SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 340
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
(901) 682-6600
Registrant's telephone number, including area code
Securities registered pursuant to Section 12 (b) of the Act:
Name of Exchange
Title of Class on Which Registered
-------------------------------------- -----------------------
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in PART III of
this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, (based on the closing price of such stock ($29.00
per share), as reported on the New York Stock Exchange, on March 21,
1997) was approximately $368,000,000 ( for purposes of this
calculation, directors and executive officers are treated as
affiliates).
The number of shares outstanding of the Registrant's Common Stock as
of March 21, 1997, was 13,304,398 shares, of which approximately
720,715 were held by affiliates.
1
MID-AMERICA APARTMENT COMMUNITIES, INC.
TABLE OF CONTENTS
Item Page
PART I
1. Business 1
2. Properties 5
3. Legal Proceedings 9
4. Submission of Matters to Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity and Related 9
Stockholder Matters
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 17
PART III
10. Directors and Executive Officers of the Registrant 17
11. Executive Compensation 19
12. Security Ownership of Certain Beneficial Owners and 22
Management
13. Certain Relationships and Related Transactions 23
PART IV
14. Exhibits, Financial Statement Schedule and Reports on 24
Form 8-K
2
PART I
ITEM 1. BUSINESS
THE COMPANY
Mid-America Apartment Communities, Inc. (the "Company") is a
Memphis, Tennessee-based self-administered and self-managed umbrella
partnership REIT ("UPREIT") which owns and operates 76 apartment
communities containing 20,154 apartment units in 12 states (the
"Communities"), and has definitive agreements to acquire two
additional apartment communities containing 616 apartment units. As
measured by the number of apartment units owned, the Company is the
sixth largest apartment REIT in the United States.
Founded in 1977 by George E. Cates, the Company's Chairman of the
Board of Directors and Chief Executive Officer, the Company's
predecessor grew from an operator of a single 252-unit apartment
community in Memphis, Tennessee into a fully-integrated owner and
operator of 5,580 apartment units in 22 apartment communities in
four southeastern states immediately prior to the Company's initial
public offering in February 1994 (the "Initial Offering"). Since the
Initial Offering, the Company's portfolio has increased by 54
apartment communities containing 14,574 apartment units, including
12 apartment communities containing 3,212 apartment units acquired
in the Company's merger with America First REIT, Inc. ("AFR") in
June 1995 (the "AFR Merger") for an aggregate value of approximately
$111 million (as measured by Common Stock issued and AFR debt
assumed).
The Company's business is conducted principally through Mid-America
Apartments, L.P., a Tennessee limited partnership (the "Operating
Partnership"). The Company is the sole general partner of the
Operating Partnership, holding, as of December 31, 1996, a 1%
general partnership interest in the Operating Partnership. The
Company is also a limited partner in the Operating Partnership and
as of December 31, 1996 held 4,253,448 common units of partnership
interests, ("Common Units"), or 38.45% of all outstanding Common
Units. The Company's wholly-owned qualified REIT subsidiary, MAC of
Delaware, Inc., a Delaware corporation, is a limited partner in the
Operating Partnership and, as of December 31, 1996, held 4,253,448
Common Units, or 38.45% of all outstanding Common Units.
In connection with the formation of the Operating Partnership and
the Initial Offering, the Operating Partnership issued 2,460,413
Common Units to the former owners of Communities contributed to the
Operating Partnership. The Common Units held by such former owners
are redeemable by the holders, at their option, for shares of Common
Stock on a one-for-one basis or, at the Company's option, for cash.
The Company has filed a shelf registration statement relating to the
offer and sale of the Common Units by the holders thereof. As of
December 31, 1996, such former owners held 2,444,352 Common Units,
or 22.1% of all outstanding Common Units.
Certain Communities are owned by limited partnerships of which the
Operating Partnership and the Company or a wholly owned qualified
REIT subsidiary are the only partners. In addition, the Company,
directly or through six wholly owned qualified REIT subsidiaries,
owns 15 Communities.
1
3
OPERATING PHILOSOPHY
MID-SIZE MARKET FOCUS. The Company focuses on owning, operating,
and acquiring apartment communities in mid-size southeastern and
Texas cities. The Company believes that these markets generally have
been less susceptible to apartment overbuilding during past real
estate investment cycles, and the Company believes that apartment
communities in these markets offer attractive long-term investment
returns. The Company seeks to acquire apartment communities in its
existing markets and selected new markets where it believes there is
less competition for acquisitions from other well-capitalized
buyers. The Company believes it can acquire apartment units at a
significant discount to estimated replacement cost in these markets.
INTENSIVE MANAGEMENT FOCUS. The Company strongly emphasizes on-site
property management. Particular attention is paid to opportunities
to increase rents, raise average occupancy rates, and control costs,
with property managers being given the responsibility for monitoring
market trends and the discretion to react to such trends. The
Company has had demonstrable success in this regard as evidenced by:
(i) monthly rental per apartment unit was $529 at December 31, 1996
versus $508 at December 31, 1995, which represented a 4.1% increase;
(ii) average occupancy during 1996 was 95.4% versus 95.2% in 1995;
and (iii) during 1996 the Company was able to decrease property
operating expenses as a percentage of revenue principally through
the installation of individual apartment unit water and utility
meters.
DEDICATION TO CUSTOMER SERVICE. Management's experience is that
maintaining a consistently high level of customer satisfaction leads
to greater demand for the Company's apartment units, higher
occupancy and rental rates, and increased long-term profitability.
The Company, as part of its intense management focus, has
implemented a practice of having highly trained property managers
and service technicians on-site at each of the Communities.
Management undertakes frequent resident surveys and focus groups, in
order to measure customer satisfaction.
DECENTRALIZED OPERATIONAL STRUCTURE. The Company's operational
structure is organized on a geographic basis. The Company's property
managers have overall operating responsibility for their specific
Communities. Property managers report to area managers or regional
managers who, in turn, are accountable to the Company's President.
Management believes that its decentralized operating structure
capitalizes on specific market knowledge, increases personal
accountability relative to a centralized structure and is beneficial
in the acquisition, redevelopment and development process.
GROWTH STRATEGIES
The Company seeks to increase earnings per share and operating cash
flow to maximize shareholder value through a balanced strategy of
internal and external growth.
INTERNAL GROWTH STRATEGY. Management's goal is to maximize its
return on investment in each Community by increasing rental rates
and reducing operating expenses while maintaining high occupancy
levels. The Company (i) seeks higher net rental revenues by
enhancing and maintaining the competitiveness of the Communities and
(ii) manages expenses through its system of detailed management
reporting and accountability in order to achieve increases in
operating cash flow. The steps taken to meet these objectives
include:
* empowering the Company's property managers to adjust
rents in response to local market conditions and to concentrate
resident turnover in peak rental demand months;
* implementing programs to control expenses through
investment in cost-saving initiatives, such as the installation of
individual apartment unit water and utility meters in certain
Communities;
* ensuring that, through monthly inspections of all
Communities by senior management and prompt attention to maintenance
and recurring capital needs, the Communities are properly
maintained;
* improving the "curb appeal" of the Communities through
extensive landscaping and exterior improvements and repositioning
Communities from time to time to maintain market leadership
positions;
* investing heavily in training programs for its property-
level personnel;
* compensating all employees through performance-based
compensation programs and stock ownership programs; and
* maintaining a hands-on management style and "flat"
organizational structure that emphasizes senior management's
continued close contact with the market and employees.
2
4
EXTERNAL GROWTH STRATEGY. The Company's external growth strategy is
to acquire and selectively develop additional apartment units and,
when apartment communities no longer meet the Company's long-term
strategic objectives or investment return goals, to dispose of those
Communities. Through the UPREIT structure, the Company has the
ability to acquire apartment communities through the issuance of
UPREIT Units in tax-deferred exchanges with owners of such
properties. Since the Initial Offering, the Company has grown by
14,574 apartment units, an increase of approximately 261% over the
number of apartment units immediately prior to the Initial Offering.
Typical attributes of apartment communities which the Company seeks
to acquire are:
* well-constructed properties having attractive locations,
potential for increases in rental rates and occupancy, potential for
reductions in operating costs and acquisition prices below estimated
replacement cost;
* properties with opportunities for internal growth
through (i) market repositioning by means of property upgrades which
typically include landscaping, selective refurbishing and the
addition of amenities and (ii) realizing economies of scale in
management and purchasing; and
* properties located in the Company's existing markets and
mid-size southeastern and Texas metropolitan areas having favorable
market characteristics.
In addition, the Company develops new apartments when it believes it
can achieve an attractive return on investment. Since the Initial
Offering, the Company has completed the following development
projects:
* 122 apartment units constructed at the Woods of Post
House in Jackson, Tennessee in close proximity to three other
Communities;
* 24 additional apartment units at the Reflection Pointe
apartment community in Jackson, Mississippi; and
* 32 additional apartment units at the Park Haywood
apartment community in Greenville, South Carolina.
In the Fall of 1996, the Company commenced construction of a 234-
unit expansion of the 384-unit Lincoln on the Green apartment
community at the Tournament Players' Club at Southwind in Memphis,
Tennessee. Construction of that expansion is expected to be
completed in the Fall of 1997. Several other expansion and new
development opportunities are currently being explored.
COMPLETED ACQUISITIONS. During 1996, the Company has acquired
the following apartment communities (the "Completed Acquisitions")
containing an aggregate of 1,760 apartment units (dollars in
millions):
NUMBER OF ACQUISITION CONTRACT
PROPERTY MARKET UNITS DATE PRICE (1)
- -------------- ---------------- ----- ----------- ----------
Lakeside Jacksonville, FL 416 3/12/96 $ 14.1
Crosswinds Jackson, MS 360 7/25/96 15.3
Savannah Creek Memphis, TN 204 7/25/96 7.8
Sutton Place Memphis, TN 252 7/25/96 8.9
Napa Valley Little Rock, AR 240 10/17/96 9.5
Tiffany Oaks Orlando, FL 288 12/17/96 10.1
----- --------
Total 1,760 $ 65.7
===== ========
(1) Excluding additional customary closing costs, including expenses and
commissions.
3
5
COMPETITION
All of the Company's communities are located in developed areas that
include other apartment communities. Occupancy and rental rates are
affected by the number of competitive apartment communities in a
particular area. The Company's properties compete with numerous
other multifamily properties, the owners of which may have greater
resources than the Company and whose management may have more
experience than the Company's management. Moreover, single-family
rental housing, manufactured housing, condominiums and the new and
existing home market provide housing alternatives to potential
residents of apartment communities.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
Since December 31, 1996, the Company has acquired the following
apartment communities (the "Recent Acquisitions") containing an
aggregate of 874 apartment units (dollars in millions):
NUMBER ACQUISITION CONTRACT
PROPERTY MARKET OF UNITS DATE PRICE
- ---------------- --------------- -------- ----------- --------
Howell Commons Greenville, SC 348 1/16/97 $ 13.0
Balcones Woods Austin, TX 384 3/18/97 15.8
Westside Creek I Little Rock, AR 142 3/28/97 6.1
--- ------
Total 874 $ 34.9
=== ======
The Company funded the cash required to consummate the Recent
Acquisitions with borrowings under the Company's unsecured bank line
of credit (the "Credit Line").
PROPOSED ACQUISITIONS
The Company has entered into definitive agreements to purchase
Woodhollow apartments containing 450 apartment units and Westside
Creek Phase II ("Westside II") containing 166 apartment units. The
seller of Westside II has the option to delay the closing of the
sale for up to six months, during which period the Company will
manage the property for a management fee equal to 4.5% of gross
revenue from the property. The Company plans to fund the cash
required to consummate the Proposed Acquisitions with borrowings
under the Credit Line.
DISTRIBUTION INCREASE
In January 1997, the Company raised its quarterly distribution to
common shareholders from $.51 per share to $.535 per share,
effective with its distribution paid on January 31, 1997.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
In January 1997, the Company adopted a Dividend Reinvestment and
Stock Purchase Plan (the "DRSPP") pursuant to which the Company's
shareholders will be permitted to acquire shares of Common Stock
through the reinvestment of distributions on Common Stock and the
Company's Series A Cumulative Preferred Stock ("Series A Preferred
Stock") and through optional cash payments from shareholders. The
Company has registered with the Securities and Exchange Commission
the offer and sale of up to 750,000 shares of Common Stock pursuant
to the DRSPP. It is expected that shareholders of the Company may
begin participating in the DRSPP commencing with the Company's April
1997 distribution to holders of Common Stock. See "Part II Item 5
Market for Registrant's Common Equity and Related Stockholder
Matters".
4
6
COMMON STOCK OFFERING
In March 1997, the Company offered and sold to the public 2,300,000
shares of common stock, (the "Offering"). The net proceeds to the
Company from the Offering totaled approximately $62.4 million after
payment of all underwriting discounts and expenses of the Offering.
The Company contributed the net proceeds of the Offering to the
Operating Partnership in exchange for additional Common Units in the
Operating Partnership. The Operating Partnership will use
substantially all of the net proceeds to repay outstanding
borrowings under the Credit Line and any excess will be used for
general corporate purposes, including acquisitions. Amounts repaid
under the Credit Line may be re-borrowed (subject to the terms and
limits of the Credit Line) to finance acquisitions of additional
apartment communities and for other corporate purposes.
ITEM 2. PROPERTIES
The Company seeks to acquire apartment communities appealing to
middle and upper income residents in mid-size cities in the
southeastern United States and Texas. Approximately 64% of the
Company's apartment units are located in Tennessee, Florida and
Texas markets. The Company's strategic focus is to provide its
residents high quality apartment units in attractive community
settings, characterized by extensive landscaping and attention to
aesthetic detail. The Company utilizes its experience and expertise
in maintenance, landscaping, marketing and management to effectively
"reposition" many of the apartment communities it acquires to raise
occupancy levels and per unit average rentals. The average age of
the Communities at December 31, 1996 was 12.8 years. The following
table sets forth certain operating data regarding the Company for
the periods indicated.
1996 1995 1994
------ ------ ------
Apartment units at year end 19,280 18,219 14,333
Average monthly rental per
apartment unit at year end $529 $508 $482
Average occupancy for the year 95.4% 95.2% 95.5%
The following table sets forth selected financial and operating
information on an historical basis for the 73 Communities owned at
December 31, 1996:
5
7
The following table presents information concerning the properties at
December 31, 1996:
Approximate Average
Year Rentable Unit
Year Management Number Area Size
Property Location Completed Commenced Of Units (Square Ft.) (Square Ft.)
