Mid-America Apartment Communities 8K 2013 Q2 Other Events | MAA Filing

Mid-America Apartment Communities (MAA) 8-K2013 Q2 Other Events



MID-AMERICA APARTMENT COMMUNITIES, INC.		Exhibit 99.1

Explanatory Note

Unless the context otherwise requires, all references in this Current Report to "we," "us," "our," "Operating Partnership," "MAALP" or the "Company" refer to Mid-America Apartments, L.P. Unless the context otherwise requires, the references in this Current Report to "MAA" or "general partner" refers to Mid-America Apartment Communities, Inc. Any reference to the "Board" or "Board of Directors" refers to the Board of Directors of MAA. "Common Stock" refers to the common stock of MAA and "shareholders" means the holders of shares of MAA's common and preferred stock. The partnership interests of the Operating Partnership are referred to as "OP Units" and the holders of the OP Units are referred to as "unitholders".

Mid-America Apartments, L.P.

Condensed Consolidated Balance Sheets

June 30, 2013 and December 31, 2012

(Unaudited)

(Dollars in thousands, except unit data)



	June 30, 2013			December 31, 2012
Assets:
Real estate assets:
Land	$	370,589		$	359,943
Buildings and improvements	2,942,211			2,867,409
Furniture, fixtures and equipment	87,429			84,997
Development and capital improvements in progress	47,020			50,844
	3,447,249			3,363,193
Less accumulated depreciation	(927,829		)	(901,485		)
	2,519,420			2,461,708

Land held for future development	5,450			1,205
Commercial properties, net	7,873			8,058
Investments in real estate joint ventures	3,178			4,837
Real estate assets, net	2,535,921			2,475,808

Cash and cash equivalents	8,743			8,886
Restricted cash	12,989			809
Deferred financing costs, net	12,041			13,380
Other assets	41,039			26,882
Goodwill	4,106			4,106
Assets held for sale	5,881			—
Total assets	$	2,620,720		$	2,529,871

Liabilities and Capital:
Liabilities:
Secured notes payable	$	1,086,442		$	1,170,646
Unsecured notes payable	585,000			483,000
Accounts payable	9,436			3,889
Fair market value of interest rate swaps	11,907			21,423
Accrued expenses and other liabilities	89,462			90,559
Security deposits	6,453			6,167
Due to General Partner	46,265			24,255
Liabilities associated with assets held for sale	148			—
Total liabilities	1,835,113			1,799,939

Redeemable units	5,521			4,713

Capital:
General partner: 40,141,197 OP Units outstanding at June 30, 2013 and 39,721,461 OP Units outstanding at December 31, 2012	739,745			706,296
Limited partners: 1,707,660 OP Units outstanding at June 30, 2013 and 1,731,672 OP Units outstanding at December 31, 2012	31,705			30,993
Accumulated other comprehensive losses	(6,500		)	(26,881		)
Total partners' capital	764,950			710,408
Noncontrolling interest	15,136			14,811
Total capital	780,086			725,219
Total liabilities and capital	$	2,620,720		$	2,529,871

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

See accompanying notes to consolidated financial statements.

Mid-America Apartments, L.P.

Condensed Consolidated Statements of Operations

Three and six months ended June 30, 2013 and 2012

(Unaudited)

(Dollars in thousands, except per unit data)



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Operating revenues:
Rental revenues	$	111,320		$	98,119		$	219,373		$	191,089
Other property revenues	9,804			8,894			19,139			17,399
Total property revenues	121,124			107,013			238,512			208,488
Management fee income	141			209			319			478
Total operating revenues	121,265			107,222			238,831			208,966
Property operating expenses:
Personnel	13,213			12,128			25,987			24,194
Building repairs and maintenance	3,540			3,352			6,414			6,558
Real estate taxes and insurance	14,822			12,702			29,189			24,783
Utilities	6,300			5,888			12,290			11,198
Landscaping	2,593			2,320			5,214			4,739
Other operating	8,254			7,553			15,988			14,793
Depreciation and amortization	29,772			27,415			59,506			53,572
Total property operating expenses	78,494			71,358			154,588			139,837
Acquisition expenses	489			389			499			409
Property management expenses	4,282			4,961			9,060			9,885
General and administrative expenses	2,410			2,816			5,300			5,845
Merger related expenses	5,737			—			5,737			—
Income from continuing operations before non-operating items	29,853			27,698			63,647			52,990
Interest and other non-property (loss) income	(5		)	84			13			198
Interest expense	(14,159		)	(12,577		)	(28,190		)	(25,253		)
(Loss) gain on debt extinguishment/modification	(1		)	(15		)	(62		)	5
Amortization of deferred financing costs	(763		)	(753		)	(1,528		)	(1,409		)
Net casualty gain (loss) after insurance and other settlement proceeds	438			—			454			(9		)
Loss on sale of non-depreciable assets	—			(3		)	—			(3		)
Income from continuing operations before gain (loss) from real estate joint ventures	15,363			14,434			34,334			26,519
Gain (loss) from real estate joint ventures	48			(69		)	102			(100		)
Income from continuing operations	15,411			14,365			34,436			26,419
Discontinued operations:
Income from discontinued operations before gain on sale	721			1,105			1,414			2,160
Net casualty loss after insurance and other settlement proceeds on discontinued operations	(5		)	(2		)	(5		)	(56		)
Gain on sale of discontinued operations	31,780			12,953			31,780			22,382
Consolidated net income	47,907			28,421			67,625			50,905
Net income attributable to noncontrolling interests	160			135			319			283
Net income available for Mid-America Apartments, L.P. common unitholders	$	47,747		$	28,286		$	67,306		$	50,622

