UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-12762
MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact Name of Registrant as Specified in Charter)
TENNESSEE 62-1543819
(State of Incorporation) (I.R.S. Employer Identification Number)
6584 POPLAR AVENUE, SUITE 300
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
(901) 682-6600
Registrant's telephone number, including area code
(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.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at October 24, 2003
Common Stock, $.01 par value 19,526,459
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2003 (Unaudited) and
December 31, 2002
Consolidated Statements of Operations for the three and nine months
ended September 30, 2003 and 2002 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2003 and 2002 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Mid-America Apartment Communities, Inc.
Consolidated Balance Sheets
September 30, 2003 (Unaudited) and December 31, 2002
(Dollars in thousands)
September 30, 2003 December 31, 2002
--------------------- --------------------
Assets:
Real estate assets:
Land $ 139,402 $ 124,130
Buildings and improvements 1,438,157 1,290,478
Furniture, fixtures and equipment 37,937 34,531
Construction in progress 5,927 3,223
- --------------------------------------------------------------------------------------------------------
1,621,423 1,452,362
Less accumulated depreciation (323,683) (283,277)
- --------------------------------------------------------------------------------------------------------
1,297,740 1,169,085
Land held for future development 1,366 1,366
Commercial properties, net 7,298 7,088
Investment in and advances to real estate joint ventures 13,328 15,000
- --------------------------------------------------------------------------------------------------------
Real estate assets, net 1,319,732 1,192,539
Cash and cash equivalents 5,576 10,594
Restricted cash 10,364 7,463
Deferred financing costs, net 13,027 10,296
Other assets, net 17,759 18,575
- --------------------------------------------------------------------------------------------------------
Total assets $ 1,366,458 $ 1,239,467
========================================================================================================
Liabilities and Shareholders' Equity:
Liabilities:
Notes payable $ 911,696 $ 803,703
Accounts payable 1,875 464
Accrued expenses and other liabilities 60,950 55,372
Security deposits 4,709 4,406
Deferred gain on disposition of properties - 3,946
- --------------------------------------------------------------------------------------------------------
Total liabilities and deferred gain 979,230 867,891
Minority interest 32,757 33,405
Shareholders' equity:
Preferred stock, $.01 par value, 20,000,000 shares authorized,
$170,333,250 at December 31, 2002, and $176,862,500 at
September 30, 2003, or $25 per share liquidation preference:
2,000,000 shares at 9.5% Series A Cumulative - 20
1,938,830 shares at 8.875% Series B Cumulative - 19
2,000,000 shares at 9.375% Series C Cumulative - 20
474,500 shares at 9.25% Series F Cumulative 5 5
400,000 shares at 8.625% Series G Cumulative 4 4
6,200,000 shares at 8.30% Series H Cumulative 62 -
Common stock, $.01 par value (authorized 50,000,000 shares;
issued 19,499,406 and 17,840,183 shares at
September 30, 2003 and December 31, 2002, respectively) 195 178
Additional paid-in capital 608,424 558,479
Other (4,037) (4,299)
Accumulated distributions in excess of net income (221,080) (188,155)
Accumulated other comprehensive loss (29,102) (28,100)
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 354,471 338,171
- --------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,366,458 $ 1,239,467
========================================================================================================
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations
Three and nine months ended September 30, 2003 and 2002
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------------- -------------------------
2003 2002 2003 2002
----------- ------------- ------------ -----------
Revenues:
Rental revenues $ 57,781 $ 57,116 $ 169,078 $ 167,783
Other property revenues 2,138 2,119 5,956 5,982
- -------------------------------------------------------------------------------------------------------------------
Total property revenues 59,919 59,235 175,034 173,765
Interest and other non-property income 203 169 666 471
Management and fee income, net 215 191 729 570
- -------------------------------------------------------------------------------------------------------------------
Total revenues 60,337 59,595 176,429 174,806
- -------------------------------------------------------------------------------------------------------------------
Expenses:
Property operating expenses:
Personnel 7,281 6,646 20,379 19,609
Building repairs and maintenance 2,769 2,531 6,672 7,045
Real estate taxes and insurance 7,587 7,280 23,281 21,217
Utilities 3,316 3,104 8,888 8,466
Landscaping 1,660 1,567 4,788 4,672
Other operating 3,600 2,805 9,025 7,903
Depreciation and amortization 14,827 14,214 42,685 41,295
- -------------------------------------------------------------------------------------------------------------------
41,040 38,147 115,718 110,207
Property management expenses 2,233 2,297 6,784 7,247
General and administrative expenses 1,733 1,686 5,333 4,643
Interest expense 11,689 12,657 34,096 37,381
Loss (gain) on debt extinguishment (101) (1) 104 32
Amortization of deferred financing costs 464 690 1,592 2,011
- -------------------------------------------------------------------------------------------------------------------
Total expenses 57,058 55,476 163,627 161,521
- -------------------------------------------------------------------------------------------------------------------
Income before minority interest in operating
partnership income, loss from investments in
unconsolidated entities, net gain on insurance
settlement proceeds and disposition of assets,
discontinued operations and gain on
sale of discontinued operations 3,279 4,119 12,802 13,285
Minority interest in operating partnership income (778) (28) (1,117) (361)
Loss from investments in unconsolidated entities (8) (204) (316) (417)
Net gain (loss) on insurance settlement proceeds and
disposition of assets 2,075 (128) 2,682 437
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations 4,568 3,759 14,051 12,944
Discontinued operations:
Property operations (19) 38 (71) 123
Gain on sale 1,921 - 1,921 -
- -------------------------------------------------------------------------------------------------------------------
Net income 6,470 3,797 15,901 13,067
Preferred dividend distribution 3,545 4,028 11,395 12,085
Original issuance costs associated with the
redemption of preferred stock 5,987 - 5,987 -
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) available for common shareholders $ (3,062) $ (231) $ (1,481) $ 982
===================================================================================================================
Net income (loss) available per common share:
Basic (in thousands):
Average common shares outstanding 18,302 17,579 17,961 17,511
Net income (loss) available per common share - Basic $ (0.17) $ (0.01) $ (0.08) $ 0.06
Diluted (in thousands):
Average common shares outstanding 18,302 17,579 17,961 17,511
Effect of dilutive stock options - - - 203
- -------------------------------------------------------------------------------------------------------------------
Average dilutive common shares outstanding 18,302 17,579 17,961 17,714
===================================================================================================================
Net income (loss) available per common share - Diluted $ (0.17) $ (0.01) $ (0.08) $ 0.06
See accompanying notes to consolidated financial statements.
