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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-12762
MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact Name of Registrant as Specified in Charter)
TENNESSEE 62-1543819
(State of Incorporation) (I.R.S. Employer Identification Number)
6584 POPLAR AVENUE, SUITE 300
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
(901) 682-6600
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at October 31, 2002
Common Stock, $.01 par value 17,818,636
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002 (Unaudited) and
December 31, 2001
Consolidated Statements of Operations for the three and nine months
ended September 30, 2002 and 2001 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2002 and 2001 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I - FINANCIAL INFORMATION
Item 1.
Mid-America Apartment Communities, Inc.
Consolidated Balance Sheets
September 30, 2002 (Unaudited) and December 31, 2001
(Dollars in thousands)
2002 2001
- -----------------------------------------------------------------------------------------------------
Assets:
Real estate assets:
Land $ 127,524 $ 124,993
Buildings and improvements 1,314,908 1,265,327
Furniture, fixtures and equipment 36,016 32,290
Construction in progress 3,715 10,915
- -----------------------------------------------------------------------------------------------------
1,482,163 1,433,525
Less accumulated depreciation (268,696) (229,913)
- -----------------------------------------------------------------------------------------------------
1,213,467 1,203,612
Land held for future development 1,366 1,366
Commercial properties, net 4,013 4,910
Investment in and advances to real estate joint venture 6,487 7,045
- -----------------------------------------------------------------------------------------------------
Real estate assets, net 1,225,333 1,216,933
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents 14,178 12,192
Restricted cash 10,053 11,240
Deferred financing costs, net 9,727 10,415
Other assets 19,202 12,708
- -----------------------------------------------------------------------------------------------------
Total assets $ 1,278,493 $ 1,263,488
=====================================================================================================
Liabilities and Shareholders' Equity:
Liabilities:
Notes payable $ 822,732 $ 779,664
Accounts payable 1,038 1,219
Accrued expenses and other liabilities 53,711 31,691
Security deposits 4,544 4,514
Deferred gain on disposition of properties 3,994 4,140
- -----------------------------------------------------------------------------------------------------
Total liabilities and deferred gain 886,019 821,228
Minority interest 39,149 46,431
Shareholders' equity:
Preferred stock, $.01 par value, 20,000,000 shares authorized,
$173,470,750 or $25 per share liquidation preference:
2,000,000 shares at 9.5% Series A Cumulative 20 20
1,938,830 shares at 8.875% Series B Cumulative 19 19
2,000,000 shares at 9.375% Series C Cumulative 20 20
1,000,000 shares at 9.5% Series E Cumulative 10 10
Common stock, $.01 par value (authorized 50,000,000 shares;
issued 17,808,400 and 17,452,678 shares at
September 30, 2002 and December 31, 2001, respectively) 178 175
Additional paid-in capital 557,141 550,176
Other (4,514) (774)
Accumulated distributions in excess of net income (174,836) (145,061)
Accumulated other comprehensive loss (24,713) (8,756)
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 353,325 395,829
- -----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,278,493 $ 1,263,488
=====================================================================================================
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations
Three and nine months ended September 30, 2002 and 2001
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------------- ---------------------------
2002 2001 2002 2001
------------- ------------ ------------- -----------
Revenues:
Rental revenues $ 57,272 $ 56,046 $ 168,251 $ 168,280
Other property revenues 766 733 2,138 2,233
- --------------------------------------------------------------------------------------------------------------------------
Total property revenues 58,038 56,779 170,389 170,513
Interest and other non-property income 169 271 471 987
Management and fee income, net 191 190 570 569
Equity in loss of real estate joint venture (204) (63) (417) (174)
- --------------------------------------------------------------------------------------------------------------------------
Total revenues 58,194 57,177 171,013 171,895
- --------------------------------------------------------------------------------------------------------------------------
Expenses:
Property operating expenses:
Personnel 6,673 6,275 19,686 18,434
Building repairs and maintenance 2,540 2,720 7,078 7,129
Real estate taxes and insurance 7,308 6,647 21,296 20,005
Utilities 1,967 1,944 5,195 5,663
Landscaping 1,571 1,576 4,684 4,677
Other operating 2,601 2,564 7,361 7,790
Depreciation and amortization 14,252 12,916 41,408 39,007
- --------------------------------------------------------------------------------------------------------------------------
36,912 34,642 106,708 102,705
Property management expenses 2,297 2,241 7,247 7,523
General and administrative expenses 1,686 1,514 4,643 4,427
Interest expense 12,657 13,024 37,381 40,326
Amortization of deferred financing costs 690 530 2,011 1,695
- --------------------------------------------------------------------------------------------------------------------------
Total expenses 54,242 51,951 157,990 156,676
- --------------------------------------------------------------------------------------------------------------------------
Income before gain(loss) on disposition of assets and
insurance settlement proceeds, minority interest in
operating partnership income and extraordinary items 3,952 5,226 13,023 15,219
Net gain (loss) on disposition of assets and
insurance settlement proceeds (128) 9,900 437 10,064
- --------------------------------------------------------------------------------------------------------------------------
Income before minority interest in operating
partnership income and extraordinary items 3,824 15,126 13,460 25,283
Minority interest in operating partnership income 28 1,853 366 2,104
- --------------------------------------------------------------------------------------------------------------------------
Income before extraordinary items 3,796 13,273 13,094 23,179
Extraordinary items - gain(loss) on debt extinguishment,
net of minority interest 1 (183) (27) (626)
- --------------------------------------------------------------------------------------------------------------------------
Net income 3,797 13,090 13,067 22,553
Preferred dividend distribution 4,028 4,028 12,085 12,085
- --------------------------------------------------------------------------------------------------------------------------
Net income(loss) available for common shareholders $ (231) $ 9,062 $ 982 $ 10,468
==========================================================================================================================
(Continued)
Mid-America Apartment Communities, Inc.
