A FUTURE IN PLACE Mid-America Apartment Communities, Inc. Annual Report 2001 FINANCIAL HIGHLIGHTS Dollars in thousands, except per share data Total revenues Years Ended December 31 2001 2000 1999 $ 228,039 $ 224,640 $ 226,322 Funds from operations per share, diluted Dividends per share $ $ 2.80 2.34 $ $ 2.80 2.32 $ $ Weighted average common shares, diluted Weighted average shares and units, diluted 17,532 20,464 17,597 20,551 2.74 2.30 18,808 21,817 Real estate owned, at cost Construction in progress Investment in real estate joint venture Total debt $1,449,720 $1,430,378 $1,396,743 $ $ 10,915 7,045 $ $ 28,523 7,630 $ $ 58,840 8,054 $ 779,664 $ 781,089 $ 744,238 Shareholders’ equity and minority interest $ 442,260 $ 485,376 $ 519,944 Market capitalization (shares and units) $ 709,224 $ 634,903 $ 639,095 Number of properties with ownership interest 122 124 129 Number of apartment units with ownership interest 33,411 33,612 33,901 FUNDS FROM OPERATIONS PER SHARE – BASIC (SINCE IPO) DIVIDEND PER COMMON SHARE ANNUALIZED COMMON SHAREHOLDER RETURNS $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $2.40 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 20% 16% 12% 8% 4% 94 01 94 01 SINCE IPO 3-YEAR RETURNS CONTENTS LETTER TO OUR SHAREHOLDERS 2 A FUTURE IN PLACE 6 MANAGEMENT’S DISCUSSION 12 FINANCIAL STATEMENTS 16 INDEPENDENT AUDITORS’ REPORT 19 INVESTOR INFORMATION 20 OFFICERS AND DIRECTORS 20 CIVIC AND INDUSTRY AWARDS 21 MID-AMERICA LOCATIONS P R O P E R T Y L O C A T I O N S T R A I N I N G C E N T E R S 33,459 apartments in 12 states (including 48 units still under development) Mid-America’s market focus on the southeast and south central U.S. provides access to the most stable job growth and apartment housing markets in the country. By proactively diversifying our portfolio throughout this steady growth region and position- ing in large, middle and selective small markets, we maintain a solid foundation for growth in shareholder value…despite the ups and downs of the economic cycles and capital markets. With our strong regional focus we are better positioned to remain alert to changing market trends and neighborhood shifts. As experienced operators, we take a proactive approach to creating value at each and every property. EXISTING LOCATIONS KENTUCKY Bowling Green Florence Lexington 4 Louisville MISSISSIPPI Grenada Jackson 6 Southaven 2 NORTH CAROLINA Greensboro Raleigh Winston-Salem OHIO Cincinnati SOUTH CAROLINA Aiken 2 Anderson Charleston Columbia 2 Greenville 5 Spartanburg TENNESSEE Chattanooga 4 Jackson 5 Memphis 11 Nashville Metro 4 ALABAMA Birmingham Huntsville 2 Montgomery ARKANSAS Little Rock 3 FLORIDA Daytona Beach Gainesville Jacksonville 9 Lakeland Melbourne Ocala Orlando Panama City Beach Tallahassee Tampa Metro 4 GEORGIA Athens Atlanta Metro 6 Augusta 3 Brunswick Columbus 2 LaGrange Macon/Warner Robins 4 Savannah St. Simons Island Thomasville Valdosta TEXAS Austin 4 Dallas Metro 7 Houston Metro 4 VIRGINIA Hampton REGIONAL OFFICES AND TRAINING CENTERS Atlanta, GA Dallas, TX Greenville, SC Jacksonville, FL Memphis, TN Nashville, TN BELOW, FROM LEFT: THE TERRACES AT FIELDSTONE, CONYERS, GA; THE PADDOCK CLUB, BRANDON, FL; AND THE RESERVE AT DEXTER LAKE, MEMPHIS, TN. h At Mid-America Apartment Communities the future is firmly in place – for our residents, our associates and our investors. The Company has a strong and expe- rienced management team to lead us into the future. Our award-winning communities continue to thrive, with new develop- ments completed and steadily adding to earnings. And our investors can feel secure knowing that, even in a year of economic fluctuation rarely seen, Mid- America outperformed most of our com- petitors. Our business has always focused on “Creating Great Places to Live,”SM and our future, and that of our residents and our investors, is being built on these great places. TO OUR SHAREHOLDERS UNDER THE FORMAL SUCCESSION In a year that brought unprecedented world events and economic PLAN SUCCESSFULLY IMPLEMENTED trends no one could have predicted, Mid-America remained strong. The year OVER THE PAST FIVE YEARS, H. ERIC 2001 ushered in a renewed sense of rational investing and a realization that BOLTON JR. (ABOVE RIGHT) BECAME PRESIDENT AND CHIEF EXECUTIVE OFFICER OF MID-AMERICA IN OCTOBER 2001, SUCCEEDING GEORGE E. CATES (ABOVE LEFT) WHO WILL REMAIN AS CHAIRMAN OF THE BOARD OF DIRECTORS UNTIL HIS PLANNED RETIREMENT IN OCTOBER OF 2002. 2 hard assets, cash flow and solid dividend payments matter. These fundamentals, which provide the bedrock for true value growth and preservation of principal, remained as the driving force for Mid-America during this year of economic recession and worries. Consequently, Mid-America owners were rewarded with a 26.9 percent investment return for 2001 – far above conventional perform- ance yardsticks and among the best in the apartment industry. The near completion of our development pipeline, which is now fully funded and becoming increasingly productive, continues to strengthen Mid- America’s balance sheet. We entered 2002 with 365 newly developed apart- ments in inventory. Although the leasing and operating environment remains very competitive, we anticipate completing lease up and stabilization of newly developed properties during the coming year. The year 2001 also generated an interest rate environment unlike any we’ve seen. We took advantage of the opportunities created and refinanced more than $200 million of