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EX-31.1 - EXHIBIT 31.1 CERTIFICATION OF CEO - MID AMERICA APARTMENT COMMUNITIES INC.ex31-1.htm
EX-32.1 - EXHIBIT 32.1 906 CERTIFICATION OF CEO - MID AMERICA APARTMENT COMMUNITIES INC.ex32-1.htm
EX-32.2 - EXHIBIT 32.2 906 CERTIFICATION OF CFO - MID AMERICA APARTMENT COMMUNITIES INC.ex32-2.htm
EX-10.1 - EXHIBIT 10.1 SALES AGREEMENT - MID AMERICA APARTMENT COMMUNITIES INC.ex10-1.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION OF CFO - MID AMERICA APARTMENT COMMUNITIES INC.ex31-2.htm

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, 2009

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 its charter)

TENNESSEE
62-1543819
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 

 
6584 POPLAR AVENUE, SUITE 300
 
MEMPHIS, TENNESSEE
38138
(Address of principal executive offices)
(Zip Code)

 (901) 682-6600
(Registrant's telephone number, including area code)

N/A
   (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þYes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨ Yes  ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller Reporting Company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes  þ No

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 20, 2009
Common Stock, $0.01 par value
28,857,861


 
 

 



MID-AMERICA APARTMENT COMMUNITIES, INC.
 
     
TABLE OF CONTENTS
 
   
Page
 
PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements.
 
 
Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008
2
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2009 (Unaudited) and 2008 (Unaudited).
3
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 (Unaudited) and 2008 (Unaudited).
4
 
Notes to Condensed Consolidated Financial Statements (Unaudited).
5
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
15
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
29
Item 4.
Controls and Procedures.
29
Item 4T.
Controls and Procedures.
29
Item 5.
Other Information
 
     
 
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings.
30
Item 1A.
Risk Factors.
30
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
36
Item 3.
Defaults Upon Senior Securities.
36
Item 4.
Submission of Matters to a Vote of Security Holders.
36
Item 5.
Other Information.
36
Item 6.
Exhibits.
37
 
Signatures
38


 
 

 

Mid-America Apartment Communities, Inc.
Condensed Consolidated  Balance  Sheets
September 30, 2009 (Unaudited) and December 31, 2008
(Dollars in thousands, except per share data)
                 
           
September 30, 2009
 
December 31, 2008
Assets:
             
Real estate assets:
         
 
Land
     
 $                   243,147
 
 $                   240,426
 
Buildings and improvements
 
                   2,262,685
 
                   2,198,063
 
Furniture, fixtures and equipment
 
                        72,585
 
                        65,540
 
Capital improvements in progress
 
                        10,386
 
                        25,268
           
                   2,588,803
 
                   2,529,297
 
Less accumulated depreciation
 
                     (763,949)
 
                     (694,054)
           
                   1,824,854
 
                   1,835,243
                 
 
Land held for future development
 
                          1,306
 
                          1,306
 
Commercial properties, net
   
                          8,764
 
                          7,958
 
Investments in real estate joint ventures
 
                          8,805
 
                          6,824
   
Real estate assets, net
   
                   1,843,729
 
                   1,851,331
                 
Cash and cash equivalents
   
                        16,489
 
                          9,426
Restricted cash
   
                          1,101
 
                             414
Deferred financing costs, net
   
                        13,943
 
                        15,681
Other assets
   
                        19,311
 
                        16,840
Goodwill
     
                          4,106
 
                          4,106
Assets held for sale
   
                        13,193
 
                        24,157
   
Total assets
   
 $                1,911,872
 
 $                1,921,955
                 
Liabilities and Shareholders' Equity:
       
Liabilities:
           
 
Notes payable
   
 $                1,314,157
 
 $                1,323,056
 
Accounts payable
   
                          1,175
 
                          1,234
 
Fair market value of interest rate swaps
 
                        58,981
 
                        76,961
 
Accrued expenses and other liabilities
 
                        76,459
 
                        66,982
 
Security deposits
   
                          8,758
 
                          8,705
 
Liabilities associated with assets held for sale
 
                             304
 
                             595
   
Total liabilities
   
                   1,459,834
 
                   1,477,533
                 
Redeemable stock
   
                          2,523
 
                          1,805
                 
Shareholders' equity:
         
 
Preferred stock, $0.01 par value per share, 20,000,000 shares authorized,
       
 
$155,000 or $25 per share liquidation preference;
       
   
8.30% Series H Cumulative Redeemable Preferred Stock, 6,200,000
       
     
shares authorized, 6,200,000 shares issued and outstanding
 
                               62
 
                               62
 
Common stock, $0.01 par value per share, 50,000,000 shares authorized;
       
   
28,835,783 and 28,224,708 shares issued and outstanding at
       
   
September 30, 2009, and December 31, 2008, respectively (1)
 
                             288
 
                             282
 
Additional paid-in capital
   
                      979,260
 
                      954,127
 
Accumulated distributions in excess of net income
 
                     (499,040)
 
                     (464,617)
 
Accumulated other comprehensive income
 
                       (55,090)
 
                       (72,885)
   
Total Mid-America Apartment Communities, Inc. shareholders' equity
 
                      425,480
 
                      416,969
 
Noncontrolling interest
   
                        24,035
 
                        25,648
   
Total Equity
   
                      449,515
 
                      442,617
   
Total liabilities and equity
 
 $                1,911,872
 
 $                1,921,955
                 
                 
(1)
Number of shares issued and outstanding represent total shares of common stock regardless of classification on the consolidated balance sheet.
 
The number of shares classified as redeemable stock on the consolidated balance sheet for September 30, 2009 and December 31, 2008,
 
are 55,900 and 48,579, respectively.
       
                 
See accompanying notes to consolidated financial statements.
       

 
 

 
 
Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 2009 (Unaudited) and 2008 (Unaudited)
(Dollars in thousands, except per share data)
                     
                     
                     
       
Three months ended
 
Nine months ended
       
September 30,
 
September 30,
   
 
 
2009
 
2008
 
2009
 
2008
Operating revenues:
               
 
Rental revenues
 
 $            89,903
 
 $            89,344
 
 $          268,910
 
 $          263,218
 
Other property revenues
 
                 4,543
 
                 4,390
 
               13,442
 
               12,612
 
Total property revenues
 
               94,446
 
               93,734
 
             282,352
 
             275,830
 
Management fee income
 
                      78
 
                      58
 
                    205
 
                    147
 
Total operating revenues
 
               94,524
 
               93,792
 
             282,557
 
             275,977
Property operating expenses:
               
 
Personnel
 
               12,244
 
               12,021
 
               35,570
 
               34,623
 
Building repairs and maintenance
 
                 4,310
 
                 4,158
 
               10,409
 
               10,526
 
Real estate taxes and insurance
 
               11,368
 
               11,265
 
               34,411
 
               34,087
 
Utilities
 
                 6,135
 
                 6,196
 
               16,874
 
               16,247
 
Landscaping
 
                 2,451
 
                 2,287
 
                 7,245
 
                 6,840
 
Other operating
 
                 5,154
 
                 5,034
 
               14,177
 
               13,430
 
Depreciation
 
               23,913
 
               22,559
 
               71,316
 
               66,545
 
Total property operating expenses
 
               65,575
 
               63,520
 
             190,002
 
             182,298
Acquisition expenses
 
                      30
 
                       -
 
                    139
 
                       -
Property management expenses
 
                 4,007
 
                 4,230
 
               12,751
 
               12,875
General and administrative expenses
 
                 3,163
 
                 2,996
 
                 8,306
 
                 8,747
Income from continuing operations before non-operating items
               21,749
 
               23,046
 
               71,359
 
               72,057
Interest and other non-property income
 
                    161
 
                    115
 
                    309
 
                    339
Interest expense
 
              (14,371)
 
              (15,039)
 
              (43,072)
 
              (46,279)
Loss on debt extinguishment
 
                       (2)
 
                       (3)
 
                   (140)
 
                       (3)
Amortization of deferred financing costs
 
                   (587)
 
                   (586)
 
                (1,781)
 
                (1,700)
Net casualty loss and other settlement proceeds
 
                   (109)
 
                (1,131)
 
                   (253)
 
                   (587)
Gain (loss) on sale of non-depreciable assets
 
                        1
 
                       -
 
                        1
 
                       (3)
Income from continuing operations before
               
 
loss from real estate joint ventures
 
                 6,842
 
                 6,402
 
               26,423
 
               23,824
Loss from real estate joint ventures
 
                   (288)
 
                   (274)
 
                   (640)
 
                   (556)
Income from continuing operations
 
                 6,554
 
                 6,128
 
               25,783
 
               23,268
Discontinued operations:
               
 
Income from discontinued operations before gain (loss) on sale
                    311
 
                    386
 
                 1,058
 
                    734
 
Gain (loss) on sale of discontinued operations
 
                      13
 
                       -
 
                 2,600
 
                   (120)
Consolidated net income
 
                 6,878
 
                 6,514
 
               29,441
 
               23,882
 
Net income attributable to noncontrolling interests
 
                    260
 
                    321
 
                 1,536
 
                 1,366
Net income attributable to Mid-America Apartment Communities, Inc.
                 6,618
 
