Edgar Filing: MID AMERICA APARTMENT COMMUNITIES INC

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2011

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

For the transition period from ______ to ______

Commission File Number: 1-12762

MID-AMERICA APARTMENT COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)

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

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

(901) 682-6600

(Registrant's telephone number, including area code)

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þYes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

þ Yes ¨ No

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

Large accelerated filer þ	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes þ No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

	Number of Shares Outstanding
Class	at October 24, 2011
Common Stock, $0.01 par value	37,823,957

MID-AMERICA APARTMENT COMMUNITIES, INC.

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010 (Unaudited)	2
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 (Unaudited) and 2010 (Unaudited).	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 (Unaudited) and 2010 (Unaudited).	4
	Notes to Condensed Consolidated Financial Statements (Unaudited).	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	32
Item 4.	Controls and Procedures.	33
Item 4T.	Controls and Procedures.	33

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	33
Item 1A.	Risk Factors.	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	44
Item 3.	Defaults Upon Senior Securities.	44
Item 4.	(Removed and Reserved).	44
Item 5.	Other Information.	44
Item 6.	Exhibits.	45
	Signatures	46

MAA

Condensed Consolidated Balance Sheets

September 30, 2011 and December 31, 2010

(Unaudited)

(Dollars in thousands, except per share data)

	September 30, 2011			December 31, 2010
Assets:
Real estate assets:
Land	$	320,055		$	288,890
Buildings and improvements		2,794,902			2,538,205
Furniture, fixtures and equipment		90,708			83,251
Capital improvements in progress		35,332			11,501
		3,240,997			2,921,847
Less accumulated depreciation		(937,989	)		(863,936	)
		2,303,008			2,057,911

Land held for future development		1,306			1,306
Commercial properties, net		8,277			8,141
Investments in real estate joint ventures		17,190			17,505
Real estate assets, net		2,329,781			2,084,863

Cash and cash equivalents		24,254			45,942
Restricted cash		12,946			1,514
Deferred financing costs, net		14,134			13,713
Other assets		26,806			25,910
Goodwill		4,106			4,106
Total assets	$	2,412,027		$	2,176,048

Liabilities and Shareholders' Equity:
Liabilities:
Secured notes payable	$	1,452,889		$	1,500,193
Unsecured notes payable		135,000			-
Accounts payable		3,088			1,815
Fair market value of interest rate swaps		39,156			48,936
Accrued expenses and other liabilities		93,379			73,999
Security deposits		6,428			6,693
Liabilities associated with assets held for sale		-			20
Total liabilities		1,729,940			1,631,656

Redeemable stock		3,788			3,764

Shareholders' equity:
Common stock, $0.01 par value per share, 50,000,000 shares authorized; 37,823,972 and 34,871,399 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively (1)		378			348
Additional paid-in capital		1,310,469			1,142,023
Accumulated distributions in excess of net income		(614,762	)		(575,021	)
Accumulated other comprehensive losses		(41,584	)		(48,847	)
Total MAA shareholders' equity		654,501			518,503
Noncontrolling interest		23,798			22,125
Total equity		678,299			540,628
Total liabilities and equity	$	2,412,027		$	2,176,048

(1)

Number of shares issued and outstanding represent total shares of common stock regardless of classification on the consolidated balance sheet. The number of shares classified as redeemable stock on the consolidated balance sheet for September 30, 2011 and December 31, 2010 are 64,115 and 62,234, respectively.

See accompanying notes to consolidated financial statements.

MAA

Condensed Consolidated Statements of Operations

Three and nine months ended September 30, 2011 and 2010

(Unaudited)

(Dollars in thousands, except per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Operating revenues:
Rental revenues	$	105,913		$	92,388		$	304,282		$	272,856
Other property revenues		9,649			8,307			28,133			22,923
Total property revenues		115,562			100,695			332,415			295,779
Management fee income		265			186			751			477
Total operating revenues		115,827			100,881			333,166			296,256
Property operating expenses:
Personnel		14,195			12,959			40,858			37,849
Building repairs and maintenance		4,733			4,352			11,868			11,288
Real estate taxes and insurance		12,968			11,015			37,969			34,135
Utilities		7,579			6,629			20,086			17,829
Landscaping		2,771			2,548			8,155			7,548
Other operating		8,672			7,378			24,709			19,881
Depreciation and amortization		29,343			26,333			84,972			76,094
Total property operating expenses		80,261			71,214			228,617			204,624
Acquisition expenses		592			989			2,331			1,451
Property management expenses		4,904			4,547			15,242			13,303
General and administrative expenses		3,996			2,957			14,045			8,878
Income from continuing operations before non-operating items		26,074			21,174			72,931			68,000
Interest and other non-property income		108			217			457			618
Interest expense		(15,487	)		(13,587	)		(43,615	)		(41,450	)
Loss on debt extinguishment		(63	)		-			(111	)		-
Amortization of deferred financing costs		(724	)		(675	)		(2,146	)		(1,918	)
Asset impairment		-			(324	)		-			(1,914	)
Net casualty (loss) gains and other settlement proceeds		(286	)		72			(692	)		330
Loss on sale of non-depreciable assets		-			-			(6	)		-
Gain on properties contributed to joint ventures		-			278			-			649
Income from continuing operations before loss from real estate joint ventures		9,622			7,155			26,818			24,315
Loss from real estate joint ventures		(107	)		(282	)		(530	)		(856	)
Income from continuing operations		9,515			6,873			26,288			23,459
Discontinued operations:
Income from discontinued operations before loss on sale		9			100			78			253
Net loss on insurance and other settlement proceeds on discontinued operations		-			-			(7	)		-
Gain (loss) on sale of discontinued operations		4,927			-			4,927			(2	)
Consolidated net income		14,451			6,973			31,286			23,710
Net income attributable to noncontrolling interests		660			224			1,223			889
Net income attributable to MAA		13,791			6,749			30,063			22,821
Preferred dividend distributions		-			629			-			6,549
Premiums and original issuance costs associated with the redemption of preferred stock		-			2,576			-			5,149
Net income available for common shareholders	$	13,791		$	3,544		$	30,063		$	11,123

