================================================================================ 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, 1998 COMMISSION FILE NUMBER 1-12762 MID-AMERICA APARTMENT COMMUNITIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) TENNESSEE 62-1543819 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) 6584 POPLAR AVENUE, SUITE 340 MEMPHIS, TENNESSEE 38138 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (901) 682-6600 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NAME OF EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - - ------------------------------------- ------------------------ Common Stock, par value $.01 per share New York Stock Exchange Series A Cumulative Preferred Stock, par value $.01 per share New York Stock Exchange Series B Cumulative Preferred Stock, par value $.01 per share New York Stock Exchange Series C Cumulative Redeemable Preferred Stock, par value $.01 per share New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant, (based on the closing price of such stock ($22.625 per share), as reported on the New York Stock Exchange, on March 1, 1999) was approximately $380,000,000 (for purposes of this calculation, directors and executive officers are treated as affiliates). The number of shares outstanding of the Registrant's Common Stock as of March 1, 1999, was 18,916,423 shares, of which approximately 2,143,525 were held by affiliates. ================================================================================
MID-AMERICA APARTMENT COMMUNITIES, INC. TABLE OF CONTENTS <TABLE> <CAPTION> ITEM PAGE - - --------- ---- <S> <C> <C> PART I 1. Business............................. 2. Properties........................... 3. Legal Proceedings.................... 4. Submission of Matters to Vote of Security Holders................... <CAPTION> PART II <S> <C> <C> 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...................... 7.A. 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............... <CAPTION> PART III <S> <C> <C> 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....................... <CAPTION> PART IV <S> <C> <C> 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K... </TABLE> i
PART I ITEM 1. BUSINESS THE COMPANY Mid-America Apartment Communities, Inc. (the "Company") is a Memphis, Tennessee-based self-administered and self-managed umbrella partnership ("UPREIT") real estate investment trust, ("REIT") which, as of December 31, 1998, owns and operates 129 apartment communities containing 33,831 apartment units in 13 states, primarily in the Southeast, Midwest and Texas (the "Communities"). The Company currently has 3,489 apartment units in various stages of construction, development and pre-development in 10 new communities and 3 additions to existing communities Founded in 1977 by George E. Cates, the Company's Chairman of the Board of Directors and Chief Executive Officer, the Company's predecessor grew from an operator of a single 252-unit apartment community in Memphis, Tennessee into a fully-integrated owner and operator of 5,580 apartment units in 22 apartment communities in four southeastern states immediately prior to the Company's initial public offering in February 1994 (the "Initial Offering"). Since the Initial Offering, the Company's portfolio has increased by 107 apartment communities containing 28,251 apartment units, including 12 apartment communities containing 3,212 apartment units acquired in the Company's merger with America First REIT, Inc. ("AFR") in June 1995 (the "AFR Merger") for an aggregate value of approximately $111 million (as measured by Common Stock issued and AFR debt assumed) and 30 apartment communities containing 7,691 apartments acquired in the company's merger with Flournoy Development Company and related partnerships ("FDC") on November 25, 1997 (the "FDC Merger") for an aggregate value of $423 million. The FDC Merger resulted in the establishment of Flournoy Service Corporation ("FSC"), whose name was later changed to Flournoy Development Corporation, to own and operate the third-party construction, brokerage and management activities formerly conducted by FDC. The operations of FSC include the management of 42 properties with 5,131 apartment units owned by third party investors, and the development and construction of properties for the Company and for third parties. The Company believes that this structure is permitted under the terms of the Internal Revenue Code and is the most economically beneficial structure for these activities from a shareholder's perspective. The Company's business is conducted principally through the Mid-America Apartments, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership, holding, as of December 31, 1998, 193,271 Common Units or a 1% general partnership interest in the Operating Partnership. 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, 1998, held 16,122,085 Common Units, or 83.4% of all outstanding Common Units. In connection with the formation of the Operating Partnership and the Initial Offering, the Operating Partnership issued 2,460,413 Common Units to the former owners of Communities contributed to the Operating Partnership. The Common Units held by such former owners are redeemable by the holders, at their option, for shares of Common Stock on a one-for-one basis or, at the Company's option, for cash. The Company has an effective shelf registration statement relating to the resale of the Common Stock issuable in exchange for the Common Units by the holders thereof. As of December 31, 1998, such former owners held 2,301,963 Common Units. In subsequent transactions and acquisitions of properties, including in the FDC Merger, an additional 709,817 Common Units have been issued, resulting in a total of 3,011,780 Common Units being owned by outside investors. Certain Communities are owned by limited partnerships of which the Operating Partnership and the Company or a wholly owned qualified REIT subsidiary are the only partners. The Company, directly or through 9 wholly owned qualified REIT subsidiaries, owns 103 Communities. The Company also has established Mid-America Capital Partners, L.P., a single-purpose limited partnership formed in 1997 to own 26 apartment communities containing 5,949 apartment units, of which the Operating Partnership owns a 99% limited partnership interest and the Company, through a subsidiary, owns a 1% general partnership interest. 1
OPERATING PHILOSOPHY DIVERSIFIED MARKET FOCUS. The Company focuses on owning, operating, developing, constructing and acquiring apartment communities mainly throughout the southeast, mid west and Texas. The Company seeks to develop and acquire apartment communities in its existing markets and selected new markets where it believes there is less competition for acquisitions or new construction. INTENSIVE MANAGEMENT FOCUS. The Company strongly emphasizes on-site property management. Particular attention is paid to opportunities to increase rents, raise average occupancy rates, and control costs, with property managers and regional management being given the responsibility for monitoring market trends and the discretion to react to such trends. DEDICATION TO CUSTOMER SERVICE. Management's experience is that maintaining a consistently high level of customer satisfaction leads to greater demand for the Company's apartment units, higher occupancy and rental rates, and increased long-term profitability. The Company, as part of its intense management focus, has established regional training facilities to develop and improve the skills of on-site personnel. Management believes that this commitment to training and excellence in associates ultimately translates to higher customer satisfaction. Also, management undertakes resident surveys and focus groups, in order to measure customer satisfaction. DECENTRALIZED OPERATIONAL STRUCTURE. The Company's operational structure is organized on a decentralized basis. The Company's property managers have overall operating responsibility for their specific Communities. Property managers report to area managers or regional managers who, in turn, are accountable to the Company's President and Chief Operating Officer. Management believes that its decentralized operating structure capitalizes on specific market knowledge, increases personal accountability relative to a centralized structure and is beneficial in the acquisition, redevelopment and development process. GROWTH STRATEGIES The Company seeks to increase operating cash flow and earnings per share to maximize shareholder value through a balanced strategy of internal and external growth. OPERATING GROWTH STRATEGY. Management's goal is to maximize its return on investment in each Community by increasing rental rates and reducing operating expenses while maintaining high occupancy levels. The Company seeks higher net rental revenues by enhancing and maintaining the competitiveness of the Communities and manages expenses through its system of detailed management reporting and accountability in order to achieve increases in operating cash flow. The steps taken to meet these objectives include: o empowering the Company's property managers to adjust rents in response to local market conditions and to concentrate resident turnover in peak rental demand months; o 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; o ensuring that, through monthly inspections of all Communities by senior management and prompt attention to maintenance and recurring capital needs as well as defined preventive maintenance programs conducted quarterly at each property, the Communities are properly maintained; o 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; o investing heavily in training programs for its property level personnel; o compensating employees through performance-based compensation and stock ownership programs; and o maintaining a hands-on management style and "flat" organizational structure that emphasizes senior management's continued close contact with the market and employees. 2
DEVELOPMENT AND ACQUISITION GROWTH STRATEGY. The Company's growth strategy also includes developing and acquiring additional apartment units that meet the Company's disciplined capital investment and return criteria, and when apartments no longer meet the Company's long-term strategic objectives or investment criteria, to dispose of those Communities. Since the Initial Offering, the Company has grown by 28,251 apartment units, an increase of approximately 500% over the number of apartment units immediately prior to the Initial Offering. DEVELOPMENT STRATEGY. The Company's present emphasis is development instead of acquisitions because of the higher long term investment returns generated by development. Through the November 1997 FDC Merger, the Company acquired a fully integrated developer and builder of multifamily apartments with over 31 years of experience. Utilizing internal development capabilities adds properties to the portfolio at a lower overall cost because the Company captures the profit normally paid to an external contractor. As a result of the increased yield on these internally developed properties, the Company has significantly expanded its commitment to new development. The Company has established higher investment return criteria for new development than for acquisitions and generally expects that its development program will produce higher quality assets and generate substantially higher stabilized returns on investment than most acquisition opportunities. In 1998 the Company completed the development of the following 950 apartment units which are currently in various stages of lease-up: o 288 unit Paddock Club in Mandarin, Florida o 154 unit Enclave at Whisperwood in Columbus, Georgia o 192 unit Phase II expansion of the Paddock Club at Huntsville, Alabama o 316 unit Terraces at Fieldstone in Conyers, Georgia Including the recently announced development projects discussed in "Recent Developments" below, the Company currently has a total of 3,489 apartment units in various stages of development, construction, and pre-development, of which 1,570 are scheduled to be completed in 1999 with the remainder in 2000 and 2001. The Company is continuously seeking opportunities for development in markets which meet its disciplined investment strategy and return criteria. The Company has several additional projects, totaling approximately 1,850 planned apartment units, in various stages of feasibility study, and it anticipates that several of these additional apartment communities will be approved for development later in 1999, which will require additional funding in 1999, 2000 and 2001. The Company anticipates a total capital investment in this development pipeline of approximately $125 million in 1999 and approximately $120 million in 2000. These projects are expected to be funded by the Company's line of credit ("Credit Line"), selective property dispositions and possible joint venture transactions. ACQUISITION STRATEGY. An additional strategy of the Company is to acquire apartment communities that meet its investment criteria and long-term strategic objectives. Through the Company's UPREIT structure, the Company has the ability to acquire apartment communities through the issuance of Operating Partnership Units in tax-deferred exchanges with owners of such properties. Typically, the Company seeks to acquire well-constructed communities with acquisition prices below estimated replacement cost and with the potential to achieve rental rate and occupancy increases, as well as operating expense reductions through the application of the Company's intense management focus. Currently the Company believes development of additional apartments is more attractive and produces higher investment returns than the acquisition of properties. Most apartment communities that the Company has identified as available for acquisition do not meet the Company's investment objectives, and the present status of capital markets have raised the threshold for yields. The Company does not anticipate any significant investment in acquisition properties in 1999. 3
The following apartment communities (the "Completed Acquisitions") containing an aggregate of 2,129 apartment units were acquired during 1998 (dollars in millions): <TABLE> <CAPTION> NUMBER DATE OF CONTRACT PROPERTY LOCATION OF UNITS ACQUISITION PRICE(1) CONSIDERATION(2) - - ------------------------------------- ----------------------- --------- ------------ --------- ---------------- <S> <C> <C> <C> <C> <C> Walden Run........................... McDonough, GA 240 2/5/98 $13.4 Cash Abbington Place...................... Huntsville, AL 152 2/26/98 5.1 Cash Eagle Ridge.......................... Birmingham, AL 200 5/6/98 8.4 Cash and Units Georgetown Grove..................... Savannah, GA 220 5/29/98 12.8 Cash Courtyards at Campbell............... Dallas, TX 231 7/21/98 9.8 Cash Deer Run............................. Dallas, TX 304 7/21/98 12.5 Cash Highwood............................. Plano, TX 196 7/21/98 8.6 Cash Northwood............................ Arlington, TX 270 7/21/98 7.4 Cash Links at Carrollwood................. Tampa, FL 204 10/19/98 8.0 Units Island Retreat....................... St. Simons, GA 112 11/25/98 5.1 Units --------- --------- 2,129 $91.1 ========= ========= </TABLE> - - ------------ (1) Excluding additional customary closing costs, including expenses and commissions. (2) "Units" refers to Common units in the Company's Operating Partnership. 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 Company's properties compete with numerous other multifamily properties, the owners of which may have greater resources than the Company and whose management may have more experience than the Company's management. Moreover, single-family rental housing, manufactured housing, condominiums and the new and existing home markets provide housing alternatives to potential residents of apartment communities. RECENT DEVELOPMENTS JOINT VENTURE AGREEMENT In March 1999 the Company entered into an agreement to form a joint venture (the "Joint Venture") with Blackstone Real Estate Acquisitions, LLC, a subsidiary of an investment management firm located in New York City, to own and operate apartment communities. The Company simultaneously sold 6 apartment communities to the newly formed Joint Venture for approximately $65 million cash. The Company will retain a 33 percent ownership interest in the Joint Venture and will continue to manage the properties for a fee. The Company invested approximately $4.0 million in the Joint Venture and loaned the Joint Venture $3.0 million at an interest rate of 10% for the life of the entity. The net proceeds from the transaction will be used to pay down the Company's Credit Line. The agreement provides that income and cash flows generated by the Joint Venture be allocated based on the respective ownership interest. The Company will account for its investment in the Joint Venture using the equity method of accounting. The Company plans to sell an additional 4 apartment communities to the Joint Venture later in the year. The proceeds of any such transaction are expected to be used to pay down the Company's Credit Line. 4
DEVELOPMENT Subsequent to December 31, 1998, the Company's Board of Directors approved the development of the following two new apartment communities totaling 674 units: o 320-unit Kenwood Club at the Park located in Katy, Texas at an estimated cost of $18,129,000 with an anticipated construction start in April 1999 o 354-unit Sandstone Creek located in Overland Park, Kansas at an estimated cost of $27,514,000 which is expected to commence construction in late summer 1999 These projects are expected to be funded through the Company's Credit Line and potential joint venture transactions. DISTRIBUTION INCREASE In January 1999, the Company raised its quarterly distribution to common shareholders from $.55 per share to $.575 per share, effective with its distribution paid on January 30, 1999. ITEM 2. PROPERTIES The Company seeks to acquire and develop apartment communities appealing to middle and upper income residents in mid-size cities in the southeastern United States and Texas. 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 rentals. The average age of the Communities at December 31, 1998 was 12.6 years. The following table sets forth certain operating data regarding the company for the periods indicated excluding development communities: <TABLE> <CAPTION> 1998 1997 1996 --------- --------- --------- <S> <C> <C> <C> Apartment units at year end.......... 33,831 30,579 19,280 Average monthly rental per apartment.......................... $582 $549 $529 Average occupancy for the year....... 94.5% 93.6% 95.4% </TABLE> The following table sets forth certain historical information on an historical basis for the 129 Communities owned at December 31, 1998: 5
The following table presents information concerning the properties at December 31, 1998: <TABLE> <CAPTION> APPROXIMATE AVERAGE YEAR RENTABLE UNIT YEAR MANAGEMENT NUMBER AREA SIZE PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.) - - ------------------------------------- --------------------- ---------- ----------- ---------- ------------- ------------- Eagle Ridge.......................... Birmingham, AL 1986 1998 200 181,400 907 <S> <C> <C> <C> <C> <C> <C> Abbington Place...................... Huntsville, AL 1987 1998 152 162,792 1,071 Paddock Club -- Huntsville........... Huntsville, AL 1989 1997 200 211,576 1,058 Paddock Club -- Huntsville II........ Huntsville, AL 1998 1997 192 212,736 1,108 ---------- ------------- ------------- 744 768,528 4,144 ---------- ------------- ------------- Calais Forest........................ Little Rock, AR 1987 1994 260 194,928 750 Napa Valley.......................... Little Rock, AR 1984 1996 240 183,216 763 Westside Creek I..................... Little Rock, AR 1984 1997 142 148,030 1,042 Westside Creek II.................... Little Rock, AR 1986 1997 166 156,646 944 Whispering Oaks...................... Little Rock, AR 1978 1994 206 192,422 934 ---------- ------------- ------------- 1,014 875,242 863 ---------- ------------- ------------- Tiffany Oaks......................... Altamonte Springs, FL 1985 1996 288 234,224 813 Marsh Oaks........................... Atlantic Beach, FL 1986 1995 120 93,280 777 Paddock Club -- Brandon.............. Brandon, FL 1997 1997 308 358,600 1,164 Anatole.............................. Daytona Beach, FL 1986 1995 208 149,136 717 Cooper's Hawk........................ Jacksonville, FL 1987 1995 208 218,400 1,050 Hunter's Ridge at Deerwood........... Jacksonville, FL 1987 1997 336 294,888 878 Lakeside............................. Jacksonville, FL 1985 1996 416 344,192 827 Paddock Club -- Jacksonville I....... Jacksonville, FL 1989 1997 200 216,016 1,080 Paddock Club -- Jacksonville II...... Jacksonville, FL 1996 1997 120 132,280 1,102 Paddock Club -- Jacksonville III..... Jacksonville, FL 1997 1997 120 130,544 1,088 Paddock Club -- Mandarin............. Jacksonville, FL 1998 1998 288 330,336 1,147 St. Augustine........................ Jacksonville, FL 1987 1995 400 304,400 761 Woodbridge at the Lake............... Jacksonville, FL 1985 1994 188 166,000 883 Woodhollow........................... Jacksonville, FL 1986 1997 450 342,162 760 Paddock Club -- Lakeland I........... Lakeland, FL 1988 1997 200 217,704 1,089 Paddock Club -- Lakeland II.......... Lakeland, FL 1990 1997 264 283,365 1,073 Savannahs at James Landing........... Melbourne, FL 1990 1995 256 238,592 932 Paddock Park -- Ocala I.............. Ocala, FL 1986 1997 200 202,282 1,011 Paddock Park -- Ocala II............. Ocala, FL 1988 1997 280 290,496 1,037 Paddock Club -- Tallahassee I........ Tallahassee, FL 1990 1997 192 208,000 1,083 Paddock Club -- Tallahassee II....... Tallahassee, FL 1995 1997 112 124,720 1,114 Belmere.............................. Tampa, FL 1984 1994 210 202,440 964 Links at Carrollwood................. Tampa, FL 1980 1998 204 190,536 934 Sailwinds at Lake Magdalene.......... Tampa, FL 1975 1994 798 667,084 836 ---------- ------------- ------------- 6,366 5,939,677 933 ---------- ------------- ------------- Hidden Oaks I........................ Albany, GA 1979 1997 128 132,096 1,032 Hidden Oaks II....................... Albany, GA 1980 1997 112 114,624 1,023 Regency Club......................... Albany, GA 1983 1997 100 80,200 802 High Ridge........................... Athens, GA 1987 1997 160 186,608 1,166 <CAPTION> ENCUMBRANCES AT AVERAGE AVERAGE DECEMBER 31, 1998 RENT PER OCCUPANCY -------------------------------------------- UNIT AT % AT MORTGAGE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY PROPERTY 1998 1998 (000'S) RATE DATE - - ------------------------------------- ------------- ------------- --------- ----------- -------------- Eagle Ridge.......................... $ 583 97.50% $ 6,402 8.250% 07/01/28 <S> <C> <C> <C> <C> <C> <C> Abbington Place...................... $ 532 93.42% -- (2) -- (2) -- 2) Paddock Club -- Huntsville........... $ 601 89.00% -- (2) -- (2) -- 2) Paddock Club -- Huntsville II........ $ 682 93.75% -- (2) -- (2) -- 2) ------------- ------------- --------- $ 603 93.4% $ 6,402 ------------- ------------- --------- Calais Forest........................ $ 567 90.38% $ 5,610 8.915% 12/01/99 Napa Valley.......................... $ 550 87.50% -- (7) -- (7) -- 7) Westside Creek I..................... $ 609 91.23% -- (7) -- (7) -- 7) Westside Creek II.................... $ 609 91.23% $ 4,918 8.760% 10/01/06 Whispering Oaks...................... $ 523 92.72% $ 3,000 8.915% 12/01/99 ------------- ------------- --------- $ 567 90.4% $13,528 ------------- ------------- --------- Tiffany Oaks......................... $ 589 97.92% -- (7) -- (7) -- 7) Marsh Oaks........................... $ 544 100.00% -- (7) -- (7) -- 7) Paddock Club -- Brandon.............. $ 775 99.03% -- (2) -- (2) -- 2) Anatole.............................. $ 565 97.60% $ 7,000 5.625% &(2) 12/01/27 & 2) Cooper's Hawk........................ $ 598 96.63% -- (5) -- (5) -- 5) Hunter's Ridge at Deerwood........... $ 598 94.64% -- (10) -- (10) -- 0) Lakeside............................. $ 580 94.47% -- (7) -- (7) -- 7) Paddock Club -- Jacksonville I....... $ 712 95.00% -- (8) -- (8) -- 8) Paddock Club -- Jacksonville II...... $ 712 95.00% -- (8) -- (8) -- 8) Paddock Club -- Jacksonville III..... $ 755 95.00% -- (8) -- (8) -- 8) Paddock Club -- Mandarin............. $ 744 95.83% -- (2) -- (2) -- 2) St. Augustine........................ $ 539 95.00% -- (5) -- (5) -- 5) Woodbridge at the Lake............... $ 604 96.81% $ 3,600 -- (1) -- 1) Woodhollow........................... $ 583 93.56% $ 9,973 7.500% 09/01/02 Paddock Club -- Lakeland I........... $ 679 94.39% -- (8) -- (8) -- 8) Paddock Club -- Lakeland II.......... $ 679 94.39% -- (8) -- (8) -- 8) Savannahs at James Landing........... $ 594 92.19% -- (5) -- (5) -- 5) Paddock Park -- Ocala I.............. $ 656 95.41% $ 6,805 6.500% 10/01/08 Paddock Park -- Ocala II............. $ 656 95.41% -- (2) -- (2) -- 2) Paddock Club -- Tallahassee I........ $ 671 95.40% -- (2) -- (2) -- 2) Paddock Club -- Tallahassee II....... $ 671 95.40% $ 4,710 8.500% 04/01/36 Belmere.............................. $ 624 97.14% -- (7) -- (7) -- 7) Links at Carrollwood................. $ 649 81.37% $ 5,793 8.750 02/01/03 Sailwinds at Lake Magdalene.......... $ 550 95.49% $15,950 8.915% 12/01/99 ------------- ------------- --------- $ 624 95.1% $53,831 ------------- ------------- --------- Hidden Oaks I........................ $ 448 86.66% Hidden Oaks II....................... $ 448 86.66% $ 2,429 8.000% 02/01/21 Regency Club......................... $ 391 72.00% -- (7) -- (7) -- 7) High Ridge........................... $ 756 98.13% </TABLE> 6
