Edgar Filing: MID AMERICA APARTMENT COMMUNITIES INC

10-Q

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, 2015

¨ 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 ý	NO o
Mid-America Apartments, L.P.	YES ý	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 ý	NO o
Mid-America Apartments, L.P.	YES ý	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 ý	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 ý	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 ý
Mid-America Apartments, L.P.	YES o	NO ý

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 26, 2015
Common Stock, $0.01 par value	75,379,381

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, 2015 (Unaudited) and December 31, 2014 (Unaudited).	4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015 (Unaudited) and 2014 (Unaudited).	5
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 (Unaudited) and 2014 (Unaudited).	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 (Unaudited) and 2014 (Unaudited).	7
Mid-America Apartments, L.P.
	Condensed Consolidated Balance Sheets as of September 30, 2015 (Unaudited) and December 31, 2014 (Unaudited).	8
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015 (Unaudited) and 2014 (Unaudited).	9
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 (Unaudited) and 2014 (Unaudited).	10
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 (Unaudited) and 2014 (Unaudited).	11

	Notes to Condensed Consolidated Financial Statements (Unaudited).	12
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	51
Item 4.	Controls and Procedures.	51

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	52
Item 1A.	Risk Factors.	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	52
Item 3.	Defaults Upon Senior Securities.	53
Item 4.	Mine Safety Disclosures.	53
Item 5.	Other Information.	53
Item 6.	Exhibits.	53
	Signatures.	54
	Exhibit Index.	56

Explanatory Note

This periodic report on Form 10-Q, or this Report, combines the quarterly reports for the quarter ended September 30, 2015 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" refer 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, 2015, MAA owned 75,379,381 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 periodic reports of MAA and the Operating Partnership, including the notes to the condensed consolidated financial statements, into this 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 periodic 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.

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 2 - Earnings per Common Share of MAA and Note 3 - Earnings per OP Unit of MAALP; and Note 9 - Shareholders' Equity of MAA and Note 10 - Partners' Capital of Mid-America Apartments, L.P.; and


•	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.

Mid-America Apartment Communities, Inc.

Condensed Consolidated Balance Sheets

September 30, 2015 and December 31, 2014

(Unaudited)

(Dollars in thousands, except share data)



	September 30, 2015			December 31, 2014
Assets:
Real estate assets:
Land	$	913,045		$	913,408
Buildings and improvements	6,842,089			6,781,210
Furniture, fixtures and equipment	223,759			214,742
Development and capital improvements in progress	44,645			80,772
	8,023,538			7,990,132
Less accumulated depreciation	(1,410,155		)	(1,358,400		)
	6,613,383			6,631,732

Undeveloped land	51,779			55,997
Corporate properties, net	8,606			7,988
Investments in real estate joint ventures	1,807			1,791
Real estate assets, net	6,675,575			6,697,508

Cash and cash equivalents	44,876			26,653
Restricted cash	89,321			28,181
Deferred financing costs, net	11,901			17,812
Other assets	64,061			61,119
Goodwill	1,607			2,321
Total assets	$	6,887,341		$	6,833,594

Liabilities and equity:
Liabilities:
Secured notes payable	$	1,373,654		$	1,592,116
Unsecured notes payable	2,051,481			1,932,399
Accounts payable	10,509			8,395
Fair market value of interest rate swaps	17,953			13,392
Accrued expenses and other liabilities	243,711			219,044
Security deposits	11,446			10,526
Total liabilities	3,708,754			3,775,872

Redeemable stock	7,266			5,911

Shareholders' equity:
Common stock, $0.01 par value per share, 100,000,000 shares authorized; 75,379,381 and 75,267,675 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively ⁽¹⁾	754			752
Additional paid-in capital	3,623,834			3,619,270
Accumulated distributions in excess of net income	(614,500		)	(729,086		)
Accumulated other comprehensive loss	(6,306		)	(412		)
Total MAA shareholders' equity	3,003,782			2,890,524
Noncontrolling interest	167,539			161,287
Total equity	3,171,321			3,051,811
Total liabilities and equity	$	6,887,341		$	6,833,594


⁽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, 2015 and December 31, 2014 are 88,745 and 87,818, respectively.

