Edgar Filing: MID AMERICA APARTMENT COMMUNITIES INC

Interest Rate Derivative

Number of Instruments

Interest Rate Caps

Interest Rate Swaps ⁽¹⁾

MAA.6.30.2013 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 June 30, 2013

¨ 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.

(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.

þ Yes ¨ 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 at
Class	July 29, 2013
Common Stock, $0.01 par value	42,735,722

MID-AMERICA APARTMENT COMMUNITIES, INC. (MAA)

TABLE OF CONTENTS



		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012 (Unaudited).	2
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 (Unaudited) and 2012 (Unaudited).	3
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 (Unaudited) and 2012 (Unaudited).	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 (Unaudited) and 2012 (Unaudited).	5
	Notes to Condensed Consolidated Financial Statements (Unaudited).	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	35
Item 4.	Controls and Procedures.	35

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	36
Item 1A.	Risk Factors.	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	46
Item 3.	Defaults Upon Senior Securities.	46
Item 4.	Mine Safety Disclosures.	46
Item 5.	Other Information.	46
Item 6.	Exhibits.	47
	Signatures.	48

MAA

Condensed Consolidated Balance Sheets

June 30, 2013 and December 31, 2012

(Unaudited)

(Dollars in thousands, except share data)



	June 30, 2013			December 31, 2012
Assets:
Real estate assets:
Land	$	396,734		$	386,670
Buildings and improvements	3,237,281			3,170,413
Furniture, fixtures and equipment	100,513			98,044
Development and capital improvements in progress	47,662			52,455
	3,782,190			3,707,582
Less accumulated depreciation	(1,051,801		)	(1,027,618		)
	2,730,389			2,679,964

Land held for future development	5,450			1,205
Commercial properties, net	7,880			8,065
Investments in real estate joint ventures	3,178			4,837
Real estate assets, net	2,746,897			2,694,071

Cash and cash equivalents	8,792			9,075
Restricted cash	12,989			808
Deferred financing costs, net	12,492			13,842
Other assets	43,060			29,166
Goodwill	4,106			4,106
Assets held for sale	5,881			—
Total assets	$	2,834,217		$	2,751,068

Liabilities and Shareholders' Equity:
Liabilities:
Secured notes payable	$	1,106,541		$	1,190,848
Unsecured notes payable	585,000			483,000
Accounts payable	10,085			4,586
Fair market value of interest rate swaps	11,907			21,423
Accrued expenses and other liabilities	96,284			94,719
Security deposits	6,934			6,669
Liabilities associated with assets held for sale	148			—
Total liabilities	1,816,899			1,801,245

Redeemable stock	5,521			4,713

Shareholders' equity:
Common stock, $0.01 par value per share, 100,000,000 shares authorized; 42,736,134 and 42,316,398 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively ⁽¹⁾	427			422
Additional paid-in capital	1,569,090			1,542,999
Accumulated distributions in excess of net income	(582,884		)	(603,315		)
Accumulated other comprehensive losses	(6,336		)	(26,054		)
Total MAA shareholders' equity	980,297			914,052
Noncontrolling interest	31,500			31,058
Total equity	1,011,797			945,110
Total liabilities and equity	$	2,834,217		$	2,751,068


⁽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 June 30, 2013 and December 31, 2012 are 78,154 and 72,786, respectively.

See accompanying notes to consolidated financial statements.

MAA

Condensed Consolidated Statements of Operations

Three and six months ended June 30, 2013 and 2012

(Unaudited)

(Dollars in thousands, except per share data)