The following table presents information concerning the properties at December 31, 1998: <TABLE> <CAPTION> APPROXIMATE AVERAGE YEAR RENTABLE UNIT YEAR MANAGEMENT NUMBER AREA SIZE PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.) - - ------------------------------------- --------------------- ---------- ----------- ---------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Shenandoah Ridge..................... Augusta, GA 1975/1984 1994 272 222,800 819 Bradford Pointe (Sterling Ridge)..... Augusta, GA 1986 1997 192 156,232 814 Westbury Creek....................... Augusta, GA 1984 1997 120 106,998 892 Fountain Lake........................ Brunswick, GA 1983 1997 100 118,046 1,180 Island Retreat....................... St. Simons Island, GA 1978 1998 112 129,584 1,157 Park Walk............................ College Park, GA 1985 1997 124 112,776 909 Enclave at Whisperwood............... Columbus, GA 1998 1998 154 189,728 1,232 2000 Wynnton......................... Columbus, GA 1983 1997 72 66,056 917 Riverwind............................ Columbus, GA 1983 1997 44 40,304 916 Whisperwood.......................... Columbus, GA 1980-86 1997 506 610,876 1,207 Whisperwood Spa & Club............... Columbus, GA 1988 1997 348 380,044 1,092 Willow Creek......................... Columbus, GA 1968-78 1997 285 246,668 866 Terraces at Fieldstone............... Conyers, GA 1998 1998 316 351,076 1,111 Hollybrook........................... Dalton, GA 1972 1994 158 188,640 1,194 Whispering Pines I................... LaGrange, GA 1982 1997 120 123,904 1,033 Whispering Pines II.................. LaGrange, GA 1984 1997 96 98,572 1,027 Westbury Springs..................... Lilburn, GA 1983 1997 150 137,744 918 Walden Run........................... McDonough, GA 1997 1998 240 271,200 1,130 Austin Chase......................... Macon, GA 1996 1997 256 293,016 1,144 The Vistas........................... Macon, GA 1985 1997 144 153,792 1,068 Georgetown Grove..................... Savannah, GA 1997 1998 220 239,800 1,090 Wildwood I........................... Thomasville, GA 1980 1997 120 123,904 1,033 Wildwood II.......................... Thomasville, GA 1984 1997 96 101,152 1,054 Hidden Lake I........................ Union City, GA 1985 1997 160 171,192 1,070 Hidden Lake II....................... Union City, GA 1987 1997 160 154,000 963 Three Oaks I......................... Valdosta, GA 1983 1997 120 123,904 1,033 Three Oaks II........................ Valdosta, GA 1984 1997 120 129,200 1,077 Southland Station I.................. Warner Robins, GA 1987 1997 160 186,704 1,167 Southland Station II................. Warner Robins, GA 1990 1997 144 168,704 1,172 Terraces at Towne Lake............... Woodstock, GA 1997 1997 264 286,968 1,087 Terraces at Towne Lake II............ Woodstock, GA 1997 1997 112 286,968 1,087 ---------- ------------- ------------- 5,985 5,015,724 838 ---------- ------------- ------------- Fairways at Hartland................. Bowling Green, KY 1996 1997 240 251,180 1,047 Paddock Club Florence................ Florence, KY 1994 1997 200 207,036 1,035 Lakepointe........................... Lexington, KY 1986 1994 118 90,614 768 Mansion, The......................... Lexington, KY 1987 1994 184 138,720 754 Village, The......................... Lexington, KY 1989 1994 252 182,716 725 Stonemill Village.................... Louisville, KY 1985 1994 384 324,008 844 ---------- ------------- ------------- 1,378 1,194,274 867 ---------- ------------- ------------- Canyon Creek......................... St. Louis, MO 1987 1994 320 312,592 977 ---------- ------------- ------------- <CAPTION> ENCUMBRANCES AT AVERAGE AVERAGE DECEMBER 31, 1998 RENT PER OCCUPANCY --------------------------------------------- UNIT AT % AT MORTGAGE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY PROPERTY 1998 1998 (000'S) RATE DATE - - ------------------------------------- ------------- ------------- --------- --------- -------------- <S> <C> <C> <C> <C> <C> <C> Shenandoah Ridge..................... $ 457 94.12% -- (7) -- (7) -- 7) Bradford Pointe (Sterling Ridge)..... $ 537 93.75% $ 4,760 5.10% & (2) 06/01/28 & 2) Westbury Creek....................... $ 558 94.17% $ 3,167 7.594% 11/01/24 Fountain Lake........................ $ 765 87.00% $ 2,969 7.750% 03/01/03 Island Retreat....................... $ 699 85.71% $ 3,453 7.215% 03/01/03 Park Walk............................ $ 641 97.58% $ 3,392 6.370% 11/01/25 Enclave at Whisperwood............... $ 744 96.75% -- (2) -- (2) -- 2) 2000 Wynnton......................... $ 442 97.22% -- -- -- Riverwind............................ $ 455 97.73% -- -- -- Whisperwood.......................... $ 604 95.08% -- (2) -- (2) -- 2) Whisperwood Spa & Club............... $ 604 95.08% -- (2) -- (2) -- 2) Willow Creek......................... $ 485 91.23% -- (7) -- (7) -- 7) Terraces at Fieldstone............... $ 808 55.96% -- (2) -- (2) -- 2) Hollybrook........................... $ 595 95.57% $ 2,520 8.915% 12/01/99 Whispering Pines I................... $ 556 91.20% $ 2,737 7.750% 01/01/23 Whispering Pines II.................. $ 556 91.20% $ 2,523 6.150% 12/01/24 Westbury Springs..................... $ 642 99.33% $ 4,249 7.500% 07/01/23 Walden Run........................... $ 712 97.92% -- (2) -- (2) -- 2) Austin Chase......................... $ 667 99.22% -- (10) -- (10) -- 0) The Vistas........................... $ 593 91.67% $ 4,074 6.230% 03/01/28 Georgetown Grove..................... $ 710 98.64% $10,505 7.750% 07/01/37 Wildwood I........................... $ 504 94.90% $ 2,074 7.500% 12/01/20 Wildwood II.......................... $ 504 94.90% $ 2,016 6.573% 07/01/24 Hidden Lake I........................ $ 649 94.06% $ 4,521 6.340% 12/01/26 Hidden Lake II....................... $ 649 94.06% -- (7) -- (7) -- 7) Three Oaks I......................... $ 532 95.00% $ 2,849 7.500% 02/01/22 Three Oaks II........................ $ 532 95.00% $ 2,933 6.259% 07/01/24 Southland Station I.................. $ 622 97.69% -- (7) -- (7) -- 7) Southland Station II................. $ 622 97.69% -- -- -- Terraces at Towne Lake............... $ 796 95.45% $15,191 8.250% 01/10/37 Terraces at Towne Lake II............ $ 810 22.32% ------------- ------------- --------- $ 618 90.9% 876,362 ------------- ------------- --------- Fairways at Hartland................. $ 568 89.58% $ 4,627 8.875% 05/01/00 Paddock Club Florence................ $ 740 93.50% $ 9,673 7.250% 02/01/36 Lakepointe........................... $ 539 93.22% -- (7) -- (7) -- 7) Mansion, The......................... $ 548 91.85% $ 4,140 8.915% 12/01/99 Village, The......................... $ 583 92.06% -- (7) -- (7) -- 7) Stonemill Village.................... $ 565 89.32% -- (4) -- (4) -- 4) ------------- ------------- --------- $ 590 91.1% $18,441 ------------- ------------- --------- Canyon Creek......................... $ 546 94.69% -- (4) -- (4) -- 4) ------------- ------------- --------- </TABLE> 7
The following table presents information concerning the properties at December 31, 1998: <TABLE> <CAPTION> APPROXIMATE AVERAGE YEAR RENTABLE UNIT YEAR MANAGEMENT NUMBER AREA SIZE PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.) - - ------------------------------------- --------------------- ---------- ----------- ---------- ------------- ------------- Riverhills........................... Grenada, MS 1972 1985 96 81,942 854 <S> <C> <C> <C> <C> <C> <C> Advantages, The...................... Jackson, MS 1984 1991 252 199,136 790 Crosswinds........................... Jackson, MS 1988/1989 1996 360 443,200 1,231 Lakeshore Landing.................... Jackson, MS 1974 1994 196 171,156 873 Pear Orchard......................... Jackson, MS 1985 1994 389 338,400 870 Pine Trails.......................... Jackson, MS 1978 1988 120 98,560 821 Reflection Pointe.................... Jackson, MS 1986 1988 296 254,856 861 Somerset Place....................... Jackson, MS 1981 1995 144 126,848 881 Woodridge............................ Jackson, MS 1987 1988 192 175,034 912 ---------- ------------- ------------- 2,045 1,889,132 924 ---------- ------------- ------------- Hermitage at Beechtree............... Cary, NC 1988 1997 194 169,776 875 Woodstream........................... Greensboro, NC 1983 1994 304 312,186 714 Corners, The......................... Winston-Salem, NC 1982 1993 240 173,496 723 ---------- ------------- ------------- 738 560,458 759 ---------- ------------- ------------- Fairways at Royal Oak................ Cincinnati, OH 1988 1994 214 214,477 1,002 ---------- ------------- ------------- Colony at South Park................. Aiken, SC 1989/91 1997 184 174,800 950 Woodwinds............................ Aiken, SC 1988 1997 144 165,188 1,147 Tanglewood........................... Anderson, SC 1980 1994 168 146,600 873 The Fairways......................... Columbia, SC 1992 1994 240 213,720 891 Paddock Club -- Columbia I........... Columbia, SC 1989 1997 200 218,872 1,094 Paddock Club -- Columbia II.......... Columbia, SC 1995 1997 136 144,720 1,064 Highland Ridge....................... Greenville, SC 1984 1995 168 144,000 857 Howell Commons....................... Greenville, SC 1986/88 1997 348 292,840 841 Paddock Club -- Greenville........... Greenville, SC 1996 1997 208 212,104 1,020 Park Haywood......................... Greenville, SC 1983 1993 208 156,776 754 Spring Creek......................... Greenville, SC 1984 1995 208 182,000 875 Runaway Bay.......................... Mt. Pleasant, SC 1988 1995 208 177,840 855 Park Place........................... Spartanburg, SC 1987 1997 184 195,312 1,061 ---------- ------------- ------------- 2,604 2,424,772 931 ---------- ------------- ------------- Hamilton Pointe...................... Chattanooga, TN 1989 1992 362 256,716 711 Hidden Creek......................... Chattanooga, TN 1987 1988 300 259,152 864 Steeplechase......................... Chattanooga, TN 1986 1991 108 98,602 913 Windridge............................ Chattanooga, TN 1984 1997 174 238,704 1,372 Oaks, The............................ Jackson, TN 1978 1993 100 87,512 875 Post House Jackson................... Jackson, TN 1987 1989 150 163,640 1,091 Post House North..................... Jackson, TN 1987 1989 144 144,724 1,005 Williamsburg Village................. Jackson, TN 1987 1994 148 121,412 820 Woods at Post House.................. Jackson, TN 1995 1995 122 118,922 975 Cedar Mill........................... Memphis, TN 1973/1986 1982/1994 276 297,794 1,079 <CAPTION> ENCUMBRANCES AT AVERAGE AVERAGE DECEMBER 31, 1998 RENT PER OCCUPANCY ----------------------------------------------- UNIT AT % AT MORTGAGE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY PROPERTY 1998 1998 (000'S) RATE DATE - - ------------------------------------- ------------- ------------- --------- --------- -------------- Riverhills........................... $ 395 97.92% $ 819 7.000% 05/01/13 <S> <C> <C> <C> <C> <C> Advantages, The...................... $ 457 95.24% -- (4) -- (4) -- (4) Crosswinds........................... $ 612 88.06% -- (7) -- (7) -- (7) Lakeshore Landing.................... $ 522 93.37% -- (4) -- (4) -- (4) Pear Orchard......................... $ 568 90.49% -- (7) -- (7) -- (7) Pine Trails.......................... $ 531 87.50% $ 1,315 7.000% 04/01/15 Reflection Pointe.................... $ 589 90.20% $ 5,882 5.35% & (2) 12/01/27 &(2) Somerset Place....................... $ 504 93.06% -- (7) -- (7) -- (7) Woodridge............................ $ 523 96.35% $ 4,735 6.5000% 10/01/27 ------------- ------------- --------- $ 542 91.8% $12,750 ------------- ------------- --------- Hermitage at Beechtree............... $ 671 95.36% -- (7) -- (7) -- (7) Woodstream........................... $ 439 98.68% -- (2) -- (2) -- (2) Corners, The......................... $ 554 96.67% $ 4,198 7.850% 06/15/03 ------------- ------------- --------- $ 578 97.2% $ 4,198 ------------- ------------- --------- Fairways at Royal Oak................ $ 601 90.19% -- (7) -- (7) -- (7) ------------- ------------- --------- Colony at South Park................. $ 577 98.90% -- (2) -- (2) -- (2) Woodwinds............................ $ 599 97.22% $ 3,500 8.840% 06/01/05 Tanglewood........................... $ 531 94.05% $ 2,496 7.600% 11/15/02 The Fairways......................... $ 604 93.75% $ 7,605 8.500% 03/01/33 Paddock Club -- Columbia I........... $ 736 88.69% -- (2) -- (2) -- (2) Paddock Club -- Columbia II.......... $ 736 88.69% -- (2) -- (2) -- (2) Highland Ridge....................... $ 479 93.45% -- (3) -- (3) -- (3) Howell Commons....................... $ 505 92.82% -- (7) -- (7) -- (7) Paddock Club -- Greenville........... $ 699 92.79% -- (2) -- (2) -- (2) Park Haywood......................... $ 500 91.35% -- (7) -- (7) -- (7) Spring Creek......................... $ 515 95.67% -- (3) -- (3) -- (3) Runaway Bay.......................... $ 681 96.15% -- (3) -- (3) -- (3) Park Place........................... $ 594 92.93% -- (7) -- (7) -- (7) ------------- ------------- --------- $ 591 93.5% $13,601 ------------- ------------- --------- Hamilton Pointe...................... $ 462 94.20% -- (4) -- (4) -- (4) Hidden Creek......................... $ 491 86.33% -- (4) -- (4) -- (4) Steeplechase......................... $ 550 94.44% -- (7) -- (7) -- (7) Windridge............................ $ 675 97.70% $ 5,477 6.314% 12/01/24 Oaks, The............................ $ 501 94.00% -- (4) -- (4) -- (4) Post House Jackson................... $ 578 88.67% $ 5,098 8.170% 10/01/27 Post House North..................... $ 605 95.14% $ 3,585 5.750% 09/01/25 Williamsburg Village................. $ 539 93.92% -- (7) -- (7) -- (7) Woods at Post House.................. $ 633 96.72% $ 5,285 7.250% 09/01/35 Cedar Mill........................... $ 564 95.29% -- (4) & (9) -- (4) & (9) -- (4) & (9) </TABLE> 8
The following table presents information concerning the properties at December 31, 1998: <TABLE> <CAPTION> APPROXIMATE AVERAGE YEAR RENTABLE UNIT YEAR MANAGEMENT NUMBER AREA SIZE PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.) - - ------------------------------------- --------------------- ---------- ----------- ---------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Clearbrook Village................... Memphis, TN 1974 1987 176 150,400 855 Crossings............................ Memphis, TN 1974 1991 80 89,968 1,125 EastView............................. Memphis, TN 1974 1984 432 356,480 825 Glen Eagles.......................... Memphis, TN 1975 1990 184 189,560 1,030 Greenbrook........................... Memphis, TN 1986 1988 1,031 934,490 906 Hickory Farm......................... Memphis, TN 1985 1994 200 150,256 751 Kirby Station........................ Memphis, TN 1978 1994 371 310,173 836 Lincoln on the Green................. Memphis, TN 1988 1994 384 293,664 765 Lincoln on the Green II.............. Memphis, TN 1997 1997 234 241,280 1,031 McKellar Woods....................... Memphis, TN 1976 1988 624 589,776 945 Park Estate.......................... Memphis, TN 1974 1977 82 95,751 1,182 Reserve at Dexter Lake............... Memphis, TN 1998 1998 96 99,936 1,041 River Trace I........................ Memphis, TN 1981 1977 244 205,780 843 River Trace II....................... Memphis, TN 1985 1977 196 194,864 994 Savannah Creek....................... Memphis, TN(6) 1989 1996 205 237,200 1,162 Sutton Place......................... Memphis, TN(6) 1991 1996 253 267,600 1,062 Winchester Square.................... Memphis, TN 1973 1977 252 301,409 1,196 Brentwood Downs...................... Nashville, TN 1986 1994 286 220,166 770 Park at Hermitage.................... Nashville, TN 1987 1995 440 392,480 892 ---------- ------------- ------------- 7,654 7,108,411 929 ---------- ------------- ------------- Northwood............................ Arlington, TX 1980 1998 270 224,100 830 Balcones Woods....................... Austin, TX 1983 1997 384 313,756 817 Stassney Woods....................... Austin, TX 1985 1995 288 248,832 864 Travis Station....................... Austin, TX 1987 1995 304 249,888 822 Woods................................ Austin, TX 1977 1997 278 213,970 770 Celery Stalk......................... Dallas, TX 1978 1994 410 552,220 1,347 Courtyards at Campbell............... Dallas, TX 1986 1998 231 167,475 725 Deer Run............................. Dallas, TX 1985 1998 304 206,720 680 Lodge at Timberglen.................. Dallas, TX 1984 1994 260 226,124 870 MacArthur Ridge...................... Irving, TX 1991 1994 248 210,393 848 Westborough.......................... Katy, TX 1984 1994 274 197,264 720 Lane at Towne Crossing............... Mesquite, TX 1983 1994 384 277,616 723 Highwood............................. Plano, TX 1983 1996 196 156,800 800 Cypresswood Court.................... Spring, TX 1984 1994 208 160,672 772 Green Tree Place..................... Woodlands, TX 1984 1994 200 152,168 761 ---------- ------------- ------------- 4,239 3,557,998 839 ---------- ------------- ------------- Township............................. Hampton, VA 1987 1995 296 248,048 838 ---------- ------------- ------------- TOTAL COMPLETED PROPERTIES........... 33,597 30,109,309 896 ========== ============= ============= <CAPTION> ENCUMBRANCES AT AVERAGE AVERAGE DECEMBER 31, 1998 RENT PER OCCUPANCY --------------------------------------------- UNIT AT % AT MORTGAGE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY PROPERTY 1998 1998 (000'S) RATE DATE - - ------------------------------------- ------------- ------------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> Clearbrook Village................... $ 515 97.16% $ 1,091 9.000% 05/01/08 Crossings............................ $ 639 95.00% -- (4) -- (4) -- (4) EastView............................. $ 495 98.38% $ 2,827 8.630% 12/01/99 Glen Eagles.......................... $ 557 97.28% -- (4) -- (4) -- (4) Greenbrook........................... $ 520 94.57% -- (9) -- (9) -- (9) Hickory Farm......................... $ 525 100.00% -- (4) -- (4) -- (4) Kirby Station........................ $ 571 96.23% -- (7) -- (7) -- (7) Lincoln on the Green................. $ 603 91.41% -- (8) -- (8) -- (8) Lincoln on the Green II.............. $ 753 86.75% -- -- -- McKellar Woods....................... $ 465 93.59% -- (9) -- (9) -- (9) Park Estate.......................... $ 690 100.00% -- (9) -- (9) -- (9) Reserve at Dexter Lake............... $ 787 39.58% -- (2) -- (2) -- (2) River Trace I........................ $ 537 95.00% $ 5,664 6.380% 02/01/22 River Trace II....................... $ 537 95.00% $ 5,664 6.380% 02/01/26 Savannah Creek....................... $ 606 96.10% -- (7) -- (7) -- (7) Sutton Place......................... $ 593 93.28% -- (7) -- (7) -- (7) Winchester Square.................... $ 576 94.05% -- (4) -- (4) -- (4) Brentwood Downs...................... $ 655 93.01% $ 6,678 8.91% 12/01/99 Park at Hermitage.................... $ 595 94.77% $ 7,985 5.790% 02/01/19 ------------- ------------- --------- $ 558 93.7% $49,433 ------------- ------------- --------- Northwood............................ $ 553 94.81% -- (2) -- (2) -- (2) Balcones Woods....................... $ 673 96.09% $ 8,804 7.630% 11/01/03 Stassney Woods....................... $ 597 97.57% $ 4,715 6.600% 10/01/19 Travis Station....................... $ 554 97.04% $ 4,165 6,600% 04/01/19 Woods................................ $ 702 96.40% -- (2) -- (2) -- (2) Celery Stalk......................... $ 650 93.17% $ 8,460 9.006% 12/01/04 Courtyards at Campbell............... $ 667 96.10% -- (2) -- (2) -- (2) Deer Run............................. $ 602 94.08% -- (2) -- (2) -- (2) Lodge at Timberglen.................. $ 611 94.23% $ 4,740 9.006% 12/01/04 MacArthur Ridge...................... $ 708 97.58% -- (2) -- (2) -- (2) Westborough.......................... $ 507 94.89% $ 3,958 9.006% 12/01/04 Lane at Towne Crossing............... $ 532 94.01% -- (2) -- (2) -- (2) Highwood............................. $ 690 87.76% -- (2) -- (2) -- (2) Cypresswood Court.................... $ 535 96.15% $ 3,330 9.006% 12/01/04 Green Tree Place..................... $ 591 97.50% $ 3,180 9.006% 12/01/04 ------------- ------------- --------- $ 611 95.2% 41,352 ------------- ------------- --------- Township............................. $ 581 91.55% $10,800 5.10% & (2) 02/01/28 & (2) ------------- ------------- --------- TOTAL COMPLETED PROPERTIES........... $ 597 94.1% 300,698 ============= ============= ========= </TABLE> (FOOTNOTES ON FOLLOWING PAGE) 9
