10-K 1 d12309-10k.htm

 


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission File Number: 1-12762

MID-AMERICA APARTMENT COMMUNITIES, INC.

(Exact Name of Registrant as Specified in Charter)

  

 TENNESSEE
(State of Incorporation)
  62-1543819
(I.R.S. Employer Identification Number)		 

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

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

Securities registered pursuant to Section 12 (b) of the Act:

 

   
Title of Each Class
Common Stock, par value $.01 per share
Series A Cumulative Preferred Stock, par value $.01 per share
Series B Cumulative Preferred Stock, par value $.01 per share
Series C Cumulative Redeemable Preferred Stock, par value $.01 per share
Series F Cumulative Redeemable Preferred Stock, par value $.01 per share
   Name of Exchange
on Which Registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange		  

Securities registered pursuant to Section 12 (g) of the Act:

None

  

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). [X] Yes [   ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K. [   ]

The aggregate market value of the voting stock held by non-affiliates of the Registrant, (based on the closing price of such stock ($26.75 per share), as reported on the New York Stock Exchange, on June 28, 2002) was approximately $427,000,000 (for purposes of this calculation, directors and executive officers are treated as affiliates).

The number of shares of the Registrant’s common stock outstanding as of March 17, 2003, was 17,879,981 shares, of which approximately 1,351,037 were held by affiliates.

The Registrant’s definitive proxy statement in connection with the 2003 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A) is incorporated by reference into Part III of this Annual Report on Form 10-K.

 



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MID-AMERICA APARTMENT COMMUNITIES, INC.

TABLE OF CONTENTS

Item

 

 

Page

 

 

PART I

 

 

 

 

 

1.

 

Business

 

2.

 

Properties

 

3.

 

Legal Proceedings

 

4.

 

Submission of Matters to Vote of Security Holders

 

 

 

 

 

 

 

PART II

 

 

 

 

 

5.

 

Market for Registrant’s Common Equity and Related Stockholder Matters

 

6.

 

Selected Financial Data

 

7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

8.

 

Financial Statements and Supplementary Data

 

9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

 

 

 

 

 

 

PART III

 

 

 

 

 

10.

 

Directors and Executive Officers of the Registrant

 

11.

 

Executive Compensation

 

12.

 

Security Ownership of Certain Beneficial Owners and Management

 

13.

 

Certain Relationships and Related Transactions

 

14.

 

Controls and Procedures

 

 

 

 

 

 

 

PART IV

 

 

 

 

 

15.

 

Exhibits, Financial Statement Schedule and Reports on Form 8-K

 


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PART I

ITEM 1.         BUSINESS

WEBSITE ACCESS OF REGISTRANT’S REPORTS

A copy of this Annual Report on Form 10-K, along with the Company’s Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to the aforementioned filings, is available on the Company’s website free of charge. The Company’s website is www.maac.net and the filings can be found on our Investors’ page under SEC Filings. Reference to the Company’s website does not constitute incorporation by reference of the information contained on the site and should not be considered part of this document.

THE COMPANY

Founded in 1994, Mid-America Apartment Communities, Inc. (the “Company”) is a Memphis, Tennessee-based self-administered and self-managed umbrella partnership real estate investment trust (“REIT”) that focuses on acquiring, constructing, developing, owning and operating apartment communities. Between 1994 and December 31, 2002, the Company increased the number of properties of which it is the sole owner from 22 to 112 properties with 30,666 apartment units, representing an increase of 25,086 apartment units. The Company is also a participant in two joint ventures. BRE/MAAC Associates, LLC (“BRE/MAAC”) is a joint venture with Blackstone Real Estate Acquisitions, LLC (“Blackstone”). BRE/MAAC owned 10 properties, containing 2,793 apartment units at December 31, 2002. Mid-America CH/Realty LP (“CH/Realty”) is a joint venture with Crow Holdings. CH/Realty owned one property with 464 apartment units at December 31, 2002. The Company retains a 33.33% ownership interest in both joint ventures and is paid a management fee of 4% of revenues from the apartment communities owned by the joint ventures.

The Company’s business is conducted principally through Mid-America Apartments, L.P. (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership, holding 182,462 common units of partnership interest (“Common Units”) comprising a 1% general partnership interest in the Operating

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Partnership as of December 31, 2002. The Company’s wholly-owned qualified REIT subsidiary, MAC II of Delaware, Inc., a Delaware corporation, is a limited partner in the Operating Partnership and, as of December 31, 2002, held 15,196,886 Common Units, or 83.29% of all outstanding Common Units.

The Company employed 1,023 full time and 77 part time employees at December 31, 2002.

OPERATING PHILOSOPHY

INVESTMENT FOCUS. The Company’s primary investment focus is on apartment communities in the Southeastern United States and Texas. Between 1994 and 1997, the Company grew largely through the acquisition and redevelopment of existing apartments. Between 1998 and 2000, its concentration was on development of new apartments. In 1999, the Company established a joint venture and sold assets to that joint venture. Between August 1999 and December 2001, the Company repurchased approximately 1.86 million shares of its common stock, funded in part by asset sales. In 2002, the Company established a second joint venture to acquire new properties. The Company’s present focus is on the acquisition of properties that it believes can be repositioned with appropriate use of capital and its operating management skills. The Company is also interested in increasing its investment in properties in larger and faster growing markets within its current market area, and intends to do this through acquiring apartment communities with the potential for above average growth and return through investments in joint ventures and in direct purchases. The Company will continue its established process of selling mature assets, and will adapt its investment focus to opportunities and markets.

HIGH QUALITY ASSETS. The Company maintains its assets in excellent condition, believing that continuous maintenance will lead to higher long-run returns on investment. It believes that being recognized by civic and industry trade organizations for the high quality of its properties, landscaping, and property management will lead to higher rents and profitability. The Company sells assets selectively in order to ensure that its portfolio consists only of high quality, well-located assets within its market area.

DIVERSIFIED MARKET FOCUS. The Company focuses on owning, operating, developing, constructing and acquiring apartment communities (the “Communities”) throughout the southeastern United States and Texas in large, medium and small markets.

INTENSIVE MANAGEMENT FOCUS. The Company strongly emphasizes on-site property management. Particular attention is paid to opportunities to increase rents, raise average occupancy rates, and control costs. Property managers and regional managers are given the responsibility for monitoring market trends and the discretion to react to such trends. The Company, as part of its intense management focus, has established a number of training programs to produce highly competent property managers, leasing consultants and service technicians who work on-site at the Communities to generate the highest possible income from the Company’s assets.

DECENTRALIZED OPERATIONAL STRUCTURE. The Company operates in a decentralized manner. Management believes that its decentralized operating structure capitalizes on specific market knowledge, provides greater personal accountability than a centralized structure and is beneficial in the acquisition, redevelopment and development processes. To support this decentralized operational structure, senior and executive management are proactively involved in supporting and reviewing property operations through extensive asset management programs and direct on-site visitations.

PROACTIVE BALANCE SHEET AND PORTFOLIO MANAGEMENT

The Company focuses on maximizing the return on assets and adding to the intrinsic underlying value of each share of the Company’s common stock, routinely reviewing each asset based on its determined value and selling those which no longer fit its investment criteria. The Company constantly evaluates the effectiveness of its capital allocations and makes adjustments to its strategy, including investing in acquisitions and development, debt retirement, and repurchases of shares of the Company’s common stock.

STRATEGIES

The Company seeks to increase operating cash flow and earnings per share to maximize shareholder value through a balanced strategy of internal and external growth.


