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Section 1: 10-Q (10-Q)

MAA.9.30.2014 10Q


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

FORM 10-Q

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

For the quarterly period ended September 30, 2014
or

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

For the transition period from ______ to ______

Commission File Number 001-12762 (Mid-America Apartment Communities, Inc.)
Commission File Number 333-190028-01 (Mid-America Apartments, L.P.)

MID-AMERICA APARTMENT COMMUNITIES, INC.
MID-AMERICA APARTMENTS, L.P.
(Exact name of registrant as specified in its charter)

Tennessee (Mid-America Apartment Communities, Inc.)
62-1543819
Tennessee (Mid-America Apartments, L.P.)
62-1543816
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
6584 Poplar Avenue, Memphis, Tennessee, 38138
 
 
(Address of principal executive offices) (Zip Code)
 
 
(901) 682-6600
 
 
(Registrant's telephone number, including area code)
 
 
 
 
 
N/A
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Mid-America Apartment Communities, Inc.
YES R
NO o
Mid-America Apartments, L.P.
YES R
NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Mid-America Apartment Communities, Inc.
YES R
NO o
Mid-America Apartments, L.P.
YES R
NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Mid-America Apartment Communities, Inc.
 
 
 
 
 
Large accelerated filer R
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
 
(Do not check if a smaller reporting company)
 
Mid-America Apartments, L.P.
 
 
 
 
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer R
Smaller reporting company o
 
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Mid-America Apartment Communities, Inc.
YES o
NO R
Mid-America Apartments, L.P.
YES o
NO R

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
 
Number of Shares Outstanding at
Class
October 27, 2014
Common Stock, $0.01 par value
75,254.249




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

TABLE OF CONTENTS

 
 
Page
 
PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements.
 
Mid-America Apartment Communities, Inc.
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013 (Unaudited).
4
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 (Unaudited) and 2013 (Unaudited).
5
 
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 (Unaudited) and 2013 (Unaudited).
6
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 (Unaudited) and 2013 (Unaudited).
7
Mid-America Apartments, L.P.
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013 (Unaudited).
8
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 (Unaudited) and 2013 (Unaudited).
9
 
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 (Unaudited) and 2013 (Unaudited).
10
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 (Unaudited) and 2013 (Unaudited).
11
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited).
12
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
36
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
52
Item 4.
Controls and Procedures.
52
 
 
 
 
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings.
53
Item 1A.
Risk Factors.
53
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
54
Item 3.
Defaults Upon Senior Securities.
54
Item 4.
Mine Safety Disclosures.
54
Item 5.
Other Information.
54
Item 6.
Exhibits.
55
 
Signatures.
56
 
Exhibit Index.
58

1



Explanatory Note

This Report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2014 of Mid-America Apartment Communities, Inc., a Tennessee corporation and Mid-America Apartments, L.P., a Tennessee limited partnership, of which Mid-America Apartment Communities, Inc. is the sole general partner. Mid-America Apartment Communities, Inc. and its 94.7% owned subsidiary, Mid-America Apartments, L.P., are both required to file periodic reports under the Securities Exchange Act of 1934, as amended.

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

As of September 30, 2014, MAA owned 75,242,266 units (or approximately 94.7%) of the limited partnership interests of the Operating Partnership. MAA conducts substantially all of its business and holds substantially all of its assets through the Operating Partnership, and by virtue of its ownership of the OP Units and being the Operating Partnership's sole general partner, MAA has the ability to control all of the day-to-day operations of the Operating Partnership.

We believe combining the quarterly reports on Form 10-Q of MAA and the Operating Partnership, including the notes to the condensed consolidated financial statements, into this single report results in the following benefits:

enhances investors' understanding of MAA and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this report applies to both MAA and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

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

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

2



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

the consolidated financial statements in Item 1 of this report;
certain accompanying notes to the financial statements, including Note 3 - Earnings per Common Share of MAA and Note 4 - Earnings per OP Unit of MAALP; and Note 10 - Shareholders' Equity of MAA and Note 11 - Partners' Capital of MAALP;
the certifications of the Chief Executive Officer and Chief Financial Officer of MAA included as Exhibits 31 and 32 to this report.

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


3




Mid-America Apartment Communities, Inc.
Condensed Consolidated Balance Sheets
September 30, 2014 and December 31, 2013
(Unaudited)
(Dollars in thousands, except share data)
 
September 30, 2014
 
December 31, 2013
Assets:
 
 
 
Real estate assets:
 
 
 
Land
$
872,786

 
$
871,316

Buildings and improvements
6,595,550

 
6,366,701

Furniture, fixtures and equipment
208,653

 
199,573

Development and capital improvements in progress
59,161

 
166,048

 
7,736,150

 
7,603,638

Less accumulated depreciation
(1,288,374
)
 
(1,124,207
)
 
6,447,776

 
6,479,431

 
 
 
 
Undeveloped land
58,700

 
63,850

Corporate properties, net
8,263

 
7,523

Investments in real estate joint ventures
1,802

 
5,499

Real estate assets, net
6,516,541

 
6,556,303

 
 
 
 
Cash and cash equivalents
87,766

 
89,333

Restricted cash
59,786

 
44,361

Deferred financing costs, net
17,870

 
17,424

Other assets
62,996

 
91,637

Goodwill
2,321

 
4,106

Assets held for sale
35,734

 
38,761

Total assets
$
6,783,014

 
$
6,841,925

 
 
 
 
Liabilities and Shareholders' Equity:
 

 
 

Liabilities:
 

 
 