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartment Communities, Inc.

Condensed Consolidated Statements of Operations

Three and nine months ended September 30, 2015 and 2014

(Unaudited)

(Dollars in thousands, except per share data)



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Operating revenues:
Rental revenues	$	239,670		$	226,584		$	710,775		$	671,695
Other property revenues	22,328			22,979			68,666			67,264
Total property revenues	261,998			249,563			779,441			738,959
Management fee income	—			11			—			154
Total operating revenues	261,998			249,574			779,441			739,113
Property operating expenses:
Personnel	26,500			26,363			78,033			76,481
Building repairs and maintenance	8,793			9,056			23,195			23,354
Real estate taxes and insurance	31,699			31,025			97,824			93,128
Utilities	23,769			23,535			67,442			66,985
Landscaping	3,900			4,068			15,032			15,557
Other operating	6,938			6,835			21,577			20,903
Depreciation and amortization	73,098			70,222			220,606			229,866
Total property operating expenses	174,697			171,104			523,709			526,274
Acquisition expense	656			13			2,155			971
Property management expenses	7,628			7,429			23,106			24,019
General and administrative expenses	5,879			6,511			19,103			16,065
Merger related expenses	—			331			—			3,202
Integration related expenses	—			147			—			7,140
Income from continuing operations before non-operating items	73,138			64,039			211,368			161,442
Interest and other non-property (expense) income	(179		)	37			(359		)	1,077
Interest expense	(29,342		)	(28,251		)	(88,801		)	(89,090		)
Loss on debt extinguishment	(5		)	(2,586		)	(3,384		)	(2,586		)
Amortization of deferred financing costs	(887		)	(1,000		)	(2,710		)	(3,485		)
Net casualty (loss) gain after insurance and other settlement proceeds	(5		)	(126		)	485			(431		)
Gain on sale of depreciable real estate assets excluded from discontinued operations	54,621			36,032			190,031			42,254
Gain on sale of non-depreciable real estate assets	—			—			172			535
Income before income tax expense	97,341			68,145			306,802			109,716
Income tax expense	(512		)	(442		)	(1,419		)	(1,235		)
Income from continuing operations before joint venture activity	96,829			67,703			305,383			108,481
(Loss) gain from real estate joint ventures	(1		)	3,124			(5		)	6,019
Income from continuing operations	96,828			70,827			305,378			114,500
Discontinued operations:
Loss from discontinued operations before (loss) gain on sale	—			(8		)	—			(59		)
Net casualty gain after insurance and other settlement proceeds on discontinued operations	—			3			—			—
(Loss) gain on sale of discontinued operations	—			(103		)	—			5,378
Consolidated net income	96,828			70,719			305,378			119,819
Net income attributable to noncontrolling interests	5,094			3,743			16,078			6,364
Net income available for MAA common shareholders	$	91,734		$	66,976		$	289,300		$	113,455

Earnings per common share - basic:
Income from continuing operations available for common shareholders	$	1.22		$	0.89		$	3.84		$	1.44
Discontinued property operations	—			—			—			0.07
Net income available for common shareholders	$	1.22		$	0.89		$	3.84		$	1.51

Earnings per common share - diluted:
Income from continuing operations available for common shareholders	$	1.22		$	0.89		$	3.84		$	1.44
Discontinued property operations	—			—			—			0.07
Net income available for common shareholders	$	1.22		$	0.89		$	3.84		$	1.51

Dividends declared per common share	$	0.77		$	0.73		$	2.31		$	2.19

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartment Communities, Inc.

