Attached files

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EX-12.2 - EXHIBIT 12.2 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit122-maalpq12017.htm
EX-32.2 - EXHIBIT 32.2 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit322-maaq12017.htm
EX-32.4 - EXHIBIT 32.4 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit324-maalpq12017.htm
EX-32.3 - EXHIBIT 32.3 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit323-maalpq12017.htm
EX-32.1 - EXHIBIT 32.1 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit321-maaq12017.htm
EX-31.4 - EXHIBIT 31.4 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit314-maalpq12017.htm
EX-31.3 - EXHIBIT 31.3 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit313-maalpq12017.htm
EX-31.2 - EXHIBIT 31.2 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit312-maaq12017.htm
EX-31.1 - EXHIBIT 31.1 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit311-maaq12017.htm
EX-12.1 - EXHIBIT 12.1 - MID AMERICA APARTMENT COMMUNITIES INC.exhibit121-maaq12017.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017
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 001-12762 (Mid-America Apartment Communities, Inc.)
Commission File Number 333-190028-01 (Mid-America Apartments, L.P.)
MID-AMERICA APARTMENT COMMUNITIES, INC.
MID-AMERICA APARTMENTS, L.P.
(Exact name of registrant as specified in its charter)
Tennessee (Mid-America Apartment Communities, Inc.)
62-1543819
Tennessee (Mid-America Apartments, L.P.)
62-1543816
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
6584 Poplar Avenue, 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.
Mid-America Apartment Communities, Inc.
YES  ý
NO o
Mid-America Apartments, L.P.
YES  ý
NO o
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).
Mid-America Apartment Communities, Inc.
YES  ý
NO o
Mid-America Apartments, L.P.
YES  ý
NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emergency growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Mid-America Apartment Communities, Inc.
 
 
 
 
Large accelerated filer  ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
                                                                               (Do not check if a smaller reporting company)
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Mid-America Apartments, L.P.
 
 
 
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer  ý
Smaller reporting company o
Emerging growth company o
                                                                              (Do not check if a smaller reporting company)
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Mid-America Apartment Communities, Inc.
YES o
NO  ý
Mid-America Apartments, L.P.
YES o
NO  ý

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 at
Class
April 24, 2017
Common Stock, $0.01 par value
113,575,534




MID-AMERICA APARTMENT COMMUNITIES, INC.
MID-AMERICA APARTMENTS, L.P.

TABLE OF CONTENTS

 
 
Page
 PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements.
 
Mid-America Apartment Communities, Inc.
 
 
 
Condensed Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016 (Unaudited).
4
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 (Unaudited) and 2016 (Unaudited).
5
 
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 (Unaudited) and 2016 (Unaudited).
6
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 (Unaudited) and 2016 (Unaudited).
7
Mid-America Apartments, L.P.
 
 
 
Condensed Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016 (Unaudited).
8
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 (Unaudited) and 2016 (Unaudited).
9
 
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 (Unaudited) and 2016 (Unaudited).
10
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 (Unaudited) and 2016 (Unaudited).
11
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited).
12
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
32
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
43
Item 4.
Controls and Procedures.
43
 
 
 
 PART II – OTHER INFORMATION
Item 1.
Legal Proceedings.
45
Item 1A.
Risk Factors.
45
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
45
Item 3.
Defaults Upon Senior Securities.
45
Item 4.
Mine Safety Disclosures.
45
Item 5.
Other Information.
46
Item 6.
Exhibits.
46
 
Signatures.
47
 
Exhibit Index.
49

1



Explanatory Note

This periodic report on Form 10-Q, or this Report, combines the quarterly reports for the quarter ended March 31, 2017 of Mid-America Apartment Communities, Inc., a Tennessee corporation, and Mid-America Apartments, L.P., a Tennessee limited partnership, of which Mid-America Apartment Communities, Inc. is its sole general partner. Mid-America Apartment Communities, Inc. and its 96.4% owned subsidiary, Mid-America Apartments, L.P., are both required to file periodic reports under the Securities Exchange Act of 1934, as amended.

Unless the context otherwise requires, all references in this Report to "MAA" refer only to Mid-America Apartment Communities, Inc., and not to any of its consolidated subsidiaries. Unless the context otherwise requires, all references in this Report to "we," "us," "our," or the "Company" refer collectively to Mid-America Apartment Communities, Inc., together with its consolidated subsidiaries, including Mid-America Apartments, L.P. Unless the context otherwise requires, all references in this Report to the "Operating Partnership" or "MAALP" refer to Mid-America Apartments, L.P. together with its consolidated subsidiaries. "Common stock" refers to the common stock of MAA and "shareholders" means the holders of shares of MAA’s common stock. The common units of limited partnership interest in the Operating Partnership are referred to as "OP Units" and the holders of the OP Units are referred to as "common unitholders".

As of March 31, 2017, MAA owned 113,574,798 OP Units (or approximately 96.4%) of the common units of limited partnership interests in the Operating Partnership. MAA conducts substantially all of its business and holds substantially all of its assets through the Operating Partnership, and by virtue of its ownership of the OP Units and being the Operating Partnership's sole general partner, MAA has the ability to control all of the day-to-day operations of the Operating Partnership.

We believe combining the periodic reports of MAA and the Operating Partnership, including the notes to the condensed consolidated financial statements, into this Report results in the following benefits:

enhances investors' understanding of MAA and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this Report applies to both MAA and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates MAA and the Operating Partnership as one business. The management of the Company is comprised of individuals who are officers of MAA and employees of the Operating Partnership. We believe it is important to understand the few differences between MAA and the Operating Partnership in the context of how MAA and the Operating Partnership operate as a consolidated company. MAA and the Operating Partnership are structured as an "umbrella partnership REIT," or UPREIT. MAA's interest in the Operating Partnership entitles MAA to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to MAA's percentage interest therein and entitles MAA to vote on substantially all matters requiring a vote of the partners. MAA's only material asset is its ownership of limited partnership interests in the Operating Partnership; therefore, MAA does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time-to-time and guaranteeing certain debt of the Operating Partnership. The Operating Partnership holds, directly or indirectly, all of our real estate assets. Except for net proceeds from public equity issuances by MAA, which are contributed to the Operating Partnership in exchange for limited partnership interests, the Operating Partnership gnerates the capital required by the Company's business through the Operating Partnership's operations, direct or indirect incurrence of indebtedness and issuance of partnership units.

The presentation of MAA's shareholders' equity and the Operating Partnership's capital is the principal area of difference between the consolidated financial statements of MAA and those of the Operating Partnership. MAA's shareholders' equity may include shares of preferred stock, shares of common stock, additional paid-in capital, cumulative earnings, cumulative distributions, noncontrolling interests, preferred units, treasury shares, accumulated other comprehensive income and redeemable common units. The Operating Partnership's capital may include common capital and preferred capital of the general partner (MAA), limited partners' common capital and preferred capital, limited partners' noncontrolling interests, accumulated other comprehensive income and redeemable common units. Redeemable common units represent the number of outstanding limited partnership units as of the date of the applicable balance sheet, valued at the greater of the closing market price of MAA's common stock or the aggregate value of the individual partners' capital balances. Holders of OP Units (other than MAA and its entity affiliates) may require us to redeem their OP Units, from time to time, in which case we may, at our option, pay the redemption price either in cash (in an amount per OP Unit equal, in general, to the average closing price of MAA’s common stock on the New York Stock Exchange over a specified period prior to the redemption date) or by delivering one share of MAA's common stock (subject to adjustment under specified circumstances) for each OP Unit so redeemed.