Secured notes payable
$
1,554,592

 
$
1,790,935

Unsecured notes payable
1,875,422

 
1,681,783

Accounts payable
10,089

 
15,067

Fair market value of interest rate swaps
13,132

 
20,015

Accrued expenses and other liabilities
238,849

 
206,268

Security deposits
9,970

 
9,270

Total liabilities
3,702,054

 
3,723,338

 
 
 
 
Redeemable stock
5,028

 
5,050

 
 
 
 
Shareholders' equity:
 

 
 

Common stock, $0.01 par value per share, 100,000,000 shares authorized; 75,242,266 and 74,830,726 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively (1)
752

 
747

Additional paid-in capital
3,616,847

 
3,599,549

Accumulated distributions in excess of net income
(705,022
)
 
(653,593
)
Accumulated other comprehensive income
396

 
108

Total MAA shareholders' equity
2,912,973

 
2,946,811

Noncontrolling interest
162,959

 
166,726

Total equity
3,075,932

 
3,113,537

Total liabilities and equity
$
6,783,014

 
$
6,841,925

(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, 2014 and December 31, 2013 are 85,164 and 83,139, respectively.

See accompanying notes to condensed consolidated financial statements.

4



Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 2014 and 2013
(Unaudited)
(Dollars in thousands, except per share data)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Operating revenues:
 
 
 
 
 
 
 
Rental revenues
$
225,789

 
$
124,612

 
$
669,387

 
$
363,445

Other property revenues
22,981

 
10,648

 
67,266

 
31,217

Total property revenues
248,770

 
135,260

 
736,653

 
394,662

Management fee income
11

 
146

 
169

 
465

Total operating revenues
248,781

 
135,406

 
736,822

 
395,127

Property operating expenses:
 

 
 

 
 

 
 

Personnel
26,355

 
14,930

 
76,447

 
43,332

Building repairs and maintenance
8,703

 
4,554

 
22,286

 
11,557

Real estate taxes and insurance
30,918

 
16,741

 
92,735

 
48,187

Utilities
14,874

 
7,506

 
41,534

 
20,900

Landscaping
4,002

 
2,894

 
15,391

 
8,595

Other operating
15,781

 
9,068

 
47,225

 
26,464

Depreciation and amortization
70,222

 
32,766

 
229,866

 
97,183

Total property operating expenses
170,855

 
88,459

 
525,484

 
256,218

Acquisition expense
13

 

 
971

 
499

Property management expenses
7,429

 
4,970

 
24,019

 
15,301

General and administrative expenses
6,511

 
3,976

 
16,065

 
10,604

Merger related expenses
331

 
5,561

 
3,202

 
11,298

Integration related expenses
147

 
35

 
7,140

 
35

Income from continuing operations before non-operating items
63,495

 
32,405

 
159,941

 
101,172

Interest and other non-property income
85

 
16

 
1,166

 
86

Interest expense
(28,251
)
 
(14,923
)
 
(89,090
)
 
(45,657
)
Loss on debt extinguishment/modification
(2,586
)
 
(218
)
 
(2,586
)
 
(387
)
Amortization of deferred financing costs
(1,000
)
 
(820
)
 
(3,485
)
 
(2,427
)
Net casualty (loss) gain after insurance and other settlement proceeds
(126
)
 

 
(431
)
 
455

Gain on sale of depreciable real estate assets excluded from discontinued operations
36,032

 

 
42,254

 

Gain on sale of non-depreciable real estate assets

 

 
535

 

Income before income tax expense
67,649

 
16,460

 
108,304

 
53,242

Income tax expense
(442
)
 
(223
)
 
(1,235
)
 
(669
)
Income from continuing operations before joint venture activity
67,207

 
16,237

 
107,069

 
52,573

Gain from real estate joint ventures
3,124

 
60

 
6,019

 
161

Income from continuing operations
70,331

 
16,297

 
113,088

 
52,734

Discontinued operations:
 

 
 

 
 

 
 

Income from discontinued operations before (loss) gain on sale
488

 
972

 
1,353

 
4,451

Net casualty gain (loss) after insurance and other settlement proceeds on discontinued operations
3

 
(1
)
 

 
(5
)
(Loss) gain on sale of discontinued operations
(103
)
 
28,788

 
5,378

 
71,909

Consolidated net income
70,719

 
46,056

 
119,819

 
129,089

Net income attributable to noncontrolling interests
3,743

 
1,772

 
6,364

 
4,536

Net income available for MAA common shareholders
$
66,976

 
$
44,284

 
$
113,455

 
$
124,553

 
 
 
 
 
 
 
 
Earnings per common share - basic:
 
 
 

 
 

 
 

Income from continuing operations available for common shareholders
$
0.89

 
$
0.37

 
$
1.43

 
$
1.19

Discontinued property operations

 
0.67

 
0.08

 
1.73

Net income available for common shareholders
$
0.89

 
$
1.04

 
$
1.51

 
$
2.92

 
 
 
 
 
 
 
 
Earnings per common share - diluted:
 

 
 

 
 

 
 

Income from continuing operations available for common shareholders
$
0.89

 
$
0.37

 
$
1.43

 
$
1.19

Discontinued property operations

 
0.67

 
0.08

 
1.72

Net income available for common shareholders
$
0.89

 
$
1.04

 
$
1.51

 
$
2.91

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.7300

 
$
0.6950

 
$
2.1900

 
$
2.0850

See accompanying notes to condensed consolidated financial statements.