- ---------------- --------------- ---- --------- -------- ------------ ------------
Calais Forest Little Rock, AR 1987 1994 260 194,928 750
Napa Valley Little Rock, AR 1984 1996 240 183,120 763
Whispering Oaks Little Rock, AR 1978 1994 206 192,422 934
---- --------- -----
706 570,470 808
Tiffany Oaks Altamonte
Springs, FL 1985 1996 288 234,144 813
Marsh Oaks Atlantic Beach, FL 1986 1995 120 93,240 777
Anatole Daytona Beach, FL 1986 1995 208 149,136 717
Cooper's Hawk Jacksonville, FL 1987 1995 208 218,400 1,050
Lakeside Jacksonville, FL 1985 1996 416 344,032 827
St. Augustine Jacksonville, FL 1987 1995 400 304,400 761
Woodbridge at
the Lake Jacksonville, FL 1985 1994 188 166,000 883
Savannahs at
James Landing Melbourne, FL 1990 1995 256 238,592 932
Belmere Tampa, FL 1984 1994 210 202,440 964
Sailwinds at
Lake Magdalene Tampa, FL 1975 1994 798 667,084 836
----- --------- -----
3,092 2,617,468 847
Shenandoah Ridge Augusta, GA 1975/1982 1994 272 202,640 745
Hollybrook Dalton, GA 1972 1994 158 188,640 1,194
---- --------- -----
430 391,280 910
Lakepointe Lexington, KY 1986 1994 118 90,614 768
Mansion, The Lexington, KY 1987 1994 184 138,720 754
Village, The Lexington, KY 1989 1994 252 182,716 725
Stonemill Village Louisville, KY 1985 1994 384 324,008 844
---- --------- -----
938 736,058 785
Canyon Creek St. Louis, MO 1987 1994 320 312,592 977
Riverhills Grenada, MS 1972 1985 96 81,942 854
Advantages, The Jackson, MS 1984 1991 252 199,136 790
Crosswinds Jackson, MS 1988/1990 1996 360 443,160 1,231
Lakeshore Landing Jackson, MS 1974 1994 196 171,156 873
Pear Orchard Jackson, MS 1985 1994 389 338,430 870
Pine Trails Jackson, MS 1978 1988 120 98,560 821
Reflection Pointe Jackson, MS 1986 1988 296 254,856 861
Somerset Place Jackson, MS 1981 1995 144 128,848 881
Woodridge Jackson, MS 1987 1988 192 175,034 912
----- --------- -----
2,045 1,891,122 925
Woodstream Greensboro, NC 1983 1994 304 217,186 714
Corners, The Winston-Salem, NC 1982 1993 240 173,496 723
----- --------- -----
544 390,682 718
Fairways at
Royal Oak Cincinnati, OH 1988 1994 214 214,477 1,002
Tanglewood Anderson, SC 1980 1994 168 146,600 873
The Fairways Columbia, SC 1992 1994 240 213,720 891
Highland Ridge Greenville, SC 1984 1995 168 144,000 857
Park Haywood Greenville, SC 1983 1993 208 152,256 732
Spring Creek Greenville, SC 1984 1995 208 182,000 875
Runaway Bay Mt. Pleasant, SC 1988 1995 208 177,840 855
----- --------- -----
1,200 1,016,416 847
Hamilton Pointe Chattanooga, TN 1989 1992 362 256,716 711
Hidden Creek Chattanooga, TN 1987 1988 300 259,152 864
Steeplechase Chattanooga, TN 1986 1991 108 97,016 898
Oaks, The Jackson, TN 1978 1993 100 87,512 875
Post House
Jackson Jackson, TN 1987 1989 150 163,640 1,091
Post House North Jackson, TN 1987 1989 144 144,724 1,005
Williamsburg
Village Jackson, TN 1987 1994 148 121,412 820
Woods at Post
House Jackson, TN 1995 1995 122 118,922 975
Cedar Mill Memphis, TN 1973/1986 1982/1994 276 297,794 1,079
Clearbrook
Village Memphis, TN 1974 1987 176 150,400 855
Crossings Memphis, TN 1974 1991 80 89,968 1,125
EastView Memphis, TN 1974 1984 432 356,480 825
Greenbrook Memphis, TN 1986 1988 1,031 934,490 906
Hickory Farm Memphis, TN 1985 1994 200 150,256 751
Kirby Station Memphis, TN 1978 1994 371 310,742 838
Lincoln on the
Green Memphis, TN 1988 1994 384 293,664 765
McKellar Woods Memphis, TN 1976 1988 624 589,776 945
Glen Eagles Memphis, TN 1975 1990 184 189,560 1,030
Park Estate Memphis, TN 1974 1977 81 95,751 1,182
Savannah Creek Memphis, TN (8) 1989 1996 204 237,252 1,163
Sutton Place Memphis, TN (8) 1991 1996 252 267,624 1,062
Winchester Square Memphis, TN 1973 1977 252 301,409 1,196
Brentwood Downs Nashville, TN 1986 1994 286 220,166 770
Park at Hermitage Nashville, TN 1987 1995 440 392,480 892
----- --------- -----
6,707 6,126,906 914
Stassney Woods Austin, TX 1985 1995 288 248,832 864
Travis Station Austin, TX 1987 1995 304 249,888 822
Redford Park Conroe, TX 1984 1994 212 153,744 725
Celery Stalk Dallas, TX 1978 1994 410 552,220 1,347
Lodge at
Timberglen Dallas, TX 1984 1994 260 226,124 870
MacArthur Ridge Irving, TX 1991 1994 248 210,393 848
Westborough Katy, TX 1984 1994 274 197,264 720
Lane at Towne
Crossing Mesquite, TX 1983 1994 384 277,616 723
Cypresswood Court Spring, TX 1984 1994 208 160,672 772
Green Tree Place Woodlands, TX 1984 1994 200 152,168 761
----- --------- ----
2,788 2,428,921 871
Township Hampton, VA 1987 1995 296 248,048 838
------ ---------- ----
Total 19,280 16,944,440 879
====== ========== ====
8
The following table presents information concerning the properties at
December 31, 1996:
Encumbrances at
Average Average December 31, 1995
Rent Per Occupancy --------------------------
Unit at % at Mortgage
December 31, December 31, Principal Interest Maturity
Property Location 1996 1996 (000's) Rate Date
- -------- -------- ------------ ----------- --------- -------- --------
Calais Forest Little Rock, AR $550 90.4% $5,610 8.915% 12/01/99
Napa Valley Little Rock, AR $542 82.9% -(2) -(2) -(2)
Whispering Oaks Little Rock, AR $489 90.8% $3,000 8.915% 12/01/99
---- ----- ------
$530 88.0% $8,610
Tiffany Oaks Altamonte
Springs, FL $528 96.0% - - -
Marsh Oaks Atlantic Beach, FL $501 99.2% -(2) -(2) -(2)
Anatole Daytona Beach, FL $542 97.1% $7,000 5.370% 09/01/05
Cooper's Hawk Jacksonville, FL $644 95.2% -(7) -(7) -(7)
Lakeside Jacksonville, FL $556 95.4% -(2) -(2) -(2)
St. Augustine Jacksonville, FL $518 95.0% -(7) -(7) -(7)
Woodbridge at
the Lake Jacksonville, FL $581 96.3% $3,738 -(1) -(1)
Savannahs at
James Landing Melbourne, FL $554 96.1% -(7) -(7) -(7)
Belmere Tampa, FL $592 97.1% -(2) -(2) -(2)
Sailwinds at
Lake Magdalene Tampa, FL $517 96.0% $15,950 8.915% 12/01/99
---- ----- -------
$545 96.0% $26,688
Shenandoah Ridge Augusta, GA $434 92.3% -(2) -(2) -(2)
Hollybrook Dalton, GA $554 94.9% $2,520 8.915% 12/01/99
---- ----- -------
$478 93.3% $2,520
Lakepointe Lexington, KY $520 98.3% $2,562 8.750% 06/15/97
Mansion, The Lexington, KY $529 95.7% $4,140 8.915% 12/01/99
Village, The Lexington, KY $542 96.0% $5,256 8.750% 06/15/97
Stonemill Village Louisville, KY $545 91.1% -(6) -(6) -(6)
---- ----- ------
$538 94.2% $11,958
Canyon Creek St. Louis, MO $521 90.9% -(6) -(6) -(6)
Riverhills Grenada, MS $397 97.9% $880 7.000% 05/01/13
Advantages, The Jackson, MS $462 91.3% -(6) -(6) -(6)
Crosswinds Jackson, MS $588 96.7% -(2) -(2) -(2)
Lakeshore Landing Jackson, MS $493 95.4% -(6) -(6) -(6)
Pear Orchard Jackson, MS $556 97.9% $8,643 10.000% 11/01/97
Pine Trails Jackson, MS $459 99.2% $1,396 7.000% 04/01/15
Reflection Pointe Jackson, MS $536 95.6% $6,073 6.600% 09/01/10
Somerset Place Jackson, MS $492 98.6% -(2) -(2) -(2)
Woodridge Jackson, MS $499 95.8% $4,840 6.500% 10/01/27
---- ----- -------
$518 96.2% $21,832
Woodstream Greensboro, NC $525 92.4% $5,565 9.250% 12/01/98
Corners, The Winston-Salem, NC $519 95.4% $4,406 7.850% 06/15/03
---- ----- ------
$522 93.7% $9,971
Fairways at
Royal Oak Cincinnati, OH $570 98.1% -(2) -(2) -(2)
Tanglewood Anderson, SC $518 92.9% $2,651 7.600% 11/15/02
The Fairways Columbia, SC $541 96.3% $7,674 8.500% 03/01/33
Highland Ridge Greenville, SC $476 91.7% -(3) -(3) -(3)
Park Haywood Greenville, SC $479 93.8% -(2) -(2) -(2)
Spring Creek Greenville, SC $504 97.6% -(3) -(3) -(3)
Runaway Bay Mt. Pleasant, SC $632 93.8% -(3) -(3) -(3)
---- ----- -------
$527 94.5% $10,325
Hamilton Pointe Chattanooga, TN $443 91.7% -(6) -(6) -(6)
Hidden Creek Chattanooga, TN $458 90.0% -(6) -(6) -(6)
Steeplechase Chattanooga, TN $522 96.3% -(2) -(2) -(2)
Oaks, The Jackson, TN $470 95.0% -(6) -(6) -(6)
Post House
Jackson Jackson, TN $548 93.3% $5,179 8.170% 10/01/27
Post House North Jackson, TN $554 95.1% $3,765 5.270% 09/01/25
Williamsburg
Village Jackson, TN $507 97.3% -(2) -(2) -(2)
Woods at
Post House Jackson, TN $639 85.8% $5,339 7.250% 09/01/35
Cedar Mill Memphis, TN $555 95.7% $2,529 -(4) -(4)
Clearbrook
Village Memphis, TN $470 97.7% $1,226 9.000% 04/01/08
Crossings Memphis, TN $597 98.8% -(6) -(6) -(6)
EastView Memphis, TN $483 96.1% $3,708 8.625% 12/01/99
Greenbrook Memphis, TN $481 96.6% $15,743 -(5) -(5)
Hickory Farm Memphis, TN $500 98.5% -(6) -(6) -(6)
Kirby Station Memphis, TN $531 97.0% - - -
Lincoln on the
Green Memphis, TN $568 98.7% -(2) -(2) -(2)
McKellar Woods Memphis, TN $447 96.3% $8,501 -(5) -(5)
Glen Eagles Memphis, TN $525 97.3% -(6) -(6) -(6)
Park Estate Memphis, TN $654 98.8% $1,497 -(5) -(5)
Savannah Creek Memphis, TN (8) $557 99.0% -(2) -(2) -(2)
Sutton Place Memphis, TN (8) $536 98.8% -(2) -(2) -(2)
Winchester Square Memphis, TN $541 96.4% -(6) -(6) -(6)
Brentwood Downs Nashville, TN $612 96.2% $6,678 8.915% 12/01/99
Park at Hermitage Nashville, TN $568 98.0% $8,385 5.790% 02/01/19
---- ----- -------
$516 96.2% $62,550
Stassney Woods Austin, TX $584 94.8% $4,925 6.600% 10/01/19
Travis Station Austin, TX $528 95.4% $4,355 6.600% 04/01/19
Redford Park Conroe, TX $474 94.8% $3,000 9.006% 12/01/04
Celery Stalk Dallas, TX $619 92.2% $8,460 9.006% 12/01/04
Lodge at
Timberglen Dallas, TX $571 94.6% $4,740 9.006% 12/01/04
MacArthur Ridge Irving, TX $674 91.1% $7,648 7.400% 08/15/98
Westborough Katy, TX $479 92.3% $3,958 9.006% 12/01/04
Lane at Towne
Crossing Mesquite, TX $503 93.5% $5,756 8.750% 01/01/98
Cypresswood Court Spring, TX $500 94.7% $3,330 9.006% 12/01/04
Green Tree Place Woodlands, TX $552 92.0% $3,180 9.006% 12/01/04
---- ----- -------
$552 93.5% $49,352
Township Hampton, VA $552 93.9% $10,800 8.750% 11/01/09
---- ----- --------
Total $529 95.2% $214,606
==== ===== ========
(1) Encumbered by two mortgages with interest rates of 7.75% and
maturities of September 7, 1999 and January 1, 2004.
(2) Subject to a negative pledge pursuant to the agreement in respect
of the Credit Line, with an outstanding balance of $30.4 million at
December 31, 1996. The line had a variable interest rate at
December 31, 1996 of 7.50%.
(3) These three properties are encumbered by a $10.3 million mortgage
securing a tax-exempt bond amortizing over 25 years with an average
interest rate of 6.09%.
(4) Cedar Mill is encumbered by two mortgages with interest rates of
7.8% and 8.35% with maturities of February 4, 2004 and July 1, 2001 and
Mendenhall Townhomes with a 8.65% loan maturing July 1, 2001.
(5) Encumbered by three mortgages with interest rates of 7.8%, 7.55%
and 8.35% and maturities of February 4, 2004, July 1, 2001 and July 1,
2001, respectively.
(6) These eleven properties are encumbered by a $43.4 million mortgage.
(7) These three properties are encumbered by a $16.5 million mortgage
securing a tax-exempt bond amortizing over 25 years with an average
interest rate of 5.75%.
(8) These properties are located in Desoto County, MS, a suburb of
Memphis, TN. The Company considers the properties a part of the Memphis,
TN market.
6 - 8
10
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Communities is presently subject to
any material litigation nor, to the Company's knowledge, is any
material litigation threatened against the Company or the
Communities properties, other than routine litigation arising in the
ordinary course of business, some of which is expected to be covered
by liability insurance and none of which is expected to have a
material adverse effect on the business, financial condition,
liquidity or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's shareholders during
the fourth quarter of 1996.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock has been listed and traded on the NYSE under the
symbol "MAA" since the Initial Offering in February 1994. On March
21, 1997, the reported last sale price of the Company's common stock
on the NYSE was $29.00 per share and there were approximately 1,477
holders of record of the Common Stock. The Company estimates there
are approximately 11,000 beneficial owners of the Common Stock. The
following table sets forth the quarterly high and low sales prices
of the Common Stock as reported on the NYSE and the distributions
declared by the Company with respect to the periods indicated.
Sales Prices Dividends
High Low Declared
------ ------ ---------
1995:
First Quarter $ 26.00 $ 25.75 $ .50
Second Quarter 25.00 24.75 .50
Third Quarter 24.75 24.625 .50
Fourth Quarter 24.875 24.375 .51
1996:
First Quarter 26.625 24.00 .51
Second Quarter 26.625 25.125 .51
Third Quarter 25.875 23.875 .51
Fourth Quarter 28.875 24.75 .535
The Company's current annual distribution rate with respect to the
Common Stock is $2.14 per share. The actual distributions made by
the Company will be affected by a number of factors, including the
gross revenues received from the Communities, the operating expenses
of the Company, the interest expense incurred on borrowings and
unanticipated capital expenditures.
The Company pays a preferential regular monthly distribution on the
Series A Preferred Stock issued in October 1996 at an annual rate of
$2.375 per share. No distribution may be made on the Common Stock
unless all accrued distributions have been made with respect to the
Series A Preferred Stock. No assurance can be given that the Company
will be able to maintain its distribution rate on its Common Stock
or make required distributions with respect to the Series A
Preferred Stock.
9
11
In January 1997, the Company implemented the DRSPP under which
holders of Common Stock (and Series A Preferred Stock) may elect
automatically to reinvest their distributions in additional shares
of Common Stock and/or to make optional purchases of Common Stock
free of brokerage commissions and charges. Shares purchased directly
from the Company will be purchased at up to a 3% discount from their
fair market value at the Company's discretion. To fulfill its
obligations under the DRSPP, the Company may either issue additional
shares of Common Stock or repurchase Common Stock in the open
market.
Future distributions by the Company will be at the discretion of the
Board of Directors and will depend on the actual funds available
for distribution of the Company, its financial condition, capital
requirements, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Board of
Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data on an
historical basis for the Company and its predecessor. This data
should be read in conjunction with the consolidated financial
statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included
elsewhere in this Annual Report on Form 10-K. In the opinion of
management, the data for the periods presented include all
adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein.