                 6,193
 
               27,905
 
               22,516
Preferred dividend distributions
 
                 3,216
 
                 3,216
 
                 9,649
 
                 9,649
Net income available for common shareholders
 
 $              3,402
 
 $              2,977
 
 $            18,256
 
 $            12,867
                     
Weighted average shares outstanding (in thousands):
               
 
Basic
 
               28,364
 
               27,474
 
               28,186
 
               26,570
 
Effect of dilutive securities
 
                      77
 
                    123
 
                        6
 
                    151
 
Diluted
 
               28,441
 
               27,597
 
               28,192
 
               26,721
                     
Net income available for common shareholders
 
 $              3,402
 
 $              2,977
 
 $            18,256
 
 $            12,867
Discontinued property operations
 
                   (324)
 
                   (386)
 
                (3,658)
 
                   (614)
Income from continuing operations available for common shareholders
 $              3,078
 
 $              2,591
 
 $            14,598
 
 $            12,253
                     
Earnings per share - basic:
               
 
Income from continuing operations
               
 
    available for common shareholders
 
 $                0.11
 
 $                0.09
 
 $                0.51
 
 $                0.46
 
Discontinued property operations
 
                   0.01
 
                   0.02
 
                   0.13
 
                   0.02
 
Net income available for common shareholders
 
 $                0.12
 
 $                0.11
 
 $                0.64
 
 $                0.48
                     
Earnings per share - diluted:
               
 
Income from continuing operations
               
 
    available for common shareholders
 
 $                0.11
 
 $                0.09
 
 $                0.51
 
 $                0.46
 
Discontinued property operations
 
                   0.01
 
                   0.02
 
                   0.13
 
                   0.02
 
Net income available for common shareholders
 
 $                0.12
 
 $                0.11
 
 $                0.64
 
 $                0.48
                     
Dividends declared per common share
 
 $              0.615
 
 $              0.615
 
 $              1.845
 
 $              1.845
                     
See accompanying notes to consolidated financial statements.

 
 

 

Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2009 (Unaudited) and 2008 (Unaudited)
(Dollars in thousands)
             
   
2009
   
2008
 
Cash flows from operating activities:
           
Consolidated net income
  $ 29,441     $ 23,882  
Adjustments to reconcile net income to net cash provided by operating activities:
         
                 
Depreciation and amortization of deferred financing costs
    73,097       68,073  
Stock compensation expense
    939       704  
Stock issued to employee stock ownership plan
    -       743  
Compensation expense/redeemable stock issued
    253       323  
Amortization of debt premium
    (270 )     (1,320 )
Loss from investments in real estate joint ventures
    640       594  
Loss on debt extinguishment
    140       3  
Ineffectiveness of derivative contracts
    685       189  
(Gain) loss on sale of non-depreciable assets
    (1 )     3  
(Gain) loss on sale of discontinued operations
    (2,600 )     120  
Gains on disposition within real estate joint ventures
    -       (38 )
Net casualty loss and other settlement proceeds
    253       587  
Changes in assets and liabilities:
               
Restricted cash
    (626 )     (614 )
Other assets
    (616 )     2,070  
Accounts payable
    (63 )     1,381  
Accrued expenses and other
    6,431       9,196  
Security deposits
    (32 )     610  
Net cash provided by operating activities
    107,671       106,506  
Cash flows from investing activities:
               
Purchases of real estate and other assets
    (17,949 )     (156,088 )
Improvements to existing real estate assets
    (30,911 )     (29,484 )
Renovations to existing real estate assets
    (6,004 )     (14,402 )
Development
    (5,340 )     (19,075 )
Distributions from real estate joint ventures
    108       1  
Contributions to real estate joint ventures
    (2,729 )     (7,352 )
Proceeds from disposition of real estate assets
    14,372       1,371  
Net cash used in investing activities
    (48,453 )     (225,029 )
Cash flows from financing activities:
               
Net change in credit lines
    35,694       177,150  
Principal payments on notes payable
    (44,323 )     (84,250 )
Payment of deferred financing costs
    (1,933 )     (2,182 )
Repurchase of common stock
    (833 )     (644 )
Proceeds from issuances of common shares and units
    25,329       117,885  
Distributions to noncontrolling interests
    (4,604 )     (4,740 )
Dividends paid on common shares
    (51,836 )     (48,570 )
Dividends paid on preferred shares
    (9,649 )     (9,649 )
Net cash (used in) provided by financing activities
    (52,155 )     145,000  
Net increase in cash and cash equivalents
    7,063       26,477  
Cash and cash equivalents, beginning of period
    9,426       17,192  
Cash and cash equivalents, end of period
  $ 16,489     $ 43,669  
                 
Supplemental disclosure of cash flow information:
               
   Interest paid
  $ 41,054     $ 47,223  
Supplemental disclosure of noncash investing and financing activities:
               
   Accrued construction in progress
  $ 2,476     $ 4,917  
 
   Interest capitalized
  $ 173     $ 596  
   Marked-to-market adjustment on derivative instruments
  $ 18,229     $ (2,818 )
   Reclass of redeemable stock from equity to liabilities
  $ -     $ 477  
                 
                 
See accompanying notes to consolidated financial statements.

 
 

 

Mid-America Apartment Communities, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2009 (Unaudited) and 2008 (Unaudited)

1.           Consolidation and Basis of Presentation

Mid-America Apartment Communities, Inc., or Mid-America, is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops and manages apartment communities in the Sunbelt region of the United States. As of September 30, 2009, we owned or owned interests in a total of 145 multifamily apartment communities comprising 42,687 apartments located in 13 states, including two communities comprising 626 apartments owned through our joint venture, Mid-America Multifamily Fund I, LLC, one community comprising 294 apartments owned through our joint venture, Mid-America Multifamily Fund II, LLC, one community comprising 440 apartments identified as held for sale, and two existing communities with expansion development phases comprising 340 apartments. An additional 45 apartments have been identified for and begun construction at one of our development properties, but have not been included in the total above as none of the units had been delivered as of September 30, 2009.

The accompanying unaudited condensed consolidated financial statements have been prepared by our management in accordance with U.S. generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities and Exchange Commission and our accounting policies in effect as of December 31, 2008 as set forth in our annual consolidated financial statements, as of such date. The accompanying unaudited condensed consolidated financial statements include the accounts of Mid-America Apartment Communities, Inc. and its subsidiaries, including Mid-America Apartments, L.P.  In our opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included and all such adjustments were of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine month periods ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K filed on February 24, 2009 as updated by our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 29, 2009.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods.  Actual amounts realized or paid could differ from those estimates.

2.           Segment Information

As of September 30, 2009, we owned or had an ownership interest in 145 multifamily apartment communities in 13 different states from which we derived all significant sources of earnings and operating cash flows. Our 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 individually monitors local, market and submarket trends in rental rates, occupancy percentages and operating costs. Property managers are given the on-site responsibility and discretion to react to such trends in our best interest. Our property management group evaluates the performance of each individual property based on its contribution to net operating income in order to ensure that the individual property continues to meet our return criteria and long-term investment goals. We define each of our multifamily communities as an individual operating segment. We have also determined that all of our communities have similar economic characteristics and also meet the other criteria which permit the communities to be aggregated into one reportable segment, which is the acquisition and operation of the multifamily communities owned.

3.           Comprehensive Income and Equity

Total comprehensive income, equity and their components for the nine month periods ended September 30, 2009, and 2008, were as follows (dollars in thousands, except per share and per unit data):


                 
Mid-America Apartment Communities, Inc. Shareholders
   
                           
Accumulated
 
Accumulated
   
                       
Additional
 
Distributions
 
Other
   
           
Comprehensive
 
Preferred
 
Common
 
Paid-In
 
in Excess of
 
Comprehensive
 
Noncontrolling
       
Total
 
Income
 
Stock
 
Stock
 
Capital
   Net Income    Income (Loss)  
Interest
EQUITY AT DECEMBER 31, 2008
 
 $    442,617
     
 $          62
 
 $       282
 
 $    954,127
 
 $      (464,617)
 
 $            (72,885)
 
 $              25,648
Equity Activity Excluding Comprehensive Income:
                               
 
Issuance and registration of common shares
 
         25,286
         
                6
 
         25,280
           
 
Shares repurchased and retired
 
             (833)
             
             (833)
           
 
Exercise of stock options
 
                  45
             
                  45
           
 
Shares issued in exchange for units
 
                   -
             
                196
         
                       (196)
 
Redeemable stock fair market value
 
             (464)
                 
                 (464)
       
 
Adjustment for Noncontrolling Interest Ownership in
                               
   
operating partnership
 
                   -
             
              (521)
         
                         521
 
Amortization of unearned compensation
 
               966
             
               966
           
 
Dividends on common stock ($0.615 per share)
 
        (52,215)
                 
            (52,215)
     
                            -
 
Dividends on noncontrolling interest units ($0.615 per unit)
          (4,593)
                         
                  (4,593)
 
Dividends on preferred stock
 
          (9,649)
                 