Earnings per common share - basic:
Income from continuing operations available for common shareholders	$	0.24		$	0.11		$	0.68		$	0.35
Discontinued property operations		0.13			-			0.14			0.01
Net income available for common shareholders	$	0.37		$	0.11		$	0.82		$	0.36

Earnings per share - diluted:
Income from continuing operations available for common shareholders	$	0.24		$	0.11		$	0.68		$	0.35
Discontinued property operations		0.13			-			0.13			0.01
Net income available for common shareholders	$	0.37		$	0.11		$	0.81		$	0.36

Dividends declared per common share	$	0.6275		$	0.6150		$	1.8825		$	1.8450

See accompanying notes to consolidated financial statements.

MAA

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2011 and 2010

(Unaudited)

(Dollars in thousands)

	2011			2010
Cash flows from operating activities:
Consolidated net income	$	31,286		$	23,710
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		87,475			78,407
Stock compensation expense		4,445			1,915
Redeemable stock issued		397			296
Amortization of debt premium		(270	)		(270	)
Loss from investments in real estate joint ventures		530			856
Loss on debt extinguishment		111			-
Derivative interest expense		407			405
Loss on sale of non-depreciable assets		6			-
Loss (gain) on sale of discontinued operations		(4,927	)		2
Asset impairment		-			1,914
Net casualty loss (gains) and other settlement proceeds		692			(330	)
Gain on properties contributed to joint ventures		-			(649	)
Changes in assets and liabilities:
Restricted cash		(669	)		(1,865	)
Other assets		(3,276	)		(4,351	)
Accounts payable		1,262			399
Accrued expenses and other		12,007			7,775
Security deposits		(265	)		(1,546	)
Net cash provided by operating activities		129,211			106,668
Cash flows from investing activities:
Purchases of real estate and other assets		(261,948	)		(215,068	)
Improvements to existing real estate assets		(38,435	)		(30,842	)
Renovations to existing real estate assets		(9,586	)		(5,643	)
Development		(21,921	)		-
Distributions from real estate joint ventures		1,158			1,607
Contributions to real estate joint ventures		(1,387	)		(9,739	)
Proceeds from disposition of real estate assets		10,934			71,421
Net cash used in investing activities		(321,185	)		(188,264	)
Cash flows from financing activities:
Net change in credit lines		(95,000	)		15,000
Proceeds from notes payable		285,350			137,881
Principal payments on notes payable		(102,384	)		(1,004	)
Funding of escrow for future principal payments on notes payable		(10,763	)		-
Payment of deferred financing costs		(2,650	)		(7,122	)
Repurchase of common stock		(2,471	)		(891	)
Proceeds from issuances of common shares		170,515			247,104
Distributions to noncontrolling interests		(3,980	)		(4,284	)
Dividends paid on common shares		(68,331	)		(56,172	)
Dividends paid on preferred shares		-			(7,622	)
Redemption of preferred stock		-			(155,022	)
Net cash provided by financing activities		170,286			167,868
Net (decrease) increase in cash and cash equivalents		(21,688	)		86,272
Cash and cash equivalents, beginning of period		45,942			13,819
Cash and cash equivalents, end of period	$	24,254		$	100,091

Supplemental disclosure of cash flow information:
Interest paid	$	43,230		$	41,718
Supplemental disclosure of noncash investing and financing activities:
Conversion of units to shares of common stock	$	3,004		$	1,219
Accrued construction in progress	$	8,864		$	2,165
Interest capitalized	$	720		$	-
Marked-to-market adjustment on derivative instruments	$	7,120		$	(14,444	)
Reclassification of redeemable stock to liabilities	$	152		$	271

See accompanying notes to consolidated financial statements.