5



Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Comprehensive Income
Three and nine months ended September 30, 2014 and 2013
(Unaudited)
(Dollars in thousands)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Consolidated net income
$
70,719

 
$
46,056

 
$
119,819

 
$
129,089

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized (losses) gains from the effective portion of derivative instruments
(696
)
 
(1,826
)
 
(9,096
)
 
10,096

Reclassification adjustment for net losses included in net income for the effective portion of derivative instruments
2,589

 
3,621

 
9,399

 
12,098

Total comprehensive income
72,612

 
47,851

 
120,122

 
151,283

Less: comprehensive income attributable to noncontrolling interests
(3,845
)
 
(1,830
)
 
(6,379
)
 
(5,275
)
Comprehensive income attributable to MAA
$
68,767

 
$
46,021

 
$
113,743

 
$
146,008

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.



6



Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2014 and 2013
(Unaudited)
(Dollars in thousands)
 
Nine months ended September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Consolidated net income
$
119,819

 
$
129,089

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

 
 

Retail revenue accretion
(17
)
 
(29
)
Depreciation and amortization
233,312

 
102,158

Stock compensation expense
3,180

 
1,729

Redeemable stock issued
690

 
535

Amortization of debt premium
(20,121
)
 
(948
)
Gain from investments in real estate joint ventures
(3,159
)
 
(161
)
Loss on debt extinguishment
2,586

 
387

Derivative interest (credit) expense
(2,543
)
 
827

Settlement of forward swaps
(3,625
)
 

Gain on sale of non-depreciable real estate assets
(535
)
 

Gain on sale of depreciable real estate assets excluded from discontinued operations
(42,254
)
 

Gain on sale of discontinued operations
(5,378
)
 
(71,909
)
Net casualty loss (gain) and other settlement proceeds
431

 
(450
)
Changes in assets and liabilities:
 

 
 

Restricted cash
15,062

 
(391
)
Other assets
(5,016
)
 
(7,611
)
Accounts payable
(1,665
)
 
2,377

Accrued expenses and other
31,630

 
12,951

Security deposits
688

 
223

Net cash provided by operating activities
323,085

 
168,777

Cash flows from investing activities:
 

 
 

Purchases of real estate and other assets
(180,272
)
 
(89,866
)
Normal capital improvements
(71,140
)
 
(35,412
)
Construction capital and other improvements
(4,456
)
 
(3,873
)
Renovations to existing real estate assets
(11,950
)
 
(8,616
)
Development
(40,752
)
 
(26,129
)
Distributions from real estate joint ventures
15,964

 
8,311

Contributions to real estate joint ventures

 
(183
)
Proceeds from disposition of real estate assets
241,691

 
118,783

Funding of escrow for future acquisitions
(30,487
)
 
(57,380
)
Net cash used in investing activities
(81,402
)
 
(94,365
)
Cash flows from financing activities:
 

 
 

Net change in credit lines
(216,184
)
 
177,000

Proceeds from notes payable
396,532

 

Principal payments on notes payable
(258,105
)
 
(8,695
)
Payment of deferred financing costs
(4,156
)
 
(2,655
)
Repurchase of common stock
(456
)
 
(682
)
Proceeds from issuances of common shares
728

 
25,038

Exercise of stock options
11,916

 

Distributions to noncontrolling interests
(9,227
)
 
(3,574
)
Dividends paid on common shares
(164,298
)
 
(88,814
)
Net cash (used in) provided by financing activities
(243,250
)
 
97,618

Net (decrease) increase in cash and cash equivalents
(1,567
)
 
172,030

Cash and cash equivalents, beginning of period
89,333

 
9,075

Cash and cash equivalents, end of period
$
87,766

 
$
181,105

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
101,252

 
$
48,534

Income taxes paid
$
1,596

 
$
803

Supplemental disclosure of noncash investing and financing activities:
 

 
 

Conversion of units to shares of common stock
$
992

 
$
550

Accrued construction in progress
$
6,539

 
$
4,190

Interest capitalized
$
1,253

 
$
1,118

Marked-to-market adjustment on derivative instruments
$
6,471

 
$
21,367

Fair value adjustment on debt assumed
$
2,720

 
$
704

Loan assumption
$
52,521

 
$
18,293

See accompanying notes to condensed consolidated financial statements.

7




Mid-America Apartments, L.P.
Condensed Consolidated Balance Sheets
September 30, 2014 and December 31, 2013
(Dollars in thousands, except unit data)
 
September 30, 2014
 
December 31, 2013
Assets:
 
 
 
Real estate assets:
 
 
 
Land
$
872,786

 
$
871,316

Buildings and improvements
6,595,550

 
6,366,701

Furniture, fixtures and equipment
208,653

 
199,573

Development and capital improvements in progress
59,161

 
166,048

 
7,736,150

 
7,603,638

Less accumulated depreciation
(1,288,374
)
 
(1,124,207
)
 
6,447,776

 
6,479,431

 
 
 
 
Undeveloped land
58,700

 
63,850

Corporate properties, net
8,263

 
7,523

Investments in real estate joint ventures
1,802

 
5,499

Real estate assets, net
6,516,541

 
6,556,303

 
 
 
 
Cash and cash equivalents
87,766

 
89,333

Restricted cash
59,786

 
44,361

Deferred financing costs, net
17,870

 
17,424

Other assets
62,996

 
91,637

Goodwill
2,321

 
4,106

Assets held for sale
35,734

 
38,761

Total assets
$
6,783,014

 
$
6,841,925

 
 
 
 
Liabilities and Capital:
 

 
 

Liabilities:
 

 
 

Secured notes payable
$
1,554,592

 
$
1,790,935

Unsecured notes payable
1,875,422

 
1,681,783

Accounts payable
10,089

 
15,067

Fair market value of interest rate swaps
13,132

 
20,015

Accrued expenses and other liabilities
238,849

 
206,268

Security deposits
9,970

 
9,270

Due to general partner
19

 
19

Total liabilities
3,702,073

 
3,723,357

 
 