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OPERATING GROWTH STRATEGY. Management’s goal is to maximize the Company’s return on investment in each Community by increasing rental rates and reducing operating expenses while maintaining high occupancy levels. The Company seeks higher net rental revenues by enhancing and maintaining the competitiveness of the Communities and managing expenses through its system of detailed management reporting and accountability in order to achieve increases in operating cash flow. The steps taken to meet these objectives include:

•          empowering the Company’s property managers to adjust rents in response to local market conditions and to concentrate resident turnover during peak rental demand months;

•          offering new services to residents, including telephone, cable, and internet access, on which the Company generates fee and commission income;

•          implementing programs to control expenses through investment in cost-saving initiatives, such as the installation of individual apartment unit water and utility meters in certain Communities;

•          analyzing individual asset productivity performances to identify best practices and improvement areas;

•          improving the “curb appeal” of the Communities through extensive landscaping and exterior improvements and repositioning Communities from time to time to maintain market leadership positions;

•          compensating employees through performance-based compensation and stock ownership programs;

•          maintaining a hands-on management style and “flat” organizational structure that emphasizes senior management’s continued close contact with the market and employees;

•          selling or exchanging underperforming assets and repurchasing shares of common stock when cost of capital and asset values permit; and

•          allocating additional capital where the investment will generate the highest returns for the Company.

JOINT VENTURE STRATEGY. One of the Company’s strategies is to co-invest with private capital partners in joint venture opportunities which enable it to obtain a higher return on its investment through management fees, which leverages the Company’s recognized skills in acquiring, repositioning, redeveloping and managing multifamily investments. The Company is actively seeking attractively priced opportunities in which it and its joint venture partners can invest. The Company established a joint venture in 1999 with Blackstone and a second joint venture in 2002 with Crow Holdings.

DISPOSITION STRATEGY. The Company is committed to the selective disposition of mature assets, defined as those apartment communities that no longer meet the Company’s investment criteria and long-term strategic objectives. Typically, the Company selects assets for disposition that do not meet its present investment criteria including future return on investment, location, market, potential for growth, and capital needs.

ACQUISITION STRATEGY. One of the Company’s growth strategies is to acquire and redevelop apartment communities that meet its investment criteria and focus as discussed above. The Company has extensive experience and research-based skills in the acquisition and repositioning of multifamily properties. The Company will continue to evaluate opportunities that arise, and will utilize this strategy to increase the share of its assets in faster growing and larger markets in the Southeast and Texas.

On July 2, 2002, the Company purchased the Preston Hills at Mill Creek apartments, a 464-unit apartment community in Buford, GA, for $33.7 million. The community was bought with the expectation that it would be subsequently transferred to CH/Realty. On November 20, 2002, at the Company’s cost, Preston Hills at Mill Creek was transferred into CH/Realty.

DEVELOPMENT STRATEGY. In late 1997, the Company’s emphasis shifted from acquisitions to development because of its belief that under then-current market conditions, such development would generate higher quality assets and higher long-term investment returns. In 2002, the Company completed a four-year $300 million construction program of high quality apartments in several markets. This represents the completion of the development program initiated in 1997. In 1999, management decided to exit the construction and development business upon completion of the Company’s existing development pipeline after determining that market conditions were changing, making it unlikely that future proposed projects would meet the Company’s profitability targets over the next few years.


5


At December 31, 2002, the Company had two completed development properties with 921 apartment units in various stages of lease-up and no properties in development. The Company periodically evaluates opportunities for profitable future development investments.

SHARE REPURCHASE PROGRAM

In 1999, the Company’s Board of Directors approved an increase in the number of shares of the Company’s common stock authorized to be repurchased to 4 million shares. As of December 31, 2002 the Company had repurchased a total of approximately 1.86 million shares (8% of the shares of common stock and Common Units outstanding as of the beginning of the repurchase program). From time to time the Company intends to sell assets based on its disposition strategy outlined in this Annual Report and use the proceeds to repurchase shares when it believes that shareholder value is enhanced. Factors affecting this determination include the share price, asset dispositions and pricing, financing agreements and rates of return of alternative investments. No shares were repurchased during 2002.

COMPETITION

All of the Company’s Communities are located in areas that include other apartment communities. Occupancy and rental rates are affected by the number of competitive apartment communities in a particular area. The owners of competing apartment communities may have greater resources than the Company, and the managers of these communities may have more experience than the Company’s management. Moreover, single-family rental housing, manufactured housing, condominiums and the new and existing home markets provide housing alternatives to potential residents of apartment communities.

Apartment communities compete on the basis of monthly rent, discounts, and facilities offered such as apartment size and amenities, and apartment community amenities, including recreational facilities, resident services, and physical property condition. The Company makes capital improvements to both the communities and individual apartments on a regular basis in order to maintain a competitive position in each individual market.

ENVIRONMENTAL MATTERS

As part of the acquisition process, the Company generally obtains environmental audits on all of its Communities from various outside environmental engineering firms. The purpose of these audits is to identify potential sources of contamination at the Communities and to assess the status of environmental regulatory compliance. These audits generally include historical reviews of the Communities, reviews of certain public records, preliminary investigations of the sites and surrounding properties, visual inspection for the presence of asbestos, PCBs and underground storage tanks and the preparation and issuance of written reports. Depending on the results of these audits, more invasive procedures, such as soil sampling or ground water analysis, will be performed to investigate potential sources of contamination. These audits must be satisfactorily completed before the Company takes ownership of an acquisition property, however, no assurance can be given that the audits identify all significant environmental problems.

Under various federal, state and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on properties. Such laws often impose such liability without regard to whether the owner caused or knew of the presence of hazardous or toxic substances and whether or not the storage of such substances was in violation of a resident’s lease. Furthermore, the cost of remediation and removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’s ability to sell such real estate or to borrow using such real estate as collateral.

The Company is aware of environmental concerns specifically relating to potential issues resulting from mold in residential properties and has in place an active management and preventive maintenance program that includes procedures specifically related to mold. The Company has established a policy requiring residents to sign a mold addendum to lease. The Company has also purchased a $2 million insurance policy that covers remediation and exposure to mold. The Company, therefore, believes that its exposure to this issue is limited and controlled.

The environmental audit reports received by the Company have not revealed any material environmental liability. The Company is not aware of any existing conditions that would currently be considered an environmental liability. Nevertheless, it is possible that the audit reports do not reveal all environmental

6


liabilities or that there are material environmental liabilities of which the Company is unaware. Moreover, no assurance can be given concerning future laws, ordinances or regulations, or the potential introduction of hazardous or toxic substances by neighboring properties or residents.

The Company believes that its Communities are in compliance in all material respects with all applicable federal, state and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters.

RECENT DEVELOPMENTS

DISTRIBUTION. In January 2003, the Company announced a quarterly distribution to common shareholders of $.585 per share, paid on January 31, 2003.

ACQUISITIONS.
On January 20, 2003, CH/Realty acquired The Preserve at Arbor Lakes, a 284-unit apartment community in Jacksonville, FL, for $22.1 million.

On February 7, 2003, the Company acquired the Green Oaks apartments, a 300-unit apartment community located in Grand Prairie, TX for $18.9 million. The Company plans to transfer the property to CH/Realty once a financing commitment has been received under the provisions of the joint venture’s Freddie Mac credit facility.

REFINANCINGS AND DERIVATIVE FINANCIAL INSTRUMENTS. On March 3, 2003, the Company refinanced $142 million aggregate principal amount of publicly held collateralized bonds using one of the Company’s secured credit facilities with Prudential Mortgage Capital, credit-enhanced by Fannie Mae (the “FNMA Facility”). The maturing bonds had a fixed interest rate of 6.38%. The Company previously entered into 5 forward interest rate swap agreements totaling $175 million that become operative during 2003 in order to manage the interest rate risk on this and other refinancings expected in 2003. The weighted average fixed rate for the forward swaps is 5.21%. On March 3, 2003, the first of these swaps became operative, representing a $25 million notional amount with a 5.50% fixed rate and a termination date of March 3, 2005.

