higher annual distribution rate. Higher interest rates would
not, however, result in more funds for us to distribute and, in fact, would
likely increase our borrowing costs and potentially decrease funds available for
distribution. This could cause the market price of our common shares to go down.
In addition, although our common shares are listed on the New York Stock
Exchange, the daily trading volume of our shares may be lower than the trading
volume for other industries. As a result, our investors who desire to liquidate
substantial holdings may find that they are unable to dispose of their shares in
the market without causing a substantial decline in the market value of the
shares.
Changes
in market conditions or a failure to meet the market’s expectations with regard
to our earnings and cash distributions could adversely affect the market price
of our common shares
We
believe that the market value of a REIT’s equity securities is based primarily
upon the market’s perception of the REIT’s growth potential and its current and
potential future cash distributions, and is secondarily based upon the real
estate market value of the underlying assets. For that reason, our shares may
trade at prices that are higher or lower than the net asset value per share. To
the extent we retain operating cash flow for investment purposes, working
capital reserves or other purposes, these retained funds, while increasing the
value of our underlying assets, may not correspondingly increase the market
price of our common shares. In addition, we are subject to the risk that our
cash flow will be insufficient to pay distributions to our shareholders. Our
failure to meet the market’s expectations with regard to future earnings and
cash distributions would likely adversely affect the market price of our
shares.
The stock
markets, including The New York Stock Exchange, or NYSE, on which we list our
common shares, have experienced significant price and volume fluctuations. As a
result, the market price of our common shares could be similarly volatile, and
investors in our common shares may experience a decrease in the value of their
shares, including decreases unrelated to our operating performance or prospects.
Among the market conditions that may affect the market price of our publicly
traded securities are the following:
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our
financial condition and operating performance and the performance of other
similar companies;
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actual
or anticipated differences in our quarterly operating
results;
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changes
in our revenues or earnings estimates or recommendations by securities
analysts;
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publication
of research reports about us or our industry by securities
analysts;
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additions
and departures of key personnel;
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strategic
decisions by us or our competitors, such as acquisitions, divestments,
spin-offs, joint ventures, strategic investments or changes in business
strategy;
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•
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the
issuance of additional shares of our common stock, or the perception that
such sales may occur, including under our at-the-market controlled equity
offering program;
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the
reputation of REITs generally and the reputation of REITs with portfolios
similar to ours;
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the
attractiveness of the securities of REITs in comparison to securities
issued by other entities (including securities issued by other real estate
companies);
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•
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an
increase in market interest rates, which may lead prospective investors to
demand a higher distribution rate in relation to the price paid for our
shares;
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•
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the
passage of legislation or other regulatory developments that adversely
affect us or our industry;
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speculation
in the press or investment
community;
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actions
by institutional shareholders or hedge
funds;
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•
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changes
in accounting principles;
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•
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general
market conditions, including factors unrelated to our
performance.
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In the
past, securities class action litigation has often been instituted against
companies following periods of volatility in their stock price. This type of
litigation could result in substantial costs and divert our management’s
attention and resources.
Failure
to qualify as a REIT would cause us to be taxed as a corporation
If we
failed to qualify as a REIT for federal income tax purposes, we would be taxed
as a corporation. The Internal Revenue Service may challenge our qualification
as a REIT for prior years, and new legislation, regulations, administrative
interpretations or court decisions may change the tax laws with respect to
qualification as a REIT or the federal tax consequences of such qualification.
For any taxable year that we fail to qualify as a REIT, we would be subject to
federal income tax on our taxable income at corporate rates, plus any applicable
alternative minimum tax. In addition, unless entitled to relief under applicable
statutory provisions, we would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. This
treatment would reduce our net earnings available for investment or distribution
to shareholders because of the additional tax liability for the year or years
involved. In addition, distributions would no longer qualify for the dividends
paid deduction nor be required to be made in order to preserve REIT status. We
might be required to borrow funds or to liquidate some of our investments to pay
any applicable tax resulting from our failure to qualify as a REIT.
Compliance
or failure to comply with laws requiring access to our properties by disabled
persons could result in substantial cost
The
Americans with Disabilities Act, the Fair Housing Act of 1988 and other federal,
state and local laws generally require that public accommodations be made
accessible to disabled persons. Noncompliance could result in the imposition of
fines by the government or the award of damages to private litigants. These laws
may require us to modify our existing communities. These laws may also restrict
renovations by requiring improved access to such buildings by disabled persons
or may require us to add other structural features that increase our
construction costs. Legislation or regulations adopted in the future may impose
further burdens or restrictions on us with respect to improved access by
disabled persons. We cannot ascertain the costs of compliance with these laws,
which may be substantial.
Failure
to make required distributions would subject us to income taxation
In order
to qualify as a REIT, each year we must distribute to stockholders at least 90%
of our taxable income (determined without regard to the dividend paid deduction
and by excluding net capital gains). To the extent that we satisfy the
distribution requirement, but distribute less than 100% of taxable income, we
will be subject to federal corporate income tax on the undistributed income. In
addition, we will incur a 4% nondeductible excise tax on the amount, if any, by
which our distributions in any year are less than the sum of:
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85%
of ordinary income for that year;
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95%
of capital gain net income for that year;
and
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100%
of undistributed taxable income from prior
years.
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Differences
in timing between the recognition of income and the related cash receipts or the
effect of required debt amortization payments could require us 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 us to forgo otherwise attractive opportunities
or engage in marginal investment opportunities
To
qualify as a REIT for federal income tax purposes, we 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 our stock. In order to meet these tests, we may be required to
forgo attractive business or investment opportunities or engage in marginal
investment opportunities. Thus, compliance with the REIT requirements may hinder
our ability to operate solely on the basis of maximizing profits.
Item
2.
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Unregistered
Sales of Equity Securities and Use of
Proceeds.
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None.
Item
3.
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Defaults
Upon Senior Securities.
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None.
Item
4.
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(Removed
and Reserved).
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Item
5.
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Other
Information.
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None.
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(a)
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The
following exhibits are filed as part of this
report.
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Exhibit
Number
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Exhibit Description
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31.1
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Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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31.2
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Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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32.1
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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
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32.2
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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
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101
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The
following financial information from Mid-America Apartment Communities,
Inc.’s Quarterly Report on Form 10-Q for the period ended September 30,
2010, filed with the SEC on November 4, 2010, formatted in Extensible
Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance
Sheet as of September 30, 2010 (Unaudited) and December 31, 2009; (ii) the
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2010 (Unaudited) and 2009 (Unaudited); (iii)
the Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2010 (Unaudited) and 2009 (Unaudited); and (iv) Notes
to Condensed Consolidated Financial Statements, tagged as blocks of text
(Unaudited).*
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*
Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit
101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for
purposes of Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be deemed part of a registration
statement, prospectus or other document filed under the Securities Act or the
Exchange Act, except as shall be expressly set forth by specific reference in
such filings.
SIGNATURES
Pursuant to the requirements 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.
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MID-AMERICA
APARTMENT COMMUNITIES, INC.
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Date:
November 4, 2010
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/s/Albert M. Campbell,
III
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Albert
M. Campbell, III
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Executive
Vice President and Chief Financial Officer
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(Principal
Financial and Accounting
Officer)
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