 
 
Redeemable units
5,028

 
5,050

 
 
 
 
Capital:
 

 
 

General partner: 75,242,266 OP Units outstanding at September 30, 2014 and 74,830,726 OP Units outstanding at December 31, 2013 (1)
2,912,499

 
2,946,598

Limited partners: 4,202,123 OP Units outstanding at September 30, 2014 and 4,227,384 OP Units outstanding at December 31, 2013 (1)
162,937

 
166,746

Accumulated other comprehensive income
477

 
174

Total capital
3,075,913

 
3,113,518

Total liabilities and capital
$
6,783,014

 
$
6,841,925


(1) 
Number of units outstanding represent total OP Units regardless of classification on the consolidated balance sheet. The number of units classified as redeemable units on the consolidated balance sheet at September 30, 2014 and December 31, 2013 are 85,164 and 83,139, respectively.

See accompanying notes to condensed consolidated financial statements.


8



Mid-America Apartments, L.P.
Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 2014 and 2013
(Unaudited)
(Dollars in thousands, except per unit data)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Operating revenues:
 
 
 
 
 
 
 
Rental revenues
$
225,789

 
$
124,612

 
$
669,387

 
$
363,445

Other property revenues
22,981

 
10,648

 
67,266

 
31,217

Total property revenues
248,770

 
135,260

 
736,653

 
394,662

Management fee income
11

 
146

 
169

 
465

Total operating revenues
248,781

 
135,406

 
736,822

 
395,127

Property operating expenses:
 
 
 
 
 

 
 

Personnel
26,355

 
14,930

 
76,447

 
43,332

Building repairs and maintenance
8,703

 
4,554

 
22,286

 
11,557

Real estate taxes and insurance
30,918

 
16,741

 
92,735

 
48,187

Utilities
14,874

 
7,506

 
41,534

 
20,900

Landscaping
4,002

 
2,894

 
15,391

 
8,595

Other operating
15,781

 
9,068

 
47,225

 
26,464

Depreciation and amortization
70,222

 
32,766

 
229,866

 
97,183

Total property operating expenses
170,855

 
88,459

 
525,484

 
256,218

Acquisition expense
13

 

 
971

 
499

Property management expenses
7,429

 
4,970

 
24,019

 
15,301

General and administrative expenses
6,511

 
3,976

 
16,065

 
10,604

Merger related expenses
331

 
5,561

 
3,202

 
11,298

Integration related expenses
147

 
35

 
7,140

 
35

Income from continuing operations before non-operating items
63,495

 
32,405

 
159,941

 
101,172

Interest and other non-property income
85

 
16

 
1,166

 
86

Interest expense
(28,251
)
 
(14,923
)
 
(89,090
)
 
(45,657
)
Loss on debt extinguishment/modification
(2,586
)
 
(218
)
 
(2,586
)
 
(387
)
Amortization of deferred financing costs
(1,000
)
 
(820
)
 
(3,485
)
 
(2,427
)
Net casualty (loss) gain after insurance and other settlement proceeds
(126
)
 

 
(431
)
 
455

Gain on sale of depreciable real estate assets excluded from discontinued operations
36,032

 

 
42,254

 

Gain on sale of non-depreciable real estate assets

 

 
535

 

Income before income tax expense
67,649

 
16,460

 
108,304

 
53,242

Income tax expense
(442
)
 
(223
)
 
(1,235
)
 
(669
)
Income from continuing operations before joint venture activity
67,207

 
16,237

 
107,069

 
52,573

Gain from real estate joint ventures
3,124

 
60

 
6,019

 
161

Income from continuing operations
70,331

 
16,297

 
113,088

 
52,734

Discontinued operations:
 
 
 
 
 

 
 

Income from discontinued operations before (loss) gain on sale
488

 
973

 
1,353

 
4,054

Net casualty gain (loss) after insurance and other settlement proceeds on discontinued operations
3

 
(1
)
 

 
(5
)
(Loss) gain on sale of discontinued operations
(103
)
 
28,806

 
5,378

 
60,585

Net income available for Mid-America Apartments, L.P. common unitholders
$
70,719

 
$
46,075

 
$
119,819

 
$
117,368

 
 
 
 
 
 
 
 
Earnings per common unit - basic:
 
 
 
 
 

 
 

Income from continuing operations available for common unitholders
$
0.89

 
$
0.37

 
$
1.43

 
$
1.19

Income from discontinued operations available for common unitholders

 
0.67

 
0.08

 
1.46

Net income available for common unitholders
$
0.89

 
$
1.04

 
$
1.51

 
$
2.65

 
 
 
 
 
 
 
 
Earnings per common unit - diluted:
 
 
 
 
 

 
 

Income from continuing operations available for common unitholders
$
0.89

 
$
0.37

 
$
1.43

 
$
1.19

Income from discontinued operations available for common unitholders

 
0.67

 
0.08

 
1.46

Net income available for common unitholders
$
0.89

 
$
1.04

 
$
1.51

 
$
2.65

 
 
 
 
 
 
 
 
Distributions declared per common unit
$
0.7300

 
$
0.6950

 
$
2.1900

 
$
2.0850


See accompanying notes to condensed consolidated financial statements.