Condensed Consolidated Statements of Comprehensive Income

Three and nine months ended September 30, 2015 and 2014

(Unaudited)

(Dollars in thousands)



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Consolidated net income	$	96,828		$	70,719		$	305,378		$	119,819
Other comprehensive income:
Unrealized loss from the effective portion of derivative instruments	(9,269		)	(696		)	(11,812		)	(9,096		)
Reclassification adjustment for net losses included in net income for the effective portion of derivative instruments	1,607			2,589			5,590			9,399
Total comprehensive income	89,166			72,612			299,156			120,122
Less: comprehensive income attributable to noncontrolling interests	(4,690		)	(3,845		)	(15,750		)	(6,379		)
Comprehensive income attributable to MAA	$	84,476		$	68,767		$	283,406		$	113,743

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartment Communities, Inc.

Condensed Consolidated Statements of Cash Flows

Nine months ended September 30, 2015 and 2014

(Unaudited)

(Dollars in thousands)



	Nine months ended September 30,
	2015			2014
Cash flows from operating activities:
Consolidated net income	$	305,378		$	119,819
Adjustments to reconcile net income to net cash provided by operating activities:
Retail revenue accretion	(952		)	(17		)
Depreciation and amortization	223,651			233,312
Stock compensation expense	4,438			3,180
Redeemable stock issued	741			690
Amortization of debt premium	(15,465		)	(20,121		)
Loss (gain) from investments in real estate joint ventures	6			(3,159		)
Loss on debt extinguishment	2,788			2,586
Derivative interest credit	(1,567		)	(2,543		)
Settlement of forward swaps	—			(3,625		)
Gain on sale of non-depreciable real estate assets	(172		)	(535		)
Gain on sale of depreciable real estate assets excluded from discontinued operations	(190,031		)	(42,254		)
Gain on sale of discontinued operations	—			(5,378		)
Net casualty (gain) loss and other settlement proceeds	(485		)	431
Changes in assets and liabilities:
Restricted cash	(1,533		)	(11,262		)
Other assets	5,927			(5,016		)
Accounts payable	(1,211		)	(1,665		)
Accrued expenses and other	28,877			32,209
Security deposits	1,146			688
Net cash provided by operating activities	361,536			297,340
Cash flows from investing activities:
Purchases of real estate and other assets	(248,668		)	(155,679		)
Normal capital improvements	(72,786		)	(72,045		)
Construction capital and other improvements	(5,479		)	(6,287		)
Renovations to existing real estate assets	(22,470		)	(15,484		)
Development	(24,870		)	(57,705		)
Distributions from real estate joint ventures	6			15,964
Contributions to real estate joint ventures	(29		)	—
Proceeds from disposition of real estate assets	358,017			241,691
Funding of escrow for future acquisitions	(59,607		)	(5,589		)
Net cash used in investing activities	(75,886		)	(55,134		)
Cash flows from financing activities:
Net change in credit lines	8,885			(216,184		)
Proceeds from notes payable	—			396,532
Principal payments on notes payable	(92,211		)	(258,105		)
Payment of deferred financing costs	(178		)	(4,156		)
Repurchase of common stock	(957		)	(456		)
Proceeds from issuances of common shares	326			728
Exercise of stock options	420			11,916
Distributions to noncontrolling interests	(9,676		)	(9,227		)
Dividends paid on common shares	(174,036		)	(164,298		)
Net cash used in financing activities	(267,427		)	(243,250		)
Net increase (decrease) in cash and cash equivalents	18,223			(1,044		)
Cash and cash equivalents, beginning of period	26,653			89,333
Cash and cash equivalents, end of period	$	44,876		$	88,289

Supplemental disclosure of cash flow information:
Interest paid	$	97,798		$	101,252
Income taxes paid	$	2,095		$	1,596
Supplemental disclosure of noncash investing and financing activities:
Conversion of units to shares of common stock	$	236		$	992
Accrued construction in progress	$	8,333		$	6,539
Interest capitalized	$	1,313		$	1,253
Marked-to-market adjustment on derivative instruments	$	(4,632	)	$	6,471
Fair value adjustment on debt assumed	$	—		$	2,720
Loan assumption	$	—		$	52,521

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartments, L.P.