Consolidated Statements of Operations (Continued)
Three and nine months ended September 30, 2002 and 2001
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------------- ---------------------------
2002 2001 2002 2001
------------- ------------ ------------- -----------
Net income(loss) available per common share:
Basic (in thousands):
Average common shares outstanding 17,579 17,406 17,511 17,427
==========================================================================================================================
Basic earnings per share:
Net income(loss) available per common share $ (0.01) $ 0.53 $ 0.06 $ 0.64
before extraordinary items
Extraordinary items - (0.01) - (0.04)
- --------------------------------------------------------------------------------------------------------------------------
Net income(loss) available per common share $ (0.01) $ 0.52 $ 0.06 $ 0.60
==========================================================================================================================
Diluted (in thousands):
Average common shares outstanding 17,579 17,406 17,511 17,427
Effect of dilutive stock options - 163 203 93
- --------------------------------------------------------------------------------------------------------------------------
Average dilutive common shares outstanding 17,579 17,569 17,714 17,520
==========================================================================================================================
Diluted earnings per share:
Net income(loss) available per common share $ (0.01) $ 0.53 $ 0.06 $ 0.63
before extraordinary items
Extraordinary items - (0.01) - (0.03)
- --------------------------------------------------------------------------------------------------------------------------
Net income(loss) available per common share $ (0.01) $ 0.52 $ 0.06 $ 0.60
==========================================================================================================================
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Consolidated Statements of Cash Flows
Nine months ended September 30, 2002 and 2001
(Dollars in thousands)
2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 13,067 $ 22,553
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 43,419 40,702
Amortization of unearned stock compensation 306 364
Equity in loss of real estate joint venture 417 174
Minority interest in operating partnership income 366 2,104
Extraordinary items 27 626
Net gain on dispositions and insurance settlement proceeds (437) (10,064)
Changes in assets and liabilities:
Restricted cash 1,187 3,071
Other assets (6,494) 521
Accounts payable (181) 257
Accrued expenses and other 5,934 645
Security deposits 30 (12)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 57,641 60,941
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of real estate assets (33,933) (251)
Improvements to properties and corporate headquarters (14,099) (14,066)
Construction of units in progress and future development (1,913) (15,440)
Distributions from real estate joint venture 141 314
Proceeds from disposition of real estate assets - 22,319
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (49,804) (7,124)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in credit lines 60,840 (5,433)
Proceeds from notes payable - 88,363
Principal payments on notes payable (17,804) (89,297)
Payment of deferred financing costs (1,324) (2,439)
Repurchase of common stock - (3,549)
Proceeds from issuances of common shares and units 386 966
Distributions to unitholders (5,107) (5,227)
Dividends paid on common shares (30,757) (30,565)
Dividends paid on preferred shares (12,085) (12,085)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (5,851) (59,266)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,986 (5,449)
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period 12,192 16,095
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 14,178 $ 10,646
======================================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 37,321 $ 40,316
Supplemental disclosure of noncash investing and financing activities:
Conversion of units for common shares $ 2,534 $ 215
Issuance of restricted common shares $ 2,649 $ 120
Interest capitalized $ 239 $ 1,067
See accompanying notes to consolidated financial statements.
Mid-America Apartment Communities, Inc.
Notes to Consolidated Financial Statements
September 30, 2002 and 2001 (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the accounting policies in effect as of December 31, 2001, as
set forth in the annual consolidated financial statements of Mid-America
Apartment Communities, Inc. (the "Company"), as of such date. In the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial statements have been included and all such adjustments
were of a normal recurring nature. All significant intercompany accounts and
transactions have been eliminated in consolidation. The results of operations
for the three and nine month periods ended September 30, 2002 are not
necessarily indicative of the results to be expected for the full year.
2. REAL ESTATE ACQUISITION
On July 2, 2002, the Company acquired Preston Hills apartments, a 464-unit
property located in a northeast suburb of Atlanta, GA for $33.7 million. The
community was purchased with the intent that it would be transferred, at the
Company's cost, into the Company's joint venture with Crow Holdings. See
Subsequent Events Note.
3. SHARE AND UNIT INFORMATION
At September 30, 2002, 17,808,400 common shares and 2,741,347 operating
partnership units were outstanding, a total of 20,549,747 shares and units.
Additionally, the Company had outstanding options for 1,502,029 shares of common
stock at September 30, 2002.
4. SEGMENT INFORMATION
At September 30, 2002, the Company owned or had ownership interest in, and
operated 123 apartment communities in 12 different states from which it derives
all significant sources of earnings and operating cash flows. The Company's
operational structure is organized on a decentralized basis, with individual
property managers having overall responsibility and authority regarding the
operations of their respective properties. Each property manager reports to and
is assisted by a multisite manager who helps them monitor local and area trends
in rental rates, occupancy percentages, and operating costs. The property and
multisite managers are given the on-site responsibility and discretion to react
to such trends in the best interest of the Company. Management evaluates the
performance of each individual property based on its contribution of revenues
and net operating income ("NOI"), which is composed of property revenues less
all operating costs including insurance and real estate taxes. The Company's
reportable segments are its individual properties because each is managed
separately and requires different operating strategy and expertise based on the
geographic location, community structure and quality, population mix, and
numerous other factors unique to each community.