Mid-America Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2011 and 2010

(Unaudited)

1. Consolidation and Basis of Presentation and Significant Accounting Policies

Consolidation and Basis of Presentation

Mid-America Apartment Communities, Inc., or we, or MAA, is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops and manages apartment communities in the Sunbelt region of the United States. As of September 30, 2011, we owned or owned interests in a total of 165 multifamily apartment communities comprising 48,626 apartments located in 13 states, including two communities comprising 626 apartments owned through our joint venture, Mid-America Multifamily Fund I, LLC, and five communities comprising 1,635 apartments owned through our joint venture, Mid-America Multifamily Fund II, LLC. In addition, we also had two development communities and a second phase to an existing community under construction totaling 950 units as of September 30, 2011. No units for the development projects were completed as of September 30, 2011, and they are therefore not included in the totals above.

The accompanying unaudited condensed consolidated financial statements have been prepared by our management in accordance with United States. generally accepted accounting principles, or GAAP, for interim financial information and applicable rules and regulations of the Securities and Exchange Commission, or the SEC, and our accounting policies as set forth in our December 31, 2010 annual consolidated financial statements. The accompanying unaudited condensed consolidated financial statements include the accounts of MAA and its subsidiaries, including Mid-America Apartments, L.P. In our opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included and all such adjustments were of a normal recurring nature except for those disclosed below. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine month periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on February 24, 2011.

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

Out of Period Adjustment

In the nine months ended September 30, 2011, we recorded a $1.8 million non-cash adjustment to general and administrative expenses related to restricted stock grants issued to certain employees. This adjustment was made during the second quarter of 2011. This error correction represents a cumulative adjustment for the 3.5 year period ended June 30, 2011, required by Accounting Standards Codification, or ASC, 718 to record expense under certain of our restricted stock grant based incentive plans using liability accounting rather than treating these grants as equity awards. We deemed the out of period portion of this adjustment to be immaterial to all periods presented. Liability accounting is required as a result of a past practice by MAA which allowed participants to sell shares of vested restricted stock back to MAA in excess of the amount required to cover the participant’s taxes upon vesting of the shares. This practice was discontinued after the end of the second quarter.

Earnings per Common Share

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two class method of computing basic earnings per share. Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis with our diluted earnings per share being the more dilutive of the treasury stock or two class methods. Operating partnership units are included in dilutive earnings per share calculations when they are dilutive to earnings per share. For the three and nine month periods ended September 30, 2011 and 2010, our basic earnings per share is computed using the two class method and our diluted earnings per share is computed using the treasury stock method as follows (dollars and shares in thousands, except per share amounts):

	For the three months ended						For the nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Shares Outstanding
Weighted average common shares - basic		37,274			33,312			36,611			31,039
Weighted average partnership units outstanding		-	(1)		-	(1)		2,009			-	(1)
Effect of dilutive securities		81			101			102			101
Weighted average common shares - diluted		37,355			33,413			38,722			31,140

Calculation of Earnings per Share - basic
Net income available for common shareholders	$	13,791		$	3,544		$	30,063		$	11,123
Net income allocated to unvested restricted shares		(18	)		(19	)		(30	)		(62	)
Net income available for common shareholders, adjusted	$	13,773		$	3,525		$	30,033		$	11,061

Weighted average common shares - basic		37,274			33,312			36,611			31,039
Earnings per share - basic	$	0.37		$	0.11		$	0.82		$	0.36

Calculation of Earnings per Share - diluted
Net income available for common shareholders	$	13,791		$	3,544		$	30,063		$	11,123
Net income attributable to noncontrolling interests		-	(1)		-	(1)		1,223			-	(1)
Adjusted net income available for common shareholders	$	13,791		$	3,544		$	31,286		$	11,123

Weighted average common shares - diluted		37,355			33,413			38,722			31,140
Earnings per share - diluted	$	0.37		$	0.11		$	0.81		$	0.36

(1) Operating partnership units are not included in dilutive earnings per share calculations for the three month period ended September 30, 2011, or the three or nine month periods ended September 30, 2010, as they were not dilutive.

2. Segment Information

As of September 30, 2011, we owned or had an ownership interest in 165 multifamily apartment communities in 13 different states from which we derived all significant sources of earnings and operating cash flows. Senior management evaluates performance and determines resource allocations by reviewing apartment communities individually and in the following reportable operating segments:

Large market same store communities are generally communities in markets with a population of at least 1 million that we have owned and have been stabilized for at least a full 12 months and have not been classified as held for sale.

Secondary market same store communities are generally communities in markets with populations of less than 1 million that we have owned and have been stabilized for at least a full 12 months and have not been classified as held for sale.

Non same store communities and other includes recent acquisitions, communities in development or lease-up and communities that have been classified as held for sale. The non same store communities also include non-multifamily activities, which represent less than 1% of our portfolio.

On the first day of each calendar year, we determine the composition of our same store operating segments for that year, which allows us to evaluate full period-over-period operating comparisons. We utilize net operating income, or NOI, in evaluating the performance of the segments. Total NOI represents total property revenues less total property operating expenses, excluding depreciation and amortization, for all properties held during the period regardless of their status as held for sale. We believe NOI is a helpful tool in evaluating the operating performance of our segments because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance.