ITEM 2.         PROPERTIES

The Company and its joint ventures seek to acquire and develop apartment communities located in the southeastern United States and Texas that are appealing to middle income residents with the potential for above average growth and return on investment. Approximately 72% of the Company’s apartment units are located in Georgia, Florida, Tennessee and Texas markets. The Company’s strategic focus is to provide its residents high quality apartment units in attractive community settings, characterized by extensive landscaping and attention to aesthetic detail. The Company utilizes its experience and expertise in maintenance, landscaping, marketing and management to effectively “reposition” many of the apartment communities it acquires to raise occupancy levels and per unit average rents.

The following table sets forth certain historical information for the Communities the Company owned or maintained an ownership interest in, including the 11 properties containing 3,257 apartment units owned by the Company’s joint ventures, at December 31, 2002:

Property   Location   Year
Completed		   Year
Management
Commenced		   Number
of Units		   Approximate
Rentable
Area
(Square
Footage)		   Average
Unit
Size
(Square
Footage)		   Monthly
Rent per
Unit at
December 31,
2002		   Average
Occupancy
Percent at
December 31,
2002		      Encumbrances at
December 31, 2002		    
Mortgage
Principal(000's)		     Interest
Rate		       Maturity
Date
 
 
 
 
 
 
 
 
 
   
     
   
Owned not in Lease-Up:                                                            
Eagle Ridge    Birmingham, AL     1986    1998    200    181,400    907    $ 645    91.00 %    $ —    (1)          (1)        (1)
Abbington Place   Huntsville, AL   1987   1998   152   162,792   1,071   $ 560   96.05 %   $ —   (1)         (1)       (1)
Paddock Club - Huntsville   Huntsville, AL   1989/98   1997   392   414,736   1,058   $ 657   89.29 %   $ —   (1)         (1)       (1)
Paddock Club - Montgomery   Montgomery, AL   1999   1998   208   230,880   1,110   $ 678   85.58 %   $ —   (1)         (1)       (1)
               
 
 
 
 
   
                     
                952   989,808   1,040   $ 643   89.92 %   $ —                      
               
 
 
 
 
   
                     
Calais Forest   Little Rock, AR   1987   1994   260   195,000   750   $ 590   95.77 %   $ —   (1)         (1)       (1)
Napa Valley   Little Rock, AR   1984   1996   240   183,120   763   $ 596   96.67 %   $ —   (3)         (3)       (3)
Westside Creek I   Little Rock, AR   1984   1997   142   147,964   1,042   $ 673   95.77 %   $ —   (3)         (3)       (3)
Westside Creek II   Little Rock, AR   1986   1997   166   172,972   1,042   $ 628   95.18 %   $ 4,720       8.760 %       10/1/2006    
               
 
 
 
 
   
                     
                808   699,056   865   $ 614   95.92 %   $ 4,720                      
               
 
 
 
 
   
                     
Tiffany Oaks   Altamonte Springs, FL   1985   1996   288   234,144   813   $ 656   92.01 %   $ —   (3)         (3)       (3)
Marsh Oaks   Atlantic Beach, FL   1986   1995   120   93,240   777   $ 624   94.17 %   $ —   (3)         (3)       (3)
Indigo Point   Brandon, FL   1989   2000   240   194,640   811   $ 702   90.83 %   $ —   (4)         (4)       (4)
Paddock Club - Brandon   Brandon, FL   1997/99   1997   440   516,120   1,173   $ 826   86.82 %   $ —   (2)         (2)       (2)
Anatole   Daytona Beach, FL   1986   1995   208   149,136   717   $ 638   94.71 %   $ 7,000   (10)   1.183 %   (10)   10/15/2032   (10)
Paddock Club - Gainsville   Gainsville, FL   1999   1998   264   293,040   1,110   $ 829   88.64 %   $ —   (2)         (2)       (2)
Cooper's Hawk   Jacksonville, FL   1987   1995   208   218,400   1,050   $ 728   93.27 %   $ —   (6)         (6)       (6)
Hunter's Ridge at Deerwood   Jacksonville, FL   1987   1997   336   295,008   878   $ 680   92.56 %   $ —   (7)         (7)       (7)
Lakeside   Jacksonville, FL   1985   1996   416   344,032   827   $ 660   95.43 %   $ —   (3)         (3)       (3)
Paddock Club - Jacksonville   Jacksonville, FL   1989/96   1997   440   475,200   1,080   $ 784   91.82 %   $ —   (8)         (8)       (8)
Paddock Club - Mandarin   Jacksonville, FL   1998   1998   288   330,336   1,147   $ 809   93.06 %   $ —   (2)         (2)       (2)
St. Augustine   Jacksonville, FL   1987   1995   400   304,400   761   $ 599   94.25 %   $ —   (6)         (6)       (6)
Woodbridge at the Lake   Jacksonville, FL   1985   1994   188   166,004   883   $ 672   93.62 %   $ —   (2)         (2)       (2)
Woodhollow   Jacksonville, FL   1986   1997   450   342,000   760   $ 662   94.00 %   $ —   (1)         (1)       (1)
Paddock Club - Lakeland   Lakeland, FL   1988/90   1997   464   505,296   1,089   $ 674   92.24 %   $ —   (8)         (8)       (8)
Savannahs at James Landing   Melbourne, FL   1990   1995   256   238,592   932   $ 660   88.67 %   $ —   (6)         (6)       (6)
Paddock Park - Ocala I   Ocala, FL   1986   1997   200   202,200   1,011   $ 688   97.00 %   $ 6,805   (15)   2.395 %   (15)   10/15/2032   (15)
Paddock Park - Ocala II   Ocala, FL   1988   1997   280   283,080   1,011   $ 713   96.79 %   $ —   (2)         (2)       (2)
Paddock Club - Panama City   Panama City, FL   2000   1998   254   283,972   1,118   $ 823   92.52 %   $ —   (2)         (2)       (2)
Paddock Club - Tallahassee   Tallahassee, FL   1990/95   1997   304   329,232   1,083   $ 778   95.39 %   $ —   (2)         (2)       (2)
Belmere   Tampa, FL   1984   1994   210   202,440   964   $ 717   90.00 %   $ —   (3)         (3)       (3)
Links at Carrollwood   Tampa, FL   1980   1998   230   214,820   934   $ 724   91.30 %   $ 5,387       8.750 %       2/1/2003    
               
 
 
 
 
   
                     
                6,484   6,215,332   959   $ 713   92.58 %   $ 19,191                      
               
 
 
 
 
   
                     