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Operating revenues:
Rental revenues	$	123,204		$	108,959		$	243,008		$	212,518
Other property revenues	10,766			9,840			21,029			19,319
Total property revenues	133,970			118,799			264,037			231,837
Management fee income	142			209			319			478
Total operating revenues	134,112			119,008			264,356			232,315
Property operating expenses:
Personnel	14,735			13,603			29,027			27,151
Building repairs and maintenance	3,953			3,743			7,147			7,333
Real estate taxes and insurance	16,094			13,862			31,720			27,054
Utilities	6,974			6,553			13,677			12,445
Landscaping	2,898			2,593			5,819			5,295
Other operating	9,098			8,370			17,759			16,424
Depreciation and amortization	32,730			30,246			65,406			59,228
Total property operating expenses	86,482			78,970			170,555			154,930
Acquisition expense	489			865			499			231
Property management expenses	5,446			5,570			10,777			11,024
General and administrative expenses	3,389			3,462			6,628			6,909
Merger related expenses	5,737			—			5,737			—
Income from continuing operations before non-operating items	32,569			30,141			70,160			59,221
Interest and other non-property income	23			112			70			254
Interest expense	(15,271		)	(14,073		)	(30,906		)	(28,058		)
(Loss) gain on debt extinguishment/modification	—			(15		)	(169		)	5
Amortization of deferred financing costs	(803		)	(869		)	(1,607		)	(1,640		)
Net casualty gain (loss) after insurance and other settlement proceeds	439			2			455			(2		)
Loss on sale of non-depreciable assets	—			(3		)	—			(3		)
Income from continuing operations before gain (loss) from real estate joint ventures	16,957			15,295			38,003			29,777
Gain (loss) from real estate joint ventures	47			(67		)	101			(98		)
Income from continuing operations	17,004			15,228			38,104			29,679
Discontinued operations:
Income from discontinued operations before gain on sale	907			1,293			1,812			2,535
Net casualty loss after insurance and other settlement proceeds on discontinued operations	(4		)	(2		)	(4		)	(56		)
Gain on sale of discontinued operations	43,121			12,953			43,121			22,382
Consolidated net income	61,028			29,472			83,033			54,540
Net income attributable to noncontrolling interests	1,939			1,312			2,764			2,490
Net income available for MAA common shareholders	$	59,089		$	28,160		$	80,269		$	52,050

Earnings per common share - basic:
Income from continuing operations available for common shareholders	$	0.38		$	0.36		$	0.86		$	0.70
Discontinued property operations	1.00			0.33			1.02			0.59
Net income available for common shareholders	$	1.38		$	0.69		$	1.88		$	1.29

Earnings per share - diluted:
Income from continuing operations available for common shareholders	$	0.38		$	0.36		$	0.86		$	0.70
Discontinued property operations	0.99			0.33			1.01			0.59
Net income available for common shareholders	$	1.37		$	0.69		$	1.87		$	1.29

Dividends declared per common share	$	0.6950		$	0.6600		$	1.3900		$	1.3200

See accompanying notes to consolidated financial statements.

MAA

Condensed Consolidated Statements of Comprehensive Income

Three and six months ended June 30, 2013 and 2012

(Unaudited)

(Dollars in thousands)



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Consolidated net income	$	61,028		$	29,472		$	83,033		$	54,540
Other comprehensive income:
Unrealized gains(losses) from the effective portion of derivative instruments	12,101			(3,991		)	11,922			(5,293		)
Reclassification adjustment for losses included in net income for the effective portion of derivative instruments	3,932			4,944			8,477			10,492
Total comprehensive income	77,061			30,425			103,432			59,739
Less: comprehensive income attributable to noncontrolling interests	(2,442		)	(1,354		)	(3,445		)	(2,732		)
Comprehensive income attributable to MAA	$	74,619		$	29,071		$	99,987		$	57,007

See accompanying notes to consolidated financial statements.

MAA

Condensed Consolidated Statements of Cash Flows

Six months ended June 30, 2013 and 2012

(Unaudited)

(Dollars in thousands)