Earnings per common unit - basic and diluted:
Income from continuing operations available for common unitholders	$	0.37		$	0.35		$	0.82		$	0.66
Income from discontinued property operations available for common unitholders	0.77			0.35			0.79			0.61
Net income available for common unitholders	$	1.14		$	0.70		$	1.61		$	1.27

Distributions declared per common unit	$	0.6950		$	0.6600		$	1.3900		$	1.3200

See accompanying notes to consolidated financial statements.

Mid-America Apartments, L.P.

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	$	47,907		$	28,421		$	67,625		$	50,905
Other comprehensive income:
Unrealized gains (losses) from the effective portion of derivative instruments	12,101			(3,991		)	11,904			(5,293		)
Reclassification adjustment for losses included in net income for the effective portion of derivative instruments	3,932			4,944			8,477			10,495
Total comprehensive income	63,940			29,374			88,006			56,107
Less: comprehensive income attributable to noncontrolling interests	(160		)	(135		)	(319		)	(283		)
Comprehensive income attributable to Mid-America Apartments, L.P.	$	63,780		$	29,239		$	87,687		$	55,824

See accompanying notes to consolidated financial statements.

Mid-America Apartments, L.P.

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	$	67,625		$	50,905
Adjustments to reconcile net income to net cash provided by operating activities:
Retail revenue (accretion) amortization	(20		)	38
Depreciation and amortization	62,157			64,061
Stock compensation expense	1,050			1,104
Redeemable units issued	338			257
Amortization of debt premium	(504		)	(316		)
(Gain) loss from investments in real estate joint ventures	(102		)	98
Loss on debt extinguishment	62			(5		)
Derivative interest expense	465			361
Loss on sale of non-depreciable assets	—			3
Gain on sale of discontinued operations	(31,780		)	(22,453		)
Net casualty (gain) loss and other settlement proceeds	(449		)	65
Changes in assets and liabilities:
Restricted cash	(278		)	102
Other assets	(3,281		)	506
Accounts payable	5,575			2,699
Accrued expenses and other	(3,226		)	9,947
Security deposits	298			299
Net cash provided by operating activities	97,930			107,671
Cash flows from investing activities:
Purchases of real estate and other assets	(89,123		)	(96,941		)
Normal capital improvements	(21,837		)	(56,582		)
Construction capital and other improvements	(1,861		)	(636		)
Renovations to existing real estate assets	(4,282		)	(2,364		)
Development	(20,816		)	(18,617		)
Distributions from real estate joint ventures	8,197			10,779
Contributions to real estate joint ventures	(183		)	(69		)
Proceeds from disposition of real estate assets	56,328			53,704
Funding of escrow for exchange acquisitions	(11,902		)	—
Net cash used in investing activities	(85,479		)	(110,726		)
Cash flows from financing activities:
Advances from general partner	22,170			3,004
Net change in credit lines	2,000			(232,064		)
Proceeds from notes payable	—			150,000
Principal payments on notes payable	(2,697		)	(1,757		)
Payment of deferred financing costs	(426		)	(2,115		)
Repurchase of common units	(673		)	(17,177		)
Proceeds from issuances of common units	24,969			120,149
Distributions paid on common units	(57,937		)	(51,970		)
Net cash used in financing activities	(12,594		)	(31,930		)
Net decrease in cash and cash equivalents	(143		)	(34,985		)
Cash and cash equivalents, beginning of period	8,886			57,151
Cash and cash equivalents, end of period	$	8,743		$	22,166

Supplemental disclosure of cash flow information:
Interest paid	$	30,937		$	27,341
Supplemental disclosure of noncash investing and financing activities:
Accrued construction in progress	$	5,395		$	5,389
Interest capitalized	$	872		$	969
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.