2



In order to highlight the material differences between MAA and the Operating Partnership, this Report includes sections that separately present and discuss areas that are materially different between MAA and the Operating Partnership, including:

the Condensed Consolidated Financial Statements in Item 1 of this Report;
certain accompanying notes to the Condensed Consolidated Financial Statements, including Note 3 - Earnings per Common Share of MAA and Note 4 - Earnings per OP Unit of MAALP; Note 5 - MAA Equity and Note 6 - MAALP Capital; and Note 10 - Shareholders' Equity of MAA and Note 11 - Partners' Capital of MAALP; and
the certifications of the Chief Executive Officer and Chief Financial Officer of MAA included as Exhibits 31 and 32 to this Report.

In the sections that combine disclosure for MAA and the Operating Partnership, this Report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership (directly or indirectly through one of its subsidiaries) is generally the entity that enters into contracts, holds assets and issues debt, management believes this presentation is appropriate for the reasons set forth above and because the business is one enterprise, and we operate the business through the Operating Partnership.


3




Mid-America Apartment Communities, Inc.
Condensed Consolidated Balance Sheets
March 31, 2017 and December 31, 2016
(Unaudited)
(Dollars in thousands, except share data)
 
March 31, 2017
 
December 31, 2016
Assets:
 
 
 
Real estate assets:
 
 
 
Land
$
1,825,223

 
$
1,816,008

Buildings and improvements
10,636,260

 
10,523,762

Furniture, fixtures and equipment
307,463

 
298,204

Development and capital improvements in progress
242,286

 
231,224

 
13,011,232

 
12,869,198

Less accumulated depreciation
(1,768,527
)
 
(1,656,071
)
 
11,242,705

 
11,213,127

 
 
 
 
Undeveloped land
71,464

 
71,464

Corporate properties, net
12,350

 
12,778

Investments in real estate joint ventures
44,629

 
44,493

Real estate assets, net
11,371,148

 
11,341,862

 
 
 
 
Cash and cash equivalents
33,959

 
33,536

Restricted cash
24,540

 
88,264

Deferred financing costs, net
4,679

 
5,065

Other assets
124,134

 
134,525

Goodwill
1,239

 
1,239

Total assets
$
11,559,699

 
$
11,604,491

 
 
 
 
Liabilities and equity:
 

 
 

Liabilities:
 

 
 

Unsecured notes payable
$
3,260,686

 
$
3,180,624

Secured notes payable
1,296,498

 
1,319,088

Accounts payable
13,346

 
11,970

Fair market value of interest rate swaps
5,001

 
7,562

Accrued expenses and other liabilities
368,785

 
414,244

Security deposits
19,419

 
18,829

Total liabilities
4,963,735

 
4,952,317

 
 
 
 
Redeemable common stock
9,132

 
10,073

 
 
 
 
Shareholders' equity:
 

 
 

Preferred stock, $0.01 par value per share, 20,000,000 shares authorized; 8.50% Series I Cumulative Redeemable Shares, liquidation preference $50 per share, 867,846 and 867,846 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
9

 
9

Common stock, $0.01 par value per share, 145,000,000 shares authorized; 113,574,798 and 113,518,212 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively(1)
1,134

 
1,133

Additional paid-in capital
7,111,445

 
7,109,012

Accumulated distributions in excess of net income
(765,749
)
 
(707,479
)
Accumulated other comprehensive income
4,223

 
1,144

Total MAA shareholders' equity
6,351,062

 
6,403,819

Noncontrolling interests - operating partnership units
233,464

 
235,976

Total Company's shareholders' equity
6,584,526

 
6,639,795

Noncontrolling interests - consolidated real estate entity
$
2,306

 
$
2,306

Total equity
$
6,586,832

 
$
6,642,101

Total liabilities and equity
$
11,559,699

 
$
11,604,491

(1) 
Number of shares issued and outstanding represents total shares of common stock regardless of classification on the condensed consolidated balance sheets. The number of shares classified as redeemable stock on the condensed consolidated balance sheets at March 31, 2017 and December 31, 2016 are 90,217 and 103,578, respectively.
See accompanying notes to condensed consolidated financial statements.

4



Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Operations
Three months ended March 31, 2017 and 2016
(Unaudited)
(Dollars in thousands, except per share data)
 
Three months ended March 31,
 
2017
 
2016
Operating revenues:
 
 
 
Rental revenues
$
351,177

 
$
245,665

Other property revenues
27,731

 
23,351

Total operating revenues
378,908

 
269,016

Property operating expenses:
 

 
 

Personnel
33,373

 
25,197

Building repairs and maintenance
9,813

 
6,099

Real estate taxes and insurance
53,973

 
35,172

Utilities
26,897

 
22,136

Landscaping
6,522

 
5,321

Other operating
10,695

 
6,956

Depreciation and amortization
129,997

 
75,127

Total property operating expenses
271,270

 
176,008

Acquisition expenses

 
713

Property management expenses
10,981

 
9,004

General and administrative expenses
12,840

 
6,582

Merger related expenses
2,871

 

Integration related expenses
3,290

 

Income from continuing operations before non-operating items
77,656

 
76,709

Interest and other non-property income
2,679

 
32

Interest expense
(36,584
)
 
(32,211
)
Gain on debt extinguishment
123

 
3

Net casualty loss after insurance and other settlement proceeds
(91
)
 
(947
)
(Loss) gain on sale of depreciable real estate assets
(73
)
 
755

Gain on sale of non-depreciable real estate assets

 
1,627

Income before income tax expense
43,710

 
45,968

Income tax expense
(651
)
 
(288
)
Income from continuing operations before joint venture activity
43,059

 
45,680

Gain from real estate joint ventures
357

 
128

Net income
43,416

 
45,808

Net income attributable to noncontrolling interests
1,511

 
2,395

Net income available for shareholders
41,905

 
43,413

Dividends to MAA Series I preferred shareholders
922

 

Net income available for MAA common shareholders
$
40,983

 
$
43,413

 
 
 
 
Earnings per common share - basic:
 

 
 

Net income available for common shareholders
$
0.36

 
$
0.58

 
 
 
 
Earnings per common share - diluted:
 

 
 

Net income available for common shareholders
$
0.36

 
$
0.58

 
 
 
 
Dividends declared per common share
$
0.87

 
$
0.82


See accompanying notes to condensed consolidated financial statements.

5



Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Comprehensive Income
Three months ended March 31, 2017 and 2016
(Unaudited)
(Dollars in thousands)
 
Three months ended March 31,
 
2017
 
2016
Net income
$
43,416

 
$
45,808

Other comprehensive income:
 
 
 
Unrealized gain (loss) from the effective portion of derivative instruments
2,520

 
(3,705
)
Reclassification adjustment for net losses included in net income for the effective portion of derivative instruments
672

 
1,186

Total comprehensive income
46,608

 
43,289

Less: comprehensive income attributable to noncontrolling interests
(1,624
)
 
(2,263
)
Comprehensive income attributable to MAA
$
44,984

 
$
41,026

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.