debt. With 89 percent of the total debt now under fixed rate terms at an average rate of 6.8 percent, our balance sheet was strengthened during the year. We are very comfortable with our balance sheet structure. Unlike many other apartment REITs that are carrying large new development pipelines, we have significantly lower operating and development risk inherent within our operation. Looking back, we believe the decision made two years ago to pull back on our new construction starts was a good one. As operators in this business for more than 20 years, we understand the cyclical nature of our industry and our markets – critical skills for preservation of capital THE YEAR 2001 USHERED IN A and steady growth in value over the long haul. RENEWED SENSE OF RATIONAL Just as the deployment of capital in new development and acquisitions INVESTING AND A REALIZATION THAT is critical, so are the judgments pertaining to reinvesting capital in existing properties. This industry is littered with examples of property owners “robbing” properties of annual recurring capital needs and enjoying short term, benefits, only to face real problems later when trying to operate or sell the “capital starved” property. Your portfolio of Mid-America properties is in great condition, and at an average of 12.3 years old, one of the “youngest” in the business. One of the best assessments of proper capital allocation decisions is Return on Assets (ROA). By looking clearly at the return generated on all capital employed (regardless of the source) in purchasing, developing and maintaining assets, one can best evaluate the efficacy of capital allocation decisions. Our ROA for 2001, even while being inescapably diminished by the impact of the new development pipeline prior to its full productivity, was 8.8 percent, in line with our industry average. We expect to see steady growth in the performance over the course of 2002, and for our ROA performance to once again exceed the apartment sector average, 8.8 percent in 2001. Another indication of the tremendous condition and quality of our properties is evidenced by the numerous civic and industry awards received by our properties and staff, examples of which are listed on the back inside cover of this report. As experienced operators in this business, we fully appreciate the highly competitive nature of our industry. Operating productivity and vigilant expense control are critical to steady growth in profits and value. Our property management team continues to generate very impressive results in this area. For all of 2001, on a same store basis, property operating expense was up only 1.3 percent. This compares to an equally strong prior year performance of 2.1 percent in same store expense growth in 2000 and 2.9 percent in 1999. Our aggressive focus on utility expense management programs has been part of our success in this area. In addition, our rapid development and expanded use of the Internet for various leasing, transaction and reporting activities has contributed to gains in personnel productivity. A large part of our long term success and solid performance for more than 20 years is the strong foundation and culture of our company, centered on property operations and a focus on what’s happening at each of the individual properties. We call it “hands-on operations.” Throughout our company, the focus is to be intimately knowledgeable of and involved with our markets, our properties and our on-site personnel. We realize that our success as a company is ultimately a function of the success we have on site at each of our properties. While our operation has certainly grown and our markets expanded over the years, we work diligently to remain very close to our properties and to stick to our knitting. During the past few years, when many other apartment REITs tried to diversify and deploy capital into the latest high-tech start up ventures HARD ASSETS, CASH FLOW AND SOLID DIVIDEND PAYMENTS ARE CRUCIAL. 3 THE AVERAGE APARTMENT INDUSTRY – subsequently writing off millions of dollars – we remained focused on steady EXPERIENCE AMONG OUR MULTISITE value growth and a very disciplined use of capital. MANAGEMENT TEAM IS 14 YEARS – EIGHT YEARS WITH MID-AMERICA. Mid-America’s management team is strong and experienced. The aver- age apartment industry experience among our multisite management team is 14 years – eight years with Mid-America. Our Board of Directors is one of the strongest in the industry. The level of experience and success represented by its members in public company leadership, capital allocation and multifamily real estate is unparalleled in the industry. We are grateful for their wise counsel and stewardship. But experience doesn’t stop with the management team and board of directors. Employee training and development is a cornerstone com- ponent of any successful operating company and Mid-America is no exception. We have a strong tradition of developing the best in our people and in formal training of our hands-on operating techniques. We are one of the few in the industry with an in-house Certified Apartment Manager (CAM) training program – a National Apartment Association designation. In 2001, 39 of our employees achieved their CAM certification. And during 2001, our training staff completed a total of 20,700 hours of training and associate development. We had a good year in 2001 during a time of capital markets uncer- tainty and worry. Our balance sheet is strong and getting