10
12
Mid - America Apartment Communities, Inc.
Selected Financial Data
(Dollars in thousands except per share and property data)
Year Ended December 31,
-------------------------------------------------------
Historical
-------------------------------------------------------
(Predecessor)
-------------------
1996 1995 1994(1) 1993 1992
---- ---- ------- ---- ----
Operating Data:
- ---------------
Total revenues $ 111,882 $ 94,963 $ 51,207 $ 26,295 $ 22,194
Expenses:
Property expenses (2) 42,570 37,954 19,484 11,316 9,682
General and administrative 6,154 4,851 3,613 1,402 1,112
Interest 25,766 22,684 10,233 7,448 7,524
Depreciation and amortization 21,443 16,574 8,803 3,521 3,235
Amortization of deferred
financing costs 661 593 296 199 109
Gain on disposition of properties 2,185 - - - -
---------- --------- -------- -------- --------
Income (loss) before minority
interest in operating
partnership income and
extraordinary item 17,473 12,307 8,778 2,409 532
Net income 14,260 9,810 6,944 2,542 1,090
Preferred dividends 990 - - N/A N/A
Net income available for
common shares $ 13,270 $ 9,810 $ 6,944 N/A N/A
Per Share Data:
- ---------------
Net income available for
common shares $ 1.21 $ 1.00 $ 1.01 N/A N/A
Dividends declared $ 2.065 $ 2.01 $ 1.71 N/A N/A
Balance Sheet Data:
- -------------------
Real estate owned, at cost $ 641,893 $ 578,788 $ 434,460 $ 125,269 $ 111,686
Real estate owned, net $ 592,335 $ 549,284 $ 421,074 $ 98,029 $ 87,969
Total assets $ 611,199 $ 565,267 $ 439,233 $ 104,439 $ 93,252
Total debt $ 315,239 $ 307,939 $ 232,766 $ 105,594 $ 95,036
Minority interest $ 39,238 $ 41,049 $ 43,709 N/A N/A
Shareholders' equity
(owners' deficit) $ 241,384 $ 202,278 $ 152,385 $ (4,684) $ (4,493)
Weighted average common
shares and unit 13,431 12,276 9,818 N/A N/A
Other Data (at end of period):
- ------------------------------
Market capitalization
(shares and units) $ 436,739 $ 331,238 $ 295,300 N/A N/A
Ratio of total debt to
total capitalization (3) 41.9% 48.2% 44.1% N/A N/A
Number of Properties 73 70 54 22 19
Number of apartment units 19,280 18,219 14,333 5,580 5,064
(1) Operating data for 1994 includes 34 days of predecessor financial
information and per share data for 1994 is for the period February 4, 1994
through December 31, 1994.
(2) See discussion of the change in accounting policy during 1996 in
Note 1 to the Consolidated Financial Statements.
(3) Total capitalization is total debt and market capitalization of
preferred shares, common shares and partnership units.
11
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of the consolidated financial
condition and results of operations of the Company for the years
ended December 31, 1996, 1995, and 1994. This discussion should be
read in conjunction with all of the financial statements
incorporated by reference into this Annual Report on Form 10-K.
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.
FUNDS FROM OPERATIONS
Funds from operations ("FFO") represents net income (computed in
accordance with GAAP) excluding extraordinary items, minority
interest in Operating Partnership income, gain or loss on
disposition of real estate assets, and certain non-cash items,
primarily depreciation and amortization, less preferred stock
dividends. The Company computes FFO in accordance with NAREIT's
current definition, which eliminates amortization of deferred
financing costs and depreciation of non-real estate assets as items
added back to net income when computing FFO. The Company adopted
this method of calculating FFO effective as of the NAREIT-suggested
adoption date of January 1, 1996. FFO should not be considered as an
alternative to net income or any other GAAP measurement of
performance, as an indicator of operating performance or as an
alternative to cash flows from operating, investing, and financing
activities as a measure of liquidity. The Company believes that FFO
is helpful in understanding the Company's results of operations in
that such calculation reflects cash flow from operating activities
and the Company's ability to support interest payments and general
operating expenses before the impact of certain activities such as
changes in other assets and accounts payable.
For the year ended December 31, 1996, FFO increased by
approximately $6,809,000 or 23.7%, when compared to the year earlier
(adjusted only for the new NAREIT definition of FFO). The increase
was primarily attributable to an approximate $16,919,000 increase in
revenues, which was partially offset by increases in expenses mainly
associated with the increase in the number of apartment units owned
by the Company. On a per share basis, FFO increased 8.6% from $2.44
per share (restated for the effect of adoption of the current NAREIT
FFO definition and the change in accounting policy) for the year
ended December 31, 1995 to $2.65 per share for the same period in
1996.
CAPITAL EXPENDITURES
Following a review of its capital expenditure and depreciation
policy, effective January 1, 1996, the Company implemented a new
policy of which the primary changes are as follows:
(a) Increase minimum dollar amounts to capitalize from $500 to $1,000;
(b) For stabilized Communities (generally, Communities owned and
operated by the Company for at least one year), capitalize
replacement purchases for major appliances and carpeting of an
entire apartment unit which was previously expensed; and
(c) Reduce depreciation life for certain assets from 20 years to 10
to 15 years.
The Company believes that the newly adopted accounting policy is
preferable because it is consistent with policies currently being
used by the majority of the largest apartment REITs and provides a
better matching of expenses with the estimated benefit period. The
Company's 1995 and 1994 financial statements were not restated for
the effect of the change in accounting policy. The policy has been
implemented prospectively effective January 1, 1996.
12
14
The following table presents the impact on 1995 net income of the
Company's new capitalization policy and adoption of NAREIT's current
definition of FFO.
IMPACT OF CHANGE IN ACCOUNTING POLICY
AND THE CURRENT NAREIT FFO DEFINITION
(Dollars in thousands except per share data)
Year Ended December 31, 1995
With Current With Current
NAREIT NAREIT FFO
Year Ended As FFO definition and
December 31, 1996 Reported definition capital policy
----------------- -------- ------------ --------------
Net income before $ 17,473 $ 12,307 $ 12,307 $ 12,307
minority interest
Change for
capitalization policy
as if in effect at
January 1, 1995 N/A N/A N/A 1,243
Additional depreciation
due to change in
capitalization policy N/A N/A N/A (249)
-------- -------- -------- ---------
Adjusted net income
before minority
interest $ 17,473 $ 12,307 $ 12,307 $ 13,301
Preferred dividend
distribution 990 - - -
Gain on disposition
of properties 2,185 - - -
Depreciation and
amortization of:
Real estate assets 21,288 16,470 16,470 16,719
Non-real estate assets - 104 - -
Deferred financing costs - 593 - -
-------- -------- -------- --------
FFO $ 35,586 $ 29,474 $ 28,777 $ 30,020
======== ======== ======== ========
FFO per share and common unit $ 2.65 $ 2.40 $ 2.34 $ 2.44
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED
DECEMBER 31, 1995
During the 1996 period, the Company acquired six apartment
communities and sold three apartment communities. The total number
of apartment units owned at December 31, 1996 was 19,280 in 73
apartment communities, compared to 18,219 in 70 communities at
December 31, 1995. Average monthly rental per apartment unit
increased to $529 at December 31, 1996 from $508 at December 30,
1995. Average occupancy for the years ended December 31, 1996 and
1995 was 95.4% and 95.2%, respectively.
Total revenues for 1996 increased by approximately $16,919,000, due
primarily to (i) approximately $4,833,000 from the six Communities
acquired in 1996, (ii) approximately $7,156,000 from a full years
operation of the 15 Communities acquired in 1995, including the
Communities acquired in the AFR Merger, (iii) approximately
$4,363,000 from the Communities owned throughout both periods, and
(iv) approximately $567,000 from The Woods at Post House in
Jackson, Tennessee which completed development in the Fall of 1995.
Property operating expenses for 1996 increased by approximately
$4,616,000, due primarily to (i) approximately $1,686,000 from the
six Communities acquired in 1996, (ii) approximately $2,746,000
from a full years operations of the 15 Communities acquired in 1995,
including the Communities acquired in the AFR Merger, and (iii)
approximately $234,000 from The Woods at Post House in Jackson,
Tennessee which completed development in the Fall of 1995. These
increases were offset by a decrease of approximately $51,000 from
the Communities owned throughout both periods. Repair and
maintenance expense decreased primarily due to the change in the
capitalization policy described above. Utility costs decreased from
6.1% of revenue to 5.5% of revenue for the year ended December 31,
1996 compared to the same period a year earlier, due primarily to
the installation of 6,400 individual apartment unit water meters and
the completion of the individual apartment unit electricity metering
at Sailwinds at Lake Magdalene.
13
15
General and administrative expense increased in 1996 approximately
$1,303,000 primarily due to the opening of the new training center
and other expenses due to the continued growth of the company.
Depreciation and amortization expense increased primarily due to (i)
approximately $893,000 from the six apartment communities acquired
in 1996, (ii) approximately $1,346,000 from the 15 apartment
communities acquired in 1995, including the Communities acquired in
the AFR Merger, (iii) approximately $2,187,000 from additional
capital expenditures on Communities owned throughout both periods,
and (iv) approximately $443,000 from The Woods at Post House in
Jackson, Tennessee which completed development in the Fall of 1995.
Amortization of deferred financing costs and unamortized costs in
excess of fair value of net assets acquired for 1996 were
approximately $661,000 and approximately $192,000, respectively.
Interest expense increased approximately $3,082,000 during 1996 due
primarily to apartment acquisitions. The Company reduced the average
borrowing cost to 7.92% at December 31, 1996 as compared to 8.15% on
December 31, 1995. The average maturity on the Company's debt was
9.9 years at both December 31, 1996 and 1995.
In 1996, the Company recorded an approximate $2,185,000 gain for the
disposition of three apartment communities. As a result of the
foregoing, income before minority interest for the year ended
December 31, 1996 increased approximately $5,166,000 over the same
period a year earlier.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED
DECEMBER 31, 1994 (THE COMPANY AND ITS PREDECESSOR)
The total number of apartment units owned at December 31, 1995 was
18,219 in 70 apartment communities, compared to 14,333 in 54
communities at December 31, 1994. Average monthly rental per
apartment unit increased to $508 for 1995 from $482 for 1994.
Average occupancy for 1995 and 1994 was 95.2% and 95.5%,
respectively.
For the 10,268 apartment units owned on December 31, 1995 and 1994,
average occupancy increased to 95.4% as compared to 92.8%,
respectively, and the average monthly rental per apartment unit
increased for this same period 6.2% to $499 from $470.
Total revenues for 1995 increased by approximately $43,756,000, due
primarily to (i) approximately $13,966,000 from the 15 apartment
communities acquired, including the Communities acquired in the AFR
Merger, (ii) approximately $28,348,000 from a full year's operation
of 32 Communities acquired in 1994, and (iii) approximately
$1,442,000 from the Communities owned throughout both periods. In
addition, the Company completed the development of The Woods at Post
House in Jackson, Tennessee in the Fall of 1995.
Property operating expenses increased by approximately $18,470,000
over 1994. The increase primarily resulted from (i) approximately
$5,514,000 of operating expense from the 15 apartment communities
acquired in 1995, including the Communities acquired in the AFR
Merger, (ii) approximately $12,243,000 for full year's operation of
the 32 Communities acquired in 1994, and (iii) approximately
$713,000 from the apartment communities owned throughout both
periods. As a percentage of revenue, property operating expenses
increased to 40.0% from 38.1% for the year ended December 31, 1995
and 1994, respectively. The 5,176 apartment units owned in the
states of Florida and Texas acquired during 1994 and 1995 account
for a 2.5% increase in the expense ratio. As anticipated in the
acquisition forecasts, these apartment units have been more
expensive to operate than the balance of the Communities. During
1995, approximately $1,374,000 was expensed for replacement of
appliances and carpets compared to approximately $888,000 for 1994.
General and administrative expenses decreased to 5.1% of revenues
for 1995 from 7.1% for 1994 as a result of increased efficiencies
from the economies of scale.
14
16
Depreciation and amortization expense increased primarily due to (i)
an increase of approximately $2,017,000 from the 15 apartment
communities acquired during 1995 and (ii) an increase of
approximately $5,390,000 for a full year's operation of 32 apartment
communities acquired during 1994. Amortization of deferred financing
costs and unamortized costs in excess of fair value of net assets
acquired for 1995 were approximately $593,000 and approximately
$186,000, respectively.
Interest expense increased approximately $12,451,000 during 1995 due
to apartment communities acquired during the year as well as a full
year of operation for Communities acquired in 1994. The Company
reduced the average borrowing cost to 8.15% at December 31, 1995 as
compared to 8.45% on December 31, 1994. The average maturity on the
Company's debt increased to 9.9 years from 8.7 years at December 31,
1995 and 1994, respectively.
As a result of the foregoing, income before minority interest and
extraordinary items in 1995 increased by approximately $3,529,000
over 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities increased from
approximately $34,289,000 for the year ended December 31, 1995 to
approximately $38,018,000 for the year ended December 31, 1996. The
increase in net cash flow was primarily due to an increase in net
income, depreciation and amortization, and accrued expenses and
liabilities. This increase in net cash flow provided by operating
activities was offset by an increase in restricted cash due to an
increase in tax-exempt bond financing requiring additional cash
reserves and increases in other mortgage escrows and replacement
reserves and the gain recorded for the disposition of three
apartment communities.
Net cash flow used in investing activities increased from
approximately $39,167,000 for the year ended December 31, 1995 to
approximately $70,436,000 for the year ended December 31, 1996. The
increase was primarily due to the acquisition of 1,760 apartment
units in 1996 for approximately $66,258,000 as compared to the
acquisition of 520 apartment units in 1995 for approximately
$15,561,000. This increase in net cash flow used in investing
activities was offset by the sale of three apartment communities in
1996 for approximately $17,096,000. Capital improvements to existing
properties totaled approximately $18,437,000 for the year ended
December 31, 1996, compared to approximately $19,233,000 for the
same period in 1995. Of the $18,437,000 capital improvements
approximately $6,979,000 was for recurring capital expenditures,
including carpet and appliances, approximately $5,896,000 was for
revenue enhancing projects, approximately $4,774,000 was for
acquisition capital with the remaining balance for other
miscellaneous spend, including corporate. For the stabilized
apartment units, recurring capital expenditures averaged $413 per
apartment unit. Construction in progress for new apartment units
decreased from approximately $5,692,000 for the year ended December
31, 1995 to approximately $2,837,000 for the comparable period in
1996, due primarily to the completion of the 122-unit development in
Jackson, Tennessee which began leasing during the third quarter of
1995.
Net cash flow provided by financing activities increased from
approximately $2,944,000 during the year ended December 31, 1995 to
approximately $33,425,000 for the year ended December 31, 1996.
During 1996, approximately $29,407,000 was provided by borrowings
under the Credit Line and notes payable and approximately
$47,768,000 was provided from the issuance of preferred shares. The
principal uses of the cash included approximately $14,427,000 for
the repayment of notes payable and approximately $28,302,000 for
dividends and distributions.
15
17
At December 31, 1996, the Company had approximately $30,405,000
outstanding on the Credit Line. At December 31, 1996, the Company
had approximately $47,243,000 (including the Credit Line) of
floating rate debt at an average interest rate of 6.9%; all other
debt was fixed rate term debt at an average interest rate of 8.1%.