9



Mid-America Apartments, L.P.
Condensed Consolidated Statements of Comprehensive Income
Three and nine months ended September 30, 2014 and 2013
(Unaudited)
(Dollars in thousands)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Net income available for Mid-America Apartments, L.P. common unitholders
$
70,719

 
$
46,075

 
$
119,819

 
$
117,368

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized (losses) gains from the effective portion of derivative instruments
(696
)
 
(1,826
)
 
(9,096
)
 
10,096

Reclassification adjustment for net losses included in net income for the effective portion of derivative instruments
2,589

 
3,621

 
9,399

 
12,098

Comprehensive income attributable to Mid-America Apartments, L.P.
$
72,612

 
$
47,870

 
$
120,122

 
$
139,562

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.


10



Mid-America Apartments, L.P.
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2014 and 2013
(Unaudited)
(Dollars in thousands)
 
Nine months ended September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Consolidated net income
$
119,819

 
$
117,368

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

 
 

Retail revenue accretion
(17
)
 
(29
)
Depreciation and amortization
233,312

 
101,923

Stock compensation expense
3,180

 
1,729

Redeemable units issued
690

 
535

Amortization of debt premium
(20,121
)
 
(948
)
Gain from investments in real estate joint ventures
(3,159
)
 
(161
)
Loss on debt extinguishment
2,586

 
387

Derivative interest (credit) expense
(2,543
)
 
827

Settlement of forward swaps
(3,625
)
 

Gain on sale of non-depreciable real estate assets
(535
)
 

Gain on sale of depreciable real estate assets excluded from discontinued operations
(42,254
)
 

Gain on sale of discontinued operations
(5,378
)
 
(60,585
)
Net casualty loss (gain) and other settlement proceeds
431

 
(450
)
Changes in assets and liabilities:
 
 
 
Restricted cash
15,062

 
(390
)
Other assets
(5,016
)
 
(7,740
)
Accounts payable
(1,665
)
 
2,409

Accrued expenses and other
31,630

 
13,200

Security deposits
688

 
242

Net cash provided by operating activities
323,085

 
168,317

Cash flows from investing activities:
 

 
 

Purchases of real estate and other assets
(180,272
)
 
(89,866
)
Normal capital improvements
(71,140
)
 
(35,451
)
Construction capital and other improvements
(4,456
)
 
(3,873
)
Renovations to existing real estate assets
(11,950
)
 
(8,616
)
Development
(40,752
)
 
(26,129
)
Distributions from real estate joint ventures
15,964

 
8,311

Contributions to real estate joint ventures

 
(183
)
Proceeds from disposition of real estate assets
241,691

 
102,204

Funding of escrow for future acquisitions
(30,487
)
 
(57,380
)
Net cash used in investing activities
(81,402
)
 
(110,983
)
Cash flows from financing activities:
 

 
 

Advances from general partner

 
17,219

Net change in credit lines
(216,184
)
 
177,000

Proceeds from notes payable
396,532

 

Principal payments on notes payable
(258,105
)
 
(8,695
)
Payment of deferred financing costs
(4,156
)
 
(2,655
)
Repurchase of common units
(456
)
 
(682
)
Proceeds from issuances of common units
728

 
25,038

Exercise of unit options
11,916

 

Distributions paid on common units
(173,525
)
 
(92,388
)
Net cash (used in) provided by financing activities
(243,250
)
 
114,837

Net (decrease) increase in cash and cash equivalents
(1,567
)
 
172,171

Cash and cash equivalents, beginning of period
89,333

 
8,934

Cash and cash equivalents, end of period
$
87,766

 
$
181,105

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
101,252

 
$
48,534

Income taxes paid
$
1,596

 
$
803

Supplemental disclosure of noncash investing and financing activities:
 
 
 
Accrued construction in progress
$
6,539

 
$
4,190

Interest capitalized
$
1,253

 
$
1,118

Marked-to-market adjustment on derivative instruments
$
6,471

 
$
21,367

Fair value adjustment on debt assumed
$
2,720

 
$
704

Loan assumption
$
52,521

 
$
18,293

See accompanying notes to condensed consolidated financial statements.

11



Mid-America Apartment Communities, Inc. and Mid-America Apartments, L.P.
Notes to Condensed Consolidated Financial Statements
September 30, 2014 and 2013
(Unaudited)

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

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

As of September 30, 2014, MAA owned 75,242,266 units (or approximately 94.7%) of the limited partnership interests of the Operating Partnership. MAA conducts substantially all of its business and holds substantially all of its assets through the Operating Partnership, and by virtue of its ownership of the OP Units and being the Operating Partnership's sole general partner, MAA has the ability to control all of the day-to-day operations of the Operating Partnership.

We believe combining the notes to the consolidated financial statements results in the following benefits:

enhances a readers' understanding of MAA and the Operating Partnership by enabling the reader to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both MAA and the Operating Partnership.
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

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

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


12



On October 1, 2013, MAA acquired Colonial Properties Trust, or Colonial, when Colonial was merged with and into MAA, with MAA being the surviving entity of the merger, pursuant to an agreement and plan of merger, which is referred to as the parent merger or the merger, and Martha Merger Sub, LP, or OP Merger Sub, a wholly-owned indirect subsidiary of MAALP, merged with and into Colonial Realty Limited Partnership, or Colonial LP, with Colonial LP being the surviving entity of the merger and becoming a wholly-owned indirect subsidiary of MAALP, which is referred to as the partnership merger. Under the terms of the merger agreement, each Colonial common share was converted into the right to receive 0.36 of a newly issued share of MAA common stock. In addition, each limited partner interest in Colonial LP designated as a “Class A Unit” and a “Partnership Unit” under the limited partnership agreement of Colonial LP, which we refer to in this filing as Colonial LP units, issued and outstanding immediately prior to the effectiveness of the partnership merger was converted into common units in MAALP at the 0.36 conversion rate. The net assets and results of operations of Colonial are included in our consolidated financial statements from the closing date, October 1, 2013 going forward.