MID-AMERICA APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2003 and 2002
(Dollars in thousands)
Nine Months Ended September 30,
----------------------------------
2003 2002
------------------ --------------
Cash flows from operating activities:
Net income $ 15,901 $ 13,067
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 44,277 43,419
Amortization of unearned stock compensation 597 306
Equity in loss of real estate joint venture 316 417
Minority interest in operating partnership income 1,117 366
Gain on the sale of discontinued operations (1,921) -
Loss on debt extinguishment 104 32
Net gain on insurance settlement proceeds and dispositions
of assets (2,682) (437)
Changes in assets and liabilities:
Restricted cash (2,901) 1,187
Other assets 1,312 (6,499)
Accounts payable 1,411 (181)
Accrued expenses and other 5,403 5,934
Security deposits 303 30
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 63,237 57,641
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of real estate and other assets (73,954) (33,933)
Improvements to existing real estate assets (16,103) (14,099)
Construction of units in progress and future development - (1,913)
Distributions from real estate joint venture 368 141
Contributions to real estate joint ventures (4,726) -
Proceeds from disposition of real estate assets 25,232 -
Purchase of Blackstone Joint Venture (21,853) -
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (91,036) (49,804)
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in credit lines 179,321 60,840
Proceeds from notes payable 14,729 -
Principal payments on notes payable (166,019) (17,804)
Payment of deferred financing costs (4,289) (1,324)
Proceeds from issuances of common shares and units 44,496 386
Distributions to unitholders (4,773) (5,107)
Dividends paid on common shares (30,912) (30,757)
Dividends paid on preferred shares (11,392) (12,085)
Proceeds from isssuance of preferred stock 150,119 -
Redemption of preferred stock (148,499) -
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 22,781 (5,851)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,018) 1,986
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period 10,594 12,192
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 5,576 $ 14,178
========================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 33,729 $ 37,321
Supplemental disclosure of noncash investing and financing activities:
Conversion of units to common shares $ 347 $ 2,234
Issuance of restricted common shares $ 335 $ 2,649
Interest capitalized $ - $ 239
Marked-to-market adjustment on derivative instruments $ (1,002) $ (15,957)
In August 2003, the Company purchased the limited partnership interest held by
Blackstone Real Estate Advisors in BRE/MAAC Associates, LLC. In conjunction with
the acquisition, liabilities were assumed as follows:
Fair Value of assets acquired 75,091
Cash paid (21,853)
---------
Debt assumed 53,238
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Notes to Consolidated Financial Statements
September 30, 2003 and 2002 (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the accounting policies in effect as of December 31, 2002, as
set forth in the annual consolidated financial statements of Mid-America
Apartment Communities, Inc. (the "Company"), as of such date. In the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial statements have been included and all such adjustments
were of a normal recurring nature. All significant intercompany accounts and
transactions have been eliminated in consolidation. The results of operations
for the three and nine month periods ended September 30, 2003 are not
necessarily indicative of the results to be expected for the full year.
STOCK BASED COMPENSATION
The Company adopted the 1994 Restricted Stock and Stock Option Plan (the "Plan")
to provide incentives to attract and retain independent directors, executive
officers and key employees.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation",
which requires either the (i) fair value of employee stock-based compensation
plans be recorded as a component of compensation expense in the statement of
operations as of the date of grant of awards related to such plans, or (ii)
impact of such fair value on net income and earnings per share be disclosed on a
pro forma basis in a Note to financial statements for awards granted after
December 15, 1994, if the accounting for such awards continues to be in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB 25"). The Company will continue such
accounting for employee stock options under the provisions of APB 25.
The following table reflects the effect on net income if the fair value method
of accounting allowed under SFAS No. 123 had been used by the Company along with
the applicable assumptions utilized in the Black-Scholes option pricing model
calculation (dollars and shares in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2003 2002 2003 2002
------------- ------------- ------------- ------------
Net income (loss) available for
common shareholders $(3,062) $ (231) $(1,481) $ 982
Add: Stock-based employee
compensation expense included
in reported net income - - - -
Less: Stock-based employee
compensation expense determined
under fair value method of accounting 81 103 154 211
------------- ------------- ------------- ------------
Pro forma net income (loss) available for
common shareholders $(3,143) $ (334) $(1,635) $ 771
============= ============= ============= ============
Average common shares outstanding - Basic 18,302 17,579 17,961 17,511
Average common shares outstanding - Diluted 18,302 17,579 17,961 17,714
Net income (loss) available per common share:
Basic as reported $ (0.17) $ (0.01) $ (0.08) $ 0.06
Basic pro forma $ (0.17) $ (0.02) $ (0.09) $ 0.04
Diluted as reported $ (0.17) $ (0.01) $ (0.08) $ 0.06
Diluted pro forma $ (0.17) $ (0.02) $ (0.09) $ 0.04
Assumptions:
Risk free interest rate 3.81% 4.16% 3.52% 4.84%
Expected life - Years 5.9 6.2 5.9 6.2
Expected volatility 17.58% 21.71% 14.43% 16.82%
Expected dividends 7.75% 9.39% 7.75% 9.39%
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to 2003
presentation. The reclassifications had no effect on net income available for
common shareholders.
2. REAL ESTATE ACQUISITIONS
On August 25, 2003, the Company purchased the limited partnership interest held
by Blackstone Real Estate Advisors ("Blackstone") in BRE/MAAC Associates, LLC
("BreMaac"), a joint venture between the Company and Blackstone which owned 10
properties containing 2,793 apartment units. The Company purchased Blackstone's
partnership interest for $21.9 million in cash and the assumption of $53.2
million of debt. The allocation of the purchase price was preliminary as of
September 30, 2003.