Condensed Consolidated Balance Sheets

September 30, 2015 and December 31, 2014

(Dollars in thousands, except unit data)



	September 30, 2015			December 31, 2014
Assets:
Real estate assets:
Land	$	913,045		$	913,408
Buildings and improvements	6,842,089			6,781,210
Furniture, fixtures and equipment	223,759			214,742
Development and capital improvements in progress	44,645			80,772
	8,023,538			7,990,132
Less accumulated depreciation	(1,410,155		)	(1,358,400		)
	6,613,383			6,631,732

Undeveloped land	51,779			55,997
Corporate properties, net	8,606			7,988
Investments in real estate joint ventures	1,807			1,791
Real estate assets, net	6,675,575			6,697,508

Cash and cash equivalents	44,876			26,653
Restricted cash	89,321			28,181
Deferred financing costs, net	11,901			17,812
Other assets	64,061			61,119
Goodwill	1,607			2,321
Total assets	$	6,887,341		$	6,833,594

Liabilities and Capital:
Liabilities:
Secured notes payable	$	1,373,654		$	1,592,116
Unsecured notes payable	2,051,481			1,932,399
Accounts payable	10,509			8,395
Fair market value of interest rate swaps	17,953			13,392
Accrued expenses and other liabilities	243,711			219,044
Security deposits	11,446			10,526
Due to general partner	19			19
Total liabilities	3,708,773			3,775,891

Redeemable units	7,266			5,911

Capital:
General partner: 75,379,381 OP Units outstanding at September 30, 2015 and 75,267,675 OP Units outstanding at December 31, 2014 ⁽¹⁾	3,010,361			2,890,858
Limited partners: 4,185,065 OP Units outstanding at September 30, 2015 and 4,191,152 OP Units outstanding at December 31, 2014 ⁽¹⁾	167,539			161,310
Accumulated other comprehensive loss	(6,598		)	(376		)
Total capital	3,171,302			3,051,792
Total liabilities and capital	$	6,887,341		$	6,833,594


⁽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, 2015 and December 31, 2014 are 88,745 and 87,818, respectively.

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartments, L.P.

Condensed Consolidated Statements of Operations

Three and nine months ended September 30, 2015 and 2014

(Unaudited)

(Dollars in thousands, except per unit data)



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Operating revenues:
Rental revenues	$	239,670		$	226,584		$	710,775		$	671,695
Other property revenues	22,328			22,979			68,666			67,264
Total property revenues	261,998			249,563			779,441			738,959
Management fee income	—			11			—			154
Total operating revenues	261,998			249,574			779,441			739,113
Property operating expenses:
Personnel	26,500			26,363			78,033			76,481
Building repairs and maintenance	8,793			9,056			23,195			23,354
Real estate taxes and insurance	31,699			31,025			97,824			93,128
Utilities	23,769			23,535			67,442			66,985
Landscaping	3,900			4,068			15,032			15,557
Other operating	6,938			6,835			21,577			20,903
Depreciation and amortization	73,098			70,222			220,606			229,866
Total property operating expenses	174,697			171,104			523,709			526,274
Acquisition expense	656			13			2,155			971
Property management expenses	7,628			7,429			23,106			24,019
General and administrative expenses	5,879			6,511			19,103			16,065
Merger related expenses	—			331			—			3,202
Integration related expenses	—			147			—			7,140
Income from continuing operations before non-operating items	73,138			64,039			211,368			161,442
Interest and other non-property (expense) income	(179		)	37			(359		)	1,077
Interest expense	(29,342		)	(28,251		)	(88,801		)	(89,090		)
Loss on debt extinguishment	(5		)	(2,586		)	(3,384		)	(2,586		)
Amortization of deferred financing costs	(887		)	(1,000		)	(2,710		)	(3,485		)
Net casualty (loss) gain after insurance and other settlement proceeds	(5		)	(126		)	485			(431		)
Gain on sale of depreciable real estate assets excluded from discontinued operations	54,621			36,032			190,031			42,254
Gain on sale of non-depreciable real estate assets	—			—			172			535
Income before income tax expense	97,341			68,145			306,802			109,716
Income tax expense	(512		)	(442		)	(1,419		)	(1,235		)
Income from continuing operations before joint venture activity	96,829			67,703			305,383			108,481
(Loss) gain from real estate joint ventures	(1		)	3,124			(5		)	6,019
Income from continuing operations	96,828			70,827			305,378			114,500
Discontinued operations:
Loss from discontinued operations before (loss) gain on sale	—			(8		)	—			(59		)
Net casualty gain after insurance and other settlement proceeds on discontinued operations	—			3			—			—
(Loss) gain on sale of discontinued operations	—			(103		)	—			5,378
Net income available for Mid-America Apartments, L.P. common unitholders	$	96,828		$	70,719		$	305,378		$	119,819