Mid-America Apartments, L.P.

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 Apartments, L.P., or "MAALP", "us", "we", "our", or the "Operating Partnership", is a Memphis, Tennessee based limited partnership formed in 1993 and currently operates pursuant to the provisions of the Second Amended and Restated Agreement of Limited Partnership, or the Partnership Agreement. MAALP's sole general partner is Mid-America Apartment Communities, Inc., or MAA, a Memphis, Tennessee-based self-administered and self-managed real estate investment trust, or REIT, that focuses on acquiring, owning and operating apartment communities mainly in the Sunbelt region of the United States. As of June 30, 2013, MAALP owned or owned interests in a total of 150 multifamily apartment communities comprising 44,219 apartments located in 12 states, including four communities comprising 1,156 apartments owned through our joint venture, Mid-America Multifamily Fund II, LLC, or Fund II. MAALP 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. MAALP expects 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, MAA 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 MAA will merge with Colonial in a stock-for-stock transaction. As part of the merger, MAALP will also merge with Colonial Realty Limited Partnership, or Colonial LP. The mergers are expected 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. All significant intercompany accounts and transactions have been eliminated in consolidation. 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. The results of operations for the three- and six-month periods ended June 30, 2013 and 2012 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 Current Report on Form 8-K filed with the SEC on March 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.

Interests in MAALP are represented by operating partnership units, or OP Units. As of June 30, 2013, there were 41,848,857 OP Units outstanding, 40,141,197, or 95.9%, of which were owned by MAA, our general partner. The remaining 1,707,660 OP Units were owned by nonaffiliated limited partners, as defined in the Partnership Agreement. During the three-month periods ended June 30, 2013 and 2012, rental revenue of the Operating Partnership represented 90.4% and 90.1% of the consolidated rental revenues of MAA, respectively. During the six-month periods ended June 30, 2013 and 2012, rental revenue of the Operating Partnership represented 90.3% and 89.9% of the consolidated rental revenues of MAA, respectively.

The consolidated financial statements presented herein include the accounts of MAALP and all other subsidiaries in which MAALP has a controlling financial interest. MAALP owns approximately 70% to 100% of all consolidated subsidiaries.

MAALP invests in entities that 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. MAALP 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 it is not the primary beneficiary. In determining whether MAALP is the primary beneficiary of a VIE, MAALP considers

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.

MAALP uses the equity method of accounting for its investments in entities for which it exercises significant influence, but does not have the ability to exercise control. These entities are not variable interest entities. The factors considered in determining that MAALP does not have the ability to exercise control include ownership of voting interests and participatory rights of investors.

Earnings per OP Unit

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. 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. For the three and six months ended June 30, 2013 and 2012, there were no dilutive securities and therefore basic and diluted earnings per OP Unit are the same.

A reconciliation of the numerators and denominators of the basic and diluted earnings per unit computations for the three and six months ended June 30, 2013 and 2012 is presented below:



(dollars and units in thousands, except per unit amounts)	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Units Outstanding
Weighted average common units - basic and diluted	41,841		40,392		41,679		39,763

Calculation of Earnings per Unit - basic and diluted
Income from continuing operations	$	15,411	$	14,365	$	34,436	$	26,419
Income from continuing operations attributable to noncontrolling interests	51		68		162		147
Income from continuing operations available for common unitholders, adjusted	$	15,360	$	14,297	$	34,274	$	26,272

Income from discontinued operations	$	32,496	$	14,056	$	33,189	$	24,486
Income from discontinued operations attributable to noncontrolling interests	109		67		157		136
Income from discontinued operations available for common unitholders, adjusted	$	32,387	$	13,989	$	33,032	$	24,350

Earnings per unit - basic and diluted:
Income from continuing operations available for common unitholders	$	0.37	$	0.35	$	0.82	$	0.66
Income from discontinued operations available for common unitholders	0.77		0.35		0.79		0.61
Net income available for common unitholders	$	1.14	$	0.70	$	1.61	$	1.27

2. Segment Information

As of June 30, 2013, MAALP owned or had an ownership interest in 150 multifamily apartment communities in 12 different states from which it 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 MAALP has owned and have been stabilized for at least a full 12 months and have been identified as a disposition property by the Board of Directors.


•	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 MAALP has owned and have been stabilized for at least a full 12 months and have been identified as a disposition property by the Board of Directors.