6




Mid-America Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2017 and 2016
(Unaudited)
(Dollars in thousands)
 
Three months ended March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
43,416

 
$
45,808

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Retail revenue accretion
(98
)
 
(91
)
Depreciation and amortization
130,082

 
75,148

Stock compensation expense
3,018

 
1,885

Redeemable stock expense
243

 
186

Amortization of debt premium and debt issuance costs
(3,147
)
 
(2,656
)
Gain from investments in real estate joint ventures
(357
)
 
(128
)
Gain on debt extinguishment
(124
)
 

Derivative interest credit
(3,551
)
 
(616
)
Gain on sale of non-depreciable real estate assets

 
(1,627
)
Loss (gain) on sale of depreciable real estate assets
73

 
(755
)
Net casualty loss and other settlement proceeds
91

 
947

Changes in assets and liabilities:
 

 
 

Restricted cash
5,465

 
4,442

Other assets
175

 
(1,666
)
Accounts payable
1,376

 
2,300

Accrued expenses and other
(39,121
)
 
(19,496
)
Security deposits
475

 
404

Net cash provided by operating activities
138,016

 
104,085

Cash flows from investing activities:
 

 
 

Purchases of real estate and other assets
(62,817
)
 
(61,930
)
Normal capital improvements
(15,850
)
 
(16,190
)
Construction capital and other improvements
(3,327
)
 
(984
)
Renovations to existing real estate assets
(7,331
)
 
(7,692
)
Development
(59,830
)
 
(13,020
)
Distributions from real estate joint ventures
221

 
1,418

Proceeds from disposition of real estate assets

 
32,481

Return of escrow for future acquisitions
58,259

 

Net cash used in investing activities
(90,675
)
 
(65,917
)
Cash flows from financing activities:
 

 
 

Net change in credit lines
80,000

 
55,000

Principal payments on notes payable
(18,871
)
 
(35,494
)
Payment of deferred financing costs

 
(139
)
Repurchase of common stock
(4,734
)
 
(1,730
)
Proceeds from issuances of common shares
67

 
90

Distributions to noncontrolling interests
(3,667
)
 
(3,413
)
Dividends paid on common shares
(98,791
)
 
(61,857
)
Dividends paid on preferred shares
(922
)
 

Net cash used in financing activities
(46,918
)
 
(47,543
)
Net increase (decrease) in cash and cash equivalents
423

 
(9,375
)
Cash and cash equivalents, beginning of period
33,536

 
37,559

Cash and cash equivalents, end of period
$
33,959

 
$
28,184

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
24,785

 
$
25,114

Income taxes paid
$
10

 
$
19

Supplemental disclosure of noncash investing and financing activities:
 

 
 

Conversion of OP Units to shares of common stock
$
167

 
$
33

Accrued construction in progress
$
21,810

 
$
12,307

Interest capitalized
$
2,020

 
$
380

Mark-to-market adjustment on derivative instruments
$
6,743

 
$
(1,903
)

See accompanying notes to condensed consolidated financial statements.

7




Mid-America Apartments, L.P.
Condensed Consolidated Balance Sheets
March 31, 2017 and December 31, 2016
(Unaudited)
(Dollars in thousands, except unit data)
 
March 31, 2017
 
December 31, 2016
Assets:
 
 
 
Real estate assets:
 
 
 
Land
$
1,825,223

 
$
1,816,008

Buildings and improvements
10,636,260

 
10,523,762

Furniture, fixtures and equipment
307,463

 
298,204

Development and capital improvements in progress
242,286

 
231,224

 
13,011,232

 
12,869,198

Less accumulated depreciation
(1,768,527
)
 
(1,656,071
)
 
11,242,705

 
11,213,127

 
 
 
 
Undeveloped land
71,464

 
71,464

Corporate properties, net
12,350

 
12,778

Investments in real estate joint ventures
44,629

 
44,493

Real estate assets, net
11,371,148

 
11,341,862

 
 
 
 
Cash and cash equivalents
33,959

 
33,536

Restricted cash
24,540

 
88,264

Deferred financing costs, net
4,679

 
5,065

Other assets
124,134

 
134,525

Goodwill
1,239

 
1,239

Total assets
$
11,559,699

 
$
11,604,491

 
 
 
 
Liabilities and Capital:
 

 
 

Liabilities:
 

 
 

Unsecured notes payable
$
3,260,686

 
$
3,180,624

Secured notes payable
1,296,498

 
1,319,088

Accounts payable
13,346

 
11,970

Fair market value of interest rate swaps
5,001

 
7,562

Accrued expenses and other liabilities
368,785

 
414,244

Security deposits
19,419

 
18,829

Due to general partner
19

 
19

Total liabilities
4,963,754

 
4,952,336

 
 
 
 
Redeemable common units
9,132

 
10,073

 
 
 
 
Operating Partnership Capital:
 

 
 

Preferred Units: 867,846 Preferred Units outstanding at March 31, 2017 and 867,846 Preferred Units outstanding at December 31, 2016.
66,840

 
64,833

Common Units:
 
 
 
General partner: 113,574,798 OP Units outstanding at March 31, 2017 and 113,518,212 OP Units outstanding at December 31, 2016 (1)
6,279,765

 
6,337,721

Limited partners: 4,217,444 OP Units outstanding at March 31, 2017 and 4,220,403 OP Units outstanding at December 31, 2016 (1)
233,464

 
235,976

Accumulated other comprehensive income
4,438

 
1,246

Total operating partners' capital
6,584,507

 
6,639,776

Noncontrolling interests - consolidated real estate entity
2,306

 
2,306

Total capital
6,586,813

 
6,642,082

Total liabilities and capital
$
11,559,699

 
$
11,604,491

(1) 
Number of units outstanding represents total OP Units regardless of classification on the condensed consolidated balance sheets. The number of OP Units classified as redeemable units on the condensed consolidated balance sheets at March 31, 2017 and December 31, 2016 are 90,217 and 103,578, respectively.
See accompanying notes to condensed consolidated financial statements.

8



Mid-America Apartments, L.P.
Condensed Consolidated Statements of Operations
Three months ended March 31, 2017 and 2016
(Unaudited)
(Dollars in thousands, except per unit data)
 
Three months ended March 31,
 
2017
 
2016
Operating revenues:
 
 
 
Rental revenues
$
351,177

 
$
245,665

Other property revenues
27,731

 
23,351

Total operating revenues
378,908

 
269,016

Property operating expenses:
 

 
 

Personnel
33,373

 
25,197

Building repairs and maintenance
9,813

 
6,099

Real estate taxes and insurance
53,973

 
35,172

Utilities
26,897

 
22,136

Landscaping
6,522

 
5,321

Other operating
10,695

 
6,956

Depreciation and amortization
129,997

 
75,127

Total property operating expenses
271,270

 
176,008

Acquisition expenses

 
713

Property management expenses
10,981

 
9,004

General and administrative expenses
12,840

 
6,582

Merger related expenses
2,871

 

Integration related expenses
3,290

 

Income from continuing operations before non-operating items
77,656

 
76,709

Interest and other non-property income
2,679

 
32

Interest expense
(36,584
)
 
(32,211
)
Gain on debt extinguishment
123

 
3

Net casualty loss after insurance and other settlement proceeds
(91
)
 
(947
)
(Loss) gain on sale of depreciable real estate assets
(73
)
 
755

Gain on sale of non-depreciable real estate assets

 
1,627

Income before income tax expense
43,710

 
45,968

Income tax expense
(651
)
 
(288
)
Income from continuing operations before joint venture activity
43,059

 
45,680

Gain from real estate joint ventures
357

 
128

Net income
43,416

 
45,808

Dividends to preferred unitholders
922

 

Net income available for Mid-America Apartments, L.P. common unitholders
$
42,494

 
$
45,808

 
 
 
 
Earnings per common unit - basic:
 

 
 

Net income available for common unitholders
$
0.36

 
$
0.61

 
 
 
 
Earnings per common unit - diluted:
 

 
 

Net income available for common unitholders
$
0.36

 
$
0.61

 
 
 
 
Distributions declared per common unit
$
0.87

 
$
0.82


See accompanying notes to condensed consolidated financial statements.