Earnings per common unit - basic:
Income from continuing operations available for common unitholders	$	1.22		$	0.89		$	3.84		$	1.44
Income from discontinued operations available for common unitholders	—			—			—			0.07
Net income available for common unitholders	$	1.22		$	0.89		$	3.84		$	1.51

Earnings per common unit - diluted:
Income from continuing operations available for common unitholders	$	1.22		$	0.89		$	3.84		$	1.44
Income from discontinued operations available for common unitholders	—			—			—			0.07
Net income available for common unitholders	$	1.22		$	0.89		$	3.84		$	1.51

Distributions declared per common unit	$	0.77		$	0.73		$	2.31		$	2.19

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartments, L.P.

Condensed Consolidated Statements of Comprehensive Income

Three and nine months ended September 30, 2015 and 2014

(Unaudited)

(Dollars in thousands)



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Net income available for Mid-America Apartments, L.P. common unitholders	$	96,828		$	70,719		$	305,378		$	119,819
Other comprehensive income:
Unrealized loss from the effective portion of derivative instruments	(9,269		)	(696		)	(11,812		)	(9,096		)
Reclassification adjustment for net losses included in net income for the effective portion of derivative instruments	1,607			2,589			5,590			9,399
Comprehensive income attributable to Mid-America Apartments, L.P.	$	89,166		$	72,612		$	299,156		$	120,122

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartments, L.P.

Condensed Consolidated Statements of Cash Flows

Nine months ended September 30, 2015 and 2014

(Unaudited)

(Dollars in thousands)