•	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, MAALP determines the composition of our same store operating segments for that year as well as adjusting the previous year, which allows MAALP 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 profits. A property becomes stabilized when it reaches 90% occupancy for at least 90 days. MAALP utilizes 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. MAALP believes NOI is a helpful tool in evaluating the operating performance of its segments because it measures the core operations of property performance by excluding partnership 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	$	58,142		$	55,111		$	115,421		$	109,043
Secondary Market Same Store	44,849			43,342			89,098			86,014
Non-Same Store and Other	18,133			8,560			33,993			13,431
Total property revenues	121,124			107,013			238,512			208,488
Management fee income	141			209			319			478
Total operating revenues	$	121,265		$	107,222		$	238,831		$	208,966

NOI
Large Market Same Store	$	34,424		$	32,217		$	69,004		$	63,653
Secondary Market Same Store	26,841			25,735			53,547			50,792
Non-Same Store and Other	12,302			8,110			23,397			13,890
Total NOI	73,567			66,062			145,948			128,335
Discontinued operations NOI included above	(1,165		)	(2,992		)	(2,518		)	(6,112		)
Management fee income	141			209			319			478
Depreciation and amortization	(29,772		)	(27,415		)	(59,506		)	(53,572		)
Acquisition expense	(489		)	(389		)	(499		)	(409		)
Property management expense	(4,282		)	(4,961		)	(9,060		)	(9,885		)
General and administrative expense	(2,410		)	(2,816		)	(5,300		)	(5,845		)
Merger related expenses	(5,737		)	—			(5,737		)	—
Interest and other non-property (loss) income	(5		)	84			13			198
Interest expense	(14,159		)	(12,577		)	(28,190		)	(25,253		)
(Loss) gain on debt extinguishment	(1		)	(15		)	(62		)	5
Amortization of deferred financing costs	(763		)	(753		)	(1,528		)	(1,409		)
Net casualty gain (loss) and other settlement proceeds	438			—			454			(9		)
Gain on sale of non-depreciable assets	—			(3		)	—			(3		)
Gain (loss) from real estate joint ventures	48			(69		)	102			(100		)
Discontinued operations	32,496			14,056			33,189			24,486
Net income attributable to noncontrolling interests	(160		)	(135		)	(319		)	(283		)
Net income available for Mid-America Apartments, L.P. common unitholders	$	47,747		$	28,286		$	67,306		$	50,622

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	$	1,187,218	$	1,108,827
Secondary Market Same Store	695,113		654,315
Non-Same Store and Other	678,361		728,209
Corporate assets	60,028		38,520
Total assets	$	2,620,720	$	2,529,871

3. Capital

Total capital and its components for the six-month periods ended June 30, 2013 and 2012 were as follows (dollars in thousands, except per unit data):



	MAALP Unitholders
	Limited Partner			General Partner			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest		Total Partnership Capital
CAPITAL BALANCE DECEMBER 31, 2012	$	30,993		$	706,296		$	(26,881	)	$	14,811	$	725,219
Net income	2,757			64,549						319		67,625
Other comprehensive income - derivative instruments (cash flow hedges)							20,381					20,381
Issuance of units				24,969								24,969
Units repurchased and retired				(673		)						(673		)
General partner units issued in exchange for limited partner units	(443		)	443								—
Redeemable units fair market value adjustment				(431		)						(431		)
Adjustment for noncontrolling interest ownership in subsidiaries	772			(778		)				6		—
Amortization of unearned compensation				1,171								1,171
Distributions ($1.3900 per unit)	(2,374		)	(55,801		)						(58,175		)
CAPITAL BALANCE JUNE 30, 2013	$	31,705		$	739,745		$	(6,500	)	$	15,136	$	780,086



	MAALP Unitholders
	Limited Partner			General Partner			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Partnership Capital
CAPITAL BALANCE DECEMBER 31, 2011	$	28,729		$	538,623		$	(38,579	)	$	13,362		$	542,135
Net income	2,407			48,215						283			50,905
Other comprehensive income - derivative instruments (cash flow hedges)							5,202						5,202
Issuance of units				120,150									120,150
Units repurchased and retired				(17,177		)							(17,177		)
General partner units issued in exchange for limited partner units	(2,516		)	2,516									—
Redeemable units fair market value adjustment				(375		)							(375		)
Adjustment for noncontrolling interest ownership in subsidiaries	3,595			(3,590		)				(5		)	—
Amortization of unearned compensation				1,231									1,231
Distributions ($1.3200 per unit)	(2,458		)	(50,818		)							(53,276		)
CAPITAL BALANCE JUNE 30, 2012	$	29,757		$	638,775		$	(33,377	)	$	13,640		$	648,795

4. Real Estate Acquisitions

On May 1, 2013, MAALP 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, MAALP purchased Station Square at Cosner's Corner, a 260-unit apartment community located in Fredericksburg, Virginia. As part of this purchase, MAALP also acquired land for future development.