On September 30, 2003, the Company acquired Los Rios Park apartments, a 498-unit
community located in Plano, Texas.
3. REAL ESTATE DISPOSITIONS
On July 10, 2003, the Company sold the Crossings apartments, a 80-unit community
located in Memphis, Tennessee for $4.6 million.
4. COMMON AND PREFERRED STOCK OFFERING
On July 10, 2003, in an underwritten public offering, the Company sold 5,600,000
shares of its 8.30% Series H Cumulative Redeemable Preferred Stock ("Series H")
at $25 per share less an underwriting discount of $0.7875 per share. The net
proceeds of the sale were applied to the redemption of all the issued and
outstanding shares of the Company's 9.5% Series A Cumulative Preferred Stock and
9 3/8% Series C Cumulative Redeemable Preferred Stock as well as 1,600,000
shares of the 1,938,830 issued and outstanding shares of the Company's 8 7/8%
Series B Cumulative Preferred Stock ("Series B") on August 12, 2003.
On July 16, 2003, the underwriters of the Company's Series H offering exercised
an option to purchase an additional 525,000 shares of the Series H preferred
stock for $25 per share less the underwriting discount, and on August 4, 2003,
the underwriters exercised an option to purchase the remaining additional 75,000
shares of the Series H preferred stock for $25 per share less the underwriting
discount. The net proceeds were used to redeem the remaining issued and
outstanding shares of the Series B preferred stock on August 18, 2003.
On August 22, 2003, the Company sold 700,000 shares of its common stock to
certain advisory clients of Cohen & Steers Capital Management, Inc. The stock
was sold at a price of $28.40 per share. The $19,870,000 in net proceeds from
the sale were used to purchase the BreMaac limited partnership interest held by
Blackstone.
On September 19, 2003, the Company sold 665,000 shares of its common stock to
certain advisory clients of Cohen & Steers Capital Management, Inc. and to
Scudder RREEF Real Estate Fund II, Inc. The stock was sold at a price of $29.36
per share. The $19,500,000 in net proceeds from the sale were used to purchase
the Los Rios Park apartments.
5. SHARE AND UNIT INFORMATION
At September 30, 2003, 19,499,406 common shares and 2,705,345 operating
partnership units were outstanding, a total of 22,204,751 shares and units.
Additionally, the Company had outstanding options for 1,160,865 shares of common
stock at September 30, 2003.
6. SEGMENT INFORMATION
At September 30, 2003, the Company owned or had ownership interest in, and
operated 126 apartment communities in 12 different states from which it derived
all significant sources of earnings and operating cash flows. The Company's
operational structure is organized on a decentralized basis, with individual
property managers having operating responsibility and authority regarding the
operations of their respective properties. Each property manager reports to and
is supported by a multisite manager who assists the property manager in
monitoring local and area trends in rental rates, occupancy percentages, and
operating costs. The property and multisite managers are given the on-site
responsibility and discretion to react to such trends in the best interest of
the Company. Management evaluates the performance of each individual property
based on its contribution of revenues and net operating income ("NOI"), which is
composed of property revenues less all operating costs including insurance and
real estate taxes, versus the approved budget for each property. The Company's
reportable segments are its individual properties because each is managed
separately and requires different operating strategy and expertise based on the
geographic location, community structure and quality, population mix, and
numerous other factors unique to each community.
The revenues, profits and assets for the aggregated communities are summarized
as follows (dollars in thousands):
Three months Nine months
ended September 30, ended September 30,
------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Multifamily rental revenues $ 62,973 $ 61,719 $ 186,645 $ 181,667
Other multifamily revenues 2,319 2,294 6,697 6,665
------------ ------------ ------------ ------------
Segment revenues 65,292 64,013 193,342 188,332
Reconciling items to consolidated revenues:
Joint venture revenues 5,373 4,778 18,308 14,567
Interest and other non-property income 203 169 666 471
Management and fee income, net 215 191 729 570
------------ ------------ ------------ ------------
Total revenues $ 60,337 $ 59,595 $ 176,429 $ 174,806
============ ============ ============ ============
Multifamily net operating income $ 36,087 $ 37,680 $ 110,972 $ 112,515
Reconciling items to net income available for common shareholders:
Joint venture net operating income (2,381) (2,378) (8,971) (7,662)
Interest and other non-property income 203 169 666 471
Management and fee income, net 215 191 729 570
Depreciation and amortization (14,827) (14,214) (42,685) (41,295)
Property management expenses (2,233) (2,297) (6,784) (7,247)
General and administrative expenses (1,733) (1,686) (5,333) (4,643)
Interest expense (11,689) (12,657) (34,096) (37,381)
Loss (gain) on debt extinguishment 101 1 (104) (32)
Amortization of deferred financing costs (464) (690) (1,592) (2,011)
Net gain on insurance settlement proceeds and
dispositions of assets 2,075 (128) 2,682 437
Minority interest in operating partnership income (778) (28) (1,117) (361)
Loss from investments in unconsolidated entities (8) (204) (316) (417)
Discontinued operations:
Property operations (19) 38 (71) 123
Gain on sale 1,921 - 1,921 -
Preferred dividend distribution (3,545) (4,028) (11,395) (12,085)
Original issuance costs associated with the redemption
of preferred stock (5,987) - (5,987) -
------------ ------------ ------------ ------------
Net income (loss) available for common shareholders $ (3,062) $ (231) $ (1,481) $ 982
============ ============ ============ ============
September 30, 2003 December 31, 2002
----------------------- -----------------------
Assets:
Multifamily real estate assets $ 1,697,855 $ 1,592,353
Accumulated depreciation - multifamily assets (325,353) (297,240)
----------------------- -----------------------
Segment assets 1,372,502 1,295,113
Reconciling items to total assets:
Joint venture multifamily real estate assets, net (74,762) (126,028)
Land held for future development 1,366 1,366
Commercial properties, net 7,298 7,088
Investment in and advances to real estate joint venture 13,328 15,000
Cash and restricted cash 15,940 18,057
Other assets, net 30,786 28,871
----------------------- -----------------------
Total assets $ 1,366,458 $ 1,239,467
======================= =======================
7. DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company uses certain derivative financial
instruments to manage, or hedge, the interest rate risk associated with the
Company's variable rate debt or as hedges in anticipation of future debt
transactions to manage well-defined interest rate risk associated with the
transaction.