stronger. Our new properties are becoming increasingly productive. Our dividend coverage is ample and strengthening. Our ability to capture new opportunities and value for you is improving. Thank you for your support and confidence. H. Eric Bolton Jr. George E. Cates PRESIDENT AND CEO CHAIRMAN OF THE BOARD OF DIRECTORS 4 A FUTURE IN PLACE A FUTURE IN PLACE MID-AMERICA EMPLOYEES, SUCH AS The future is in place at Mid-America Apartment Communities. Each LEAD SERVICE TECHNICIAN ALTON B. of our more than 33,000 apartment homes in 122 communities throughout the WINGATE (ABOVE), SEE TO IT THAT southeast and south central U.S. receives Mid-America’s hands-on attention EVERY DETAIL IS IN PLACE – DETAILS LIKE AWARD-WINNING LANDSCAPING AND HIGH-SPEED INTERNET CONNEC- TIONS THAT MAKE OUR APARTMENT COMMUNITIES GREAT PLACES TO LIVE. 6 and is served by a skilled staff of more than 1,100 associates. We take pride in our quality assets, and our innovative management practices have been instrumental in winning numerous civic and industry awards. As one of our guiding principles, we strive to exceed expectations in every way. Our locations, superior buildings, industry-leading landscaping and overall curb appeal initially attract residents, but our focus on “Creating Great Places to Live”SM goes beyond those first impressions. We provide added value at every turn. From virtual leasing offices open 24-7, to the park-like atmosphere and responsive on-site staff, we’re so confident in our services that we give new residents 30 days to change their minds and leave us, penalty free, if they’re not completely satisfied. Our Hassle Free Guarantee™ assures that main- tenance problems are taken care of within 24 hours, and every Mid-America community has a trained service technician on call 24 hours a day. We offer high-speed Internet connections and web partnerships for on-line purchase savings. Personal intranet sites allow residents to set up their utilities and other services, as well as browse through more than 20 service and product offerings. Convenience adds value to our residents’ daily lives. We are also dedicated to creating an old-fashioned neighborhood experience. While residents enjoy privacy in our comfortable apartments, they also have the opportunity to participate in Community Awareness programs, including volunteer opportunities, social events, children’s activities, health fairs and educational seminars. This sense of community increases resident retention. The number one reason that residents leave us is to purchase a home. And if they’ve been with us for three years or more, our First Down program pays $1,000 toward their down payment. Our focus on a better future also extends to the communities around us. Open Arms™, the 501(c)(3) foundation created and directed by Mid-America associates, provides comfortable housing and peace of mind to families in WHILE RESIDENTS ENJOY PRIVACY IN OUR APARTMENTS, THEY ALSO HAVE THE OPPORTUNITY TO PARTICIPATE IN COMMUNITY AWARENESS PROGRAMS, INCLUDING VOLUNTEER OPPORTUNI- TIES, SOCIAL EVENTS, CHILDREN’S ACTIVITIES, HEALTH FAIRS AND EDU- CATIONAL SEMINARS. THIS SENSE OF COMMUNITY ISN’T JUST FOR WARM FUZZIES EITHER. IT INCREASES OUR RESIDENT RETENTION. 7 OUR “HANDS-ON” MANAGEMENT STYLE FLOWS FROM THE TOP DOWN. EXECUTIVES, SUCH AS TOM GRIMES, GINNY DOANE (BELOW) AND LEE LITTLE (RIGHT) FROM OUR PROPERTY OPERATIONS GROUP, REGULARLY TOUR OUR PROPERTIES HELPING TO ENSURE THAT WE KEEP THEM IN TOP-NOTCH CONDITION. 8 medical crises far from home. Two-bedroom, fully furnished apartments are IT IS WITH THE DILIGENT EFFORTS OF provided free of charge to qualifying families referred by local hospitals. The OPERATIONS TEAM MEMBERS (MID- 28 Open Arms homes located throughout the Mid-America network provided DLE, FROM LEFT) DAVID NISCHWITZ, more than 6,000 nights of calm for families in 2001. The future of Mid-America as a company is firmly in place. Our $300 million development pipeline nears completion, and as new properties continue to mature, greater balance sheet flexibility and share value are created. Our award-winning portfolio is in outstanding condition and business is sound. While quality assets and innovative programs help ensure a bright future, it is only top-notch associates who can lead us there. Under the formal succession plan successfully implemented over the past five years, H. Eric Bolton Jr. became President and Chief Executive Officer of Mid-America in October 2001, succeeding George E. Cates who will remain as Chairman of the Board of Directors until his planned retirement in October of 2002. Our highly skilled management team averages 14 years of multifamily experience – eight of that with Mid-America. We are confident in their abilities. Management participates in frequent and thorough “property walks” as part of our extensive hands-on operation. Shareholders can rest assured that we are firmly in touch and involved with every property – where the real long-term success of the company is determined. The contribution of our outstanding support staff is also highly valued. Extensive internal training is available in regional centers as well as with online learning options to help develop excellence in our associates. Regional meetings and our Annual Leadership Conference provide motivation and infor- mation about the latest trends and products. In 2001, 39 Mid-America prop- erty managers achieved Certified Apartment Manager (CAM) certification, a National Apartment Association designation. We are proud to have one of the few in-house programs in the industry for CAM. Mid-America’s financial future is firmly in place. New development is virtually complete and will now provide a source of growing value and new rev- enues for the future. Disciplined spending on capital improvements assures that we remain very competitive in all markets, while we avoid the deferred KEVIN PERKINS, JAMES MACLIN, NANCY ROBERTS AND KEITH ACTON THAT MID-AMERICA SUCCESSFULLY MANAGES MORE THAN 33,000 APART- MENT HOMES IN 122 COMMUNITIES. 