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Section 1: 10-Q (FORM 10-Q)

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

FORM 10-Q

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

For the quarterly period ended September 30, 2011

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 “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

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

 
Number of Shares Outstanding
Class
at October 24, 2011
Common Stock, $0.01 par value
37,823,957
 
 
 

 

MID-AMERICA APARTMENT COMMUNITIES, INC.

TABLE OF CONTENTS

   
Page
 
PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements.
 
 
Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010 (Unaudited)
2
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 (Unaudited) and 2010 (Unaudited).
3
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 (Unaudited) and 2010 (Unaudited).
4
 
Notes to Condensed Consolidated Financial Statements (Unaudited).
5
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
32
Item 4.
Controls and Procedures.
33
Item 4T.
Controls and Procedures.
33
     
 
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings.
33
Item 1A.
Risk Factors.
33
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
44
Item 3.
Defaults Upon Senior Securities.
44
Item 4.
(Removed and Reserved).
44
Item 5.
Other Information.
44
Item 6.
Exhibits.
45
 
Signatures
46
 
 
1

 

MAA
Condensed Consolidated  Balance  Sheets
September 30, 2011 and December 31, 2010
(Unaudited)
(Dollars in thousands, except per share data)

   
September 30, 2011
   
December 31, 2010
 
Assets:
           
Real estate assets:
           
Land
  $ 320,055     $ 288,890  
Buildings and improvements
    2,794,902       2,538,205  
Furniture, fixtures and equipment
    90,708       83,251  
Capital improvements in progress
    35,332       11,501  
      3,240,997       2,921,847  
Less accumulated depreciation
    (937,989 )     (863,936 )
      2,303,008       2,057,911  
                 
Land held for future development
    1,306       1,306  
Commercial properties, net
    8,277       8,141  
Investments in real estate joint ventures
    17,190       17,505  
Real estate assets, net
    2,329,781       2,084,863  
                 
Cash and cash equivalents
    24,254       45,942  
Restricted cash
    12,946       1,514  
Deferred financing costs, net
    14,134       13,713  
Other assets
    26,806       25,910  
Goodwill
    4,106       4,106  
Total assets
  $ 2,412,027     $ 2,176,048  
                 
Liabilities and Shareholders' Equity:
               
Liabilities:
               
Secured notes payable
  $ 1,452,889     $ 1,500,193  
Unsecured notes payable
    135,000       -  
Accounts payable
    3,088       1,815  
Fair market value of interest rate swaps
    39,156       48,936  
Accrued expenses and other liabilities
    93,379       73,999  
Security deposits
    6,428       6,693  
Liabilities associated with assets held for sale
    -       20  
Total liabilities
    1,729,940       1,631,656  
                 
Redeemable stock
    3,788       3,764  
                 
Shareholders' equity:
               
Common stock, $0.01 par value per share, 50,000,000 shares authorized; 37,823,972 and 34,871,399 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively (1)
    378       348  
Additional paid-in capital
    1,310,469       1,142,023  
Accumulated distributions in excess of net income
    (614,762 )     (575,021 )
Accumulated other comprehensive losses
    (41,584 )     (48,847 )
Total MAA shareholders' equity
    654,501       518,503  
Noncontrolling interest
    23,798       22,125  
Total equity
    678,299       540,628  
Total liabilities and equity
  $ 2,412,027     $ 2,176,048  

(1)
Number of shares issued and outstanding represent total shares of common stock regardless of classification on the consolidated balance sheet. The number of shares classified as redeemable stock on the consolidated balance sheet for September 30, 2011 and December 31, 2010 are 64,115 and 62,234, respectively.

See accompanying notes to consolidated financial statements.

 
2

 

MAA
Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 2011 and 2010
(Unaudited)
(Dollars in thousands, except per share data)

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Operating revenues:
                       
Rental revenues
  $ 105,913     $ 92,388     $ 304,282     $ 272,856  
Other property revenues
    9,649       8,307       28,133       22,923  
Total property revenues
    115,562       100,695       332,415       295,779  
Management fee income
    265       186       751       477  
Total operating revenues
    115,827       100,881       333,166       296,256  
Property operating expenses:
                               