The revenues, profits and assets for the aggregated communities are summarized
as follows (Dollars in thousands):
Three months Nine months
ended September 30, ended September 30,
------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------- -------------
Multifamily rental revenues $ 61,875 $ 60,760 $ 182,135 $ 182,434
Other multifamily revenues 803 772 2,251 2,349
------------ ------------ ---------------------------
Segment revenues 62,678 61,532 184,386 184,783
Reconciling items to consolidated revenues:
Joint venture revenues (4,640) (4,753) (13,997) (14,270)
Interest and other non-property income 169 271 471 987
Management and fee income, net 191 190 570 569
Equity in loss of real estate joint venture (204) (63) (417) (174)
------------ ------------ ---------------------------
Total revenues $ 58,194 $ 57,177 $ 171,013 $ 171,895
============ ============ ===========================
Multifamily net operating income $ 37,756 $ 37,594 $ 112,751 $ 114,798
Reconciling items to net income available for common shareholders:
Joint venture net operating income (2,378) (2,541) (7,662) (7,983)
Interest and other non-property income 169 271 471 987
Management and fee income, net 191 190 570 569
Equity in loss of real estate joint venture (204) (63) (417) (174)
Depreciation and amortization (14,252) (12,916) (41,408) (39,007)
Property management expenses (2,297) (2,241) (7,247) (7,523)
General and administrative expenses (1,686) (1,514) (4,643) (4,427)
Interest expense (12,657) (13,024) (37,381) (40,326)
Amortization of deferred financing costs (690) (530) (2,011) (1,695)
Net gain (loss) on dispositions and insurance settlement proceeds (128) 9,900 437 10,064
Extraordinary items, net 1 (183) (27) (626)
Minority interest in operating partnership (28) (1,853) (366) (2,104)
Dividends on preferred shares (4,028) (4,028) (12,085) (12,085)
------------ ------------ ---------------------------
Net income available for common shareholders $ (231) $ 9,062 $ 982 $ 10,468
============ ============ ===========================
September 30, 2002 December 31, 2001
----------------------- -----------------------
Assets:
Multifamily real estate assets $ 1,587,529 $ 1,537,625
Accumulated depreciation - multifamily assets (281,463) (239,586)
----------------------- -----------------------
Segment assets 1,306,066 1,298,039
Reconciling items to total assets:
Joint venture multifamily real estate assets, net (92,599) (94,427)
Land held for future development 1,366 1,366
Commercial properties, net 4,013 4,910
Investment in and advances to real estate joint venture 6,487 7,045
Cash and restricted cash 24,231 23,432
Other assets 28,929 23,123
----------------------- -----------------------
Total assets $ 1,278,493 $ 1,263,488
======================= =======================
5. DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company uses certain derivative financial
instruments to manage, or hedge, the interest rate risk associated with the
Company's variable rate debt or as hedges in anticipation of future debt
transactions to manage well-defined interest rate risk associated with the
transaction.
The Company does not use derivative financial instruments for speculative or
trading purposes. Further, the Company has a policy of entering into contracts
with major financial institutions based upon their credit rating and other
factors. When viewed in conjunction with the underlying and offsetting exposure
that the derivatives are designated to hedge, the Company has not sustained any
material loss from those instruments nor does it anticipate any material adverse
effect on its net income or financial position in the future from the use of
derivatives.
The Company requires that hedging derivatives instruments are effective in
reducing the interest rate risk exposure that they are designated to hedge. This
effectiveness is essential for qualifying for hedge accounting. Instruments that
meet these hedging criteria are formally designated as hedges at the inception
of the derivative contract. The Company formally documents all relationships
between hedging instruments and hedged items, as well as its risk-management
objective and strategy for undertaking the hedge transaction. This process
includes linking all derivatives that are designated as fair-value or cash flow
hedges to specific assets and liabilities on the balance sheet or to specific
firm commitments or forecasted transactions. The Company also formally assesses,
both at the hedges inception and on an ongoing basis, whether the derivatives
used are highly effective in offsetting changes in fair values or cash flows of
hedged items. When it is determined that a derivative is not highly effective as
a hedge or that it has ceased to be a highly effective hedge, the Company
discontinues hedge accounting prospectively.
All of the Company's derivative financial instruments are reported at fair value
and represented on the balance sheet, and are characterized as cash flow hedges.
These transactions hedge the future cash flows of debt transactions through
interest rate swaps that convert variable payments to fixed payments. The
unrealized gains/losses in the fair value of these hedges are reported on the
balance sheet with a corresponding adjustment to accumulated other comprehensive
income, with any ineffective portion of the hedging transactions reclassified to
earnings. During the three and nine months ended September 30, 2002, and the
three and nine months ended September 30, 2001, the ineffective portion of the
hedging transactions was not significant. Within the next twelve months, the
Company expects to reclassify to earnings an estimated $100,000 of the current
balance held in accumulated other comprehensive income due to the
ineffectiveness associated with the hedging transactions.
6. COMPREHENSIVE INCOME
Total comprehensive income and its components for the three and nine months
ended September 30, 2002 and 2001 were as follows (Dollars in thousands):
Three months Nine months
ended September 30, ended September 30,
------------------------------------- -----------------------------------
2002 2001 2002 2001
----------------- ----------------- ---------------- ----------------
Net income $ 3,797 $ 13,090 $ 13,067 $ 22,553
Marked-to-market adjustment
on derivative instruments (12,187) (7,757) (15,957) (9,829)
----------------- ----------------- ---------------- ----------------
Total comprehensive income $ (8,390) $ 5,333 $ (2,890) $ 12,724
================= ================= ================ ================
7. GOODWILL AND INTANGIBLE ASSETS - ADOPTION OF STATEMENT 142
In July 2001, the Financial Accounting Standard Board ("FASB") issued Statement
No. 142, Goodwill and Other Intangible Assets (Statement 142), which requires
goodwill and intangible assets with indefinite useful lives to no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of the Statement. Statement 142 also requires intangible
assets with estimable useful lives be amortized over the respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.
The Company adopted Statement 142 as of January 1, 2002 and has since completed
the process of evaluating its goodwill balances to determine if any impairment
exists. To accomplish this, the Company identified its reporting units and
determined the carrying value of each reporting unit by assigning the Company's
assets and liabilities, including the existing goodwill and intangible assets,
to those reporting units as of the date of adoption. The Company then calculated
the estimated fair value of each reporting unit and compared it to the carrying
amount of each reporting unit.