              (9,649)
       
Comprehensive income:
                               
 
Net income
 
          29,441
 
                   29,441
             
             27,905
     
                     1,536
 
Other comprehensive income -
                               
   
derivative instruments (cash flow hedges)
 
           18,914
 
                    18,914
                 
                   17,795
 
                       1,119
 
Comprehensive income
 
         48,355
 
                  48,355
                       
                                     
EQUITY BALANCE SEPTEMBER 30, 2009
 
 $    449,515
     
 $          62
 
 $       288
 
 $   979,260
 
 $     (499,040)
 
 $            (55,090)
 
 $              24,035

                 
Mid-America Apartment Communities, Inc. Shareholders
 
 
                           
Accumulated
 
Accumulated
   
                       
Additional
 
Distributions
 
Other
   
           
Comprehensive
 
Preferred
 
Common
 
Paid-In
 
in Excess of
 
Comprehensive
 
Noncontrolling
       
Total
 
Income
 
Stock
 
Stock
 
Capital
 
Net Income
   Income (Loss)  
Interest
EQUITY AT DECEMBER 31, 2007
 
 $ 429,824
     
 $          62
 
 $      257
 
 $   832,511
 
 $      (414,966)
 
 $             (15,664)
 
 $              27,624
Equity Activity Excluding Comprehensive Income:
                               
 
Issuance and registration of common shares
 
        118,513
         
             23
 
       118,490
           
 
Shares repurchased and retired
 
            (644)
             
            (644)
           
 
Exercise of stock options
 
           1,849
             
           1,849
           
 
Stock issued to employee stock ownership plan
 
              743
             
              743
           
 
Shares issued in exchange for units
 
                  -
             
               198
 
                       -
     
                       (198)
 
Shares issued in exchange for redeemable stock
 
               413
             
               413
           
 
Redeemable stock fair market value
 
            (232)
                 
                 (232)
       
 
Adjustment for Noncontrolling Interest Ownership in
                               
   
operating partnership
 
                  -
             
        (6,302)
         
                    6,302
 
Amortization of unearned compensation
 
              665
             
              665
           
 
Dividends on common stock ($0.615 per share)
 
      (50,089)
                 
           (50,089)
     
                            -
 
Dividends on noncontrolling interest units ($0.615 per unit)
        (4,729)
                         
                  (4,729)
 
Redemption of preferred stock
 
                  -
             
                  -
 
                       -
       
 
Dividends on preferred stock
 
        (9,649)
                 
              (9,649)
       
Comprehensive income:
                               
 
Net income
 
        23,882
 
                  23,882
             
              22,516
     
                     1,366
 
Other comprehensive income -
                               
   
derivative instruments (cash flow hedges)
 
         (2,721)
 
                    (2,721)
                 
                   (2,376)
 
                      (345)
 
Comprehensive income
 
           21,161
 
                     21,161
                       
                                     
EQUITY BALANCE SEPTEMBER 30, 2008
 
 $ 507,825
     
 $          62
 
 $      280
 
 $ 947,923
 
 $     (452,420)
 
 $             (18,040)
 
 $              30,020

The marked-to-market adjustment on derivative instruments is based upon the change of interest rates available for derivative instruments with similar terms and remaining maturities existing at each balance sheet date.

4.           Real Estate Dispositions

On January 15, 2009, we sold the Woodstream apartments, a 304-unit community located in Greensboro, North Carolina.

On May 12, 2009, we sold the Riverhills apartments, a 96-unit community located in Grenada, Mississippi.

5.           Real Estate Acquisitions

On August 27, 2008, we purchased 215 units of the 234-unit Village Oaks apartments located in Temple Terrace, Florida, a suburb of Tampa. Throughout the remainder of 2008, we purchased four of the 19 units that had been sold as condominiums. On January 16, 2009, February 18, 2009, May 11, 2009 and July 22, 2009, we purchased one additional unit each. On July 28, 2009, we purchased two additional Village Oaks units.

On June 12, 2009, we purchased the Sky View Ranch apartments, a 232-unit community located in Gilbert, Arizona, a suburb of Phoenix.

In June 2009, Mid-America established Mid-America Multifamily Fund II, LLC, or Fund II, a joint venture with private equity. On July 24, 2009, Fund II made its first acquisition and purchased the 294-unit Ansley Village apartments in Macon, Georgia.

6.           Discontinued Operations

As part of our portfolio strategy to selectively dispose of mature assets that no longer meet our investment criteria and long-term strategic objectives, in July 2008, we entered into marketing contracts to list the 440-unit River Trace apartments in Memphis, Tennessee, the 96-unit Riverhills apartments in Grenada, Mississippi, and the 304-unit Woodstream apartments in Greensboro, North Carolina. The Woodstream apartments were subsequently sold on January 15, 2009, and the Riverhills apartments were sold on May 12, 2009. In accordance with accounting standards governing the disposal of long lived assets, all of these communities are considered discontinued operations in the accompanying condensed consolidated financial statements.

The following is a summary of discontinued operations for the three and nine month periods ended September 30, 2009 and 2008, (dollars in thousands):

     
Three Months Ended
 
Nine Months Ended
     
September 30,
 
September 30,
     
2009
 
2008
 
2009
 
2008
Revenues
               
 
Rental revenues
 
 $      728
 
 $   1,356
 
 $   2,480
 
 $   4,019
 
Other revenues
 
           48
 
           73
 
         101
 
         203
 
Total revenues
 
         776
 
      1,429
 
      2,581
 
      4,222
Expenses
               
 
Property operating expenses
 
         449
 
         896
 
      1,465
 
      2,400
 
Depreciation
 
           -
 
             4
 
           -
 
         706
 
Interest expense
 
           16
 
         143
 
           58
 
         382
 
Total expense
 
         465
 
      1,043
 
      1,523
 
      3,488
Income from discontinued operations before
               
 
gain on sale
 
         311
 
         386
 
      1,058
 
         734
Gain (loss) on sale of discontinued operations
           13
 
           -
 
      2,600
 
       (120)
Income from discontinued operations
 
 $      324
 
 $      386
 
 $   3,658
 
 $      614

7.           Share and Unit Information

On September 30, 2009, 28,835,783 common shares and 2,386,188 operating partnership units were outstanding, representing a total of 31,221,971 shares and units. Additionally, Mid-America had outstanding options for the purchase of 23,507 shares of common stock at September 30, 2009, of which 14,348 were anti-dilutive. At September 30, 2008, 28,089,334 common shares and 2,406,411 operating partnership units were outstanding, representing a total of 30,495,745 shares and units. Additionally, Mid-America had outstanding options for the purchase of 26,182 shares of common stock at September 30, 2008, of which 13,525 were anti-dilutive.

During August and September of 2009, we issued a total of 591,000 shares of common stock through at-the-market offerings or negotiated transactions for net proceeds of $24.6 million under our existing controlled equity offering program.

8.           Fair Value Disclosure of Financial Instruments

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

Fixed rate notes payable at September 30, 2009 and December 31, 2008, total $147 million and $148 million, respectively, and have estimated fair values of $141 million and $142 million (excluding prepayment penalties), respectively, based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of September 30, 2009 and December 31, 2008. The carrying value of variable rate notes payable (excluding the effect of interest rate swap and cap agreements) at September 30, 2009 and December 31, 2008, total $1,167 million and $1,175 million, respectively, and have estimated fair values of $1,054 million and $1,078 million (excluding prepayment penalties), respectively, based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of September 30, 2009 and December 31, 2008.

In the normal course of business, we use certain derivative financial instruments to manage, or hedge, the interest rate risk associated with our variable rate debt or to hedge anticipated future debt transactions to manage well-defined interest rate risk associated with the transaction.

We do not use derivative financial instruments for speculative or trading purposes.  Further, we have 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, we have not sustained any material loss from those instruments nor do we anticipate any material adverse effect on our net income attributable to Mid-America Apartment Communities, Inc. or financial position in the future from the use of derivatives.

We utilize derivative financial instruments that can be designated as cash flow hedges and which are expected to be highly effective in reducing the interest rate risk exposure that they are designed to hedge.  This effectiveness is essential for qualifying for hedge accounting.  Instruments that meet the criteria qualifying for hedge accounting treatment are formally designated as hedging instruments at the inception of the derivative contract.  We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking the hedge transaction. This process includes linking all derivatives that are designated as cash flow hedges to specific assets and liabilities on the balance sheet or forecasted transactions.  We also formally assess, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives used are highly effective in offsetting changes in cash flows of hedged items.  When it is determined that a derivative has ceased to be a highly effective hedge, we discontinue hedge accounting prospectively.

All of our derivative financial instruments are reported at fair value, are represented on the consolidated balance sheet within Other assets, Fair market value of interest rate swaps, and Accrued expenses and other liabilities, and are characterized as cash flow hedges. These transactions hedge the future cash flows of debt transactions through interest rate swaps that convert variable payments to fixed payments and interest rate caps that limit the exposure to rising interest rates.  As of September 30, 2009, we have entered into 34 interest rate swaps and 16 interest rate caps with a total notional balance of $883.2 million and $147.3 million, respectively.   As of September 30, 2009, and December 31, 2008, we recorded a liability for derivatives of approximately $63.0 million and $78.4 million, respectively, to Fair market value of interest rate swaps on the consolidated balance sheet.  We also recorded approximately $2.1 million and $0.1 million as of September 30, 2009 and December 31, 2008, respectively, to Other assets on the consolidated balance sheets.  The table below presents our assets and liabilities measured at fair value on a recurring basis as of September 30, 2009 and December 31, 2008, respectively.
 