Personnel
    14,195       12,959       40,858       37,849  
Building repairs and maintenance
    4,733       4,352       11,868       11,288  
Real estate taxes and insurance
    12,968       11,015       37,969       34,135  
Utilities
    7,579       6,629       20,086       17,829  
Landscaping
    2,771       2,548       8,155       7,548  
Other operating
    8,672       7,378       24,709       19,881  
Depreciation and amortization
    29,343       26,333       84,972       76,094  
Total property operating expenses
    80,261       71,214       228,617       204,624  
Acquisition expenses
    592       989       2,331       1,451  
Property management expenses
    4,904       4,547       15,242       13,303  
General and administrative expenses
    3,996       2,957       14,045       8,878  
Income from continuing operations before non-operating items
    26,074       21,174       72,931       68,000  
Interest and other non-property income
    108       217       457       618  
Interest expense
    (15,487 )     (13,587 )     (43,615 )     (41,450 )
Loss on debt extinguishment
    (63 )     -       (111 )     -  
Amortization of deferred financing costs
    (724 )     (675 )     (2,146 )     (1,918 )
Asset impairment
    -       (324 )     -       (1,914 )
Net casualty (loss) gains and other settlement proceeds
    (286 )     72       (692 )     330  
Loss on sale of non-depreciable assets
    -       -       (6 )     -  
Gain on properties contributed to joint ventures
    -       278       -       649  
Income from continuing operations before loss from real estate joint ventures
    9,622       7,155       26,818       24,315  
Loss from real estate joint ventures
    (107 )     (282 )     (530 )     (856 )
Income from continuing operations
    9,515       6,873       26,288       23,459  
Discontinued operations:
                               
Income from discontinued operations before loss on sale
    9       100       78       253  
Net loss on insurance and other settlement proceeds on discontinued operations
    -       -       (7 )     -  
Gain (loss) on sale of discontinued operations
    4,927       -       4,927       (2 )
Consolidated net income
    14,451       6,973       31,286       23,710  
Net income attributable to noncontrolling interests
    660       224       1,223       889  
Net income attributable to MAA
    13,791       6,749       30,063       22,821  
Preferred dividend distributions
    -       629       -       6,549  
Premiums and original issuance costs associated with the redemption of preferred stock
    -       2,576       -       5,149  
Net income available for common shareholders
  $ 13,791     $ 3,544     $ 30,063     $ 11,123  
                                 
Earnings per common share - basic:
                               
Income from continuing operations available for common shareholders
  $ 0.24     $ 0.11     $ 0.68     $ 0.35  
Discontinued property operations
    0.13       -       0.14       0.01  
Net income available for common shareholders
  $ 0.37     $ 0.11     $ 0.82     $ 0.36  
                                 
Earnings per share - diluted:
                               
Income from continuing operations available for common shareholders
  $ 0.24     $ 0.11     $ 0.68     $ 0.35  
Discontinued property operations
    0.13       -       0.13       0.01  
Net income available for common shareholders
  $ 0.37     $ 0.11     $ 0.81     $ 0.36  
                                 
Dividends declared per common share
  $ 0.6275     $ 0.6150     $ 1.8825     $ 1.8450  

See accompanying notes to consolidated financial statements.
 
 
3

 
 
MAA
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2011 and 2010
(Unaudited)
(Dollars in thousands)

   
2011
   
2010
 
Cash flows from operating activities:
           
Consolidated net income
  $ 31,286     $ 23,710  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    87,475       78,407  
Stock compensation expense
    4,445       1,915  
Redeemable stock issued
    397       296  
Amortization of debt premium
    (270 )     (270 )
Loss from investments in real estate joint ventures
    530       856  
Loss on debt extinguishment
    111       -  
Derivative interest expense
    407       405  
Loss on sale of non-depreciable assets
    6       -  
Loss (gain) on sale of discontinued operations
    (4,927 )     2  
Asset impairment
    -       1,914  
Net casualty loss (gains) and other settlement proceeds
    692       (330 )
Gain on properties contributed to joint ventures
    -       (649 )
Changes in assets and liabilities:
               
Restricted cash
    (669 )     (1,865 )
Other assets
    (3,276 )     (4,351 )
Accounts payable
    1,262       399  
Accrued expenses and other
    12,007       7,775  
Security deposits
    (265 )     (1,546 )
Net cash provided by operating activities
    129,211       106,668  
Cash flows from investing activities:
               
Purchases of real estate and other assets
    (261,948 )     (215,068 )
Improvements to existing real estate assets
    (38,435 )     (30,842 )
Renovations to existing real estate assets
    (9,586 )     (5,643 )
Development
    (21,921 )     -  
Distributions from real estate joint ventures
    1,158       1,607  
Contributions to real estate joint ventures
    (1,387 )     (9,739 )
Proceeds from disposition of real estate assets
    10,934       71,421  
Net cash used in investing activities
    (321,185 )     (188,264 )
Cash flows from financing activities:
               