9 FINANCE TEAM MEMBERS (ABOVE, maintenance temptation that traps so many other property owners. We strive FROM LEFT) AL CAMPBELL, SHELTON for steady improvement in productivity and solid expense control. Our strong BARRON, SIMON WADSWORTH AND return on asset performance is evidence of the prudent deployment of capital, RICK BARTON SHARE THE CREDIT FOR and we expect performance to grow in 2001. A YEAR IN WHICH MID-AMERICA OUT- PERFORMED MOST OF OUR COMPETI- TORS, IN SPITE OF UNPRECEDENTED ECONOMIC FLUCTUATION. KENWOOD CLUB (MIDDLE), KATY, TX, COMPLETED LEASE-UP IN 2001. PICTURED ABOVE RIGHT IS THE VILLAGE, LEXINGTON, KY. 10 Our proactive focus on innovative new systems and programs resulted in improved productivity in 2001. These include our new Internet-based operating, reporting and leasing systems and our aggressive utility management and billing systems. Same-store expense growth in 2001 was only 1.3 percent, as compared to 2.1 percent in 2000 and 2.9 percent in 1999. At an average age of 12.3 years, our portfolio is among the “youngest” in the industry. A maturing baby boom generation increasingly attracted to has- sle-free living, a steadily growing immigration trend and an influx of new work- ers and household formations expected from the “echo boom” generation all help to create a healthy and growing demand for multifamily housing that will continue throughout the coming decade. Mid-America is well positioned to capitalize on that growing market. Steadily increasing value per share is our major financial objective. Strategically, we focus on the needs of the people we serve – residents, employees and investors alike – creating optimum opportunities for profitability and value growth. Tactically, we are flexible and forward thinking, working always to stay one step ahead. Our Board of Directors is one of the strongest and most experienced in the industry. Each member brings a record of exemplary success and stewardship in both the public and private business sectors, and they serve your interests well. As evidence of our strong belief in the future of the Company, insider ownership has risen to 16 percent. An investment in Mid-America is more than financially sound – it’s an investment you can be proud of. We touch people’s lives in a positive way by creating great places to live, work and build a future and by reaching out to the larger communities around us. Though we never lose our focus on steady growth in shareholder value, secure dividends and a strong balance sheet, we also know that it’s important to strengthen and maintain the time-honored values on which great companies and partnerships have always been built. BECAUSE THE FUTURE IS IN PLACE AT MID-AMERICA APARTMENT COMMUNI- TIES, OUR INVESTORS CAN FEEL SECURE THAT THEIR INVESTMENT FUTURES ARE IN PLACE AS WELL. 11 MANAGEMENT’S DISCUSSION FROM LEFT: AL CAMPBELL, VICE Q. Mid-America is known throughout the apartment industry for main- PRESIDENT, DIRECTOR OF FINANCIAL taining its properties in excellent condition. You reported that the spending on PLANNING; ERIC BOLTON, PRESIDENT recurring capital needs at your properties in 2001 was $375 per unit, which AND CEO; AND SIMON WADSWORTH, is down from $410 per unit in 2000. Does this decreased spending indicate EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 12 any sort of compromise on your commitment to maintaining asset quality? A. “Not at all. We are more committed than ever to maintaining the high quality of our properties. We achieved this $1 million reduction in spend- ing in 2001 as a result of several factors: Our asset quality and average property age has been improving as a result of our consistent, systematic practice of selectively selling older prop- erties, coupled with the addition of our newly developed properties over the last four years. (cid:2) We have strengthened our regional capital management operations, renegotiated a number of our service contracts and expanded the use of our bulk contracting capabilities…we’re getting more accomplished with fewer dollars. And finally, as a result of a very detailed physical assessment process that is part of our “property walk system,” we’ve developed a proac- tive preventive maintenance program and detailed three-year capital needs assessment for each of our properties. This program is providing a better plat- form from which to make efficient capital spending decisions.” Kevin Perkins / Vice President, Director of Capital Improvements and Maintenance Operations Q. You reported in your fourth quarter earnings announcement that markets are soft, but that you are forecasting an improvement in the latter half of 2002. How much of your forecast for 2002 depends on market recovery? A. “The markets were noticeably weaker in the latter part of the third quarter and all of the fourth quarter of 2001. The weakness in the overall economy, pockets of overbuilding in several