MID-AMERICA APARTMENT COMMUNITIES, INC. Annual Report 2002 FINANCIAL HIGHLIGHTS Dollars in thousands, except per share data Total revenues Net income Preferred dividend distribution Amount paid to retire preferred stock in excess of carrying values Net income (loss) available for common shareholders Real estate depreciation and amortization Adjustment for joint ventures depreciation Minority interest Gain (loss) on dispositions, net Gain (loss) on sale of non-depreciable assets Extraordinary items – loss on early extinguishment of debt Amount paid to retire preferred stock in excess of carrying values Years Ended December 31 2002 2001 2000 $ 233,139 $ 232,961 $ 227,487 $ 16,141 $ 28,698 $ 29,787 16,029 2,041 (1,929) 53,906 1,430 493 (397) (45) 1,339 2,041 16,113 — 12,585 51,457 1,268 2,573 (11,933) 229 1,033 — 16,114 — 13,673 51,330 1,210 2,626 (11,587) — 204 — Funds from operations $ 56,838 $ 57,212 $ 57,456 Weighted average common shares, diluted Weighted average shares and units, diluted Net income (loss) available per common shares, diluted* Funds from operations per shares and units, diluted Dividends per share Real estate owned, at cost Construction in progress Investment in real estate joint ventures Total debt Shareholders’ equity and minority interest Market capitalization (shares and units) Number of properties including ownership interest Number of apartment units including ownership interest 17,561 20,613 (0.11) 2.76 2.34 $ $ $ 17,532 20,464 0.72 2.80 2.34 $ $ $ 17,597 20,551 0.78 2.80 2.32 $ $ $ $1,478,793 $1,449,720 $1,430,378 $ $ 3,223 15,000 $ 803,703 $ 371,576 $ 673,431 123 33,923 $ $ 10,915 7,045 $ $ 28,523 7,630 $ 779,664 $ 781,089 $ 442,260 $ 485,376 $ 709,224 $ 634,903 122 33,411 124 33,612 * For periods where the Company reported a net loss available for common shareholders, the effect of dilutive shares has been excluded from net loss available per common shares computations because including such shares would be anti-dilutive. DIVIDEND PER COMMON SHARE (IN DOLLARS) 2.30 2.32 2.34 2.34 2.20 2.14 2.04 2.00 1.21 94 95 96 97 98 99 00 01 02 ANNUALIZED COMMON SHAREHOLDER RETURNS (PERCENT AS OF DECEMBER 31, 2002) MAA SINCE IPO MAA 3-YEAR RETURNS MAA 2002 RETURNS 2002 MORGAN STANLEY APARTMENT SECTOR 2002 AVERAGE OF GEOGRAPHIC PEERS 2002 DOW JONES INDEX 2002 NASDAQ RETURNS 13.9 11.9 1.9 -4.7 -12.6 -16.8 -37.6 Investment performance and safety is more important than ever, and investors are looking for real assets, strong corporate governance and steady investment returns. Mid-America Apartment Communities offers real worth with brick- and-mortar assets, ethical corporate governance and long-term, solid return on investment. Sound strategic planning and hands-on operations ensure that our properties are located in well-diversified markets and are always in top GET REAL condition. Management’s active involvement with residents, employees and investors keeps us in touch with every aspect of the business and mindful of the individual people that we serve. Real assets. Real people. Real worth. It’s the promise we make and the guiding principal behind the way we work to create great homes for our residents and solid performance for our shareholders. CONTENTS LETTER TO OUR FELLOW OWNERS 2 GET REAL 4 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 34,507 apartments in 12 states (as of March 17, 2003) 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 positioning 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. TENNESSEE Chattanooga 4 Jackson 5 Memphis 11 Nashville Metro 4 TEXAS Austin 4 Dallas Metro 8 Houston Metro 4 VIRGINIA Hampton REGIONAL OFFICES AND TRAINING CENTERS Atlanta, GA Dallas, TX Greenville, SC Jacksonville, FL Memphis, TN Nashville, TN APARTMENT COMMUNITIES ALABAMA Birmingham Huntsville 2 Montgomery ARKANSAS Little Rock 3 FLORIDA Daytona Beach Gainesville Jacksonville 10 Lakeland Melbourne Ocala Orlando Panama City Beach Tallahassee Tampa Metro 4 GEORGIA Athens Atlanta Metro 7 Augusta 3 Brunswick Columbus 2 LaGrange Macon/Warner Robins 4 Savannah St. Simons Island Thomasville Valdosta 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 TOP ROW FROM LEFT: SAVANNAHS AT JAMES LANDING, MELBOURNE, FL; FAIRWAYS AT HARTLAND, BOWLING GREEN, KY; GRANDE VIEW, NASHVILLE, TN; KENWOOD CLUB, KATY, TX; LINCOLN ON THE GREEN, MEMPHIS, TN; HUNTINGTON CHASE, WARNER ROBINS, GA; THE PADDOCK CLUB, PANAMA CITY BEACH, FL; HUNTER’S RIDGE, JACKSONVILLE, FL; AND GREEN OAKS, DALLAS, TX. BOTTOM ROW FROM LEFT: THE RESERVE AT DEXTER LAKE, MEMPHIS, TN; TERRACES AT TOWNE LAKE, WOODSTOCK, GA; LINCOLN ON THE GREEN, MEMPHIS, TN; THE VILLAGE, LEXINGTON, KY; PRESTON HILLS, ATLANTA, GA; THE PADDOCK CLUB, PANAMA CITY BEACH, FL; HUNTER’S RIDGE, JACKSONVILLE, FL; THE RESERVE AT DEXTER LAKE, MEMPHIS, TN; AND GRANDE VIEW, NASHVILLE, TN. ➥ TO OUR FELLOW OWNERS H. ERIC BOLTON JR. CHAIRMAN AND CEO During a year that brought uncertainty to the economy and capital markets along with questions concerning the real value of corporate stocks, your investment in Mid-America Apartment Communities held firm. For the year 2002 Mid-America outperformed the Dow Jones Index, NASDAQ, the S&P 500 and the Apartment Sector of the Morgan Stanley REIT Index. While the Mid-America shareholder investment