                                   
Fair Values of Derivative Instruments on the Condensed Consolidated Balance Sheets as of
September 30, 2009 and December 31, 2008
                                   
   
Asset Derivatives
 
Liability Derivatives
 
   
September 30, 2009
 
December 31, 2008
 
September 30, 2009
 
December 31, 2008
 
      (dollars in thousands)
 
  (dollars in thousands)     (dollars in thousands)
 
(dollars in thousands)
 
Derivatives designated as hedging instruments
 
Balance Sheet Location
   
Fair Value
 
Balance Sheet Location
    Fair Value
 
Balance Sheet Location
     
Fair Value
 
Balance Sheet Location
 
Fair Value
 
Interest rate contracts
 
Other assets
  $ 2,129  
Other assets
  $ 51  
Fair Market Value of Interest Rate Swaps & Accrued expenses and other liabilities
  $ 63,022  
Fair Market Value of Interest Rate Swaps & Accrued expenses and other liabilities
  $ 78,440  
                                           
Total derivatives designated
                                     
  as hedging instruments
      $ 2,129       $ 51       $ 63,022       $ 78,440  
 
The unrealized gains/losses in the fair value of these hedging instruments 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. As of September 30, 2009, and 2008, the year-to-date ineffective portion of the hedging transactions reclassified to earnings was a $744,000 increase, and a $97,000 increase, respectively, to interest expense.  The current year increase to interest expense consisted of $151,000 attributable to 2009 interest rate and fair value fluctuations and a $593,000 reclassification from other comprehensive income to interest expense.  The reclassification resulted from the reversal of prior period realized gains between the derivative instrument and the hedged debt transaction.  The table below presents our financial performance of assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2009.
 
 
The Effect of Derivative Instruments on the Consolidated Statements of Operations
for the Nine Months Ended September 30, 2009 and 2008 (dollars in thousands)
                 
Derivatives in Cash Flow Hedging Relationships
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
9/30/2009
9/30/2008
 
9/30/2009
9/30/2008
 
9/30/2009
9/30/2008
                 
Interest rate contracts
 $          19,783
 $          (4,921)
Interest Expense
 $      (22,600)
 $         (7,736)
Interest Expense
 $            (635)
 $               (57)
                 
Total
 $          19,783
 $          (4,921)
 
 $      (22,600)
 $         (7,736)
 
 $            (635)
 $               (57)

If it becomes probable that the underlying hedged forecasted debt transactions will not occur, or if a derivative contract no longer qualifies for hedge accounting or is terminated, all future changes in the fair value of the derivative contract are marked-to-market with changes in value included in net income for each period until the derivative instrument matures, is settled, or is re-designated.  If the hedged forecasted debt transaction becomes probable of not occurring, amounts previously deferred in accumulated other comprehensive income will immediately be reclassified to net income. If the hedged forecasted debt transaction remains probable to occur, these same previously deferred amounts will be amortized over the remaining hedged forecasted debt transactions.

As of September 30, 2009, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position is $61.7 million.  Certain of our derivative contracts are credit enhanced by either FNMA or Freddie Mac.  These derivative instrument contracts require that our credit enhancing party maintain credit ratings above a certain level.  If the credit rating of the credit enhancing party were to fall below these levels, it would trigger additional collateral to be deposited with the counterparty up to 100 percent of the liability position of the derivative contracts. As of September 30, 2009, the total maximum liability was $61.7 million of which our credit enhancing parties would be responsible for posting up to $35.6 million and we would be responsible for posting up to $26.1 million. If our credit enhancing parties are unwilling or unable to post their portion, we could be required to post the full collateral amount. Both FNMA and Freddie Mac are currently rated Aaa by Moody’s and AAA by S&P. The following table summarizes the credit ratings that would trigger the credit-risk-related contingent features, along with the combined amount that would be required to post under each credit rating scenario, if triggered, as of September 30, 2009.

As of September 30, 2009
           
Credit Rating
 
Required
 
Moody's
 
S&P
 
Collateral
 
Aaa
 
AAA
  $ -  
Aa1
 
AA+
  $ -  
Aa2
 
AA
  $  -  
Aa3
 
AA-
  $  -  
A1   A+   $ (3,757,305 )
A2   A   $ (8,585,151 )
A3   A-   $ (51,934,692 )
Baa1
 
BBB+
  $ (61,689,787 )
 
Certain of our derivative contracts contain a cross default provision under which a default under certain of our other indebtedness in excess of a threshold amount causes an event of default under the agreement.  Threshold amounts range from $1 million to $75 million.  As of September 30, 2009, the fair value of derivatives containing cross default provisions was in a liability position of $16.8 million.  Following an event of default, a termination event may occur, and we would be required to settle our obligations under the agreements at their termination value of $17.6 million as of September 30, 2009.  Although our derivative contracts are subject to master netting arrangements which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheet.

In accordance with accounting standards for determining fair values, we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy.  However, we have determined that the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of our own default as well as the default of our counterparties. As of September 30, 2009, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are significant to the overall valuation of our derivatives.  As a result, we have determined that our derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy.

The table below presents Mid-America’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2009
(dollars in thousands)

     
Quoted Prices in
           
     
Active Markets
 
Significant
       
     
for Identical
 
Other
 
Significant
 
Balance at
     
Assets and
 
Observable
 
Unobservable
 
September 30,
     
Liabilities (Level 1)
 
Inputs (Level 2)
 
Inputs (Level 3)
 
2009
Assets
               
Derivative financial
               
 
instruments
 
 $                           -
 
 $                    -
 
 $              2,129
 
 $            2,129
Liabilities
               
Derivative financial
               
 
instruments
 
 $                           -
 
 $                    -
 
 $            63,022
 
 $          63,022


The table below presents a reconciliation of the beginning and ending balances of assets and liabilities having fair value measurements based on significant unobservable inputs (Level 3).
 
Changes in Level 3 Assets/(Liabilities) Measured at Fair Value on a Recurring Basis at September 30, 2009
(dollars in thousands)

             
Total Realized and
           
             
Unrealized Gains
           
         
Total Gain or (Loss)
 
Included in Other
 
Purchases,
 
Net Transfers
   
     
Balance at
 
Included in
 
Comprehensive
 
Issuances and
 
In and/or Out
 
Balance at
     
12/31/2008
 
Income
 
Income
 
Settlements
 
of Level 3
 
9/30/2009
Derivative
                       
 
financial
                       
 
instruments
 
 $        (78,389)
 
 $                (23,282)
 
 $                39,023
 
 $           1,755
 
 $                 -
 
 $       (60,893)


Changes in Level 3 Assets/(Liabilities) Measured at Fair Value on a Recurring Basis
for the period July 1, 2009 to September 30, 2009
 (dollars in thousands)

             
Total Realized and
           
             
Unrealized Gains
           
         
Total Gain or (Loss)
 
Included in Other
 
Purchases,
 
Net Transfers
   
     
Balance at
 
Included in
 
Comprehensive
 
Issuances and
 
In and/or Out
 
Balance at
     
6/30/2009
 
Income
 
Income
 
Settlements
 
of Level 3
 
9/30/2009
Derivative
                       
 
financial
                       
 
instruments
 
 $        (56,291)
 
 $                     (8,753)
 
 $                  3,176
 
 $              975
 
 $                 -
 
 $       (60,893)

Of the instruments for which Mid-America utilized significant Level 3 inputs to determine fair value and that were still held by Mid-America at September 30, 2009, the unrealized gain for the nine months ended September 30, 2009 was $38.9 million. The fair value of these instruments are reported on the balance sheet in Other assets, Fair market value of interest rate swaps, and Accrued expenses and other liabilities, with a corresponding adjustment for the unrealized gains/losses to Accumulated other comprehensive income, with any ineffective portion of the hedging transactions reclassified to interest expense. We use three major banks to provide approximately 80% of our swaps, JP Morgan Chase, Royal Bank of Canada, and Deutsche Bank, all of which have high investment grade ratings from Moody’s and S&P.  Our interest rate swaps with JP Morgan Chase, Royal Bank of Canada, and Deutsche Bank had liability positions on our Condensed Consolidated Balance Sheets of $6.0 million, $21.5 million and $23.7 million, respectively, as of September 30, 2009.

Both observable and unobservable inputs may be used to determine the fair value of positions that Mid-America has classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

The fair value estimates presented herein are based on information available to management as of September 30, 2009, and 2008.  These estimates are not necessarily indicative of the amounts Mid-America could ultimately realize.