High Ridge   Athens, GA   1987   1997   160   186,560   1,166   $ 727   98.75 %   $ —   (3)         (3)       (3)
Bradford Pointe   Augusta, GA   1986   1997   192   156,288   814   $ 593   88.54 %   $ 4,760       2.650 %       6/1/2028    
Shenandoah Ridge   Augusta, GA   1982   1994   272   222,768   819   $ 526   94.49 %   $ —   (3)         (3)       (3)
Westbury Creek   Augusta, GA   1984   1997   120   107,040   892   $ 604   97.50 %   $ 2,962       7.594 %       11/1/2024    
Fountain Lake   Brunswick, GA   1983   1997   110   129,800   1,180   $ 706   99.09 %   $ —   (5)         (5)       (5)
Park Walk   College Park, GA   1985   1997   124   112,716   909   $ 708   94.35 %   $ 3,175       6.370 %       11/1/2025    
Whisperwood Spa and Club   Columbus, GA   1980/82/84/86/98   1997   1,008   1,220,688   1,211   $ 697   94.35 %   $ —   (1)         (1)       (1)
Willow Creek   Columbus, GA   1971/77   1997   285   246,810   866   $ 554   92.28 %   $ —   (3)         (3)       (3)
Terraces at Fieldstone   Conyers, GA   1999   1998   316   351,076   1,111   $ 817   89.87 %   $ —   (1)         (1)       (1)
Whispering Pines I   LaGrange, GA   1982   1997   120   123,960   1,033   $ 559   84.17 %   $ —   (5)         (5)       (5)
Whispering Pines II   LaGrange, GA   1984   1997   96   99,168   1,033   $ 573   84.38 %   $ 2,344       6.150 %       12/1/2024    
Westbury Springs   Lilburn, GA   1983   1997   150   137,700   918   $ 703   89.33 %   $ —   (1)         (1)       (1)
Austin Chase   Macon, GA   1996   1997   256   292,864   1,144   $ 702   94.14 %   $ —   (7)         (7)       (7)
The Vistas   Macon, GA   1985   1997   144   153,792   1,068   $ 617   92.36 %   $ 3,813       6.230 %       3/1/2028    
Georgetown Grove   Savannah, GA   1997   1998   220   239,800   1,090   $ 751   94.55 %   $ 10,301       7.750 %       7/1/2037    
Island Retreat   St. Simons Island, GA   1978   1998   112   129,584   1,157   $ 740   90.18 %   $ —   (1)         (1)       (1)
Wildwood I   Thomasville, GA   1980   1997   120   123,960   1,033   $ 540   90.00 %   $ —   (1)         (1)       (1)
Wildwood II   Thomasville, GA   1984   1997   96   99,168   1,033   $ 563   93.75 %   $ 1,877       6.573 %       7/1/2024    
Hidden Lake I   Union City, GA   1985   1997   160   171,200   1,070   $ 718   91.25 %   $ 4,231       6.340 %       12/1/2026    
Hidden Lake II   Union City, GA   1987   1997   160   171,200   1,070   $ 695   93.13 %   $ —   (3)         (3)       (3)
Three Oaks I   Valdosta, GA   1983   1997   120   123,960   1,033   $ 572   85.00 %   $ —   (1)         (1)       (1)
Three Oaks II   Valdosta, GA   1984   1997   120   123,960   1,033   $ 591   87.50 %   $ 2,722       6.259 %       7/1/2024    
Huntington Chase   Warner Robins, GA   1997   2000   200   218,400   1,092   $ 695   83.50 %   $ 9,282       6.850 %       11/1/2008    
Southland Station I    Warner Robins, GA    1987    1997    160    186,720    1,167    $ 676    87.50 %    $ —   (3)          (3)        (3)

7


Property   Location   Year
Completed		   Year
Management
Commenced		   Number
of Units		   Approximate
Rentable
Area
(Square
Footage)		   Average
Unit
Size
(Square
Footage)		   Monthly
Rent per
Unit at
December 31,
2002		   Average
Occupancy
Percent at
December 31,
2002		   Encumbrances at
December 31, 2002
Mortgage
Principal
(000's)		     Interest
Rate		     Maturity
Date		  
 
 
 
 
 
 
 
 
   
   
 
Southland Station II    Warner Robins, GA    1990    1997    144    168,048    1,167    $ 678    79.86 %    $ —   (1)          (1)        (1)
Terraces at Towne Lake   Woodstock, GA   1998/99   1997/98   502   559,954   1,115   $ 801   84.86 %   $ —   (1)         (1)       (1)
               
 
 
 
 
   
                     
                5,467   5,857,184   1,071   $ 678   90.96 %   $ 45,470                      
               
 
 
 
 
   
                     
Fairways at Hartland   Bowling Green, KY   1996   1997   240   251,280   1,047   $ 620   97.92 %   $ —   (1)         (1)       (1)
Paddock Club Florence   Florence, KY   1994   1997   200   207,000   1,035   $ 744   83.00 %   $ 9,436       7.250 %       2/1/2036    
Grand Reserve Lexington   Lexington, KY   2000   1999   370   432,530   1,169   $ 865   90.54 %   $ —   (1)         (1)       (1)
Lakepointe   Lexington, KY   1986   1994   118   90,624   768   $ 599   94.07 %   $ —   (3)         (3)       (3)
Mansion, The   Lexington, KY   1989   1994   184   138,736   754   $ 597   96.74 %   $ —   (1)         (1)       (1)
Village, The   Lexington, KY   1989   1994   252   182,700   725   $ 610   93.65 %   $ —   (3)         (3)       (3)
Stonemill Village   Louisville, KY   1985   1994   384   324,096   844   $ 618   87.76 %   $ —   (1)         (1)       (1)
               
 
 
 
 
   
                     
                1,748   1,626,966   931   $ 680   91.42 %   $ 9,436                      
               
 
 
 
 
   
                     
Riverhills   Grenada, MS   1972   1985   96   81,984   854   $ 403   88.54 %   $ —   (1)         (1)       (1)
Crosswinds   Jackson, MS   1988/90   1996   360   443,160   1,231   $ 638   94.17 %   $ —   (3)         (3)       (3)
Pear Orchard   Jackson, MS   1985   1994   389   338,430   870   $ 600   91.26 %   $ —   (3)         (3)       (3)
Reflection Pointe   Jackson, MS   1986   1988   296   254,856   861   $ 611   98.99 %   $ 5,880   (11)   1.231 %   (11)   5/15/2031   (11)
Somerset   Jackson, MS   1981   1995   144   126,864   881   $ 543   86.81 %   $ —   (3)         (3)       (3)
Woodridge   Jackson, MS   1987   1988   192   175,104   912   $ 549   97.92 %   $ 4,479       6.500 %       10/1/2027    
Savannah Creek   Southaven, MS   1989   1996   204   237,048   1,162   $ 670   91.18 %   $ —   (3)         (3)       (3)
Sutton Place   Southaven, MS   1991   1996   253   268,686   1,062   $ 645   89.33 %   $ —   (3)         (3)       (3)
               
 
 
 
 
   
                     
                1,934   1,926,132   996   $ 603   92.92 %   $ 10,359                      
               
 
 
 
 
   
                     
Hermitage at Beechtree   Cary, NC   1988   1997   194   169,750   875   $ 646   88.66 %   $ —   (3)         (3)       (3)
Corners, The   Winston-Salem. NC   1982   1993   240   173,520   723   $ 551   97.92 %   $ 3,670       7.850 %       6/15/2003    
               
 
 
 
 
   
                     
                434   343,270   791   $ 593   93.78 %   $ 3,670                      
               
 
 
 
 
   
                     
Fairways at Royal Oak   Cincinnati, OH   1988   1994   214   214,428   1,002   $ 651   85.51 %   $ —   (3)         (3)       (3)
               
 
 
 
 
   
                     
Woodwinds   Aiken, SC   1988   1997   144   165,168   1,147   $ 684   95.14 %   $ —   (1)         (1)       (1)
Tanglewood   Anderson, SC   1980   1994   168   140,784   838   $ 533   93.45 %   $ —   (1)         (1)       (1)
Paddock Club - Columbia   Columbia, SC   1989/95   1997   336   367,584   1,094   $ 701   88.10 %   $ —   (1)         (1)       (1)
The Fairways   Columbia, SC   1992   1994   240   213,840   891   $ 600   93.75 %   $ 7,735   (12)   1.231 %   (12)   5/15/2031   (12)
Highland Ridge   Greenville, SC   1984   1995   168   143,976   857   $ 504   86.90 %   $ —   (9)         (9)       (9)
Howell Commons   Greenville, SC   1986/88   1997   348   292,668   841   $ 510   93.10 %   $ —   (3)         (3)       (3)
Paddock Club - Greenville   Greenville, SC   1996   1997   208   212,160   1,020   $ 685   83.17 %   $ —   (1)         (1)       (1)
Park Haywood   Greenville, SC   1983   1993   208   156,832   754   $ 536   90.38 %   $ —   (3)         (3)       (3)
Spring Creek   Greenville, SC   1985   1995   208   182,000   875   $ 520   85.58 %   $ —   (9)         (9)       (9)
Runaway Bay   Mt. Pleasant, SC   1988   1995   208   177,840   855   $ 728   94.71 %   $ —   (9)         (9)       (9)
Park Place   Spartanburg, SC   1987   1997   184   195,224   1,061   $ 602   89.67 %   $ —   (3)         (3)       (3)
               