The Company does not use derivative financial instruments for speculative or
trading purposes. Further, the Company has a policy of entering into contracts
with major financial institutions based upon their credit rating and other
factors. When viewed in conjunction with the underlying and offsetting exposure
that the derivatives are designated to hedge, the Company has not sustained any
material loss from those instruments nor does it anticipate any material adverse
effect on its net income or financial position in the future from the use of
derivatives.
The Company requires that derivative instruments intended as interest rate
hedges be effective in reducing the interest rate risk exposure that they are
designated to hedge. This effectiveness is essential if the instrument is to
qualify for hedge accounting. Instruments that meet these hedging criteria are
formally designated as hedges at the inception of the derivative contract. The
Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking the hedge transaction. This process includes linking all derivatives
that are designated as fair-value or cash flow hedges to specific assets and
liabilities on the balance sheet or to specific firm commitments or forecasted
transactions. The Company also formally assesses, both at the inception of the
hedging transaction and on an ongoing basis, whether the derivatives used are
highly effective in offsetting changes in fair values or cash flows of hedged
items. When it is determined that a derivative is not highly effective as a
hedge or that it has ceased to be a highly effective hedge, the Company
discontinues hedge accounting prospectively.
All of the Compan's derivative financial instruments are reported at fair value
and represented on the balance sheet, and are characterized as cash flow hedges.
These transactions hedge the future cash flows of debt transactions through
interest rate swaps that convert variable payments to fixed payments and an
interest rate cap that hedges cash flows from interest payments above a specific
level. The unrealized gains/losses in the fair value of these hedges are
reported on the balance sheet with a corresponding adjustment to accumulated
other comprehensive income, with any ineffective portion of the hedging
transactions reclassified to earnings. Within the next twelve months, the
Company expects to reclassify to earnings an estimated $100,000 of the current
balance held in accumulated other comprehensive income due to the
ineffectiveness associated with the hedging transactions.
8. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) and its components for the three and nine
months ended September 30, 2003 and 2002 were as follows (dollars in thousands):
Three months Nine months
ended September 30, ended September 30,
------------------------------------ ------------------------------------
2003 2002 2003 2002
----------------- ------------------ ------------------ -----------------
Net income $ 6,470 $ 3,797 $ 15,901 $ 13,067
Marked-to-market adjustment
on derivative instruments 5,440 (12,187) (1,002) (15,957)
----------------- ------------------ ------------------ -----------------
Total comprehensive income (loss) $ 11,910 $ (8,390) $ 14,899 $ (2,890)
================= ================== ================== =================
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following discussion and analysis of financial condition and results of
operations is based upon the Company's consolidated financial statements, and
the notes thereto, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these consolidated financial statements requires the Company to make a number
of estimates and assumptions that affect the reported amounts and disclosures in
the consolidated financial statements. On an ongoing basis, the Company
evaluates its estimates and assumptions based upon historical experience and
various other factors and circumstances. The Company believes that its estimates
and assumptions are reasonable in the circumstances; however, actual results may
differ from these estimates and assumptions under different future conditions.
The Company believes that the estimates and assumptions that are most important
to the portrayal of its financial condition and results of operations, in that
they require the most subjective judgments, form the basis of accounting
policies deemed to be most critical. These critical accounting policies include
capitalization of expenditures and depreciation of assets, impairment of
long-lived assets, including goodwill, and the fair value of derivative
financial instruments.
Capitalization of Expenditures and Depreciation of Assets
The Company carries its real estate assets at their depreciated cost.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets, which range from 8 to 40 years for land
improvements and buildings, to 5 years for furniture, fixtures, and equipment,
all of which are judgmental determinations. Repairs and maintenance costs are
expensed as incurred while significant improvements, renovations, and
replacements are capitalized. The cost to complete any deferred repairs and
maintenance at properties acquired by the Company in order to elevate the
condition of the property to the Company's standards are capitalized as
incurred.
Impairment of Long-Lived Assets, Including Goodwill
The Company accounts for long-lived assets in accordance with the provisions of
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets and evaluates its goodwill for impairment under Statement No. 142,
Goodwill and Other Intangible Assets. The Company evaluates its goodwill for
impairment on an annual basis during the Company's fiscal fourth quarter. The
Company periodically evaluates its long-lived assets, including its investments
in real estate and goodwill, for indicators that would suggest that the carrying
amount of the assets may not be recoverable. The judgments regarding the
existence of such indicators are based on factors such as operating performance,
market conditions, and legal factors.
To evaluate goodwill and the recovery value of long-lived assets, the Company
estimates future operating cash flows and uses these cash flow estimates to
determine the asset's fair value. In the apartment industry, the primary method
used for determining fair value is to divide annual operating cash flows by an
appropriate capitalization rate. The Company determines the appropriate
capitalization rate by reviewing the prevailing rates in a property's market or
submarket.
Fair Value of Derivative Financial Instruments
The Company utilizes certain derivative financial instruments during the normal
course of business to manage, or hedge, the interest rate risk associated with
the Company's variable rate debt or as hedges in anticipation of future debt
transactions to manage well-defined interest rate risk associated with a
transaction. The valuation of the derivative financial instruments under SFAS
No. 133 requires the Company to make estimates and judgments that affect the
fair value of the instruments.
In order for a derivative contract to be designated as a hedge, the relationship
between the hedging instrument and the hedged item must be highly effective. The
Company performs effectiveness tests using the change in the variable cash flows
method at the inception of the hedge and for each reporting period thereafter,
through the maturity of the hedge. Any amounts determined to be ineffective are
recorded in earnings. The fair value of the hedges is recorded to accumulated
other comprehensive income.