	Six months ended June 30,
	2013			2012
Cash flows from operating activities:
Consolidated net income	$	83,033		$	54,540
Adjustments to reconcile net income to net cash provided by operating activities:
Retail revenue accretion	(20		)	—
Depreciation and amortization	68,236			64,341
Stock compensation expense	1,171			1,231
Redeemable stock issued	377			285
Amortization of debt premium	(505		)	(316		)
(Gain) loss from investments in real estate joint ventures	(101		)	98
Loss (gain) on debt extinguishment	169			(5		)
Derivative interest expense	484			358
Loss on sale of non-depreciable assets	—			3
Gain on sale of discontinued operations	(43,121		)	(22,453		)
Net casualty (gain) loss and other settlement proceeds	(451		)	58
Changes in assets and liabilities:
Restricted cash	(279		)	102
Other assets	(3,176		)	(63		)
Accounts payable	5,527			3,498
Accrued expenses and other	(2,239		)	(1,118		)
Security deposits	277			305
Net cash provided by operating activities	109,382			100,864
Cash flows from investing activities:
Purchases of real estate and other assets	(89,871		)	(96,906		)
Normal capital improvements	(22,494		)	(26,380		)
Construction capital and other improvements	(2,137		)	(2,304		)
Renovations to existing real estate assets	(5,112		)	(6,896		)
Development	(20,816		)	(42,592		)
Distributions from real estate joint ventures	8,197			10,779
Contributions to real estate joint ventures	(183		)	(73		)
Proceeds from disposition of real estate assets	73,089			51,133
Funding of escrow for exchange acquisitions	(11,902		)	—
Net cash used in investing activities	(71,229		)	(113,239		)
Cash flows from financing activities:
Net change in credit lines	2,000			(232,064		)
Proceeds from notes payable	—			150,000
Principal payments on notes payable	(2,799		)	(1,757		)
Payment of deferred financing costs	(426		)	(1,997		)
Repurchase of common stock	(673		)	(1,640		)
Proceeds from issuances of common shares	24,968			120,148
Distributions to noncontrolling interests	(2,391		)	(2,559		)
Dividends paid on common shares	(59,115		)	(52,732		)
Net cash used in financing activities	(38,436		)	(22,601		)
Net decrease in cash and cash equivalents	(283		)	(34,976		)
Cash and cash equivalents, beginning of period	9,075			57,317
Cash and cash equivalents, end of period	$	8,792		$	22,341

Supplemental disclosure of cash flow information:
Interest paid	$	33,610		$	30,441
Supplemental disclosure of noncash investing and financing activities:
Conversion of units to shares of common stock	$	444		$	2,516
Accrued construction in progress	$	7,126		$	6,818
Interest capitalized	$	872		$	1,289
Marked-to-market adjustment on derivative instruments	$	19,916		$	4,841
Fair value adjustment on debt assumed	$	704		$	2,578
Debt assumed	$	18,293		$	30,290

See accompanying notes to consolidated financial statements.

MAA

Notes to Condensed Consolidated Financial Statements

June 30, 2013 and 2012

(Unaudited)

1. Consolidation and Basis of Presentation and Significant Accounting Policies

Consolidation and Basis of Presentation

Mid-America Apartment Communities, Inc., or we, or our, 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 June 30, 2013, we owned or owned interests in a total of 164 multifamily apartment communities comprising 49,113 apartments located in 13 states including four communities comprising 1,156 apartments owned through our joint venture, Mid-America Multifamily Fund II, LLC. We also had two development communities under construction totaling 564 units as of June 30, 2013. A total of 96 units for the development projects were completed as of June 30, 2013, and therefore have been included in the totals above. Total expected costs for the development projects are $73.8 million, of which $37.8 million has been incurred through June 30, 2013. We expect to complete construction on one of the projects by the fourth quarter of 2013 and the other by the fourth quarter of 2014. Four of our properties include retail components with approximately 107,000 square feet of gross leasable area.

On June 3, 2013, we entered into an agreement and plan of merger with Colonial Properties Trust, or Colonial, a Birmingham, Alabama-based REIT operating primarily in the multifamily apartment sector, in which we will merge with Colonial in a stock-for-stock transaction. We expect the merger to be completed during the third quarter of 2013. The combined company will operate under the name "MAA" and will be run by our existing management team.

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, 2012 annual consolidated financial statements. The consolidated financial statements presented herein include the accounts of MAA, Mid-America Apartments, L.P, or the Operating Partnership, and all other subsidiaries in which MAA has a controlling financial interest. MAA owns approximately 96% to 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. The results of operations for the three- and six-month periods ended June 30, 2013 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 22, 2013. 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.

MAA invests 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. MAA consolidates all VIEs for which it is the primary beneficiary and uses the equity method to account for investments that qualify as VIEs but for which 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.

MAA uses the equity method of accounting for its 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 MAA does not have the ability to exercise control include ownership of voting interests and participatory rights of investors.