 
 
 
 
   
                     
                2,420   2,248,076   929   $ 601   90.33 %   $ 7,734                      
               
 
 
 
 
   
                     
Steeplechase   Chattanooga, TN   1986   1991   108   98,604   913   $ 611   94.44 %   $ —   (3)         (3)       (3)
Windridge   Chattanooga, TN   1984   1997   174   238,728   1,372   $ 705   94.83 %   $ 5,098       6.314 %       12/1/2024    
Oaks, The   Jackson, TN   1978   1993   100   87,500   875   $ 565   91.00 %   $ —   (1)         (1)       (1)
Post House Jackson   Jackson, TN   1987   1989   150   163,650   1,091   $ 611   86.67 %   $ 5,095       2.395 %       10/15/2032    
Post House North   Jackson, TN   1987   1989   144   144,720   1,005   $ 644   86.81 %   $ 3,375   (13)   1.231 %   (13)   5/15/2031   (13)
Bradford Chase   Jackson, TN   1987   1994   148   121,360   820   $ 563   90.54 %   $ —   (3)         (3)       (3)
Woods at Post House   Jackson, TN   1997   1995   122   118,950   975   $ 667   87.70 %   $ 5,152       7.250 %       9/1/2035    
Crossings   Memphis, TN   1973   1991   80   90,000   1,125   $ 751   87.50 %   $ —   (5)         (5)       (5)
Eastview   Memphis, TN   1973   1984   432   356,400   825   $ 525   94.68 %   $ 11,359       7.320 %       4/1/2009    
Gleneagles   Memphis, TN   1975   1990   184   189,520   1,030   $ 609   90.22 %   $ —   (1)         (1)       (1)
Greenbrook   Memphis, TN   1974/78/83/86   1988   1,037   939,522   906   $ 584   92.29 %   $ —   (4)         (4)       (4)
Hickory Farm   Memphis, TN   1985   1994   200   150,200   751   $ 577   95.50 %   $ —   (1)         (1)       (1)
Kirby Station   Memphis, TN   1978   1994   371   310,156   836   $ 617   95.15 %   $ —   (3)         (3)       (3)
Lincoln on the Green   Memphis, TN   1988/98   1994   618   535,188   866   $ 696   96.76 %   $ —   (8)         (8)       (8)
Park Estate   Memphis, TN   1974   1977   82   96,924   1,182   $ 821   93.90 %   $ —   (4)         (4)       (4)
Reserve at Dexter Lake I   Memphis, TN   1999   1998   252   262,332   1,041   $ 717   90.87 %   $ —   (5)         (5)       (5)
River Trace I   Memphis, TN   1981   1997   244   205,692   843   $ 575   96.72 %   $ —   (1)         (1)       (1)
River Trace II   Memphis, TN   1985   1997   196   165,228   843   $ 584   91.84 %   $ 5,309       6.380 %       2/1/2026    
Paddock Club - Murfreesboro   Murfreesboro, TN   1999   1998   240   268,800   1,120   $ 801   92.92 %   $ —   (1)         (1)       (1)
Brentwood Downs   Nashville, TN   1986   1994   286   220,220   770   $ 688   91.61 %   $ —   (1)         (1)       (1)
Park at Hermitage    Nashville, TN    1987    1995    440    392,480    892    $ 622    89.55 %   $ 7,045         5.790 %        2/1/2019    
               
 
 
 
 
   
                     
                5,608   5,156,174   919   $ 631   92.71 %   $ 42,431                      
               
 
 
 
 
   
                     

8


Property   Location   Year
Completed		   Year
Management
Commenced		   Number
of Units		   Approximate
Rentable
Area
(Square
Footage)		   Average
Unit
Size
(Square
Footage)		   Monthly
Rent per
Unit at
December 31,
2002		   Average
Occupancy
Percent at
December 31,
2002		    Encumbrances at
December 31, 2002
Mortgage
Principal
(000's)		     Interest
Rate		       Maturity
Date		    
 
 
 
 
 
 
 
 
   
   
     
   
Balcones Woods    Austin, TX    1983    1997    384    313,728    817    $ 722    92.71 %    $ —   (2)          (2)        (2)
Stassney Woods   Austin, TX   1985   1995   288   248,832   864   $ 652   93.06 %   $ 4,200       6.600 %       4/1/2019    
Travis Station   Austin, TX   1987   1995   304   249,888   822   $ 570   95.07 %   $ 3,715       6.600 %       4/1/2019    
Celery Stalk   Dallas, TX   1978   1994   410   374,740   914   $ 687   87.32 %   $ 8,460       9.006 %       12/1/2004    
Courtyards at Campbell   Dallas, TX   1986   1998   232   168,200   725   $ 681   93.53 %   $ —   (2)         (2)       (2)
Deer Run   Dallas, TX   1985   1998   304   206,720   680   $ 619   87.83 %   $ —   (2)         (2)       (2)
Lodge at Timberglen   Dallas, TX   1983   1994   260   226,200   870   $ 681   79.23 %   $ 4,740       9.006 %       12/1/2004    
Westborough Crossing   Katy, TX   1984   1994   274   197,280   720   $ 600   94.53 %   $ 3,958       9.006 %       12/1/2004    
Kenwood Club   Katy, TX   2000   1999   320   318,080   994   $ 807   98.75 %   $ —   (2)         (2)       (2)
Highwood   Plano, TX   1983   1998   196   156,800   800   $ 714   80.61 %   $ —   (4)         (4)       (4)
Cypresswood Court   Spring, TX   1984   1994   208   160,576   772   $ 596   95.19 %   $ 3,330       9.006 %       12/1/2004    
Green Tree Place   Woodlands, TX   1984   1994   200   152,200   761   $ 645   96.50 %   $ 3,180       9.006 %       12/1/2004    
               
 
 
 
 
   
                     
                3,380   2,773,244   820   $ 668   91.27 %   $ 31,583                      
               
 
 
 
 
   
                     
Township   Hampton, VA   1987   1995   296   248,048   838   $ 716   94.26 %   $ 10,800   (14)   1.202 %   (14)   10/15/2032   (14)
               
 
 
 
 
   
                     
Total Owned not in Lease-Up Properties           29,745   28,297,718   951   $ 661   91.92 %   $ 185,394                      
           
 
 
 
 
   
                     
Joint Venture Properties with Blackstone Real Estate Acquisitions, LLC ("Blackstone"):                                                    
Walden Run   McDonough, GA   1997   1998   240   271,200   1,130   $ 768   88.33 %     N/A                      
Lakeshore Landing   Ridgeland, MS   1974   1994   196   171,108   873   $ 567   89.80 %     N/A                      
Woodstream   Greensboro, NC   1983   1994   304   217,056   714   $ 519   86.84 %     N/A                      
Colony at South Park   Aiken, SC   1989/91   1997   184   174,800   950   $ 634   92.39 %     N/A                      
Hamilton Pointe   Chattanooga, TN   1989   1992   361   256,671   711   $ 516   89.47 %     N/A                      
Hidden Creek   Chattanooga, TN   1987   1988   300   259,200   864   $ 533   90.67 %     N/A                      
Cedar Mill   Memphis, TN   1973/86   1982/94   276   297,804   1,079   $ 600   100.00 %     N/A                      
Northwood   Arlington, TX   1980   1998   270   224,100   830   $ 587   89.63 %     N/A                      
Woods, The   Austin, TX   1977   1997   278   214,060   770   $ 729   94.60 %     N/A                      
Lane at Towne Crossing   Mesquite, TX   1983   1994   384   277,632   723   $ 595   87.76 %     N/A                      
               