markets and the prolonging of strong single family home buying trends, generated a greater than anticipated slow down in new leasing traffic during the traditionally slow winter season. To put the slowdown in perspective, we saw occupancy within our same store portfolio decline from 94.7 percent in the fourth quarter of 2000 to 93.2 percent (cid:2) (cid:2) in the fourth quarter of 2001. The combination of higher vacancy loss and higher leasing concession costs for the full year 2001, over 2000, generated roughly $3 million or 15 cents per share variance to earlier estimates. In fore- casting 2002 we have assumed only a 0.5 percent growth in net operating income for the year, coming off the 1.2 percent growth generated in 2001. We actually expect net operating income from our same store group of properties to be slightly negative over the first half of the year. As the economy and job growth resume their growth patterns over the last half of 2002, we expect to see some recovery. Over the latter part of 2002, with only 0.5 percent growth for the entire year, we aren’t counting on significant market recovery in our forecast. In addition, we have built in no assumptions regarding new acquisitions in 2002, which if completed, would provide additional earnings.” BELMERE, TAMPA, FL Al Campbell / Vice President, Director of Financial Planning Q. Mid-America has consistently demonstrated strong property level operating expense control. Have you captured most of the savings in this area, or do you foresee additional opportunities to keep operating expense growth trends below inflation growth? A. “Our aggressive focus on expense control and productivity enhance- ments is an integral part of everything we do in property operations. Some of the biggest success we’ve had in this area is due to our utility expense management programs and resident billing initiatives. We feel that we have captured roughly 75 percent of the overall identified opportunity thus far...but of course, new opportunities, technologies and ideas are continually emerging. Additionally, the rapid growth of new Internet-based operating systems covering leasing activities, reporting processes and resident service support are still relatively new, and we continue to explore opportunities for further productivity gains in this area as well.” James Maclin / Vice President, Director of Asset Management Q. Can Mid-America sustain the current level of dividend? What are the prospects for future dividend increases? A. “We believe that our dividend payout is secure. It would take a significant reduction in our projected earnings – from the current 0.5 percent NOI growth estimate, an event we think is highly unlikely – to cause us to reduce our dividend. Also, because we have surplus balance sheet capacity, we can acquire income-producing properties that will further enhance earnings and cash flow coverage. In our January decision to hold the current dividend level, we noted that we will reconsider the possibility of an increase later in 2002 if the anticipated recovery in the economy occurs. However, we are very committed to strengthening the ratio of funds available for distribution to the current dividend payout level and thus would anticipate an increase, if any, to be minimal in 2002.” Simon Wadsworth / Executive Vice President and Chief Financial Officer 13 Q. You’ve said that the completion of the development program adds balance sheet capacity. What does that mean and will this cause the company to increase leverage? A. “Having non-earning or not yet fully productive construction assets on the balance sheet, coupled with the funding obligations associated with projects still under construction, consumes a portion of a company’s capacity to generate current earnings from assets owned, as well as to acquire additional apartments. This is one of the reasons that a predominantly development REIT should carry less debt than a REIT that is not burdened with funding a develop- ment pipeline, and thus bears lower business risk. As our remaining develop- ment pipeline becomes fully productive over the course of 2002, we will begin to generate a higher level of current earnings and cash flow as a percentage of our asset base. This will generate additional borrowing capacity, while main- taining the same overall leverage. In addition, the lower “non-development” risk profile of our balance sheet and overall operation can also comfortably carry a little more leverage if we want to do so. However, we do not anticipate any appreciable debt increase on our corporate balance sheet in 2002.” Simon Wadsworth / Executive Vice President and Chief Financial Officer Q. Mid-America has a number of properties located in small or tertiary cities. Have these proven to be good investments as compared to investments in larger cities? A. “The smaller city investments have often provided better opportu- nities to create value in the acquisition phase through an ability to acquire at a steep discount to replacement value. Once stabilized, property performance in most small markets tends to remain fairly consistent. Capturing and ulti- mately realizing the value in many of these investments has been achieved through the disposition process, as opposed to prolonged hold strategy. So in general terms most of the investments we have in smaller markets, which have gone through the full investment cycle (through disposition), have been just as good an investment for us as