The weighted average interest rate and weighted average maturity at
December 31, 1996 for the approximately $315,239,000 of notes
payable were 7.9% and 9.9 years, respectively. The Company used the
approximately $47,768,000 of net proceeds from the Preferred Stock
Offering, which closed in October, for the acquisitions of Napa
Valley Apartments and Tiffany Oaks Apartments and used the balance
to reduce the amount outstanding on the Credit Line. In December
1996, the Company increased its credit limit under the Credit Line
from $65,000,000 to $90,000,000 and expects to use the Credit Line
for future acquisitions, development, and to provide letters of
credit as credit enhancements for tax-exempt bonds. In addition, in
March 1997 the Company issued 2,300,000 shares of Common Stock in an
underwritten public offering. The net proceeds from such offering
were approximately $62.4 million, all of which were contributed to
the Operating Partnership and utilized to repay outstanding
borrowings under the Credit Line. The Credit Line is unsecured and
is subject to borrowing base calculations that effectively reduce
the maximum amount that may be borrowed under the Credit Line to
approximately $87,000,000 as of the date of this Annual Report on
Form 10-K.
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 Code.
Capital expenditures on property improvements and expansion projects
for 1996 totaled approximately $21,274,000 with capital expenditures
of approximately $27,400,000 planned for 1997 for property
improvement and expansion projects. 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
and uncollateralized fixed rate borrowings, issuance of debt or
additional equity securities in the Company and the Credit Line.
INSURANCE
In the opinion of management, property and casualty insurance is in
place which 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 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.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
The 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 the plans and objectives
of management for future operations, including plans and objectives
relating to capital expenditures and rehabilitation costs on the
apartment communities. 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 Annual Report on Form 10-K 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.
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18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report, Consolidated Financial Statements
and Selected Quarterly Financial Information are set forth on pages
F-1 to F-20 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent
accountants and auditors on any matter of accounting principles or
practices or financial statement disclosure.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Charter divides the Board of Directors into three classes
as nearly equal in number as possible, with each class serving a term of
three years. One class of Directors is elected by the shareholders of the
Company at each annual meeting. The Board of Directors has set at seven
the number of directors constituting the full Board of Directors. The
current terms of two directors expire in this year, two expire in 1998
and three in 1999.
The Company's directors and executive officers are as follows:
Name Position Class Term Expires
- -------------------- ------------------------------- --------- ------------
George E. Cates Chief Executive Officer and Class III 1997
Chairman of the Board
of Directors
H. Eric Bolton, Jr. President, Chief Operating Class II 1999
Officer and Director
Simon R.C. Wadsworth Executive Vice President, Chief Class III 1997
Financial Officer and Director
John J. Byrne, III Independent Director Class I 1998
Robert F. Fogelman Independent Director Class I 1998
O. Mason Hawkins Independent Director Class II 1999
Michael B. Yanney Independent Director Class II 1999
The following is a biographical summary of the experience of the
directors and executive officers of the Company:
GEORGE E. CATES. Mr. Cates is the Chief Executive Officer and
Chairman of the Board of Directors of the Company, positions he has
held since the Company's inception. Mr. Cates founded The Cates
Company in 1977 and served as its president and chief executive
officer until its merger with the Company in February 1994. Mr.
Cates received a B.S. in industrial engineering from Georgia Tech.
From 1970 to 1977, Mr. Cates was a shareholder and general manager
of Walk Jones and Francis Mah, Inc., architects and engineers. Prior
to that, he served in a number of manufacturing, sales and marketing
positions with the Buckeye Cellulose division of Procter & Gamble.
Mr. Cates is past Chairman of the Board of Memphis Light, Gas and
Water Division, past president of the Memphis Apartment Council,
past Vice Chairman of the Memphis and Shelby County Airport
Authority and is currently a trustee of Rhodes College. Mr. Cates is
also a director of First Tennessee National Corporation. Mr. Cates
is 59 years old.
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H. ERIC BOLTON, JR. Mr. Bolton has been an employee of the Company
since 1994. Mr. Bolton joined the Company as its Vice-President of
Development and was named Chief Operating Officer in February 1996.
In December 1996, Mr. Bolton was appointed to serve as President of
the Company and was appointed as a member of the Board of Directors
of the Company in February 1997. Mr. Bolton has over 10 years of
real estate experience and prior to joining the Company was
Executive Vice President and Chief Financial Officer of Trammell
Crow Realty Advisors. He received a B.BA. in accounting from the
University of Memphis and an M.B.A. in finance and real estate from
the University of North Texas. Mr. Bolton is 40 years old.
SIMON R. C. WADSWORTH. Mr. Wadsworth is Executive Vice President,
Chief Financial Officer and a director of the Company. Mr. Wadsworth
joined the Company in March 1994, but acted as a consultant to the
Company from the time the Initial Offering was completed until being
named to his current positions. Mr. Wadsworth is the President and
85% shareholder of TMF, Inc., an industrial equipment dealership
which he acquired in 1981. Mr. Wadsworth spends less than two hours
per week on TMF, Inc. business, which is managed by professional
management. From 1976 to 1980, he was Director of Corporate
Development for Holiday Inns, Inc., and from 1973 to 1976 was Budget
Director for Royal Crown Companies. Mr. Wadsworth received a B.A.
with honors from Cambridge University and an M.B.A. (concentrating
in finance and accounting) from the Harvard Graduate School of
Business. Mr. Wadsworth is 49 years old.
JOHN J. BYRNE, III. Mr. Byrne has served as an independent director
of the Company since May 1995. Mr. Byrne founded Cirque Property
L.C., a real estate acquisitions and property management company
headquartered in Salt Lake City, Utah in 1986, and since that time
has served as its President and Managing Member. Mr. Byrne is 37
years old.
ROBERT F. FOGELMAN. Mr. Fogelman has served as an independent
director of the Company since July 1994 and has been President of
Fogelman Investment Company, a privately-owned investment firm for
more than five years. Mr. Fogelman received a B.S. degree in
Economics from the Wharton School of Finance and Commerce at the
University of Pennsylvania in 1958. Mr. Fogelman is 61 years old.
O. MASON HAWKINS. Mr. Hawkins has served as an independent director
of the Company since October 1993 and is Chairman and Chief
Executive Officer of Southeastern Asset Management, Inc., a
registered investment advisor co-founded by Mr. Hawkins in 1975 and
presently having over $8 billion of assets under management. He is
also a director of Longleaf Partners Funds, a registered investment
company of which Southeastern Asset Management, Inc. serves as
investment advisor. Mr. Hawkins received a B.S.B.A. degree from the
University of Florida and a M.B.A. in Finance from the University of
Georgia. He was a research analyst for Atlantic National Bank from
1972 to 1973, serving as Director of Research in 1973, and was a
research analyst for First Tennessee Investment Management from 1974
to 1975, serving as Director of Research in 1975. He is a Chartered
Financial Analyst. Mr. Hawkins is 49 years old.
MICHAEL B. YANNEY. Mr. Yanney has served as an independent director
of the Company since the consummation of the AFR Merger in June
1995. Mr. Yanney served as Chairman and Chief Executive Officer of
America First Companies since 1984. From 1977 until 1984, Mr. Yanney
was principally engaged in the ownership and management of
commercial banks. He is also a director of Burlington Northern Inc.,
Forest Oil Corporation, MFS Communications Company, Inc. and Lozier
Corporation. Mr. Yanney is 63 years old.
18
20
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table.
Annual Compensation Long Term Compensation
----------------------------------- -----------------------
Other Restricted
Annual Stock
Name and Position Year Salary($) Bonus($) Compensation($) Awards($) Options(#)
- ----------------- ---- --------- -------- --------------- ---------- ----------
George E. Cates 1996 $255,137 $-- $-- $-- 25,000
Chairman, Chief 1995 257,500 67,500 -- -- --
Executive Officer 1994 225,000 -- -- -- 90,000
and Director
H. Eric Bolton 1996 136,670 15,770 -- -- 15,000
President, Chief 1995 108,400 20,800 -- -- 12,500
Operating Officer 1994 56,042 -- -- -- 2,500
and Director
Simon R. C. Wadsworth 1996 135,187 -- -- -- 10,000
Executive Vice 1995 131,400 36,000 -- -- 2,500
President, Chief 1994 120,000 -- -- -- 30,000
Financial Officer
and Director
Option Grants during the year ending December 31, 1996. The following
table provides information on option grants during the year ending
December 31, 1996 to the executive officers listed in the table above.
Individual Grants
----------------- Potential Realization
% of Total Value at
Options Assumed Rates of
Granted to Annual Stock Price
Employees Exercise Appreciation for
Options in Price Expiration Option Term
Name Granted Fiscal Year ($/Share) Date 5% 10%
- --------------------- ------- ----------- --------- ---- ---- -----
George E. Cates 25,000 27.0% $26.50 2/14/06 $416,643 $1,055,854
H. Eric Bolton 15,000 16.2% $26.50 2/14/06 $250,136 $633,513
Simon R. C. Wadsworth 10,000 10.8% $26.50 2/14/06 $166,657 $422,342
19
21
Aggregated Option Exercises through December 31, 1996. The following
table provides information on options held by the executive officers
listed above through December 31, 1996, and the value of each of their
unexercised options at December 31, 1996. There were no stock options
exercised in 1996.
Number of Shares
Exercised Options Underlying Value of Unexercised
----------------- Unexercised In-the-Money
Shares Options Options (1)
acquired Value Exercisable/ Exercisable/
Name on exercise Realized Unexercisable Unexercisable
- --------------------- ----------- -------- ---------------- --------------------
George E. Cates -- -- 26,000 / 79,000 $237,250 / $552,125
H. Eric Bolton -- -- 3,500 / 26,500 $13,500 / $79,313
Simon R. C. Wadsworth -- -- 12,500 / 30,000 $67,875 / $130,250
__________
(1) Based upon the closing price of the Company's Common Stock on the
NYSE on December 31, 1996 of $28.875 per share.
Compensation of Directors
Directors who are employees of the Company or one of its subsidiaries do
not receive additional remuneration as directors. In 1994, the Company's
three initial independent directors were each awarded 2,500 shares of
Common Stock for their services as director. The directors' rights in the
Common Stock vest at the rate of 500 shares per year beginning in 1994.
Each director is entitled to receive the distributions paid on his shares
of Common Stock prior to vesting. Directors who cease to be directors
will forfeit any shares not previously vested prior to the termination of
that person's service on the board of directors. Mr. Yanney currently
receives $15,000 per year as compensation for his service on the board of
directors. Any independent directors elected to the board in the future
will be paid annual compensation of $15,000. In 1996, each independent
director was awarded options to acquire 1,000 shares of stock and
committee chairmen were awarded an additional 1,000 options.
General
The Compensation Committee of the Board of Directors is composed of
independent Directors. In 1996, it was composed of John J. Byrne, III,
Robert F. Fogelman, O. Mason Hawkins, and Michael B. Yanney. The
Compensation Committee is responsible for developing and communicating
recommendations to the Board of Directors with respect to the Company's
executive compensation policies, and determines, pursuant to authority
delegated by the Board of Directors, the compensation (including stock
options) to be paid to the Chief Executive Officer and each of the other
executive officers of the Company.
The Company is at a relatively early stage of its development.
Consequently, the Compensation Committee does not believe it appropriate
to base its compensation decisions solely on traditional financial
measures of performance, including return on equity. Instead, the
Compensation Committee has evaluated performance based primarily on
growth in funds from operations per share, which industry analysts
consider to be the primary measure of performance for an equity REIT.
The Company's executive officer compensation program is comprised of base
salary, cash incentive bonus compensation, long-term incentive
compensation in the form of stock options, and various benefits,
including medical plans generally available to all employees of the
Company.
20
22
Base Salary
Base salary levels for the Company's executive officers together with
option grants and benefits are intended to be competitively set relative
to other REITs of comparable size and stage of development in the
Company's geographic area. In determining base salaries the Compensation
Committee also takes into account individual experience and performance
as well as specific issues relating to the Company.
Incentive Bonus Compensation
The Compensation Committee may periodically award bonuses to executives
in order to provide a direct financial incentive, in the form of a cash
bonus, to executives to achieve individual and Company objectives. The
amount of the bonus is determined based upon the Compensation Committee's
evaluation of each executive's performance and in accordance with
employment agreements with certain executives.
Amended and Restated 1994 Restricted Stock and Stock Option Plan
The 1994 Restricted Stock and Stock Option Plan (the "1994 Plan") is the
Company's long-term incentive plan for executive officers and other
selected employees. The objective of the program is to retain and
motivate executives to improve long-term stock performance. The
Compensation Committee has the authority, within limitations set forth in
the 1994 Plan, (i) to establish rules and regulations concerning the 1994
Plan, (ii) to determine the persons to whom Options and Restricted Stock
may be granted (iii) to fix the number of shares of Common Stock to be
covered by each Option and (iv) to set the terms and provisions of each
Option to be granted and the vesting schedule for Restricted Stock. Stock
options are generally granted at the prevailing market value and will
only have value if the Company's stock increases.
Non-Qualified Executive Deferred Compensation Plan
In August, 1995, the Compensation Committee adopted a non-qualified
deferred compensation plan for key employees who are not qualified for
participation in the Company's 401 (k) Savings Plan. Under the terms of
the plan, key employees may elect to defer a percentage of their
compensation and the Company matches a portion of their salary deferral
with similar provisions as apply for the Company's 401 (k) Savings Plan.
The plan is designed so that the employees' investment earnings under the
non-qualified plan should be the same as the earning assets in the
Company's 401 (k) Savings Plan.
Compensation of Chief Executive Officer
Mr. Cates' base salary was $255,000 for the year ended December 31, 1996.
On February 4, 1994 the Company entered into a five-year employment
agreement with Mr. Cates for an annual base compensation of $225,000,
subject to any increases in base compensation approved by the
Compensation Committee. The Compensation Committee considered the initial
annual base salary of Mr. Cates to be competitive with comparable REITs
in the Company's geographic area. The employment contract provides for
certain severance payments in the event of death or disability or upon
termination by the Company without cause or by the employee with cause.
The agreement contains a non-competition provision which prohibits Mr.
Cates, except as an officer or employee of the Company, from engaging
directly or indirectly in the acquisition, development, operation,
management, leasing or landscaping of any multifamily community. This
prohibition extends to all multifamily communities wherever located,
during the term of employment and to multifamily properties within 30
miles of any multifamily community owned by the Company after termination
of such employment.
21
23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF THE COMPANY'S COMMON STOCK
Security Ownership of Certain Beneficial Owners.
The following table sets forth information as of March 21, 1997,
regarding each person known to the Company to be the beneficial owner of
more than five percent of its Common Stock:
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class(1)
- ------------------------------------ -------------------- -------------------
Snyder Capital Management, Inc. 1,100,400 (2) 8.2%
350 California Street, Suite 1460
San Francisco, CA 94104-1436
__________
(1) Based on 13,404,398 shares of Common Stock outstanding on March 21, 1997.
(2) The information set forth is based on a Schedule 13G filed by Snyder
Capital Management, Inc. on February 14, 1997 that indicates that
beneficial ownership of 1,100,400 shares of Common Stock, of which it
has sole and dispositive power over 70,500 shares, shared voting power
over 934,800 shares and shared dispositive power over 1,029,900 shares.
Security Ownership of Management
The following table sets forth the beneficial ownership of the
Company's Common Stock as of March 21, 1997 by (i) each director, (ii)
each executive officer named in the Summary Compensation Table, and (iii)
all directors and executive officers as a group:
Amount and
Nature of Percent
Beneficial of
Name of Beneficial Owner Ownership Class(1)
- ------------------------ ------------- --------
Robert F. Fogelman 653,000 (2) 4.5 %
George E. Cates 588,122 (3) 4.1
O. Mason Hawkins 353,417 (4) 2.4
Michael B. Yanney 132,051 *
John J. Byrne, III 34,500 *
Simon R. C. Wadsworth 34,620 (5) *
H. Eric Bolton 13,317 (6) *
All Directors and Executive Officers
as a Group (7 Persons) 1,809,027 12.5 %
__________
(1) Based on 13,404,398 shares of Common Stock outstanding on March 21,
1997, plus, with respect to each listed person (or all listed
persons, as a group), the number of shares of Common Stock issuable
by the Company to such person or group in exchange for Common Units
in the Operating Partnership plus the number of shares of Common
Stock issuable to such person (or group) in respect of currently
exercisable options. The total number of shares used in calculating
this percentage assumes that none of the Common Units or exercisable
options held by other persons are redeemed for shares of Common
Stock.