	Nine months ended September 30,
	2015			2014
Cash flows from operating activities:
Consolidated net income	$	305,378		$	119,819
Adjustments to reconcile net income to net cash provided by operating activities:
Retail revenue accretion	(952		)	(17		)
Depreciation and amortization	223,651			233,312
Stock compensation expense	4,438			3,180
Redeemable units issued	741			690
Amortization of debt premium	(15,465		)	(20,121		)
Loss (gain) from investments in real estate joint ventures	6			(3,159		)
Loss on debt extinguishment	2,788			2,586
Derivative interest credit	(1,567		)	(2,543		)
Settlement of forward swaps	—			(3,625		)
Gain on sale of non-depreciable real estate assets	(172		)	(535		)
Gain on sale of depreciable real estate assets excluded from discontinued operations	(190,031		)	(42,254		)
Gain on sale of discontinued operations	—			(5,378		)
Net casualty (gain) loss and other settlement proceeds	(485		)	431
Changes in assets and liabilities:
Restricted cash	(1,533		)	(11,262		)
Other assets	5,927			(5,016		)
Accounts payable	(1,211		)	(1,665		)
Accrued expenses and other	28,877			32,209
Security deposits	1,146			688
Net cash provided by operating activities	361,536			297,340
Cash flows from investing activities:
Purchases of real estate and other assets	(248,668		)	(155,679		)
Normal capital improvements	(72,786		)	(72,045		)
Construction capital and other improvements	(5,479		)	(6,287		)
Renovations to existing real estate assets	(22,470		)	(15,484		)
Development	(24,870		)	(57,705		)
Distributions from real estate joint ventures	6			15,964
Contributions to real estate joint ventures	(29		)	—
Proceeds from disposition of real estate assets	358,017			241,691
Funding of escrow for future acquisitions	(59,607		)	(5,589		)
Net cash used in investing activities	(75,886		)	(55,134		)
Cash flows from financing activities:
Net change in credit lines	8,885			(216,184		)
Proceeds from notes payable	—			396,532
Principal payments on notes payable	(92,211		)	(258,105		)
Payment of deferred financing costs	(178		)	(4,156		)
Repurchase of common units	(957		)	(456		)
Proceeds from issuances of common units	326			728
Exercise of unit options	420			11,916
Distributions paid on common units	(183,712		)	(173,525		)
Net cash used in financing activities	(267,427		)	(243,250		)
Net increase (decrease) in cash and cash equivalents	18,223			(1,044		)
Cash and cash equivalents, beginning of period	26,653			89,333
Cash and cash equivalents, end of period	$	44,876		$	88,289

Supplemental disclosure of cash flow information:
Interest paid	$	97,798		$	101,252
Income taxes paid	$	2,095		$	1,596
Supplemental disclosure of noncash investing and financing activities:
Accrued construction in progress	$	8,333		$	6,539
Interest capitalized	$	1,313		$	1,253
Marked-to-market adjustment on derivative instruments	$	(4,632	)	$	6,471
Fair value adjustment on debt assumed	$	—		$	2,720
Loan assumption	$	—		$	52,521

See accompanying notes to condensed consolidated financial statements.

Mid-America Apartment Communities, Inc. and Mid-America Apartments, L.P.

Notes to Condensed Consolidated Financial Statements

September 30, 2015 and 2014

(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 the Mid-America Apartments, L.P. Unless the context otherwise requires, all references to "MAA" refer 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".

We believe combining the notes to the consolidated financial statements of MAA and MAALP 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; and


•	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.

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 at the greater of the closing market price of MAA's common stock or the aggregate value of the individual partners' capital balances. Each redeemable OP Unit may be redeemed by the holder thereof for either cash equal to the fair market value of one share of common stock of MAA at the time of such redemption or, at the option of MAA, one share of common stock of MAA.

As of September 30, 2015, we owned and operated 253 apartment communities comprising 79,024 apartments located in 15 states principally through the Operating Partnership.

As of September 30, 2015, we had four development communities under construction totaling 806 units, with 232 units completed. Total expected costs for the development projects are $119.5 million, of which $65.5 million has been incurred through September 30, 2015. We expect to complete construction on the first project by the fourth quarter of 2015, the second project by the first quarter of 2016, the third project by the third quarter of 2016, and the fourth project by the second quarter of 2017. Five of our multifamily properties include retail components with approximately 163,000 square feet of gross leasable area. We also have one wholly owned commercial property, which we acquired through our merger with Colonial Properties Trust, or Colonial, with approximately 196,000 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.