9



Mid-America Apartments, L.P.
Condensed Consolidated Statements of Comprehensive Income
Three months ended March 31, 2017 and 2016
(Unaudited)
(Dollars in thousands)
 
Three months ended March 31,
 
2017
 
2016
Net income
$
43,416

 
$
45,808

Other comprehensive income:
 
 
 
Unrealized gain (loss) from the effective portion of derivative instruments
2,520

 
(3,705
)
Reclassification adjustment for net losses included in net income for the effective portion of derivative instruments
672

 
1,186

Comprehensive income attributable to Mid-America Apartments, L.P.
$
46,608

 
$
43,289

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.


10



Mid-America Apartments, L.P.
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2017 and 2016
(Unaudited)
(Dollars in thousands)
 
Three months ended March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
43,416

 
$
45,808

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Retail revenue accretion
(98
)
 
(91
)
Depreciation and amortization
130,082

 
75,148

Stock compensation expense
3,018

 
1,885

Redeemable units expense
243

 
186

Amortization of debt premium and debt issuance costs
(3,147
)
 
(2,656
)
Gain from investments in real estate joint ventures
(357
)
 
(128
)
Gain on debt extinguishment
(124
)
 

Derivative interest credit
(3,551
)
 
(616
)
Gain on sale of non-depreciable real estate assets

 
(1,627
)
Loss (gain) on sale of depreciable real estate assets
73

 
(755
)
Net casualty loss and other settlement proceeds
91

 
947

Changes in assets and liabilities:
 
 
 
Restricted cash
5,465

 
4,442

Other assets
175

 
(1,666
)
Accounts payable
1,376

 
2,300

Accrued expenses and other
(39,121
)
 
(19,496
)
Security deposits
475

 
404

Net cash provided by operating activities
138,016

 
104,085

Cash flows from investing activities:
 

 
 

Purchases of real estate and other assets
(62,817
)
 
(61,930
)
Normal capital improvements
(15,850
)
 
(16,190
)
Construction capital and other improvements
(3,327
)
 
(984
)
Renovations to existing real estate assets
(7,331
)
 
(7,692
)
Development
(59,830
)
 
(13,020
)
Distributions from real estate joint ventures
221

 
1,418

Proceeds from disposition of real estate assets

 
32,481

Return of escrow for future acquisitions
58,259

 

Net cash used in investing activities
(90,675
)
 
(65,917
)
Cash flows from financing activities:
 

 
 

Net change in credit lines
80,000

 
55,000

Principal payments on notes payable
(18,871
)
 
(35,494
)
Payment of deferred financing costs

 
(139
)
Repurchase of common units
(4,734
)
 
(1,730
)
Distributions paid on preferred units
(922
)
 

Proceeds from issuances of common units
67

 
90

Distributions paid on common units
(102,458
)
 
(65,270
)
Net cash used in financing activities
(46,918
)
 
(47,543
)
Net increase (decrease) in cash and cash equivalents
423

 
(9,375
)
Cash and cash equivalents, beginning of period
33,536

 
37,559

Cash and cash equivalents, end of period
$
33,959

 
$
28,184

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
24,785

 
$
25,114

Income taxes paid
$
10

 
$
19

Supplemental disclosure of noncash investing and financing activities:
 
 
 
Accrued construction in progress
$
21,810

 
$
12,307

Interest capitalized
$
2,020

 
$
380

Mark-to-market adjustment on derivative instruments
$
6,743

 
$
(1,903
)

See accompanying notes to condensed consolidated financial statements.

11



Mid-America Apartment Communities, Inc. and Mid-America Apartments, L.P.
Notes to Condensed Consolidated Financial Statements
March 31, 2017 and 2016
(Unaudited)


1.           Basis of Presentation and Principles of Consolidation and Significant Accounting Policies

Unless the context otherwise requires, all references to "we," "us," "our," or the "Company" refer collectively to Mid-America Apartment Communities, Inc., together with its consolidated subsidiaries, including Mid-America Apartments, L.P. Unless the context otherwise requires, all references to "MAA" refer only to Mid-America Apartment Communities, Inc. and not any of its consolidated subsidiaries. Unless the context otherwise requires, all references to the "Operating Partnership" or "MAALP" refer to Mid-America Apartments, L.P. together with its consolidated subsidiaries. "Common stock" refers to the common stock of MAA and "shareholders" means the holders of shares of MAA’s common stock. The common units of limited partnership interests in the Operating Partnership are referred to as "OP Units," and the holders of the OP Units are referred to as "common unitholders".

As of March 31, 2017, MAA owned 113,574,798 common units (or approximately 96.4%) of the limited partnership interests in the Operating Partnership. MAA conducts substantially all of its business and holds substantially all of its assets through the Operating Partnership, and by virtue of its ownership of the OP Units and being the Operating Partnership's sole general partner, MAA has the ability to control all of the day-to-day operations of the Operating Partnership.

We believe combining the notes to the condensed consolidated financial statements of MAA and MAALP results in the following benefits:

enhances a readers' understanding of MAA and the Operating Partnership by enabling the reader to view the business as a whole in the same manner that management views and operates the business; and
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both MAA and the Operating Partnership.

Management operates MAA and the Operating Partnership as one business. The management of the Company is comprised of individuals who are officers of MAA and employees of the Operating Partnership. We believe it is important to understand the few differences between MAA and the Operating Partnership in the context of how MAA and the Operating Partnership operate as a consolidated company. MAA and the Operating Partnership are structured as an "umbrella partnership REIT," or UPREIT. MAA's interest in the Operating Partnership entitles MAA to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to MAA's percentage interest therein, and entitles MAA to vote on substantially all matters requiring a vote of the partners. MAA's only material asset is its ownership of limited partner interests in the Operating Partnership; therefore, MAA does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time, and guaranteeing certain debt of the Operating Partnership. The Operating Partnership holds, directly or indirectly, all of our real estate assets. Except for net proceeds from public equity issuances by MAA, which are contributed to the Operating Partnership in exchange for OP Units, the Operating Partnership generates the capital required by our business through the Operating Partnership's operations, direct or indirect incurrence of indebtedness, and issuance of OP units.

The presentation of MAA's shareholders' equity and the Operating Partnership's capital is the principal area of difference between the condensed consolidated financial statements of MAA and those of the Operating Partnership. MAA's shareholders' equity may include shares of preferred stock, shares of common stock, additional paid-in capital, cumulative earnings, cumulative distributions, noncontrolling interests, preferred units, treasury shares, accumulated other comprehensive income and redeemable common units. The Operating Partnership's capital may include common capital and preferred capital of the general partner (MAA), limited partners' preferred capital, limited partners' noncontrolling interests, accumulated other comprehensive income and redeemable common units. Redeemable common units represent the number of outstanding OP Units as of the date of the applicable balance sheet, valued at the greater of the closing market price of MAA's common stock or the aggregate value of the individual partners' capital balances. Holders of OP Units (other than MAA and its corporate affiliates) may require us to redeem their OP Units from time to time, in which case we may, at our option, pay the redemption price either in cash (in an amount per OP Unit equal, in general, to the average closing price of MAA's common stock on the New York Stock Exchange over a specified period prior to the redemption date) or by delivering one share of our common stock (subject to adjustment under specified circumstances) for each OP Unit so redeemed.