(2) Includes 82,500 shares owned directly by Mr. Fogelman and 570,500
shares that Mr. Fogelman has the current right to acquire upon
redemption of Common Units.
22
24
(3) Includes 258,928 shares owned directly by Mr. Cates, 235,794 shares
that Mr. Cates has the current right to acquire upon redemption of
Common Units, 49,000 shares that Mr. Cates has the current right to
acquire upon the exercise of options that are currently exercisable
and 44,400 shares owned by the Company's ESOP over which Mr. Cates
shares voting power. Excludes 2,123 shares owned by Mr. Cates' wife,
over which Mr. Cates exercises no voting or investment power and
with respect to which Mr. Cates disclaims beneficial ownership.
(4) Includes 194,799 shares owned directly by Mr. Hawkins and 158,618
shares that Mr. Hawkins has the current right to acquire upon
redemption of Common Units.
(5) Includes 21,000 shares that Mr. Wadsworth has the current right to
acquire upon the exercise of options that are currently exercisable.
(6) Includes 9,000 shares that Mr. Bolton has the current right to
acquire upon the exercise of options that are currently exercisable.
* Represents less than 1% of total.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases office space from a partnership which owns the
building where the Company's principal office is located. Mr. Cates has a
6.9% and Mr. Wadsworth a 4.2% interest in such partnership. The Company
paid approximately $107,400 in rent, or $14.20 per average square foot
(including concessions), for such office space during 1996, and has lease
obligations of $616,800 for the remaining lease term. The Company
believes the rental rate is a competitive rate for buildings in the area
of Memphis in which the Company's headquarters are located.
All transactions involving related parties must be approved by a majority
of the disinterested members of the Company's Board of Directors. The
Company has, and expects to have, transactions in the ordinary course of
its business with directors and officers of the Company and their
affiliates, including members of their families or corporations,
partnerships or other organizations in which such officers or directors
have a controlling interest, on substantially the same terms (including
price, or interest rates and collateral) as those prevailing at the time
for comparable transactions with unrelated parties.
23
25
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
1. Independent Auditors' Report F - 1
Consolidated Balance Sheets as of December 31, F - 2
1996 and 1995
Consolidated Statements of Operations for the
years ended F - 3
December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity
for the years ended F - 4
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the
years ended F - 5
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements for F - 6
the years ended
December 31, 1996, 1995 and 1994
2. Financial Statement Schedule required to be filed
by item 8 and Paragraph (d) of this item 14:
Independent Auditors' Report F - 16
Schedule III - Real Estate Investments and
Accumulated Depreciation as of F - 17
December 31, 1996
3. The exhibits required by Item 601 of Regulation S-K, except as
otherwise noted, have been filed with previous reports by the
registrant and are herein incorporated by reference.
Exhibit
Number Exhibit
- ------- --------------
3.1* Amended and Restated Charter of Registrant
3.2 Articles of Amendment to the Charter of Registrant
dated January 28, 1994
3.3 Articles of Merger of America First REIT Advisory
Company with and into the Registrant
3.4** Articles of Amendment to the Amended and Restated
Charter of Registrant Designating and Fixing the Rights
and Preferences of A Series of Shares of Preferred Stock
3.5* Bylaws of the Registrant
4.1* Form of Common Share Certificate
4.2** Form of Series A Preferred Stock Certificate
4.3** Articles of Amendment to the Amended and Restated
Charter of Registrant Designating and Fixing the Rights
and Preferences of A Series of Shares of Preferred Stock
10.1* First Amended and Restated Agreement of Limited
Partnership of the Operating Partnership
10.2 Amendment No. 1 to the First Amended and Restated
Agreement of Limited Partnership of the Operating
Partnership dated as of June 28, 1994
10.3 Amendment No. 2 to the First Amended and Restated
Agreement of Limited Partnership of the Operating
Partnership dated as of February 24, 1996
10.4 Amendment No. 3 to the First Amended and Restated
Agreement of Limited Partnership of the Operating
Partnership dated as of October 10, 1996
10.5 Amendment No. 4 to the First Amended and Restated
Agreement of Limited Partnership of the Operating
Partnership dated December 10, 1996, but effective as
of February 24, 1996
10.6* Supplemental Agreement with Respect to Transfer of
Property and Delivery of Guaranty
10.7* Employment Agreement (George E. Cates)
10.8* 1994 Restricted Stock and Stock Option Plan
24
26
10.9* Indemnity Agreement and Agreement to Make Capital
Contribution
10.10* Supplemental Representations and Warranties Agreement
10.11*** Promissory Note of the Operating Partnership in favor
of Leader Federal Bank for Savings (McKellar)
10.12*** Promissory Note of the Operating Partnership in favor
of Leader Federal Bank for Savings (Park Estate)
10.13*** Promissory Note of the Operating Partnership in favor
of Leader Federal Bank for Savings (Greenbrook)
10.14*** Promissory Note of the Operating Partnership in favor
of Leader Federal Bank for Savings (Cedar Mill)
10.15*** Assignment of Rents and Leases by the Operating
Partnership in favor of Leader Federal Bank for Savings
(McKellar, Park Estate, Greenbrook, Cedar Mill)
10.16***** Agreement and Plan of Merger among the Registrant, AFRI
Merger Sub, Inc., America First REIT Advisory Company
and America First REIT, Inc. dated as of February 24, 1995
10.17****** Agreement and Plan of Merger between the Registrant,
America First Companies, L.L.C. and America First REIT
Advisory Company dated as of February 24, 1995
10.18 Revolving Credit Agreement between the Registrant and
AmSouth Bank of Alabama
10.19 Amendment No. 1 to Revolving Credit Agreement between
the Registrant and AmSouth Bank of Alabama
23.1 Consent of KPMG Peat Marwick LLP
23.2 Opinion of KPMG Peat Marwick LLP on Schedule III (included
in F pages of this Form 10-K)
- -----------------------
* Previously filed as an exhibit to the Registration
Statement on Form S-11 (SEC File No. 33-69434), as amended,
of the Registrant and incorporated herein by reference.
** Previously filed as an exhibit to the Registration
Statement on Form 8-A
*** Previously filed as an exhibit to the Registration
Statement on Form S-11 (SEC File No. 33-81970), as amended,
of the Registrant and incorporated herein by reference.
**** Previously filed as an exhibit to the Current Report of
the Registrant on Form 8-K as of December 3, 1994
***** Previously filed as an exhibit to the Current Report of
the Registrant on Form 8-K as of March 3, 1995
****** Previously filed as an exhibit to the 1994 Annual Report
of the Registrant on Form 10-K as of March 30, 1995
(b) Reports on Form 8-K
The following report was filed on Form 8-K by the
registrant during the fourth quarter of 1996:
Date of
Form Events Reported Report
---- ----------------------------------------- -----------
8-K 98.1% occupancy achieved 10/15/96
8-K Announcement of Preferred Stock Offering
with exhibit of Underwriting Agreement 10/15/96
8-K Announcement of declaration for third
quarter common stock dividend.
Announcement of plans to file a Dividend
Reinvestment and Direct Stock Purchase Plan. 10/15/96
8-K Announcement of an apartment community
disposition and acquisition. 12/18/96
8-K Announcement of apartment community
acquisition. 12/26/96
(c) Exhibits:
See Item 14(a)(3) above.
(d) Financial Statement Schedules:
See Item 14(a)(2) above.
25
27
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: March 25, 1997 /s/ George E. Cates
------------------- ----------------------------
George E. Cates
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on
the dates indicated.
Date: March 25, 1997 /s/ George E. Cates
------------------ ----------------------------
George E. Cates
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: March 25, 1997 /s/ Simon R.C. Wadsworth
------------------ ----------------------------
Simon R.C. Wadsworth
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 26, 1997 /s/ H. Eric Bolton
----------------- ----------------------------
H. Eric Bolton
President and Chief Operating Officer
Date:_________________ ______________________________
John J. Bynre, III
Director
Date: March 26, 1997 /s/ Robert F. Fogelman
----------------- ------------------------------
Robert F. Fogelman
Director
Date: March 26, 1997 /s/ O. Mason Hawkins
----------------- ------------------------------
O. Mason Hawkins
Director
Date:_________________ ______________________________
Michael B. Yanney
Director
26
28
Independent Auditors' Report
The Board of Directors and Shareholders
Mid-America Apartment Communities, Inc.
We have audited the accompanying consolidated balance sheets of Mid-
America Apartment Communities, Inc. (the "Company") as of December 31,
1996 and 1995 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-
year period ended December 31, 1996. These financial statements are the
responsibility of the management of the Company. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financials statements referred to above present
fairly, in all material respects the financial position of the Company at
December 31, 1996 and 1995, and the results of the Company's operations
and cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, the
Company changed its accounting method to capitalize replacement
purchases for major appliances and carpet in 1996.
KPMG Peat Marwick LLP
Memphis, Tennessee
February 14, 1997
F - 1
29
Mid-America Apartment Communities, Inc.
Consolidated Balance Sheets
December 31, 1996 and 1995
(Dollars in thousands)
1996 1995
------ ------
Assets:
Real estate assets (note 3):
Land $ 61,150 $ 57,456
Buildings and improvements 563,584 507,586
Furniture, fixtures and equipment 12,511 9,916
Construction in progress 4,648 3,830
--------- ---------
641,893 578,788
Less accumulated depreciation (49,558) (29,504)
--------- ---------
Real estate assets, net 592,335 549,284
Cash and cash equivalents 4,053 3,046
Restricted cash 5,538 4,118
Deferred financing costs, net 2,984 2,225
Other assets 6,289 6,594
--------- ----------
Total assets $ 611,199 $ 565,267
========= ==========
Notes payable (note 3) $ 315,239 $ 307,939
Accounts payable 744 1,403
Accrued expenses and other liabilities 12,182 10,146
Security deposits 2,412 2,452
--------- ----------
Total liabilities 330,577 321,940
Minority interest 39,238 41,049
Commitments and contingencies (note 6) - -
Shareholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
2,000,000 shares at 9.5% Series A
Cumulative Preferred Stock
Liquidation Preference $25 per share,
issued and outstanding 20 -
Common stock, $.01 par value
(authorized 20,000,000 shares;
issued and outstanding 10,949,216
and 10,936,832 shares at December 31,
1996 and 1995, respectively 109 109
Additional paid-in capital 256,689 208,670
Unearned compensation (260) (381)
Accumulated deficit (15,174) (6,120)
--------- ---------
Total shareholders' equity 241,384 202,278
--------- ---------
Total liabilities and shareholders'
equity $ 611,199 $ 565,267
========= =========
See accompanying notes to consolidated financial statements.
F - 2
30
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands except per share data)
1996 1995 1994
---- ---- ----
Revenues:
Rental $ 110,090 $ 93,509 $ 50,181
Other 1,792 1,454 1,026
---------- --------- ---------
Total revenues 111,882 94,963 51,207
Expenses:
Personnel 11,702 9,798 5,145
Building repairs and maintenance 5,305 5,791 3,048
Real estate taxes and insurance 11,642 10,198 5,322
Utilities 6,148 5,753 2,526
Landscaping 2,910 2,361 1,294
Other operating 4,863 4,053 2,149
Depreciation and amortization
real estate assets 21,288 16,470 8,747
Depreciation and amortization
non-real estate assets 155 104 56
General and administrative 6,154 4,851 3,613
Interest 25,766 22,684 10,233
Amortization of deferred financing costs 661 593 296
--------- --------- ---------
Total expenses 96,594 82,656 42,429
Income before gain on disposition of
properties, minority interest in
operating partnership income and
extraordinary item 15,288 12,307 8,778
Gain on disposition of properties 2,185 - -
--------- --------- ---------
Income before minority interest in
operating partnership income and
extraordinary item 17,473 12,307 8,778
Minority interest in operating
partnership income 3,213 2,497 2,319
--------- --------- ---------
Net income before extraordinary item 14,260 9,810 6,459
Gain on extinguishment of debt (note 3) - - 485
--------- --------- ---------
Net income 14,260 9,810 6,944
Dividends on preferred shares 990 - -
---------- --------- ---------
Net income available for common
shareholders $ 13,270 $ 9,810 $ 6,944
========== ========= =========
Net income available per common share (note 1):
- ------------------------------------------------
Before extraordinary items $ 1.21 $ 1.00 $ 0.94
Extraordinary items - - 0.07
---------- --------- ---------
Net income available per common share $ 1.21 $ 1.00 $ 1.01
========== ========= =========
See accompanying notes to consolidated financial statements.
F - 3
31
Mid-America Apartment Communities, Inc.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
(Dollars and shares in thousands)
Preferred Stock Common Stock
------------------- ------------------
Shares Amount Shares Amount
PARTNERS' AND OWNERS' DEFICIT,
DECEMBER 31, 1993 - $ - - $ -
Capital contributions (prior to IPO) - - - -
Capital distributions (prior to IPO) - - - -
Net proceeds of IPO, private placement and
shares issued in exchange for interests
in entities included in the Predecessor - - 5,154 52
Shares issued to Employee Stock Option Plan
at the IPO date - - 22 -
Restricted shares issued to directors - - 10 -
Acquisition of interests in non-controlled
entities included in the Predecessor
or where cash consideration was involved - - - -
Adjustment for minority interest of unitholders
in Operating Partnership at the IPO date - - - -
Net proceeds of secondary offering - - 3,393 34
Adjustment for minority interest of unitholders
in Operating Partnership at date of
secondary offering - - - -
Amortization of unearned compensation - - - -
Dividends on common stock ($1.21 per share) - - - -
Net income - - - -
--------- -------- --------- ----------
SHAREHOLDERS' EQUITY DECEMBER 31, 1994 - $ - 8,579 $ 86
Issuance of common shares - - 5 -
Exercise of stock options - - 10 -
Shares issued in exchange for units - - 12 -
Shares issued in AFR Merger - - 2,331 23
Amortization of unearned compensation - - - -
Dividends on common stock ($2.00 per share) - - - -
Net income - - - -
---------- --------- --------- ----------
SHAREHOLDERS' EQUITY DECEMBER 31, 1995 - $ - 10,937 $ 109
Issuance of common shares - - 11 -
Issuance of preferred shares 2,000 20 - -
Exercise of stock options - - -
Shares issued in exchange for units - - 1 -
Amortization of unearned compensation - - - -
Dividends on common stock ($2.04 per share) - - - -
Dividends on preferred stock ($0.495 per share) - - - -
Net income - - - -
---------- ---------- --------- ----------
SHAREHOLDERS' EQUITY DECEMBER 31, 1996 2,000 $ 20 10,949 $ 109
========== ========== =========
See accompanying notes to consolidated financial statements.