Net change in credit lines
    (95,000 )     15,000  
Proceeds from notes payable
    285,350       137,881  
Principal payments on notes payable
    (102,384 )     (1,004 )
Funding of escrow for future principal payments on notes payable
    (10,763 )     -  
Payment of deferred financing costs
    (2,650 )     (7,122 )
Repurchase of common stock
    (2,471 )     (891 )
Proceeds from issuances of common shares
    170,515       247,104  
Distributions to noncontrolling interests
    (3,980 )     (4,284 )
Dividends paid on common shares
    (68,331 )     (56,172 )
Dividends paid on preferred shares
    -       (7,622 )
Redemption of preferred stock
    -       (155,022 )
Net cash provided by financing activities
    170,286       167,868  
Net (decrease) increase in cash and cash equivalents
    (21,688 )     86,272  
Cash and cash equivalents, beginning of period
    45,942       13,819  
Cash and cash equivalents, end of period
  $ 24,254     $ 100,091  
                 
Supplemental disclosure of cash flow information:
               
Interest paid
  $ 43,230     $ 41,718  
Supplemental disclosure of noncash investing and financing activities:
               
Conversion of units to shares of common stock
  $ 3,004     $ 1,219  
Accrued construction in progress
  $ 8,864     $ 2,165  
Interest capitalized
  $ 720     $ -  
Marked-to-market adjustment on derivative instruments
  $ 7,120     $ (14,444 )
Reclassification of  redeemable stock to liabilities
  $ 152     $ 271  

See accompanying notes to consolidated financial statements.

 
4

 
 
Mid-America Apartment Communities, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2011 and 2010
(Unaudited)

1.           Consolidation and Basis of Presentation and Significant Accounting Policies

Consolidation and Basis of Presentation

Mid-America Apartment Communities, Inc., or we, or MAA, is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops and manages apartment communities in the Sunbelt region of the United States. As of September 30, 2011, we owned or owned interests in a total of 165 multifamily apartment communities comprising 48,626 apartments located in 13 states, including two communities comprising 626 apartments owned through our joint venture, Mid-America Multifamily Fund I, LLC, and five communities comprising 1,635 apartments owned through our joint venture, Mid-America Multifamily Fund II, LLC. In addition, we also had two development communities and a second phase to an existing community under construction totaling 950 units as of September 30, 2011. No units for the development projects were completed as of September 30, 2011, and they are therefore not included in the totals above.

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

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

Out of Period Adjustment

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

Earnings per Common Share

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares outstanding during the period.  All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two class method of computing basic earnings per share. Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis with our diluted earnings per share being the more dilutive of the treasury stock or two class methods.  Operating partnership units are included in dilutive earnings per share calculations when they are dilutive to earnings per share. For the three and nine month periods ended September 30, 2011 and 2010, our basic earnings per share is computed using the two class method and our diluted earnings per share is computed using the treasury stock method as follows (dollars and shares in thousands, except per share amounts):
 
 
5

 
 
   
For the three months ended
   
For the nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Shares Outstanding
                       
Weighted average common shares - basic
    37,274       33,312       36,611       31,039  
Weighted average partnership units outstanding
    -   (1)     -   (1)      2,009       -   (1)
Effect of dilutive securities
    81       101       102       101  
Weighted average common shares - diluted
    37,355       33,413       38,722       31,140  
                                 
Calculation of Earnings per Share - basic
                               
Net income available for common shareholders
  $ 13,791     $ 3,544     $ 30,063     $ 11,123  
Net income allocated to unvested restricted shares
    (18 )     (19 )     (30 )     (62 )
Net income available for common shareholders, adjusted
  $ 13,773     $ 3,525     $ 30,033     $ 11,061  
                                 
Weighted average common shares - basic
    37,274       33,312       36,611       31,039  
Earnings per share - basic
  $ 0.37     $ 0.11     $ 0.82     $ 0.36  
                                 
Calculation of Earnings per Share - diluted
                               
Net income available for common shareholders
  $ 13,791     $ 3,544     $ 30,063     $ 11,123  
Net income attributable to noncontrolling interests
    -   (1)     -   (1)      1,223       -   (1)
Adjusted net income available for common shareholders
  $ 13,791     $ 3,544     $ 31,286     $ 11,123  
                                 
Weighted average common shares - diluted
    37,355       33,413       38,722       31,140  
Earnings per share - diluted
  $ 0.37     $ 0.11     $ 0.81     $ 0.36  

(1) Operating partnership units are not included in dilutive earnings per share calculations for the three month period ended September 30, 2011, or the three or nine month periods ended September 30, 2010, as they were not dilutive.