Revenues and NOI for each reportable segment for the three and nine month periods ended September 30, 2011 and 2010, were as follows (dollars in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues
Large Market Same Store	$	51,428		$	48,860		$	151,825		$	145,596
Secondary Market Same Store		47,674			45,004			140,773			134,049
Non-Same Store and Other		16,460			6,831			39,817			16,134
Total property revenues		115,562			100,695			332,415			295,779
Management fee income		265			186			751			477
Total operating revenues	$	115,827		$	100,881		$	333,166		$	296,256

NOI
Large Market Same Store	$	28,707		$	27,312		$	86,053		$	82,392
Secondary Market Same Store		26,790			25,184			80,854			76,545
Non-Same Store and Other		9,247			3,564			22,318			8,994
Total NOI		64,744			56,060			189,225			167,931
Discontinued operations NOI included above		(100	)		(246	)		(455	)		(682	)
Management fee income		265			186			751			477
Depreciation and amortization		(29,343	)		(26,333	)		(84,972	)		(76,094	)
Acquisition expense		(592	)		(989	)		(2,331	)		(1,451	)
Property management expense		(4,904	)		(4,547	)		(15,242	)		(13,303	)
General and administrative expense		(3,996	)		(2,957	)		(14,045	)		(8,878	)
Interest and other non-property income		108			217			457			618
Interest expense		(15,487	)		(13,587	)		(43,615	)		(41,450	)
Loss on debt extinguishment		(63	)		-			(111	)		-
Amortization of deferred financing costs		(724	)		(675	)		(2,146	)		(1,918	)
Asset impairment		-			(324	)		-			(1,914	)
Net casualty gains (loss) and other settlement proceeds		(286	)		72			(692	)		330
Loss on sale of non-depreciable assets		-			-			(6	)		-
Gain on properties contributed to joint ventures		-			278			-			649
Loss from real estate joint ventures		(107	)		(282	)		(530	)		(856	)
Discontinued operations		4,936			100			4,998			251
Net income attributable to noncontrolling interests		(660	)		(224	)		(1,223	)		(889	)
Net income attributable to MAA	$	13,791		$	6,749		$	30,063		$	22,821

Assets for each reportable segment as of September 30, 2011 and December 31, 2010, were as follows (dollars in thousands):

	September 30,		December 31,
	2011		2010
Assets
Large Market Same Store	$	1,025,806	$	1,044,321
Secondary Market Same Store		675,594		683,389
Non-Same Store and Other		659,344		359,606
Corporate assets		51,283		88,732
Total assets	$	2,412,027	$	2,176,048

3. Comprehensive Income and Equity

Total comprehensive income, equity and their components for the nine month periods ended September 30, 2011, and 2010, were as follows (dollars in thousands, except per share and per unit data):

	Mid-America Apartment Communities, Inc. Shareholders
								Accumulated			Accumulated
	Preferred		Common		Additional			Distributions			Other
	Stock		Stock		Paid-In			in Excess of			Comprehensive			Noncontrolling			Total
	Amount		Amount		Capital			Net Income			Income (Loss)			Interest			Equity
EQUITY BALANCE DECEMBER 31, 2010	$	-	$	348	$	1,142,023		$	(575,021	)	$	(48,847	)	$	22,125		$	540,628
Comprehensive income:
Net income									30,063						1,223			31,286
Other comprehensive income - derivative instruments (cash flow hedges)												7,263			264			7,527
Comprehensive income																		38,813
Issuance and registration of common shares				27		170,079												170,106
Shares repurchased and retired						(2,471	)											(2,471	)
Exercise of stock options						407												407
Shares issued in exchange for units				3		3,001									(3,004	)		-
Redeemable stock fair market value									223									223
Adjustment for Noncontrolling Interest Ownership in operating partnership						(7,015	)								7,015			-
Amortization of unearned compensation						4,445												4,445
Dividends on common stock ($1.8825 per share)									(70,027	)					-			(70,027	)
Dividends on noncontrolling interest units ($1.8825 per unit)															(3,825	)		(3,825	)
Redemption of preferred stock																		-
Dividends on preferred stock																		-
EQUITY BALANCE SEPTEMBER 30, 2011	$	-	$	378	$	1,310,469		$	(614,762	)	$	(41,584	)	$	23,798		$	678,299