 
 
 
 
     
                     
Total Joint Venture Properties with Blackstone           2,793   2,363,631   846   $ 598   90.76 %   $ —                      
           
 
 
 
 
   
                     
Joint Venture Properties with Crow Holdings:                                                            
Preston Hills at Mill Creek   Buford, GA   2000   2002   464   517,360   1,115   $ 850   83.19 %     N/A                      
               
 
 
 
 
     
                     
Total Joint Venture Properties with Crow Holdings           464   517,360   1,115   $ 850   83.19 %   $ —                      
           
 
 
 
 
   
                     
Properties in Lease-Up:                                                                
Reserve at Dexter Lake Phase II   Memphis, TN   2001   1999   244   257,176   1,054   $ 749   94.67 %   $ —   (5)         (5)       (5)
Reserve at Dexter Lake Phase III   Memphis, TN   2001   2000   244   272,792   1,118   $ 769   69.26 %   $ —   (5)         (5)       (5)
Grand View Nashville   Nashville, TN   2001   1999   433   479,331   1,107   $ 870   87.99 %   $ —   (5)         (5)       (5)
               
 
 
 
 
   
                     
   Total Properties in Lease-Up               921   1,009,299   1,096   $ 811   84.80 %   $ —                      
               
 
 
 
 
   
                     
   Total Properties               33,923   32,188,008   949   $ 662   91.51 %     185,394                      
               
 
 
 
 
     
                     

9


     
(1)     Encumbered by a $420 million FNMA facility, with an outstanding balance of $227.5 million with a variable interest rate of 2.039% on which there exists five interest rate swap agreements all for $25 million at 6.195%, 6.330%, 7.165%, 7.390% and 7.4125% at December 31, 2002.
 
(2)   Encumbered by a $130 million FNMA facility, with an outstanding balance of $119.4 million, $9.4 million of which had a variable interest rate of 2.366%, $65 million with a fixed rate of 7.712%, $25 million with a fixed rate of 6.920% and $20 milllion with a fixed rate of 5.770% at December 31, 2002.
 
(3)   Encumbered by a $142 million bond with a maturity of March 3, 2003 and an average interest rate of 6.376%. This debt was refinanced with the FNMA Facility on March 3, 2003.
 
(4)   Encumbered, along with one corporate property, by a mortgage with a principal balance of $34.4 million at December 31, 2002, with a maturity of October 1, 2006 and an interest rate of 6.050%.
 
(5)   Encumbered by a credit line with AmSouth Bank, with an outstanding balance of $503,000 at December 31, 2002, with a variable interest rate of 2.730%.
 
(6)   Encumbered by a mortgage securing a tax-exempt bond amortizing over 25 years with principal balance of $14.7 million at December 31, 2002, and an average interest rate of 5.750%.
 
(7)
 		   Encumbered by a mortgage securing a tax-exempt bond amortizing over 25 years with a principal balance of $13.2 million at December 31, 2002, and an average interest rate of 5.281%.
 
(8)   Encumbered by a $47.5 million mortgage with a maturity of December 15, 2004 and an interest rate of 6.040%
 
(9)   Encumbered by a mortgage securing a tax-exempt bond amortizing over 25 years with a principal balance of $9.1 million at December 31, 2002, and an average interest rate of 6.090%.
 
(10)   Encumbered by $7 million in bonds on which there exists a $7 million interest rate swap fixed at 3.945% and maturing on October 24, 2007.
 
(11)   Encumbered by $5.9 million in bonds on which there exists a $5.9 million interest rate swap fixed at 5.037% and maturing on June 15, 2008.
 
(12)   Encumbered by $7.7 million in bonds on which there exists a $7.7 million interest rate swap fixed at 5.287% and maturing on June 15, 2008.
 
(13)   Encumbered by $3.4 million in bonds on which there exists a $3.4 million interest rate swap fixed at 5.037% and maturing on June 15, 2008.
 
(14)   Encumbered by $10.8 million in bonds on which there exists a $10.8 million interest rate swap fixed at 2.770% and maturing on October 24, 2007.
 
(15)   Encumbered by $6.8 million in bonds on which there exists a $6.8 million rate cap of 6.000% which terminates on October 24, 2007.
 

10


ITEM 3.         LEGAL PROCEEDINGS

The Company is not presently subject to any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company, other than routine litigation arising in the ordinary course of business, some of which is expected to be covered by liability insurance and none of which is expected to have a material adverse effect on the business, financial condition, liquidity or results of operations of the Company.

ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5.         MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company’s common stock has been listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “MAA” since its initial public offering in February 1994. On March 17, 2003, the reported last sale price of the Company’s common stock on the NYSE was $23.89 per share, and there were approximately 1,500 holders of record of the common stock. The Company estimates there are approximately 13,500 beneficial owners of its common stock. The following table sets forth the quarterly high and low sales prices of the Company’s common stock as reported on the NYSE and the dividends declared by the Company with respect to the periods indicated.

 

 

 

Sales Prices

 

 

 

 

 

 

 Dividends

 

 

 

High

 

Low

 

Declared

 

 

 

 

 

 

2001:

 

 

 

 

 

 

 

First Quarter

 

$

23.875

 

$

21.730

 

$

0.585

 

Second Quarter

 

$

25.750

 

$

22.420

 

$

0.585

 

Third Quarter

 

$

26.420

 

$

24.400

 

$

0.585

 

Fourth Quarter

 

$

26.760

 

$

24.400

 

$

0.585

 

 

 

 

 

 

 

 

 

2002:

 

 

 

 

 

 

 

First Quarter

 

$

26.750

 

$

25.100

 

$

0.585

 

Second Quarter

 

$

27.420

 

$

25.510

 

$

0.585

 

Third Quarter

 

$

26.900

 

$

22.250

 

$

0.585

 

Fourth Quarter

 

$

25.440

 

$

22.000

 

$

0.585

 

The Company’s quarterly dividend rate is currently $0.585 per common share. The Board of Directors reviews and declares the dividend rate quarterly. Actual dividends made by the Company will be affected by a number of factors, including the gross revenues received from the Communities, the operating expenses of the Company, the interest expense incurred on borrowings and unanticipated capital expenditures.

The Company pays a preferential regular distribution on the Series A, Series B, Series C, Series F and Series G Preferred Stock at annual rates of $2.375, $2.21875, $2.34375, $2.3125 and $2.15625 per share, respectively. No distribution may be made on the Company’s common stock unless all accrued distributions have been made with respect to each series of the Company’s preferred stock. No assurance can be given that the Company will be able to maintain its distribution rate on its common stock or make required distributions with respect to the Series A, Series B, Series C, Series F and Series G Preferred Stock.

Future distributions by the Company will be at the discretion of the Board of Directors and will depend on the actual funds available for distribution of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as the Board of Directors deems relevant.


11


The Company has established the Direct Stock Purchase and Distribution Reinvestment Plan (the “DSPDRP”) under which holders of common stock (and Series A, Series B, Series C, Series F and Series G Preferred Stock) can elect automatically to reinvest their distributions in additional shares of common stock and/or to make optional purchases of common stock free of brokerage commissions and charges of at least $250, but not more than $5,000 in any given month. To fulfill its obligations under the DSPDRP, the Company may either issue additional shares of common stock or repurchase common stock in the open market. The Company may elect to sell shares under the DSPDRP at up to a 5% discount, but did not sell any shares at a discount in 2002.