The Company's testwork indicated no impairment of goodwill for its reporting
units. The Company will continue to test reporting unit goodwill for potential
impairment on an annual basis in the Company's fiscal fourth quarter, or sooner
if a goodwill impairment indicator is identified.
As of the date of adoption, the Company had unamortized goodwill in the amount
of $5.8 million, all of which was subject to the transition provisions of
Statement 142. Statement 142 requires disclosure of what net income would have
been in all periods presented exclusive of amortization expense recognized in
those periods related to goodwill. Below is a reconciliation of reported net
income to adjusted net income and earnings per share (Dollars in thousands,
except earnings per share):
Three months ended September 30,
---------------------------------------------------------
2001
------------------------------------------
2002 Adjusted Adjustment Reported
------------ ------------ -------------- ------------
Income before extraordinary items $ 3,796 $13,339 $ 66 $13,273
Extraordinary items 1 (183) - (183)
------------ ------------ -------------- ------------
Net income 3,797 13,156 66 13,090
Preferred dividend distribution 4,028 4,028 - 4,028
------------ ------------ -------------- ------------
Net income(loss) available for common shareholders $ (231) $ 9,128 $ 66 $ 9,062
============ ============ ============== ============
Basic earnings per share
Net income(loss) available per common share $ (0.01) $ 0.53 $ 0.00 $ 0.53
before extraordinary items
Extraordinary items - (0.01) - (0.01)
------------ ------------ -------------- ------------
Net income(loss) available per common share $ (0.01) $ 0.52 $ 0.00 $ 0.52
============ ============ ============== ============
Diluted earnings per share
Net income(loss) available per common share $ (0.01) $ 0.53 $ 0.00 $ 0.53
before extraordinary items
Extraordinary items - (0.01) - (0.01)
------------ ------------ -------------- ------------
Net income(loss) available per common share $ (0.01) $ 0.52 $ 0.00 $ 0.52
============ ============ ============== ============
Nine months ended September 30,
---------------------------------------------------------
2001
------------------------------------------
2002 Adjusted Adjustment Reported
------------ ------------ -------------- ------------
Income before extraordinary items $13,094 $23,377 $ 198 $23,179
Extraordinary items (27) (626) - (626)
------------ ------------ -------------- ------------
Net income 13,067 22,751 198 22,553
Preferred dividend distribution 12,085 12,085 - 12,085
------------ ------------ -------------- ------------
Net income available for common shareholders $ 982 $10,666 $ 198 $10,468
============ ============ ============== ============
Basic earnings per share
Net income available per common share $ 0.06 $ 0.65 $ 0.01 $ 0.64
before extraordinary items
Extraordinary items - (0.04) - (0.04)
------------ ------------ -------------- ------------
Net income available per common share $ 0.06 $ 0.61 $ 0.01 $ 0.60
============ ============ ============== ============
Diluted earnings per share
Net income available per common share $ 0.06 $ 0.64 $ 0.01 $ 0.63
before extraordinary items
Extraordinary items - (0.03) - (0.03)
------------ ------------ -------------- ------------
Net income available per common share $ 0.06 $ 0.61 $ 0.01 $ 0.60
============ ============ ============== ============
8. SUBSEQUENT EVENTS
PREFERRED STOCK
On October 16, 2002, the Company closed on the sale of 470,000 of a new 9 1/4%
Series F Cumulative Redeemable Preferred Stock ("Series F Preferred Stock") at
$25 per share for an aggregate principal amount of $11.75 million.
On October 28, ("Series G Preferred Stock") at $25 per share for an aggregate
principal amount of $10 million.
The proceeds from the issuances of the Series F Preferred Stock and Series G
Preferred Stock along with $5 million of debt were used to buyback and retire
all of the 1,000,000 shares of the Company's Series E Cumulative Redeemable
Preferred Stock at a 7% premium (totaling $1.75 million) for an aggregate
purchase price of $26.75 million.
DERIVATIVE FINANCIAL INSTRUMENT
On October 24, 2002, the Company refinanced four tax-free bonds, representing
approximately $29.5 million, through a tax-free bond facility with Prudential
Mortgage Capital, credit-enhanced by FNMA. The Company subsequently entered into
an interest rate swap agreement on a notional amount of $17.8 million, also
credit-enhanced by FNMA. The 5-year agreement is for a Bond Market Municipal
Swap Index (the "BMA") fixed leg. The Company also entered into a cap agreement
on a notional amount of $6.8 million. The 5-year cap agreement has a strike rate
of 6% and is indexed on the BMA.
9. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to 2002
presentation. The reclassifications had no effect on net income available for
common shareholders.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following discussion and analysis of financial condition and results of
operations are based upon the Company's consolidated financial statements, and
the notes thereto, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these consolidated financial statements requires the Company to make a number
of estimates and assumptions that affect the reported amounts and disclosures in
the consolidated financial statements. On an ongoing basis, the Company
evaluates its estimates and assumptions based upon historical experience and
various other factors and circumstances. The Company believes that its estimates
and assumptions are reasonable in the circumstances; however, actual results may
differ from these estimates and assumptions under different future conditions.
The Company believes that the estimates and assumptions that are most important
to the portrayal of its financial condition and results of operations, in that
they require the most subjective judgments, form the basis of accounting
policies deemed to be most critical. These critical accounting policies include
capitalization of expenditures and depreciation of assets, impairment of
long-lived assets, including goodwill, and fair value of derivative financial
instruments.
Capitalization of Expenditures and Depreciation of Assets
The Company carries its real estate assets at their depreciated cost.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets, which range from 8 to 40 years for land
improvements and buildings, to 5 years for furniture, fixtures, and equipment,
all of which are judgmental determinations. Repairs and maintenance costs are
expensed as incurred while significant improvements, renovations, and
replacements are capitalized. The cost to complete any deferred repairs and
maintenance at properties acquired by the Company in order to elevate the
condition of the property to the Company's standards are capitalized as
incurred.