While the Company's calculation of hedge effectiveness contains some subjective
determinations, the historical correlation of the rates of the hedge and the
underlying hedged item are measured by the Company before entering into the
hedge and have been highly related.
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three and nine months ended
September 30, 2003. This discussion should be read in conjunction with the
financial statements appearing elsewhere in this report. These financial
statements include all adjustments, which are, in the opinion of management,
necessary to reflect a fair statement of the results for the interim periods
presented, and all such adjustments are of a normal recurring nature.
The total number of apartment units the Company owned or had an ownership
interest in, including the 3 properties containing 1,048 apartment units owned
by its 33.33% unconsolidated joint venture, at September 30, 2003 was 35,233 in
126 communities compared to 33,923 units in 123 communities owned at September
30, 2002. The average monthly rental per apartment unit for the Company's 100%
owned apartment units not in lease-up was $661 at September 30, 2003 compared to
$666 at September 30, 2002. Occupancy for these same apartment units at
September 30, 2003 and 2002 was 94.5% and 93.7%, respectively.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2003 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2002
Property revenues for the three months ended September 30, 2003, increased by
approximately $684,000 from the three months ended September 30, 2002, due to
(i) a $1,542,000 increase in revenues from the properties acquired in the
purchase of the limited partnership interest held by Blackstone Real Estate
Advisors in BRE/MAAC Associates, LLC (the "BreMaac Buyout"), (ii) a $733,000
increase in revenues from the acquisitions of the Seasons at Green Oaks
apartments and Legacy Pines apartments in 2003 (the "2003 Acquisitions"), and
(iii) a $155,000 increase in revenues from the communities in lease-up for the
periods prior to the third quarter of 2003 (the "Communities in Lease-up").These
increases were partially offset by a decrease of $1,746,000 of revenue from
communities held throughout both periods.
Property operating expenses include costs for property personnel, building
repairs and maintenance, real estate taxes and insurance, utilities, landscaping
and other property related costs. Property operating expenses for the three
months ended September 30, 2003, increased by approximately $2,280,000 from the
three months ended September 30, 2002, due primarily to increases of property
operating expenses of (i) $1,189,000 from communities held throughout both
periods, (ii) $740,000 from the BreMaac Buyout, (iii) $311,000 from the 2003
Acquisitions, and (iv) $40,000 from the Communities in Lease-up.
Depreciation and amortization expense increased by approximately $613,000
primarily due to the increases of depreciation and amortization expense of (i)
$435,000 from the BreMaac Buyout, and (ii) $178,000 from the Company's remaining
communities.
Property management expenses for the three months ended September 30, 2003,
decreased by approximately $64,000 over the same period last year mainly related
to lower employee incentive payments. General and administrative expenses
increased by approximately $47,000, a 2.8% increase.
Interest expense for the three months ended September 30, 2003, decreased by
approximately $968,000 from the same period in 2002. Refinancings of debt in
2002 and 2003, and the reduction in variable rates since September 30, 2002,
decreased the Company's average interest rate from 6.0% at September 30, 2002 to
5.5% at September 30, 2003. This decrease was partially offset by an increase in
average debt balances.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2003 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
Property revenues for the nine months ended September 30, 2003, increased by
approximately $1,269,000 from the nine months ended September 30, 2002, due to
increases of revenues of (i) $1,736,000 from the 2003 Acquisitions, (ii)
$1,542,000 from the BreMaac Buyout, and (iii) $1,254,000 from the Communities in
Lease-up. These increases were partially offset by a decrease in property
revenues of $3,263,000 from communities held throughout both periods.
Property operating expenses for the nine months ended September 30, 2003,
increased by approximately $4,121,000 from the nine months ended September 30,
2002, due primarily to increases in property operating expenses of (i)
$2,171,000 from the communities held throughout both periods, (ii) $898,000 from
the 2003 Acquisitions, (iii) $740,000 from the BreMaac Buyout, and (iv) $312,000
from the Communities in Lease-up.
Depreciation and amortization expense increased by approximately $1,390,000
primarily due to the increases of (i) $435,000 from the BreMaac Buyout, (ii)
$277,000 from the 2003 Acquisitions, and (iii) $678,000 from the Company's
remaining communities.
Property management expenses for the nine months ended September 30, 2003,
decreased by approximately $463,000 over the same period last year mainly
related to lower employee incentive payments and decreased franchise and excise
taxes. General and administrative expenses for the nine months ended September
30, 2003, increased approximately $690,000 over the same period last year mainly
related to increases in personnel expenses.
Interest expense for the nine months ended September 30, 2003, decreased by
approximately $3,285,000 from the same period of 2002. Refinancings of debt in
2002 and 2003, and the reduction in variable rates since September 30, 2002,
decreased the Company's average interest rate from 6.0% at September 30, 2002 to
5.5% at September 30, 2003. This decrease was partially offset by an increase in
average debt balances.
FUNDS FROM OPERATIONS AND NET INCOME
Funds from operations ("FFO") represents net income (computed in accordance with
accounting principles generally accepted in the United States of America, or
"GAAP") excluding extraordinary items, minority interest in Operating
Partnership income, gain or loss on disposition of real estate assets and
insurance settlement proceeds, plus depreciation and amortization related to
real estate, and adjustments for the joint ventures to reflect FFO on the same
basis. This definition of FFO is in accordance with the National Association of
Real Estate Investment Trust's ("NAREIT") recommended definition.
The Company's policy is to expense the cost of interior painting, vinyl
flooring, and blinds as incurred for stabilized properties. During the
stabilization period for acquisition properties, these items are capitalized as
part of the total repositioning program of newly acquired properties, and, thus
are not deducted in calculating FFO.
The Company believes that FFO is helpful in understanding the Company's
operating performance in that FFO excludes depreciation expense on real estate
assets. The Company believes that GAAP historical cost depreciation of real
estate assets is generally not correlated with changes in the value of those
assets, whose value does not diminish predictably over time, as historical cost
depreciation implies. The Company's calculation of FFO may differ from the
methodology for calculating FFO utilized by other REITs and, accordingly, may
not be comparable to such other REITs. FFO should not be considered as an
alternative to net income.