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 six-month periods ended June 30, 2013 and 2012, our 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:



(dollars and shares in thousands, except per share amounts)	Three months ended June 30,								Six months ended June 30,
	2013				2012				2013			2012
Shares Outstanding
Weighted average common shares - basic	42,690				40,983				42,523			40,243
Weighted average partnership units outstanding	—			⁽¹⁾	—			⁽¹⁾	1,711			1,898
Effect of unvested shares assumed	—			⁽¹⁾	45				60			84
Weighted average common shares - diluted	42,690				41,028				44,294			42,225

Calculation of Earnings per Share - basic
Income from continuing operations	$	17,004			$	15,228			$	38,104		$	29,679
Income from continuing operations attributable to noncontrolling interests	(613		)		(665		)		(1,409		)	(1,327		)
Income from continuing operations allocated to unvested restricted shares	(15		)		(13		)		(34		)	(28		)
Income from continuing operations available for common shareholders, adjusted	$	16,376			$	14,550			$	36,661		$	28,324

Income from discontinued operations	$	44,024			$	14,244			$	44,929		$	24,861
Income from discontinued operations attributable to noncontrolling interest	(1,326		)		(647		)		(1,355		)	(1,163		)
Income from discontinued operations allocated to unvested restricted shares	(39		)		(12		)		(40		)	(23		)
Income from discontinued operations available for common shareholders, adjusted	$	42,659			$	13,585			$	43,534		$	23,675

Weighted average common shares - basic	42,690				40,983				42,523			40,243
Earnings per share - basic	$	1.38			$	0.69			$	1.88		$	1.29

Calculation of Earnings per Share - diluted
Income from continuing operations	$	17,004			$	15,228			$	38,104		$	29,679
Income from continuing operations attributable to noncontrolling interests	(653		)	⁽¹⁾	(665		)	⁽¹⁾	—			—
Income from continuing operations allocated to unvested restricted shares	(15		)	⁽¹⁾	—				—			—
Income from continuing operations available for common shareholders, adjusted	$	16,336			$	14,563			$	38,104		$	29,679

Income from discontinued operations	$	44,024			$	14,244			$	44,929		$	24,861
Income from discontinued operations attributable to noncontrolling interest	(1,692		)	⁽¹⁾	(647		)	⁽¹⁾	—			—
Income from discontinued operations allocated to unvested restricted shares	(38		)	⁽¹⁾	—				—			—
Income from discontinued operations available for common shareholders, adjusted	$	42,294			$	13,597			$	44,929		$	24,861

Weighted average common shares - diluted	42,690				41,028				44,294			42,225
Earnings per share - diluted	$	1.37			$	0.69			$	1.87		$	1.29

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

2. Segment Information

As of June 30, 2013, we owned or had an ownership interest in 164 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 one million and at least 1% of the total public multifamily REIT units; and


◦	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 more than one million but less than 1% of the total public multifamily REIT units or in markets with a population of less than one million; and


◦	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 identified for disposition. Also included in non same store communities are non multifamily activities, which represent less than 1% of our portfolio.

On the first day of each calendar year, we determine the composition of our same store operating segments for that year as well as adjusting the previous year, which allows us to evaluate full period-over-period operating comparisons. Properties in development or lease-up will be added to the same store portfolio on the first day of the calendar year after they have been owned and stabilized for at least a full 12 months. Communities are considered stabilized after achieving 90% occupancy for 90 days. Communities that have been identified for disposition are excluded from our same store portfolio. 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 six-month periods ended June 30, 2013 and 2012 were as follows (dollars in thousands):



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Revenues
Large Market Same Store	$	63,720		$	60,485		$	126,423		$	119,739
Secondary Market Same Store	51,964			50,318			103,306			99,965
Non-Same Store and Other	18,286			7,996			34,308			12,133
Total property revenues	133,970			118,799			264,037			231,837
Management fee income	142			209			319			478
Total operating revenues	$	134,112		$	119,008		$	264,356		$	232,315