Information related to securities authorized for issuance under equity compensation plans as required by paragraph (d)(2) of this Item is incorporated by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission.

ITEM 6.         SELECTED FINANCIAL DATA

The following table sets forth selected financial data on an historical basis for the Company. This data should be read in conjunction with the consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K.


12


 

MID-AMERICA APARTMENT COMMUNITIES, INC.
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)

 

 

 

Year Ended December 31,

 

 

 

 

 

 

2002

 

2001

 

2000

 

1999

 

1998

 

 

 

 

 

 

 

 

Operating Data:

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

233,139

 

$

232,961

 

$

227,487

 

$

226,322

 

$

215,543

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

92,842

 

89,506

 

86,293

 

84,885

 

79,917

 

Depreciation and amortization

 

55,263

 

52,051

 

51,844

 

49,903

 

46,021

 

Property management and general and administrative expenses

 

15,298

 

16,083

 

14,826

 

14,479

 

11,960

 

Interest

 

49,448

 

52,598

 

50,736

 

48,302

 

45,704

 

Amortization of deferred financing costs

 

2,712

 

2,352

 

2,758

 

2,854

 

2,348

 

Gain on dispositions, net

 

397

 

11,933

 

11,587

 

10,237

 

408

 

 

 

 

 

 

 

 

Income before minority interest in operating partnership income and extraordinary items

 

17,973

 

32,304

 

32,617

 

36,136

 

30,001

 

Minority interest in operating partnership income

 

(493

)

(2,573

)

(2,626

)

(2,497

)

(2,254

)

Extraordinary items

 

(1,339

)

(1,033

)

(204

)

(67

)

(990

)

 

 

 

 

 

 

 

Net income

 

16,141

 

28,698

 

29,787

 

33,572

 

26,757

 

Preferred dividends

 

16,029

 

16,113

 

16,114

 

16,114

 

11,430

 

Amount paid to retire preferred stock in excess of carrying values

 

2,041

 

—

 

—

 

—

 

—

 

 

 

 

 

 

 

 

Net income available for common shareholders

 

$

(1,929

)

$

12,585

 

$

13,673

 

$

17,458

 

$

15,327

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

Before extraordinary items

 

$

(0.03

)

$

0.78

 

$

0.79

 

$

0.93

 

$

0.87

 

Extraordinary items

 

(0.08

)

(0.06

)

(0.01

)

—

 

(0.05

)

 

 

 

 

 

 

 

Net income available per common share

 

$

(0.11

)

$

0.72

 

$

0.78

 

$

0.93

 

$

0.82

 

 

 

 

 

 

 

 

Dividends declared

 

$

2.340

 

$

2.340

 

$

2.325

 

$

2.305

 

$

2.225

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

Real estate owned, at cost

 

$

1,478,793

 

$

1,449,720

 

$

1,430,378

 

$

1,396,743

 

$

1,434,733

 

Real estate owned, net

 

$

1,192,223

 

$

1,216,933

 

$

1,244,475

 

$

1,248,051

 

$

1,315,368

 

Total assets

 

$

1,239,467

 

$

1,263,488

 

$

1,303,771

 

$

1,298,823

 

$

1,366,427

 

Total debt

 

$

803,703

 

$

779,664

 

$

781,089

 

$

744,238

 

$

753,427

 

Minority interest

 

$

33,405

 

$

43,902

 

$

50,020

 

$

55,550

 

$

61,441

 

Shareholders’ equity

 

$

338,171

 

$

398,358

 

$

435,356

 

$

464,394

 

$

517,299

 

Weighted average common shares (000’s):

 

 

 

 

 

 

 

 

 

 

 

Basic

 

17,561

 

17,427

 

17,544

 

18,784

 

18,725

 

Diluted

 

17,561

 

17,532

 

17,597

 

18,808

 

18,770

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data (at end of period):

 

 

 

 

 

 

 

 

 

 

 

Market capitalization (shares and units)

 

$

673,431

 

$

709,224

 

$

634,903

 

$

639,095

 

$

670,123

 

Ratio of total debt to total capitalization(1)

 

54.4

%

52.4

%

55.2

%

53.8

%

52.9

%

Number of properties, including joint venture ownership interest

 

123

 

122

 

124

 

129

 

129

 

Number of apartment units, including joint venture ownership interest

 

33,923

 

33,411

 

33,612

 

33,901

 

33,831

 

______________

(1)         Total capitalization is total debt and market capitalization of preferred shares (value based on $25 per share liquidation preference), common shares and partnership units (value based on common stock equivalency).


13


ITEM 7.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS

This and other sections of this Annual Report contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These statements include, but are not limited to, statements about anticipated growth rate of revenues and expenses, anticipated lease-up (and rental concessions) at development properties, planned asset dispositions, disposition pricing, and planned acquisition and developments. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report on Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

The following are risks that the Company believes could cause results to differ from projected or forecasted results or could have a material or adverse effect on the Company’s business.

The Company’s Ability To Make Distributions May Be Adversely Affected By Factors Beyond Its Control

The Company’s ability to generate sufficient cash in order to make distributions to its shareholders depends on its ability to generate funds from operations in excess of scheduled principal payments on debt and capital expenditure requirements. Funds from operations and the value of the Company’s properties may be less because of factors which are beyond the Company’s control. Such events or conditions could include:

•          competition from other apartment communities;

•          overbuilding of new apartment units or oversupply of available apartment units in the Company’s markets, which might adversely affect apartment occupancy or rental rates and/or require rent concessions in order to lease apartment units;

•          increases in operating costs (including real estate taxes and insurance premiums) due to inflation and other factors, which may not be offset by increased rents;

•          the Company’s inability to rent apartments on favorable economic terms;

•          changes in governmental regulations and the related costs of compliance;

•          changes in tax laws and housing laws including the enactment of rent control laws or other laws regulating multifamily housing;

•          changes in interest rate levels and the availability of financing, which could lead renters to purchase homes (if interest rates drop and home loans are available more readily) or increase the Company’s acquisition and operating costs (if interest rates increase and financing is less readily available);

•          weakness in the overall economy which lowers job growth and the associated demand for apartment housing;

•          decisions relating to the dispositions of assets by the Company’s joint ventures; and

•          the relative illiquidity of real estate investments.

Currently, the Company’s funds available for distribution are insufficient to fully finance the payment of distributions to shareholders at the current rate. While the Company has sufficient liquidity to permit distributions at current rates through additional borrowings, any significant further deterioration in operations could result in the Company’s financial resources to be insufficient to pay distributions to shareholders at the current rate, in which event the Company would be required to cut the distribution rate. Any decline in the


14


Company’s funds from operations or property values because of these factors which are beyond its control could adversely affect the Company’s ability to make distributions to its shareholders and could have a material adverse effect on the Company’s stock price.

Debt Level and Refinancing Risk May Adversely Affect Financial Condition and Operating Results

At December 31, 2003, the Company had total debt outstanding of $803.7 million. Payments of principal and interest on borrowings may leave the Company with insufficient cash resources to operate the Communities or pay distributions required to be paid in order for the Company to maintain its qualification as a REIT. The Company intends to keep its total debt below 60% of the undepreciated book value of its assets, although the Company’s charter and bylaws do not limit its debt levels. Circumstances may cause the Company to exceed that target from time to time. As of December 31, 2002, the Company’s ratio of debt to undepreciated book value was approximately 53%. The Company’s Board of Directors can modify this policy at any time which could allow the Company to become more highly leveraged and decrease its ability to make distributions to its shareholders. In addition, the Company must repay its debt upon maturity, and the inability to access debt or equity capital at attractive rates could adversely affect the Company’s financial condition and/or its funds from operations.