9.           Recent Accounting Pronouncements

Impact of Recently Issued Accounting Standards
 
In June 2009, the FASB issued  ASC 105-10, Generally Accepted Accounting Principles – Overall which establishes the FASB Accounting Standards Codification, or the Codification, as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP. Rules and interpretive releases of the Securities and Exchange Commission, or SEC, under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards.  All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.  Instead, it will issue Accounting Standards Updates, or ASUs. The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. We adopted ASC 105-10 effective July 1, 2009 and all references made to FASB guidance throughout this document have been updated for the Codification.

In September 2006, the FASB issued ASC 820 which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 was effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.  ASC 820-10-65-1 delays the effective date of ASC 820 for nonfinancial assets and nonfinancial liabilities except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis.  For these items, the effective date was for fiscal years beginning after November 15, 2008.  We adopted ASC 820 effective January 1, 2008 and ASC 820-10-65-1 effective January 1, 2009. The adoption did not have a material impact on our consolidated financial condition or results of operations taken as a whole.
 
On December 4, 2007, the FASB revised ASC 805, Business Combinations. The ASC 805 revision significantly changes the accounting for business combinations. The ASC 805 revision requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. The ASC 805 revision changes the accounting treatment for certain specific items, including acquisition costs, which will generally be expensed as incurred. This could have a material impact on the way we account for property acquisitions and therefore will have a material impact on our financial statements. The ASC 805 revision applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We adopted the ASC 805 revision effective January 1, 2009, and the expensed acquisition costs increased general and administrative expenses by $30,000 and $139,000 for the three and nine months ended September 30, 2009, respectively. The increased expenses did not change earnings per share.
 
On December 4, 2007, the FASB issued ASC 810-10-65, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51.  ASC 810-10-65 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this standard requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest is included in consolidated net income on the face of the income statement. The standard clarifies that changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. This has impacted our financial statement presentation by requiring the interests in the operating partnership not owned by the company (noncontrolling interests) be presented as a component of equity in the company’s consolidated financial statements and income contributable to the noncontrolling interests be a component of net income. ASC 810-10-65 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  We adopted ASC 810-10-65 effective January 1, 2009 and the retrospective presentation increased total equity by $30,471,000 at December 31, 2008. The adoption did not change basic or diluted earnings per share for common share holders and its effect on net income and income from continuing operations is as follows:

     
Three months ended
 
Nine months ended
     
September 30,
 
September 30,
     
2009
 
2008
 
2009
 
2008
Increase in:
             
 
Income from continuing operations
$250
 
$305
 
$1,456
 
$1,288
 
Net income
$260
 
$321
 
$1,536
 
$1,366
 
On March 19, 2008, the FASB issued  ASC 815-10-65, Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133. ASC 815-10-65 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how an entity uses derivative instruments and how derivative instruments and related hedged items are accounted for under accounting standards for derivative instruments and hedging activities, and how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows.  ASC 815-10-65 is effective for fiscal years and interim periods beginning after November 15, 2008. We adopted ASC 815-10-65 effective January 1, 2009, and the required disclosures are included in Note 8 to the consolidated financial statements.
 
In June 2008, the FASB issued ASC 260-10-65, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities to clarify that unvested share-based awards containing nonforfeitable rights to dividends are participating securities and, therefore, need to be included in the earnings allocation in computing earnings per share, or EPS, under the two-class method of computing earnings per share. ASC 260-10-65 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior period EPS data presented are to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this standard. We adopted ASC 260-10-65 effective January 1, 2009 and it had a minor impact on our number of shares. The change in our number of shares decreased net income available for common shareholders by $0.01 per share for the nine months ended September 30, 2009 and did not change net income available for common shareholders per share for any other period. 
 
In September 2008, the FASB ratified ASC 820-10-65-3, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement. This accounting standard requires that the measurement of liabilities with inseparable, third-party credit enhancements carried at or disclosed at fair value on a recurring basis exclude the effect of the credit enhancement.  ASC 820-10-65-3 was effective on a prospective basis in the first reporting period beginning on or after December 15, 2008. We adopted this accounting standard effective January 1, 2009. This accounting standard removed the effect of the agency credit enhancements from our calculation of the fair value of our derivative instruments and materially increased the value represented on the balance sheet. The impact of ASC 820-10-65-3 on our financial position upon adoption was approximately a $2.0 million increase to the fair value of our derivative instruments.

In April 2008, the FASB issued ASC 825-10-65-1, Interim Disclosures About Fair Market Value of Financial Instruments. ASC 825-10-65-1 extends the disclosure requirements concerning the fair value of financial instruments to interim financial statements of publicly traded companies. ASC 825-10-65-1 is effective for interim financial periods ending after June 15, 2009, and the required disclosures are included in Note 8 to the consolidated financial statements.

In May 2009, the FASB issued ASC 855-10, Subsequent Events, which establishes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  ASC 855-10 is effective for interim and financial periods ending after June 15, 2009. Adoption of this standard did not have a material impact on our consolidated financial condition or results of operations taken as a whole. For the quarter ended September 30, 2009, we have considered subsequent events through November 5, 2009, which is the date our consolidated financial statements were filed with the Securities and Exchange Commission on Form 10-Q. 

In June 2008, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R), or Statement 167. Statement 167 amends events which would require reconsidering whether an entity is a variable interest entity; it amends the criteria used to determine the primary beneficiary of a variable interest entity; and it expands disclosures about an enterprise’s involvement in variable interest entities.   Statement 167 is effective for annual reporting periods beginning after November 15, 2009 and earlier application is prohibited. Management does not believe that the adoption of Statement 167 will have a material impact on our consolidated financial condition or results of operations taken as a whole.

10.           Subsequent Events

On October 9, 2009, we purchased the Park Crest at Innisbrook apartments, a 432-unit community located in Palm Harbor, Florida, a suburb of Tampa.

On August 27, 2008, we purchased 215 units of the 234-unit Village Oaks apartments located in Temple Terrace, Florida, a suburb of Tampa. Throughout the remainder of 2008, we purchased four of the 19 units which had been sold as condominiums. During the first nine months of 2009 we purchased six more units. Subsequent to the nine months ended September 30, 2009, but prior to the filing of this quarterly report on Form 10-Q with the Securities and Exchange Commission, we purchased one additional unit.


Item 2.                      Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes appearing elsewhere in this report.  Historical results and trends which might appear in the condensed consolidated financial statements should not be interpreted as being indicative of future operations.

Forward Looking Statements

We consider this and other sections of this Report to contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, with respect to our expectations for future periods. Forward looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future.  Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development and renovation activity as well as other capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting us, or our properties, adverse changes in the real estate markets and general and local economies and business conditions. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such forward-looking statements included in this report may not 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 us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:

·  
inability to generate sufficient cash flows due to market conditions, changes in supply and/or demand, competition, uninsured losses, changes in tax and housing laws, or other factors;
·  
increasing real estate taxes and insurance costs;
·  
failure of new acquisitions to achieve anticipated results or be efficiently integrated into us;
·  
failure of development communities to lease-up as anticipated;
·  
inability of a joint venture to perform as expected;
·  
inability to acquire additional or dispose of existing apartment units on favorable economic terms;
·  
losses from catastrophes in excess of our insurance coverage;
·  
unexpected capital needs;
·  
inability to attract and retain qualified personnel;
·  
potential liability for environmental contamination;
·  
adverse legislative or regulatory tax changes;
·  
litigation and compliance costs associated with laws requiring access for disabled persons;
·  
imposition of federal taxes if we fail to qualify as a REIT under the Internal Revenue Code in any taxable year or foregone opportunities to ensure REIT status;
·  
inability to acquire funding through the capital markets;
·  
inability to pay required distributions to maintain REIT status due to required debt payments;
·  
changes in interest rate levels, including that of variable rate debt, such as extensively used by us;
·  
loss of hedge accounting treatment for interest rate swaps;
·  
the continuation of the good credit of our interest rate swap and cap providers;
·  
the availability of credit, including mortgage financing, and the liquidity of the debt markets, including a material deterioration of the financial condition of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, at present operating under the conservatorship of the United States Government; and
·  
inability to meet loan covenants.
 
Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, and the notes thereto, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may differ from these estimates and assumptions.

We believe that the estimates and assumptions listed below are most important to the portrayal of our financial condition and results of operations because they require the greatest subjective determinations and form the basis of accounting policies deemed to be most critical. These critical accounting policies include revenue recognition, capitalization of expenditures and depreciation of assets, impairment of long-lived assets, including goodwill, and fair value of derivative financial instruments.

Revenue Recognition

We lease multifamily residential apartments under operating leases primarily with terms of one year or less. Rental revenues are recognized using a method that represents a straight-line basis over the term of the lease and other revenues are recorded when earned.

Mid-America records all gains and losses on real estate in accordance with accounting standards governing the sale of real estate.

Capitalization of expenditures and depreciation of assets

We carry real estate assets at 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, 5 years for furniture, fixtures, and equipment, 3 to 5 years for computers and software, and 6 months for acquired leases, all of which are subjective 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 us in order to elevate the condition of the property to our standards are capitalized as incurred.

Development costs are capitalized in accordance with accounting standards for costs and initial rental operations of real estate projects and standards for the capitalization of interest cost.