NOI
Large Market Same Store	$	37,793		$	35,376		$	75,548		$	69,975
Secondary Market Same Store	31,149			29,981			62,198			59,293
Non-Same Store and Other	12,722			8,037			24,331			13,642
Total NOI	81,664			73,394			162,077			142,910
Discontinued operations NOI included above	(1,446		)	(3,319		)	(3,189		)	(6,775		)
Management fee income	142			209			319			478
Depreciation and amortization	(32,730		)	(30,246		)	(65,406		)	(59,228		)
Acquisition expense	(489		)	(865		)	(499		)	(231		)
Property management expense	(5,446		)	(5,570		)	(10,777		)	(11,024		)
General and administrative expense	(3,389		)	(3,462		)	(6,628		)	(6,909		)
Merger related expenses	(5,737		)	—			(5,737		)	—
Interest and other non-property income	23			112			70			254
Interest expense	(15,271		)	(14,073		)	(30,906		)	(28,058		)
(Loss) gain on debt extinguishment	—			(15		)	(169		)	5
Amortization of deferred financing costs	(803		)	(869		)	(1,607		)	(1,640		)
Net casualty gain (loss) after insurance and other settlement proceeds	439			2			455			(2		)
Loss on sale of non-depreciable assets	—			(3		)	—			(3		)
Gain (loss) from real estate joint ventures	47			(67		)	101			(98		)
Discontinued operations	44,024			14,244			44,929			24,861
Net income attributable to noncontrolling interests	(1,939		)	(1,312		)	(2,764		)	(2,490		)
Net income attributable to MAA	$	59,089		$	28,160		$	80,269		$	52,050

Assets for each reportable segment as of June 30, 2013 and December 31, 2012, were as follows (dollars in thousands):



	June 30, 2013		December 31, 2012
Assets
Large Market Same Store	$	1,272,055	$	1,108,827
Secondary Market Same Store	809,478		654,315
Non-Same Store and Other	692,655		949,398
Corporate assets	60,029		38,528
Total assets	$	2,834,217	$	2,751,068

3. Equity

Total equity and its components for the six-month periods ended June 30, 2013, and 2012 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, 2012	$	422	$	1,542,999		$	(603,315	)	$	(26,054	)	$	31,058		$	945,110
Net income						80,269						2,764			83,033
Other comprehensive income - derivative instruments (cash flow hedges)									19,718			681			20,399
Issuance and registration of common shares	4		24,965												24,969
Shares repurchased and retired	—		(673		)										(673		)
Shares issued in exchange for units	1		442									(443		)	—
Redeemable stock fair market value						(431		)							(431		)
Adjustment for noncontrolling interest ownership in operating partnership			186									(186		)	—
Amortization of unearned compensation			1,171												1,171
Dividends on common stock ($1.3900 per share)						(59,407		)				—			(59,407		)
Dividends on noncontrolling interest units ($1.3900 per unit)												(2,374		)	(2,374		)
EQUITY BALANCE JUNE 30, 2013	$	427	$	1,569,090		$	(582,884	)	$	(6,336	)	$	31,500		$	1,011,797



	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, 2011	$	389	$	1,375,623		$	(621,833	)	$	(35,848	)	$	25,131		$	743,462
Net income						52,050						2,490			54,540
Other comprehensive income - derivative instruments (cash flow hedges)									4,957			242			5,199
Issuance and registration of common shares	20		120,130												120,150
Shares repurchased and retired	—		(1,640		)										(1,640		)
Shares issued in exchange for units	1		2,515									(2,516		)	—
Redeemable stock fair market value						(375		)							(375		)
Adjustment for noncontrolling interest ownership in operating partnership			(3,687		)							3,687			—
Amortization of unearned compensation			1,231												1,231
Dividends on common stock ($1.3200 per share)						(54,146		)				—			(54,146		)
Dividends on noncontrolling interest units ($1.3200 per unit)												(2,458		)	(2,458		)
EQUITY BALANCE JUNE 30, 2012	$	410	$	1,494,172		$	(624,304	)	$	(30,891	)	$	26,576		$	865,963

4. Real Estate Acquisitions

On May 1, 2013, we purchased Greenwood Forest, a 316-unit apartment community located in Greenwood Forest (Houston), Texas. This property was previously a part of Mid-America Multifamily Fund I, LLC.

On May 21, 2013, we purchased Station Square at Cosner's Corner, a 260-unit apartment community located in Fredericksburg, Virginia. As part of this purchase, we also acquired land for future development.