Impairment of Long-Lived Assets, Including Goodwill
The Company accounts for long-lived assets in accordance with the provisions of
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement 144) and evaluates its goodwill for impairment under Statement
No. 142, Goodwill and Other Intangible Assets (Statement 142). The Company
periodically evaluates its long-lived assets, including its investments in real
estate and goodwill, for indicators that would suggest that the carrying amount
of the assets may not be recoverable. The judgments regarding the existence of
such indicators are based on factors such as operating performance, market
conditions, costs to complete development projects, and legal factors. Future
events could occur which would cause the Company to conclude that impairment
indicators exist and that the Company should record an impairment loss.
Fair Value of Derivative Financial Instruments
The Company utilizes certain derivative financial instruments during the normal
course of business to manage, or hedge, its interest rate risk associated with
the Company's variable rate debt or as hedges in anticipation of future debt
transactions to manage well-defined interest rate risk associated with the
transaction. The valuation of the derivative financial instruments under SFAS
No. 133 requires the Company to make estimates and judgments that affect the
fair value of the instruments.
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three and nine months ended
September 30, 2002 and 2001. This discussion should be read in conjunction with
the financial statements appearing elsewhere in this report. These financial
statements include all adjustments, which are, in the opinion of management,
necessary to reflect a fair statement of the results for the interim periods
presented, and all such adjustments are of a normal recurring nature.
The total number of apartment units the Company owned or had an ownership
interest in, including the 10 properties containing 2,793 apartment units owned
by its 33.33% unconsolidated BRE/MAAC Associates, LLC joint venture, at
September 30, 2002 was 33,923 in 123 communities compared to 33,291 units in 122
communities owned at September 30, 2001. The average monthly rental per
apartment unit for the Company's 100% owned apartment units not in lease-up
increased to $666 at September 30, 2002 from $657 at September 30, 2001.
Occupancy for these same apartment units at September 30, 2002 and 2001 was
93.7% and 94.4%, respectively.
In June 2002, the Company formed a joint venture with Crow Holdings named
Mid-America/CH Realty Limited Partnership. The joint venture is expected to
acquire approximately $150 million of multifamily properties. The Company will
provide acquisition, redevelopment and property management services to
Mid-America/CH Realty Limited Partnership and will own a 33.33% interest in the
partnership. At September 30, 2002 there were no properties owned by the
Mid-America/CH Realty Limited Partnership joint venture.
FUNDS FROM OPERATIONS
Funds from operations ("FFO") represents net income (computed in accordance with
accounting principles generally accepted in the United States of America, or
"GAAP") excluding extraordinary items, minority interest in Operating
Partnership income, gain or loss on disposition of real estate assets, plus
depreciation related to real estate, and adjustments for the Joint Venture to
reflect FFO on the same basis. This definition of FFO is in accordance with the
National Association of Real Estate Investment Trust's ("NAREIT") recommended
definition.
The Company's policy is to expense the cost of interior painting, vinyl
flooring, and blinds as incurred for stabilized properties. During the
stabilization period for acquisition properties, these items are capitalized as
part of the total repositioning program of newly acquired properties, and, thus
are not deducted in calculating FFO.
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 flow 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 the Company's ability to support interest payments and general
operating expense's before the impact of certain activities such as changes in
other assets and accounts payable. The Company's calculation of FFO may differ
from the methodology for calculating FFO utilized by other REITs and,
accordingly, may not be comparable to such other REITs. Depreciation expense
includes approximately $866,000 and $481,000 for the nine months ended September
30, 2002 and 2001, respectively, which relates to computer software, office
furniture and fixtures and other assets found in other industries and which is
required to be recognized, for purposes of computing FFO.
FFO for the three and nine months ended September 30, 2002 and 2001 is
calculated as follows (in thousands):
Three months Nine months
ended September 30, ended September 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net income(loss) available for common shareholders $ (231) $ 9,062 $ 982 $ 10,468
Depreciation and amortization - real estate property 13,943 12,760 40,543 38,526
Adjustment for joint venture depreciation 344 316 1,032 943
Minority interest in operating partnership 28 1,853 366 2,104
Gain on disposition of non-depreciable assets - - - 229
included in FFO
Net (gain) loss on disposition of assets and 128 (9,900) (437) (10,064)
insurance settlement proceeds
Extraordinary items (1) 183 27 626
--------------------------------------------------------
Funds from operations $ 14,211 $ 14,274 $ 42,513 $ 42,832
========================================================
Weighted average shares and units:
Basic 20,432 20,340 20,404 20,362
Diluted 20,646 20,503 20,606 20,455
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2001
Property revenues for 2002 increased by approximately $1,259,000 due to
increases of (i) $904,000 from the purchase of the Preston Hills apartments in
2002 (the "2002 Acquisitions"), (ii) $550,000 from the communities in
development during or since the third quarter of 2001 (the "Third Quarter
Development Communities"), and (iii) $9,000 from the communities that were held
throughout both periods. These increases were partially offset by a decrease in
property revenues of $204,000 from the sale of the Advantages and Canyon Creek
apartments in 2001 (the "2001 Dispositions").
Property operating expenses include costs for property personnel, building
repairs and maintenance, real estate taxes and insurance, utilities, landscaping
and other property related costs. Property operating expenses for 2002 increased
by approximately $934,000 due primarily to increases of (i) $337,000 from the
2002 Acquisitions, (ii) $91,000 from the Third Quarter Development Communities,
and (iii) $686,000 from the communities held throughout both periods. These
increases were partially offset by a decrease in operating expense of $180,000
from the 2001 Dispositions.
Property management expenses increased approximately $56,000 over the same
period last year mainly related to increases in franchise and excise taxes.
General and administrative expenses increased approximately $172,000 over the
same period last year mainly related to increases in insurance costs associated
with worker's compensation, bank service charges related to lower cash balances
and software maintenance expenses.