Variable Interest Rates May Adversely Affect Our Funds from Operations

At December 31, 2002, approximately $298.8 million of the Company’s debt bore interest at a variable rate. In addition, the Company may incur additional debt in the future that also bears interest at variable rates. Variable-rate debt creates higher debt service requirements if market interest rates increase, which would adversely affect the Company’s funds from operations and the amounts available to pay distributions to shareholders. The Company’s $550 million credit facility with Fannie Mae is predominately a floating rate facility, the interest rates on which have been hedged by means of a number of interest rate swaps and caps. Upon the termination of these swaps and caps, the Company will be exposed to the risks of varying interest rates.

Increasing Insurance Costs May Negatively Impact Financial Condition

Because the Company has substantial real estate holdings, the cost of insuring its properties is a significant item of expense. Due to the events of September 11, 2001 and other recent disasters, premiums for property and casualty insurance have risen significantly in recent months. If the cost of property and casualty insurance continues to rise, its cost of doing business would likely rise, which may in turn negatively impact the Company’s financial condition and results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires the Company to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, the Company evaluates its estimates and assumptions based upon historical experience and various other factors and circumstances. The Company believes that its estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates and assumptions under different future conditions.

The Company believes that the estimates and assumptions that are most important to the portrayal of its financial condition and results of operations, in that they require the most subjective judgments, form the basis of accounting policies deemed to be most critical. These critical accounting policies include capitalization of expenditures and depreciation of assets, impairment of long-lived assets, including goodwill, and fair value of derivative financial instruments.

Capitalization of Expenditures and Depreciation of Assets

The Company carries its real estate assets at their depreciated cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets, which range from 8 to 40 years for land improvements and buildings, to 5 years for furniture, fixtures, and equipment, all of which are judgmental determinations. Repairs and maintenance costs are expensed as incurred while significant improvements, renovations, and


15


replacements are capitalized. The cost to complete any deferred repairs and maintenance at properties acquired by the Company in order to elevate the condition of the property to the Company’s standards are capitalized as incurred.

Impairment of Long-Lived Assets, Including Goodwill

The Company accounts for long-lived assets in accordance with the provisions of Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144) and evaluates its goodwill for impairment under Statement No. 142, Goodwill and Other Intangible Assets (Statement 142). The Company evaluates its goodwill for impairment on an annual basis. The Company periodically evaluates its long-lived assets, including its investments in real estate and goodwill, for indicators that would suggest that the carrying amount of the assets may not be recoverable. The judgments regarding the existence of such indicators are based on factors such as operating performance, market conditions, and legal factors.

To evaluate goodwill and the recovery value of long-lived assets, the Company estimates future operating cash flows and uses these cash flow estimates to determine the asset’s fair value. In the apartment industry the primary method used for determining fair values is to divide annual operating cash flows by an appropriate capitalization rate. The Company determines the appropriate capitalization rate by reviewing the prevailing rates in the Community’s market or submarket.

Fair Value of Derivative Financial Instruments

The Company utilizes certain derivative financial instruments during the normal course of business to manage, or hedge, the interest rate risk associated with the Company’s variable rate debt or as hedges in anticipation of future debt transactions to manage well-defined interest rate risk associated with the transaction. The valuation of the derivative financial instruments under SFAS No. 133 requires the Company to make estimates and judgments that affect the fair value of the instruments.

In order for a derivative contract to be designated as a hedge, the relationship between the hedging instrument and the hedged item must be highly effective. The Company performs effectiveness tests using the change in the variable cash flows method at the inception of the hedge and for each reporting period thereafter, through the maturity of the hedge. Any amounts determined to be ineffective are recorded in earnings. The fair value of the hedges are recorded to accumulated other comprehensive income.

While the Company’s calculation of hedge effectiveness contains some subjective determinations, the historical correlation of the rates of the hedge and the underlying hedged item are measured by the Company before entering into the hedge and have been highly related.

OVERVIEW

The following is a discussion of the consolidated financial condition and results of operations of the Company for the years ended December 31, 2002, 2001, and 2000. This discussion should be read in conjunction with all of the consolidated financial statements included in this Annual Report on Form 10-K.

As of December 31, 2002, the total number of apartment units the Company owned or had an ownership interest in, including the 11 properties containing 3,257 apartment units owned by the Company’s joint ventures was 33,923 in 123 Communities, compared to the 33,411 apartment units in 122 Communities owned at December 31, 2001, and the 33,612 apartment units in 124 Communities owned at December 31, 2000. For properties owned 100% by the Company, the average monthly rental per apartment unit, excluding units in lease-up, increased to $661 at December 31, 2002 from $660 at December 31, 2001 and $642 at December 31, 2000. For these same units, overall occupancy at December 31, 2002, 2001 and 2000 was 91.9%, 92.7% and 94.2%, respectively.

FUNDS FROM OPERATIONS

Funds from operations (“FFO”) represents net income (computed in accordance with accounting principles generally accepted in the United States of America, or “GAAP”) excluding extraordinary items, minority interest in Operating Partnership income, gain or loss on disposition of real estate assets, plus depreciation and amortization related to real estate, and adjustments for the joint ventures to reflect FFO on the same basis. This


16


definition of FFO is in accordance with the National Association of Real Estate Investment Trust’s (“NAREIT”) recommended definition.

The Company’s policy is to expense the cost of interior painting, vinyl flooring, and blinds as incurred for stabilized properties. During the stabilization period for acquisition properties, these items are capitalized as part of the total repositioning program of newly acquired properties, and, thus are not deducted in calculating FFO.

FFO should not be considered as an alternative to net income or any other GAAP measurement of performance, as an indicator of operating performance or as an alternative to cash flow from operating, investing, and financing activities as a measure of liquidity. The Company believes that FFO is helpful in understanding the Company’s results of operations in that such calculation reflects the Company’s ability to support interest payments and general operating expenses before the impact of certain activities such as changes in other assets and accounts payable. The Company’s calculation of FFO may differ from the methodology for calculating FFO utilized by other REITs and, accordingly, may not be comparable to such other REITs. The Company views the amount paid to retire preferred stock in excess of carrying values as experienced in 2002 in relation to the retirement of its Series E Preferred Stock as comparable to an extraordinary item for FFO purposes.

FFO decreased during 2002 by approximately $374,000 to $56,838,000 versus $57,212,000 in 2001 and $57,456,000 in 2000, principally because of reduced occupancy and increased concessions at properties owned for more than a year.

Net income decreased during 2002 by approximately $12,557,000 to $16,141,000 versus $28,698,000 in 2001 and $29,787,000 in 2000, principally because 2001 and 2000 experienced net gains of $11,933,000 and $11,587,000, respectively, related to dispositions of assets. In 2002 the Company did not sell any assets. In 2001 and 2000 the Company sold a total of 2,474 units under its disposition strategy, discussed earlier in this Annual Report, and reallocated the majority of the proceeds from those sales to the reduction of debt, the share repurchase program and the completion of development properties.

The following table is a reconciliation of FFO to net income for the three years ended December 31, 2002, 2001 and 2000 (dollars and shares in thousands):

  

 

 

Years ended December 31,

 

 

 

 

 

 

2002

 

2001

 

2000

 

 

 

 

 

 

Net income

 

$

16,141

 

$

28,698

 

$

29,787

 

Preferred dividend distribution

 

16,029

 

16,113

 

16,114

 

Amount paid to retire preferred stock in excess of carrying values

 

2,041

 

—

 

—

 

 

 

 

 

 

Net income/(loss) available for common shareholders

 

(1,929

)

12,585

 

13,673

 

Real estate depreciation and amortization

 

53,906

 

51,457

 

51,330

 

Adjustment for joint ventures depreciation

 

1,430

 

1,268

 

1,210

 

Minority interest

 

493

 

2,573

 

2,626

 

Gain on dispositions, net