<TABLE> <S> <C> <C> <C> <C> <C> <C> DEVELOPMENT PROPERTIES: Paddock Club -- Gainsville........... Gainsville, FL 1998 -- 180 199,800 1,110 Paddock Club -- Panama City.......... Panama City, FL 1998 -- 54 60,372 1,118 Terraces at Fieldstone............... Conyers, GA 1998 -- 316 351,076 1,111 Terraces at Towne Lake II............ Woodstock, GA 1997 -- 112 121,744 1,087 Reserve at Dexter Lake............... Memphis, TN -- 1998 96 99,936 1,041 ---------- ------------- ------------- Total Development Properties......... 758 832,928 1,099 ---------- ------------- ------------- TOTAL PROPERTIES..................... 33,831 31,672,637 936 ========== ============= ============= <CAPTION> DEVELOPMENT PROPERTIES: Paddock Club -- Gainsville........... $ 822 46.67% Paddock Club -- Panama City.......... $ 682 22.22% Terraces at Fieldstone............... $ 808 55.06% Terraces at Towne Lake II............ $ 810 22.32% Reserve at Dexter Lake............... $ 787 39.58% ------------- ------------- Total Development Properties......... $ 800 43.9% ------------- ------------- TOTAL PROPERTIES..................... $ 595 93.0% ============= ============= </TABLE> - - ------------ (1) Encumbered by two mortgages with interest rates of 7.75% and maturities of September 7, 1999 and January 1, 2004. (2) Encumbered by the Credit Line, with an outstanding balance of $117 million and a variable interest rate of 7.00% at December 31, 1998. (3) These three properties are encumbered by a $10.1 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.09%. (4) These twelve properties are encumbered by a $43.4 million mortgage with an interest rate of 8.65%, maturing July 01, 2001. (5) These three properties are encumbered by a $16.4 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.75%. (6) These two properties are located in Desoto County, MS, a suburb of Memphis, TN. The Company considers the properties a part of the Memphis, TN market. (7) These 26 communities are encumbered by a $142 million loan with a maturity of March 3, 2003 and an average interest rate of 6.376%. (8) These six properties are encumbered by a $47.5 million mortgage with a maturity of December 15, 2004 and an interest rate of 7.04%. (9) These 4 properties, and one commercial building, are encumbered by a $35.8 million mortgage with a maturity of April 1, 2005. (10) These two properties are encumbered by a $14 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.281%. 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 Common Stock has been listed and traded on the NYSE under the symbol "MAA" since the Initial Offering in February 1994. On March 15, 1999, the reported last sale price of the Company's common stock on the NYSE was $22.9375 per share and there were approximately 1,710 holders of record of the Common Stock. The Company estimates there are approximately 16,000 beneficial owners of the Common Stock. The following table sets forth the quarterly high and low sales prices of the Common Stock as reported on the NYSE and the distributions declared by the Company with respect to the periods indicated. <TABLE> <CAPTION> SALES PRICES -------------------- DIVIDENDS HIGH LOW DECLARED --------- --------- ---------- <S> <C> <C> <C> 1997: First Quarter........................ $ 29.750 $ 27.625 $ .535 Second Quarter....................... 28.875 25.00 .535 Third Quarter........................ 30.500 26.625 .535 Fourth Quarter....................... 30.063 26.625 .55 1998: First Quarter........................ $ 29.875 $ 27.500 $ .55 Second Quarter....................... 29.063 25.625 .55 Third Quarter........................ 28.000 22.938 .55 Fourth Quarter....................... 26.000 22.625 .575 </TABLE> The Company's current annual distribution rate with respect to the Common Stock is $2.30 per share. The actual distributions made by the Company will be affected by a number of factors, including the gross revenues received from the Communities, the operating expenses of the Company, the interest expense incurred on borrowings and unanticipated capital expenditures. The Company pays a preferential regular monthly distribution on the Series A Preferred Stock issued in October 1996, the Series B Preferred Stock issued in November 1997, the Series C Preferred Stock issued in June 1998, and the Series E Preferred Stock issued in December 1998 at annual rates of $2.375, $2.21875, $2.34375 and $2.375 per share, respectively. No distribution may be made on the Common Stock unless all accrued distributions have been made with respect each series of 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, and Series E Preferred Stock. In 1997, the Company implemented the Dividend Reinvestment and Stock Purchase Plan (the "DRSPP") under which holders of Common Stock (and Series A, Series B, Series C and Series E Preferred Stock) may elect automatically to reinvest their distributions in additional shares of Common Stock and/or to make optional purchases of Common Stock free of brokerage commissions and charges. Shares purchased directly from the Company will be purchased at up to a 3% discount from their fair market value at the Company's discretion. To fulfill its obligations under the DRSPP, the Company may either issue additional shares of Common Stock or repurchase Common Stock in the open market. In 1999, the Company implemented the Direct Stock Purchase and Distribution Reinvestment Plan (the "DSPDRP") which is has terms substantially similar to the above DRSPP, except for certain additional benefits offered relating to purchase of the Company's common shares. This plan is intended to replace the DRSPP, and its participants will be automatically enrolled in the new plan. Future distributions by the Company will be at the discretion of the Board of Directors and will depend on the actual funds available for distribution of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant. 10
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. MID-AMERICA APARTMENT COMMUNITIES, INC. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1998 1997 1996 1995 1994(1) ----------- ----------- --------- --------- -------- <S> <C> <C> <C> <C> <C> OPERATING DATA: Total revenues....................... $ 215,543 $ 139,116 $ 111,882 $ 94,963 $ 51,207 Expenses: Property expenses................ 79,917 52,404 42,570 37,954 19,484 General and administrative....... 11,960 6,602 6,154 4,851 3,613 Interest......................... 45,704 28,943 25,766 22,684 10,233 Depreciation and amortization.... 46,021 27,737 21,443 16,574 8,803 Amortization of deferred financing costs................. 2,348 888 661 593 296 Gain on disposition of properties.... 408 -- 2,185 -- -- ----------- ----------- --------- --------- -------- Income before minority interest in operating partnership income and extraordinary item................. 30,001 22,542 17,473 12,307 8,778 Extraordinary item................... (990) (8,622) -- -- 485 ----------- ----------- --------- --------- -------- Net income........................... 26,757 11,227 14,260 9,810 6,944 Preferred dividends.................. 11,430 5,252 990 -- -- ----------- ----------- --------- --------- -------- Net income available for common shareholders....................... $ 15,327 $ 5,975 $ 13,270 $ 9,810 $ 6,944 =========== =========== ========= ========= ======== PER SHARE DATA: Basic and diluted: Before extraordinary item........ $ 0.87 $ 1.05 $ 1.21 $ 1.00 $ 0.94 Extraordinary item............... (0.05) (0.62) -- -- 0.07 ----------- ----------- --------- --------- -------- Net income available per common share........................... $ 0.82 $ 0.43 $ 1.21 $ 1.00 $ 1.01 =========== =========== ========= ========= ======== Dividends declared................... $ 2.225 $ 2.155 $ 2.065 $ 2.01 $ 1.71 BALANCE SHEET DATA: Real estate owned, at cost........... $ 1,434,733 $ 1,211,693 $ 641,893 $ 578,788 $434,460 Real estate owned, net............... $ 1,315,368 $ 1,134,704 $ 592,335 $ 549,284 $421,074 Total assets......................... $ 1,366,427 $ 1,193,870 $ 611,199 $ 565,267 $439,233 Total debt........................... $ 753,427 $ 632,213 $ 315,239 $ 307,939 $232,766 Minority interest.................... $ 61,441 $ 62,865 $ 39,238 $ 41,049 $ 43,709 Shareholders' equity................. $ 517,299 $ 461,500 $ 241,384 $ 202,278 $152,385 Weighted average common shares (000's): Basic............................ 18,725 13,892 10,938 9,772 6,484 Diluted.......................... 18,770 13,955 10,983 9,814 6,526 OTHER DATA (AT END OF PERIOD): Market capitalization (shares and units)............................. $ 670,123 $ 710,175 $ 436,739 $ 331,238 $295,300 Ratio of total debt to total capitalization(2).................. 52.9% 47.1% 41.9% 48.2% 44.1% Number of properties owned........... 129 116 73 70 54 Number of apartment units owned...... 33,831 30,579 19,280 18,219 14,333 </TABLE> - - ------------ (1) Operating data for 1994 includes 34 days of predecessor financial information and per share data for 1994 is for the period February 4, 1994 through December 31, 1994. (2) Total capitalization is total debt and market capitalization of preferred shares, common shares and partnership units. 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following is a discussion of the consolidated financial condition and results of operations of the Company for the years ended December 31, 1998, 1997, and 1996. This discussion should be read in conjunction with all of the financial statements included in this Annual Report on Form 10-K. The total number of apartment units owned at December 31, 1998 was 33,831 in 129 communities, compared to the 30,579 units in 116 communities owned at December 31, 1997 and 19,280 in 73 communities owned at December 31, 1996. The average monthly rental per apartment unit increased to $582 for December 31, 1998 from $549 for December 31, 1997 and $529 for December 31, 1996. Overall occupancy at December 31, 1998, 1997 and 1996 was 94.1%, 94.3% and 95.8%, respectively. FUNDS FROM OPERATIONS Funds from operations ("FFO") increased during 1998 by $19,097,000 or 43% to $63,993,000 verses $44,896,000 for 1997. FFO for 1996 was $35,586,000. The following is a reconciliation of net income available for common shareholders' to FFO. <TABLE> <CAPTION> 1998 1997 1996 --------- --------- --------- <S> <C> <C> <C> Net income available for common shareholders'...................... $ 15,327 $ 5,975 $ 13,270 Plus depreciation and amortization of real estate assets................. 45,776 27,542 21,288 Plus extraordinary items, net of minority interest.................. 990 8,622 -- Plus minority interest in operating partnership........................ 2,254 2,693 3,213 Less gain on sale of real estate..... 408 -- 2,185 Plus other non-recurring items....... 54 64 -- --------- --------- --------- FFO............................. $ 63,993 $ 44,896 $ 35,586 ========= ========= ========= </TABLE> FFO represents net income (computed in accordance with GAAP) excluding extraordinary items, minority interest in Operating Partnership income, gain or loss on disposition of real estate assets, certain non-recurring items and certain non-cash items, primarily depreciation and amortization, less preferred stock dividends. The Company computes FFO in accordance with NAREIT's current definition, which eliminates amortization of deferred financing costs and depreciation of non-real estate assets as items added back to net income when computing FFO. FFO should not be considered as an alternative to net income or any other GAAP measurement of performance, as an indicator of operating performance or as an alternative to cash flows from operating, investing, and financing activities as a measure of liquidity. The Company believes that FFO is helpful in understanding the Company's results of operations in that such calculation reflects cash flow from operating activities and the Company's ability to support interest payments and general operating expenses before the impact of certain activities such as changes in other assets and accounts payable. 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. RESULTS OF OPERATIONS COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31, 1997 During 1998 the Company acquired 10 apartment communities containing 2,129 apartment units and completed development of 1,335 total apartment units in 6 new communities and 4 existing communities. Also, the Company sold one community containing 212 units. Total revenues for 1998 increased by $76,427,000, due primarily to (i) $7,735,000 from the 10 communities acquired in 1998, (ii) $49,386,000 from the 30 completed communities acquired through the FDC Merger, (iii) $10,717,000 from a full years operation of the 12 communities acquired in 1997, (iv) $5,410,000 from new development communities completed in late 1997 and 1998, and (v) $3,116,000 from communities owned throughout both periods. The remaining net increase is mainly related to a full year of FSC management and development activities. Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other property related costs. Property operating expenses for 1998 increased by $27,513,000, due primarily to (i) $3,201,000 from the 10 Communities acquired in 1998, (ii) $17,480,000 from the 30 completed Communities acquired through the FDC Merger, (iii) $3,715,000 from a full years operation of the 12 Communities acquired in 1997, (iv) $2,013,000 from new development communities completed in 1997 and 1998, and (v) $1,348,000 from communities owned throughout both periods. As a percentage of rental revenues, property operating expenses decreased from 38.6% in 1997 to 37.9% in 1998. Personnel costs increased as a percentage of rental revenues from 10.8% in 1997 to 11.4% in 1998, due primarily to increased staffing to support the additional apartment units acquired in the FDC Merger and to produce a smooth lease-up of newly developed apartment units. As new development units are delivered, they require management, leasing, and maintenance staff to complete lease-up on schedule and to provide customer service. The ratio of personnel costs to revenues improves as a development community achieves stabilized occupancy. In 1998 repair and maintenance costs decreased to 4.8% of rental revenues as compared to 5.0% in 1997 which is primarily the current benefits of the Company's long standing commitment to spend adequate capital toward maintaining properties as well as the addition of the development units to the portfolio which require less repair and maintenance. Also in 1998, utilities costs decreased to 4.5% of rental revenue as compared to 4.7% for the same period in 1997 mainly due to continued savings from the Company's program to submeter units for water usage. 12
General and administrative expense increased $5,358,000 for 1998 compared to 1997. This increase is mainly attributable to the increase in the number of employees due to the FDC Merger and the addition or expansion of certain functions to improve productivity and the quality of the Company's management. These additions are a one-time increase related to the acquisition and integration of FDC and preparation for continued future growth. Depreciation and amortization expense increased $18,284,000 from 1997 to 1998 due primarily to additional depreciation expense of (i) $1,549,000 from the 10 Communities acquired in 1998, (ii) $10,050,000 from the 30 completed Communities acquired through the FDC Merger, (iii) $2,583,000 from a full year operation of the 12 Communities acquired in 1997, (iv) $998,000 from development communities completed in 1997 and 1998, and (v) $2,055,000 from the communities owned throughout both periods. Also, amortization of deferred financing costs was $2,348,000 and $888,000 for 1998 and 1997, respectively. The majority of the increase is due to additional financing costs related to the restructuring of the Credit Line and the Bonds issued by the Company's special purpose subsidiary. Amortization of costs in excess of fair value of net assets acquired was $1,474,000 and $309,000, for 1998 and 1997, respectively, which are included in depreciation and amortization in the accompanying consolidated statement of operations. Interest expense increased $16,761,000 during 1998 due primarily to additional funding required for apartment acquisitions, development projects, and the FDC Merger. The Company reduced its average borrowing cost to 7.11% at December 31, 1998 as compared to 7.41% on December 31, 1997. The average maturity on the Company's debt was 10.9 years and 10.2 years at December 31, 1998 and 1997, respectively. For the year ended December 31, 1998 the Company recorded a gain on disposition of assets of $408,000 related to the sale of Redford Park Apartments, which also resulted in a loss on early extinguishment of the related debt. The Company recorded a total extraordinary loss of $990,000, net of minority interest, for 1998 related to the repayment of the mortgage for Redford Park Apartments and certain other debt. As a result of the foregoing, income before minority interest and extraordinary item for the year ended December 31, 1998 increased $7,459,000 over the same period a year earlier. COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996 During the 1997 period, the Company acquired 12 communities containing 3,314 apartment units. In addition, through the November 25, 1997 merger with Flournoy Development Company, the Company acquired 30 communities containing 8,641 apartment units including 950 apartment units under development. The total number of apartment units owned at December 31, 1997 was 30,579 in 116 apartment communities, compared to 19,280 in 73 communities at December 31, 1996. Average monthly rental per apartment unit increased to $549 at December 31, 1997 from $529 at December 31, 1996 for the Company's properties owned prior to the merger. For the communities owned prior to the merger, average occupancy for the years ended December 31, 1997 and 1996 was 94.5% and 95.4%, respectively. For the properties acquired through the FDC Merger, average monthly rental per apartment unit was $613 and average occupancy was 92.2% at December 31, 1997. Total revenues for 1997 increased by $27,234,000, due primarily to (i) $12,743,000 from the 12 Communities acquired in 1997, (ii) $5,342,000 from the 30 completed Communities acquired through the FDC Merger, (iii) $6,759,000 from a full years operation of the six Communities acquired in 1996, (iv) $2,113,000 from the Communities owned throughout both periods, and (v) $277,000 from The Woods at Post House in Jackson, Tennessee which completed development in the Fall of 1995 and Lincoln on the Green phase II in Memphis, Tennessee which completed development early 1998. Property operating expenses for 1997 increased by $9,834,000, due primarily to (i) $4,929,000 from the 12 Communities acquired in 1997, (ii) $1,938,000 from the 30 completed Communities acquired through the FDC Merger, (iii) $2,298,000 from a full years operation of the six Communities acquired in 1996, (iv) $583,000 from the Communities owned throughout both periods, and (v) $86,000 from The Woods at Post House which completed development in the Fall of 1995 and Lincoln on the Green phase II. Utility costs decreased from 5.6% of rental revenue to 4.7% of rental revenue for the year ended December 31, 1997 compared to the same period a year earlier, due primarily to over 13,000 units now submetered for water usage and continued benefits from the 1996 completion of the individual apartment unit electricity metering at Sailwinds at Lake Magdalene. General and administrative expense increased $448,000 for 1997 compared to 1996 and decreased from 5.6% of rental revenue to 4.8% of rental revenue for the year ended December 31, 1997 compared to the same period a year earlier. Depreciation and amortization expense increased primarily due to (i) $2,503,000 from the 12 Communities acquired in 1997, (ii) $1,247,000 from the 30 completed Communities acquired through the FDC Merger, (iii) $1,493,000 from a full years operation of the six Communities acquired in 1996, (iv) $1,224,000 from additional capital expenditures on Communities owned throughout both periods, and (v) $54,000 from The Woods at Post House and Lincoln on the Green phase II. Amortization of deferred financing costs and cost in excess of fair value of net assets acquired for 1997 were $888,000 and $309,000, respectively. Interest expense increased $3,177,000 during 1997 due primarily to apartment acquisitions and the FDC Merger. The Company reduced its average borrowing cost to 7.41% at December 31, 1997 as compared to 7.92% at December 31, 1996. The average maturity on the Company's debt was 10.2 and 9.9 years at December 31, 1997 and 1996, respectively. In 1997, the Company recorded an $8,622,000 loss on early extinguishment of debt, net of minority interest, primarily from the repayment of certain debt in connection with the FDC Merger. Income before minority interest and extraordinary item for the year ended December 31, 1997 increased $5,069,000 over the same period a year earlier. 13
LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities increased from $44,918,000 for the year ended December 31, 1997 to $80,405,000 for the year ended December 31, 1998. The increase in net cash flow was primarily due to increased earnings and cash flow from the apartments units acquired and developed during 1998 and the latter portion of 1997. Net cash used in investing activities increased from $138,263,000 for the year ended December 31, 1997 to $198,607,000 for the year ended December 31, 1998. The increase was primarily related to an additional $91,870,000 spending on development and construction of apartment communities, as compared to the same period last year. The Company currently has under development, construction or pre-development 3,489 new apartment units in 10 new communities and 3 additions to existing communities. Of this total, 502 units have been completed and are in initial lease-up, and an additional 1,570 are planned to be completed during 1999. The following table summarizes the Company's communities in various stages of lease-up, construction, development, and pre-development as of December 31, 1998 (Dollars in 000's): <TABLE> <CAPTION> ANTICIPATED ANTICIPATED TOTAL BUDGETED COSTS TO FINISH INITIAL LOCATION UNITS COST DATE DATE OCCUPANCY --------------------- ------ --------- --------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> COMPLETED COMMUNITIES IN LEASE-UP: Paddock Club III..................... Jacksonville, FL 120 $ 6,347 $ 6,347 3Q 1997 3Q 1997 Lincoln on the Green II.............. Memphis, TN 234 13,890 13,890 4Q 1997 3Q 1997 Paddock Club Mandarin................ Mandarin, FL 288 16,448 16,448 2Q 1998 4Q 1997 Enclave at Whisperwood............... Columbus, GA 154 8,681 8,647 2Q 1998 1Q 1998 Paddock Club Huntsville.............. Huntsville, AL 192 10,938 10,938 1Q 1998 1Q 1998 Terraces at Fieldstone............... Conyers, GA 316 17,458 16,878 2Q 1998 2Q 1998 ------ --------- --------- 1,304 $ 73,762 $ 73,148 ====== ========= ========= DEVELOPMENT COMMUNITIES IN LEASE-UP: Paddock Club Gainesville............. Gainesville, FL 264 17,713 15,838 1Q 1999 3Q 1998 Reserve at Dexter Lake............... Memphis, TN 252 17,029 14,818 2Q 1999 4Q 1998 Terraces at Towne Lake II............ Cherokee County, GA 238 14,165 10,987 1Q 1999 4Q 1998 Paddock Club Montgomery.............. Montgomery, AL 208 13,814 9,693 2Q 1999 1Q 1999 Paddock Club Panama City............. Panama City, FL 254 15,486 11,667 2Q 1999 4Q 1998 Paddock Club Brandon II.............. Brandon, FL 132 8,313 6,541 1Q 1999 1Q 1999 ------ --------- --------- 1,348 86,520 69,544 ------ --------- --------- UNDER CONSTRUCTION Paddock Club Murfreesboro............ Murfreesboro, TN 240 15,281 4,220 4Q 1998 2Q 1999 Grand Reserve Lexington.............. Lexington, KY 370 29,963 3,432 3Q 2000 3Q 1999 ------ --------- --------- 610 45,244 7,652 ------ --------- --------- IN PRE-DEVELOPMENT St. Augustine at the Lake II......... Jacksonville, FL 124 7,247 461 4Q 1999 3Q 1999 Grande View.......................... Nashville, TN 433 33,328 3,364 4Q 2000 1Q 2000 Sandstone Creek...................... Overland Park, KS 354 27,514 -- 4Q 2000 1Q 2000 Kenwood Club......................... Katy, TX 320 18,210 -- 3Q 2000 1Q 2000 Paddock Club Melbourne............... Melbourne, FL 300 18,536 -- 3Q 2000 4Q 1999 ------ --------- --------- 1,531 104,835 3,825 ------ --------- --------- Total Development Communities........ 3,489 $236,599 $ 81,021 ====== ========= ========= <CAPTION> ANTICIPATED STABILIZA- TION ------------ <S> <C> COMPLETED COMMUNITIES IN LEASE-UP: Paddock Club III..................... 2Q 1998 Lincoln on the Green II.............. 3Q 1998 Paddock Club Mandarin................ 1Q 1999 Enclave at Whisperwood............... 3Q 1998 Paddock Club Huntsville.............. 4Q 1998 Terraces at Fieldstone............... 4Q 1999 DEVELOPMENT COMMUNITIES IN LEASE-UP: Paddock Club Gainesville............. 4Q 1999 Reserve at Dexter Lake............... 4Q 1999 Terraces at Towne Lake II............ 4Q 1999 Paddock Club Montgomery.............. 4Q 1999 Paddock Club Panama City............. 4Q 1999 Paddock Club Brandon II.............. 4Q 1999 UNDER CONSTRUCTION Paddock Club Murfreesboro............ 3Q 2000 Grand Reserve Lexington.............. 2Q 2001 IN PRE-DEVELOPMENT St. Augustine at the Lake II......... 2Q 2000 Grande View.......................... 3Q 2001 Sandstone Creek...................... 2Q 2001 Kenwood Club......................... 2Q 2001 Paddock Club Melbourne............... 4Q 2000 Total Development Communities........ </TABLE> 14
Capital improvements to existing properties totaled $32,336,000 for the year ended December 31, 1998, compared to $20,205,000 for 1997. The increase is mainly due to the increased number of units from acquisitions and development. Actual capital expenditures for property improvements during 1998 are summarized below (in 000's): <TABLE> <CAPTION> Recurring capital at stabilized properties......................... 8,585 <S> <C> Revenue enhancing projects at stabilized properties.............. 10,098 Capital improvements to pre-stabilized properties.......... 13,653 --------- 32,336 ========= </TABLE> Net cash provided by financing activities increased from $104,097,000 during the year ended December 31, 1997 to $110,634,000 1998. During 1998, $71,789,000 additional borrowing was provided under the Credit Line which was primarily used to fund acquisition and development of apartment communities. On March 6, 1998, the Company issued $142 million aggregate principal amount of 6.376% Bonds due 2003 (the Bonds). The net proceeds from the sale of the Bonds were utilized to repay the related bridge notes payable and utilized to fund the costs of the offering. Additionally, the Company refinanced $29 million of various rate notes payable with a new $36 million seven year amortizing note payable at 7.0%, and acquired a new short-term note payable for $25 million at 6.4% which was used to pay down the Credit Line. The Company also refunded $4,760,000 of bonds secured by Sterling Ridge Apartments and $14,040,000 of bonds secured by Hunters Ridge of Deerwood apartments. During 1998, the Company received total net proceeds from equity transactions of $82.4 million, comprised mainly of $48.0 million from the issuance of its Series C Preferred shares, $24.7 million from a private placement of its Series E Preferred shares and $9.6 million from the issuance of common shares and units. This was a decrease from the total proceeds of $212.4 million received in 1997, comprised of $165.7 million from issuance of common shares and units and $46.6 million from issuance of the Series B Preferred shares. Additionally, total distributions for dividends on common shares, units and preferred shares increased to $58.6 million in 1998 from $39.8 million in 1997 primarily related to the additional common shares issued in November 1997 and the additional dividends related to the Series B and Series C Preferred shares that were outstanding during 1998. At December 31, 1998, the Company had $117.0 million outstanding on the Credit Line. At December 31, 1998, the Company had $174.0 million (including the Credit Line) of floating rate debt at an average interest rate of 6.6%; all other debt was fixed rate term debt at an average interest rate of 7.3%. In March 1998, the Company increased its credit limit under the Credit Line from $110 million to $200 million. The Company expects to use the Credit Line for future acquisitions, development, and to provide letters of credit as credit enhancements for tax-exempt bonds. The Credit Line is secured and is subject to borrowing base calculations that effectively reduce the maximum amount that may be borrowed under the Credit Line to $191.9 million as of March 31, 1999. The weighted average interest rate and weighted average maturity at December 31, 1998 for the $753.4 million of notes payable were 7.11% and 10.9 years, respectively. The Company believes that cash provided by operations is adequate and anticipates that it will continue to be adequate in both the short and long-term to meet operating requirements (including recurring capital expenditures at the Communities) and payment of distributions by the Company in accordance with REIT requirements under the Code. The Company expects to meet its long term liquidity requirements, such as scheduled mortgage debt maturities, property developments and acquisitions, expansions and non-recurring capital expenditures, through long and medium-term collateralized and uncollateralized fixed rate borrowings, issuance of debt or additional equity securities in the Company, sale of assets, potential joint venture transactions and the Credit Line. INSURANCE In the opinion of management, property and casualty insurance is in place which provides adequate coverage to provide financial protection against normal insurable risks such that it believes that any loss experienced would not have a significant impact on the Company's liquidity, financial position, or results of operations. INFLATION Substantially all of the resident leases at the Communities allow, at the time of renewal, for adjustments in the rent payable thereunder, and thus may enable the Company to seek rent increases. The substantial majority of these leases are for one year or less. The short-term nature of these leases generally serves to reduce the risk to the Company of the adverse effects of inflation. YEAR 2000 ISSUE In older computer programs, to conserve storage space, only two digits were used to identify the year. This set up has created a date sequence problem. The computer may not know that 00 comes after 99, moreover it may not know if 15
00 is 1900 or 2000 ("Y2K"). The business risk of this problem is that calculations or processes that are date dependent may not yield the correct answer or work at all. Software vendors have certified all of the mission critical applications; these vendors provide the software used for financial, network, property management and telephone systems used by the Company. The Company does not own any in-house development programs that require replacing or re-writing of code. The Company has performed a thorough assessment of its personal computers and desktop software. All mission critical desktop hardware and software are believed to be compliant. Remediation of non-compliant hardware and software (none of which is mission-critical) will be completed by June 1999. The Company estimates that the total Y2K project cost is nominal, as systems have been upgraded and become Y2K compliant as part of its normal course of business. The Company believes that its Y2K initiatives are adequate to address reasonably likely Y2K issues. Management believes that hardware and software upgrades made over the last few years will reduce the possibility of interruptions to the operation. However, the Company is dependent on the utilities infrastructure within the United States. In the Company's view, the worst case scenario would be that the Company might experience disruption in its operations if any of the third-party suppliers reported a system failure. The Y2K contingency plan is the final phase of the project. The Company maintains contingency plans in the normal course of business designed to be deployed in the event of various potential business interruptions. Although the Company believes that its contingency plans and Y2K project will reduce the risk of significant operations disruption, due to general uncertainty over Y2K readiness of the Company's third-party suppliers, the Company is unable to determine at this time whether the consequences of the Y2K system failures will have a material impact. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity," was issued effective for years beginning after June 15, 1999. This new statement is not expected to have a material impact on the Company's consolidated financial statements. The Company plans to adopt this accounting standard in 2000. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS This annual report on Form 10-K, including documents incorporated herein by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These statements include the plans and objectives of management for future operations, including plans and objectives relating to acquisition and development of apartment communities, future expenditures for development projects, capital expenditures, and rehabilitation costs on the apartment communities. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. In particular, among the factors that could cause actual results to differ materially are continued qualification as a real estate investment trust, general business and economic conditions, competition, interest rates, accessibility of debt and equity capital markets and other risks inherent in the real estate business including resident defaults, potential liability relating to environmental matters and illiquidity of real estate investments. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Annual Report on Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is to changes in interest rates obtainable on its secured and unsecured borrowings. At December 31, 1998, 53% of the Company's total capitalization consisted of borrowings. The Company's interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower its overall borrowing costs. To achieve this objective, the Company manages its exposure to fluctuations in market interest rates for its borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks to mitigate its interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of its variable debt. The Company does not enter into derivative or interest rate transactions for speculative purposes. Approximately 77% of the Company's outstanding debt was subject to fixed rates with a weighted average of 7.3% at December 31, 1998. An additional 3% of the Company's outstanding debt at December 31, 1998 was effectively locked at an interest rate of 5.82% through an interest rate swap agreement for a notional amount of $25 million. The Company regularly reviews interest rate exposure on its outstanding borrowings in an effort to minimize the risk of interest rate fluctuations. The Company does not have any other material market-sensitive financial instruments. 16
The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average variable rates are based on rates in effect at the reporting date (Dollars in 000's). <TABLE> <CAPTION> TOTAL FAIR 1999 2000 2001 2002 2003 THEREAFTER VALUE --------- ---------- --------- --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> LIABILITIES Long-term Debt Fixed Rate............ $ 42,778 $ 5,165 $ 48,933 $ 17,083 $ 159,586 $ 305,845 $ 582,400 Average interest rate................ 7.28% 7.11% 6.8% 6.94% 6.90% 7.10% Variable Rate........................ $ 25,000 $ 117,013 -- -- -- $ 32,024 $ 174,037 Average interest rate................ 6.62% 6.61% 5.32% 5.32% 5.32% -- </TABLE> ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report, Consolidated Financial Statements and Selected Quarterly Financial Information are set forth on pages F-1 to F-25 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's independent accountants on any matter of accounting principles or practices or financial statement disclosure. 17
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On July 23, 1997, the Company acquired its corporate headquarters for $2,912,000. In connection with the acquisition, the Company formed a special committee of its external directors to negotiate the transaction on its behalf because certain executive officers of the Company were also partners in the partnership which owned the building. The consideration consisted of $862,000 cash, 22,246 UPREIT units valued at $634,000 ($28.50 per unit) and the assumption of an existing loan. Certain executive officers of the Company were partners in the partnership who owned the building and received 5,831 UPREIT units in connection with the exchange. All transactions involving related parties must be approved by a majority of the disinterested members of the Company's Board of Directors. The Company has, and expects to have, transactions in the ordinary course of its business with directors and officers of the Company and their affiliates, including members of their families or corporations, partnerships or other organizations in which such officers or directors have a controlling interest, on substantially the same terms (including price, or interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated parties. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: <TABLE> <S> <C> <C> 1. Independent Auditors' Report......... F-1 Consolidated Balance Sheets as of December 31, 1998 and 1997......... F-2 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996................ F-3 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996............................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996................ F-6 Notes to Consolidated Financial Statements for the years ended December 31, 1998, 1997 and 1996... F-7 2. Financial Statement Schedule required to be filed by item 8 and Paragraph (d) of this item 14: Schedule III -- Real Estate Investments and Accumulated Depreciation as of December 31, 1998.................. F-24 The exhibits required by Item 601 of Regulation S-K, except as otherwise noted, have been filed with previous reports by the registrant and are herein incorporated by reference. 3. </TABLE> 21
<TABLE> <CAPTION> EXHIBIT NUMBERS EXHIBIT DESCRIPTION - - ------------------------------------------------------------- <C> <S> 3.1+ -- Amended and Restated Charter of Mid-America Apartment Communities, Inc. dated as of January 10, 1994, as filed with the Tennessee Secretary of State on January 25, 1994 3.2******-- Articles of Amendment to the Charter of Mid-America Apartment Communities, Inc. dated as of January 28, 1994, as filed with the Tennessee Secretary of State on January 28, 1994 3.3** Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating and Fixing the Rights and Preferences of A Series of Preferred Stock dated as of October 9, 1996, as filed with the Tennessee Secretary of State on October 10, 1996 3.4+ -- Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated November 17, 1997, as filed with the Tennessee Secretary of State on November 18, 1997 3.5*** -- Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating and Fixing the Rights and Preferences of A Series of Preferred Stock dated as of November 17, 1997, as filed with the Tennessee Secretary of State on November 18, 1997 3.6+ -- Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated December 15, 1997, as filed with the Tennessee Secretary of State on December 31, 1997 3.7+ -- Bylaws of Mid-America Apartment Communities, Inc. 3.8++ -- Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated June 25, 1998, as filed with the Tennessee Secretary of State in June 1998 3.9 -- Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter in December 1998, as filed with the Tennessee Secretary of State in December 1998 4.1+ -- Form of Common Share Certificate 4.2**** -- Form of 9.5% Series A Cumulative Preferred Stock Certificate 4.3***** -- Form of 8 7/8% Series B Cumulative Preferred Stock Certificate 4.4+++ -- Form of 9.375% Series C Cumulative Preferred Stock Certificate 4.5 -- Form of 9.5% Series E Cumulative Preferred Stock Certificate 4.6 -- Shareholders' Rights Plan dated March 1, 1999 10.1+ -- Second Amended and Restated Agreement of Limited Partnership of Mid-America Apartments, L.P., a Tennessee limited partnership 10.2+ -- Employment Agreement between Mid-America Apartment Communities, Inc. and George E. Cates 10.3+ -- 1994 Restricted Stock and Stock Option Plan 10.4 -- Revolving Credit Agreement between the Registrant and AmSouth Bank of Alabama 10.5+ -- Note Purchase Agreement of the Operating Partnership and the Registrant and Prudential Insurance Company of America 10.6+ -- Amendment 1 to Note Purchase Agreement of the Operating Partnership and the Registrant and Prudential Insurance Company of America 11.1 -- Statement re: computation of per share earnings (included within the Form 10-K) 12.1 -- Statement re: computation of ratios (definition of ratios used are disclosed as footnotes on the related table(s) within the Form 10-K) 21.1 -- List of Subsidiaries 23.1 -- Consent of KPMG LLP 27.1 -- Financial Data Schedule </TABLE> 22
- - ------------ * Filed as Exhibit 10.20 to the Registrant's Current Report on Form 8-K, filed with the Commission on September 19, 1997 (Commission File No. 1-12762) ** Filed as Exhibit 1 to the Registrant's Registration Statement on Form 8-A filed with the Commission on October 11, 1996 *** Filed as Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A filed with the Commission on November 19, 1997 **** Filed as Exhibit 3 to the Registrant's Registration Statement on Form 8-A filed with the Commission on October 11, 1996 ***** Filed as Exhibit 4.3 to the Registrant's Registration Statement on Form 8-A filed with the Commission on November 19, 1997 ****** Filed as an exhibit to the 1996 Annual Report of the Registrant on Form 10-K as of March 31, 1997 ******* Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-81970), as amended, of the Registrant and incorporated herein by reference. + Filed as an exhibit to the 1997 Annual Report of the Registrant on Form 10-K for the year ended December 31, 1997 ++ Filed as Exhibit 4.3 to the Registrant's Registration Statement on Form 8-A filed with the Commission on June 25, 1998 +++ Filed as Exhibit 4.2 to the Registrant's Registration Statement on Form 8-A filed with the Commission on June 25, 1998 (b) Reports on Form 8-K The following report was filed on Form 8-K by the registrant during the fourth quarter of 1998: <TABLE> <CAPTION> DATE OF FORM EVENTS REPORTED REPORT - - ------------------------------------------ -------- <C> <S> <C> 8-K acquisition Announcement of an apartment 10/19/98 8-K acquisition Announcement of an apartment 11/25/98 8-K Plan Announcement of Shareholder Rights 12/21/98 </TABLE> (c)Exhibits: See Item 14(a)(3) above. (d)Financial Statement Schedules: See Item 14(a)(2) above. 23
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. <TABLE> <S> <C> MID-AMERICA APARTMENT COMMUNITIES, INC. Date: March 29, 1999 /s/GEORGE E. CATES GEORGE E. CATES CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) </TABLE> Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Date: March 29, 1999 /s/GEORGE E. CATES GEORGE E. CATES CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) Date: March 29, 1999 /s/SIMON R.C. WADSWORTH SIMON R.C. WADSWORTH EXECUTIVE VICE PRESIDENT (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) Date: March 29, 1999 /s/H. ERIC BOLTON H. ERIC BOLTON PRESIDENT AND CHIEF OPERATING OFFICER Date: JOHN F. FLOURNOY VICE-CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, FLOURNOY DEVELOPMENT COMPANY Date: March 29, 1999 /s/ROBERT F. FOGELMAN ROBERT F. FOGELMAN DIRECTOR Date: March 29, 1999 /s/JOHN S. GRINALDS JOHN S. GRINALDS DIRECTOR Date: March 29, 1999 /s/O. MASON HAWKINS O. MASON HAWKINS DIRECTOR Date: March 29, 1999 /s/RALPH HORN RALPH HORN DIRECTOR Date: March 29, 1999 /s/MICHAEL S. STARNES MICHAEL S. STARNES DIRECTOR 24
INDEPENDENT AUDITOR'S REPORT The Board of Directors and Shareholders Mid-America Apartment Communities, Inc. We have audited the accompanying consolidated balance sheets of Mid-America Apartment Communities, Inc. and subsidiaries (the "Company") as of December 31, 1998 and 1997 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1998. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These financial statements and the financial statement schedule are the responsibility of the management of the Company. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of the Company as of December 31, 1998 and 1997, and the results of the operations and cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule when considered in relationship to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Memphis, Tennessee February 26, 1999 F-1
MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, -------------------------- 1998 1997 ------------ ------------ <S> <C> <C> ASSETS: REAL ESTATE ASSETS: Land............................ $ 124,912 $ 109,800 Buildings and improvements...... 1,184,611 1,027,853 Furniture, fixtures and equipment...................... 26,779 21,886 Construction in progress........ 75,776 33,717 ------------ ------------ 1,412,078 1,193,256 Less accumulated depreciation... (117,773) (76,129) ------------ ------------ 1,294,305 1,117,127 Land held for future development.................... 11,781 8,849 Commercial properties, net...... 9,282 8,728 ------------ ------------ REAL ESTATE ASSETS, NET.... 1,315,368 1,134,704 Cash and cash equivalents............ 7,237 14,805 Restricted cash...................... 9,282 13,397 Deferred financing costs, net........ 10,359 5,700 Other assets......................... 24,181 25,264 ------------ ------------ TOTAL ASSETS............... $ 1,366,427 $ 1,193,870 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Notes payable................... $ 753,427 $ 632,213 Accounts payable................ 10,384 10,098 Accrued expenses and other liabilities.................... 18,959 22,885 Security deposits............... 4,917 4,509 ------------ ------------ TOTAL LIABILITIES.......... 787,687 669,705 MINORITY INTEREST.................... 61,441 62,865 Shareholders' equity: Preferred stock, $.01 par value, 20,000,000 shares authorized, $25 per share liquidation preference: 2,000,000 shares at 9.5% Series A Cumulative.... 20 20 1,938,830 shares at 8.875% Series B Cumulative.... 19 19 2,000,000 shares at 9.375% Series C Cumulative.... 20 -- 1,000,000 shares at 9.5% Series E Cumulative.... 10 -- Common stock, $.01 par value (authorized 50,000,000 shares; issued and outstanding 18,879,691 and 18,476,046 shares December 31, 1998 and 1997, respectively)............ 189 185 Additional paid-in capital........... 583,154 500,492 Other................................ (2,237) (1,045) Accumulated deficit............. (63,876) (38,371) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY................. 517,299 461,300 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $ 1,366,427 $ 1,193,870 ============ ============ </TABLE> See accompanying notes to consolidated financial statements. F-2
MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) <TABLE> <CAPTION> 1998 1997 1996 ---------- ---------- ---------- <S> <C> <C> <C> Revenues: Rental.......................... $ 210,591 $ 135,673 $ 110,090 Other........................... 3,111 3,279 1,792 Management and development income, net................... 1,841 164 -- ---------- ---------- ---------- Total revenues.................. 215,543 139,116 111,882 Expenses: Personnel....................... 24,053 14,623 11,702 Building repairs and maintenance................... 10,030 6,811 5,305 Real estate taxes and insurance..................... 22,459 14,465 11,642 Utilities....................... 9,376 6,341 6,148 Landscaping..................... 5,009 3,684 2,910 Other operating................. 8,990 6,480 4,863 Depreciation and amortization... 46,021 27,737 21,443 General and administrative...... 11,960 6,602 6,154 Interest........................ 45,704 28,943 25,766 Amortization of deferred financing costs............... 2,348 888 661 ---------- ---------- ---------- Total expenses.................. 185,950 116,574 96,594 ---------- ---------- ---------- Income before gain on disposition of properties, minority interest in operating partnership income and extraordinary item................. 29,593 22,542 15,288 Gain on disposition of properties.... 408 -- 2,185 ---------- ---------- ---------- Income before minority interest in operating partnership income and extraordinary item................. 30,001 22,542 17,473 Minority interest in operating partnership income................. 2,254 2,693 3,213 ---------- ---------- ---------- Income before extraordinary item..... 27,747 19,849 14,260 Extraordinary item -- loss on debt extinguishment, net of minority interest........................... (990) (8,622) -- ---------- ---------- ---------- Net income........................... 26,757 11,227 14,260 Dividends on preferred shares........ 11,430 5,252 990 Net income available for common shareholders....................... $ 15,327 $ 5,975 $ 13,270 ========== ========== ========== Net income available per common share: Basic (in thousands): Average common shares outstanding................... 18,725 13,892 10,938 ========== ========== ========== BASIC EARNINGS PER SHARE: Net income available per common share before extraordinary item......... $ 0.87 $ 1.05 $ 1.21 Extraordinary item, net....... (0.05) (0.62) -- ---------- ---------- ---------- Net income available per common share............... $ 0.82 $ 0.43 $ 1.21 ========== ========== ========== Diluted (in thousands): Average common shares outstanding................... 18,725 13,892 10,938 Effect of dilutive stock options....................... 45 63 45 ---------- ---------- ---------- Average dilutive common shares outstanding................... 18,770 13,955 10,983 ========== ========== ========== DILUTED EARNINGS PER SHARE: Net income available per common share before extraordinary item......... $ 0.87 $ 1.05 $ 1.21 Extraordinary item, net....... (0.05) (0.62) -- ---------- ---------- ---------- Net income available per common share............... $ 0.82 $ 0.43 $ 1.21 ========== ========== ========== </TABLE> See accompanying notes to consolidated financial statements. F-3
MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS AND SHARES IN THOUSANDS) <TABLE> <CAPTION> ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL DISTRIBUTIONS ------------------- ------------------- PAID-IN IN EXCESS OF SHARES AMOUNT SHARES AMOUNT CAPITAL OTHER NET INCOME --------- ------- --------- ------- ----------- --------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> BALANCE DECEMBER 31, 1995............ -- $-- 10,937 $ 109 $ 208,670 $ (381) $ (6,120) Issuance of common shares............ -- -- 11 -- 277 -- -- Issuance of Series A preferred shares............................. 2,000 20 -- -- 47,748 -- -- Exercise of stock options............ -- -- -- -- (2) -- -- Shares issued in exchange for units.............................. -- -- 1 -- (4) -- -- Amortization of unearned compensation....................... -- -- -- -- -- 121 -- Dividends on common stock ($2.04 per share).................. -- -- -- -- -- -- (22,324) Dividends on preferred stock......... -- -- -- -- -- -- (990) Net income........................... -- -- -- -- -- -- 14,260 --------- ------- --------- ------- ----------- --------- ------------ BALANCE DECEMBER 31, 1996............ 2,000 20 10,949 109 256,689 (260) (15,174) Issuance of common shares............ -- -- 5,911 59 163,531 -- -- Issuance of Series B preferred shares............................. 1,939 19 -- -- 46,616 -- -- Exercise of stock options............ -- -- 9 -- (31) -- -- Notes receivable issued for shares and units (Note 8)................. -- -- -- -- -- (906) -- Shares issued in exchange for units.............................. -- -- 60 1 973 -- -- Shares issued in FDC Merger.......... -- -- 1,550 16 44,374 -- -- Adjustment for minority interest of Unitholders resulting from: Common Stock Offerings........... -- -- -- -- (10,008) -- -- FDC Merger....................... -- -- -- -- (834) -- -- Other............................ -- -- -- -- (818) -- -- Amortization of unearned compensation....................... -- -- -- -- -- 121 -- Dividends on common stock ($2.14 per share).................. -- -- -- -- -- -- (29,172) Dividends on preferred stock......... -- -- -- -- -- -- (5,252) Net income........................... -- -- -- -- -- -- 11,227 --------- ------- --------- ------- ----------- --------- ------------ BALANCE DECEMBER 31, 1997............ 3,939 39 18,479 185 500,492 (1,045) (38,371) Issuance of common shares............ -- -- 308 4 7,953 -- -- Issuance of Series C preferred shares............................. 2,000 20 -- -- 48,060 -- -- Issuance of Series E preferred shares............................. 1,000 10 -- -- 24,735 -- -- Exercise of stock options............ -- -- 5 -- 129 -- -- Notes receivable issued for shares and units (Note 8)................. -- -- -- -- (1,458) -- Payments received on notes receivable (Note 8)........................... -- -- -- -- 145 -- Shares issued in exchange for units.............................. -- -- 86 1,785 -- -- Amortization of unearned compensation....................... -- -- -- -- -- 121 -- Dividends on common stock ($2.20 per share).................. -- -- -- -- -- -- (40,832) Dividends on preferred stock......... -- -- -- -- -- -- (11,430) Net income........................... -- -- -- -- -- -- 26,757 --------- ------- --------- ------- ----------- --------- ------------ BALANCE DECEMBER 31, 1998............ 6,939 $69 18,878 $ 189 $ 583,154 $ (2,237) $(63,876) ========= ======= ========= ======= =========== ========= ============ <CAPTION> TOTAL --------- <S> <C> BALANCE DECEMBER 31, 1995............ $ 202,278 Issuance of common shares............ 277 Issuance of Series A preferred shares............................. 47,768 Exercise of stock options............ (2) Shares issued in exchange for units.............................. (4) Amortization of unearned compensation....................... 121 Dividends on common stock ($2.04 per share).................. (22,324) Dividends on preferred stock......... (990) Net income........................... 14,260 --------- BALANCE DECEMBER 31, 1996............ 241,384 Issuance of common shares............ 163,590 Issuance of Series B preferred shares............................. 46,635 Exercise of stock options............ (31) Notes receivable issued for shares and units (Note 8)................. (906) Shares issued in exchange for units.............................. 974 Shares issued in FDC Merger.......... 44,390 Adjustment for minority interest of Unitholders resulting from: Common Stock Offerings........... (10,008) FDC Merger....................... (834) Other............................ (818) Amortization of unearned compensation....................... 121 Dividends on common stock ($2.14 per share).................. (29,172) Dividends on preferred stock......... (5,252) Net income........................... 11,227 --------- BALANCE DECEMBER 31, 1997............ 461,300 Issuance of common shares............ 7,957 Issuance of Series C preferred shares............................. 48,080 Issuance of Series E preferred shares............................. 24,745 Exercise of stock options............ 129 Notes receivable issued for shares and units (Note 8)................. (1,458) Payments received on notes receivable (Note 8)........................... 145 Shares issued in exchange for units.............................. 1,785 Amortization of unearned compensation....................... 121 Dividends on common stock ($2.20 per share).................. (40,832) Dividends on preferred stock......... (11,430) Net income........................... 26,757 --------- BALANCE DECEMBER 31, 1998............ $ 517,299 ========= </TABLE> See accompanying notes to consolidated financial statements. F-4
MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> 1998 1997 1996 --------- --------- --------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................... $ 26,757 $ 11,227 $ 14,260 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization... 48,369 28,746 22,243 Amortization of unearned stock compensation.................. 121 121 -- Minority interest in operating partnership income............ 2,254 2,693 3,213 Extraordinary item.............. 990 8,622 -- Gain on disposition of properties.................... (408) -- (2,185) Changes in assets and liabilities: Restricted cash............. 4,115 (1,214) (1,420) Other assets................ 1,044 (1,341) (95) Accounts payable............ 786 140 6 Accrued expenses and other liabilities............... (4,031) (4,550) 2,036 Security deposits........... 408 474 (40) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................... 80,405 44,918 38,018 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of real estate assets........................ (63,732) (76,287) (66,258) Proceeds from disposition of real estate assets............ 5,424 -- 17,096 Improvements to properties...... (32,336) (20,205) (18,437) Construction of units in progress and future development................... (107,963) (16,093) (2,837) Net cash paid in business combination................... -- (25,678) -- --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES.................... (198,607) (138,263) (70,436) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in credit line....... 71,789 14,820 12,358 Proceeds from notes payable..... 232,799 187,500 17,049 Principal payments on notes payable....................... (210,571) (267,003) (14,427) Payment of deferred financing costs......................... (7,097) (3,813) (1,256) Proceeds from issuances of common shares and units....... 9,586 165,737 271 Proceeds from issuance of preferred shares.............. 72,825 46,635 47,768 Redemption of unitholder interests..................... (150) (8) (36) Distributions to unitholders.... (6,285) (5,347) (4,988) Dividends paid on common shares........................ (40,832) (29,172) (22,324) Dividends paid on preferred shares........................ (11,430) (5,252) (990) --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES.................... 110,634 104,097 33,425 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... (7,568) 10,752 1,007 --------- --------- --------- Cash and cash equivalents, beginning of period................................ 14,805 4,053 3,046 --------- --------- --------- Cash and cash equivalents, end of period................................ $ 7,237 $ 14,805 $ 4,053 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid....................... $ 45,607 $ 27,468 $ 25,262 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Increase in basis of properties acquired in connection with business combination.............. -- $ 58,359 -- Assumption (transfer) of debt related to property acquisitions...................... $ 26,231 $ 63,690 $ (7,680) Conversion of units for common shares............................ $ 1,785 $ 974 -- Issuance of units related to property acquisitions............. $ 1,911 $ 880 -- Issuance of advances in exchange for common shares and units........... $ 1,458 $ 906 -- Interest expense capitalized........ $ 4,265 $ 388 $ 91 </TABLE> See accompanying notes to consolidated financial statements. F-5
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND FORMATION OF THE COMPANY Mid-America Apartment Communities, Inc. ("Mid-America") is a self-administrated and self-managed real estate investment trust which owns, develops, constructs, acquires and operates multifamily apartment communities mainly in the southeast and the midwest United States and Texas. The company owns and operates 129 apartment communities principally through its majority owned subsidiary, Mid-America Apartments, L.P. (the "Operating Partnership") and its subsidiary, Mid-America Capital Partners, L.P. ("MACP"). MACP is a special purpose entity established in 1997 to issue first mortgage bonds. In addition to owning and operating apartment communities, the company conducts third party property management, construction and development activities through its service corporation, Flournoy Development Corporation. BASIS OF PRESENTATION The accompanying financial statements include the accounts of Mid-America, the Operating Partnership, and other subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. MINORITY INTEREST Minority interest in the accompanying consolidated financial statements relates to the ownership interest in the Operating Partnership by the holders of Class A Common Units of the Operating Partnership ("Operating Partnership Units") Mid-America is the sole general partner of the Operating Partnership. Net income is allocated to the minority interest based on their respective ownership percentage of the Operating Partnership as described below. Issuance of additional common shares or Operating Partnership Units changes the ownership of both the minority interest and Mid-America. Such transactions and the proceeds are treated as capital transactions and result in an allocation between shareholders' equity and minority interest to account for the change in the respective percentage ownership of the underlying equity of the Operating Partnership. The Company's Board established economic rights in respect of each Operating Partnership Unit that were equivalent to the economic rights in respect of each share of common stock. The holder of each unit may redeem their units in exchange for one share of common stock or cash, at the option of the Company. The Operating Partnership has followed the policy of paying the same per unit distribution in respect of the units as the per share distribution in respect of the common stock. Prior to 1997, the Operating Partnership agreement provided for the allocation of additional net income to the holders of Operating Partnership Units that would otherwise be the net income of the Mid-America. Effective January 1, 1997 the Operating Partnership agreement was amended to eliminate the additional allocation of income to the unitholders. Operating Partnership net income for 1998 was allocated 15.6% to holders of Operating Partnership Units and 84.4% to Mid-America. Operating Partnership net income for 1997 was allocated 17.9% to holders of Operating Partnership Units and 82.1% to Mid-America. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. F-6
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) REVENUE RECOGNITION The Company leases multifamily residential apartments under operating leases with terms of one year or less. Rental and other revenues are recorded when earned. In addition to leasing the owned Communities, the Company provides property management services for Section 42 Housing Tax Credit multifamily properties and conventional properties. Property management revenue is recorded on the accrual method of accounting as earned. Construction contract revenues, which are presented net of construction contract costs in the accompanying statements of operations, are recognized using the percentage-of-completion method. Under this method, the percentage of contract revenue to be recognized currently is computed based upon that percentage of estimated total revenue that incurred costs to date bear to total estimated costs, after giving effect to the most recent estimates of costs to complete. Revisions in cost and revenue estimates are reflected in the period in which the facts, which require the revision, become known. When revised cost estimates indicate a loss on an individual contract, the total estimated loss is provided for currently in its entirety without regard to the percentage of completion. The Company receives development and construction fees related to the development of third party properties. Development fees and construction income are recognized as earned as the property is developed and certain operating and financing performance conditions are met. CASH AND CASH EQUIVALENTS The Company considers cash, investments in money market accounts and certificates of deposit with original maturities of three months or less to be cash equivalents. RESTRICTED CASH Restricted cash consists of escrow deposits held by lenders for property taxes, insurance, debt service and replacement reserves. REAL ESTATE ASSETS AND DEPRECIATION Real estate assets are carried at the lower of depreciated cost or net realizable value. Repairs and maintenance costs are expensed as incurred while significant improvements, renovations, and replacements are capitalized. The cost of interior painting, vinyl flooring, and blinds are expensed as incurred. In conjunction with acquisitions of properties, the Company's policy is to provide in its acquisition budgets adequate funds to complete any deferred maintenance items to bring the properties to the required standard. including the cost of replacement appliances, carpet, interior painting, vinyl flooring, and blinds. These costs are capitalized. Depreciation is computed on a straight line basis over the estimated useful lives of the related assets which range from 8 to 40 years for land improvements and buildings and 5 years for furniture, fixtures and equipment. The Company periodically evaluates its real estate assets for impairment based upon undiscounted cash flows and measures impairment based on fair value. This determination is dependent primarily on the Company's estimates of occupancy, rent and expense increases, which involves numerous assumptions and judgments as to future events over a period of many years. At December 31, 1998 the Company does not hold any assets which management believes meet the impairment criteria. Development projects and the related carrying costs, including interest, property taxes, insurance and allocated development overhead during the construction period, are capitalized and reported on the accompanying balance sheet as "construction in progress" during the construction period. Upon completion and certification for occupancy of individual units within a development, amounts representing the F-7
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) completed unit's portion of total estimated development costs for the project are transferred to land, buildings and furniture, fixtures and equipment as real estate held for investment. Capitalization of interest, property taxes, insurance and allocated development overhead costs ceases upon the transfer, and the assets are depreciated over their estimated useful lives. Total interest capitalized during 1998, 1997 and 1996 was $4,265,000, $388,000 and $91,000 respectively. REAL ESTATE HELD FOR FUTURE DEVELOPMENT Real estate held for future development consists primarily of sites intended for future multifamily developments and is stated at the lower of cost or fair value less its cost to sell. DEFERRED COSTS AND OTHER INTANGIBLES Organization costs are amortized using the straight line method over 60 months. Deferred financing costs are amortized over the terms of the related debt using a method which approximates the interest method. Cost in excess of fair value of net assets acquired is amortized using the straight line method over a range of 8 to 30 years. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued, effective for years beginning after December 15, 1997. This statement established standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Although the Company adopted this standard in 1998, none of the items identified for presentation under the statement are currently applicable to the Company. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity," was issued effective for years beginning after June 15, 1999. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. This new accounting statement is not expected to have a material impact on the Company's consolidated financial statements. RECLASSIFICATION Certain prior year amounts have been reclassified to conform with 1998 presentation. The reclassification had no effect on net income available for common shareholders. 2. BUSINESS COMBINATION On November 25, 1997, the Company completed the merger with Flournoy Development Company and related entities ("FDC") (the "FDC Merger") accounted for using the purchase method of accounting. Total consideration consisted of $88,271,000, including 1,550,311 shares of common stock and 412,110 Class A common units of the Operating Partnership, valued at $56,213,000 ($28.6875 per share and unit), $29,608,000 cash and transaction costs of approximately $2,450,000. The Company may also issue additional shares of Common Stock (the "Contingent Value Shares") having a value of up to $7,500,000 if certain agreed upon conditions are satisfied during calendar years 1998, 1999 and 2000. When and if issued, the Contingent Value Shares will be recorded as additional purchase consideration based upon the fair value of the Common Stock at the date of issuance. No Contingent Value Shares were issued during 1998. The operating results of FDC are included in the accompanying statement of operations commencing November 25, 1997. F-8