5. Discontinued Operations

The following properties have been classified as discontinued operations in the Condensed Consolidated Statements of Operations for the three- and six-month periods ended June 30, 2013 and 2012:



Community	Number of Units	Date Sold	Location	Operating Segment
Woodbridge	188	May 15, 2013	Jacksonville, Florida	Large market same store
High Ridge	160	June 13, 2013	Athens, Georgia	Secondary market same store
Paddock Club 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 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	$	1,984		$	5,341		$	4,317		$	11,143
Other revenues	129			514			296			1,085
Total revenues	2,113			5,855			4,613			12,228
Expenses
Property operating expenses	948			2,879			2,059			6,164
Depreciation and amortization	371			1,541			986			3,199
Interest expense	73			330			154			705
Total expense	1,392			4,750			3,199			10,068
Income from discontinued operations before gain on sale	721			1,105			1,414			2,160
Net loss on insurance and other settlement proceeds on discontinued operations	(5		)	(2		)	(5		)	(56		)
Gain on sale of discontinued operations	31,780			12,953			31,780			22,382
Income from discontinued operations	$	32,496		$	14,056		$	33,189		$	24,486

6. Partners' Capital

Interests in MAALP are represented by OP Units. As of June 30, 2013, there were 41,848,857 OP Units outstanding, 40,141,197, or 95.9%, of which were owned by MAA, our general partner. The remaining 1,707,660 OP Units were owned by nonaffiliated limited partners, or the Class A Limited Partners. As of June 30, 2012, there were 40,328,426 OP Units outstanding, 38,544,218 or 95.6% of which were owned by MAA and 1,784,208 of which were owned by the Class A Limited Partners.

MAA, as the sole general partner, has full, complete and exclusive discretion to manage and control the business of MAALP subject to the restrictions specifically contained within the Partnership Agreement. Unless otherwise stated in the Partnership Agreement, this power includes, but is not limited to, acquiring, leasing, or disposing of any real property; constructing buildings and making other improvements to properties owned; borrowing money, modifying or extinguishing current borrowings, issuing evidence of indebtedness, and securing such indebtedness by mortgage, deed of trust, pledge or other lien on MAALP's assets; and distribution of MAALP cash or other assets in accordance with the Partnership Agreement. MAA can generally, at its sole discretion, issue and redeem OP Units and determine the consideration to be received or the redemption price to be paid, as applicable. The general partner may delegate these and other powers granted if the general partner remains in supervision of the designee.

Under the Partnership Agreement, MAALP may issue Class A OP Units and Class B OP Units. Class A OP Units may only be held by limited partners who are not affiliated with MAA, as defined in the Partnership Agreement, in its capacity as general partner of the Operating Partnership, while Class B OP Units may only be held by MAA, in its capacity as general partner of the Operating Partnership, and as of June 30, 2013, a total of 1,707,660 Class A OP Units in the Operating Partnership were held by limited partners unaffiliated with MAA, while a total of 40,141,197 Class B OP Units were held by MAA. In general, the limited partners do not have the power to participate in the management or control of MAALP's business except in limited circumstances including changes in the general partner and protective rights if the general partner acts outside of the provisions provided in the Partnership Agreement. The transferability of Class A OP Units is also limited by the Partnership Agreement.

Net income is allocated to the general partner and limited partners based on their respective ownership percentages of the Operating Partnership. Issuance or redemption of additional Class A OP Units or Class B OP Units changes the relative ownership percentage of the partners. The issuance of Class B OP Units generally occurs when MAA issues common stock and the proceeds from that issuance are contributed to the Operating Partnership in exchange for the issuance of Class B OP Units to MAA equal to the number of common stock shares issued. Likewise, if MAA repurchases or redeems outstanding shares of common stock, the Operating Partnership generally redeems an equal number of Class B OP Units with similar terms held by MAA for a redemption price equal to the purchase price of those shares of common stock. At each reporting period, the allocation between general partner capital and limited partner capital is adjusted to account for the change in the respective percentage ownership of the underlying capital of the Operating Partnership. Holders of the Class A OP Unit may require MAA to redeem their Class A OP Units, in which case MAA may, at its option, pay the redemption price either in cash (in an amount per Class A OP Unit equal, in general, to the average closing price of MAA's common stock on the New York Stock Exchange over a specified period prior to the redemption date) or by delivering one share of MAA common stock (subject to adjustment under specified circumstances) for each Class A OP Unit so redeemed.