	Mid-America Apartment Communities, Inc. Shareholders
									Accumulated			Accumulated
	Preferred			Common		Additional			Distributions			Other
	Stock			Stock		Paid-In			in Excess of			Comprehensive			Noncontrolling			Total
	Amount			Amount		Capital			Net Income			Income (Loss)			Interest			Equity
EQUITY BALANCE DECEMBER 31, 2009	$	62		$	290	$	988,642		$	(510,993	)	$	(47,435	)	$	22,660		$	453,226
Comprehensive income:
Net income										22,821						889			23,710
Other comprehensive income - derivative instruments (cash flow hedges)													(13,540	)		(500	)		(14,040	)
Comprehensive income																			9,670
Issuance and registration of common shares					48		246,960												247,008
Shares repurchased and retired							(891	)											(891	)
Exercise of stock options							89												89
Shares issued in exchange for units							1,219									(1,219	)		-
Redeemable stock fair market value										(539	)								(539	)
Adjustment for Noncontrolling Interest Ownership in operating partnership							(2,418	)								2,418			-
Amortization of unearned compensation							1,907												1,907
Dividends on common stock ($1.8450 per share)										(59,201	)								(59,201	)
Dividends on noncontrolling interest units ($1.8450 per unit)																(4,215	)		(4,215	)
Redemption of preferred stock		(62	)				(149,811	)		(5,149	)								(155,022	)
Dividends on preferred stock										(6,549	)								(6,549	)
EQUITY BALANCE SEPTEMBER 31, 2010	$	-		$	338	$	1,085,697		$	(559,610	)	$	(60,975	)	$	20,033		$	485,483

4. Real Estate Acquisitions

The following communities were purchased during the quarter ended September 30, 2011:

	Location	Number
Community	(Metropolitan Statistical Area (MSA))	of Units	Date Purchased
100% Owned Communities

Birchall at Ross Bridge	Hoover, AL (Birmingham)	240	August 25, 2011
Legends at Lowe's Farm	Mansfield, TX (Dallas)	456	September 19, 2011

The acquisitions were funded by common stock issuances through our at-the-market program and borrowings under our current credit facilities.

On August 27, 2008, we purchased 215 units of the 234-unit Village Oaks apartments located in the Tampa, Florida MSA. The remaining 19 units had previously been sold as condominiums and we intend to acquire these units if they become available, and operate them as apartment rentals with the rest of the community. During the remainder of 2008 and during 2009 and 2010, we acquired 14 of the remaining 19 units. On both August 30, 2011 and September 29, 2011, we acquired one additional unit.

During the nine months ended September 30, 2011, we acquired properties totaling 2,277 units for a total purchase price of $264.6 million, which includes land acquired for future development. These acquisitions account for $8.6 million of consolidated revenue as reported and $1.4 million included in the total consolidated net income for the nine months ended September 30, 2011. The unaudited pro forma information set forth below is based on the Company’s historical Consolidated Statement of Operations for the nine months ended September 30, 2011 and 2010, adjusted to give effect to these transactions at the beginning of the earliest year presented. Pro forma results are not necessarily indicative of future results.

	Pro forma (Unaudited)
	Period Ended September 30,
	(in thousands, except per share data)
	2011		2010
Total Revenue (1)		345,367		315,652

Net Income available to common shareholders (1)		33,491		10,540

Earnings per share, diluted (1)	$	0.87	$	0.31

(1) Pro forma adjustments for certain acquisitions are excluded as they had no pre-acquisition operating activity in 2010 or 2011. This includes the purchase of land for development projects.

5. Discontinued Operations

As part of our portfolio strategy to selectively dispose of mature assets that no longer meet our investment criteria and long-term strategic objectives, and in accordance with accounting standards governing the disposal of long lived assets, the 260-unit Lodge at Timberglen apartments in Dallas, Texas is considered a discontinued operation in the accompanying condensed consolidated financial statements. This property was sold on August 16, 2011, and resulted in a gain of $4.927 million, which is included in discontinued operations.

The following is a summary of discontinued operations for the three and nine month periods ended September 30, 2011 and 2010, (dollars in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011			2010
Revenues
Rental revenues	$	233	$	454	$	1,109		$	1,343
Other revenues		27		49		129			150
Total revenues		260		503		1,238			1,493
Expenses
Property operating expenses		160		259		784			813
Depreciation		90		133		357			395
Interest expense		1		11		19			32
Total expense		251		403		1,160			1,240
Income from discontinued operations before gain on sale		9		100		78			253
Net loss on insurance and other settlement proceeds on discontinued operations		-		-		(7	)		-
Gain (loss) on sale of discontinued operations		4,927		-		4,927			(2	)
Income from discontinued operations	$	4,936	$	100	$	4,998		$	251

6. Share and Unit Information

On September 30, 2011, 37,823,972 common shares and 1,942,275 operating partnership units were issued and outstanding, representing a total of 39,766,247 shares and units. At September 30, 2010, 33,898,029 common shares and 2,195,654 operating partnership units were outstanding, representing a total of 36,093,683 shares and units. Additionally, MAA had outstanding options for the purchase of 19,357 shares of common stock at September 30, 2010. There were no outstanding options at September 30, 2011.

On November 3, 2006, we entered into a sales agreement with Cantor Fitzgerald & Co. to sell up to 2,000,000 shares of our common stock, from time to time in at-the-market, or ATM, offerings or negotiated transactions through a controlled equity offering program. On July 3, 2008, and November 5, 2009, we entered into second and third sales agreements with Cantor Fitzgerald & Co. with materially the same terms for an additional 1,350,000 shares and 4,000,000 shares, respectively. On August 26, 2010, we entered into sales agreements with Cantor Fitzgerald & Co., Raymond James & Associates, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated with materially the same terms as our previous ATM agreements for a combined total of 6,000,000 shares of our common stock.