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The assets acquired and liabilities assumed in connection with the merger were recorded at their respective fair values as follows: <TABLE> <S> <C> Fair value of assets acquired, primarily real estate assets....... $ 411,397,000 Liabilities assumed.................. 335,326,000 --------------- Net assets acquired............. $ 76,071,000 =============== </TABLE> The following unaudited summarized pro forma consolidated financial information has been prepared as if the FDC Merger, various other insignificant acquisitions of properties during the periods presented and various financing transaction entered into in connection with the acquisitions had occurred as of the beginning of the period presented. The Company had no significant property acquisitions during 1998. In management's opinion, the summarized pro forma consolidated financial information does not purport to present what actual results would have been had the above transactions occurred on January 1, 1997, or to project results for any future period. The amounts presented for the year ended December 31, 1997 are in thousands except for share amounts (unaudited): <TABLE> <S> <C> Total revenues....................... $ 195,748 =============== Net income before extraordinary item............................... $ 22,104 Extraordinary item, net of minority interest........................... (7,866) Dividends on preferred shares........ (9,052) --------------- Net income available for common shareholders.................. $ 5,186 =============== Per common share amounts: Basic and diluted net income before extraordinary item per common share.............................. $ 0.71 Basic and diluted net income available per common share......... $ 0.28 </TABLE> 3. BORROWINGS During 1998, the Company increased the borrowing limit of its Credit Line from $110 million to $200 million. The Credit Line is secured by certain of the properties, bears interest at LIBOR plus 1.35% (7.0% at December 31, 1998), expires in November 1999, and has various restrictive financial covenants. The Company had $117.0 million and $45.2 million outstanding under the Credit Line as of December 31, 1998 and 1997, respectively. The Company had approximately $612.0 million and $447.0 million at December 31, 1998 and 1997, respectively, outstanding under various mortgage notes and bonds payable secured by real estate assets and certain restricted cash accounts. At December 31, 1997, the Company, through one of its subsidiaries, had indebtedness of $140 million to Morgan Stanley Capital Inc. pursuant to a short-term promissory note (the "Bridge Loan"). The Bridge Loan was secured by 26 properties owned by the subsidiary. On March 26, 1998, the Company, issued $142 million aggregate principal amount of 6.376% Bonds due 2003 (the "Bonds"). The net proceeds from the sale of the Bonds were applied to the Bride Loan and utilized to fund costs of the issuance. The Bonds are secured by a first priority deed of trust, security agreement and assignment of rents and leases in respect of the 26 mortgaged properties, with a net book value of $210.9 million at December 31, 1998. During 1998, the Company refinanced approximately $29.1 million of various notes payable with a $36.2 million, seven year amortizing note payable at 7.0% and acquired a new short-term note payable for $25.0 million with a fixed rate of 6.4% which was used to pay down the Credit Line. The Company also F-9
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) refunded $4.8 million of bonds secured by its Sterling Ridge Apartments. The new 30 year bonds have a variable interest rate of 5.1% at December 31, 1998, as compared to the previous fixed rate of 8.75%. Additionally, the Company refunded $14.0 million of bonds secured by its Hunters Ridge Apartments. The Company incurred costs of $449,000, net of minority interest, for these combined transactions which is included in "Extraordinary item -- loss on early extinguishment of debt" in the accompanying financial statements along with $455,000 related to extinguishment of debt due to the sale of real estate and $86,000 related to refinancing of the Bridge Loan mentioned above. In anticipation of the March 6, 1998 Bond issuance discussed above, the Company entered four separate forward interest rate lock agreements in 1997 with notional amounts aggregating $140 million, the effect of which was to lock the interest rate on $140 million of the Bonds at an average rate of 6.62%. On March 6, 1998 the Company realized a $1.4 million loss on the interest rate contracts. The realized loss resulting from the change in the market value of these contracts is being amortized into interest expense over the life of the related debt issuance. During 1997, the Company extinguished a bond note, resulting in an extraordinary loss of $771,000. At consummation of the merger with FDC, the Company repaid certain debt primarily attributable to FDC, resulting in an extraordinary loss of $7,851,000, net of minority interest. As of December 31, 1998, the Company estimated that the weighted average interest rate on the Company's debt was 7.11% with an average maturity of 10.9 years. The following tables summarize the Company's indebtedness at December 31, 1998. <TABLE> <CAPTION> AT DECEMBER 31, 1998 ------------------------------------------------ ACTUAL AVERAGE INTEREST RATES INTEREST RATE MATURITY 1998 1997 -------------- -------------- ---------- --------- --------- <S> <C> <C> <C> <C> <C> (DOLLARS IN MILLIONS) Fixed Rate: Taxable......................... 6.376-10.625% 7.508% 1999-2037 $ 481.5 $ 479.0 Tax-exempt...................... 5.281-7.594% 6.089% 2008-2028 97.9 90.0 --------- --------- $ 579.4 $ 569.0 Variable Rate: Taxable......................... 6.375-7.0% 6.890% 1999-2000 $ 142.0 $ 46.6 Tax-exempt...................... 5.10-5.625% 5.31% 2025-2028 32.0 16.6 --------- --------- $ 174.0 $ 63.2 --------- --------- $ 753.4 $ 632.2 ========= ========= </TABLE> Scheduled principal repayments on the borrowings at December 31, 1998 are as follows (dollars in thousands): <TABLE> <CAPTION> YEAR AMORTIZATION BALLOON PAYMENTS TOTAL - - ------------------------------------- ------------ ---------------- ---------- <S> <C> <C> <C> 1999................................. $ 4,980 $ 37,898 $ 42,878 2000................................. 5,275 -- 5,275 2001................................. 5,532 43,400 48,932 2002................................. 5,780 11,303 17,083 2003................................. 5,466 154,120 159,586 Thereafter........................... 189,015 290,658 479,673 ------------ ---------------- ---------- $216,048 $537,379 $ 753,427 ============ ================ ========== </TABLE> F-10
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's indebtedness includes various restrictive financial covenants. The Company believes that it was in compliance with these covenants as of December 31, 1998. 4. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS Cash and cash equivalents, restricted cash, accounts payable, accrued expenses and other liabilities and security deposits are carried at amounts which reasonably approximate their fair value due to their short term nature. Fixed rate notes payable at December 31, 1998 and 1997 total $579.4 million and $569.0 million, respectively, and have an estimated fair value of $569.3 million and $559.9 million (excluding prepayment penalties) based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of December 31, 1998 and 1997. These notes were subject to prepayment penalties in the event of repayment prior to maturity, which were not considered in determining their estimated fair value. The carrying value of variable rate notes payable in December 31, 1998 and 1997 total $174.0 million and $63.2 million, respectively, and reasonably approximates their fair value because the related variable interest rates reasonably approximate market rates. Included in these variable rate notes are certain Multifamily Housing Renewal bonds with rates which are less than the prime lending rates at December 31, 1998 and 1997. Approximately $32.0 million in 1998 and $16.6 million in 1997 of these mortgages are non-taxable and have lower rates than would be expected for taxable notes with similar terms. The Company has an interest rate swap agreement for $25 million notional amount which was outstanding as of December 31, 1998. The effective rate on the contract reasonably approximated market rates at December 31, 1998. The fair value estimates presented herein are based on information available to management as of December 31, 1998 and 1997. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revaluated for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. 5. COMMITMENTS AND CONTINGENCIES 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 consolidated financial statements of the Company. The Company leases an aircraft to facilitate transportation between its properties. In 1998, the Company entered a new five year aircraft lease which generally provides for the Company to pay maintenance, insurance, and certain other operating costs of the leased property. The agreement has been accounted for as an operating lease. The Company incurred lease expense relating to aircraft lease agreements for the years ended December 31, 1998, 1997, and 1996 of $138,000, $187,000, and $185,400, respectively. 6. INCOME TAXES No provision for federal income taxes has been made in the accompanying consolidated financial statements. The Company has made an election to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Code. As a REIT, the Company generally is not subject to Federal income tax to the extent it distributes 95% of its REIT taxable income to its shareholders and meets certain other tests relating to the number of shareholders, types of assets and allocable income. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to the Federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Even though the F-11
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company qualifies for taxation as a REIT, the Company may be subject to certain Federal, state and local taxes on its income and property and to Federal income and excise tax on its undistributed income. Earnings and profits, which determine the taxability of dividends to shareholders, differ from net income reported for financial reporting purposes primarily because of differences in depreciable lives, bases of certain assets and liabilities and in the timing of recognition of earnings upon disposition of properties. For federal income tax purposes, the following summarizes the taxability of cash distributions paid on the common shares in 1997 and 1996 and the estimated taxability for 1998. <TABLE> <CAPTION> 1998 1997 1996 ----- ----- ----- <S> <C> <C> <C> Per common share Ordinary income................. $1.28 $1.16 $1.50 Capital gains................... -- -- .02 Return of capital............... .92 .98 .52 ----- ----- ----- Total...................... $2.20 $2.14 $2.04 ===== ===== ===== </TABLE> 7. SHAREHOLDERS EQUITY SERIES A PREFERRED STOCK Series A Cumulative Preferred Stock ("Series A Preferred Stock") has a $25.00 per share liquidation preference and a preferential cumulative annual distribution of $2.375 per share, payable monthly. The Company issued 2,000,000 Series A Preferred shares in October 1996 and received net proceeds of $47.8 million. SERIES B PREFERRED STOCK Series B Cumulative Preferred Stock ("Series B Preferred Stock") has a $25.00 per share liquidation preference and a preferential cumulative annual distribution of $2.21875 per share, payable monthly. In November 1997 the Company issued 1,938,830 Series B Preferred shares and received net proceeds of $46.6 million. SERIES C PREFERRED STOCK Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") has a $25.00 per share liquidation preference and a preferential cumulative annual distribution of $2.34375 per share, payable quarterly. In June 1998 the Company issued 2,000,000 Series C Preferred shares and received net proceeds of $48.1 million. SERIES D PREFERRED STOCK -- SHAREHOLDERS RIGHTS PLAN During December 1998, the Board of Directors authorized a Shareholders Rights Plan (the "Rights Plan"). In implementing the Rights Plan, the Board declared a distribution of one right for each of the Company's outstanding common shares which would become exercisable only if a person or group (the "Acquiring Person") becomes the beneficial owner of 10% or more of the common shares or announces a tender or exchange offer that would result in ownership of 10% of the Company's common shares. The rights will trade with the Company's common stock until exercisable. Each holder of a right, other than the Acquiring Person, is in that event entitled to purchase one common share of the Company for each right at one half of the then current price. SERIES E PREFERRED STOCK Series E Cumulative Preferred Stock ("Series E Preferred Stock") has a $25.00 per share liquidation preference and a preferential cumulative annual distribution of $2.375 per share, payable monthly. In December 1998 the Company issued 1,000,000 Series E Preferred shares in a direct placement with a F-12
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) private investor. The Company received net proceeds of $24.7 million. After five years, the securities may be required by the purchaser to be redeemed by the Company in cash or common stock, at the Company's option, at the then market price. COMMON STOCK OFFERINGS In March 1997 the Company issued 2,300,000 shares of Common Stock and received net proceeds of $62.5 million. In October 1997 the Company issued 3,499,000 shares of Common Stock and received net proceeds of $98.2 million. The Company contributed the net proceeds of the offerings to the Operating Partnership in exchange for additional Operating Partnership Units. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Company has a Dividend Reinvestment and Stock Purchase Plan (the "DRSPP") pursuant to which the Company's shareholders will be permitted to acquire shares of Common Stock through the reinvestment of distributions on Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock and through optional cash payments from shareholders. The Company has registered with the Securities and Exchange Commission the offer and sale of up to 750,000 shares of Common Stock pursuant to the DRSPP. Common Stock shares totaling 62,175 and 24,785 were acquired by shareholders pursuant to the DRSPP during 1998 and 1997, respectively. As described in Note 12, in January 1999 the Company adopted the Direct Stock Purchase and Dividend Reinvestment Plan (the "DSPDRP") which will replace the current DRSPP plan. EARNINGS PER SHARE The computation of basic earnings per share is based on the weighted, average number of common shares outstanding. The computation of diluted earnings per share is based on the weighted average number of common shares oustanding plus the shares resulting from the assumed exercise of all dilutive outstanding options using the treasury stock method. A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 1998, 1997 and 1996 is presented on the Consolidated Statement of Operations. The computation of earnings per share does not include the Contingent Value Shares which may be issued in 1998, 1999, and 2000 due to the fact that the conditions for issuance of the shares have been satisfied. Also, the Series E Preferred Shares, which are convertible five years from the date of issuance, and approximately 750,000 options to acquire common shares are not included in the calculation because the assumed conversion would be anti-dilutive. 8. EMPLOYEE BENEFIT PLANS 401(K) SAVINGS PLAN The Mid-America Apartment Communities, Inc. 401(k) Savings Plan is defined contribution plan that satisfies the requirements of Section 401(a) and 401(k) of the Code. The Company may, but is not obligated to, make a matching contribution of $.50 for each $1.00 contributed, up to 6% of the participant's compensation. The Company's contribution to this plan was $318,200, $154,300 and $118,700 in 1998, 1997 and 1996, respectively. NON-QUALIFIED DEFERRED COMPENSATION PLAN The Company has adopted a non-qualified deferred compensation plan for key employees who are not qualified for participation in the Company's 401(k) Savings Plan. Under the terms of the plan, employees may elect to defer a percentage of their compensation and the Company matches a portion of their salary deferral. The plan is designed so that the employees' investment earnings under the non-qualified plan F-13
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) should be the same as the earning assets in the Company's 401(k) Savings Plan. The company's match to this plan in 1998, 1997 and 1996 was $19,100, $18,600 and $23,600, respectively. EMPLOYEE STOCK PURCHASE PLAN The Mid-America Apartment Communities, Inc. Employee Stock Purchase Plan (the "ESPP") provides a means for employees to purchase common stock of the Company. The board has authorized the issuance of 150,000 shares for the plan. The ESPP is administered by the Compensation Committee who may annually grant options to employees to purchase annually up to an aggregate of 15,000 shares of common stock at a price equal to 85% of the market price of the common stock. During 1998, 1997 and 1996, the ESPP purchased 5,242, 2,758 and 3,176 shares, respectively. EMPLOYEE STOCK OWNERSHIP PLAN The Mid-America Apartment Communities, Inc. Employee Stock Ownership Plan (the "ESOP") which is a non-contributory stock bonus plan that satisfies the requirements of Section 401 (a) of the Internal Revenue Code. Each employee of the Company is eligible to participate in the ESOP after attaining the age of 21 years and completing one year of service with the Company. Participants' ESOP accounts will be 100% vested after five years of continuous service, with no vesting prior to that time. The Company contributed 22,500 shares of Common Stock to the ESOP upon conclusion of the IPO. During 1998, 1997 and 1996, the Company contributed $448,300, $344,000 and $276,000, respectively, to the ESOP which purchased an additional 17,156, 11,921 and 8,208 shares, respectively. STOCK OPTION PLAN The Company has adopted the 1994 Restricted Stock and Stock Option Plan (the "Plan') to provide incentives to attract and retain independent directors, executive officers and key employees. The Plan provides for the grant of options to purchase a specified number of shares of common stock ("Options") or grants of restricted shares of common stock ("Restricted Stock"). The Plan also allows the Company to grant options to purchase Operating Partnership Units at the price of the Common Stock on the New York Stock Exchange on the day prior to issuance of the units (the "LESOP Provision"). During the first quarter of 1997, the Company amended the Plan to increase the shares authorized from 500,000 to 1,000,000 and to remove the restriction on the number of options that may be issued, subject to overall plan limits. The Compensation Committee of the Board of Directors is responsible for granting Options and shares of Restricted Stock and for establishing the exercise price of Options and terms and conditions of Restricted Stock. In 1997 the Company granted options to certain executive and other officers to purchase 96,000 shares of Common Stock and 110,000 Operating Partnership Units pursuant to the LESOP Provision. In 1997 options to purchase 75,000 shares of common stock and 110,000 Operating Partnership Units were exercised and the Company advanced a portion of the purchase price of these shares and units. The employee advances mature five years from date of issuance and accrue interest, payable in arrears, at a rate of 7.0% per annum and are presented as a reduction of shareholders' equity in the accompanying consolidated balance sheets. The Company entered into supplemental bonus agreements with the employees which are intended to fund the payment of the advances over a five year period. Under the terms of the supplemental bonus agreements, the Company will pay cash bonuses to these employees equal to 20% of the original note balance on each anniversary date of the advances. The bonuses are limited to 15% of the aggregate purchase price of the common shares and units. During March 1998, the Company issued 50,000 shares of common stock at the then market price of $28.0625 and 100,000 Operating Partnership Units to certain executive officers of the Company at the then current market price of $28.125 per share. The Company received approximately $3,583,000 cash and advanced the employees approximately $632,000 secured by the common stock and Operating Partnership Units of the Company. The advances bear interest at 5.59% per annum, have annual principal payments of F-14
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) approximately $126,000 and are presented as a reduction of shareholders' equity in the accompanying consolidated balance sheets. During May 1998, the Company issued an additional 100,000 shares of common stock to certain executive officers of the Company at the then market price of $27.25. The Company received approximately $2,316,250 cash and advanced the employees approximately $408,750 secured by the common stock of the Company. The advances bear interest at 5.68% per annum, and are presented as a reduction of shareholders' equity in the accompanying consolidated balance sheets. In addition, the Company has agreed to pay a bonus to the executive officers mentioned above for as long as they remain employed by the Company in an amount equal to the debt service on the advances from the Company. The advances will become due and payable and the bonus agreement will terminate if the employees voluntarily terminate their employment with the Company. Additionally throughout 1998 and 1997, the Company issued 69,000 shares of common stock to certain other officers of the Company at the market price on the date of issuance which ranges from $25.38 to $27.25 per share. The Company received approximately $900,000 cash and advanced the employees approximately $900,000. The advances bear interest at 7.5% and 8.25% per annum, are secured by the stock of the Company and are presented as a reduction of shareholders' equity in the accompanying consolidated balance sheets. The Company has agreed to pay an annual bonus for five years to these officers amounting to 3% of the original purchase price of the shares. The advances will become due and payable if the employees terminate their employment with the Company. At December 31, 1998 and 1997, the total outstanding principal balance on the employee advances was approximately $2,219,000 and $906,000 respectively, and is presented as a reduction of the Company's statements of shareholders' equity. A summary of changes in Options to acquire shares of Common Stock and Operating Partnership Units, including grants and exercises pursuant to the LESOP provision, for the three years ended December 31, 1998 is as follows: <TABLE> <CAPTION> WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ---------- ---------------- <S> <C> <C> Outstanding at December 31, 1995..... 247,550 $21.00 Granted......................... 99,000 26.50 Exercised....................... (1,900) 19.75 Forfeited....................... (6,000) 25.81 ---------- Outstanding at December 31, 1996..... 338,650 22.53 Granted......................... 416,500 29.46 Exercised....................... (218,625) 28.17 Forfeited....................... (13,025) 27.91 ---------- Outstanding at December 31, 1997..... 523,500 25.40 Granted......................... 663,250 28.78 Exercised....................... (338,581) 28.28 Forfeited....................... (52,850) 27.81 ---------- Outstanding at December 31, 1998..... 795,319 26.87 ========== Options exercisable: December 31, 1996............... 84,050 $20.82 December 31, 1997............... 140,500 21.71 December 31, 1998............... 208,769 23.19 </TABLE> F-15