As of September 30, 2014, we owned and operated 265 apartment communities comprising 81,137 apartments located in 14 states principally through the Operating Partnership, and we also owned an interest in the following unconsolidated real estate joint ventures:

 
Percent Owned
 
Number of Units/Square Feet
Multifamily:
 
 
 
McKinney (1)
25.00%
 
 
 
 
 
Commercial:
 
 
 
Land Title Building
33.30%
 
29,971
  
(1) This joint venture consists of undeveloped land.

As of September 30, 2014, we had two development communities under construction totaling 514 units, with no units completed. Total expected costs for the development projects are $72.9 million, of which $49.2 million has been incurred through September 30, 2014. We expect to complete construction on one of the two projects by the first quarter of 2015 and on the other by the second quarter of 2015. Four of our multifamily properties include retail components with approximately 100,000 square feet of gross leasable area. We also have three wholly owned commercial properties, which we acquired through our merger with Colonial with approximately 287,000 square feet of gross leasable area, excluding tenant owned anchor stores, and one partially owned commercial property with approximately 30,000 square feet of gross leasable area.

Out of Period Adjustment

During the three months ended September 30, 2014, we reviewed our reconciliation of accumulated other comprehensive income, or AOCI. During this review, we noted that balances attributable to certain off-market interest rate swaps had accumulated in AOCI. As a result of this review, in the current quarter we recorded a $2.3 million non-cash adjustment to interest expense related to certain off-market derivative contracts acquired with the merger. This represents a cumulative adjustment for the one year period ended September 30, 2014 required by Accounting Standards Codification, or ASC, 815 to properly reflect the AOCI related to these off-market derivative contracts. The impact of the misstatement caused Net income available for MAA common shareholders to be understated by approximately $0.8 million, or $0.01 per diluted share for the year ended December 31, 2013. Total MAA shareholders' equity would not be affected by this adjustment. Because we believe the impact to Net income available for MAA common shareholders, EPS, and Total MAA shareholders' equity would not impact the readers of these financial statements, we deemed the out of period portion of this adjustment to be immaterial to the current period and all periods presented.

Reclassifications

In order to present comparative financial statements, certain reclassifications have been made. We previously reported approximately $9.5 million of cash proceeds from stock option exercises within Cash flows from operating activities for the six months ended June 30, 2014. This line has been reclassified to Cash flows from financing activities for the nine months ended September 30, 2014. In addition, we previously reported $6.2 million of Gain on sale of depreciable real-estate assets excluded from discontinued operations and $0.5 million of Gain on sale of non-depreciable real-estate assets as separate items below Discontinued operations on our Statement of Operations for the six months ended June 30, 2014. These two lines have been reclassified into Income from continuing operations for all periods presented as allowed under Accounting Standards Update, or ASU, 2014-08. The reclassifications had no effect on Net income available for MAA common shareholders.

13



Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared by our management in accordance with United States generally accepted accounting principles, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or the SEC. The consolidated financial statements of MAA presented herein include the accounts of MAA, the Operating Partnership, and all other subsidiaries in which MAA has a controlling financial interest. MAA owns approximately 95% to 100% of all consolidated subsidiaries. The consolidated financial statements of MAALP presented herein include the accounts of MAALP and all other subsidiaries in which MAALP has a controlling financial interest. MAALP owns, directly or indirectly, 100% of all consolidated subsidiaries. In our opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included, and all such adjustments were of a normal, recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
We invest in entities which may qualify as variable interest entities, or VIE. A VIE is a legal entity in which the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack the power to direct the activities of a legal entity as well as the obligation to absorb its expected losses or the right to receive its expected residual returns. We consolidate all VIEs for which we are the primary beneficiary and use the equity method to account for investments that qualify as VIEs but for which we are not the primary beneficiary. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including but not limited to, those activities that most significantly impact the VIE's economic performance and which party controls such activities.

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

2.     Business Combinations
 
Merger of MAA and Colonial

On October 1, 2013, MAA completed its merger with Colonial. As part of the merger, we acquired 115 wholly-owned apartment communities encompassing 34,370 units principally located in the Southeast and Southwest regions of the United States. In addition to the apartment communities, we also acquired four commercial properties totaling approximately 806,000 square feet. The additions have caused us to nearly double in size as a result of the merger. The net assets and results of operations of Colonial are included in our consolidated financial statements from the closing date, October 1, 2013, going forward.

The total purchase price of approximately $2.2 billion was determined based on the number of Colonial shares and Colonial OP Units outstanding as of October 1, 2013. In all cases in which MAA’s stock price was a determining factor in arriving at final consideration for the merger, the stock price used to determine the purchase price was the opening price of MAA’s common stock on October 1, 2013 ($62.56 per share). The total purchase price includes $7.3 million of other consideration, a majority of which relates to assumed stock compensation plans. As a result of the merger, we issued approximately 31.9 million shares of MAA common stock and approximately 2.6 million OP units.

The acquisition has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair values.

For larger, portfolio style acquisitions, like the merger, management engages a third party valuation specialist to assist with the fair value assessment, which includes an allocation of the purchase price. Similar to management's methods, the third party generally uses cash flow analysis as well as an income approach and a market approach to determine the fair value of assets acquired. The third party uses stabilized NOI and a market specific capitalization and discount rates. Management reviews the inputs used by the third party specialist as well as the allocation of the purchase price provided by the third party to ensure reasonableness and that the procedures are performed in accordance with management's policy. The allocation of the purchase price is based on management’s assessment, which may differ as more information becomes available. Subsequent adjustments made to the purchase price allocation, if any, are made within the allocation period, which typically does not exceed one year.