During the three and nine month periods ended September 30, 2011, we issued 656,500 shares and 2,178,973 shares of common stock, respectively, through our ATM programs for net proceeds of $44.2 million and $139.5 million, respectively. During the three and nine month periods ended September 30, 2010, we issued a total of 1,039,400 shares and 4,114,000 shares of common stock, respectively through our ATM programs for net proceeds of $55.0 million and $216.5 million, respectively.

During the three and nine month periods ended September 30, 2011, we issued 100 shares and 495,487 shares of common stock, respectively, through the optional cash purchase feature of our Dividend and Distribution Reinvestment and Share Purchase Program, or DRSPP. The issuances resulted in net proceeds of $7,000 and $30.0 million, respectively. During the three and nine month periods ended September 30, 2010, we issued 551,208 shares and 551,729 shares of common stock, respectively, through our DRSPP resulting in net proceeds of $30.0 million and $30.0 million, respectively.

During the three months ended March 31, 2011, 25,082 shares of MAA’s common stock were acquired from employees to satisfy tax withholding obligations that arose upon vesting of restricted stock granted pursuant to approved plans. No such acquisitions occurred during the three month period ended September 30, 2011.

7. Notes Payable

On September 30, 2011 and December 31, 2010, we had total indebtedness of $1,587,889,000 and $1,500,193,000, respectively. Our indebtedness as of September 30, 2011 consisted of both conventional and tax exempt debt. Borrowings were made through individual property mortgages as well as company-wide secured credit facilities.

On June 1, 2011, we paid off our $100 million credit facility with Financial Federal, which was credit enhanced by the Federal Home Loan Mortgage Corporation, or Freddie Mac, and was scheduled to mature on July 1, 2011. Also on June 1, 2011, we closed on a ten-year $128 million note through an insurance company. The note has a fixed interest rate of 5.08%.

On July 29, 2011, we issued $135 million of Senior Unsecured Notes. The notes were offered in a private placement with three maturity tranches: $50.00 million 7-year maturity at 4.68%, $72.75 million 10-year maturity at 5.40%, and $12.25 million 12-year maturity at 5.57%. The notes have an average maturity of 8.9 years and an average interest rate of 5.15%.

As of September 30, 2011, approximately 68% of our outstanding debt was borrowed through secured credit facility relationships with Prudential Mortgage Capital, which are credit enhanced by the Federal National Mortgage Association, or FNMA, Financial Federal, which are credit enhanced by Freddie Mac, and a $50 million bank facility with a syndicate of banks.

We utilize interest rate swaps and interest rate caps to help manage our current and future interest rate risk and entered into 24 interest rate swaps and 21 interest rate caps as of September 30, 2011, representing notional amounts of $601,800,000 and $270,651,000, respectively.

The following table summarizes our outstanding debt structure as of September 30, 2011 (dollars in thousands):

	Borrowed		Effective			Contract
	Balance		Rate			Maturity
Fixed Rate Secured Debt
Individual property mortgages	$	353,894		5.0	%	7/3/2020
Tax-exempt		10,715		5.3	%	12/1/2028
FNMA conventional credit facilities		50,000		4.7	%	3/31/2017
Credit facility balances managed with interest rate swaps
LIBOR-based interest rate swaps		584,000		5.2	%	7/11/2013
SIFMA-based interest rate swaps		17,800		4.4	%	10/15/2012
Total fixed rate secured debt		1,016,409		5.1	%	4/15/2016

Variable Rate Secured Debt (1)
FNMA conventional credit facilities		284,318		0.7	%	12/1/2014
FNMA tax-free credit facilities		72,715		1.0	%	7/23/2031
Freddie Mac credit facilities		64,247		0.7	%	7/1/2014
Freddie Mac mortgage		15,200		3.5	%	12/10/2015
Total variable rate secured debt		436,480		0.9	%	8/30/2017

Total Secured Debt	$	1,452,889		3.8	%	9/12/2016

Unsecured Debt
Senior Unsecured Notes		135,000		5.1	%	8/23/2020
Total Unsecured Debt	$	135,000		5.1	%	8/23/2020

Total Outstanding Debt	$	1,587,889		3.9	%	1/13/2017

(1) Includes capped balances.

8. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

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

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and nine months ended September 30, 2011 and 2010, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended September 30, 2011 and 2010, we recorded ineffectiveness of $91,000 and $86,000, respectively, and during the nine months ended September 30, 2011 and 2010, $186,000 and $346,000, respectively, as an increase to interest expense attributable to a mismatch in the underlying indices of the derivatives and the hedged interest payments made on our variable-rate debt.