12



Organization of Mid-America Apartment Communities, Inc.

On December 1, 2016, MAA completed a merger with Post Properties, Inc. ("Post Properties"). Pursuant to the Agreement and Plan of Merger, the "Merger Agreement," Post Properties merged with and into MAA, with MAA continuing as the surviving corporation, the "Parent Merger", and Post LP merged with and into MAALP, with MAALP continuing as the surviving entity, the "Partnership Merger". We refer to the Parent Merger, together with the Partnership Merger, as the Merger in this Quarterly Report on Form 10-Q. Under the terms of the Merger Agreement, each share of Post Properties common stock was converted into the right to receive 0.71 of a newly issued share of MAA common stock including the right, if any, to receive cash in lieu of fractional shares of MAA common stock. In addition, each limited partner interest in Post LP designated as a "Class A Unit" automatically converted into the right to receive 0.71 of a newly issued partnership unit of MAALP. Also, each share of Post Properties 8 1/2% Series A Cumulative Redeemable Preferred Stock, which we refer to as the Post Properties Series A preferred stock, was automatically converted into the right to receive one newly issued share of MAA's 8.50% Series I Cumulative Redeemable Preferred Stock, $0.01 par value per share, which we refer to as MAA Series I preferred stock. Each newly issued share of MAA Series I preferred stock has the same rights, preferences, privileges, and voting powers as those of the Post Properties Series A preferred stock.

As of March 31, 2017, we owned and operated 303 apartment communities, comprising 99,794 apartments located in 16 states, through the Operating Partnership. As of March 31, 2017, we also owned a 35.0% interest in an unconsolidated real estate joint venture.

As of March 31, 2017, we had seven development communities under construction totaling 2,420 units. Total expected costs for the development projects are $505.4 million, of which $376.7 million has been incurred through March 31, 2017. We expect to complete construction on two projects by the second quarter of 2017, two projects by the fourth quarter of 2017, two projects by the first quarter of 2018, and one project by the third quarter of 2018. Twenty-nine of our multifamily properties include retail components with approximately 600,000 square feet of gross leasable area. We also have two wholly owned commercial office properties and two wholly owned separate retail properties, which we acquired through the Merger, with approximately 269,000 square feet of combined gross leasable area.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared by our management in accordance with United States generally accepted accounting principles, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or the SEC. The condensed consolidated financial statements of MAA presented herein include the accounts of MAA, the Operating Partnership, and all other subsidiaries in which MAA has a controlling financial interest. MAA owns approximately 92.5% to 100% of all consolidated subsidiaries, including the Operating Partnership. The condensed consolidated financial statements of MAALP presented herein include the accounts of MAALP and all other subsidiaries in which MAALP has a controlling financial interest. MAALP owns, directly or indirectly, 100% of all consolidated subsidiaries. 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.
 
We invest in entities which may qualify as variable interest entities, or VIEs, and the limited partnership is considered a VIE. A VIE is a legal entity in which the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack the power to direct the activities of a legal entity as well as the obligation to absorb its expected losses or the right to receive its expected residual returns. The limited partnership is classified as a VIE, since the limited partners lack substantive kick-out rights and substantive participating rights. We consolidate all VIEs for which we are the primary beneficiary and use the equity method to account for investments that qualify as VIEs but for which we are not the primary beneficiary. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including but not limited to, those activities that most significantly impact the VIE's economic performance and which party controls such activities.

We use the equity method of accounting for our investments in entities for which we exercise significant influence, but do not have the ability to exercise control. The factors considered in determining that we do not have the ability to exercise control include ownership of voting interests and participatory rights of investors (see "Investment in Unconsolidated Real Estate Joint Ventures" below).





13




Noncontrolling Interests

At March 31, 2017, the Company had two types of noncontrolling interests, (1) noncontrolling interests related to the common unitholders of the Operating Partnership (see Note 11) and (2) noncontrolling interests related to its consolidated real estate entities (see "Investment in Consolidated Real Estate Joint Ventures" below).

Investment in Unconsolidated Real Estate Joint Ventures

Immediately prior to the effective date of the Merger, Post Properties together with other institutional investors, in a limited liability company, or the Apartment LLC, that owned one apartment community located in Washington, D.C.  Post Properties had a 35.0% equity interest in this unconsolidated joint venture, which we retained immediately following the effectiveness of the Merger and as of March 31, 2017. We provides property and asset management services to the Apartment LLC for which we earn fees.

This joint venture was determined to be a VIE, but we are not designated as a primary beneficiary. As a result, we account for our investment in the Apartment LLC using the equity method of accounting as we are able to exert significant influence, but do not have a controlling interest in this joint venture.  At March 31, 2017, our investment in the Apartment LLC totaled $44.6 million.  

Investment in Consolidated Real Estate Joint Ventures

In 2015, Post Properties entered into a joint venture arrangement with a private real estate company to develop, construct and operate a 358-unit apartment community in Denver, Colorado. At March 31, 2017, we owned a 92.5% equity interest in the consolidated joint venture. In 2015, this joint venture acquired the land site and initiated the development of the apartment community. The venture partner will generally be responsible for the development and construction of the community and we will continue to manage the community upon its completion. This joint venture was determined to be a VIE with us designated as the primary beneficiary. As a result, the accounts of the joint venture are consolidated by us. At March 31, 2017, our consolidated assets, liabilities and equity included construction in progress of $43.3 million, land of $14.5 million, and accounts payable and accrued expenses of $6.7 million.

2.    Business Combinations

On December 1, 2016, we completed the Merger. As part of the Merger, we acquired 61 wholly-owned apartment communities comprising 24,138 units, including 269 apartment units in one community held in an unconsolidated entity, and 2,266 apartment units in six communities currently under development. Post Properties had operations in ten markets across the United States. In addition to the apartment communities, we also acquired four commercial properties, which include two commercial office properties and two retail properties, totaling approximately 269,000 square feet. The consolidated net assets and results of operations of Post Properties are included in our consolidated financial statements from the closing date, December 1, 2016, going forward.

The total purchase price of approximately $4.0 billion was determined based on the number of shares of Post Properties' common stock, the number of shares of Post Properties’ Series A preferred stock, and shares of Post LP's Class A Units of limited partnership interest outstanding as of December 1, 2016, in addition to cash consideration provided by the Operating Partnership immediately prior to the Merger to pay off a $300.0 million Post LP unsecured term loan and a $162.0 million Post LP line of credit, both outstanding from Wells Fargo. In all cases in which MAA’s common stock price was a determining factor in arriving at final consideration for the Merger, the stock price used to determine the purchase price was the opening price of MAA’s common stock on December 1, 2016 ($91.41 per share). The MAA Series I preferred stock consideration was valued at $74.69 per share, which excludes a $14.24 per share bifurcated call option (See Notes 8 & 9). The total purchase price also included $2.0 million of other consideration, a majority of which related to assumed stock compensation plans. As a result of the Merger, we issued approximately 38.0 million shares of MAA common stock, approximately 80,000 OP Units, and approximately 868,000 newly issued shares of MAA’s 8.50% Series I preferred stock.

The Merger has been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification, or ASC, 805, Business Combinations, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair values.