Impairment of long-lived assets, including goodwill

We account for long-lived assets in accordance with the provisions of accounting standards for the impairment or disposal on long-lived assets and evaluates its goodwill for impairment under accounting standards for goodwill and other intangible assets. We evaluate goodwill for impairment on at least an annual basis, or more frequently if a goodwill impairment indicator is identified. We periodically evaluate long-lived assets, including investments in real estate and goodwill, for indicators that would suggest that the carrying amount of the assets may not be recoverable. The judgments regarding the existence of such indicators are based on factors such as operating performance, market conditions, and legal factors.

Long-lived assets, such as real estate assets, equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented on the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.

Goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss for goodwill is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the reporting unit level and consists of two steps. First, we determine the fair value of a reporting unit and compares it to its carrying amount. In the apartment industry, the primary method used for determining fair value is to divide annual operating cash flows by an appropriate capitalization rate. We determine the appropriate capitalization rate by reviewing the prevailing rates in a property’s market or submarket. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance accounting standards for business combinations. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

Fair value of derivative financial instruments

We utilize certain derivative financial instruments, primarily interest rate swaps and caps, during the normal course of business to manage, or hedge, the interest rate risk associated with our variable rate debt or as hedges in anticipation of future debt transactions to manage well-defined interest rate risk associated with the transaction.

In order for a derivative contract to be designated as a hedging instrument, the relationship between the hedging instrument and the hedged item must be highly effective. While our calculation of hedge effectiveness contains some subjective determinations, the historical correlation of the hedging instruments and the underlying hedge are measured by us before entering into the hedging relationship and have been found to be highly correlated.

We measure ineffectiveness using the change in the variable cash flows method for interest rate swaps and the hypothetical derivative method for interest rate caps for each reporting period through the term of the hedging instruments. Any amounts determined to be ineffective are recorded in earnings.  The change in fair value of the interest rate swaps and the intrinsic value or fair value of caps designated as cash flow hedges are recorded to accumulated other comprehensive income in the statement of shareholders’ equity.

The valuation of our derivative financial instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts.  The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.  The fair values of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps.  The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. Additionally, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  See Note 8 of the Consolidated Financial Statements.

Overview of the Three Months Ended September 30, 2009

As anticipated, weaker demand for apartment housing caused our same store revenues to drop by approximately $1.4 million in the third quarter of 2009 from the third quarter of 2008 as we reduced pricing on new leases to maintain occupancy. Our same store expenses in the second quarter of 2009 decreased by approximately $471,000 from the same quarter a year ago as we continued to capitalize on operating efficiencies from improved new asset management programs and lower resident turnover, and benefited from a decrease in real estate taxes resulting from reduced negotiated assessments and successful appeals.

Our same store portfolio consists of those properties in our portfolio which have been held and were stabilized for at least 12 months. Communities not included in the same store portfolio would include acquisitions within the last 12 months, communities being developed or in lease-up, and communities undergoing extensive renovations.

We also experienced a decrease in interest expense during the third quarter of 2009 from the third quarter of 2008, due both to a decrease in our average borrowings and the continued favorable interest rate environment.

The following is a discussion of the consolidated financial condition and results of operations of Mid-America for the three and nine month periods ended September 30, 2009. This discussion should be read in conjunction with the condensed consolidated 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 period presented, and all such adjustments are of a normal recurring nature.

Results of Operations

Comparison of the Three Months Ended September 30, 2009 to the Three Months Ended September 30, 2008

Property revenues for the three months ended September 30, 2009 were approximately $94.4 million, an increase of $0.7 million from the three months ended September 30, 2008 due to (i) a $1.6 million increase in property revenues from the four properties acquired since the second quarter of 2008, and (ii) a $0.7 million increase in property revenues from our development and lease-up communities. These increases were partially offset by a $1.6 million decrease in property revenues from all other communities. The decrease in property revenues from all other communities was generated primarily by our same store portfolio and was driven by a 2.9% decrease in average effective rent per unit in the third quarter of 2009 from the third quarter of 2008.

Property operating expenses include costs for property personnel, property bonuses, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other property related costs. Property operating expenses for the three months ended September 30, 2009 were approximately $41.7 million, an increase of approximately $0.7 million from the three months ended September 30, 2008 due primarily to increases in property operating expenses of (i) $0.8 million from the four properties acquired since the second quarter of 2008, and (ii) $0.2 million from our development and lease-up communities. These increases were partially offset by a decrease in property operating expense of $0.3 million from all other communities. The decrease in property operating expenses from all other communities was generated primarily by our same store portfolio and was driven by a reduction in turnover expenses resulting from moveouts which decreased 5.5% and a 3.4% decrease in real estate taxes resulting from reduced negotiated assessments and successful appeals of 2008 values.

Depreciation expense for the three months ended September 30, 2009 was approximately $23.9 million, an increase of approximately $1.4 million from the three months ended September 30, 2008 primarily due to the increases in depreciation expense of (i) $0.7 million from the four properties acquired since the second quarter of 2008, (ii) $0.2 million from our development and lease-up communities, and (iii) $0.9 million from all other communities. Increases of depreciation expense from all other communities resulted from asset additions made during the normal course of business. These increases were partially offset by a decrease in depreciation expense of $0.4 million from the expiration of the amortization of intangible lease assets of leases of previously acquired communities.

Property management expenses for the three months ended September 30, 2009 were approximately $4.0 million, a slight decrease from the $4.2 million of property management expenses in the third quarter of 2008, primarily related to a decrease in realized franchise and excise tax obligations. General and administrative expenses increased slightly from $3.0 million for the third quarter of 2008 to $3.2 million for the third quarter of 2009, primarily as a result of increased incentive bonuses.

Interest expense for the three months ended September 30, 2009 was approximately $14.4 million, a decrease of $0.7 million from the three months ended September 30, 2008. The decrease was primarily related to the decrease in our average cost of debt from 4.69% to 4.35% over the same period, along with a drop in our average debt outstanding from the three months ended September 30, 2008 to the three months ended September 30, 2009 of approximately $9.2 million.

In the three months ended September 30, 2008, we experienced $1.1 million of net casualty losses, $0.9 million of which was related to Hurricane Ike. In the three months ended September 30, 2009, we booked approximately $0.1 million of net casualty losses.

Primarily as a result of the foregoing, net income attributable to Mid-America Apartment Communities, Inc. increased by approximately $0.4 million in the three months ended September 30, 2009 from the three months ended September 30, 2008.

Comparison of the Nine Months Ended September 30, 2009 to the Nine Months Ended September 30, 2008

Property revenues for the nine months ended September 30, 2009 were approximately $282.4 million, an increase of $6.5 million from the nine months ended September 30, 2008 due to (i) a $7.6 million increase in property revenues from the six properties acquired during 2008 and 2009, and (ii) a $1.9 million increase in property revenues from our development and lease-up communities. These increases were partially offset by a $3.0 million decrease in property revenues from all other communities. The decrease in property revenues from all other communities was generated primarily by our same store portfolio and was driven by a 1.5% decrease in average effective rent per unit in the first nine months of 2009 from the first nine months of 2008.

Property operating expenses include costs for property personnel, property bonuses, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other property related costs. Property operating expenses for the nine months ended September 30, 2009 were approximately $118.7 million, an increase of approximately $2.9 million from the nine months ended September 30, 2008 due primarily to increases in property operating expenses of (i) $3.0 million from the six properties acquired during 2008 and 2009, and (ii) $0.8 million from our development and lease-up communities. These increases were partially offset by a decrease in property operating expense of $0.9 million from all other communities. The decrease in property operating expenses from all other communities was generated primarily by our same store portfolio and was driven by decreases in incentive bonuses, real estate taxes resulting from reduced negotiated assessments and successful appeals of 2008 values and reduced insurance rates.

Depreciation expense for the nine months ended September 30, 2009 was approximately $71.3 million, an increase of approximately $4.8 million from the nine months ended September 30, 2008 primarily due to the increases in depreciation expense of (i) $2.2 million from the six properties acquired during 2008 and 2009, (ii) $0.6 million from our development and lease-up communities, and (iii) $2.7 million from all other communities. Increases of depreciation expense from all other communities resulted from asset additions made during the normal course of business. These increases were partially offset by a decrease in depreciation expense of $0.7 million from the expiration of the amortization of intangible lease assets of previously acquired communities.

Property management expenses for the nine months ended September 30, 2009 were approximately $12.8 million, a slight decrease from the $12.9 million of property management expenses in the first nine months of 2008. General and administrative expenses decreased by approximately $0.4 million over this same period to $8.3 million, partially related to lower employee incentives.

Interest expense for the nine months ended September 30, 2009 was approximately $43.1 million, a decrease of $3.2 million from the nine months ended September 30, 2008. The decrease was primarily related to the decrease in our average cost of debt from 4.89% to 4.35% over the same period.  This decrease in interest expense was partially offset by an increase in our average debt outstanding of approximately $25.3 million from the nine months ended September 30, 2008 to the nine months ended September 30, 2009. Interest expense during the nine months ended September 30, 2009 was also increased by $593,000 related to a reclassification from other comprehensive income resulting from the reversal of prior period realized gains between derivative instruments and their hedged debt transactions.