have those properties in larger markets. The dif- ference between investment performance in larger versus smaller markets is to some degree more a function of how and where the return and value is created; during the acquisition and disposition phase for the smaller markets, or during the hold-operating period and disposition phase for the larger markets.” Eric Bolton / President and Chief Executive Officer HUNTINGTON CHASE WARNER ROBINS, GA 14 Q. What is the strategic focus for Mid-America? In what ways do you PICTURED FROM LEFT: SAVANNAHS AT plan to grow and continue to increase value? A. “We believe that the best opportunities for us over the next few years lie in acquiring and redeveloping under-valued properties. Acquiring, JAMES LANDING, MELBOURNE, FL; HUNTER’S RIDGE, JACKSONVILLE, FL; AND THE PADDOCK CLUB, PANAMA repositioning and creating value through our “hands-on” operating practices is CITY BEACH, FL. a strong core competency of our company. As our new development pipeline becomes increasingly productive we have improving flexibility and capabilities to pursue these opportunities. We will become increasingly proactive in harvesting and capturing full value from a number of our investments in our smaller markets and will be redeploying capital in larger markets which will generate a more balanced portfolio performance in all phases of the real estate investment value cycle: acquisition, development, disposition or hold.” Eric Bolton / President and Chief Executive Officer 15 CONSOLIDATED BALANCE SHEETS Dollars in thousands ASSETS Real estate assets: Land Buildings and improvements Furniture, fixtures and equipment Construction in progress Less accumulated depreciation Land held for future development Commercial properties, net Investment in and advances to real estate joint venture Real estate assets, net Cash and cash equivalents Restricted cash Deferred financing costs, net Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Notes payable Accounts payable Accrued expenses and other liabilities Security deposits Deferred gain on disposition of properties Total liabilities and deferred gain Minority interest Shareholders’ equity: Preferred stock, $.01 par value, 20,000,000 shares authorized, $173,470,750 or $25 per share liquidation preference: 2,000,000 shares at 9.5% Series A Cumulative 1,938,830 shares at 8.875% Series B Cumulative 2,000,000 shares at 9.375% Series C Cumulative 1,000,000 shares at 9.5% Series E Cumulative Common stock, $.01 par value authorized 50,000,000 shares; issued 17,452,678 and 17,506,968 shares at December 31, 2001 and 2000, respectively Additional paid-in capital Other Accumulated distributions in excess of net income Accumulated other comprehensive income (loss) Total shareholders’ equity Total liabilities and shareholders’ equity 16 December 31 2001 2000 $ 124,993 $ 124,867 1,265,327 1,231,603 32,290 10,915 29,094 28,523 1,433,525 1,414,087 (229,913) (183,652) 1,203,612 1,230,435 1,366 4,910 7,045 1,366 5,044 7,630 1,216,933 1,244,475 12,192 11,240 10,415 12,708 16,095 17,472 9,700 16,029 $1,263,488 $1,303,771 $ 779,664 $ 781,089 1,219 31,691 4,514 4,140 1,740 26,589 4,611 4,366 821,228 818,395 46,431 51,383 20 19 20 10 175 550,176 (774) (145,061) (8,756) 395,829 20 19 20 10 175 551,809 (1,171) (116,889) — 433,993 $1,263,488 $1,303,771 CONSOLIDATED STATEMENTS OF OPERATIONS Dollars in thousands, except per share data Revenues: Rental revenues Other property revenues Total property revenues Interest and other non-property income Management and development income, net Equity in loss of real estate joint venture Total revenues Expenses: Property operating expenses: Personnel Building repairs and maintenance Real estate taxes and insurance Utilities Landscaping Other operating Depreciation and amortization Property management expenses General and administrative expenses Interest expense Amortization of deferred financing costs Total expenses Income before gain on dispositions, minority interest in operating partnership income and extraordinary items Gain on dispositions, net Income before minority interest in operating partnership income and extraordinary items Minority interest in operating partnership income Income before extraordinary items Extraordinary items – loss on debt extinguishment, net of minority interest Net income Preferred dividend distribution Net income available for common shareholders Net income available per common share Basic (in thousands): Average common shares outstanding Basic earnings per share: Year Ended December 31 2001 2000 1999 $223,410 $219,039 $221,342 2,860 226,270 3,493 222,532 2,872 224,214 1,310 755 (296) 1,526 739 (157) 1,388 751 (31) 228,039 224,640 226,322 24,704 9,443 26,594 7,164 6,278 10,401 52,051 24,268 9,701 25,021 7,635 6,027 10,794 51,844 25,239 10,107 24,561 9,119 5,634 10,225 49,903 136,635 135,290 134,788 10,204 5,879 52,598 2,352 9,509 5,317 50,736 2,758 9,360 5,119 48,302 2,854 207,668 203,610 200,423 20,371 11,933 32,304 2,573 29,731 (1,033) 28,698 16,113 21,030 11,587 32,617 2,626 29,991 (204) 29,787 16,114 25,899 10,237 36,136 2,497 33,639 (67) 33,572 16,114 $ 12,585 $ 13,673 $ 17,458 17,427 17,544 18,784 Net income available per common share before extraordinary items Extraordinary items Net income available per common share Diluted (in thousands): Average common shares outstanding Effect of dilutive stock options Average dilutive common shares outstanding Diluted earnings per share: Net income