2.           Segment Information

As of September 30, 2011, we owned or had an ownership interest in 165 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 and communities that have been classified as held for sale.  The non same store communities also include non-multifamily activities, which represent less than 1% of our portfolio.
 
 
6

 
 
On the first day of each calendar year, we determine the composition of our same store operating segments for that year, which allows us to evaluate full period-over-period operating comparisons.  We utilize net operating income, or NOI, in evaluating the performance of the segments.  Total NOI represents total property revenues less total property operating expenses, excluding depreciation and amortization, 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, 2011 and 2010, were as follows (dollars in thousands):

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues
                       
Large Market Same Store
  $ 51,428     $ 48,860     $ 151,825     $ 145,596  
Secondary Market Same Store
    47,674       45,004       140,773       134,049  
Non-Same Store and Other
    16,460       6,831       39,817       16,134  
Total property revenues
    115,562       100,695       332,415       295,779  
Management fee income
    265       186       751       477  
Total operating revenues
  $ 115,827     $ 100,881     $ 333,166     $ 296,256  
                                 
NOI
                               
Large Market Same Store
  $ 28,707     $ 27,312     $ 86,053     $ 82,392  
Secondary Market Same Store
    26,790       25,184       80,854       76,545  
Non-Same Store and Other
    9,247       3,564       22,318       8,994  
Total NOI
    64,744       56,060       189,225       167,931  
Discontinued operations NOI included above
    (100 )     (246 )     (455 )     (682 )
Management fee income
    265       186       751       477  
Depreciation and amortization
    (29,343 )     (26,333 )     (84,972 )     (76,094 )
Acquisition expense
    (592 )     (989 )     (2,331 )     (1,451 )
Property management expense
    (4,904 )     (4,547 )     (15,242 )     (13,303 )
General and administrative expense
    (3,996 )     (2,957 )     (14,045 )     (8,878 )
Interest and other non-property income
    108       217       457       618  
Interest expense
    (15,487 )     (13,587 )     (43,615 )     (41,450 )
Loss on debt extinguishment
    (63 )     -       (111 )     -  
Amortization of deferred financing costs
    (724 )     (675 )     (2,146 )     (1,918 )
Asset impairment
    -       (324 )     -       (1,914 )
Net casualty gains (loss) and other settlement proceeds
    (286 )     72       (692 )     330  
Loss on sale of non-depreciable assets
    -       -       (6 )     -  
Gain on properties contributed to joint ventures
    -       278       -       649  
Loss from real estate joint ventures
    (107 )     (282 )     (530 )     (856 )
Discontinued operations
    4,936       100       4,998       251  
Net income attributable to noncontrolling interests
    (660 )     (224 )     (1,223 )     (889 )
Net income attributable to MAA
  $ 13,791     $ 6,749     $ 30,063     $ 22,821  

 
7

 

Assets for each reportable segment as of September 30, 2011 and December 31, 2010, were as follows (dollars in thousands):

   
September 30,
   
December 31,
 
   
2011
   
2010
 
Assets
           
Large Market Same Store
  $ 1,025,806     $ 1,044,321  
Secondary Market Same Store
    675,594       683,389  
Non-Same Store and Other
    659,344       359,606  
Corporate assets
    51,283       88,732  
Total assets
  $ 2,412,027     $ 2,176,048  

3.           Comprehensive Income and Equity

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

    
Mid-America Apartment Communities, Inc. Shareholders
             
                     
Accumulated
   
Accumulated
             
   
Preferred
   
Common
   
Additional
   
Distributions
   
Other
             
   
Stock
   
Stock
   
Paid-In
   
in Excess of
   
Comprehensive
   
Noncontrolling
   
Total
 
   
Amount
   
Amount
   
Capital
   
Net Income
   
Income (Loss)
   
Interest
   
Equity
 
EQUITY BALANCE DECEMBER 31, 2010
  $ -     $ 348     $ 1,142,023     $ (575,021 )   $ (48,847 )   $ 22,125     $ 540,628  
Comprehensive income:
                                                       