Depreciation and amortization expense increased by approximately $1,336,000
primarily due to the increases of (i) $269,000 from the 2002 Acquisitions, (ii)
$220,000 from the Third Quarter Development Communities, and (iii) $864,000 from
the communities held throughout both periods. These increases were partially
offset by the depreciation and amortization expense decrease of $17,000 from the
2001 Dispositions.
Interest expense over the three months ended September 30, 2001, decreased by
approximately $367,000. Refinancings of debt in 2001 and 2002, and the drop in
variable rates since September 30, 2001, decreased the Company's average
interest rate from 6.6% at September 30, 2001 to 6.0% at September 30, 2002.
This decrease was partially offset by an increase in average debt balances.
Net income for the three month period ending September 30, 2001 included a net
gain on disposition of assets and insurance settlement proceeds of $9,900,000
due to the sale of the Advantages and Canyon Creek apartments.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Property revenues for 2002 decreased by approximately $124,000 due to decreases
of (i) $2,067,000 from the 2001 Dispositions, and (ii) $1,028,000 from the
communities held throughout both periods. These decreases were partially offset
by increases in property revenues of (i) $903,000 from the 2002 Acquisitions,
and (ii) $2,068,000 from the communities in development during or since the
beginning of 2001 (the "Development Communities").
Property operating expenses include costs for property personnel, building
repairs and maintenance, real estate taxes and insurance, utilities, landscaping
and other property related costs. Property operating expenses for 2002 increased
by approximately $1,602,000 due primarily to increases of (i) $337,000 from the
2002 Acquisitions, (ii) $405,000 from the Development Communities, and (iii)
$1,707,000 from the communities held throughout both periods. These increases
were partially offset by a decrease in operating expense of $847,000 from the
2001 Dispositions.
Property management expenses decreased approximately $276,000 over the same
period last year mainly related to a decrease in property level incentives.
General and administrative expenses increased approximately $216,000 over the
same period last year mainly related to increases in bank service charges
related to lower cash balances and software maintenance expenses.
Depreciation and amortization expense increased by approximately $2,401,000
primarily due to the increases of (i) $269,000 from the 2002 Acquisitions, (ii)
$656,000 from the Development Communities, and (iii) $1,818,000 from the
communities held throughout both periods. These increases were partially offset
by the depreciation and amortization expense decrease of $342,000 from the 2001
Dispositions.
Interest expense over the nine months ended September 30, 2001, decreased by
approximately $2,945,000. Refinancings of debt in 2001 and 2002, and the drop in
variable rates since September 30, 2001, decreased the Company's average
interest rate from 6.6% at September 30, 2001 to 6.0% at September 30, 2002.
This decrease was partially offset by an increase in average debt balances.
Net income for the nine month period ending September 30, 2001 included a net
gain on disposition of assets and insurance settlement proceeds of $10,064,000
mainly due to the sale of the Advantages and Canyon Creek apartments.
TRENDS
Property revenues during the three and nine month periods ending September 30,
2002, were impacted by general economic weakness, which was evident throughout
the majority of the Company's portfolio. Both job losses and single family home
purchases due to historically low interest rates have affected demand in many of
the Company's markets, which has created extremely competitive leasing
environments. Current occupancy, rent growth, and concession levels are not
considered to be stabilized for normal market conditions and are expected to
improve as the national economy improves.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities decreased to approximately
$57,641,000 for the first nine months of 2002 from $60,941,000 for the first
nine months of 2001 mainly related to (i) $1.3 million of costs related to a
fire at the Company's corporate headquarters on March 3, 2002 which the Company
expects to be fully covered by the Company's insurance, and (ii) $3.3 million of
other assets representing a plane the Company purchased in 2002 to lower the
operating expense associated with the previous leasing arrangement.
Net cash used in investing activities increased during the first nine months of
2002 from the first nine months of 2001 to $49,804,000 from $7,124,000 mainly
due to (i) $9,900,000 net gain on the sale of the Advantages and Canyon Creek
apartments in 2001, and (ii) $33,900,000 cash paid to purchase the Preston Hills
apartments in 2002. The purchase of the Preston Hills apartments was funded
through the use of the Company's credit line with AmSouth Bank. The Company
expects to transfer ownership of the property to its new joint venture with Crow
Holdings, at which time the Company will be paid back $23 million.
During the first nine months of 2002, the Company invested $1,913,000 in
construction of new assets, reduced from $15,440,000 during the same period in
2001.
The following table summarizes the Company's remaining communities in various
stages of lease-up, as of September 30, 2002 (Dollars in thousands):
Anticipated
Total Finish Initial Stabil-
Location Units Date Occupancy ization
---------------- ------- ----------- ------------- ---------------
Completed Communities
In Lease-up:
Grand View Nashville Nashville, TN 433 2Q 2001 3Q 2000 2Q 2003
Reserve at Dexter Lake II Memphis, TN 244 2Q 2001 1Q 2000 2Q 2003
Reserve at Dexter Lake III Memphis, TN 244 2Q 2002 2Q 2001 2Q 2003
The Company's projections assume that the three properties completed but still
under lease-up will substantially stabilize during 2002. At September 30, 2002,
786 of the 921 apartments were leased, and the Company believes that the
completion of stabilization of these properties in the second quarter of 2003 is
highly likely. The Company does not anticipate that its liquidity will be
impacted should these properties fail to stabilize in 2003.
Capital improvements to stabilized properties during the first nine months of
2002 and 2001 totaled $14,099,000 and $14,066,000, respectively. Actual capital
expenditures are summarized below (Dollars in thousands):
September 30, 2002 September 30, 2001
------------------ ------------------
Recurring capital expenditures at stabilized properties $ 5,798 $10,252
Revenue enhancing capital expenditures at stabilized properties 3,793 3,033
Corporate/commercial capital improvements 4,508 781
------------------ ------------------
$ 14,099 $14,066
================== ==================
The decrease in recurring capital expenditures at stabilized properties form the
first nine months of 2001 to the first nine months of 2002 represents a timing
difference in projects between the years. The Company expects recurring capital
expenditures at stabilized properties for the full year of 2002 to be on par
with historical investments. The increase in corporate/commercial capital
improvements for the first nine months of 2002 over the same period for 2001 is
mainly related to the fire at the Company's corporate headquarters in March of
2002, for which the Company expects to be fully reimbursed.