Reclassifications

In order to present comparative financial statements, certain reclassifications have been made to prior period numbers. In our Form 10-Q for the three and nine months ended September 30, 2014, we reported approximately $0.3 million and $1.0 million, respectively, in permits and fees and general maintenance costs in the Other operating expense line of our Condensed Consolidated Statement of Operations. These costs have been reclassified to Building repairs and maintenance for the three and nine months ended September 30, 2014, presented in the Condensed Consolidated Statement of Operations included in this Report. In our Form 10-Q for the three and nine months ended September 30, 2014, we also reported approximately $8.6 million and $25.4 million, respectively, primarily for cable TV, trash removal, and telephone costs, in the Other operating expense line of our Condensed Consolidated Statement of Operations. These costs have been reclassified to Utilities for the three and nine months ended September 30, 2014, presented in the Condensed Consolidated Statement of Operations included in this Report. In our Form 10-K for the year ended December 31, 2014, we reported approximately $36.5 million as Assets held for sale, excluded from Real estate assets, net. These assets have been reclassified to Assets held for use within the applicable line items in the Condensed Consolidated Balance Sheet included in this Report. See further discussion on the held for sale reclassification in Note 12 to these condensed consolidated financial statements. These changes have been made in order to provide better insight into our property operating expenses and balance sheet position.

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 condensed 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 94.7% to 100% of all consolidated subsidiaries. The condensed 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. 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. OP 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, 2015 and 2014, 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, as presented below:



(dollars and shares in thousands, except per share amounts)	Three months ended September 30,								Nine months ended September 30,
	2015				2014				2015				2014
Shares Outstanding
Weighted average common shares - basic	75,189				75,058				75,167				74,937
Weighted average partnership units outstanding	—			⁽¹⁾	—			⁽¹⁾	—			⁽¹⁾	—			⁽¹⁾
Effect of dilutive securities	—			⁽²⁾	—			⁽²⁾	—			⁽²⁾	—			⁽²⁾
Weighted average common shares - diluted	75,189				75,058				75,167				74,937

Calculation of Earnings per Share - basic
Income from continuing operations	$	96,828			$	70,827			$	305,378			$	114,500
Income from continuing operations attributable to noncontrolling interests	(5,094		)		(3,748		)		(16,078		)		(6,080		)
Income from continuing operations allocated to unvested restricted shares	(221		)		(131		)		(668		)		(212		)
Income from continuing operations available for common shareholders, adjusted	$	91,513			$	66,948			$	288,632			$	108,208

Income from discontinued operations	$	—			$	(108	)		$	—			$	5,319
Income from discontinued operations attributable to noncontrolling interest	—				5				—				(284		)
Income from discontinued operations allocated to unvested restricted shares	—				—				—				(10		)
Income from discontinued operations available for common shareholders, adjusted	$	—			$	(103	)		$	—			$	5,025

Weighted average common shares - basic	75,189				75,058				75,167				74,937
Earnings per share - basic	$	1.22			$	0.89			$	3.84			$	1.51

Calculation of Earnings per Share - diluted
Income from continuing operations	$	96,828			$	70,827			$	305,378			$	114,500
Income from continuing operations attributable to noncontrolling interests	(5,094		)	⁽¹⁾	(3,751		)	⁽¹⁾	(16,080		)	⁽¹⁾	(6,080		)	⁽¹⁾
Income from continuing operations allocated to unvested restricted shares	(221		)	⁽²⁾	(131		)	⁽²⁾	(668		)	⁽²⁾	(212		)	⁽²⁾
Income from continuing operations available for common shareholders, adjusted	$	91,513			$	66,945			$	288,630			$	108,208

Income from discontinued operations	$	—			$	(108	)		$	—			$	5,319
Income from discontinued operations attributable to noncontrolling interest	—				8			⁽¹⁾	—				(284		)	⁽¹⁾
Income from discontinued operations allocated to unvested restricted shares	—				—				—				(10		)	⁽²⁾
Income from discontinued operations available for common shareholders, adjusted	$	—			$	(100	)		$	—			$	5,025

Weighted average common shares - diluted	75,189				75,058				75,167				74,937
Earnings per share - diluted	$	1.22			$	0.89			$	3.84			$	1.51

⁽¹⁾ For both the three and nine months ended September 30, 2015 and 2014, 4.2 million operating partnership units and their related income are not included in the diluted earnings per share calculations as they are not dilutive.

⁽²⁾ For the three and nine months ended September 30, 2015 and September 30, 2014, 0.2 million and 0.1 million, respectively, potentially dilutive securities and their related income are not included in the diluted earnings per share calculations as they are not dilutive.