In the nine months ended September 30, 2009, we benefited from gains of approximately $2.6 million due to the sale of two properties. No properties were sold during 2008.

Primarily as a result of the foregoing, net income attributable to Mid-America Apartment Communities, Inc. increased by approximately $5.4 million in the nine months ended September 30, 2009 from the nine months ended September 30, 2008.

Funds From Operations and Net Income

Funds from operations, or FFO, represents net income attributable to Mid-America Apartment Communities, Inc. (computed in accordance with GAAP), excluding extraordinary items, gains or losses on disposition of real estate assets, plus depreciation of real estate, and adjustments for joint ventures to reflect FFO on the same basis. This definition of FFO is in accordance with the National Association of Real Estate Investment Trust’s, or NAREIT, definition.  Disposition of real estate assets includes sales of discontinued operations as well as proceeds received from insurance and other settlements from property damage.

In response to the Securities and Exchange Commission’s Staff Policy Statement relating to Emerging Issues Task Force Topic D-42 concerning the calculation of earnings per share for the redemption of preferred stock, we include the amount charged to retire preferred stock in excess of carrying values in our FFO calculation.

Our 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 attributable to Mid-America Apartment Communities, Inc. 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. We believe that FFO is helpful to investors in understanding our operating performance in that such calculation excludes depreciation expense on real estate assets. We believe that GAAP historical cost depreciation of real estate assets is generally not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies. Our 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.

The following table is a reconciliation of FFO to net income attributable to Mid-America Apartment Communities, Inc. for the three and nine month periods ended September 30, 2009, and 2008 (dollars and shares in thousands):

[
     
Three months
 
Nine months
     
ended September 30,
 
ended September 30,
     
2009
 
2008
 
2009
 
2008
Net income attributable to Mid-America Apartment Communities, Inc.
 $     6,618
 
 $     6,193
 
 $   27,905
 
 $   22,516
Depreciation of real estate assets
 
      23,419
 
      22,123
 
      69,832
 
      65,388
Net casualty loss and other settlement proceeds
 
           109
 
        1,131
 
           253
 
           587
Gains on dispositions within real estate joint ventures
 
              -
 
              -
 
              -
 
            (38)
Depreciation of real estate assets of discontinued operations
 
              -
 
               4
 
              -
 
           706
(Gains) loss on sales of discontinued operations
 
            (13)
 
              -
 
       (2,600)
 
           120
Depreciation of real estate assets of real estate joint ventures
 
           241
 
           281
 
           690
 
           651
Preferred dividend distribution
 
       (3,216)
 
       (3,216)
 
       (9,649)
 
       (9,649)
Net income attributable to noncontrolling interests
 
           260
 
           321
 
        1,536
 
        1,366
Funds from operations
 
 $   27,418
 
 $   26,837
 
 $   87,967
 
 $   81,647
 
FFO for the three and nine month periods ended September 30, 2009 increased primarily as the result of recently acquired properties and reduced interest expense as discussed above in Results of Operations.

Trends

During the first three quarters of 2009, rental demand for apartments was weaker in most of our markets when compared to the first three quarters of 2008. One of the primary drivers of apartment demand is job formation, and the job losses across our markets impacted apartment demand and pricing. However, relative job losses to date in 2009 for our markets combined were less than the national average.

An important part of our portfolio strategy is to maintain a broad diversity of markets across the south east and south west regions of the United States. The diversity of markets tends to mitigate exposure to economic issues in any one geographic market or area. We have found that a well diversified portfolio, including both primary and select secondary markets, has tended to perform well in “up” cycles as well as weather “down” cycles better. At the end of the third quarter, we were invested in over 48 separate markets, with 58% of our gross assets in primary markets and 42% of our gross assets in select secondary markets.

Partially mitigating the severe job losses has been lower resident turnover, primarily due to fewer move-outs from buying homes.  The primary reason that our residents leave us is to buy a house.  In 2009, we have seen both the number and the percent of total move-outs due to home buying drop as compared to 2008. According to the Census Bureau, homeownership increased from 65% to over 69% of households over ten years ending in 2005. This increase, representing approximately five million households, was driven primarily by the availability of new mortgage products, many requiring no down-payment and minimal credit ratings. With a reversion of mortgage underwriting back to more traditional standards, it is possible that a long-term correction will occur, and that home ownership may return to more sustainable levels. This could be quite significant for the apartment business, and we believe, if this occurs, it could benefit us for several years.

We also benefited on the supply side, as the lack of available financing for new apartment construction resulted in relatively few new apartments entering the market as new competition. Competition from condominiums reverting back to rental units, or new condominiums being converted to rental, was not a major factor in our markets because most of our markets and submarkets have not been primary areas for condominium development. We have found the same to be true for rental competition from single family homes. We have avoided committing a significant amount of capital to markets where most of the excessive inflation in house prices has occurred. We saw significant rental competition from condominiums and/or single family houses in only a few submarkets.  We expect this relative new supply compression to continue over the next few quarters.

Our focus in the quarter was on sustaining occupancy as we entered what we think will continue to be a weaker leasing market for several quarters. By focusing on aggressive efforts to build and sustain traffic, and pricing aggressively, we were largely successful at this, as our same store occupancy ended the third quarter at its highest quarter end level since 2007.

Overall same store revenues weakened 1.7% compared to the same quarter a year ago. Of our primary markets, South Florida was strongest with revenues declining 0.1% on a same store basis, while Phoenix was weakest with same store revenues declining 9.4%. Of our secondary markets, Spartanburg, South Carolina was strongest, growing same store revenues 3.9% over the same quarter a year ago, while Brunswick, Georgia was our weakest secondary market with revenues declining 11.0% from the same quarter a year ago.

We believe that the decline in same store revenue will be temporary as we began to see a stabilization in pricing during the third quarter of 2009, and that revenue growth should resume after the economic growth returns and, most importantly, when job growth recommences which some economists project could be as soon as the middle to latter part of 2010. We also believe reduced availability of financing for new apartment construction will likely limit new apartment supply, and more sustainable credit terms for residential mortgages should work to favor rental demand at existing multi-family properties. At the same time, we expect long term demographic trends, including the growth of prime age groups for rentals, immigration, and population movement to the southeast and southwest will continue to build apartment rental demand for our markets.

While it seems likely that we will continue to face weak economic growth as a result of reduced liquidity in the economy throughout 2009 and into the first half of 2010, we think that the supply of new apartments is not excessive, and that positive absorption of apartments will return for most of our markets later in 2010. Should the economy fall into a deeper recession, the limited new supply of apartments and the more disciplined mortgage financing for single family home buying should lessen the impact.

We continue to develop improved products, operating systems and procedures that enable us to capture more revenues. Revenue opportunities in ancillary services (such as re-selling cable television and internet access), improved collections, and utility reimbursements enable us to capture increased revenue dollars.

We also actively work on improving processes and products to reduce expenses, such as new web-sites and internet access for our residents that enable them to transact their business with us more simply and effectively.

During the quarter ended September 30, 2009 we continued to have the benefit of lower interest rates resulting from an improved market for Fannie Mae and Freddie Mac debt securities. Much of this was due to government action to improve liquidity in the credit markets, and resulted in a lower cost of debt for us. We expect this to continue for the remainder of 2009, and as a result, we are forecasting a continuation of favorable interest rates for the balance of 2009.

Liquidity and Capital Resources

Net cash flow provided by operating activities increased from $106.5 million for the first nine months of 2008 to $107.7 million for the first nine months of 2009.

Net cash used in investing activities was approximately $48.5 million during the first nine months of 2009 compared to $225.0 million during the first nine months of 2008, mainly related to acquisition and disposition activity. In the first nine months of 2008, we had cash outflows of $156.1 million, mainly related to five wholly owned acquisitions and $7.4 million, mainly related to our share of two acquisitions purchased by Mid-America Multifamily Fund I, LLC, or Fund I, one of our joint ventures. This compares to cash outflows of approximately $17.9 million in the first nine months of 2009, mainly related to the purchase of one wholly owned property and six individual units of a previous acquisition, and $2.7 million mainly related to our share of an acquisition purchased by Mid-America Multifamily Fund II, LLC, or Fund II, our other joint venture. In the first nine months of 2009, we received a total of approximately $14.4 million from the sale of two properties. No dispositions were made in 2008. We also spent approximately $13.7 million more on development communities during the first nine months of 2008 than in the same period of 2009.

Net cash used in financing activities was approximately $52.2 million for the first nine months of 2009, compared to net cash provided by financing activities of approximately $145.0 million during the first nine months of 2008. During the first nine months of 2008, we received proceeds of approximately $98.6 million from the issuance of shares of common stock through our continuous equity offering program, or CEO, which we use for general corporate business including paying down loans and partially financing acquisitions. During the first nine months of 2009, we received proceeds of approximately $24.6 million through our CEO. During the first nine months of 2008, Mid-America increased our borrowings under our credit lines by approximately $177.2 million, primarily to partially finance the five wholly-owned acquisitions made during that time period. During the comparable period in 2009, Mid-America increased our borrowings by $35.7 million through our credit facilities, primarily to partially finance the single wholly-owned acquisition made during that period.