For larger, portfolio style acquisitions, like the Merger, management engages a third party valuation specialist to assist with the fair value assessment, which includes an allocation of the purchase price. Similar to management's methods, the third party uses

14



cash flow analysis as well as an income approach and a market approach to determine the fair value of assets acquired. The third party uses stabilized net operating income, or NOI, and market specific capitalization and discount rates. Management reviews the inputs used by the third party specialist as well as the allocation of the purchase price provided by the third party to ensure reasonableness and that the procedures are performed in accordance with management's policy. The allocation of the purchase price is based on management’s assessment, which may differ as more information becomes available. Subsequent adjustments made to the purchase price allocation, if any, are made within the allocation period, which typically does not exceed one year.

The allocation of the purchase price described above requires a significant amount of judgment and represents management's best estimate of the fair value as of the acquisition date. The following preliminary purchase price allocation for the Merger, which reflects updates primarily to increased real estate asset values and derivative asset values on the preferred share bifurcated call option from our December 31, 2016 estimates, was based on our valuation as well as estimates and assumptions of the acquisition date fair value of the tangible and intangible assets acquired and liabilities assumed.

The purchase price was allocated as follows (in thousands):
Land
$
876,473

Buildings and improvements
3,402,061

Furniture, fixtures and equipment
81,243

Development and capital improvements in progress
183,881

Undeveloped land
24,200

Commercial properties, net
3,610

Investment in real estate joint venture
44,435

Lease intangible assets
53,192

Cash and cash equivalents
34,292

Restricted cash
3,608

Deferred costs and other assets, excluding lease intangible assets
42,052

Total assets acquired
4,749,047

 
 
Notes payable
(595,609)

Fair market value of interest rate swaps
(2,118)

Lease intangible liabilities
(1,661)

Accounts payable, accrued expenses, and other liabilities
(138,760)

Total liabilities assumed, including debt
(738,148
)
 
 
Noncontrolling interests - consolidated real estate entity
(2,306
)
 
 
Total purchase price
$
4,008,593


The purchase price accounting reflected in the accompanying financial statements is based upon estimates and assumptions that are subject to change within the measurement period, pursuant to ASC 805. See Note 12, for loss contingencies identified, measured, and included in "Accounts payable, accrued expenses, and other liabilities" in the allocation above. We have preliminarily completed our valuation procedures. Adjustments may still occur as the valuation and revised preliminary purchase allocation is finalized in areas such as real estate related assets and liabilities, equity investments, litigation reserves, debt and debt related instruments, and certain other acquired assets and liabilities assumed.

We incurred Merger and integration related expenses of $6.2 million for the three months ended March 31, 2017. These amounts were expensed as incurred and are included in the Condensed Consolidated Statements of Operations in the items titled "Merger related expenses", primarily consisting of severance and professional costs, and "Integration related expenses", primarily consisting of temporary systems, staffing, and facilities costs.

15



3.    Earnings per Common Share of MAA

Basic earnings per share is computed by dividing net income available for MAA common shareholders by the weighted average number of shares outstanding during the period.  All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share. Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis with our diluted earnings per share being the more dilutive of the treasury stock or two-class methods.  OP Units are included in dilutive earnings per share calculations when they are dilutive to earnings per share. For the three months ended March 31, 2017 and 2016, MAA's basic earnings per share was computed using the two-class method, and MAA's diluted earnings per share was computed using the more dilutive of the treasury stock method or two-class method, as presented below:
(dollars and shares in thousands, except per share amounts)
Three months ended March 31,
 
 
2017
 
2016
 
Shares Outstanding
 
 
 
 
Weighted average common shares - basic
113,338

 
75,249

 
Weighted average partnership units outstanding
4,219

 

(1) 
Effect of dilutive securities
307

 
240

 
Weighted average common shares - diluted
117,864

 
75,489

 
 
 
 
 
 
Calculation of Earnings per Share - basic
 

 
 

 
Net Income
$
43,416

 
$
45,808

 
Net Income attributable to noncontrolling interests
(1,511
)
 
(2,395
)
 
Unvested restricted stock (allocation of earnings)
(73
)
 
(103
)
 
Preferred dividends
(922
)
 

 
Net income available for common shareholders, adjusted
$
40,910

 
$
43,310

 
 
 
 
 
 
Weighted average common shares - basic
113,338

 
75,249

 
Earnings per share - basic
$
0.36

 
$
0.58

 
 
 
 
 
 
Calculation of Earnings per Share - diluted
 

 
 

 
Net Income
$
43,416

 
$
45,808

 
Net income attributable to noncontrolling interests

 
(2,395
)
(1) 
Preferred dividends
(922
)
 

 
Net income available for common shareholders, adjusted
$
42,494

 
$
43,413

 
 
 
 
 
 
Weighted average common shares - diluted
117,864

 
75,489

 
Earnings per share - diluted
$
0.36

 
$
0.58

 

(1) For the three months ended March 31, 2016, 4.2 million OP Units and their related income are not included in the diluted earnings per share calculations as they are not dilutive.


16



4.    Earnings per OP Unit of MAALP

Basic earnings per OP Unit is computed by dividing net income available for common unitholders by the weighted average number of OP Units outstanding during the period. All outstanding unvested restricted unit awards contain rights to non-forfeitable distributions and participate in undistributed earnings with common unitholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per OP unit. Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units. A reconciliation of the numerators and denominators of the basic and diluted earnings per OP Unit computations for the three months ended March 31, 2017 and 2016 is presented below:

(dollars and units in thousands, except per unit amounts)
Three months ended March 31,
 
2017
 
2016
Units Outstanding
 
 
 
Weighted average common units - basic
117,557

 
75,249

Effect of dilutive securities
307

 
240

Weighted average common units - diluted
117,864

 
75,489

 
 
 
 
Calculation of Earnings per Unit - basic
 

 
 

Net Income
$
43,416

 
$
45,808

Unvested restricted stock (allocation of earnings)
(73
)
 
(110
)
Preferred unit distributions
(922
)
 

Net income available for common unitholders, adjusted
$
42,421

 
$
45,698

 
 
 
 
Weighted average common units - basic
117,557

 
75,249

Earnings per common unit - basic
$
0.36

 
$
0.61

 
 
 
 
Calculation of Earnings per Unit - diluted
 

 
 

Net Income
$
43,416

 
$
45,808

Preferred unit distributions
(922
)
 

Net income available for common unitholders, adjusted
$
42,494

 
$
45,808

 
 
 
 
Weighted average common units - diluted
117,864

 
75,489

Earnings per common unit - diluted
$
0.36

 
$
0.61



17



5.    MAA Equity

Changes in total equity and its components for the three-month periods ended March 31, 2017 and 2016 were as follows (dollars in thousands, except per share and per unit data):

  
Mid-America Apartment Communities, Inc. Shareholders' Equity
 
 
 
 
 
 
 
Preferred Stock Amount
 
Common
Stock
Amount
 
Additional
Paid-In
Capital
 
Accumulated
Distributions
in Excess of
Net Income
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interest Operating Partnership
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total
Equity
EQUITY BALANCE DECEMBER 31, 2016
$
9

 
$
1,133

 
$
7,109,012

 
$
(707,479
)
 
$
1,144

 
$
235,976

 
$
2,306

 
$
6,642,101

Net income attributable to controlling interest

 

 

 
41,905

 

 
1,511

 

 
43,416

Other comprehensive income - derivative instruments (cash flow hedges)

 

 

 

 
3,079

 
113

 

 
3,192

Issuance and registration of common shares

 
1

 
67

 

 

 

 

 
68

Issuance and registration of preferred shares

 