Additional Accumulated
Paid-In Unearned Earnings
Capital Compensation (Deficit) Total
---------- ------------ ----------- ----------
PARTNERS' AND OWNERS' DEFICIT,
DECEMBER 31, 1993 $ - $ - $ (4,684) $ (4,684)
Capital contributions (prior to IPO) - - 73 73
Capital distributions (prior to IPO) - - (2,257) (2,257)
Net proceeds of IPO, private placement and
shares issued in exchange for interests
in entities included in the Predecessor 88,433 - (3) 88,482
Shares issued to Employee Stock Option Plan
at the IPO date 445 (445) - -
Restricted shares issued to directors 211 (211) - -
Acquisition of interests in non-controlled
entities included in the Predecessor
or where cash consideration was involved 24,737 - 12,100 36,837
Adjustment for minority interest of unitholders
in Operating Partnership at the IPO date (36,463) - (1,797) (38,260)
Net proceeds of secondary offering 78,958 - - 78,992
Adjustment for minority interest of unitholders
in Operating Partnership at date of
secondary offering (5,886) - - (5,886)
Amortization of unearned compensation - 114 - 114
Dividends on common stock ($1.21 per share) - - (7,970) (7,970)
Net income - - 6,944 6,944
---------- --------- ----------- ------------
SHAREHOLDERS' EQUITY DECEMBER 31, 1994 $ 150,435 $ (542) $ 2,406 $ 152,385
Issuance of common shares 106 37 - 143
Exercise of stock options 203 - - 203
Shares issued in exchange for units 200 - - 200
Shares issued in AFR Merger 57,726 - - 57,749
Amortization of unearned compensation - 124 - 124
Dividends on common stock ($2.00 per share) - - (18,336) (18,336)
Net income - - 9,810 9,810
---------- --------- ----------- ------------
SHAREHOLDERS' EQUITY DECEMBER 31, 1995 $ 208,670 $ (381) $ (6,120) $ 202,278
Issuance of common shares 277 - - 277
Issuance of preferred shares 47,748 - - 47,768
Exercise of stock options (2) - - (2)
Shares issued in exchange for units (4) - - (4)
Amortization of unearned compensation - 121 - 121
Dividends on common stock ($2.04 per share) - - (22,324) (22,324)
Dividends on preferred stock ($0.495 per share) - - (990) (990)
Net income - - 14,260 14,260
---------- --------- ----------- ------------
SHAREHOLDERS' EQUITY DECEMBER 31, 1996 $ 256,689 $ (260) $ (15,174) $ 241,384
========== ========= =========== ============
See accompanying notes to consolidated financial statements.
F - 4
32
Mid-America Apartment Communities, Inc.
Consolidated Statements of Cash Flow
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
------------------------------------
Net income $ 14,260 $ 9,810 $ 6,944
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 22,243 17,291 9,213
Minority interest in operating partnership income 3,213 2,497 2,319
Extraordinary item - - (485)
Gain on disposition of properties (2,185) - -
Changes in assets and liabilities, net
of effect from business combination:
Restricted cash (1,420) 6,333 (2,575)
Other assets (95) (1,154) (670)
Accounts payable 6 (77) 630
Accrued expenses and other liabilities 2,036 (358) 4,793
Security deposits (40) (53) 1,421
-------- -------- --------
Net cash provided by operating activities 38,018 34,289 21,590
Cash flows from investing activities:
------------------------------------
Purchases of real estate assets (66,258) (15,561) (217,310)
Proceeds from dispositions of real estate assets 17,096 - -
Improvements to properties (18,437) (19,233) (6,557)
Construction of units in progress (2,837) (5,692) (3,879)
Net cash acquired from business combination - 1,319 -
-------- -------- --------
Net cash used in investing activities (70,436) (39,167) (227,746)
Cash flows from financing activities:
------------------------------------
Proceeds from notes payable 17,049 19,256 129,034
Net increase in credit line 12,358 18,047 -
Principal payments on notes payable (14,427) (10,928) (65,975)
Deferred financing costs (1,256) (484) (2,459)
Proceeds from issuances of preferred shares 47,768 - -
Proceeds from issuances of common shares 271 346 167,474
Redemption of unitholder interests (36) (43) (6,844)
Capital contributions (Predecessor) - - 73
Capital distributions (Predecessor) - - (2,257)
Distributions to unitholders (4,988) (4,914) (2,977)
Dividends paid on common shares (22,324) (18,336) (7,970)
Dvidends paid on preferred shares (990) - -
--------- -------- --------
Net cash provided by financing activities 33,425 2,944 208,099
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,007 (1,934) 1,943
Cash and cash equivalents, beginning of period 3,046 4,980 3,037
--------- -------- --------
Cash and cash equivalents, end of period $ 4,053 $ 3,046 $ 4,980
========= ======== ========
Supplemental disclosure of cash flow information:
------------------------------------------------
Interest paid $ 25,262 $ 22,362 $ 9,968
Supplemental disclosure of noncash investing activities:
-------------------------------------------------------
Increase in basis of properties acquired in
connection with the formation transaction - - $ 41,147
Assumption (transfer) of debt related to
property acquisitions (dispositions) $ (7,680) - $ 62,886
Conversion of units for common shares - $ 200 -
See accompanying notes to consolidated financial statements.
F - 5
33
Mid-America Apartment Communities, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994
1. Organization and Summary of Significant Accounting Policies
Organization and Formation of the Company
Mid-America Apartment Communities, Inc. (the "Company") is a Memphis,
Tennessee based self-administered and self-managed real estate
investment trust which at December 31, 1996 owns and operates 73
apartments with 19,280 units in 12 states. The Company completed an
initial public offering (the "IPO") and private placement of shares on
February 4, 1994. Net proceeds were used to acquire a general
partnership interest in Mid-America Apartments, L.P. ( the "Operating
Partnership") which was formed to succeed substantially all of the
interests in MAC Properties Group, (predecessor to the Company,
"Predecessor"). The Company's business is conducted principally through
the Operating Partnership. The Company completed a second public offering
on August 26, 1994 and completed a merger with America First REIT, Inc.
and America First REIT Advisory Company on June 30, 1995.
Basis of Presentation
The accompanying 1996 and 1995 financial statements include the accounts
of the Company, the Operating Partnership, and other subsidiaries.
The 1994 financial statements include the accounts of the Company and
Operating Partnership from February 4, 1994 (the "IPO date") through
December 31, 1994 and the accounts of the Predecessor for the period
January 1, 1994 through the IPO date. All significant intercompany
accounts and transactions have been eliminated in consolidation.
As part of the formation transaction, purchase accounting was applied to
the acquisition of all non-controlled interests and interests in which
cash consideration was paid. This resulted in an increase of $41,147,000
in the historical cost basis of the related real estate assets. The
acquisition of all other interests was accounted for as a reorganization
of entities under common control and, accordingly, was reflected at
historical cost in a manner similar to that used in pooling of interests
accounting.
Minority Interest
Minority interest in the accompanying consolidated financial statements
relates to the unitholders' ownership interest in the Operating
Partnership. The Company is the sole general partner of the Operating
Partnership. The consolidated financial statements of the Company for the
periods ending after the IPO have been adjusted for the minority interest
in the Operating Partnership based on the weighted average shares of the
Company plus partnership units outstanding during the period.
At the IPO date, the Company's Board established economic rights in
respect of each unit of limited partnership interest in the Operating
Partnership that were equivalent to the economic rights in respect of
each share of common stock. Each unit is redeemable at the option of the
holder thereof in exchange for one share of common stock. The Operating
Partnership has followed the policy of paying the same per unit
distribution in respect of the units as the per share distribution in
respect of the common stock. The Operating Partnership agreement has
been amended to allocate additional net income to the holders of units
that would otherwise be the net income of the Company or another entity.
Net income before minority interest of the Company for 1996 was allocated
approximately 18% to holders of units and 82% to the Company.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Revenue Recognition
F - 6
34
The Company leases residential apartments under operating leases with
terms of one year or less. Rental and other revenues are recorded when
earned.
Cash and Cash Equivalents
The Company considers cash, investments in money market accounts and
certificates of deposit with original maturities of three months or less
to be cash equivalents.
Restricted Cash
Restricted cash consists of escrow deposits held by lenders for property
taxes, insurance, debt service and replacement reserves.
Real Estate Assets and Depreciation
Real estate assets are carried at the lower of depreciated cost or net
realizable value. Interest, property taxes, and other development costs
incurred during construction is capitalized until completion. Repairs and
maintenance costs are expensed as incurred while significant
improvements, renovations, and replacements are capitalized. The cost of
interior painting, vinyl flooring, and blinds are expensed as incurred.
In conjunction with acquisitions of properties, the Company's policy is
to provide in its acquisition budgets adequate funds to complete any
deferred maintenance items to bring the properties to the required
standard, including the cost of replacement appliances, carpet, interior
painting, vinyl flooring, and blinds. These costs are capitalized.
Following a review of its capital expenditure and depreciation policy,
effective January 1, 1996, the Company implemented a new policy of which
the primary changes are as follows:
(a) Increase minimum dollar amounts to capitalize from $500 to $1,000;
(b) For stabilized properties (generally, properties owned and operated
by the Company for at least one year), capitalize replacement purchases
for major appliances and carpeting of an entire apartment unit which was
previously expensed; and
(c) Reduce depreciation life for certain assets from 20 years to 10 to
15 years.
The Company believes that the newly adopted accounting policy is
preferable because it is consistent with policies currently being used by
the majority of the largest apartment REITs and provides a better
matching of expenses with the estimated benefit period. The Company's
1995 and 1994 financial statements were not restated for the effect of
the change in accounting policy. The policy has been implemented
prospectively effective January 1, 1996.
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 and 5 years for furniture, fixtures and
equipment.
The Company periodically evaluates its real estate assets for impairment
based upon undiscounted cash flows and measures impairment based on fair
value. This determination is dependent primarily on the Company's
estimates on occupancy, rent and expense increases, which involves
numerous assumptions and judgments as to future events over a period of
many years. At December 31, 1996 the Company does not hold any assets
which meet the impairment criteria.
F - 7
35
Deferred Costs and Intangibles
Organization costs are amortized using the straight line method over 60
months. Deferred financing costs are amortized over the terms of the
related debt using a method which approximates the interest method.
Unamortized cost in excess of fair value of net assets acquired is
amortized using the straight line method over 30 years.
Partners' capital contributions, distributions and profit and loss with
respect to entities included in the Predecessor
Prior to the IPO, partners' capital contributions, distributions and
profit and loss were allocated in accordance with the terms of individual
partnership agreements, which generally prescribed allocation in
proportion to respective ownership interests. Certain agreements also
provided for a preference return to limited partners.
Per Share Data
Primary earnings per share is computed based upon 10,986,316 and
9,818,804 weighted average shares outstanding for the years ending
December 31, 1996 and 1995, respectively. For the period February 4,
1994 through December 31, 1994, primary earnings per share is computed
based upon net income for that period and 6,534,327 weighted average
shares outstanding.
At December 31, 1996 10,949,216 common shares and 2,444,352 units were
outstanding, a total of 13,393,568. Additionally, the Company has
outstanding options for 338,650 shares of common stock which increased
weighted average shares outstanding during the years ended December 31,
1996 and 1995 by 43,792 and 40,987 shares, respectively and the period
February 4, 1994 through December 31, 1994 by 42,956 shares.
Reclassification
Certain prior year amounts have been reclassified to conform with 1996
presentation. The reclasses had no effect on shareholders' equity or net
income.
2. Business Combination
On June 29, 1995, the Company completed the acquisition of America First
REIT, Inc. and America First REIT Advisory Company ("AFR") accounted for
using the purchase method of accounting. The Company exchanged 2,331,000
shares of its common stock, valued at $57,749,000, for all of the
capital stock of AFR. The operating results of AFR are included in the
accompanying statement of operations commencing July 1, 1995.
The fair value of assets acquired and liabilities assumed were as
follows:
Fair value of assets acquired, primarily real estate asset $ 109,999,000
Liabilities assumed 52,250,000
-------------
Net assets acquired $ 57,749,000
=============
3. Notes Payable and Credit Line
The Company has an unsecured bank line of credit (the "Credit Line")
which may be drawn to $90 million depending upon the borrowing base made
available by the Company. As of December 31, 1996, $30,405,000 was
outstanding under this line. This two year line of credit expires in
October 1998. Including the Credit Line, the Company has approximately
$315.2 million and $307.9 million outstanding at December 31, 1996 and
1995 under notes payable. These notes (excluding the Credit Line) are
secured by real estate assets and certain restricted cash accounts. As
of December 31, 1996, the Company estimated that the weighted average
interest rate on balances then outstanding was 7.9%, with an average
maturity of 10 years. At December 31, 1996, 85% of outstanding debt was
at a fixed interest rate, and 15% was at variable rates.
F - 8
36
A portion of the proceeds of the IPO was used to repay certain debt
attributable to the Predecessor, resulting in an extraordinary gain of
$485,000, net of minority interest.
The notes payable and Credit Line at December 31, 1996 and 1995 are
summarized as follows (dollars in millions):
At December 31, 1996
------------------------------------------
Actual Average
Interest Rates Interest Rate Maturity 1996 1995
---------------- ------------- ----------- ------- -------
Fixed Rate:
Taxable 6.50 - 10.00% 8.51% 1997 - 2035 $ 212.7 $ 225.9
Tax-exempt 5.75 - 8.75% 6.55% 2009 - 2021 55.3 46.9
------- -------
$ 268.0 $ 272.8
Variable Rate:
Taxable Credit Line LIBOR + 1.75% 7.50% 1998 $ 30.4 $ 18.0
Tax-exempt 5.27 - 6.60% 5.79% 2005 - 2025 16.8 17.1
------- -------
$ 47.2 $ 35.1
------- -------
$ 315.2 $ 307.9
======= =======
Scheduled principal repayments on the notes payable and Credit Line at
December 31, 1996 are as follows (dollars in thousands):
Year Amortization Balloon Payments Total
---- ------------ ---------------- ---------
1997 $ 2,498 $ 16,314 $ 18,812
1998 2,727 48,966 51,693
1999 2,913 40,545 43,458
2000 2,799 - 2,799
2001 2,839 54,269 57,108
Thereafter 73,082 68,287 141,369
-------- --------- ---------
$ 86,858 $ 228,381 $ 315,239
======== ========= =========
The Company's notes payable include various restrictive financial
covenants. The Company was in compliance with these covenants as of
December 31, 1996.
F - 9
4. Preferred Stock Offering
In October 1996, the Company offered and sold to the public 2,000,000
shares of Series A Preferred Stock at a price of $25.00 per share (the
"Preferred Stock Offering"). The net proceeds of the Preferred Stock
Offering totaled approximately $47.9 million. Preferential dividends are
payable on the Series A Preferred Stock in the fixed annual amount of
$2.375 per share, payable monthly.
5. Fair Value Disclosure of Financial Instruments
Cash and cash equivalents, rental receivable, accounts payable and
accrued expenses and other liabilities and security deposits are carried
at amounts which reasonably approximate their fair value.
Fixed rate notes payable at December 31, 1996 and 1995 total $268.0
million and $272.8 million, respectively, and have an estimated fair
value of $273.6 million and $281.6 million (excluding prepayment
penalties) based upon interest rates available for the issuance of debt
with similar terms and remaining maturities as of December 31, 1996 and
1995. These notes were subject to prepayment penalties which would be
required to retire these notes prior to maturity. The carrying value of
variable rate notes payable at December 31, 1996 and 1995 total $47.2
million and $35.1, respectively, and reasonably approximates their fair
value. Included in these variable rate notes are certain Multifamily
Housing Renewal bonds with rates which are less than the prime lending
rates at December 31, 1996 and 1995. Approximately $16.8 million in 1996
and $17.1 in 1995 of these mortgages are non-taxable and have lower rates
than would be expected for taxable notes with similar terms.
37
The fair value estimates presented herein are based on information
available to management as of December 31, 1996 and 1995. Although
management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date, and current estimates of fair value may differ significantly
from the amounts presented herein.
6. Commitments and Contingencies
Neither the Company nor the Predecessor is presently subject to any
material litigation nor, to the Company's knowledge, is any material
litigation threatened against the Company or the Predecessor, other than
routine litigation arising in the ordinary course of business, some of
which is expected to be covered by liability insurance and none of which
is expected to have a material adverse effect on the consolidated
financial statements of the Company.
The Company incurred lease expense relating to a five year aircraft lease
agreement for the years ended December 31, 1996, 1995, and 1994 of
$185,400, $185,400, and $61,800, respectively. During the first quarter
of 1997, the Company began a new five year lease agreement whose
scheduled annual lease payments are $194,400.