Net income
                            30,063               1,223       31,286  
Other comprehensive income - derivative instruments (cash flow hedges)
                                    7,263       264       7,527  
Comprehensive income
                                                    38,813  
Issuance and registration of common shares
            27       170,079                               170,106  
Shares repurchased and retired
                    (2,471 )                             (2,471 )
Exercise of stock options
                    407                               407  
Shares issued in exchange for units
            3       3,001                       (3,004 )     -  
Redeemable stock fair market value
                            223                       223  
Adjustment for Noncontrolling Interest Ownership in operating partnership
                    (7,015 )                     7,015       -  
Amortization of unearned compensation
                    4,445                               4,445  
Dividends on common stock ($1.8825 per share)
                            (70,027 )             -       (70,027 )
Dividends on noncontrolling interest units ($1.8825 per unit)
                                            (3,825 )     (3,825 )
Redemption of preferred stock
                                                    -  
Dividends on preferred stock
                                                    -  
EQUITY BALANCE SEPTEMBER 30, 2011
  $ -     $ 378     $ 1,310,469     $ (614,762 )   $ (41,584 )   $ 23,798     $ 678,299  
 
 
8

 

    
Mid-America Apartment Communities, Inc. Shareholders
             
                     
Accumulated
   
Accumulated
             
   
Preferred
   
Common
   
Additional
   
Distributions
   
Other
             
   
Stock
   
Stock
   
Paid-In
   
in Excess of
   
Comprehensive
   
Noncontrolling
   
Total
 
   
Amount
   
Amount
   
Capital
   
Net Income
   
Income (Loss)
   
Interest
   
Equity
 
EQUITY BALANCE DECEMBER 31, 2009
  $ 62     $ 290     $ 988,642     $ (510,993 )   $ (47,435 )   $ 22,660     $ 453,226  
Comprehensive income:
                                                       
Net income
                            22,821               889       23,710  
Other comprehensive income - derivative instruments (cash flow hedges)
                                    (13,540 )     (500 )     (14,040 )
Comprehensive income
                                                    9,670  
Issuance and registration of common shares
            48       246,960                               247,008  
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 ($1.8450 per share)
                            (59,201 )                     (59,201 )
Dividends on noncontrolling interest units ($1.8450 per unit)
                                            (4,215 )     (4,215 )
Redemption of preferred stock
    (62 )             (149,811 )     (5,149 )                     (155,022 )
Dividends on preferred stock
                            (6,549 )                     (6,549 )
EQUITY BALANCE SEPTEMBER 31, 2010
  $ -     $ 338     $ 1,085,697     $ (559,610 )   $ (60,975 )   $ 20,033     $ 485,483  

4.           Real Estate Acquisitions

The following communities were purchased during the quarter ended September 30, 2011:

   
Location
 
Number
   
Community
 
(Metropolitan Statistical Area (MSA))
 
of Units
 
Date Purchased
100% Owned Communities
           
             
Birchall at Ross Bridge
 
Hoover, AL (Birmingham)
 
        240
 
 August 25, 2011
Legends at Lowe's Farm
 
Mansfield, TX (Dallas)
 
        456
 
September 19, 2011

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

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 and 2010, we acquired 14 of the remaining 19 units.  On both August 30, 2011 and September 29, 2011, we acquired one additional unit.
 
 
9

 
 
During the nine months ended September 30, 2011, we acquired properties totaling 2,277 units for a total purchase price of $264.6 million, which includes land acquired for future development.  These acquisitions account for $8.6 million of consolidated revenue as reported and $1.4 million included in the total consolidated net income for the nine months ended September 30, 2011. The unaudited pro forma information set forth below is based on the Company’s historical Consolidated Statement of Operations for the nine months ended September 30, 2011 and 2010, adjusted to give effect to these transactions at the beginning of the earliest year presented.  Pro forma results are not necessarily indicative of future results.

   
Pro forma (Unaudited)
 
   
Period Ended September 30,
 
   
(in thousands, except per share data)
 
   
2011
   
2010
 
Total Revenue (1)
    345,367       315,652  
                 
Net Income available to common shareholders (1)
    33,491       10,540  
                 
Earnings per share, diluted (1)
  $ 0.87     $ 0.31  

(1) Pro forma adjustments for certain acquisitions are excluded as they had no pre-acquisition operating activity in 2010 or 2011.  This includes the purchase of land for development projects.