available per common share before extraordinary items Extraordinary items Net income available per common share $ $ $ $ 0.78 (0.06) 0.72 17,427 105 17,532 0.78 (0.06) 0.72 $ $ $ $ 0.79 (0.01) 0.78 17,544 53 17,597 0.79 (0.01) 0.78 $ $ 0.93 — 0.93 18,784 24 18,808 $ 0.93 — $ 0.93 17 SELECTED FINANCIAL DATA Dollars in thousands, except per share data 2001 2000 1999 1998 1997 Year Ended December 31 OPERATING DATA Total revenues Expenses: $ 228,039 $ 224,640 $ 226,322 $ 215,543 $ 139,116 Property operating expenses Depreciation and amortization 84,584 52,051 General, administrative and property management expenses 16,083 Interest Amortization of deferred financing costs Gain on dispositions, net Income before minority interest in operating partnership income and extraordinary items Minority interest in operating partnership income Extraordinary items Net income Preferred dividends 52,598 2,352 11,933 32,304 (2,573) (1,033) 28,698 16,113 83,446 51,844 14,826 50,736 2,758 11,587 32,617 (2,626) (204) 29,787 16,114 84,885 49,903 14,479 48,302 2,854 10,237 36,136 (2,497) (67) 33,572 16,114 79,917 46,021 11,960 45,704 2,348 408 30,001 (2,254) (990) 26,757 11,430 Net income available for common shareholders $ 12,585 $ 13,673 $ 17,458 $ 15,327 $ PER SHARE DATA Basic and diluted: Before extraordinary items Extraordinary items Net income available per common share Dividends declared $ $ $ 0.78 $ 0.79 $ 0.93 $ 0.87 $ (0.06) 0.72 2.340 $ $ (0.01) — (0.05) 0.78 $ 0.93 $ 0.82 $ 2.325 $ 2.305 $ 2.225 $ 2.155 52,404 27,737 6,602 28,943 888 — 22,542 (2,693) (8,622) 11,227 5,252 5,975 1.05 (0.62) 0.43 BALANCE SHEET DATA Real estate owned, at cost Real estate owned, net Total assets Total debt Minority interest Shareholders’ equity Weighted average common shares (000’s): Basic Diluted OTHER DATA (AT END OF PERIOD) $1,449,720 $1,430,378 $1,396,743 $1,434,733 $1,211,693 $1,216,933 $1,244,475 $1,248,051 $1,315,368 $1,134,704 $1,263,488 $1,303,771 $1,298,823 $1,366,427 $1,193,870 $ 779,664 $ 781,089 $ 744,238 $ 753,427 $ 632,213 $ 46,431 $ 51,383 $ 56,060 $ 61,441 $ 62,865 $ 395,829 $ 433,993 $ 463,884 $ 517,299 $ 461,300 17,427 17,532 17,544 17,597 18,784 18,808 18,725 18,770 13,892 13,955 Market capitalization (shares and units) $ 709,224 $ 634,903 $ 639,095 $ 670,123 $ 710,175 Number of properties with ownership interest 122 124 129 129 116 Number of apartment units with ownership interest 33,411 33,612 33,901 33,831 30,579 18 INDEPENDENT AUDITORS’ REPORT THE BOARD OF DIRECTORS AND SHAREHOLDERS MID-AMERICA APARTMENT COMMUNITIES, INC. We have audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheets of Mid-America Apartment Communities, Inc. and subsidiaries (the “Company”) as of December 31, 2001, and 2000, 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, 2001 (not presented herein); and in our report dated February 13, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated financial statements is fairly stated, in all material respects, in relation to the con- solidated financial statements from which it has been derived. Memphis, Tennessee February 13, 2002 KPMG LLP 19 INVESTOR INFORMATION CHAIRMAN OF THE BOARD OF DIRECTORS George E. Cates EXECUTIVE OFFICERS (also serve on Board of Directors) H. Eric Bolton Jr. President and Chief Executive Officer Simon R.C. Wadsworth Executive Vice President and Chief Financial Officer INDEPENDENT BOARD OF DIRECTORS O. Mason Hawkins (since October 1993) Chairman and Chief Executive Officer Southeastern Asset Management, Inc. Robert F. Fogelman (since July 1994) President Fogelman Investment Company John F. Flournoy (since November 1997) Chairman and Chief Executive Officer Flournoy Development Company John S. Grinalds (since November 1997) President The Citadel Ralph Horn (since April 1998) Chairman and Chief Executive Officer First Tennessee National Corporation Michael S. Starnes (since July 1998) President M.S. Carriers, a subsidiary of Swift Transportation 20 CORPORATE HEADQUARTERS Mid-America Apartment Communities, Inc. 6584 Poplar Avenue, Suite 300 Memphis, TN 38138 (901) 682-6600 www.maac.net ANNUAL SHAREHOLDERS MEETING Mid-America Apartment Communities, Inc. will hold its 2002 annual meeting of shareholders on Monday, June 10th, at 4:00 p.m. CST in the clubhouse at The Reserve at Dexter Lake, Memphis, TN. ANNUAL REPORT AND FORM 10-K A copy of Mid-America’s Annual Report and Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission, will be sent without charge upon written request to the corporate headquarters address, attention Investor Relations, and is available on the Internet at www.maac.net. TRANSFER AGENT AND REGISTRAR First Union National Bank Shareholders who have questions about their accounts or who wish to change ownership or address of stock; to report lost, stolen or destroyed certificates; or wish to sign up for our dividend reinvestment plan, should contact the stock transfer agent at 800-829-8432. Limited partners wishing to convert units into shares should contact Mid- America directly at the corporate headquarters listed above. INDEPENDENT AUDITORS KPMG LLP, Memphis, TN GENERAL COUNSEL Bass, Berry & Sims, Memphis, TN STOCK LISTING AND COMMON STOCK PRICE Mid-America’s stock is traded on the New York Stock Exchange. Its common stock is listed under the stock symbol MAA. Its Cumulative Preferred Stock is under the symbols MAA Pr A, MAA Pr B, and MAA Pr C. Sales Prices Dividends Sales Prices Dividends Fiscal 2001 High Low Declared Fiscal 2000 High