At June 30, 2013, a total of 1,707,660 Class A OP Units were outstanding and redeemable for 1,707,660 shares of MAA common stock, or approximately $115,728,118 based on the closing price of MAA’s common stock on June 30, 2013 of $67.77 per share, at MAA’s option. At June 30, 2012, a total of 1,784,208 Class A OP Units were outstanding and redeemable for 1,784,208 shares of MAA common stock, or approximately $121,754,354 based on the closing price of MAA’s common stock on June 30, 2012 of $68.24 per share, at MAA’s option.

The Operating Partnership pays the same per unit distribution in respect to the OP Units as the per share dividend MAA pays in respect to its common and preferred stock.

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

During the three- and six-month periods ended June 30, 2013, MAA sold 39,845 shares and 365,011 shares of common stock, respectively, for net proceeds of $2.7 million and $24.8 million, respectively, through its ATM programs. The gross proceeds for these issuances were $2.8 million and $25.1 million, respectively, for the three- and six-month periods ended June 30, 2013. During the three- and six-month periods ended June 30, 2012, MAA did not issue any shares through its ATM programs. As of June 30, 2013, there were 4,134,989 shares outstanding under the ATM. All proceeds from these transactions were received by MAALP in exchange for a number of OP Units equal to the number of shares issued by MAA.

On March 2, 2012, MAA closed on an underwritten public offering of 1,955,000 shares of common stock. UBS Investment Bank and Jeffries & Company, Inc. acted as joint bookrunning managers. This transaction resulted in net proceeds of $120.1 million. The gross proceeds for this offering were approximately $124.1 million. MAA had no such offerings during the three- and six-month periods ended June 30, 2013. Proceeds from this transaction were received by MAALP in exchange for OP Units equal to the number of shares issued.

We have a Dividend and Distribution Reinvestment and Share Purchase Plan, or DRSPP, pursuant to which MAA’s shareholders and our holders of OP Units have the ability to reinvest all or part of their distributions from MAA’s common stock, preferred stock or OP Units into MAA’s common stock. The plan also provides the opportunity to make optional cash investments in common shares of at least $250, but not more than $5,000 in any given month, free of brokerage commissions and charges. MAA, in its absolute discretion, may grant waivers to allow for optional cash payments in excess of $5,000. To fulfill its obligations under the DRSPP, MAA may either issue additional shares of common stock or repurchase common stock

in the open market. MAA has registered with the Securities and Exchange Commission the offer and sale of up to 7,600,000 shares of common stock pursuant to the DRSPP. MAA may elect to sell shares under the DRSPP at up to a 5% discount.

Common stock shares totaling 188 and 329 during the three- and six-month periods ended June 30, 2013 and 209 and 329 during the three- and six-month periods ended June 30, 2012 were acquired by shareholders under the DRSPP. The issuances resulted in gross proceeds of approximately $13,000 and $22,000 for the three- and six-month periods ending June 30, 2013 and $14,000 and $22,000 for the three- and six-month periods ending June 30, 2012. All funds received from these issuances were contributed to the Operating Partnership in exchange for a number of OP Units equal to the number of shares issued by MAA.

During the six months ended June 30, 2013, 4,582 shares of MAA’s 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. MAALP acquires OP units from MAA equal to the number of shares acquired by MAA from employees to satisfy tax withholding obligations.

7. Notes Payable

On June 30, 2013 and December 31, 2012, MAALP had total indebtedness of approximately $1.67 billion and $1.65 billion, respectively. MAALP's 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. MAALP utilizes both secured and unsecured debt.

On March 1, 2012, MAALP 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, MAALP 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, MAALP issued $175 million of Senior Unsecured Notes to be funded at three separate times. These 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 41% of MAALP's 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 the Federal Home Loan Mortgage Corporation, or Freddie Mac.

MAALP utilizes interest rate swaps and interest rate caps to help manage its current and future interest rate risk and entered into 19 interest rate swaps and 10 interest rate caps as of June 30, 2013, representing notional amounts totaling $584.0 million and $205.2 million, respectively. MAALP 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	$	214,721	0.7	%	9/6/2016
FNMA tax-free credit facilities	69,515		0.9	%	8/11/2031
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	$	363,683	0.9	%	2/14/2019
Total Secured Debt	$	1,086,442	3.6	%	12/4/2017

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	$	1,671,442	3.5	%	5/18/2018

⁽¹⁾ Includes capped balances.