5.           Discontinued Operations

As part of our portfolio strategy to selectively dispose of mature assets that no longer meet our investment criteria and long-term strategic objectives, and in accordance with accounting standards governing the disposal of long lived assets, the 260-unit Lodge at Timberglen apartments in Dallas, Texas is considered a discontinued operation in the accompanying condensed consolidated financial statements.   This property was sold on August 16, 2011, and resulted in a gain of $4.927 million, which is included in discontinued operations.
 
 
10

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

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues
                       
Rental revenues
  $ 233     $ 454     $ 1,109     $ 1,343  
Other revenues
    27       49       129       150  
Total revenues
    260       503       1,238       1,493  
Expenses
                               
Property operating expenses
    160       259       784       813  
Depreciation
    90       133       357       395  
Interest expense
    1       11       19       32  
Total expense
    251       403       1,160       1,240  
Income from discontinued operations before gain on sale
    9       100       78       253  
Net loss on insurance and other settlement proceeds on discontinued operations
    -       -       (7 )     -  
Gain (loss) on sale of discontinued operations
    4,927       -       4,927       (2 )
Income from discontinued operations
  $ 4,936     $ 100     $ 4,998     $ 251  

6.           Share and Unit Information

On September 30, 2011, 37,823,972 common shares and 1,942,275 operating partnership units were issued and outstanding, representing a total of 39,766,247 shares and units. At 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, MAA had outstanding options for the purchase of 19,357 shares of common stock at September 30, 2010.  There were no outstanding options at September 30, 2011.

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

During the three and nine month periods ended September 30, 2011, we issued 656,500 shares and 2,178,973 shares of common stock, respectively, through our ATM programs for net proceeds of $44.2 million and $139.5 million, respectively. During the three and nine month periods ended September 30, 2010, we issued a total of 1,039,400 shares and 4,114,000 shares of common stock, respectively through our ATM programs for net proceeds of $55.0 million and $216.5 million, respectively.

During the three and nine month periods ended September 30, 2011, we issued 100 shares and 495,487 shares of common stock, respectively, through the optional cash purchase feature of our Dividend and Distribution Reinvestment and Share Purchase Program, or DRSPP. The issuances resulted in net proceeds of $7,000 and $30.0 million, respectively. During the three and nine month periods ended September 30, 2010, we issued 551,208 shares and 551,729 shares of common stock, respectively, through our DRSPP resulting in net proceeds of $30.0 million and $30.0 million, respectively.
 
 
11

 

During the three months ended March 31, 2011, 25,082 shares of MAA’s common stock were acquired from employees to satisfy tax withholding obligations that arose upon vesting of restricted stock granted pursuant to approved plans. No such acquisitions occurred during the three month period ended September 30, 2011.

7.           Notes Payable

On September 30, 2011 and December 31, 2010, we had total indebtedness of $1,587,889,000 and $1,500,193,000, respectively. Our indebtedness as of September 30, 2011 consisted of both conventional and tax exempt debt. Borrowings were made through individual property mortgages as well as company-wide secured credit facilities.

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

On July 29, 2011, we issued $135 million of Senior Unsecured Notes. The notes were offered in a private placement with three maturity tranches: $50.00 million 7-year maturity at 4.68%, $72.75 million 10-year maturity at 5.40%, and $12.25 million 12-year maturity at 5.57%. The notes have an average maturity of 8.9 years and an average interest rate of 5.15%.

As of September 30, 2011, approximately 68% of our outstanding debt was borrowed through secured credit facility relationships with Prudential Mortgage Capital, which are credit enhanced by the Federal National Mortgage Association, or FNMA, Financial Federal, which are credit enhanced by Freddie Mac, and a $50 million bank facility with a syndicate of banks.

We utilize interest rate swaps and interest rate caps to help manage our current and future interest rate risk and entered into 24 interest rate swaps and 21 interest rate caps as of September 30, 2011, representing notional amounts of $601,800,000 and $270,651,000, respectively.
 
 
12

 
 
The following table summarizes our outstanding debt structure as of September 30, 2011 (dollars in thousands):
   
Borrowed
   
Effective
 
Contract
   
Balance
   
Rate
 
Maturity
Fixed Rate Secured Debt
             
Individual property mortgages
  $ 353,894       5.0 %
7/3/2020
Tax-exempt
    10,715       5.3 %
12/1/2028
FNMA conventional credit facilities
    50,000       4.7 %
3/31/2017
Credit facility balances managed with interest rate swaps
                 
LIBOR-based interest rate swaps
    584,000       5.2 %
7/11/2013
SIFMA-based interest rate swaps
    17,800       4.4 %
10/15/2012
Total fixed rate secured debt
    1,016,409       5.1 %
4/15/2016
                   