 
2,007

 

 

 

 

 
2,007

Shares repurchased and retired

 

 
(4,734
)
 

 

 

 

 
(4,734
)
Shares issued in exchange for common units

 

 
167

 

 

 
(167
)
 

 

Shares issued in exchange for redeemable stock

 

 
1,482

 

 

 

 

 
1,482

Redeemable stock fair market value adjustment

 

 

 
(298
)
 

 

 

 
(298
)
Adjustment for noncontrolling interest ownership in operating partnership

 

 
305

 

 

 
(305
)
 

 

Amortization of unearned compensation

 

 
3,139

 
(114
)
 

 

 

 
3,025

Dividends on preferred stock

 

 

 
(922
)
 

 

 

 
(922
)
Dividends on common stock ($0.87 per share)

 

 

 
(98,841
)
 

 

 

 
(98,841
)
Dividends on noncontrolling interest units ($0.87 per unit)

 

 

 

 

 
(3,664
)
 

 
(3,664
)
EQUITY BALANCE MARCH 31, 2017
$
9

 
$
1,134

 
$
7,111,445

 
$
(765,749
)
 
$
4,223

 
$
233,464

 
$
2,306

 
$
6,586,832


  
Mid-America Apartment Communities, Inc. Shareholders' Equity
 
 
 
 
 
 
 
Preferred Stock Amount
 
Common
Stock
Amount
 
Additional
Paid-In
Capital
 
Accumulated
Distributions
in Excess of
Net Income
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interest Operating Partnership
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total
Equity
EQUITY BALANCE DECEMBER 31, 2015
$

 
$
753

 
$
3,627,074

 
$
(634,141
)
 
$
(1,589
)
 
$
165,726

 
$

 
$
3,157,823

Net income attributable to controlling interest

 

 

 
43,413

 

 
2,395

 

 
45,808

Other comprehensive loss - derivative instruments (cash flow hedges)

 

 

 

 
(2,387
)
 
(132
)
 

 
(2,519
)
Issuance and registration of common shares

 
1

 
89

 

 

 

 

 
90

Shares repurchased and retired

 

 
(1,730
)
 

 

 

 

 
(1,730
)
Shares issued in exchange for common units

 

 
33

 

 

 
(33
)
 

 

Shares issued in exchange for redeemable stock

 

 
123

 

 

 

 

 
123

Redeemable stock fair market value adjustment

 

 

 
(1,100
)
 

 

 

 
(1,100
)
Adjustment for noncontrolling interest ownership in operating partnership

 

 
40

 

 

 
(40
)
 

 

Amortization of unearned compensation

 

 
2,078

 

 

 

 

 
2,078

Dividends on common stock ($0.82 per share)

 

 

 
(61,928
)
 

 

 

 
(61,928
)
Dividends on noncontrolling interest units ($0.82 per unit)

 

 

 

 

 
(3,412
)
 

 
(3,412
)
EQUITY BALANCE MARCH 31, 2016
$

 
$
754

 
$
3,627,707

 
$
(653,756
)
 
$
(3,976
)
 
$
164,504

 
$

 
$
3,135,233



18



6.    MAALP Capital

Changes in total capital and its components for the three-month periods ended March 31, 2017 and 2016 were as follows (dollars in thousands, except per unit data):

 
Mid-America Apartments, L.P. Unitholders' Capital
 
 
 
 
 
Limited Partner
 
General Partner
 
Preferred Units
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total Partnership Capital
CAPITAL BALANCE DECEMBER 31, 2016
$
235,976

 
$
6,337,721

 
$
64,833

 
$
1,246

 
$
2,306

 
$
6,642,082

Net income attributable to controlling interest
1,511

 
40,983

 
922

 

 

 
43,416

Other comprehensive income - derivative instruments (cash flow hedges)

 

 

 
3,192

 

 
3,192

Issuance of units

 
68

 
2,007

 

 

 
2,075

Units repurchased and retired

 
(4,734
)
 

 

 

 
(4,734
)
General partner units issued in exchange for limited partner units
(167
)
 
167

 

 

 

 

Units issued in exchange for redeemable units

 
1,482

 

 

 

 
1,482

Redeemable units fair market value adjustment

 
(298
)
 

 

 

 
(298
)
Adjustment for limited partners' capital at redemption value
(192
)
 
192

 

 

 

 

Amortization of unearned compensation

 
3,025

 

 

 

 
3,025

Distributions to preferred unitholders

 


 
(922
)
 
 
 
 
 
(922
)
Distributions ($0.87 per unit)
(3,664
)
 
(98,841
)
 

 

 

 
(102,505
)
CAPITAL BALANCE MARCH 31, 2017
$
233,464

 
$
6,279,765

 
$
66,840

 
$
4,438

 
$
2,306

 
$
6,586,813


  
Mid-America Apartments, L.P. Unitholders' Capital
 
 
 
 
 
Limited Partner
 
General Partner
 
Preferred Units
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling Interest - Consolidated Real Estate Entity
 
Total Partnership Capital
CAPITAL BALANCE DECEMBER 31, 2015
$
165,726

 
$
2,993,696

 
$

 
$
(1,618
)
 
$

 
$
3,157,804

Net income attributable to controlling interest
2,395

 
43,413

 

 

 

 
45,808

Other comprehensive loss - derivative instruments (cash flow hedges)

 

 

 
(2,519
)
 

 
(2,519
)
Issuance of units

 
90

 

 

 

 
90

Units repurchased and retired

 
(1,730
)
 

 

 

 
(1,730
)
General partner units issued in exchange for limited partner units
(33
)
 
33

 

 

 

 

Units issued in exchange for redeemable units

 
123

 

 

 

 
123

Redeemable units fair market value adjustment

 
(1,100
)
 

 

 

 
(1,100
)
Adjustment for limited partners' capital at redemption value
(172
)
 
172

 

 

 

 

Amortization of unearned compensation

 
2,078

 

 

 

 
2,078

Distributions ($0.82 per unit)
(3,412
)
 
(61,928
)
 

 

 

 
(65,340
)
CAPITAL BALANCE MARCH 31, 2016
$
164,504

 
$
2,974,847

 
$

 
$
(4,137
)
 
$

 
$
3,135,214


7.           Borrowings

The weighted average interest rate at March 31, 2017 for the $4.6 billion of debt outstanding was 3.4%, compared to the weighted average interest rate of 3.5% on $4.5 billion of debt outstanding at December 31, 2016. Our debt consists of an unsecured revolving credit facility, unsecured term loans, senior unsecured notes, a secured credit facility with Fannie Mae, and secured property mortgages. 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 Note 7.

At March 31, 2017, we had $2.6 billion of senior unsecured notes and term loans fixed at an average interest rate of 3.8%, a $150.0 million variable rate term loan with an average interest rate of 1.7%, and a $1.0 billion variable rate revolving credit facility with an average interest rate of 1.9% with $570.0 million borrowed at March 31, 2017. Additionally, we had $110.0 million of secured variable rate debt outstanding at an average interest rate of 1.2% and $50.0 million of capped secured

19



variable rate debt at an average interest rate of 1.2%. The interest rate on all other secured debt, totaling $1.1 billion, was hedged or fixed at an average interest rate of 3.9%.