Low Declared First Quarter $23.88 $21.73 $0.585 First Quarter $23.38 $22.00 $0.580 Second Quarter $25.75 $22.42 $0.585 Second Quarter $24.50 $22.38 $0.580 Third Quarter $26.42 $24.40 $0.585 Third Quarter $24.88 $23.00 $0.580 Fourth Quarter $26.76 $24.40 $0.585 Fourth Quarter $23.88 $21.25 $0.585 CORPORATE CHARITY Open Arms Foundation S I H P M E M / E V I T A E R C E U D R E P Y B D E C U D O R P D N A D E N G I S E D CIVIC AND INDUSTRY AWARDS ABBINGTON PLACE SOUTH POINTE, AL Beautification Award Huntsville Beautification Board AUSTIN CHASE MACON, GA Beautification Award, Macon- Bibb Beautiful Commission BALCONES WOODS AUSTIN, TX Property of the Year Austin Apartment Association BRADFORD CHASE JACKSON, TN Best Property, City Beautiful Award, Jackson, TN BRENTWOOD DOWNS NASHVILLE, TN 1st Place Beautification Award Nashville Apartment Association CEDAR MILL MEMPHIS, TN 2nd Place Beautification Award Older Conventional; Memphis Apartment Association THE CORNERS WINSTON-SALEM, NC Property of the Year Triad Apartment Association Diamond Awards THE CROSSINGS MEMPHIS, TN Beautification Award, Memphis City Beautiful Commission EAGLE RIDGE BIRMINGHAM, AL Beautification Award, Greater Birmingham Association of Home Builders Multifamily Council FAIRWAYS AT HARTLAND BOWLING GREEN, KY City Beautification Award City of Bowling Green, KY FAIRWAYS AT ROYAL OAK CINCINNATI, OH Best Property City of Cincinnati, OH GEORGETOWN GROVE SAVANNAH, GA Silver Award Savannah Apartment Association GLENEAGLES MEMPHIS, TN 1st Place Beautification Award Southeast Memphis Betterment Association THE GRAND RESERVE LEXINGTON, KY Kentucky Derby Award Lexington Apartment Association HAMILTON POINTE CHATTANOOGA, TN 2nd Place, Newer Property Chattanooga Apartment Association HICKORY FARM MEMPHIS, TN Beautification Award, Memphis City Beautiful Commission HIDDEN CREEK CHATTANOOGA, TN Best Newer Property Chattanooga Apartment Association HIDDEN LAKE UNION CITY, GA Top 1000 High-Performing Multifamily Properties, Secretary of Housing & Urban Development HIGH RIDGE ATHENS, GA Clean & Beautiful Award Athens/Clark County HIGHLAND RIDGE GREENVILLE, SC 1st Place Beautification Award Upper State (SC) Apartment Association (USAA) LAKEPOINTE LEXINGTON, KY Triple Crown Award Lexington Apartment Association LAKESHORE LANDING RIDGELAND, MS 2nd Place Beautification Award Mississippi Multifamily Council LANE AT TOWNE CROSSING MESQUITE, TX City Beautiful Award City of Mesquite, TX LINCOLN ON THE GREEN MEMPHIS, TN 1st Place Beautification Award Memphis Apartment Association THE MANSION LEXINGTON, KY Triple Crown Award Lexington Apartment Association NAPA VALLEY LITTLE ROCK, AR City Beautiful Award THE PADDOCK CLUB HUNTSVILLE, AL Beautification Award City of Huntsville Honor Roll (five consecutive years) THE PADDOCK CLUB JACKSONVILLE, FL Best Management Company Jacksonville, FL THE PADDOCK CLUB LAKELAND, FL 1st Place Beautification Award City of Lakeland THE PADDOCK CLUB PANAMA CITY BEACH, FL Best New Property Chamber of Commerce THE PADDOCK CLUB MURFREESBORO, TN Beautification Award Rutherford County Property Management Association THE PADDOCK CLUB COLUMBIA, SC Best New Property, USAA SUTTON PLACE SOUTHAVEN, MS Community Pride Award Top of Mississippi MS Chamber of Commerce TANGLEWOOD ANDERSON, SC 2nd Place Beautification Award USAA TERRACES AT TOWNE LAKE WOODSTOCK, GA “Best of the Best”, Cherokee County, GA Towne Laker magazine (four consecutive years) TOWNSHIP HAMPTON, VA Best Overall Community Peninsula Apartment Council of the Peninsula Housing and Builders Association THE VILLAGE LEXINGTON, KY Keeneland Award Lexington Apartment Association THE VISTAS MACON, GA Beautification Award, Macon- Bibb Beautiful Commission WHISPERWOOD COLUMBUS, GA Best Apartment Community Reader’s Choice Award Columbus Ledger Enquirer (six consecutive years) WILDWOOD THOMASVILLE, GA Best of Thomas & Grady Counties, Reader’s Choice Awards, Thomasville Times- Enterprise WINDRIDGE CHATTANOOGA, TN 1st Place Beautification Award Chattanooga Apartment Association WOODRIDGE JACKSON, MS 3rd Place Beautification Award Mississippi Multifamily Council PADDOCK PARK OCALA, FL Best Apartment Community Star Banner THE PARK AT HERMITAGE HERMITAGE, TN 2nd Place Beautification Award Nashville Apartment Association PARK ESTATE MEMPHIS, TN City Beautiful Award (Apartments) Memphis City Beautiful Commission PARK PLACE SPARTANBURG, SC 1st Place Beautification Award USAA PARK HAYWOOD GREENVILLE, SC 1st Place Floral Design USAA PEAR ORCHARD RIDGELAND, MS 1st Place Beautification Award Mississippi Multifamily Council REFLECTION POINTE JACKSON, MS Best Entry Award Mississippi Multifamily Council RESERVE AT DEXTER LAKE MEMPHIS, TN Beautification Award, New Large Conventional; Memphis Apartment Association, 2nd Place RIVERHILLS GRENADA, MS Civic Pride Award, Grenada County Chamber of Commerce RIVER TRACE MEMPHIS, TN Beautification Award, Memphis City Beautiful Commission RUNAWAY BAY MT. PLEASANT, SC Civic Pride Award Mt. Pleasant Pride Committee SAVANNAHS AT JAMES LANDING MELBOURNE, FL Best Property Runner-up City of Melbourne SPRING CREEK GREENVILLE, SC 2nd Place Beautification Award USAA STEEPLECHASE CHATTANOOGA, TN Show Award, Chattanooga Apartment Association STONEMILL VILLAGE LOUISVILLE, KY Landscape Awards Program Winner, Beautification League of Louisville and Jefferson County Mid-America Apartment Communities, Inc. 6584 Poplar Avenue, Suite 300 Memphis, TN 38138 901-682-6600 www.maac.net