Net cash used in financing activities decreased from approximately $59,266,000
for the first nine months ended September 30, 2001 to approximately $5,851,000
during the same period in 2002. During the first nine months of 2002 the Company
increased its borrowings under its credit lines by $60,840,000 as compared to a
decrease of $5,433,000 in the first nine months of 2001 mainly related to
refinancings of individual mortgages and the purchase of the Preston Hills
apartments. During the first nine months of 2001, the Company used $3,549,000 to
repurchase shares of its common stock. No shares were repurchased during the
first nine months of 2002.
In August 2002, the Company negotiated an increase in the borrowing capacity of
its existing secured credit facility with Prudential Mortgage Capital, credit
enhanced by Fannie Mae (the "FNMA Facility") from $309 million to $550 million.
The expanded capacity may be utilized as collateral is added to the facility. At
September 30, 2002 the FNMA Facility had an outstanding balance of $317.6
million. $303 million of the FNMA Facility expires in 2004, renewable for two
successive 5-year terms, while the remaining $247 million expires in 2007,
renewable for a 5-year term. The Company plans to utilize the additional
facility capacity to refinance debt maturities over the next 18 months.
In conjunction with the expansion of the FNMA Facility, the Company refinanced
an individual mortgage for $9.2 million that was maturing September 1, 2002.
The FNMA Facility provides for both fixed and variable rate borrowings. The
interest rate on the variable portion renews every 90 days and is based on the
FNMA Discount Mortgage Backed Security ("DMBS") rate on the date of renewal,
which has typically approximated three-month Libor less an average spread of
0.09%, plus a credit enhancement fee of 0.67% based on the outstanding
borrowings. The variable interest rate at September 30, 2002 was 2.4%. Fixed
rate borrowings under the FNMA Facility totaled $110 million at September 30,
2002, at interest rates (inclusive of credit-enhancement fees) from 5.77% to
7.71%, and maturities from 2006 to 2009.
Compass Bank provides an unsecured credit facility to the Company. There was $15
million outstanding under this facility at September 30, 2002.
The Company maintains a $77 million secured credit facility with a group of
banks led by AmSouth Bank. There was $25 million outstanding under this facility
at September 30, 2002.
The Company uses interest rate swaps to manage its current and future interest
rate risk. The Company has five interest rate swaps with a total notional
balance of $125 million which have variable legs based on one or three-month
Libor, and fixed legs with an average rate of 6.1% The swaps have expirations
between 2003 and 2007, and have to date proven to be highly effective hedges of
the Company's variable rate debt. Through the use of these swaps the Company
believes it has effectively fixed the rate during these periods of $125 million
of variable rate borrowings issued through the FNMA Facility, leaving only
$82,559,000 of the FNMA Facility of which the interest rate has not been fixed
or hedged. Additionally, the Company has a $16,990,000 swap of the BMA Municipal
index, expiring in June, 2008, effectively fixing the interest rate of the
Tax-Free Bond Facility at 5.15% through this period, which is a highly effective
hedge.
The Company has also executed five forward interest rate swaps with a total
notional balance of $175 million all of which become effective in 2003. The
variable legs of these forward interest rate swaps are based on three-month
Libor and the fixed legs have an average rate of 5.2%. The swaps have lives from
two to seven years and are intended to reduce the interest rate risk of future
planned refinancings.
In 2003, the Company has approximating $154 million of debt maturing and a $25
million swap expiring, which it anticipates will be funded by debt issued under
the FNMA Facility. The rate on the maturing debt is 6.5% and the rate on the
replacement debt which has been pre-set through forward interest rate swaps is
6.0%. There is financing risk associated with these refinancings; however, the
Company believes it to be extremely unlikely that there will be a refinancing
problem due to the large amount of collateral available to support the amount of
debt. In the highly unlikely event of a complete collapse of the debt markets,
the Company could be faced with liquidity concerns.
The weighted average interest rate and the weighted average maturity at
September 30, 2002, for the $822.7 million of debt outstanding were 6.0% and
10.9 years, compared to 6.6% and 11.3 years on $775.5 million of debt
outstanding at September 30, 2001.
The Company believes that it has adequate resources to fund both its current
operations, annual refurbishment of its properties, and incremental investment
in new apartment properties. The Company is relying on the efficient operation
of the financial markets to finance debt maturities, and also is heavily reliant
on the creditworthiness of FNMA, which provides credit enhancement for over $300
million of the Company's debt. The market for FNMA DMBS, which in the Company's
experience is highly effective with three-month Libor fixed leg, is also an
important component of the Company's liquidity and swap effectiveness. In the
event that the FNMA DMBS market becomes less efficient, or the credit of FNMA
becomes impaired, the Company would seek alternative sources of debt financing.
The Company believes that cash provided by operations is adequate and
anticipates that it will continue to be adequate in both the short and long-term
to meet operating requirements (including recurring capital expenditures at the
communities) and payment of distributions by the Company in accordance with REIT
requirements under the Internal Revenue Code. The Company has loan covenants
that limit the total amount of distributions, but believes that it is unlikely
that these will be a limiting factor on the Company's future levels of
distributions. The Company expects to meet its long-term liquidity requirements,
such as scheduled mortgage debt maturities, property acquisitions, preferred
stock redemptions, expansions, and non-recurring capital expenditures, through
long and medium term collateralized fixed rate borrowings, issuance of debt,
potential joint venture transactions and the Company's credit facilities.