FFO decreased for the three months ended September 30, 2003, by approximately
$5,557,000 to $8,655,000 versus $14,212,000 for the three months ended September
30, 2002. FFO for the nine months ended September 30, 2003, decreased by
$4,233,000 to $38,248,000 from $42,481,000 for the same period of 2002. The
decreases in FFO were primarily due to the original issuance costs associated
with the redemption of preferred stock. This adjustment was in response to the
SEC's July 31st Staff Policy Statement relating to EITF Topic D-42 concerning
the calculation of earnings per share for the redemption of preferred stock.
Net income increased by approximately $2,673,000 for the three months ended
September 30, 2003 to $6,470,000 from $3,797,000 for the three months ended
September 30, 2002. Net income for the six months ended September 30, 2003
increased to $15,901,000 from $13,067,000 for the same period in 2002. The net
income increases were primarily due to gains from the sale of the Crossings
apartments and insurance settlement proceeds.
The following table is a reconciliation of FFO to net income for the three and
nine months ended September 30, 2003 and 2002 (dollars and shares in thousands):
Three months Nine months
ended September 30, ended September 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------- ------------ -------------
Net income $ 6,470 $ 3,797 $ 15,901 $ 13,067
Depreciation and amortization real estate assets 14,487 13,905 41,656 40,430
Net (gain) loss on insuarnce settlement proceeds and
disposition of assets (2,075) 128 (2,682) (437)
Depreciation and amortization real estate assets of
discontinued operations - 38 78 113
Gain on sale of discontinued operations (1,921) - (1,921) -
Depreciation and amortization real estate assets of
unconsolidated entities 448 344 1,481 1,032
Preferred dividend distribution (3,545) (4,028) (11,395) (12,085)
Minority interest in operating partnership income 778 28 1,117 361
Original issuance costs associated with the
redemption of preferred stock (5,987) - (5,987) -
------------ ------------- ------------ -------------
Funds from operations $ 8,655 $ 14,212 $ 38,248 $ 42,481
============ ============= ============ =============
Weighted average shares and units:
Basic 21,020 20,432 20,690 20,404
Diluted 21,324 20,646 20,922 20,606
TRENDS
Property revenues during the three and nine months ended September 30, 2003,
were impacted by general economic weakness and excess supply of apartments,
which was evident throughout the majority of the Company's markets. The decrease
in new household formations and increase in single family home purchases due to
historically low interest rates have affected demand in many of the Company's
markets, which has created extremely competitive leasing environments. These
dynamics are expected to continue for the next several quarters. Current
occupancy rates, rent growth, and concession levels are not at historical levels
and are not expected to improve until the national economy improves.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities increased to approximately
$63,237,000 for the first nine months of 2003 from $57,641,000 for the first
nine months of 2002.
Net cash used in investing activities increased during the first nine months of
2003 from the first nine months of 2002 to approximately $91,036,000 from
$49,804,000 mainly related to the purchases of the Legacy Pines and Los Rios
Park apartments and the BreMaac Buyout. These purchases were partially offset by
the sale of the Crossings apartments.
Capital improvements to existing properties during the first nine months of 2003
and 2002 totaled approximately $16,103,000 and $14,099,000, respectively. Actual
capital expenditures are summarized below (dollars in thousands):
September 30, 2003 September 30, 2002
-------------------- --------------------
Recurring capital expenditures at existing properties $ 9,590 $ 5,798
Revenue enhancing capital expenditures at existing properties 5,799 3,793
Corporate/commercial capital improvements 714
-------------------- --------------------
$ 16,103 $ 14,099
==================== ====================
Net cash provided by financing activities was approximately $22,781,000 for the
first nine months ended September 30, 2003 compared to net cash used in
financing activities of $5,851,000 during the same period in 2002. During the
first nine months of 2003 the Company increased its borrowings under its credit
lines by approximately $179,321,000 to accommodate refinancing activities. In
the first nine months of 2002 the Company increased its credit lines by
approximately $60,840,000. The Company made principal payments on notes payable
of approximately $166,019,000 in the first nine months of 2003 compared to
payments of approximately $17,804,000 for the same period in 2002. The increase
of borrowings under the Company's credit lines and in principal payments on
notes payable for the nine months ended September 30, 2003, is mainly related to
the refinancing of $151,000,000 of debt maturities in the first nine months of
2003, by utilizing the $552 million borrowing capacity of its existing secured
credit facility with Prudential Mortgage Capital, credit enhanced by Fannie Mae
(the "FNMA Facility"). The Company also received approximately $44,496,000 in
proceeds from common stock issuances in the first nine months of 2003. The
approximately $150,119,000 received for issuances of preferred stock in the
first nine months of 2003, was predominately offset by the approximately
$148,499,000 used to retire outstanding issues of preferred stock.
At September 30, 2003, the FNMA Facility had an outstanding balance of $511
million, with available unused borrowing capacity of $41 million. $315 million
of the FNMA Facility expires in 2004, renewable for two successive 5-year terms,
while the remaining $237 million expires in 2007, renewable for a 5-year term.
The FNMA Facility provides for both fixed and variable rate borrowings. The
interest rate on the variable portion renews every 90 days and is based on the
FNMA Discount Mortgage Backed Security ("DMBS") rate on the date of renewal,
which has typically approximated three-month LIBOR less an average spread of
0.07%, plus a credit enhancement fee of 0.67% or 0.72% based on the outstanding
borrowings. Excluding the effect of interest rate swaps, the average variable
interest rate at September 30, 2003 was 1.8% on variable rate borrowings of $401
million under the FNMA Facility. Fixed rate borrowings under the FNMA Facility
totaled $110 million at September 30, 2003, at interest rates (inclusive of
credit-enhancement fees) from 5.77% to 7.71%, and maturities from 2006 to 2009.
At September 30, 2003, the Company had an outstanding balance of $20 million on
its loan with Compass Bank at a variable interest rate of 1.6%.