MAALP has additional requirements related to $20.2 million of tax-free bonds issued by MAA but held within the FNMA facility. These amounts are not included in our debt discussion above or within our Consolidated Balance Sheets as MAALP is not the legal borrower of the bonds; however, because of MAALP's obligations under the FNMA facility, we could be required to pay related principal, interest, and other costs if MAA were to default on its payments.

8. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

MAALP is exposed to certain risk arising from both its business operations and economic conditions. MAALP principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. MAALP manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its 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 its borrowings, the value of which are determined by changing interest rates.

Cash Flow Hedges of Interest Rate Risk

MAALP's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, MAALP uses 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 MAALP 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. 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, MAALP recorded ineffectiveness of $23,000 (decrease to interest expense) and $23,000, (increase to interest expense), respectively, and during the six months ended June 30, 2013 and 2012, MAALP recorded ineffectiveness of $26,000 (decrease to interest expense) and $33,000 (increase to interest expense), respectively, mainly attributable to a mismatch in the underlying indices of the derivatives and the hedged interest payments made on its 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 debt. During the next 12 months, MAALP estimates 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, MAALP 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 MAALP'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 $9,000 for the three months ended June 30, 2012. During the six months ended June 30, 2013 and 2012, we recognized a loss of $3,000 and $33,000, respectively, on derivatives not designated in hedging relationships.

As of June 30, 2013, MAALP 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 MAALP's derivative financial instruments as well as its 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	$	11,904	$	(5,293	)	Interest expense	$	(8,477	)	$	(10,495	)	Interest expense	$	26		$	(33	)

Total derivatives in cash flow hedging relationships	$	11,904	$	(5,293	)		$	(8,477	)	$	(10,495	)		$	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	)

Six months ended June 30,

Interest rate contracts													Interest expense	$	(3	)	$	(33	)

Total														$	(3	)	$	(33	)

Credit-Risk-Related Contingent Features

As of June 30, 2013, derivatives that were in a net liability position and subject to credit-risk-related contingent features had a termination value of $12.8 million, which includes accrued interest but excludes any adjustment for nonperformance risk. These derivatives had a fair value, gross of asset positions, of $11.9 million at June 30, 2013.

Certain of our derivative contracts contain a provision where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of June 30, 2013, we had not breached the provisions of these agreements. If we had breached these provisions, we could have been required to settle our obligations under the agreements at their termination value of $8.5 million.

Certain of our derivative contracts contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. As of June 30, 2013, we had not breached the provisions of these agreements. If we had breached theses provisions, we could have been required to settle our obligations under the agreements at the termination value of $0.2 million.

Certain of our derivative contracts are credit enhanced by either FNMA or Freddie Mac. These derivative contracts require that our credit enhancing party maintain credit ratings above a certain level. If our credit support providers were downgraded below Baa1 by Moody’s or BBB+ by Standard & Poor’s, or S&P, we may be required to either post 100 percent collateral or settle the obligations at their termination value of $12.5 million as of June 30, 2013. Both FNMA and Freddie Mac are currently rated Aaa by Moody’s and AA+ by S&P, and therefore, the provisions of this agreement have not been breached and no collateral has been posted related to these agreements as of June 30, 2013.

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

The table below presents a gross presentation, the effects of offsetting, and a net presentation of our derivatives as of June 30, 2013 and December 31, 2012. The net amounts of derivative assets or liabilities can be reconciled to the Tabular Disclosure of Fair Values of Derivative Instruments above, which also provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheet (dollars in thousands):



Offsetting of Derivative Assets
As of June 30, 2013
						Gross Amounts Not Offset in the Statement of Financial Position


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position	Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Received	Net Amount
Derivatives	$	10,688	—	$	10,688	$	(422	)	—	$	10,266

Offsetting of Derivative Liabilities
As of June 30, 2013
						Gross Amounts Not Offset in the Statement of Financial Position


	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position	Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Posted	Net Amount
Derivatives	$	11,907	—	$	11,907	$	(422	)	—	$	11,485

Offsetting of Derivative Assets
As of December 31, 2012
						Gross Amounts Not Offset in the Statement of Financial Position


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position	Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Received	Net Amount
Derivatives	$	288	—	$	288	—			—	$	288

Offsetting of Derivative Liabilities
As of December 31, 2012
						Gross Amounts Not Offset in the Statement of Financial Position


	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position	Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Posted	Net Amount
Derivatives	$	21,423	—	$	21,423	—			—	$	21,423