Unsecured Revolving Credit Facility

We maintain a $1.0 billion unsecured credit facility with a syndicate of banks led by KeyBank National Association, or the KeyBank Facility. The KeyBank Facility includes an expansion option up to $1.5 billion. The KeyBank Facility bears an interest rate of LIBOR plus a spread of 0.85% to 1.55% based on an investment grade pricing grid and is currently bearing interest at 1.88%. The KeyBank Facility expires in April 2020 with an option to extend for an additional six months. At March 31, 2017, we had $570.0 million actually borrowed under this facility, and another approximately $2.2 million of the facility used to support letters of credit.

Unsecured Term Loans

We also maintain four term loans with a syndicate of banks, one led by KeyBank National Association, or KeyBank, two by Wells Fargo Bank, N.A., or Wells Fargo, and one by U.S. Bank National Association, or U.S. Bank, respectively. The KeyBank term loan has a balance of $150.0 million, matures in 2021, and has a variable interest rate of LIBOR plus a spread of 0.90% to 1.75% based on our credit ratings. The Wells Fargo term loans have balances of $250.0 million and $300.0 million, mature in 2018 and 2022, respectively, and have variable interest rates of LIBOR plus a spread of 0.90% to 1.90% and 0.90% to 1.75%, respectively. The U.S. Bank term loan has a balance of $150.0 million, matures in 2020, and has a variable interest rates of LIBOR plus a spread of 0.90% to 1.90% based on our credit ratings.

Senior Unsecured Notes

As of March 31, 2017, we had approximately $1.6 billion of publicly issued notes and $310.0 million of private placement notes. These senior unsecured notes had maturities at issuance ranging from five to twelve years, averaging 6.2 years remaining until maturity as of March 31, 2017.

Secured Credit Facility

We maintain a $160.0 million secured credit facility with Prudential Mortgage Capital, which is credit enhanced by Fannie Mae, or the Fannie Mae Facility. The Fannie Mae Facility has maturities from 2017 through 2018. Borrowings under the Fannie Mae Facility totaled $160.0 million at March 31, 2017, all of which was variable rate at an average interest rate of 1.2%. The available borrowing capacity at March 31, 2017 was $160.0 million.

Secured Property Mortgages

At March 31, 2017, we had $1.1 billion of fixed rate conventional property mortgages with an average interest rate of 3.9% and an average maturity in 2019.

On February 7, 2017, we paid off a $15.8 million mortgage associated with the Grand Cypress apartment community. The loan was scheduled for maturity in August 2017.

In addition to that payoff, we paid $3.1 million associated with property mortgage principal amortizations during the three months ended March 31, 2017.

Guarantees

MAA fully and unconditionally guarantees the following debt incurred by the Operating Partnership:

$160.0 million of the Fannie Mae Facility, of which $160.0 million has been borrowed as of March 31, 2017; and
$310.0 million of the privately placed senior unsecured notes, all of which has been borrowed as of March 31, 2017.








20



Total Outstanding Debt

The following table summarizes our indebtedness at March 31, 2017 (dollars in thousands):
 
Borrowed
Balance
 
Effective
Rate
 
Average Contract
Maturity
Fixed Rate Secured Debt
 
 
 
 
 
Individual property mortgages
$
1,109,438

 
3.9
%
 
8/21/2019
Total fixed rate secured debt
$
1,109,438

 
3.9
%
 
8/21/2019
 
 
 
 
 
 
Variable Rate Secured Debt (1)
 

 
 

 
 
Fannie Mae conventional credit facility
160,000

 
1.2
%
 
6/1/2018
Total variable rate secured debt
$
160,000

 
1.2
%
 
6/1/2018
 
 
 
 
 
 
Fair market value adjustments and debt issuance costs
27,060

 
 
 
 
Total Secured Debt
$
1,296,498

 
3.6
%
 
6/24/2019
 
 
 
 
 
 
Unsecured Debt
 

 
 

 
 
Variable rate revolving credit facility
570,000

 
1.9
%
 
4/15/2020
Variable rate term loan
150,000

 
1.7
%
 
2/26/2021
Term loans fixed with swaps
700,000

 
3.1
%
 
11/10/2017
Fixed rate bonds
1,860,000

 
4.1
%
 
5/29/2023
Fair market value adjustments, debt issuance costs and discounts
(19,314
)
 
 
 
 
Total Unsecured Debt
$
3,260,686

 
3.4
%
 
7/23/2021
 
 
 
 
 
 
Total Outstanding Debt
$
4,557,184

 
3.4
%
 
12/19/2020

(1) Includes capped balances.

8.           Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future contractual and forecasted cash amounts, principally related to our borrowings, the value of which are determined by changing interest rates, related cash flows and other factors.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we use interest rate swaps and interest rate caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2017 and 2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of fixed-rate debt.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

21




During the three months ended March 31, 2017 and 2016, we recorded ineffectiveness of $3,000 (increase to interest expense) and $43,000 (increase to interest expense), respectively, mainly attributable to a mismatch in the underlying indices of the derivatives and the hedged interest payments made on our variable-rate debt and due to the designation of acquired interest rate swaps with a non-zero fair value at inception.

Amounts reported in "Accumulated other comprehensive income" related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate or fixed-rate debt. During the next twelve months, we estimate that an additional $1.4 million will be reclassified to earnings as an increase to Interest expense, which primarily represents the difference between our fixed interest rate swap payments and the projected variable interest rate swap payments.

As of March 31, 2017, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Interest Rate Derivative
 
Number of Instruments
 
Notional Amount
Interest Rate Caps
 
2
 
$
50,000,000

  Interest Rate Swaps(1)
 
16
 
$
700,000,000


(1)  Four forward rate swaps totaling $200 million, which hedge the first 10 years of interest payments on debt expected to be issued in the second quarter of 2017, are included in the number of instruments but excluded from the notional amount. These swaps are not included in our debt discussion in Note 7 or Management's Discussion and Analysis.

The fair value of our interest rate derivatives designated as hedging instruments at March 31, 2017 included $4.2 million of asset derivatives reported in Other assets and $5.0 million of liability derivatives reported in the Fair market value of interest rate swaps in the Condensed Consolidated Balance Sheet. The fair value of our interest rate derivatives designated as hedging instruments at December 31, 2016 included $2.4 million of asset derivatives reported in "Other assets" and $7.6 million of liability derivatives reported in "Fair market value of interest rate swaps" in the Condensed Consolidated Balance Sheet.

Bifurcated Embedded Derivatives

Additionally, as a result of the Merger (see Note 2), on December 1, 2016, we issued 867,846 shares of MAA Series I preferred stock as consideration. These shares are redeemable, at our option, on and after October 1, 2026, at the redemption price per share of $50 (see Note 10).

This redemption feature embedded in the preferred stock was evaluated in accordance with ASC 815, Derivatives and Hedging, and we determined that we were required to bifurcate the value associated with this feature from its host instrument, the perpetual preferred shares, and account for it as a freestanding derivative on the balance sheet at fair value as a result of the call option.

Thus, the redemption feature embedded in the MAA Series I preferred stock is reported as a derivative asset in "Other assets" on the accompanying Condensed Consolidated Balance Sheet and will be adjusted to its fair value at each reporting date, with a corresponding adjustment to Other non-property expense. The embedded derivative for these preferred shares was initially recorded at a fair value of  $10.8 million at the date of the Merger and as of December 31, 2016 and then subsequently adjusted to fair value of $14.7 million at March 31, 2017. This $3.9 million increase included a purchase price allocation adjustment of $1.6 million related to the Merger opening balance sheet date, which was recorded in the three months ended March 31, 2017, in addition to a $2.3 million mark to market adjustment to record the change in fair value of the derivative asset.









Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations

22