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Exercise prices for options outstanding as of December 31, 1998 ranged from $19.75 to $29.50. The weighted average remaining contractual life of those options is 8.1 years. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which requires either the (i) fair value of employee stock-based compensation plans be recorded as a component of compensation expense in the statement of operations as of the date of grant of awards related to such plans, or (ii) impact of such fair value on net income and earnings per share be disclosed on a pro forma basis in a footnote to financial statements for awards granted after December 15, 1994, if the accounting for such awards continues to be in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25"). The Company will continue such accounting under the provisions of APB 25. The pro forma effects of stock options granted in 1998 and 1997, excluding the shares issued under the LESOP provision, to net income per common share were $0.01 and $0.01, respectively. There was no impact to earnings per share in 1996. 9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company occasionally utilizes derivative financial instruments as hedges in anticipation of future debt transactions to manage well-defined interest rate risk or as protection to hedge the interest rate risk of the Company's variable rate debt by locking the effective rate on portions of the outstanding line of credit (the "Credit Line"). In 1998 the Company entered an Interest Rate Swap Agreement which expires on August 15, 2003 that effectively locks the interest rate the Company pays on a portion of its Credit Line. As of December 31, 1998, $25 million notional amount was outstanding on this agreement with a fixed interest rate paid by the Company of 5.28%. 10. RELATED PARTY TRANSACTION During 1997 the Company acquired its corporate headquarters building for $2,912,000 from a partnership whose partners included certain executive officers of the Company. The consideration paid consisted of $862,000 cash, 22,246 Operating Partnership Units valued at $634,000 ($28.50 per unit) and the assumption of an existing loan. Prior to acquisition the Company leased the building from the partnership. 11. SEGMENT INFORMATION The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", in 1998. At December 31, 1998, the Company owned and operated 129 multifamily apartment communities in 13 different states from which it derives all significant sources of earnings and operating cash flows. The Company's operational structure is organized on a decentralized basis, with individual property managers having overall responsibility and authority regarding the operations of their respective properties. Each property manager individually monitors local and area trends in rental rates, occupancy percentages, and operating costs. Property managers are given the on-site responsibility and discretion to react to such trends in the best interest of the Company. The Company's chief operating decision maker evaluates the performance of each individual property based on its contribution to net operating income in order to ensure that the individual property continues to meet the Company's return criteria and long term investment goals. The Company defines each of its multifamily communities as an individual operating segment. It has also determined that all of its communities have similar economic characteristics and also meet the other criteria which permit the communities to be aggregated into one reportable segment, which is acquisition, development, and operation of the multifamily communities owned. F-16
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The revenues, net operating income, assets and real estate investment capital expenditures for the aggregated multifamily segment are summarized as follows for the years ended as of December 31, 1998, 1997, and 1996 (in 000's): <TABLE> <CAPTION> 1998 1997 1996 ---------- ---------- ---------- <S> <C> <C> <C> Multifamily rental revenues.......... $ 210,591 $ 135,673 $ 110,090 Other multifamily revenues........... 2,248 1,426 1,595 Reconciling items to consolidated revenues: Management and development income, net................................ 1,841 164 -- Interest income and other revenues... 863 1,853 197 ---------- ---------- ---------- Total segment revenues........ $ 215,543 $ 139,116 $ 111,882 ========== ========== ========== Multifamily net operating income..... 132,922 84,695 69,115 Reconciling items to net income: Management and development income, net................... 1,841 164 -- Interest income and other revenues...................... 863 1,853 197 Interest expense................ (45,704) (28,943) (25,766) General and administrative expenses...................... (11,960) (6,602) (6,154) Depreciation and amortization... (46,021) (27,737) (21,443) Amortization of deferred financing costs............... (2,348) (888) (661) Gain/(Loss) from disposition of properties.................... 408 -- 2,185 Extraordinary items, net........ (990) (8,622) -- Minority interest............... (2,254) (2,693) (3,213) Dividends on Preferred Shares... (11,430) (5,252) (990) ---------- ---------- ---------- Net income available for common shareholders........ $ 15,327 $ 5,975 $ 13,270 ========== ========== ========== </TABLE> <TABLE> <CAPTION> 1998 1997 ------------ ------------ <S> <C> <C> ASSETS Multifamily real estate assets....... $ 1,412,078 $ 1,193,256 Accumulated depreciation -- multifamily assets............................. (117,773) (76,129) ------------ ------------ 1,294,305 1,117,127 Land held for future development..... 11,781 8,849 Commercial properties, net........... 9,282 8,728 Cash and Restricted Cash............. 16,519 28,202 Other assets......................... 35,540 30,964 ------------ ------------ Total Assets.................... $ 1,366,427 $ 1,193,870 ============ ============ </TABLE> <TABLE> <CAPTION> 1998 1997 1996 --------- --------- --------- <S> <C> <C> <C> Total expenditures for property additions.......................... $ 32,336 $ 20,205 $ 18,437 ========= ========= ========= </TABLE> F-17
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. SUBSEQUENT EVENTS (UNAUDITED) DECLARATION OF DIVIDEND The Company declared a 1998 fourth quarter common stock dividend of $.575 per share to be paid January 29, 1999 to holders of record on January 22, 1999. DEVELOPMENT ACTIVITIES Since December 31, 1998, the Company has announced plans to develop four apartment communities, two of which were recently approved by the Board of Directors, representing a total investment of $99 million over the next two years. The development communities include Sandstone Creek, in Overland Park, Kansas (354 units) expected to commence in late summer of 1999; Kenwood Club, in Katy Texas (320 units) expected to commence in April; Paddock Club, in Melbourne, Florida (300 units) expected to commence in April of 1999; and Grande View, in Nashville, Tennessee (433 units) already under construction. DIRECT STOCK PURCHASE AND DISTRIBUTION REINVESTMENT PLAN In January 1999 the Company adopted the DSPDRP pursuant to which the Company's shareholders have the ability to reinvest all or part of distribution from Mid-America common stock, preferred stock or limited partnership interests in Mid-America Apartments, L.P. Also the plan provides the opportunity for shareholders to buy additional shares through an optional cash investment. This plan is intended to replace the current DRSPP, and participants of the current plan will be automatically enrolled in the new plan. JOINT VENTURE AGREEMENT In March 1999 the Company entered into an agreement to form a joint venture (the "Joint Venture") with Blackstone Real Estate Acquisitions, LLC, a subsidiary of an investment management firm located in New York City, to own and operate apartment communities. The Company simultaneously sold 6 apartments communities to the newly formed Joint Venture for approximately $65 million in cash. The Company will retain a 33 percent ownership in the Joint Venture and will continue to manage the properties for a fee. The Company invested approximately $4.0 million in the Joint Venture and loaned the Joint Venture approximately $3.0 million at an interest rate of 10% for the life of the entity. The net proceeds from the transaction will be used to pay down the Company's Credit Line. The agreement provides that income and cash flows generated by the Joint Venture be allocated based on respective ownership percentages. The Company will account for its investment in the joint venture using the equity method of accounting. The Company plans to sell an additional 4 apartment communities to the Joint Venture later in the year. The proceeds of any such transaction are expected to be used to pay down the Company's Credit Line. F-18
MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) MID-AMERICA APARTMENT COMMUNITIES, INC. QUARTERLY FINANCIAL DATA (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, 1998 ------------------------------------------- FIRST SECOND THIRD FOURTH --------- ------- --------- ------- <S> <C> <C> <C> <C> Total revenues....................... $ 50,982 $51,113 $ 54,363 $59,085 Income before minority interest in operating partnership income and extraordinary item................. $ 7,467 $ 7,459 $ 7,764 $ 7,311 Minority interest in operating partnership income................. $ 421 $ 746 $ 610 $ 477 Extraordinary item, net of minority interest........................... $ (371) $ (619) $ -- $ -- Net income (loss) available for common shareholders................ $ 4,412 $ 3,818 $ 3,719 $ 3,378 Per share: Basic and diluted per share: Net income available per common shares Before extraordinary item....... $ 0.26 $ 0.24 $ 0.20 $ 0.18 Extraordinary item.............. $ (0.02) $ (0.04) $ -- $ -- --------- ------- --------- ------- Net income available per common share......................... $ 0.24 $ 0.20 $ 0.20 $ 0.18 ========= ======= ========= ======= Dividend declared.................... $ 0.55 $ 0.55 $ 0.55 $ 0.575 </TABLE> <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, 1998 ------------------------------------------- FIRST(1) SECOND(1) THIRD(1) FOURTH(1) --------- ------- --------- ------- <S> <C> <C> <C> <C> Total revenues....................... $ 29,839 $32,720 $ 34,395 $42,162 Income before minority interest in operating partnership income and extraordinary item................. $ 4,704 $ 5,461 $ 5,085 $ 7,292 Minority interest in operating partnership income................. $ 527 $ 651 $ 620 $ 895 Extraordinary item, net of minority interest........................... $ -- $ -- $ -- $(8,622) Net income (loss) available for common shareholder................. $ 2,990 $ 3,622 $ 3,278 $(3,915) Per share: Basic and diluted per share: Net income available per common shares Before extraordinary item....... $ 0.26 $ 0.27 $ 0.24 $ 0.27 Extraordinary item.............. $ -- $ -- $ -- $ (0.50) --------- ------- --------- ------- Net income available per common share......................... $ 0.26 $ 0.27 $ 0.24 $ (0.23) ========= ======= ========= ======= Dividend declared.................... $ 0.535 $ 0.535 $ 0.535 $ 0.55 </TABLE> - - ------------ (1) During the quarter ended December 31, 1997, the Operating Partnership Agreement was amended to eliminate, effective January 1, 1997, the additional allocation of income to the Class A Common unitholders. The amounts previously reported for prior quarters during 1997 have been restated for the effect of this amendment. The effect of this amendment was to increase net income available for shareholders approximately $315, $257 and $200 and to increase net income available per common share by $0.03, $0.02, and $0.02 for the first, second and third quarters of 1997. F-19
MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> GROSS AMOUNT CARRIED AT COST CAPITALIZED DECEMBER SUBSEQUENT TO 31, INITIAL COST ACQUISITION 1998(5) -------------------- ------------------ ------ BUILDING BUILDING AND AND PROPERTY NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND - - ------------------------------------- ------------------ ------------- -------- --------- ------ --------- ------ The Advantages....................... Jackson, MS -- (1) $ 422 $ 3,727 $ 0 $ 834 $ 422 <S> <C> <C> <C> <C> <C> <C> <C> McKellar Woods....................... Memphis, TN -- (8) 737 13,200 0 1,661 737 Pine Trails.......................... Clinton, MS $ 1,315 178 2,728 0 625 178 Reflection Pointe.................... Jackson, MS $ 5,882 710 8,770 140 2,313 850 Riverhills........................... Grenada, MS $ 819 153 2,092 0 275 153 Woodridge............................ Jackson, MS $ 4,735 471 5,522 0 369 471 Greenbrook........................... Memphis, TN -- (8) 2,100 24,468 25 6,034 2,125 Hamilton Pointe...................... Chattanooga, TN -- (1) 686 6,281 0 993 686 Hidden Creek......................... Chattanooga, TN -- (1) 895 8,098 0 1,218 895 Steeplechase......................... Hixson, TN -- (9) 217 1,957 0 1,174 217 Cedar Mill(7)........................ Memphis, TN -- (1 &(8) 475 6,546 0 1,323 475 Clearbrook Village................... Memphis, TN $ 1,091 260 3,658 0 612 260 Crossings............................ Memphis, TN -- (1) 554 2,216 0 551 554 Eastview............................. Memphis, TN $ 2,827 700 9,646 0 1,390 700 Gleneagles........................... Memphis, TN -- (1) 443 3,983 0 1,467 443 The Park Estate...................... Memphis, TN -- (8) 178 1,141 0 857 178 Winchester Square.................... Memphis, TN -- (1) 350 7,279 0 958 350 Post House North..................... Jackson, TN $ 3,585 381 4,299 0 716 381 Post House Jackson................... Jackson, TN $ 5,098 443 5,078 0 552 443 The Oaks............................. Jackson, TN -- (1) 177 1,594 0 640 177 The Corners.......................... Winston-Salem, NC $ 4,198 685 6,165 0 566 685 Park Haywood......................... Greenville, SC -- (9) 325 2,925 35 2,459 360 Hickory Farm......................... Memphis, TN -- (1) 580 5,220 0 465 580 Lakeshore Landing.................... Jackson, MS -- (1) 480 4,320 0 627 480 Woodstream........................... Greensboro, NC -- (2) 953 8,599 0 758 953 Stonemill Village.................... Louisville, KY -- (1) 1,169 10,518 0 1,239 1,169 Canyon Creek......................... St. Louis, MO -- (1) 880 7,923 220 1,691 1,100 Whispering Oaks...................... Little Rock, AR $ 3,000 506 4,551 0 1,552 506 Pear Orchard......................... Jackson, MS -- (9) 1,352 12,168 0 1,228 1,352 Celery Stalk......................... Dallas, TX $ 8,460 1,463 13,165 0 1,925 1,463 Lane at Towne Crossing............... Mesquite, TX -- (2) 1,038 9,338 0 1,187 1,038 Hollybrook........................... Dalton, GA $ 2,520 405 3,646 0 916 405 Green Tree Place..................... Woodlands, TX $ 3,180 539 4,850 0 623 539 MacArthur Ridge...................... Irving, TX -- (2) 1,131 10,183 0 612 1,131 Lincoln on the Green................. Memphis, TN -- (10) 1,498 13,484 0 854 1,498 Brentwood Downs...................... Nashville, TN $ 6,678 1,193 10,739 0 664 1,193 Shenandoah Ridge..................... Augusta, GA -- (9) 650 5,850 0 1,820 650 Westborough Crossing................. Katy, TX $ 3,958 677 6,091 0 681 677 Sailwinds at Lake Magdalene.......... Tampa, FL $ 15,950 2,212 19,909 0 7,748 2,212 <CAPTION> LIFE USED TO COMPUTE DEPRECIATION BUILDING IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY NAME FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(6) - - ------------------------------------- --------- --------- ------------ --------- ------------- ------------- The Advantages....................... $ 4,561 $ 4,983 (1,273) 3,710 1984 5 - 40 <S> <C> <C> <C> <C> <C> <C> McKellar Woods....................... 14,861 15,598 (2,768) 12,830 1976 5 - 40 Pine Trails.......................... 3,353 3,531 (1,209) 2,322 1978 5 - 40 Reflection Pointe.................... 11,083 11,933 (1,657) 10,276 1986 5 - 40 Riverhills........................... 2,367 2,520 (563) 1,957 1972 5 - 40 Woodridge............................ 5,891 6,362 (926) 5,436 1987 5 - 40 Greenbrook........................... 30,502 32,627 (5,132) 27,495 1986 5 - 40 Hamilton Pointe...................... 7,274 7,960 (1,315) 6,645 1989 5 - 40 Hidden Creek......................... 9,316 10,211 (2,743) 7,468 1987 5 - 40 Steeplechase......................... 3,131 3,348 (693) 2,655 1986 5 - 40 Cedar Mill(7)........................ 7,869 8,344 (1,638) 6,706 1973/1986 5 - 40 Clearbrook Village................... 4,270 4,530 (761) 3,769 1974 5 - 40 Crossings............................ 2,767 3,321 (749) 2,572 1974 5 - 40 Eastview............................. 11,036 11,736 (2,225) 9,511 1974 5 - 40 Gleneagles........................... 5,450 5,893 (1,810) 4,083 1975 5 - 40 The Park Estate...................... 1,998 2,176 (897) 1,279 1974 5 - 40 Winchester Square.................... 8,237 8,587 (1,499) 7,088 1973 5 - 40 Post House North..................... 5,015 5,396 (778) 4,618 1987 5 - 40 Post House Jackson................... 5,630 6,073 (885) 5,188 1987 5 - 40 The Oaks............................. 2,234 2,411 (419) 1,992 1978 5 - 40 The Corners.......................... 6,731 7,416 (1,161) 6,255 1982 5 - 40 Park Haywood......................... 5,384 5,744 (789) 4,955 1983 5 - 40 Hickory Farm......................... 5,685 6,265 (1,002) 5,263 1985 5 - 40 Lakeshore Landing.................... 4,947 5,427 (870) 4,557 1974 5 - 40 Woodstream........................... 9,357 10,310 (1,567) 8,743 1983 5 - 40 Stonemill Village.................... 11,757 12,926 (2,041) 10,885 1985 5 - 40 Canyon Creek......................... 9,614 10,714 (1,585) 9,129 1987 5 - 40 Whispering Oaks...................... 6,103 6,609 (1,083) 5,526 1978 5 - 40 Pear Orchard......................... 13,396 14,748 (2,252) 12,496 1985 5 - 40 Celery Stalk......................... 15,090 16,553 (2,426) 14,127 1978 5 - 40 Lane at Towne Crossing............... 10,525 11,563 (1,788) 9,775 1983 5 - 40 Hollybrook........................... 4,562 4,967 (718) 4,249 1972 5 - 40 Green Tree Place..................... 5,473 6,012 (890) 5,122 1984 5 - 40 MacArthur Ridge...................... 10,795 11,926 (1,710) 10,216 1991 5 - 40 Lincoln on the Green................. 14,338 15,836 (2,236) 13,600 1988 5 - 40 Brentwood Downs...................... 11,403 12,596 (1,852) 10,744 1986 5 - 40 Shenandoah Ridge..................... 7,670 8,320 (1,276) 7,044 1982 5 - 40 Westborough Crossing................. 6,772 7,449 (1,083) 6,366 1984 5 - 40 Sailwinds at Lake Magdalene.......... 27,657 29,869 (4,734) 25,135 1975 5 - 40 </TABLE> F-20
MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> GROSS AMOUNT CARRIED AT COST CAPITALIZED DECEMBER SUBSEQUENT TO 31, INITIAL COST ACQUISITION 1998(5) -------------------- ------------------ ------ BUILDING BUILDING AND AND PROPERTY NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND - - ------------------------------------- --------------------- ------------- -------- --------- ------ --------- ------ Woodbridge at the Lake............... Jacksonville, FL $ 3,600 645 5,804 0 903 645 <S> <C> <C> <C> <C> <C> <C> <C> Lakepointe........................... Lexington, KY -- (9) 411 3,699 0 622 411 The Mansion.......................... Lexington, KY $ 4,140 694 6,242 0 877 694 The Village.......................... Lexington, KY -- (9) 900 8,097 0 908 900 Cypresswood Court.................... Spring, TX $ 3,330 577 5,190 0 738 577 The Lodge at Timberglen.............. Dallas, TX $ 4,740 825 7,422 0 1,572 825 Calais Forest........................ Little Rock, AR $ 5,610 1,026 9,244 0 1,223 1,026 The Fairways......................... Columbia, SC $ 7,605 910 8,207 0 446 910 Kirby Station........................ Memphis, TN -- (9) 1,148 10,337 0 1,994 1,148 Belmere.............................. Tampa, FL -- (9) 851 7,667 0 1,036 851 Williamsburg Village................. Jackson, TN -- (9) 523 4,711 0 501 523 Fairways @ Royal Oak................. Cincinnati, OH -- (9) 814 7,335 0 796 814 Tanglewood........................... Anderson, SC $ 2,496 427 3,853 0 628 427 Woods at Post House.................. Jackson, TN $ 5,285 240 6,839 0 542 240 Somerset............................. Jackson, MS -- (9) 477 4,294 0 606 477 Highland Ridge....................... Greenville, SC -- (3) 482 4,337 0 406 482 Spring Creek......................... Greenville, SC -- (3) 597 5,374 0 420 597 St. Augustine........................ Jacksonville, FL -- (4) 2,858 6,475 0 1,765 2,858 Cooper's Hawk........................ Jacksonville, FL -- (4) 854 7,500 0 585 854 Marsh Oaks........................... Atlantic Beach, FL -- (9) 244 2,829 0 557 244 Park at Hermitage.................... Nashville, TN $ 7,985 1,524 14,800 0 1,338 1,524 Anatole.............................. Daytona Beach, FL $ 7,000 1,227 5,879 0 577 1,227 The Savannahs........................ Melbourne, FL -- (4) 582 7,868 0 976 582 Stassney Woods....................... Austin, TX $ 4,715 1,621 7,501 0 1,016 1,621 Travis Station....................... Austin, TX $ 4,165 2,282 6,169 0 857 2,282 Runaway Bay.......................... Mt. Pleasant, SC -- (3) 1,085 7,269 0 527 1,085 The Township......................... Hampton, VA $ 10,800 1,509 8,189 0 523 1,509 Lakeside............................. Jacksonville, FL -- (9) 1,431 12,883 288 2,287 1,719 Crosswinds........................... Jackson, MS -- (9) 1,535 13,826 0 935 1,535 Sutton Place......................... HornLake, MS -- (9) 894 8,053 0 678 894 Savannah Creek....................... Southaven, MS -- (9) 778 7,013 0 499 778 Napa Valley.......................... Little Rock, AR -- (9) 960 8,642 0 579 960 Tiffany Oaks......................... Altamonte Springs, FL -- (9) 1,024 9,219 0 692 1,024 Lincoln on the Green -- II........... Memphis, TN -- 0 6,999 0 6,974 0 Howell Commons....................... Greenville, SC -- (9) 1,304 11,740 0 508 1,304 Balcones Woods....................... Austin, TX $ 8,804 1,598 14,398 0 1,317 1,598 Westside Creek I..................... Little Rock, AR -- (9) 616 5,559 0 392 616 Fairways at Hartland................. Bowling Green, KY $ 4,627 1,038 9,342 0 620 1,038 Woodhollow........................... Jacksonville, FL $ 9,973 1,686 15,179 0 1,087 1,686 <CAPTION> LIFE USED TO COMPUTE DEPRECIATION BUILDING IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY NAME FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(6) - - ------------------------------------- --------- --------- ------------ --------- ------------- ------------- Woodbridge at the Lake............... 6,707 7,352 (1,065) 6,287 1985 5 - 40 <S> <C> <C> <C> <C> <C> <C> Lakepointe........................... 4,321 4,732 (694) 4,038 1986 5 - 40 The Mansion.......................... 7,119 7,813 (1,081) 6,732 1987 5 - 40 The Village.......................... 9,005 9,905 (1,442) 8,463 1989 5 - 40 Cypresswood Court.................... 5,928 6,505 (908) 5,597 1984 5 - 40 The Lodge at Timberglen.............. 8,994 9,819 (1,455) 8,364 1984 5 - 40 Calais Forest........................ 10,467 11,493 (1,606) 9,887 1987 5 - 40 The Fairways......................... 8,653 9,563 (1,288) 8,275 1992 5 - 40 Kirby Station........................ 12,331 13,479 (1,893) 11,586 1978 5 - 40 Belmere.............................. 8,703 9,554 (1,314) 8,240 1984 5 - 40 Williamsburg Village................. 5,212 5,735 (793) 4,942 1987 5 - 40 Fairways @ Royal Oak................. 8,131 8,945 (1,207) 7,738 1988 5 - 40 Tanglewood........................... 4,481 4,908 (657) 4,251 1980 5 - 40 Woods at Post House.................. 7,381 7,621 (1,371) 6,250 1995 5 - 40 Somerset............................. 4,900 5,377 (750) 4,627 1981 5 - 40 Highland Ridge....................... 4,743 5,225 (528) 4,697 1984 5 - 40 Spring Creek......................... 5,794 6,391 (663) 5,728 1984 5 - 40 St. Augustine........................ 8,240 11,098 (1,297) 9,801 1987 5 - 40 Cooper's Hawk........................ 8,085 8,939 (1,095) 7,844 1987 5 - 40 Marsh Oaks........................... 3,386 3,630 (468) 3,162 1986 5 - 40 Park at Hermitage.................... 16,138 17,662 (2,089) 15,573 1987 5 - 40 Anatole.............................. 6,456 7,683 (867) 6,816 1986 5 - 40 The Savannahs........................ 8,844 9,426 (1,163) 8,263 1990 5 - 40 Stassney Woods....................... 8,517 10,138 (1,140) 8,998 1985 5 - 40 Travis Station....................... 7,026 9,308 (910) 8,398 1987 5 - 40 Runaway Bay.......................... 7,796 8,881 (1,018) 7,863 1988 5 - 40 The Township......................... 8,712 10,221 (1,030) 9,191 1987 5 - 40 Lakeside............................. 15,170 16,889 (1,708) 15,181 1985 5 - 40 Crosswinds........................... 14,761 16,296 (1,319) 14,977 1988/1990 5 - 40 Sutton Place......................... 8,731 9,625 (782) 8,843 1991 5 - 40 Savannah Creek....................... 7,512 8,290 (665) 7,625 1989 5 - 40 Napa Valley.......................... 9,221 10,181 (722) 9,459 1984 5 - 40 Tiffany Oaks......................... 9,911 10,935 (724) 10,211 1985 5 - 40 Lincoln on the Green -- II........... 13,973 13,973 (680) 13,293 1997 5 - 40 Howell Commons....................... 12,248 13,552 (828) 12,724 1986/1988 5 - 40 Balcones Woods....................... 15,715 17,313 (1,001) 16,312 1983 5 - 40 Westside Creek I..................... 5,951 6,567 (372) 6,195 1984 5 - 40 Fairways at Hartland................. 9,962 11,000 (618) 10,382 1996 5 - 40 Woodhollow........................... 16,266 17,952 (1,048) 16,904 1986 5 - 40 </TABLE> F-21
MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> GROSS AMOUNT CARRIED AT COST CAPITALIZED DECEMBER SUBSEQUENT TO 31, INITIAL COST ACQUISITION 1998(5) -------------------- ------------------ ------ BUILDING BUILDING AND AND PROPERTY NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND - - ------------------------------------- ------------------ ------------- -------- --------- ------ --------- ------ The Woods............................ Austin, TX -- (2) 1,012 9,120 0 1,121 1,012 <S> <C> <C> <C> <C> <C> <C> <C> Hunters Ridge at Deerwood............ Jacksonville, FL -- (11) 1,533 13,835 0 159 1,533 Austin Chase......................... Macon, GA -- (11) 1,409 12,687 0 (503) 1,409 Westside Creek II.................... Little Rock, AR $ 4,918 654 5,904 0 230 654 Woodwinds............................ Aiken, SC $ 3,500 503 4,540 0 265 503 Hermitage at Beechtree............... Cary, NC -- (9) 900 8,099 0 539 900 Bradford Pointe (Sterling Ridge)..... Augusta, GA $ 4,760 772 6,949 0 301 772 Colony at SoutHPark.................. Aiken, SC -- (2) 757 6,820 0 337 757 Fountain Lake........................ Brunswick, GA $ 2,969 502 4,551 0 676 502 Hidden Lake I........................ Union City, GA $ 4,521 675 6,128 0 263 675 Hidden Lake II....................... Union City, GA -- (9) 621 5,587 0 154 621 Hidden Oaks I........................ Albany, GA -- 364 3,300 0 (333) 364 Hidden Oaks II....................... Albany, GA $ 2,429 306 2,774 0 (169) 306 High Ridge........................... Athens, GA -- (9) 884 7,958 0 170 884 Paddock Club Columbia I.............. Columbia, SC -- (2) 1,040 9,360 0 162 1,040 Paddock Club Huntsville.............. Huntsville, AL -- (2) 830 7,470 0 248 830 Paddock Club Jacksonville I.......... Jacksonville, FL -- (10) 963 8,739 0 133 963 Paddock Club Lakeland I.............. Lakeland, FL -- (10) 951 8,630 0 529 951 Paddock Club Lakeland II............. Lakeland, FL -- (10) 1,303 11,822 0 218 1,303 Paddock Club Tallahassee I........... Tallahassee, FL -- (2) 950 8,550 0 155 950 Paddock Park I....................... Ocala, FL $ 6,805 901 8,177 0 362 901 Paddock Park II...................... Ocala, FL -- (2) 1,383 12,547 0 372 1,383 Park Place........................... Spartanburg, SC -- (9) 723 6,504 0 482 723 Park Walk............................ College Park, GA $ 3,392 536 4,859 0 206 536 Regency Club......................... Albany, GA -- 198 1,795 0 (1,193) 198 River Trace I........................ Memphis, TN $ 5,743 881 7,996 0 388 881 River Trace II....................... Memphis, TN $ 5,664 741 6,727 0 254 741 Riverwind............................ Columbus, GA -- 108 979 0 179 108 Southland Station I.................. Warner Robins, GA -- (9) 777 6,992 0 383 777 Southland Station II................. Warner Robins, GA -- 693 6,292 0 87 693 Three Oaks I......................... Valdosta, GA $ 2,849 462 4,188 0 247 462 Three Oaks II........................ Valdosta, GA $ 2,933 460 4,170 0 170 460 The Vistas........................... Macon, GA $ 4,074 595 5,403 0 173 595 Westbury Creek....................... Augusta, GA $ 3,167 400 3,626 0 324 400 Westbury Springs..................... Lilburn, GA $ 4,249 665 6,038 0 311 665 Whispering Pines I................... LaGrange, GA $ 2,737 454 4,116 0 154 454 Whispering Pines II.................. LaGrange, GA $ 2,523 370 3,354 0 159 370 Whisperwood.......................... Columbus, GA -- (2) 2,330 20,970 0 890 2,330 Whisperwood Spa I.................... Columbus, GA -- (2) 1,510 13,590 0 234 1,510 <CAPTION> LIFE USED TO COMPUTE DEPRECIATION BUILDING IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY NAME FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(6) - - ------------------------------------- --------- --------- ------------ --------- ------------- ------------- The Woods............................ 10,241 11,253 (567) 10,686 1977 5 - 40 <S> <C> <C> <C> <C> <C> <C> Hunters Ridge at Deerwood............ 13,994 15,527 (102) 15,425 1987 5 - 40 Austin Chase......................... 12,184 13,593 (106) 13,487 1996 5 - 40 Westside Creek II.................... 6,134 6,788 (265) 6,523 1986 5 - 40 Woodwinds............................ 4,805 5,308 (208) 5,100 1988 5 - 40 Hermitage at Beechtree............... 8,638 9,538 (339) 9,199 1988 5 - 40 Bradford Pointe (Sterling Ridge)..... 7,250 8,022 (288) 7,734 1986 5 - 40 Colony at SoutHPark.................. 7,157 7,914 (268) 7,646 1989/1991 5 - 40 Fountain Lake........................ 5,227 5,729 (207) 5,522 1983 5 - 40 Hidden Lake I........................ 6,391 7,066 (240) 6,826 1985 5 - 40 Hidden Lake II....................... 5,741 6,362 (218) 6,144 1987 5 - 40 Hidden Oaks I........................ 2,967 3,331 (130) 3,201 1979 5 - 40 Hidden Oaks II....................... 2,605 2,911 (110) 2,801 1980 5 - 40 High Ridge........................... 8,128 9,012 (306) 8,706 1987 5 - 40 Paddock Club Columbia I.............. 9,522 10,562 (361) 10,201 1989 5 - 40 Paddock Club Huntsville.............. 7,718 8,548 (291) 8,257 1989 5 - 40 Paddock Club Jacksonville I.......... 8,872 9,835 (341) 9,494 1989 5 - 40 Paddock Club Lakeland I.............. 9,159 10,110 (344) 9,766 1988 5 - 40 Paddock Club Lakeland II............. 12,040 13,343 (457) 12,886 1990 5 - 40 Paddock Club Tallahassee I........... 8,705 9,655 (335) 9,320 1990 5 - 40 Paddock Park I....................... 8,539 9,440 (328) 9,112 1986 5 - 40 Paddock Park II...................... 12,919 14,302 (500) 13,802 1988 5 - 40 Park Place........................... 6,986 7,709 (259) 7,450 1987 5 - 40 Park Walk............................ 5,065 5,601 (190) 5,411 1985 5 - 40 Regency Club......................... 602 800 (73) 727 1983 5 - 40 River Trace I........................ 8,384 9,265 (315) 8,950 1981 5 - 40 River Trace II....................... 6,981 7,722 (265) 7,457 1985 5 - 40 Riverwind............................ 1,158 1,266 (40) 1,226 1983 5 - 40 Southland Station I.................. 7,375 8,152 (275) 7,877 1987 5 - 40 Southland Station II................. 6,379 7,072 (245) 6,827 1990 5 - 40 Three Oaks I......................... 4,435 4,897 (167) 4,730 1983 5 - 40 Three Oaks II........................ 4,340 4,800 (163) 4,637 1984 5 - 40 The Vistas........................... 5,576 6,171 (208) 5,963 1985 5 - 40 Westbury Creek....................... 3,950 4,350 (147) 4,203 1984 5 - 40 Westbury Springs..................... 6,349 7,014 (234) 6,780 1983 5 - 40 Whispering Pines I................... 4,270 4,724 (161) 4,563 1982 5 - 40 Whispering Pines II.................. 3,513 3,883 (131) 3,752 1984 5 - 40 Whisperwood.......................... 21,860 24,190 (821) 23,369 1981/1986 5 - 40 Whisperwood Spa I.................... 13,824 15,334 (530) 14,804 1988 5 - 40 </TABLE> F-22
MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> GROSS AMOUNT CARRIED AT COST CAPITALIZED DECEMBER SUBSEQUENT TO 31, INITIAL COST ACQUISITION 1998(5) ------------------- ---------------- ------- BUILDING BUILDING AND AND PROPERTY NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND - - ------------------------------------- --------------------- ------------- ------- --------- ----- -------- ------- Wildwood I........................... Thomasville, GA $ 2,074 438 3,971 0 81 438 <S> <C> <C> <C> <C> <C> <C> <C> Wildwood II.......................... Thomasville, GA $ 2,016 372 3,372 0 87 372 Willow Creek......................... Columbus, GA -- (9) 614 5,523 0 399 614 Windridge............................ Chattanooga, TN $ 5,477 817 7,416 0 169 817 2000 Wynnton......................... Columbus, GA -- 192 1,741 0 133 192 Paddock Club Tallahassee II.......... Tallahassee, FL $ 4,710 530 4,805 0 71 530 Paddock Club Jacksonville II......... Jacksonville, FL -- (10) 689 6,255 0 41 689 Paddock Club Columbia II............. Columbia, SC -- (2) 800 7,200 0 88 800 Paddock Club Florence................ Florence, KY $ 9,673 1,209 10,969 0 244 1,209 Paddock Club Greenville.............. Greenville, SC -- (2) 1,200 10,800 0 102 1,200 Paddock Club Brandon I............... Brandon, FL -- (2) 2,100 18,900 0 32 2,100 Terraces at Towne Lake I............. Woodstock, GA $ 15,191 1,689 15,321 0 19 1,689 Paddock Club Jacksonville III........ Jacksonville, FL -- (10) 642 5,756 0 113 642 Paddock Club Huntsville II........... Huntsville, AL -- (2) 909 10,152 0 8 909 Paddock Club Mandarin................ Jacksonville, FL -- (2) 1,410 14,967 0 54 1,410 Enclave at Whisperwood............... Columbus, GA -- (2) 450 8,162 0 11 450 Terraces at Fieldstone............... Conyers, GA -- (2) 1,284 15,655 0 6 1,284 Walden Run........................... McDonough, GA -- (2) 1,347 12,132 0 200 1,347 Abbington Place at SoutHPoint........ Huntsville, AL -- (2) 524 4,724 0 397 524 Eagle Ridge.......................... Birmingham, AL $ 6,402 851 7,667 0 132 851 Georgetown Grove..................... Savannah, GA $ 10,505 1,288 11,579 0 17 1,288 Courtyards at Campbell............... Dallas, TX -- (2) 988 8,893 0 65 988 Deer Run............................. Dallas, TX -- (2) 1,252 11,271 0 53 1,252 Highwood............................. Plano, TX -- (2) 864 7,783 0 71 864 Northwood Place...................... Arlington, TX -- (2) 746 6,716 0 129 746 Links at Carrollwood................. Tampa, FL $ 5,793 817 7,355 0 21 817 Island Retreat....................... St. Simons Island, GA $ 3,453 510 4,594 0 0 510 ------------- ------- --------- ----- -------- ------- Total Completed Communities................................. $ 300,698 122,111 1,102,736 708 103,264 122,819 ------------- ------- --------- ----- -------- ------- <CAPTION> LIFE USED TO COMPUTE DEPRECIATION BUILDING IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY NAME FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(6) - - ------------------------------------- -------- -------- ------------ --------- ------------- ------------- Wildwood I........................... 4,052 4,490 (154) 4,336 1980 5 - 40 <S> <C> <C> <C> <C> <C> <C> Wildwood II.......................... 3,459 3,831 (132) 3,699 1984 5 - 40 Willow Creek......................... 5,922 6,536 (221) 6,315 1971/1977 5 - 40 Windridge............................ 7,585 8,402 (290) 8,112 1984 5 - 40 2000 Wynnton......................... 1,874 2,066 (70) 1,996 1983 5 - 40 Paddock Club Tallahassee II.......... 4,876 5,406 (186) 5,220 1995 5 - 40 Paddock Club Jacksonville II......... 6,296 6,985 (240) 6,745 1996 5 - 40 Paddock Club Columbia II............. 7,288 8,088 (275) 7,813 1995 5 - 40 Paddock Club Florence................ 11,213 12,422 (425) 11,997 1994 5 - 40 Paddock Club Greenville.............. 10,902 12,102 (413) 11,689 1996 5 - 40 Paddock Club Brandon I............... 18,932 21,032 (722) 20,310 1997 5 - 40 Terraces at Towne Lake I............. 15,340 17,029 (584) 16,445 1997 5 - 40 Paddock Club Jacksonville III........ 5,869 6,511 (156) 6,355 1997 5 - 40 Paddock Club Huntsville II........... 10,160 11,069 (133) 10,936 1998 5 - 40 Paddock Club Mandarin................ 15,021 16,431 (202) 16,229 1998 5 - 40 Enclave at Whisperwood............... 8,173 8,623 (107) 8,516 1998 5 - 40 Terraces at Fieldstone............... 15,661 16,945 (75) 16,870 1998 5 - 40 Walden Run........................... 12,332 13,679 (396) 13,283 1997 5 - 40 Abbington Place at SoutHPoint........ 5,121 5,645 (144) 5,501 1987 5 - 40 Eagle Ridge.......................... 7,799 8,650 (182) 8,468 1986 5 - 40 Georgetown Grove..................... 11,596 12,884 (238) 12,646 1997 5 - 40 Courtyards at Campbell............... 8,958 9,946 (131) 9,815 1986 5 - 40 Deer Run............................. 11,324 12,576 (166) 12,410 1985 5 - 40 Highwood............................. 7,854 8,718 (115) 8,603 1983 5 - 40 Northwood Place...................... 6,845 7,591 (100) 7,491 1980 5 - 40 Links at Carrollwood................. 7,376 8,193 (63) 8,130 1980 5 - 40 Island Retreat....................... 4,594 5,104 (13) 5,091 1978 5 - 40 -------- -------- ------------ --------- Total Completed Communities.......... 1,206,000 1,328,819 (117,730) 1,211,089 -------- -------- ------------ --------- </TABLE> F-23
MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> GROSS AMOUNT CARRIED AT COST CAPITALIZED DECEMBER SUBSEQUENT TO 31, INITIAL COST ACQUISITION 1998(5) -------------------- ----------------- -------- BUILDING BUILDING AND AND PROPERTY NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES LAND - - ------------------------------------- ----------------- ------------- -------- --------- ------ -------- -------- CONSTRUCTION OF UNITS IN LEASE-UP: <S> <C> <C> <C> <C> <C> <C> <C> Reserve at Dexter Lake............... Memphis, TN -- (2) 519 4,671 9,907 519 Paddock Club Gainesville............. Gainesville, FL -- (2) 989 8,900 6,204 989 Terraces at Towne Lake II............ Woodstock, GA -- 400 3,600 7,177 400 Paddock Club Panama City............. Panama City, FL -- 185 1,668 9,996 185 ------------- -------- --------- ------ -------- -------- Total Construction of units in lease-up................. $ 0 $ 2,093 $ 18,839 $ 0 $ 33,284 $ 2,093 CONSTRUCTION OF UNITS IN PROCESS: Paddock Club Brandon II.............. Brandon, FL -- (2) 0 0 6,635 0 Paddock Club Montgomery I............ Montgomery, AL -- 0 0 9,840 0 Paddock Club Murfreesboro............ Murfreesboro, TN -- 0 0 4,279 0 Grand Reserve Lexington.............. Lexingon, KY -- 0 0 3,489 0 Grand View Nashville................. Nashville, TN -- 0 0 3,429 0 Paddock Club Melbourne............... Melbourne, FL -- 0 0 900 0 St. Augustine II..................... Jacksonville, FL -- 0 0 471 0 ------------- -------- --------- ------ -------- -------- Total Construction of Units in process.................. $ 0 $ 0 $ 0 $ 0 $ 29,043 $ 0 ------------- -------- --------- ------ -------- -------- Total Apartments........................................ $ 300,698 $124,204 $1,121,575 $ 708 $165,591 $124,912 ------------- -------- --------- ------ -------- -------- Land held for future development..... Various -- 3,392 4,551 725 3,113 4,117 Commercial properties................ Various $ 1,441 300 2,636 7,938 300 ------------- -------- --------- ------ -------- -------- Total other............................................. $ 1,441 3,692 7,187 725 11,051 4,417 ------------- -------- --------- ------ -------- -------- Total Real Estate Assets................................ $ 302,139 $127,896 $1,128,762 $1,433 $176,642 $129,329 ============= ======== ========= ====== ======== ======== <CAPTION> LIFE USED TO COMPUTE DEPRECIATION BUILDING IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY NAME FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(6) - - ------------------------------------- --------- --------- ------------ --------- ------------- ------------- CONSTRUCTION OF UNITS IN LEASE-UP: <S> <C> <C> <C> <C> <C> <C> Reserve at Dexter Lake............... 14,578 15,097 0 15,097 1999 5 - 40 Paddock Club Gainesville............. 15,104 16,093 (43) 16,050 1999 5 - 40 Terraces at Towne Lake II............ 10,777 11,177 0 11,177 1999 N/A Paddock Club Panama City............. 11,664 11,849 0 11,849 1999 N/A --------- --------- ------------ --------- Total Construction of units in lease- $ 52,123 $ 54,216 $ (43) $ 54,173 CONSTRUCTION OF UNITS IN PROCESS: Paddock Club Brandon II.............. 6,635 6,635 0 6,635 -- N/A Paddock Club Montgomery I............ 9,840 9,840 0 9,840 -- N/A Paddock Club Murfreesboro............ 4,279 4,279 0 4,279 -- N/A Grand Reserve Lexington.............. 3,489 3,489 0 3,489 -- N/A Grand View Nashville................. 3,429 3,429 0 3,429 -- N/A Paddock Club Melbourne............... 900 900 0 900 -- N/A St. Augustine II..................... 471 471 0 471 -- N/A --------- --------- ------------ --------- Total Construction of Units in proces $ 29,043 $ 29,043 $ 0 $ 29,043 --------- --------- ------------ --------- Total Apartments..................... $1,287,166 $1,412,078 ($ 117,773) $1,294,305 --------- --------- ------------ --------- Land held for future development..... 7,664 11,781 0 11,781 N/A N/A Commercial properties................ 10,574 10,874 (1,592) 9,282 Various 5 - 40 --------- --------- ------------ --------- Total other.......................... 18,238 22,655 (1,592) 21,063 --------- --------- ------------ --------- Total Real Estate Assets............. $1,305,404 $1,434,733 ($ 119,365) $1,315,368 ========= ========= ============ ========= </TABLE> - - ------------ Note: This schedule excludes the 1998 disposition of Redford Park, Conroe, TX. (1) These twelve properties are encumbered by a $43.4 million note payable with an interest rate of 8.65% at December 31, 1998, maturing July 1, 2001. (2) Encumbered by the Credit Line, with an outstanding balance of $117 million at December 31, 1998 and a variable interest rate of 7.00%. (3) These three properties are encumbered by a $10.1 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.09%. (4) These three properties are encumbered by a $16.4 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.75%. (5) The aggregate cost for Federal income tax purposes was approximately $1,600 million at December 31, 1998. The total gross amount of real estate assets for GAAP purposes exceeds the aggregate cost for Federal income tax purposes, principally due to purchase accounting adjustments recorded under generally accepted accounting principles. (6) Depreciation is on a straight line basis over the estimated useful asset life which ranges from 8 to 40 years for land improvements and buildings and 5 years for furniture, fixtures and equipment. (7) Includes adjacent 68-unit Mendenhall Townhomes. (8) These 4 properties, and one commercial building, are encumbered by a $35.8 million mortgage with a maturity of April 1, 2005. (9) These 26 communities are encumbered by a $142 million loan with a maturity of March 3, 2003 and an average interest rate of 6.376%. (10) These six communities are encumbered by a $47.5 million note payable with a maturity of December 15, 2004 and an interest rate of 7.04%. (11) These two properties are encumbered by a $14 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.281%. F-24
MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION A summary of activity for real estate investments and accumulated depreciation is as follows: <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ------------ ------------ ----------- <S> <C> <C> <C> (DOLLARS IN THOUSANDS) Real estate investments: Balance at beginning of year.... $ 1,211,693 $ 641,893 $ 578,788 Acquisitions.................... 91,895 140,858 66,258 Improvements and development.... 136,933 36,298 20,634 Assets acquired from business combination................... -- 392,644 -- Disposition of real estate assets........................ (5,788) -- (23,787) ------------ ------------ ----------- Balance at end of year.......... $ 1,434,733 $ 1,211,693 $ 641,893 ============ ============ =========== Accumulated depreciation: Balance at beginning of year.... $ 76,989 $ 49,558 $ 29,504 Depreciation.................... 41,556 27,431 21,249 Disposition of real estate assets........................ (772) -- (1,195) ------------ ------------ ----------- Balance at end of year.......... $ 117,773 $ 76,989 $ 49,558 ============ ============ =========== </TABLE> The Company's consolidated balance sheet at December 31, 1998 includes accumulated depreciation of $1,592 in the caption "Commercial properties, net". See accompanying independent auditor's report. F-25