Other Comprehensive Income

MAALP's other comprehensive income consists entirely of gains and losses attributable to the effective portion of our cash flow hedges. The table below shows the change in the balance for the six months ended June 30, 2013 and 2012:



Changes in Accumulated Other Comprehensive Income by Component
	Affected Line Item in the Consolidated Statements Of Operations	Gains and Losses on Cash Flow Hedges
		For the six months ended June 30,
		2013			2012
Beginning balance		$	(26,881	)	$	(38,579	)
Other comprehensive income before reclassifications		11,904			(5,293		)
Amounts reclassified from accumulated other comprehensive income (interest rate contracts)	Interest expense	8,477			10,495
Net current-period other comprehensive income attributable to Mid-America Apartments, L.P.		20,381			5,202
Ending balance		$	(6,500	)	$	(33,377	)

See also discussions in "Financial Statements – Notes to Consolidated Financial Statements", Note 9.

9. Fair Value Disclosure of Financial Instruments

Cash and cash equivalents, restricted cash, accounts payable, accrued expenses and other liabilities and security deposits are carried at amounts that reasonably approximate their fair value due to their short term nature.

On January 1, 2008, MAALP adopted FASB ASC 820 Fair Value Measurements and Disclosures, or ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. MAALP's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Fixed rate notes payable at June 30, 2013 and December 31, 2012, totaled $749 million and $732 million, respectively, and had estimated fair values of $784 million and $778 million (excluding prepayment penalties), respectively, as of June 30, 2013 and December 31, 2012. The carrying value of variable rate notes payable (excluding the effect of interest rate swap and cap agreements) at June 30, 2013 and December 31, 2012, totaled $923 million and $921 million, respectively, and had estimated

fair values of $857 million and $851 million (excluding prepayment penalties), respectively, as of June 30, 2013 and December 31, 2012.

Currently, MAALP uses interest rate swaps and interest rate caps (options) to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The fair values of interest rate options (caps) are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

To comply with the provisions of ASC 820, MAALP incorporates credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, MAALP has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

MAALP has determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, and as a result, all of our derivatives held as of June 30, 2013 and December 31, 2012 were classified as Level 2 of the fair value hierarchy.

The table below presents our assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at June 30, 2013

(dollars in thousands)



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at
			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		June 30, 2013
Assets
Derivative financial instruments	$	—	$	10,688	$	—	$	10,688
Liabilities
Derivative financial instruments	$	—	$	11,907	$	—	$	11,907

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2012

(dollars in thousands)



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at
			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		December 31, 2012
Assets
Derivative financial instruments	$	—	$	288	$	—	$	288
Liabilities
Derivative financial instruments	$	—	$	21,423	$	—	$	21,423

The fair value estimates presented herein are based on information available to management as of June 30, 2013 and December 31, 2012. These estimates are not necessarily indicative of the amounts MAALP could ultimately realize. See also discussions in "Financial Statements – Notes to Consolidated Financial Statements", Note 8.

10. Recent Accounting Pronouncements

Impact of Recently Issued Accounting Standards

In February 2013, the FASB issued Accounting Standards Update, or ASU, No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of Accumulated other comprehensive income, or AOCI, by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 is effective for interim and annual periods beginning after December 15, 2012 and early adoption is permitted. We early adopted ASU 2013-02 for the annual period ended December 31, 2012. The adoption of ASU 2013-02 has not had a material impact on our consolidated financial condition or results of operations taken as a whole.

In January 2013, the FASB issued ASU No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, would apply to derivatives accounted for in accordance with FASB ASC 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with ASC 210-20-45 or ASC 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. This ASU is effective for fiscal years beginning on or after January 1, 2013 and interim periods within those annual periods. We adopted ASU 2013-01 during the period ended March 31, 2013. The adoption of ASU 2013-01 has not had a material impact on our consolidated financial condition or results of operations taken as a whole.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments change the wording, mainly for clarification, used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this update to result in a change in the application of the requirements in ASU 2011-04. The amendments in this ASU are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. We adopted ASU 2011-04 for the interim and annual periods of fiscal year 2012. The adoption of ASU 2011-04 has not had a material impact on our consolidated financial condition or results of operations taken as a whole.

11. Subsequent Events

Financings

Subsequent to quarter end, we received commitments from a syndicate of banks for an expansion of our unsecured revolving credit facility. The new facility will provide for $500 million of borrowing with capacity for expansion up to $800 million.

Interest Rate Derivative

Number of Instruments

Interest Rate Caps

Interest Rate Swaps ⁽¹⁾