During the nine months ended September 30, 2011, we also had eight interest rate caps with a total notional amount of $51.2 million, (two of these caps with a collective notional amount of $19.5 million matured during the first quarter of 2011), where only the changes in intrinsic value are recorded in accumulated other comprehensive income. Changes in fair value of these interest rate caps due to changes in time value (e.g. volatility, passage of time, etc.) are excluded from effectiveness testing and are recognized directly in earnings. During the three months ended September 30, 2011 and 2010, we recorded a loss of less than $1,000 and a loss of $7,000, respectively, and during the nine months ended September 30, 2011 and 2010, a loss of $7,000 and $37,000, respectively, due to changes in the time value of these interest rate caps.

Amounts reported in accumulated other comprehensive income related to derivatives designated in qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next twelve months, we estimate that an additional $20.4 million will be reclassified to earnings as an increase to interest expense, which primarily represents the difference between our fixed interest rate swap payments and the projected variable interest rate swap payments.

As of September 30, 2011 we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate Derivative	Number of Instruments		Notional
Interest Rate Caps		21	$	270,651,000
Interest Rate Swaps		24	$	601,800,000

Non-designated Hedges

We do not use derivatives for trading or speculative purposes and currently do not have any derivatives that are not designated as qualifying accounting hedges under ASC, 815.

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of our derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of September 30, 2011 and December 31, 2010, respectively:

Fair Values of Derivative Instruments on the Consolidated Balance Sheet as of September 30, 2011 and December 31, 2010 (dollars in thousands)

	Asset Derivatives					Liability Derivative
		30-Sep-11		31-Dec-10		Balance	30-Sep-11		31-Dec-10
Derivatives designated as hedging instruments	Balance Sheet Location	Fair Value		Fair Value		Sheet Location	Fair Value		Fair Value

Interest rate contracts	Other assets	$	1,048	$	3,641	Fair market value of interest rate swaps	$	39,156	$	48,936

Total derivatives designated as hedging instruments		$	1,048	$	3,641		$	39,156	$	48,936

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Operations

The tables below present the effect of our derivative financial instruments on the Consolidated Statement of Operations for the three and nine months ended September 30, 2011 and 2010, respectively.

Effect of Derivative Instruments on the Consolidated Statement of Operations for the

Three and Nine Months Ended September 30, 2011 and 2010 (dollars in thousands)

Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Gain or (Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	2011			2010				2011			2010				2011			2010

Three months ended September 30,

Interest rate contracts	$	(5,953	)	$	(12,241	)	Interest expense	$	(6,671	)	$	(7,964	)	Interest expense	$	(91	)	$	(93	)

Total derivatives in cash flow hedging relationships	$	(5,953	)	$	(12,241	)		$	(6,671	)	$	(7,964	)		$	(91	)	$	(93	)

Nine months ended September 30,

Interest rate contracts	$	(14,155	)	$	(40,030	)	Interest expense	$	(21,683	)	$	(25,991	)	Interest expense	$	(193	)	$	(383	)

Total derivatives in cash flow hedging relationships	$	(14,155	)	$	(40,030	)		$	(21,683	)	$	(25,991	)		$	(193	)	$	(383	)

Credit-risk-related Contingent Features

As of September 30, 2011, derivatives that were in a net liability position and subject to credit-risk-related contingent features had a termination value of $43.0 million, which includes accrued interest but excludes any adjustment for nonperformance risk. These derivatives had a fair value, gross of asset positions, of $39.2 million at September 30, 2011.

Certain of our derivative contracts contain a provision where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of September 30, 2011, we had not breached the provisions of these agreements. If we had breached these provisions, we could have been required to settle our obligations under the agreements at their termination value of $19.7 million.

Certain of our derivative contracts are credit enhanced by either FNMA or Freddie Mac. These derivative contracts require that our credit enhancing party maintain credit ratings above a certain level. If our credit support providers were downgraded below Baa1 by Moody’s or BBB+ by Standard & Poor’s, or S&P, we may be required to either post 100 percent collateral or settle the obligations at their termination value of $43.0 million as of September 30, 2011. Both FNMA and Freddie Mac are currently rated Aaa by Moody’s and AA+ by S&P, and therefore, the provisions of this agreement have not been breached and no collateral has been posted related to these agreements as of September 30, 2011.

Although our derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheet.

See also discussions in Item 1. Financial Statements – Notes to Consolidated Financial Statements, Note 9.

9. 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 that reasonably approximate their fair value due to their short term nature.

Fixed rate notes payable at September 30, 2011 and December 31, 2010, totaled $550 million and $267 million, respectively, and had estimated fair values of $567 million and $238 million (excluding prepayment penalties), respectively, based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of September 30, 2011 and December 31, 2010. The carrying value of variable rate notes payable (excluding the effect of interest rate swap and cap agreements) at September 30, 2011 and December 31, 2010, totaled $1,038 million and $1,233 million, respectively, and had estimated fair values of $983 million and $1,151 million (excluding prepayment penalties), respectively, based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of September 30, 2011 and December 31, 2010.