Variable Rate Secured Debt (1)
                 
FNMA conventional credit facilities
    284,318       0.7 %
12/1/2014
FNMA tax-free credit facilities
    72,715       1.0 %
7/23/2031
Freddie Mac credit facilities
    64,247       0.7 %
7/1/2014
Freddie Mac mortgage
    15,200       3.5 %
12/10/2015
Total variable rate secured debt
    436,480       0.9 %
8/30/2017
                   
Total Secured Debt
  $ 1,452,889       3.8 %
9/12/2016
                   
Unsecured Debt
                 
Senior Unsecured Notes
    135,000       5.1 %
8/23/2020
Total Unsecured Debt
  $ 135,000       5.1 %
8/23/2020
                   
Total Outstanding Debt
  $ 1,587,889       3.9 %
1/13/2017

(1) Includes capped balances.
 
 
13

 
 
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, 2011 and 2010, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended September 30, 2011 and 2010, we recorded ineffectiveness of $91,000 and $86,000, respectively, and during the nine months ended September 30, 2011 and 2010, $186,000 and $346,000, respectively, as an increase to interest expense attributable to a mismatch in the underlying indices of the derivatives and the hedged interest payments made on our variable-rate debt.

During the nine months ended September 30, 2011, we also had eight interest rate caps with a total  notional amount of $51.2 million, (two of these caps with a collective notional amount of $19.5 million matured during the first quarter of 2011), where only the changes in intrinsic value are recorded in accumulated other comprehensive income.  Changes in fair value of these interest rate caps due to changes in time value (e.g. volatility, passage of time, etc.) are excluded from effectiveness testing and are recognized directly in earnings.  During the three months ended September 30, 2011 and 2010, we recorded a loss of less than $1,000 and a loss of $7,000, respectively, and during the nine months ended September 30, 2011 and 2010, a loss of $7,000 and $37,000, 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 $20.4 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, 2011 we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate Derivative
 
Number of Instruments
   
Notional
 
Interest Rate Caps
    21     $ 270,651,000  
Interest Rate Swaps
    24     $ 601,800,000  
 
 
14

 

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 Consolidated Balance Sheet as of September 30, 2011 and December 31, 2010, respectively:

Fair Values of Derivative Instruments on the Consolidated Balance Sheet as of September 30, 2011 and December 31, 2010 (dollars in thousands)

   
Asset Derivatives
 
Liability Derivative
 
       
30-Sep-11
   
31-Dec-10
  Balance  
30-Sep-11
   
31-Dec-10
 
Derivatives designated as hedging
instruments
 
Balance Sheet
Location
 
Fair Value
   
Fair Value
 
Sheet 
Location
 
Fair Value
   
Fair Value
 
                               
Interest rate contracts
 
Other assets
  $ 1,048     $ 3,641  
Fair market value of interest rate swaps
  $ 39,156     $ 48,936  
                                       
Total derivatives designated as hedging instruments
      $ 1,048     $ 3,641       $ 39,156     $ 48,936  

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

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

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

Derivatives in Cash Flow
Hedging Relationships
 
Amount of Gain or (Loss)
Recognized in OCI on
Derivative (Effective Portion)
 
Location of Gain or
(Loss) Reclassified 
from Accumulated
OCI into Income
(Effective Portion)
 
Amount of Gain or (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
 
Location of Gain or
(Loss Recognized in
Income on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
 
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
 
   
2011
   
2010
     
2011
   
2010
     
2011
   
2010
 
                                         
Three months ended September 30,
                                       
                                         
Interest rate contracts
  $ (5,953 )   $ (12,241 )
Interest expense
  $ (6,671 )   $ (7,964 )
Interest expense
  $ (91 )   $ (93 )
                                                     
Total derivatives in cash flow hedging relationships
  $ (5,953 )   $ (12,241 )     $ (6,671 )   $ (7,964 )     $ (91 )   $ (93 )
                                                     
Nine months ended September 30,
                                                   
                                                     
Interest rate contracts
  $ (14,155 )   $ (40,030 )
Interest expense
  $ (21,683 )   $ (25,991 )
Interest expense
  $ (193 )   $ (383 )
                                                     
Total derivatives in cash flow hedging relationships
  $ (14,155 )   $ (40,030 )     $ (21,683 )   $ (25,991 )     $ (193 )   $ (383 )
 
 
15

 
 
Credit-risk-related Contingent Features

As of September 30, 2011, derivatives that were in a net liability position and subject to credit-risk-related contingent features had a termination value of $43.0 million, which includes accrued interest but excludes any adjustment for nonperformance risk. These derivatives had a fair value, gross of asset positions, of $39.2 million at September 30, 2011.