7. Income Taxes
No provision for federal income taxes has been made in the accompanying
consolidated financial statements. The Company has made an election to
be taxed as a Real Estate Investment Trust ("REIT") under Sections 856
through 860 of the Code. As a REIT, the Company generally is not subject
to Federal income tax to the extent it distributes 95% of its REIT
taxable income to its shareholders and meets certain other tests relating
to the number of shareholders, types of assets and allocable income. If
the Company fails to qualify as a REIT in any taxable year, the Company
will be subject to the Federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate
rates. Even though the Company qualifies for taxation as a REIT, the
Company may be subject to certain Federal, state and local taxes on its
income and property and to Federal income and excise tax on its
undistributed income.
F - 10
8. Employee Benefit Plans
401 (k) Savings Plan
The Company has adopted the Mid-America Apartment Communities, Inc. 401
(k) Savings Plan, a defined contribution plan that satisfies the
requirements of Section 401 (a) and 401 (k) of the Code. The Company
may, but is not obligated to, make a matching contribution of $.50 for
each $1.00 contributed, up to 6% of the participant's compensation. The
Company's contribution to this plan was $118,700 and $81,600 in 1996 and
1995, respectively, with no contribution in 1994.
Non-qualified Deferred Compensation Plan
The Company has adopted a non-qualified deferred compensation plan for
key employees who are not qualified for participation in the Company's
401 (k) Savings Plan. Under the terms of the plan, employees may elect
to defer a percentage of their compensation and the Company matches a
portion of their salary deferral. The plan is designed so that the
employees' investment earnings under the non-qualified plan should be the
same as the earning assets in the Company's 401 (k) Savings Plan. The
Company's match to this plan in 1996 and 1995 was $23,600 and $8,600,
respectively, with no employer match in 1994.
38
Employee Stock Purchase Plan
The Company has adopted the Mid-America Apartment Communities, Inc.
Employee Stock Purchase Plan (the "ESPP") which provides a means for
employees to purchase common stock of the Company. The board has
authorized the issuance of 150,000 shares for the plan. The ESPP is
administered by the Compensation Committee who may annually grant options
to employees to purchase annually up to an aggregate of 15,000 shares of
common stock at a price equal to 85% of the market price of the common
stock. During 1996 and 1995, the ESPP purchased 3,176 and 2,710 shares,
respectively, with no purchases made in 1994.
Employee Stock Ownership Plan
The Company has adopted the Mid-America Apartment Communities, Inc.
Employee Stock Ownership Plan (the "ESOP") which is a non-contributory
stock bonus plan that satisfies the requirements of Section 401 (a) of
the Internal Revenue Code. Each employee of the Company is eligible to
participate in the ESOP after attaining the age of 21 years and
completing one year of service with the Company. Participants' ESOP
accounts will be 100% vested after five years of continuous service, with
no vesting prior to that time. The Company contributed 22,500 shares of
Common Stock to the ESOP upon conclusion of the IPO. During 1996 and
1995, the Company contributed $276,000 and $186,000, respectively, to the
ESOP which purchased an additional 8,208 and 5,148 shares, respectively,
with no contributions made in 1994.
Stock Option Plan
The Company has 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 Plan provides for
the grant of options to purchase a specified number of shares of common
stock ("Options") or grants of restricted shares of common stock
("Restricted Stock"). The Plan authorizes Options to buy a total of
500,000 shares of common stock. The Compensation Committee of the Board
of Directors is responsible for granting Options and shares of Restricted
Stock and for establishing the exercise price of Options and terms and
conditions of Restricted Stock. During the first quarter of 1997, the
Company amended the Plan to increase the shares authorized an increase
from 500,000 to 1,000,000.
F - 11
A summary of changes in Options for the three years ended December 31,
1996 follows:
Weighted Average
Options Exercise Price
------- ----------------
Granted 259,000 $ 20.34
Forfeited (24,000) 19.75
-------
Outstanding at December 31, 1994 235,000 20.40
Granted 33,000 25.07
Exercised (12,150) 19.75
Forfeited (8,300) 19.75
-------
Outstanding at December 31, 1995 247,550 21.00
Granted 99,000 26.50
Exercised (1,900) 19.75
Forfeited (6,000) 19.75
-------
Outstanding at December 31, 1996 338,650 22.53
=======
Options exercisable:
December 31, 1994 - $ -
December 31, 1995 34,850 20.63
December 31, 1996 84,050 20.82
39
Exercise prices for options outstanding as of December 31, 1996 ranged
from $19.75 to $26.50. The weighted average remaining contractual life
of those options is 7.8 years.
On January 1, 1996, the Company 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 footnote 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 under the provisions of APB 25. The pro forma effect in 1996
to net income per common share was not considered material.
F - 12
9. Subsequent Events (Unaudited)
Declaration of Dividend
The Company declared a fourth quarter common stock dividend of $.535 per
share to be paid January 31, 1997 to holders of record on January 24,
1997.
Completed Acquisitions
Since December 31, 1996, the Company has acquired the following apartment
communities (the "Completed Acquisitions") containing an aggregate of 874
apartment units (dollars in millions):
NUMBER ACQUISITION CONTRACT
PROPERTY MARKET OF UNITS DATE PRICE
- ---------------- --------------- -------- ----------- --------
Howell Commons Greenville, SC 348 1/16/97 $ 13.0
Balcones Woods Austin, TX 384 3/18/97 15.8
Westside Creek I Little Rock, AR 142 3/28/97 6.1
--- ------
Total 874 $ 34.9
=== ======
The financial statements of the completed acquisitions are not included
in the audited consolidated financial statements included herein.
Dividend Reinvestment and Stock Purchase Plan
In January 1997, the Company adopted a Dividend Reinvestment and Stock
Purchase Plan (the "DRSPP") pursuant to which the Company's shareholders
will be permitted to acquire shares of Common Stock through the
reinvestment of distributions on Common Stock and Series A Preferred
Stock and through optional cash payments. The Company has 750,000 shares
of Common Stock available to the DRSPP. It is expected that shareholders
of the Company may begin participating in the DRSPP commencing with the
Company's July 1997 dividends.
Common Stock Offering (the "Offering")
In March 1997, the Company issued 2,300,000 of common stock. The net
cash proceeds to the Company were approximately $62.4 million after
payment of all underwriting discounts and expenses of the offering. The
Company contributed the net proceeds of the offering to the Operating
Partnership in exchange for additional interests in the Operating
Partnership. The Operating Partnership will use substantially all of the
net proceeds to repay outstanding borrowings under the Credit Line and
any excess will be used for general corporate purposes, including
acquisitions. Amounts repaid under the Credit Line may be re-borrowed
(subject to the terms and limits of the Credit Line) to finance
acquisitions of additional apartment communities and for other corporate
purposes.
F - 13
40
10. Pro forma Condensed Combined Statements of Operations (Unaudited)
This unaudited Pro Forma Condensed Combined Statements of Operations
are presented as if the following transactions had been consummated on
January 1, 1996 and 1995 (i) acquisition of 15 apartment communities in
1995, including the 12 acquired thtough the merger with AFR, (ii)
acquisition of six apartment communities in 1996, (iii) dispositions of
three apartment communities in 1996, (iv) acquisitions of three apartment
communities in 1997, (v) definitive agreements for two 1997 acquisitions,
(vi) the October issuance of the Series A Preferred Stock, and (vii)
the March 1997 issuance of 2,300,000 shares of Common Stock.
The unaudited Pro Forma Condensed Combined Statements of Operations for
the years ending December 31, 1996 and 1995 have been prepared as if the
Company had qualified as a REIT, distributed all of its taxable income
and, therefore, incurred no federal income tax expense during the years
ended December 31, 1996 and 1995. In the opinion of the Company's
management, all adjustments necessary to reflect the effects of these
transaction have been made.
This unaudited Pro Forma Condensed Combined Statements of
Operations is presented for comparative purposes only and is not
necessarily indicative of what the actual result of operations of the
Company would have been for the periods presented had the
transactions described above been consummated on January 1, 1996 and
1995, nor does it purport to represent the results for future periods.
This unaudited Pro Forma Condensed Combined Statements of
Operations should be read in conjunction with, and is qualified in its
entirety by, the respective historical consolidated financial
statements and notes thereto of the Company and of AFR.
F - 14
41
Mid - America Apartment Communities, Inc.
Pro Forma Condensed Combined Statements of Operations
for the years ended December 31, 1996 and 1995
(In thousands except per share data)
(Unaudited)
1996 1995
---------------------- ----------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
Revenues:
Rental $ 110,090 $ 123,516 $ 93,509 $ 119,394
Interest and other 1,792 2,176 1,454 2,175
--------- --------- -------- ---------
Total revenues 111,882 125,692 94,963 121,569
Expenses:
Personnel 11,702 12,946 9,798 12,341
Building repairs/maintenance, utilities,
landscaping, and other operating 19,226 21,232 17,958 22,496
Real estate taxes and insurance 11,642 13,082 10,198 13,053
Depreciation and amortization
- real estate assets 21,288 23,820 16,470 21,814
Depreciation and amortization
- non-real estate assets 155 177 104 132
General and administrative 6,154 6,568 4,851 5,785
Interest 25,766 24,535 22,684 24,302
Amortization of deferred financing costs 661 679 593 596
------- ------- ------- -------
Total expenses 96,594 103,039 82,656 100,519
------- ------- ------- -------
Income before gain on dispositions
of properties 15,288 22,653 12,307 21,050
Gain on disposition of properties 2,185 - - -
------ ------ ------ -------
Income before minority interest in
operating partnership income 17,473 22,653 12,307 21,050
Minority interest in operating
partnership income 3,213 3,532 2,497 3,282
------ ------ ------ ------
Net income 14,260 19,121 9,810 17,768
Dividends on preferred shares 990 4,750 - 4,750
------ ------ ------ ------
Net income available for common
shareholders $ 13,270 $ 14,371 $ 9,810 $ 13,018
======== ======== ======= ========
Net income available per common
shareholders - $ 1.08 - $ 0.98
F - 15
42
11. Selected Quarterly Financial Information (Unaudited)
Mid-America Apartment Communities, Inc.
Quarterly Financial Data (Unaudited)
(Dollars in thousands except per share data)
Year Ended December 31, 1996
------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
Total revenues $ 27,151 $ 27,361 $ 28,362 $ 29,008
Income before minority interest in operating
partnership income and extraordinary item $ 3,638 $ 5,595 $ 3,492 $ 4,748
Minority interest in operating partnership income $ 670 $ 1,027 $ 644 $ 872
Net income available for common shares $ 2,968 $ 4,568 $ 2,848 $ 2,886
Per share:
Funds from operations * $ 0.65 $ 0.66 $ 0.66 $ 0.69
Net income available for common shares $ 0.27 $ 0.41 $ 0.26 $ 0.26
Dividend declared $ 0.51 $ 0.51 $ 0.51 $ 0.535
Year Ended December 31, 1995
------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
Total revenues $ 20,316 $ 21,155 $ 26,483 $ 27,009
Income before minority interest in operating
partnership income and extraordinary item $ 2,323 $ 2,849 $ 3,338 $ 3,797
Minority interest in operating partnership income $ 525 $ 650 $ 616 $ 706
Net income available for common shares $ 1,798 $ 2,199 $ 2,722 $ 3,091
Per share:
Funds from operations * $ 0.53 $ 0.57 $ 0.59 $ 0.64
Net income available for common shares $ 0.21 $ 0.25 $ 0.25 $ 0.28
Dividend declared $ 0.50 $ 0.50 $ 0.50 $ 0.51
* See the definition of Funds from operations in "Management's Discussion
and Analysis of Financial Condition and Results of Operations". 1995 funds
from operations restated to reflect 1996 NAREIT definition.
F - 16
43
Independent Auditors' Report
The Board of Directors and Shareholders
Mid-America Apartment Communities, Inc.:
Under date of February 14, 1997, we reported on the consolidated
balance sheets of Mid-America Apartment Communities, Inc. (the Company)
as of December 31, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1996 as
contained in the annual report to shareholders. Our report refers to
the Company's change in its accounting method to capitalize replacement
purchases for major appliances and carpet in 1996. In connection with
our audits of the aforementioned consolidated financial statements, we
also have audited the financial statement schedule as listed in the
accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audit.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents, fairly in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
Memphis, Tennessee
February 14, 1997
F - 17
44
Mid-America Apartment Communities, Inc.
Schedule III
Real Estate and Accumulated Depreciation at December 31, 1996
(Dollars in thousands)
Initial Cost
------------------
Building
and
Property Name Location Encumbrances Land fixtures
- ------------- ------------- ------------ ------ --------
The Advantages Jackson, MS - (1) $ 422 $3,727
McKellar Woods Memphis, TN 8,501 737 13,200
Pine Trails Clinton, MS 1,396 178 2,728
Reflection Pointe Jackson, MS 6,073 710 8,770
Riverhills Grenada, MS 880 153 2,092
Woodridge Jackson, MS 4,840 471 5,522
Greenbrook Memphis, TN 15,743 2,100 24,468
Hamilton Pointe Chattanooga, TN - (1) 686 6,281
Hidden Creek Chattanooga, TN - (1) 895 8,098
Steeplechase Hixson, TN -(2) 217 1,957
Cedar Mill (7) Memphis, TN 2,529 475 6,546
Clearbrook Village Memphis, TN 1,226 260 3,658
Crossings Memphis, TN - (1) 554 2,216
Eastview Memphis, TN 3,708 700 9,646
Gleneagles Memphis, TN - (1) 443 3,983
The Park Estate Memphis, TN 1,497 178 1,141
Winchester Square Memphis, TN - (1) 350 7,279
Post House North Jackson, TN 3,765 381 4,299
Post House Jackson Jackson, TN 5,179 443 5,078
The Oaks Jackson, TN - (1) 177 1,594
The Corners Winston-Salem, NC 4,406 685 6,165
Park Haywood Greenville, SC -(2) 325 2,925
Hickory Farm Memphis, TN - (1) 580 5,220
Lakeshore Landing Jackson, MS - (1) 480 4,320
Woodstream Greensboro, NC 5,565 953 8,599
Stonemill Village Louisville, KY - (1) 1,169 10,518
Canyon Creek St. Louis, MO - (1) 880 7,923
Whispering Oaks Little Rock, AR 3,000 506 4,551
Pear Orchard Jackson, MS 8,643 1,352 12,168
Celery Stalk Dallas, TX 8,460 1,463 13,165
Lane at Towne Crossing Mesquite, TX 5,756 1,038 9,338
Hollybrook Dalton, GA 2,520 405 3,646
Green Tree Place Woodlands, TX 3,180 539 4,850
Redford Park Conroe, TX 3,000 509 4,580
MacArthur Ridge Irving, TX 7,648 1,131 10,183
Lincoln on the Green Memphis, TN -(2) 1,498 13,484
Brentwood Downs Nashville, TN 6,678 1,193 10,739
Shenandoah Ridge Augusta, GA -(2) 650 5,850
Westborough Crossing Katy, TX 3,958 677 6,091
Sailwinds at Lake Magdalene Tampa, FL 15,950 2,212 19,909
Woodbridge at the Lake Jacksonville, FL 3,738 645 5,804
Lakepointe Lexington, KY 2,562 411 3,699
The Mansion Lexington, KY 4,140 694 6,242
The Village Lexington, KY 5,256 900 8,097
Cypresswood Court Spring, TX 3,330 577 5,190
The Lodge at Timberglen Dallas, TX 4,740 825 7,422
Calais Forest Little Rock, AR 5,610 1,026 9,244
The Fairways Columbia, SC 7,674 910 8,207
Kirby Station Memphis, TN - 1,148 10,337
Belmere Tampa, FL -(2) 851 7,667
Williamsburg Village Jackson, TN -(2) 523 4,711
Fairways @ Royal Oak Cincinnati, OH -(2) 814 7,335
Tanglewood Anderson, SC 2,651 427 3,853
Woods at Post House Jackson, TN 5,339 240 6,839
Mid-America Apartment
Communities, Inc. Memphis, TN - - 133
Somerset Jackson, MS -(2) 477 4,294
Highland Ridge Greenville, SC -(3) 482 4,337
Spring Creek Greenville, SC -(3) 597 5,374
St. Augustine Jacksonville, FL -(4) 2,858 6,475
Cooper's Hawk Jacksonville, FL -(4) 854 7,500
Marsh Oaks Atlantic Beach, FL -(2) 244 2,829
Park at Hermitage Nashville, TN 8,385 1,524 14,800
Anatole Daytona Beach, FL 7,000 1,227 5,879
The Savannahs Melbourne, FL -(4) 582 7,868
Stassney Woods Austin, TX 4,925 1,621 7,501
Travis Station Austin, TX 4,355 2,282 6,169
Runaway Bay Mt. Pleasant, SC -(3) 1,085 7,269
The Township Hampton, VA 10,800 1,509 8,189
Lakeside Jacksonville, FL -(2) 1,431 12,883
Crosswinds Jackson, MS -(2) 1,535 13,826
Sutton Place HornLake, MS -(2) 894 8,053
Savannah Creek Southaven, MS -(2) 778 7,013
Napa Valley Little Rock, AR - 960 8,642
Tiffany Oaks Altamonte Springs, FL - 1,024 9,219
Lincoln on the Green - Memphis, TN
Phase II - - -
-------- ------- --------
Total $214,606 $60,730 $529,407
======== ======= ========
Mid-America Apartment Communities, Inc.