The Company has a secured credit facility with a group of banks led by AmSouth
Bank. In July 2003, the Company reduced this $70 million line to $40 million. At
September 30, 2003, the outstanding balance under this facility was $6 million
and the available borrowing base was $9 million. There was also $11 million of
letters of credit outstanding under this facility at September 30, 2003.
Each of the Company's credit facilities is subject to various covenants and
conditions on usage. If the Company were to fail to satisfy a condition to
borrowing, the available credit under one or more of the facilities could not be
drawn, which could adversely affect the Company's liquidity. Moreover, if the
Company were to fail to make a payment or violate a covenant under a credit
facility, after applicable cure periods one or more of its lenders could declare
a default, accelerate the due date for repayment of all amounts outstanding
and/or foreclose on properties securing such facilities. Any such event could
have a material adverse effect on the Company.
The Company uses interest rate swaps to manage its current and future interest
rate risk. The Company has nine interest rate swaps with a total notional
balance of $275 million which have variable legs based on one or three-month
LIBOR, and fixed legs with an average rate of 5.6%. The swaps have expirations
between 2005 and 2010, and have to date proven to be highly effective hedges of
the Company's designated variable rate borrowings on its FNMA Facility. The
Company has designated these interest rate swaps as cash flow hedges on its FNMA
Facility. Through the use of these swaps the Company believes it has effectively
fixed the borrowing rate during these periods on $275 million of variable rate
borrowings issued through the FNMA Facility, leaving only $126 million of the
FNMA Facility on which the interest rate has not been fixed or hedged (excluding
the effect of forward interest rate swaps). Additionally, the Company has a
$55,635,000 Tax-Free Bond Facility with FNMA. The Company has five interest rate
swaps with a total notional amount of $42,735,000 which have variable legs based
on the BMA Municipal Swap Index and fixed legs with an average rate of 3.4%.
These swaps expire in 2007 and 2008, and have to date proven to be highly
effective hedges of the designated borrowings of the Tax-Free Bond Facility. The
Company has also entered into a cap agreement on a notional amount of $6.8
million within the Tax-Free Bond Facility. The 5-year cap agreement has a strike
rate of 6% as indexed on the BMA Municipal Swap Index.
At September 30, 2003, the Company had entered into a forward interest rate swap
with a notional balance of $25 million which goes into effect in December 2003
and has a variable leg based on three-month LIBOR and a fixed leg of 4.0%. The
swap terminates in 2009 and has been designated as a cash flow hedge against
current borrowings with Union Planters Bank, National Association. The Company
had also entered into a forward interest rate swap with a notional balance of
$40 million. This swap goes into effect in 2004 and has a variable leg based on
three-month LIBOR and a fixed leg of 4.9%. The swap terminates in 2010 and has
been designated as a cash flow hedge against planned refinancings.
The weighted average interest rate and the weighted average maturity at
September 30, 2003, for the $912 million of debt outstanding were 5.5% and 11.2
years, compared to 6.0% and 10.9 years on $823 million of debt outstanding at
September 30, 2002.
The Company believes that it has adequate resources to fund both its current
operations, annual refurbishment of its properties, and incremental investment
in new apartment properties. The Company is relying on the efficient operation
of the financial markets to finance debt maturities, and also is heavily reliant
on the creditworthiness of FNMA, which provides credit enhancement for
approximately $566 million of the Company's debt. The interest rate market for
FNMA Discount Mortgage Backed Securities ("DMBS"), which in the Company's
experience is highly effective with three-month LIBOR interest rates, is also an
important component of the Company's liquidity and swap effectiveness. In the
event that the FNMA DMBS market becomes less efficient, or the credit of FNMA
becomes impaired, the Company would seek alternative sources of debt financing.
The Company believes that cash provided by operations is adequate and
anticipates that it will continue to be adequate in both the short and long-term
to meet operating requirements (including recurring capital expenditures at the
communities) and payment of distributions by the Company in accordance with REIT
requirements under the Internal Revenue Code. The Company has loan covenants
that limit the total amount of distributions, but believes that it is unlikely
that these will be a limiting factor on the Company's future levels of
distributions based on the Company's current range of forecast of operating
performance. The Company expects to meet its long-term liquidity requirements,
such as scheduled mortgage debt maturities, property acquisitions, expansions,
and non-recurring capital expenditures, through long and medium term
collateralized fixed rate borrowings, potential joint venture transactions and
the Company's existing and new credit facilities.
Currently, the Company's operating cash flow after capital expenditures is
insufficient to fully finance the payment of distributions to shareholders at
the current rate. While the Company has sufficient liquidity to permit
distributions at current rates through additional borrowings, any significant
further deterioration in operations could result in the Company's financial
resources to be insufficient to pay distributions to shareholders at the current
rate, in which event the Company would be required to reduce the distribution
rate.
At September 30, 2003 and 2002, the Company did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance, special purpose or variable interest
entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited
purposes. The Company's joint venture with Crow Holdings was established to
acquire approximately $150 million of multifamily properties. In addition, the
Company does not engage in trading activities involving non-exchange traded
contracts. As such, the Company is not materially exposed to any financing,
liquidity, market, or credit risk that could arise if it had engaged in such
relationships. The Company does not have any relationships or transactions with
persons or entities that derive benefits from their non-independent
relationships with the Company or its related parties other than what is
disclosed in Item 8. Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements Note 10 in the Company's 2002 Annual Report on
Form 10-K.
INSURANCE
The Company put in place a new insurance program effective July 1, 2003. The
program is substantially the same as the program entered into by the Company in
2002. The Company retains the first $15 million of loss related to acts of
foreign terrorism and does not have insurance for acts of domestic terrorism. In
the opinion of management, property and casualty insurance is in place that
provides adequate coverage to provide financial protection against normal
insurable risks such that it believes that any loss experienced would not have a
significant impact on the Company's liquidity, financial position, or results of
operations.