5. Discontinued Operations

The four properties that we sold during the six months ended June 30, 2013 as well as the nine properties sold by us during 2012 have been classified as discontinued operations in the Consolidated Statement of Operations. Two additional properties that were classified as held for sale during the second quarter of 2013 are included in discontinued operations as well.

The following table lists the communities classified as discontinued operations for the six months ended June 30, 2013:



Community	Number of Units	Date Sold	Location	Operating Segment
Woodbridge at the Lake	188	May 15, 2013	Jacksonville, Florida	Large market same store
Savannahs at James Landing	256	June 13, 2013	Melbourne, Florida	Secondary market same store
High Ridge	160	June 13, 2013	Athens, Georgia	Secondary market same store
TPC Jacksonville	440	June 20, 2013	Jacksonville, Florida	Large market same store
Marsh Oaks	120	Held for sale	Jacksonville, Florida	Large market same store
Fountain Lake	113	Held for sale	Brunswick, Georgia	Secondary market same store

The following is a summary of continuing and discontinued operations attributable to MAA and noncontrolling interest for the three- and six-month periods ended June 30, 2013 and 2012 (dollars in thousands):



	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Income from continuing operations:
Attributable to MAA	$	16,391	$	14,563	$	36,695	$	28,352
Attributable to noncontrolling interest	613		665		1,409		1,327
Income from continuing operations	$	17,004	$	15,228	$	38,104	$	29,679

Income from discontinued operations:
Attributable to MAA	$	42,698	$	13,597	$	43,574	$	23,698
Attributable to noncontrolling interest	1,326		647		1,355		1,163
Income from discontinued operations	$	44,024	$	14,244	$	44,929	$	24,861

The following is a summary of discontinued operations for the three- and six-month periods ended June 30, 2013 and 2012 (dollars in thousands):



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Revenues
Rental revenues	$	2,452		$	5,893		$	5,359		$	12,241
Other revenues	170			566			385			1,184
Total revenues	2,622			6,459			5,744			13,425
Expenses
Property operating expenses	1,176			3,157			2,555			6,702
Depreciation and amortization	466			1,679			1,223			3,474
Interest expense	73			330			154			714
Total expense	1,715			5,166			3,932			10,890
Gain from discontinued operations before gain on sale	907			1,293			1,812			2,535
Net loss on insurance and other settlement proceeds on discontinued operations	(4		)	(2		)	(4		)	(56		)
Gain on sale of discontinued operations	43,121			12,953			43,121			22,382
Income from discontinued operations	$	44,024		$	14,244		$	44,929		$	24,861

6. Share and Unit Information

On June 30, 2013, 42,736,134 shares of common stock of MAA and 1,707,660 partnership units in the Operating Partnership were issued and outstanding, representing a total of 44,443,794 shares and units. At June 30, 2012, 41,101,427 shares of common stock of MAA and 1,784,208 partnership units in the Operating Partnership were outstanding, representing a total of 42,885,635 shares and units. There were no outstanding options as of June 30, 2013 or June 30, 2012.

On August 26, 2010, we and our Operating Partnership entered into distribution agreements with Cantor Fitzgerald & Co., Raymond James & Associates, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated pursuant to our at-the-market offerings or negotiated transactions through a controlled equity offering program, or ATM, for a combined total of 6,000,000 shares of our common stock. We terminated this ATM program and on February 25, 2013, we and our Operating Partnership entered into distribution agreements with J.P. Morgan Securities LLC, BMO Capital Markets Corp., KeyBanc Capital Markets Inc. and UBS Securities LLC to sell up to 4,500,000 shares of our common stock with materially the same terms as our previous distribution agreements.

During the three- and six-month periods ended June 30, 2013, we issued 39,845 shares and 365,011 shares, respectively, through our ATM programs for net proceeds of $2.7 million and $24.8 million, respectively. The gross proceeds for these issuances were $2.8 million and $25.1 million. During the three- and six-month periods ended June 30, 2012, we did not issue any shares through our ATM programs. We have 4,134,989 shares remaining under our ATM program as of June 30, 2013.