The allocation of the purchase price described above requires a significant amount of judgment and represents the Company's best estimate of the fair value as of the acquisition date. The following final purchase price allocation was based on our

14



valuation as well as estimates and assumptions of the acquisition date fair value of the tangible and intangible assets acquired and liabilities assumed.

The following table summarizes the final purchase price allocation (in thousands):

Land
$
469,396

Buildings and improvements
3,080,858

Furniture, fixtures and equipment
96,377

Development and capital improvements in progress
113,368

Undeveloped land
58,400

Properties held for sale
33,300

Lease intangible assets
57,946

Cash and cash equivalents
63,454

Restricted cash
6,825

Deferred costs and other assets, excluding lease intangible assets
86,141

Total assets acquired
4,066,065

 
 
Notes payable
(1,759,550)

Fair market value of interest rate swaps
(14,961)

Accounts payable, accrued expenses, and other liabilities
(128,678)

Total liabilities assumed, including debt
(1,903,189
)
 
 
Total purchase price
$
2,162,876


We incurred merger and integration related expenses of $10.3 million for the nine months ended September 30, 2014. These amounts were expensed as incurred and are included in the Consolidated Statement of Operations in the items titled Merger related expenses, primarily consisting of severance, legal, and professional costs and Integration related expenses, primarily related to temporary systems, staffing, and facilities costs.

The allocation of fair values of the assets acquired and liabilities assumed has changed by an immaterial amount from the allocation reported in Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 2 of our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on February 21, 2014. The changes were based on information concerning the subject assets and liabilities that was not yet known at the time of the 10-K filing. These adjustments had no material impact on the purchase price allocation, the consolidated balance sheet or the results of operations.

3.    Earnings per Common Share of MAA

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares outstanding during the period.  All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share. Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis with our diluted earnings per share being the more dilutive of the treasury stock or two-class methods.  Operating Partnership units are included in dilutive earnings per share calculations when they are dilutive to earnings per share. For the three and nine months ended September 30, 2014 and 2013, MAA's basic earnings per share is computed using the two-class method, and our diluted earnings per share is computed using the more dilutive of the treasury stock method or two-class method:


15



(dollars and shares in thousands, except per share amounts)
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Shares Outstanding
 
 
 
 
 
 
 
Weighted average common shares - basic
75,058

 
42,702

 
74,937

 
42,583

Weighted average partnership units outstanding

(1) 

(1) 

(1) 
1,709

Effect of dilutive securities

(1) 

(1) 

(1) 
53

Weighted average common shares - diluted
75,058

 
42,702

 
74,937

 
44,345

 
 
 
 
 
 
 
 
Calculation of Earnings per Share - basic
 
 
 
 
 

 
 

Income from continuing operations
$
70,331

 
$
16,297

 
$
113,088

 
$
52,734

Income from continuing operations attributable to noncontrolling interests
(3,722
)
 
(632
)
 
(6,005
)
 
(1,973
)
Income from continuing operations allocated to unvested restricted shares
(130
)
 
(14
)
 
(209
)
 
(46
)
Income from continuing operations available for common shareholders, adjusted
$
66,479

 
$
15,651

 
$
106,874

 
$
50,715

 
 
 
 
 
 
 
 
Income from discontinued operations
$
388

 
$
29,759

 
$
6,731

 
$
76,355

Income from discontinued operations attributable to noncontrolling interest
(21
)
 
(1,140
)
 
(359
)
 
(2,563
)
Income from discontinued operations allocated to unvested restricted shares
(1
)
 
(25
)
 
(12
)
 
(67
)
Income from discontinued operations available for common shareholders, adjusted
$
366

 
$
28,594

 
$
6,360

 
$
73,725

 
 
 
 
 
 
 
 
Weighted average common shares - basic
75,058

 
42,702

 
74,937

 
42,583

Earnings per share - basic
$
0.89

 
$
1.04

 
$
1.51

 
$
2.92

 
 
 
 
 
 
 
 
Calculation of Earnings per Share - diluted
 
 
 
 
 

 
 

Income from continuing operations
$
70,331

 
$
16,297

 
$
113,088

 
$
52,734

Income from continuing operations attributable to noncontrolling interests
(3,725
)
(1) 
(632
)
(1) 
(6,005
)
(1) 

Income from continuing operations allocated to unvested restricted shares
(130
)
(1) 
(14
)
(1) 
(209
)
(1) 

Income from continuing operations available for common shareholders, adjusted
$
66,476

 
$
15,651

 
$
106,874

 
$
52,734

 
 
 
 
 
 
 
 
Income from discontinued operations
$
388

 
$
29,759

 
$
6,731

 
$
76,355

Income from discontinued operations attributable to noncontrolling interest
(21
)
(1) 
(1,140
)
(1) 
(357
)
(1) 

Income from discontinued operations allocated to unvested restricted shares
(1
)
(1) 
(25
)
(1) 
(12
)
(1) 

Income from discontinued operations available for common shareholders, adjusted
$
366

 
$
28,594

 
$
6,362

 
$
76,355

 
 
 
 
 
 
 
 
Weighted average common shares - diluted
75,058

 
42,702

 
74,937

 
44,345

Earnings per share - diluted
$
0.89

 
$
1.04

 
$
1.51

 
$
2.91


(1) Operating partnership units, other dilutive securities, and the related income with each are not included in the diluted earnings per share calculations as they were not dilutive.