On January 1, 2008, we adopted Financial Accounting Standards Board, or FASB, ASC 820 Fair Value Measurements and Disclosures, or ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Derivative financial instruments

Currently, we use interest rate swaps and interest rate caps (options) to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourself and our counterparties. In prior periods, we classified our derivative valuations within the Level 3 fair value hierarchy because those valuations contain certain Level 3 inputs (e.g. credit spreads). Commencing with the year ended December 31, 2010, we determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held as of September 30, 2011 and December 31, 2010 were classified as Level 2 of the fair value hierarchy.

The table below presents our assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2011

(dollars in thousands)

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Obervable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2011
Assets
Derivative financial instruments	$	-	$	1,048	$	-	$	1,048
Liabilities
Derivative financial instruments	$	-	$	39,156	$	-	$	39,156

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2010

(dollars in thousands)

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Obervable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2010
Assets
Derivative financial instruments	$	-	$	3,641	$	-	$	3,641
Liabilities
Derivative financial instruments	$	-	$	48,936	$	-	$	48,936

The fair value estimates presented herein are based on information available to management as of September 30, 2011 and December 31, 2010. These estimates are not necessarily indicative of the amounts we could ultimately realize. See also Note 8.

10. Recent Accounting Pronouncements

Impact of Recently Issued Accounting Standards

In June 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 will be applied retrospectively. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We will adopt ASU 2011-05 in the interim and annual periods of fiscal year 2012, and we expect this to change the presentation of our financial statements but not our consolidated financial condition or results of operations taken as a whole.

In May 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments change the wording, mainly for clarification, used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this update to result in a change in the application of the requirements in Topic 820. The amendments in this ASU are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. We will adopt ASU 2011-04 in the interim and annual periods of fiscal year 2012. The adoption of ASU 2011-04 will not have a material impact on our consolidated financial condition or results of operations taken as a whole.

11. Subsequent Events

Real Estate Acquisitions

On October 18, 2011, we closed on the purchase of Aventura at Indian Lake Village, a 300 unit community located in Hendersonville, TN, a suburb of Nashville.

Financing Activity

On November 1, 2011, we closed on a $250 million unsecured revolving credit facility. The facility has an accordion feature that allows for expansion up to $400 million and has an initial term of four years with a one-year extension option. Borrowings under the new facility will initially bear interest at LIBOR plus a spread ranging from 165 basis points to 240 basis points determined by a leverage-based pricing grid.

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

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

Forward Looking Statements

We consider this and other sections of this Quarterly Report on Form 10-Q to contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, with respect to our expectations for future periods. Forward looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development and renovation activity as well as other capital expenditures, capital raising activities, rent growth, occupancy and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting us, or our properties, adverse changes in the real estate markets and general and local economies and business conditions. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such forward-looking statements included in this report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

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

inability to generate sufficient cash flows due to market conditions, changes in supply and/or demand, competition, uninsured losses, changes in tax and housing laws, or other factors;

the availability of credit, including mortgage financing, and the liquidity of the debt markets, including a material deterioration of the financial condition of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation;

inability to replace financing with the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation should their investment in the multifamily industry shrink or cease to exist;

inability to acquire funding through the capital markets;

failure of new acquisitions to achieve anticipated results or be efficiently integrated into us;

failure of development communities to be completed, if at all, on a timely basis or to lease-up as anticipated;

increasing real estate taxes and insurance costs;

inability of a joint venture to perform as expected;

inability to acquire additional or dispose of existing apartment units on favorable economic terms;

unexpected capital needs;

losses from catastrophes in excess of our insurance coverage;

changes in interest rate levels, including that of variable rate debt, such as extensively used by us;

loss of hedge accounting treatment for interest rate swaps and interest rate caps;

inability to pay required distributions to maintain REIT status;

the continuation of the good credit of our interest rate swap and cap providers;

inability to meet loan covenants;

significant decline in market value of real estate serving as collateral for mortgage obligations;

imposition of federal taxes if we fail to qualify as a REIT under the Internal Revenue Code in any taxable year or foregone opportunities to ensure REIT status;

inability to attract and retain qualified personnel;

potential liability for environmental contamination;

adverse legislative or regulatory tax changes; and

litigation and compliance costs associated with laws requiring access for disabled persons.

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

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

We record all gains and losses on real estate in accordance with accounting standards governing the sale of real estate.

Capitalization of expenditures and depreciation and amortization of assets

We carry real estate assets at depreciated cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets, which range from 8 to 40 years for land improvements and buildings, 5 years for furniture, fixtures, and equipment, 3 to 5 years for computers and software, and 6 months amortization for acquired leases, all of which are subjective determinations. Repairs and maintenance costs are expensed as incurred while significant improvements, renovations and replacements are capitalized. The cost to complete any deferred repairs and maintenance at properties acquired by us in order to elevate the condition of the property to our standards are capitalized as incurred.

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

Impairment of long-lived assets, including goodwill

We account for long-lived assets in accordance with the provisions of accounting standards for the impairment or disposal on long-lived assets and evaluate our goodwill for impairment under accounting standards for goodwill and other intangible assets. We evaluate goodwill for impairme