Certain of our derivative contracts contain a provision where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of September 30, 2011, we had not breached the provisions of these agreements.  If we had breached these provisions, we could have been required to settle our obligations under the agreements at their termination value of $19.7 million.

Certain of our derivative contracts are credit enhanced by either FNMA or Freddie Mac.  These derivative contracts require that our credit enhancing party maintain credit ratings above a certain level.  If our credit support providers were downgraded below Baa1 by Moody’s or BBB+ by Standard & Poor’s, or S&P, we may be required to either post 100 percent collateral or settle the obligations at their termination value of $43.0 million as of September 30, 2011.  Both FNMA and Freddie Mac are currently rated Aaa by Moody’s and AA+ 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, 2011.

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

See also 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, 2011 and December 31, 2010, totaled $550 million and $267 million, respectively, and had estimated fair values of $567 million and $238 million (excluding prepayment penalties), respectively, based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of September 30, 2011 and December 31, 2010. The carrying value of variable rate notes payable (excluding the effect of interest rate swap and cap agreements) at September 30, 2011 and December 31, 2010, totaled $1,038 million and $1,233 million, respectively, and had estimated fair values of $983 million and $1,151 million (excluding prepayment penalties), respectively, based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of September 30, 2011 and December 31, 2010.

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

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
 
 
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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 year ended December 31, 2010, we determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held as of September 30, 2011 and December 31, 2010 were classified as Level 2 of the fair value hierarchy.
 
 
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The table below presents our assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall.
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2011
(dollars in thousands)

   
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
   
Significant
Other
Obervable
Inputs (Level 2)
   
Significant
Unobservable
Inputs (Level 3)
   
Balance at
September 30, 2011
 
Assets
                       
Derivative financial instruments
  $ -     $ 1,048     $ -     $ 1,048  
Liabilities
                               
Derivative financial instruments
  $ -     $ 39,156     $ -     $ 39,156  

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

   
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
   
Significant
Other
Obervable
Inputs (Level 2)
   
Significant
Unobservable
Inputs (Level 3)
   
Balance at December
31, 2010
 
Assets
                       
Derivative financial instruments
  $ -     $ 3,641     $ -     $ 3,641  
Liabilities
                               
Derivative financial instruments
  $ -     $ 48,936     $ -     $ 48,936  

The fair value estimates presented herein are based on information available to management as of September 30, 2011 and December 31, 2010.  These estimates are not necessarily indicative of the amounts we could ultimately realize.  See also Note 8.

10.           Recent Accounting Pronouncements

Impact of Recently Issued Accounting Standards
 
In June 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  ASU 2011-05 will be applied retrospectively.  The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  We will adopt ASU 2011-05 in the interim and annual periods of fiscal year 2012, and we expect this to change the presentation of our financial statements but not our consolidated financial condition or results of operations taken as a whole.
 
 
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In May 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments change the wording, mainly for clarification, used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this update to result in a change in the application of the requirements in Topic 820.  The amendments in this ASU are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011.  We will adopt ASU 2011-04 in the interim and annual periods of fiscal year 2012. The adoption of ASU 2011-04 will not have a material impact on our consolidated financial condition or results of operations taken as a whole.

11.           Subsequent Events

Real Estate Acquisitions

On October 18, 2011, we closed on the purchase of Aventura at Indian Lake Village, a 300 unit community located in Hendersonville, TN, a suburb of Nashville.

Financing Activity

On November 1, 2011, we closed on a $250 million unsecured revolving credit facility.  The facility has an accordion feature that allows for expansion up to $400 million and has an initial term of four years with a one-year extension option.  Borrowings under the new facility will initially bear interest at LIBOR plus a spread ranging from 165 basis points to 240 basis points determined by a leverage-based pricing grid. 

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.
 
 
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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;
 
·
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;
 
·
inability to replace financing with the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation should their investment in the multifamily industry shrink or cease to exist;
 
·
inability to acquire funding through the capital markets;
 
·
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 or to lease-up as anticipated;
 
·
increasing real estate taxes and insurance costs;
 
·
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;
 
·
losses from catastrophes in excess of our insurance coverage;
 
·
changes in interest rate levels, including that of variable rate debt, such as extensively used by us;