INFLATION
Substantially all of the resident leases at the Company's communities allow, at
the time of renewal, for adjustments in the rent payable thereunder, and thus
may enable the Company to seek rent increases. The substantial majority of these
leases are for one year or less. The short-term nature of these leases generally
serves to reduce the risk to the Company of the adverse effects of inflation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections
(Statement 145). The rescission of Statement No. 4, Reporting Gains and Losses
from Extinguishment of Debt and Statement No. 64, Extinguishments of Debt made
to Satisfy Sinking-Fund Requirements eliminates an exception to general practice
relating to the determination of whether certain items should be classified as
extraordinary and is effective in fiscal years beginning after May 15, 2002,
with earlier implementation encouraged. The rescission of Statement No. 44 and
all other provisions of Statement 145 are effective for fiscal years beginning
after May 15, 2002. As a result of the adoption of Statement 145, the Company
reclassified $32,000 representing extraordinary gain (before minority interest
adjustment) on early extinguishment of debt for the first nine months ended
September 30, 2002, to a component of operating income.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 requires all companies to
consolidate the results of variable interest entities as defined by the
Interpretation for which the company has a majority variable interest. FIN 46
was to be adopted for fiscal years or interim periods beginning after June 15,
2003, however, on October 9, 2003, the FASB issued FSP FIN 46-6, Effective Date
of FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
which defers the effective date of FIN 46 for public enterprises. Under FIN
46-6, for VIEs created (i.e., entities formed) before February 1, 2003, FIN 46
does not become effective for public enterprises until the end of interim or
annual periods ending after December 15, 2003 (i.e., December 31, 2003 for
calendar-year public companies) provided that the enterprise has not issued
financial statements reporting that variable interest entity in accordance with
FIN 46, other than in the disclosures required by paragraph 26 of FIN 46. FIN 46
requires certain disclosures in the financial statements issued after January
31, 2003 if it is reasonably possible that the company will consolidate or
disclose information about variable interest entities when FIN 46 becomes
effective. The adoption of FIN 46 is not expected to have a material impact on
the Company's consolidated financial condition or results of operations taken as
a whole.
In April 2003, the FASB issued Statement No. 149, Amendment of Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. Statement 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. Statement 149 is effective for contracts entered into or modified
after June 30, 2003. The adoption of Statement 149 did not have a material
effect on the Company's consolidated financial condition or results of
operations taken as a whole.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. Statement 150
requires issuers to classify as liabilities (or assets in some circumstances)
financial instruments within the scope of the statement that embody
unconditional obligations for the issuer. Statement 150 was effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
was effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of Statement 150 had no effect on the Company's
consolidated financial condition or results of operations taken as a whole.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. These statements include, but are not limited
to, statements about anticipated growth rate of revenues and expenses,
anticipated lease-up (and rental concessions) at development properties, planned
asset dispositions, disposition pricing, and planned acquisition and
developments. Actual results and the timing of certain events could differ
materially from those projected in or contemplated by the forward-looking
statements due to a number of factors, including a continued downturn in general
economic conditions or the capital markets, competitive factors including
overbuilding or other supply/demand imbalances in some or all of our markets,
changes in interest rates, and other items that are difficult to control such as
insurance rates, increases in real estate taxes, and other general risks
inherent in the apartment business. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this report on Form 10-Q will prove
to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
This information has been omitted as there have been no material changes in the
Company's market risk as disclosed in the 2002 Annual Report on Form 10-K except
for changes as discussed in the Liquidity and Capital resources section in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 4.
Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in its Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Management necessarily applied its judgment in assessing
the costs and benefits of such controls and procedures which, by their nature,
can provide only reasonable assurance regarding management's control objectives.
The Company also has an investment in an unconsolidated entity which is not
under its control. Consequently, the Company's disclosure controls and
procedures with respect to this entity are necessarily more limited than those
it maintains with respect to its consolidated subsidiaries.
As of the end of the period covered by this report, an evaluation was carried
out under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) that is required to be included in the Company's
Exchange Act filings.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the three months ended September 30, 2003, there were no significant
changes in the Company's internal control over financial reporting that
materially affected, or that are reasonably likely to affect, the registrant's
internal control over financial reporting.
Special Note Regarding Analyst Reports
Investors should also be aware that while the Company's management does, from
time to time, communicate with securities analysts, it is against the Company's
policy to disclose to them any material non-public information or other
confidential commercial information. Accordingly, shareholders should not assume
that the Company agrees with any statement or report issued by any analyst
irrespective of the content of the statement or report. Furthermore, the Company
has a policy against issuing or confirming financial forecasts or projections
issued by others. Thus, to the extent that reports issued by securities analysts
contain any projections, forecasts or opinions, such reports are not the
responsibility of Mid-America Apartment Communities, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report.
Exhibit No
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Form Event Reported Date of Report Date Filed
8-K Computation of Ratios - Series H Cumulative
Redeemable Preferred Stock 7-3-2003 7-3-2003
8-K Opinions of Bass, Berry & Sims PLC as to
validity and certain tax matters - Series H
Cumulative Redeemable Preferred Stock 7-10-2003 7-10-2003
8-K Offering of 5,600,000 shares of Series H
Cumulative Redeemable Preferred Stock 7-10-2003 7-10-2003
8-K Redemptions of Series A Cumulative Preferred
Stock, Series B Cumulative Preferred Stock
and Series C Cumulative Redeemable Preferred
Stock 7-10-2003 7-10-2003
8-K Underwriter exercise of 525,000 shares - Series
H Cumulative Redeemable Preferred Stock 7-17-2003 7-17-2003
8-K Redemption of Series B Cumulative Preferred
Stock 7-17-2003 7-17-2003
8-K Letter of intent to purchase interest in BRE/MAAC
Associates, LLC 8-4-2003 8-5-2003
8-K 2Q03 earnings release 8-7-2003 8-7-2003
8-K Completion of sale of Series H Cumulative
Redeemable Preferred Stock 8-11-2003 8-11-2003
8-K Sale of 700,000 shares of common stock 8-22-2003 8-22-2003
8-K Sale of 665,000 shares of common stock 9-18-2003 9-19-2003
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MID-AMERICA APARTMENT COMMUNITIES, INC.
Date: November 10, 2003 /s/Simon R.C. Wadsworth
Simon R.C. Wadsworth
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)