The weighted average interest rate at September 30, 2009 for the $1.3 billion of debt outstanding was 4.5%, compared to the weighted average interest rate of 5.0% on $1.4 billion of debt outstanding at September 30, 2008. We utilize both conventional and tax exempt debt to help finance our activities. Borrowings are made through individual property mortgages as well as company-wide secured credit facilities. We utilize fixed rate borrowings, interest rate swaps and interest rate caps to manage our current and future interest rate risk. More details on our borrowings can be found in the schedules presented later in this section.

At September 30, 2009, we had secured credit facility relationships with Prudential Mortgage Capital, which are credit-enhanced by the Federal National Mortgage Association, or FNMA, Financial Federal which are credit-enhanced by Federal Home Loan Mortgage Corporation, or Freddie Mac, and a $50 million bank facility with a syndicated group. Together, these credit facilities provided a total line capacity of $1.4 billion and collateralized availability to borrow of nearly all of the $1.4 billion at September 30, 2009. We had total borrowings outstanding under these credit facilities of $1.2 billion at September 30, 2009.

Approximately 70% of our outstanding obligations at September 30, 2009 were borrowed through facilities with/or credit enhanced by FNMA, also referred to as the FNMA Facilities. The FNMA Facilities have a combined line limit of $1.0 billion, all of which was collateralized and available to borrow at September 30, 2009. We had total borrowings outstanding under the FNMA Facilities of approximately $920 million at September 30, 2009. Various traunches of the FNMA Facilities mature from 2011 through 2018. The FNMA Facilities provide for both fixed and variable rate borrowings. The interest rate on the majority of the variable portion is based on the FNMA Discount Mortgage Backed Security, or DMBS, rate which are credit-enhanced by FNMA and are typically sold every 90 days by Prudential Mortgage Capital at interest rates approximating three-month LIBOR less a spread that has averaged 0.17% over the life of the FNMA Facilities, plus a credit enhancement fee of 0.49% to 0.795%. We have seen more volatility in the spread between the DMBS and three-month LIBOR since late 2007 than was historically prevalent. While we feel this recent volatility is an anomaly and believe that this spread will return to more historic levels, we cannot forecast when or if the uncertainty and volatility in the market may change.  On October 1, 2009 the spread below three-month LIBOR was 0.09%.

Approximately 23% of our outstanding obligations at September 30, 2009 were borrowed through facilities with/or credit enhanced by Freddie Mac, also referred to as the Freddie Mac Facilities. The Freddie Mac Facilities have a combined line limit of $300 million, of which $296 million was collateralized and available to borrow at September 30, 2009. We had total borrowings outstanding under the Freddie Mac Facilities of approximately $296 million at September 30, 2009. The Freddie Mac facilities mature in 2011 and 2014. The interest rate on the Freddie Mac Facilities renews every 30 or 90 days and is based on the Freddie Mac Reference Bill Rate on the date of renewal, which has historically approximated the equivalent 30 or 90-day LIBOR, plus a credit enhancement fee of 0.65% to 0.69%. The Freddie Mac Reference Bill rate has traded consistently below LIBOR, and the historical average spread has risen to 0.41% below LIBOR. On October 1, 2009 the spread was 0.16% below LIBOR.

Each of our secured credit facilities is subject to various covenants and conditions on usage, and is subject to periodic re-evaluation of collateral. If we were to fail to satisfy a condition to borrowing, the available credit under one or more of the facilities could not be drawn, which could adversely affect our liquidity. In the event of a reduction in real estate values the amount of available credit could be reduced. Moreover, if we were to fail to make a payment or violate a covenant under a credit facility, after applicable cure periods, one or more of our lenders could declare a default, accelerate the due date for repayment of all amounts outstanding and/or foreclose on properties securing such facilities. Any such event could have a material adverse effect.

The following schedule details the line limits, collateralized availability and the outstanding balances of our various borrowings as of September 30, 2009 (in thousands):

       
Line
 
Amount
 
Amount
       
Limit
   Collateralized
 
Borrowed
FNMA Credit Facilities
 
 $    1,044,429
 
 $      1,044,429
 
 $       919,833
Freddie Mac Credit Facilities
 
          300,000
 
            296,404
 
          296,404
Regions Credit Facility
 
            50,000
 
              48,375
 
                 880
Other Borrowings
 
            97,040
 
              97,040
 
            97,040
   
Total Debt
 
 $ 1,491,469
 
 $   1,486,248
 
 $ 1,314,157

As of September 30, 2009, we had entered into interest rate swaps totaling a notional amount of $883 million. To date, these swaps have proven to be highly effective hedges. We had also entered into interest rate cap agreements totaling a notional amount of approximately $147 million as of September 30, 2009.  See Note 8 of the Consolidated Financial Statements.


The following schedule outlines our variable versus fixed rate debt, including the impact of interest rate swaps and caps, outstanding as of September 30, 2009 (in thousands):

               
Average
   
               
Years to
   
           
Principal
 
Contract
 
Effective
           
Balance
 
Maturity
 
Rate
Conventional - Fixed Rate or Swapped (1)
 
 $       992,435
 
                    3.5
 
5.5%
Tax-free - Fixed Rate or Swapped (1)
 
37,570
 
                    7.5
 
4.7%
Conventional - Variable Rate (2)
   
136,866
 
                    4.8
 
1.1%
Conventional - Variable Rate - Capped  (3)
 
82,936
 
                    5.4
 
0.8%
Tax-free - Variable Rate - Capped (3)
 
64,350
 
                    2.4
 
1.2%
       
Total Debt Outstanding
 
 $ 1,314,157
 
                   3.9
 
4.5%
                     
(1)  Maturities on existing swapped balances are calculated using the life of the underlying variable debt.
(2)  Includes a $15 million mortgage with an imbedded cap at 7%.
     
(3)  When the capped rates are not reached, the average rate represents the rate on the underlying variable debt.

The following schedule outlines the contractual maturity dates of our outstanding debt as of September 30, 2009 (in thousands):
 
   
Line Limit
       
   
Credit Facilities
       
   
Fannie Mae
 
Freddie Mac
 
Regions
 
Other
 
Total
2009
 
 $                   -
 
 $                      -
 
 $                -
 
 $                -
 
 $                -
2010
 
                      -
 
                         -
 
            50,000
 
                   -
 
            50,000
2011
 
              80,000
 
               100,000
 
                   -
 
                   -
 
          180,000
2012
 
              80,000
 
                         -
 
                   -
 
                   -
 
            80,000
2013
 
            203,193
 
                         -
 
                   -
 
                   -
 
          203,193
2014
 
            321,236
 
               200,000
 
                   -
 
            18,521
 
          539,757
2015
 
            120,000
 
                         -
 
                   -
 
            53,052
 
          173,052
Thereafter
 
            240,000
 
                         -
 
                   -
 
            25,467
 
          265,467
Total
 
 $   1,044,429
 
 $          300,000
 
 $       50,000
 
 $       97,040
 
 $ 1,491,469


The following schedule outlines the interest rate maturities of our outstanding interest rate swap agreements and fixed rate debt as of September 30, 2009 (in thousands):
 
     
Swap Balances
     
 Temporary
 
Total
         
SIFMA
 
Fixed Rate
 
Fixed Rate
     
Contract
     
 LIBOR
   (formerly BMA)
 
Balances
 
Balances (1)
 
Balance
 
 Rate
 
2009
 
 $                   -
 
 $                      -
 
 $                  -
 
 $           65,000
 
 $         65,000
 
7.7%
 
2010
 
            140,000
 
                   8,365
 
                   -
 
                      -
 
          148,365
 
5.7%
 
2011
 
            158,000
 
                         -
 
                   -
 
                      -
 
          158,000
 
5.2%
 
2012
 
            150,000
 
                 17,800
 
                   -
 
                      -
 
          167,800
 
5.1%
 
2013
 
            190,000
 
                         -
 
                   -
 
                      -
 
          190,000
 
5.2%
 
2014
 
            144,000
 
                         -
 
            18,521
 
                      -
 
          162,521
 
5.7%
 
2015
 
              75,000
 
                         -
 
            37,852
 
                      -
 
          112,852
 
5.6%
 
Thereafter
 
                      -
 
                         -
 
            25,467
 
                      -
 
            25,467
 
5.6%
 
Total
 
 $       857,000
 
 $            26,165
 
 $       81,840
 
 $         65,000
 
 $ 1,030,005
 
5.5%
                              
 
(1)  Represents a $65 million fixed rate FNMA borrowing that converts to a variable rate on November 1, 2009.
 
During the first nine months of 2008, we sold 1,855,300 shares of common stock through a continuous equity offering program generating net proceeds of approximately $98.6 million. During the same time period in 2009, we sold 591,000 shares of common stock, generating $24.6 million in net proceeds through the continuous equity offering program.

During the first nine months of 2008, Mid-America offered an average 1.5% discount for our Dividend and Distribution Reinvestment and Share Purchase Plan, or DR