Schedule III
Real Estate and Accumulated Depreciation at December 31, 1996
(Dollars in thousands)
Cost capitalized Gross amount
subsequent to carried at
acquisition December 31, 1996 (5)
---------------- ----------------------------
Building Building
and and
Property Name Location Land fixtures Land fixtures Total
- -------------------- --------------- ---- -------- ---- -------- -------
The Advantages Jackson, MS - $581 $422 $4,308 $4,730
McKellar Woods Memphis, TN - 582 737 13,782 14,519
Pine Trails Clinton, MS - 310 178 3,038 3,216
Reflection Pointe Jackson, MS $140 1,771 850 10,541 11,391
Riverhills Grenada, MS - 107 153 2,199 2,352
Woodridge Jackson, MS - 162 471 5,684 6,155
Greenbrook Memphis, TN 25 1,905 2,125 26,373 28,498
Hamilton Pointe Chattanooga, TN - 574 686 6,855 7,541
Hidden Creek Chattanooga, TN - 843 895 8,941 9,836
Steeplechase Hixson, TN - 1,024 217 2,981 3,198
Cedar Mill (7) Memphis, TN - 895 475 7,441 7,916
Clearbrook Village Memphis, TN - 191 260 3,849 4,109
Crossings Memphis, TN - 350 554 2,566 3,120
Eastview Memphis, TN - 652 700 10,298 10,998
Gleneagles Memphis, TN - 1,079 443 5,062 5,505
The Park Estate Memphis, TN - 613 178 1,754 1,932
Winchester Square Memphis, TN - 408 350 7,687 8,037
Post House North Jackson, TN - 446 381 4,745 5,126
Post House Jackson Jackson, TN - 292 443 5,370 5,813
The Oaks Jackson, TN - 441 177 2,035 2,212
The Corners Winston-Salem,NC - 254 685 6,419 7,104
Park Haywood Greenville, SC 35 2,088 360 5,013 5,373
Hickory Farm Memphis, TN - 257 580 5,477 6,057
Lakeshore Landing Jackson, MS - 285 480 4,605 5,085
Woodstream Greensboro, NC - 393 953 8,992 9,945
Stonemill Village Louisville, KY - 756 1,169 11,274 12,443
Canyon Creek St. Louis, MO 220 1,086 1,100 9,009 10,109
Whispering Oaks Little Rock, AR - 1,232 506 5,783 6,289
Pear Orchard Jackson, MS - 599 1,352 12,767 14,119
Celery Stalk Dallas, TX - 911 1,463 14,076 15,539
Lane at Towne Crossing Mesquite, TX - 725 1,038 10,063 11,101
Hollybrook Dalton, GA - 533 405 4,179 4,584
Green Tree Place Woodlands, TX - 392 539 5,242 5,781
Redford Park Conroe, TX - 519 509 5,099 5,608
MacArthur Ridge Irving, TX - 244 1,131 10,427 11,558
Lincoln on the Green Memphis, TN - 353 1,498 13,837 15,335
Brentwood Downs Nashville, TN - 362 1,193 11,101 12,294
Shenandoah Ridge Augusta, GA - 1,469 650 7,319 7,969
Westborough Crossing Katy, TX - 393 677 6,484 7,161
Sailwinds at Lake Magdalene Tampa, FL - 5,867 2,212 25,776 27,988
Woodbridge at the Lake Jacksonville, FL - 522 645 6,326 6,971
Lakepointe Lexington, KY - 371 411 4,070 4,481
The Mansion Lexington, KY - 391 694 6,633 7,327
The Village Lexington, KY - 560 900 8,657 9,557
Cypresswood Court Spring, TX - 452 577 5,642 6,219
The Lodge at Timberglen Dallas, TX - 1,160 825 8,582 9,407
Calais Forest Little Rock, AR - 810 1,026 10,054 11,080
The Fairways Columbia, SC - 263 910 8,470 9,380
Kirby Station Memphis, TN - 1,499 1,148 11,836 12,984
Belmere Tampa, FL - 706 851 8,373 9,224
Williamsburg Village Jackson, TN - 316 523 5,027 5,550
Fairways @ Royal Oak Cincinnati, OH - 517 814 7,852 8,666
Tanglewood Anderson, SC - 393 427 4,246 4,673
Woods at Post House Jackson, TN - 473 240 7,312 7,552
Mid-America Apartment
Communities, Inc. Memphis, TN - 1,286 - 1,419 1,419
Somerset Jackson, MS - 459 477 4,753 5,230
Highland Ridge Greenville, SC - 93 482 4,430 4,912
Spring Creek Greenville, SC - 177 597 5,551 6,148
St. Augustine Jacksonville, FL - 1,373 2,858 7,848 10,706
Cooper's Hawk Jacksonville, FL - 348 854 7,848 8,702
Marsh Oaks Atlantic Beach, FL - 328 244 3,157 3,401
Park at Hermitage Nashville, TN - 637 1,524 15,437 16,961
Anatole Daytona Beach, FL - 322 1,227 6,201 7,428
The Savannahs Melbourne, FL - 539 582 8,407 8,989
Stassney Woods Austin, TX - 695 1,621 8,196 9,817
Travis Station Austin, TX - 501 2,282 6,670 8,952
Runaway Bay Mt. Pleasant, SC - 338 1,085 7,607 8,692
The Township Hampton, VA - 66 1,509 8,255 9,764
Lakeside Jacksonville, FL - 1,232 1,431 14,115 15,546
Crosswinds Jackson, MS - 423 1,535 14,249 15,784
Sutton Place HornLake, MS - 259 894 8,312 9,206
Savannah Creek Southaven, MS - 163 778 7,176 7,954
Napa Valley Little Rock, AR - 198 960 8,840 9,800
Tiffany Oaks Altamonte
Springs, FL - - 1,024 9,219 10,243
Lincoln on the Green - Memphis, TN
Phase II - 1,522 - 1,522 1,522
---- ------- ------- -------- --------
Total $420 $51,336 $61,150 $580,743 $641,893
Mid-America Apartment Communities, Inc.
Schedule III
Real Estate and Accumulated Depreciation
at December 31, 1996
(Dollars in thousands)
Life used
to compute
depreciation
in latest
Accumulated Date of income
Property Name Location Depreciation Net Construction statement (6)
- ----------------- ---------------- ------------ ------- ------------ -------------
The Advantages Jackson, MS ($970) $ 3,760 1984 5 - 40
McKellar Woods Memphis, TN (1,527) 12,992 1976 5 - 40
Pine Trails Clinton, MS (958) 2,258 1978 5 - 40
Reflection Pointe Jackson, MS (898) 10,493 1986 5 - 40
Riverhills Grenada, MS (323) 2,029 1972 5 - 40
Woodridge Jackson, MS (537) 5,618 1987 5 - 40
Greenbrook Memphis, TN (2,792) 25,706 1986 5 - 40
Hamilton Pointe Chattanooga, TN (825) 6,716 1989 5 - 40
Hidden Creek Chattanooga, TN (2,170) 7,666 1987 5 - 40
Steeplechase Hixson, TN (467) 2,731 1986 5 - 40
Cedar Mill (7) Memphis, TN (898) 7,018 1973/1986 5 - 40
Clearbrook Village Memphis, TN (411) 3,698 1974 5 - 40
Crossings Memphis, TN (547) 2,573 1974 5 - 40
Eastview Memphis, TN (1,234) 9,764 1974 5 - 40
Gleneagles Memphis, TN (1,343) 4,162 1975 5 - 40
The Park Estate Memphis, TN (746) 1,186 1974 5 - 40
Winchester Square Memphis, TN (832) 7,205 1973 5 - 40
Post House North Jackson, TN (409) 4,717 1987 5 - 40
Post House Jackson Jackson, TN (490) 5,323 1987 5 - 40
The Oaks Jackson, TN (236) 1,976 1978 5 - 40
The Corners Winston-Salem, NC (658) 6,446 1982 5 - 40
Park Haywood Greenville, SC (406) 4,967 1983 5 - 40
Hickory Farm Memphis, TN (570) 5,487 1985 5 - 40
Lakeshore Landing Jackson, MS (471) 4,614 1974 5 - 40
Woodstream Greensboro, NC (870) 9,075 1983 5 - 40
Stonemill Village Louisville, KY (1,110) 11,333 1985 5 - 40
Canyon Creek St. Louis, MO (849) 9,260 1987 5 - 40
Whispering Oaks Little Rock, AR (548) 5,741 1978 5 - 40
Pear Orchard Jackson, MS (1,226) 12,893 1985 5 - 40
Celery Stalk Dallas, TX (1,303) 14,236 1978 5 - 40
Lane at Towne Crossing Mesquite, TX (928) 10,173 1983 5 - 40
Hollybrook Dalton, GA (309) 4,275 1972 5 - 40
Green Tree Place Woodlands, TX (463) 5,318 1984 5 - 40
Redford Park Conroe, TX (455) 5,153 1984 5 - 40
MacArthur Ridge Irving, TX (899) 10,659 1991 5 - 40
Lincoln on the Green Memphis, TN (1,180) 14,155 1988 5 - 40
Brentwood Downs Nashville, TN (964) 11,330 1986 5 - 40
Shenandoah Ridge Augusta, GA (607) 7,362 1982 5 - 40
Westborough Crossing Katy, TX (551) 6,610 1984 5 - 40
Sailwinds at Lake Magdalene Tampa, FL (2,138) 25,850 1975 5 - 40
Woodbridge at the Lake Jacksonville, FL (526) 6,445 1985 5 - 40
Lakepointe Lexington, KY (331) 4,150 1986 5 - 40
The Mansion Lexington, KY (532) 6,795 1987 5 - 40
The Village Lexington, KY (713) 8,844 1989 5 - 40
Cypresswood Court Spring, TX (458) 5,761 1984 5 - 40
The Lodge at Timberglen Dallas, TX (700) 8,707 1984 5 - 40
Calais Forest Little Rock, AR (773) 10,307 1987 5 - 40
The Fairways Columbia, SC (641) 8,739 1992 5 - 40
Kirby Station Memphis, TN (875) 12,109 1978 5 - 40
Belmere Tampa, FL (619) 8,605 1984 5 - 40
Williamsburg Village Jackson, TN (374) 5,176 1987 5 - 40
Fairways @ Royal Oak Cincinnati, OH (560) 8,106 1988 5 - 40
Tanglewood Anderson, SC (300) 4,373 1980 5 - 40
Woods at Post House Jackson, TN (510) 7,042 1995 5 - 40
Mid-America Apartment
Communities, Inc. Memphis, TN (520) 899 N/A 5
Somerset Jackson, MS (340) 4,890 1981 5 - 40
Highland Ridge Greenville, SC (176) 4,736 1984 5 - 40
Spring Creek Greenville, SC (217) 5,931 1984 5 - 40
St. Augustine Jacksonville, FL (459) 10,247 1987 5 - 40
Cooper's Hawk Jacksonville, FL (436) 8,266 1987 5 - 40
Marsh Oaks Atlantic Beach, FL (176) 3,225 1986 5 - 40
Park at Hermitage Nashville, TN (842) 16,119 1987 5 - 40
Anatole Daytona Beach, FL (346) 7,082 1986 5 - 40
The Savannahs Melbourne, FL (465) 8,524 1990 5 - 40
Stassney Woods Austin, TX (453) 9,364 1985 5 - 40
Travis Station Austin, TX (357) 8,595 1987 5 - 40
Runaway Bay Mt. Pleasant, SC (412) 8,280 1988 5 - 40
The Township Hampton, VA (435) 9,329 1987 5 - 40
Lakeside Jacksonville, FL (409) 15,137 1985 5 - 40
Crosswinds Jackson, MS (207) 15,577 1988/1990 5 - 40
Sutton Place HornLake, MS (122) 9,084 1991 5 - 40
Savannah Creek Southaven, MS (105) 7,849 1989 5 - 40
Napa Valley Little Rock, AR (51) 9,749 1984 5 - 40
Tiffany Oaks Altamonte Springs, FL - 10,243 1985 5 - 40
Lincoln on the Green - Memphis, TN
Phase II - 1,522 (8) 5 - 40
--------- --------
Total ($49,558) $592,335
========= ========
Note: This schedule excludes the 1996 dispositions of Summit Ridge,
Laguna Point and Park @ 58.
(1) These 11 Properties are encumbered by a $43.4 million note payable.
(2) Subject to a negative pledge pursuant to the agreement in respect of
the Credit Line, with an outstanding balance of $30,403 at December 31,
1996. The line had a variable interest rate at December 31, 1996 of 7.5%.
(3) These three properties are encumbered by a $10.3 million mortgage
securing a tax-exempt bond amortizing over 25 years with an average
interest rate of 6.09%.
(4) These three properties are encumbered by a $16.5 million mortgage
securing a tax-exempt bond amortizing over 25 years with an average
interest rate of 5.75%.
(5) The aggregate cost for Federal income tax purposes was approximately
$639 million at December 31, 1996. The total gross amount of real estate
assets for GAAP purposes exceeds the aggregate cost for Federal income tax
purposes, principally due to purchase accounting adjustments recorded
under generally accepted accounting principles.
(6) Depreciation is on a straight line basis over the estimated useful
asset life which ranges from 8 to 40 years for land improvements and
buildings and 5 years for furniture, fixtures and equipment.
(7) Includes adjacent 68-unit Mendenhall Townhomes.
(8) Lincoln Phase II is under construction - leasing to begin Second
quarter 1997.
F - 18 through 20
45
MID - AMERICA APARTMENT COMMUNITIES, INC.
Schedule III
Real Estate Investments and Accumulated Depreciation
A summary of activity for real estate investments and accumulated
depreciation is as follows:
Years Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Real estate investments:
Balance at beginning of year $ 578,788 $ 434,460 $ 125,269
Acquisitions 66,258 15,561 280,196
Improvements 20,634 25,590 10,436
Assets acquired from business combination - 103,177 -
Increase in basis as a result of
applying purchase method accounting - - 41,147
Disposition of real estate assets (23,787) - -
Write-off of fully depreciated assets - - (22,588)
--------- --------- ---------
Balance at end of year $ 641,893 $ 578,788 $ 434,460
========= ========= =========
Accumulated depreciation:
Balance at beginning of year $ 29,504 $ 13,386 $ 27,240
Depreciation 21,249 16,118 8,734
Write-off of fully depreciated assets - - (22,588)
Disposition of real estate assets (1,195) - -
-------- -------- --------
Balance at end of year $ 49,558 $ 29,504 $ 13,386
======== ======== ========
F - 21
46