At September 30, 2002 and 2001, the Company did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. The Company's joint venture
with Blackstone Real Estate Acquisitions, LLC was established in order to sell
assets to fund development while acquiring management fees to help offset the
reduction in revenues from the sale. The Company's joint venture with Crow
Holdings was established to acquire approximately $150 million of multifamily
properties. In addition, the Company does not engage in trading activities
involving non-exchange traded contracts. As such, the Company is not materially
exposed to any financing, liquidity, market, or credit risk that could arise if
it had engaged in such relationships. The Company does not have any
relationships or transactions with persons or entities that derive benefits from
their non-independent relationships with the Company or its related parties
other than what is disclosed in Item 8. Financial Statements and Supplementary
Data - Notes to Consolidated Financial Statements Note 11 in the Company's 2001
Annual Report on Form 10-K.
INSURANCE
The Company put in place a new insurance program effective July 1, 2002. The
program is substantially the same as last year, but includes greater retention
levels for liability and workers' compensation insurance. The Company was unable
to obtain a reasonable quote for coverage against acts of terrorism for the
policy renewal, but will continue to monitor changes in the market. In the
opinion of management, property and casualty insurance is in place that provides
adequate coverage to provide financial protection against normal insurable risks
such that it believes that any loss experienced would not have a significant
impact on the Company's liquidity, financial position, or results of operations.
INFLATION
Substantially all of the resident leases at the communities allow, at the time
of renewal, for adjustments in the rent payable thereunder, and thus may enable
the Company to seek rent increases. The substantial majority of these leases are
for one year or less. The short-term nature of these leases generally serves to
reduce the risk to the Company of the adverse effects of inflation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No.13, and Technical Corrections
(Statement 145). The rescission of Statement No. 4, Reporting Gains and Losses
from Extinguishment of Debt and Statement No. 64, Extinguishments of Debt made
to Satisfy Sinking-Fund Requirements eliminates an exception to general practice
relating to the determination of whether certain items should be classified as
extraordinary and is effective in fiscal years beginning after May 15, 2002,
with earlier implementation encouraged. The amendment of Statement No. 13,
Accounting for Leases affects the accounting by the lessee for certain lease
modifications that have economic effects similar to sale-leaseback transactions
and Intangible Assets for Motor Carriers removes a no longer relevant standard
from the authoritative literature. The rescission of Statement No. 44 and all
other provisions of Statement 145 are effective for financial statements issued
on or after May 15, 2002. The impact of adopting Statement 145 is not expected
to be material.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (Statement 146). Statement 146 requires all
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Statement 146 is to be applied prospectively to exit or disposal
activities after December 31, 2002. The impact of adopting Statement 146 is not
expected to be material.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. These statements include, but are not limited
to, statements about anticipated growth rate of revenues and expenses,
anticipated lease-up (and rental concessions) at development properties, planned
asset dispositions, disposition pricing, and planned acquisition and
developments. Actual results and the timing of certain events could differ
materially from those projected in or contemplated by the forward-looking
statements due to a number of factors, including a continued downturn in general
economic conditions or the capital markets, competitive factors including
overbuilding or other supply/demand imbalances in some or all of our markets,
changes in interest rates, and other items that are difficult to control such as
insurance rates, increases in real estate taxes, and other general risks
inherent in the apartment business. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this report on Form 10-Q will prove
to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
This information has been omitted as there have been no material changes in the
Company's market risk as disclosed in the 2001 Annual Report on Form 10-K except
for changes as discussed in the Liquidity and Capital resources section in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 4.
Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in its Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Management necessarily applied its judgment in assessing
the costs and benefits of such controls and procedures which, by their nature,
can provide only reasonable assurance regarding management's control objectives.
The Company also has investments in two unconsolidated entities which are not
under its control. Consequently, the Company's disclosure controls and
procedures with respect to such entities are necessarily more limited than those
it maintains with respect to its consolidated subsidiaries.
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act
of 1934 (the "Exchange Act"). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
that is required to be included in the Company's Exchange Act filings.
CHANGES IN INTERNAL CONTROLS
There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the evaluation was completed.
Special Note Regarding Analyst Reports
Investors should also be aware that while the Company's management does, from
time to time, communicate with securities analysts, it is against the Company's
policy to disclose to them any material non-public information or other
confidential commercial information. Accordingly, shareholders should not assume
that the Company agrees with any statement or report issued by any analyst
irrespective of the content of the statement or report. Furthermore, the Company
has a policy against issuing or confirming financial forecasts or projections
issued by others. Thus, to the extent that reports issued by securities analysts
contain any projections, forecasts or opinions, such reports are not the
responsibility of Mid-America Apartment Communities, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report.
Exhibit No
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
Form Event Reported Date of Report Date Filed
8-K Announce joint venture and 7-3-2002 7-3-2002
acquisition
8-K 2Q02 Conference Call and 8-1-2002 8-1-2002
Earnings Release
8-K Section 906 certifications 8-14-2002 8-14-2002
8-K Investor Updated presentation 8-14-2002 8-14-2002
8-K Section 906 certifications 8-14-2002 8-14-2002
8-K H. Eric Bolton, Jr. elected 9-10-2002 9-10-2002
chairman
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MID-AMERICA APARTMENT COMMUNITIES, INC.
Date: November 14, 2002 /s/Simon R.C. Wadsworth
Simon R.C. Wadsworth
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Chief Executive Officer Certification
I, H. Eric Bolton, Jr., certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Mid-America Apartment
Communities, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of the date within 90 days prior to filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/H. Eric Bolton, Jr.
H. Eric Bolton, Jr.
Chief Executive Officer
Chief Financial Officer Certification
I, Simon R.C. Wadsworth, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Mid-America Apartment
Communities, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of the date within 90 days prior to filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/Simon R.C. Wadsworth
Simon R.C. Wadsworth
Chief Financial Officer