3. 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, 2015 and 2014 is presented below:



(dollars and units in thousands, except per unit amounts)	Three months ended September 30,								Nine months ended September 30,
	2015				2014				2015				2014
Units Outstanding
Weighted average OP Units - basic	79,374				79,263				79,356				79,148
Effect of dilutive securities	—			⁽¹⁾	—			⁽¹⁾	—			⁽¹⁾	—			⁽¹⁾
Weighted average OP Units - diluted	79,374				79,263				79,356				79,148

Calculation of Earnings per Unit - basic
Income from continuing operations	$	96,828			$	70,827			$	305,378			$	114,500
Income from continuing operations allocated to unvested restricted shares	(221		)		(131		)		(668		)		(212		)
Income from continuing operations available for common unitholders, adjusted	$	96,607			$	70,696			$	304,710			$	114,288

Income from discontinued operations	$	—			$	(108	)		$	—			$	5,319
Income from discontinued operations allocated to unvested restricted shares	—				—				—				(10		)
Income from discontinued operations available for common unitholders, adjusted	$	—			$	(108	)		$	—			$	5,309

Weighted average OP Units - basic	79,374				79,263				79,356				79,148
Earnings per unit - basic:	$	1.22			$	0.89			$	3.84			$	1.51

Calculation of Earnings per Unit - diluted
Income from continuing operations	$	96,828			$	70,827			$	305,378			$	114,500
Income from continuing operations allocated to unvested restricted shares	(221		)	⁽¹⁾	(131		)	⁽¹⁾	(668		)	⁽¹⁾	(212		)	⁽¹⁾
Income from continuing operations available for common unitholders, adjusted	$	96,607			$	70,696			$	304,710			$	114,288

Income from discontinued operations	$	—			$	(108	)		$	—			$	5,319
Income from discontinued operations allocated to unvested restricted shares	—				—				—				(10		)	⁽¹⁾
Income from discontinued operations available for common unitholders, adjusted	$	—			$	(108	)		$	—			$	5,309

Weighted average OP Units - diluted	79,374				79,263				79,356				79,148
Earnings per unit - diluted:	$	1.22			$	0.89			$	3.84			$	1.51

⁽¹⁾ For the three and nine months ended September 30, 2015 and September 30, 2014, 0.2 million and 0.1 million, respectively, potentially dilutive securities and their related income are not included in the diluted earnings per share calculations as they are not dilutive.

4. MAA Equity

Total equity and its components for the nine-month periods ended September 30, 2015 and 2014 were as follows (dollars in thousands, except per share and per unit data):



	Mid-America Apartment Communities, Inc. Shareholders' Equity
	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, 2014	$	752	$	3,619,270		$	(729,086	)	$	(412	)	$	161,287		$	3,051,811
Net income						289,300						16,078			305,378
Other comprehensive loss - derivative instruments (cash flow hedges)									(5,894		)	(328		)	(6,222		)
Issuance and registration of common shares	2		324												326
Shares repurchased and retired	—		(957		)										(957		)
Exercise of stock options	—		420												420
Shares issued in exchange for units	—		236									(236		)	—
Redeemable stock fair market value adjustment						(614		)							(614		)
Adjustment for noncontrolling interest ownership in operating partnership			(409		)							409			—
Amortization of unearned compensation			4,950												4,950
Dividends on common stock ($2.31 per share)						(174,100		)				—			(174,100		)
Dividends on noncontrolling interest units ($2.31 per unit)												(9,671		)	(9,671		)
EQUITY BALANCE SEPTEMBER 30, 2015	$	754	$	3,623,834		$	(614,500	)	$	(6,306	)	$	167,539		$	3,171,321



	Mid-America Apartment Communities, Inc. Shareholders' Equity
	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 for redeemable stock			998											998
Redeemable stock fair market value adjustment						(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)