16



4.    Earnings per OP Unit of MAALP

Basic earnings per OP Unit is computed by dividing net income available for common unitholders by the weighted average number of units outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common unitholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per OP unit. Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units. A reconciliation of the numerators and denominators of the basic and diluted earnings per unit computations for the three and nine months ended September 30, 2014 and 2013 is presented below:

(dollars and units in thousands, except per unit amounts)
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Units Outstanding
 
 
 
 
 
 
 
Weighted average common units - basic
79,263

 
44,408

 
79,148

 
44,293

Effect of dilutive securities

(1) 

(1) 

(1) 
53

Weighted average common units - diluted
79,263

 
44,408

 
79,148

 
44,346

 
 
 
 
 
 
 
 
Calculation of Earnings per Unit - basic
 
 
 
 
 

 
 

Income from continuing operations
$
70,331

 
$
16,297

 
$
113,088

 
$
52,734

Income from continuing operations allocated to unvested restricted shares
(130
)
 
(14
)
 
(209
)
 
(46
)
Income from continuing operations available for common unitholders, adjusted
$
70,201

 
$
16,283

 
$
112,879

 
$
52,688

 
 
 
 
 
 
 
 
Income from discontinued operations
$
388

 
$
29,778

 
$
6,731

 
$
64,634

Income from discontinued operations allocated to unvested restricted shares
(1
)
 
(25
)
 
(12
)
 
(56
)
Income from discontinued operations available for common unitholders, adjusted
$
387

 
$
29,753

 
$
6,719

 
$
64,578

 
 
 
 
 
 
 
 
Weighted average common units - basic
79,263

 
44,408

 
79,148

 
44,293

Earnings per unit - basic:
$
0.89

 
$
1.04

 
$
1.51

 
$
2.65

 
 
 
 
 
 
 
 
Calculation of Earnings per Unit - diluted
 
 
 
 
 

 
 

Income from continuing operations
$
70,331

 
$
16,297

 
$
113,088

 
$
52,734

Income from continuing operations allocated to unvested restricted shares
(130
)
(1) 
(14
)
(1) 
(209
)
(1) 

Income from continuing operations available for common unitholders, adjusted
$
70,201

 
$
16,283

 
$
112,879

 
$
52,734

 
 
 
 
 
 
 
 
Income from discontinued operations
$
388

 
$
29,778

 
$
6,731

 
$
64,634

Income from discontinued operations allocated to unvested restricted shares
(1
)
(1) 
(25
)
(1) 
(12
)
(1) 

Income from discontinued operations available for common unitholders, adjusted
$
387

 
$
29,753

 
$
6,719

 
$
64,634

 
 
 
 
 
 
 
 
Weighted average common units - diluted
79,263

 
44,408

 
79,148

 
44,346

Earnings per unit - diluted:
$
0.89

 
$
1.04

 
$
1.51

 
$
2.65


(1) Dilutive securities and the related income are not included in the diluted earnings per unit calculations as they were not dilutive.

17



5.    MAA Equity

Total equity and its components for the nine-month periods ended September 30, 2014 and 2013 were as follows (dollars in thousands, except per share and per unit data):

  
Mid-America Apartment Communities, Inc. Shareholders
 
 
 
 
 
Common
Stock
Amount
 
Additional
Paid-In
Capital
 
Accumulated
Distributions
in Excess of
Net Income
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interest
 
Total
Equity
EQUITY BALANCE DECEMBER 31, 2013
$
747

 
$
3,599,549

 
$
(653,593
)
 
$
108

 
$
166,726

 
$
3,113,537

Net income
 
 
 
 
113,455

 
 
 
6,364

 
119,819

Other comprehensive income - derivative instruments (cash flow hedges)
 
 
 
 
 
 
288

 
15

 
303

Issuance and registration of common shares
2

 
726

 
 
 
 
 
 
 
728

Shares repurchased and retired

 
(456
)
 
 
 
 
 
 
 
(456
)
Exercise of stock options
3

 
11,913

 
 
 
 
 
 
 
11,916

Shares issued in exchange for units

 
992

 
 
 
 
 
(992
)
 

Shares issued in exchange from redeemable stock
 
 
998

 
 
 
 
 
 
 
998

Redeemable stock fair market value
 
 
 
 
(286
)
 
 
 
 
 
(286
)
Adjustment for noncontrolling interest ownership in operating partnership
 
 
(55
)
 
 
 
 
 
55

 

Amortization of unearned compensation
 
 
3,180

 
 
 
 
 
 
 
3,180

Dividends on common stock ($2.19 per share)
 
 
 
 
(164,598
)
 
 
 

 
(164,598
)
Dividends on noncontrolling interest units ($2.19 per unit)
 
 
 
 
 
 
 
 
(9,209
)
 
(9,209
)
EQUITY BALANCE SEPTEMBER 30, 2014
$
752

 
$
3,616,847

 
$
(705,022
)
 
$
396

 
$
162,959

 
$
3,075,932


  
Mid-America Apartment Communities, Inc. Shareholders
 
 
 
 
 
Common
Stock
Amount
 
Additional
Paid-In
Capital
 
Accumulated
Distributions
in Excess of
Net Income
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interest
 
Total
Equity
EQUITY BALANCE DECEMBER 31, 2012
$
422

 
$
1,542,999

 
$
(603,315
)
 
$
(26,054
)
 
$
31,058

 
$
945,110

Net income


 


 
124,553

 


 
4,536

 
129,089

Other comprehensive income - derivative instruments (cash flow hedges)


 


 


 
21,455

 
739

 
22,194

Issuance and registration of common shares
4

 
25,034

 


 


 


 
25,038

Shares repurchased and retired

 
(682
)