On March 2, 2012, we closed on an underwritten public offering of 1,955,000 shares of common stock. UBS Investment Bank and Jefferies & Company, Inc. acted as joint bookrunning managers. We received net proceeds of approximately $120 million after underwriter discounts. The gross proceeds for this offering were approximately $124.1 million. We had no such offerings during the three- and six-month periods ended June 30, 2013.

During the three- and six-month periods ended June 30, 2013, we issued 188 shares and 329 shares of common stock through the optional cash purchase feature of our Dividend and Distribution Reinvestment and Share Purchase Program, or DRSPP. The issuances resulted in gross proceeds of approximately $13,000 and $22,000. During the three- and six-month periods ended June 30, 2012, we issued 209 shares and 329 shares of common stock through the optional cash purchase feature of our DRSPP resulting in gross proceeds of approximately $14,000 and $22,000.

During the six months ended June 30, 2013, 4,582 shares of our common stock were acquired from employees to satisfy minimum tax withholding obligations that arose upon vesting of restricted stock granted pursuant to approved plans. During the six months ended June 30, 2012, 15,565 shares were acquired for these purposes.

7. Notes Payable

On June 30, 2013 and December 31, 2012, we had total indebtedness of approximately $1.69 billion and $1.67 billion, respectively. Our indebtedness as of June 30, 2013 consisted of both conventional and tax exempt debt. Borrowings were made through individual property mortgages as well as company-wide credit facilities. We utilize both secured and unsecured debt.

On March 1, 2012, we entered into a $150 million unsecured term loan agreement with a syndicate of banks led by KeyBank and J.P. Morgan with a variable rate resetting monthly at LIBOR plus a spread of 1.40% to 2.15% based on a leveraged-based pricing grid and a maturity date of March 1, 2017. As of June 30, 2013, the full amount was outstanding under this agreement. In July 2012, we received an investment grade rating (Baa2) from Moody's rating service, which caused the variable rate to reset monthly at LIBOR plus a spread of 1.10% to 2.05% based on an investment grade ratings grid.

On August 31, 2012, our Operating Partnership issued $175 million of Senior Unsecured Notes to be funded at three separate times. The notes were offered in a private placement with four tranches: $18 million at 3.15% maturing on November 30, 2017; $20 million at 3.61% maturing on November 30, 2019; $117 million at 4.17% maturing on November 30, 2022; and $20 million at 4.33% maturing on November 30, 2024. As of June 30, 2013, the full amount of the notes has been funded and is included in our balance sheet.

On June 14, 2013, we entered into a $250 million term loan agreement with JPMorgan at a rate of LIBOR plus a spread of 1.30% on any outstanding borrowings. This agreement matures on June 14, 2014, although borrowings are only allowed to be drawn upon up until 60 days subsequent to the closing of the merger with Colonial. We had no borrowings under this agreement at June 30, 2013.

As of June 30, 2013, approximately 42% 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, and Financial Federal, which are credit enhanced by Freddie Mac.

We utilize interest rate swaps and interest rate caps to help manage our current and future interest rate risk and entered into 19 interest rate swaps and 12 interest rate caps as of June 30, 2013, representing notional amounts totaling $584.0 million and $224.6 million, respectively. We also held 11 non-designated interest rate caps with notional amounts totaling $63.8 million as of June 30, 2013.

The following table summarizes our outstanding debt structure as of June 30, 2013 (dollars in thousands):



	Borrowed Balance		Effective Rate		Contract Maturity
Fixed Rate Secured Debt
Individual property mortgages	$	388,759	4.7	%	6/2/2019
FNMA conventional credit facilities	50,000		4.7	%	3/31/2017
Credit facility balances with:
LIBOR-based interest rate swaps	284,000		5.3	%	6/22/2014
Total fixed rate secured debt	$	722,759	4.9	%	4/28/2017
Variable Rate Secured Debt ⁽¹⁾
FNMA conventional credit facilities	$	214,720	0.7	%	9/6/2016
FNMA tax-free credit facilities	89,615		0.9	%	7/23/2031
Freddie Mac credit facilities	64,247		0.7	%	7/1/2014
Freddie Mac mortgage	15,200		3.5	%	1/1/2016
Total variable rate secured debt	$	383,782	0.9	%	10/6/2019
Total Secured Debt	$	1,106,541	3.5	%	3/3/2018

Unsecured Debt
Variable rate credit facility	$	125,000	1.4	%	11/1/2015
Term loan fixed with swaps	150,000		2.4	%	3/1/2017
Fixed rate senior private placement bonds	310,000		4.5	%	7/27/2021
Total Unsecured Debt	$	585,000	3.3	%	3/20/2019

Total Outstanding Debt	$	1,691,541	3.5	%	7/13/2018

⁽¹⁾ Includes capped balances.

8. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

We are exposed to certain risk arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future contractual and forecasted cash amounts, principally related to our borrowings, the value of which are determined by changing interest rates, related cash flows and other factors.

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 six months ended June 30, 2013 and 2012, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of fixed-rate

debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended June 30, 2013 and 2012, we recorded ineffectiveness of $23,000 (increase to interest expense) and $23,000 (decrease to interest expense), respectively, and during the six months ended June 30, 2013 and 2012, we recorded ineffectiveness of $26,000 (increase to interest expense) and $33,000 (decrease to interest expense), respectively, mainly attributable to a mismatch in the underlying indices of the derivatives and the hedged interest payments made on our variable-rate debt.

Amounts reported in accumulated other comprehensive income related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate or fixed-rate debt. During the next 12 months, we estimate that an additional $10.9 million will be reclassified to earnings as an increase to interest expense, which primarily represents the difference between our fixed interest rate swap payments and the projected variable interest rate swap payments.

As of June 30, 2013, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

⁽¹⁾ Includes three forward rate swaps totaling $150 million where the debt has not yet been issued. These swaps are not included in our debt discussion in MD&A or footnote 7.

Non-Designated Hedges

Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of FASB ASC 815, Derivatives and Hedging. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in a gain of $10,000 for the three months ended June 30, 2013 and a loss of $3,000 for the six months ended June 30, 2013. We recorded a loss of $9,000 and $33,000 for the three and six months ended June 30, 2012.

As of June 30, 2013, we had the following outstanding interest rate derivatives that were not designated as hedges:

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 June 30, 2013 and December 31, 2012, respectively.

Fair Values of Derivative Instruments on the Consolidated Balance Sheet as of June 30, 2013 and December 31, 2012 (dollars in thousands)



	Asset Derivatives					Liability Derivatives
		June 30, 2013		December 31, 2012			June 30, 2013		December 31, 2012
Derivatives designated as hedging instruments	Balance Sheet Location	Fair Value		Fair Value		Balance Sheet Location	Fair Value		Fair Value
Interest rate contracts	Other assets	$	10,626	$	245	Fair market value of interest rate swaps	$	11,907	$	21,423

Total derivatives designated as hedging instruments		$	10,626	$	245		$	11,907	$	21,423

Derivatives not designated as hedging instruments

Interest rate contracts	Other assets	$	62	$	43		$	—	$	—

Total derivatives not designated as hedging instruments		$	62	$	43		$	—	$	—

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

The table below presents the effect of our derivative financial instruments on the Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012, respectively.

Effect of Derivative Instruments on the Consolidated Statements of Operations for the

Three and six months ended June 30, 2013 and 2012 (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)
Three months ended June 30,	2013		2012				2013			2012				2013		2012



Interest rate contracts	$	12,101	$	(3,991	)	Interest expense	$	(3,932	)	$	(4,944	)	Interest expense	$	23	$	(23	)

Total derivatives in cash flow hedging relationships	$	12,101	$	(3,991	)		$	(3,932	)	$	(4,944	)		$	23	$	(23	)





Six months ended June 30,

Interest rate contracts	$	11,922	$	(5,293	)	Interest expense	$	(8,477	)	$	(10,492	)	Interest expense	$	26	$	(33	)

Total derivatives in cash flow hedging relationships	$	11,922	$	(5,293	)		$	(8,477	)	$	(10,492	)		$	26	$	(33	)

Derivatives Not Designated as Hedging Instruments

Three months ended June 30,													Location of Gain or (Loss) Recognized in Income	2013		2012

Interest rate contracts													Interest expense	$	10	$	(9	)

Total														$	10	$	(9	)