return for 2002 of 1.9 percent is well below what we are satisfied with, it is very reassuring that, despite significant pressure from a weak economy, an excessive supply of new apartment homes in many markets and the strongest home buying market on record, Mid-America returns remain positive and shareholder values remain firm — unlike the performance of many other stocks. We think that it’s the combination of real assets aggressively managed by real people that provides Mid-America residents and owners real worth in any economy. Our hands-on approach to property management means that all members of management are in constant contact with our properties and our associates. This is not a business that is successfully run sitting behind a desk, and we understand the importance of “minding the store.” The foundation of our company culture is a focus on operating strength and pro- ductivity — an important differentiation over the long haul in a highly competitive industry such as ours. In 2002, various new utility expense management and billing initiatives, ancillary fee income programs, employee training and a number of recently installed systems upgrades help ensure that Mid-America’s operation will continue to generate new value from existing properties and further position the company to grow funds from operations (FFO). A large part of creating value in our communities is ensuring that curb appeal is high and that each of our properties is appealing to existing and prospective residents. The superiority of Mid-America’s 34,500 apartment homes was evi- denced again during 2002 by the numerous industry and civic awards received from a variety of organizations. We know that in addition to creating great places to live for our residents, we must also maintain and steadily grow the value of our properties for our shareholders. That’s one reason we’ve chosen to concentrate our efforts in the southeast and south central United States — a region that has historically shown stronger and more stable population and economic growth than other regions of the country. Our focus on stable growth has led us to avoid the volatility associated with the narrow, very top-end and lower-end rental market segments and instead concentrate on apartment properties that meet the needs of the largest segment of the rental market. It is also the reason we diversify our capital over broad market segments — from major metropolitan markets to smaller tertiary cities — each offering differing growth and stability characteristics. This focus on operations in well diversified markets in the most stable growth region of the country with properties that serve the largest segment of the rental market allows us to better protect and grow shareholder value through all phases of mar- ket and economic cycles on a lower risk basis. IT’S THE COMBINATION OF REAL ASSETS AGGRESSIVELY MANAGED BY REAL PEOPLE THAT PROVIDES MID-AMERICA RESIDENTS AND OWNERS REAL WORTH IN ANY ECONOMY. The apartment industry and Mid-America were clearly “stress tested” during 2002. Rental concessions and vacancy losses ran at levels beyond anything we’ve seen since becoming a public company in 1994. While Mid-America is not completely recession proof, our unique strategy and approach to this business has clearly created a more recession-resistant operation. We are encouraged that, relatively speaking, Mid-America continues to perform in a stable and predictable fashion, and we are excited about the up-side opportunity in revenues from our existing portfolio of properties as market conditions improve. We also kicked off a new joint venture acquisitions initiative in 2002 that we feel will be a significant contributing factor in future FFO growth. Mid-America made solid progress during 2002 in strengthening and improving our balance sheet, in part because we entered this sluggish part of the economic cycle without the heavy burden of funding non-earning new construction projects. Our ability to achieve full productivity from the balance sheet and investment capital during this weak part of the economic cycle is one of the reasons that your investment returns in 2002 outperformed most other apartment REITs. While the low interest rate environment pressured property operations and drove home buying to record levels, we took full advantage of these conditions to refinance and restructure a significant part of our debt and capital structure. We have reduced the average interest rate on our debt from 6.3 percent at year-end 2001 to 5.4 percent in early March 2003, including the refinancing completed in early 2003. Our coverage ratios also improved during 2002, and our balance sheet is well posi- tioned to meet a recovering economy and an eventual rise in interest rates. Another important element of our company culture is reaching out beyond our properties, and Mid-America’s Open Arms Foundation provides us with a great opportunity to connect to surrounding communities and residents by providing free, fully furnished apartments to families in medical crisis who are far from home. We have established 27 Open Arms units throughout our portfolio, where utilities are paid, pantries are stocked and families can find a haven from the stress of medical treatment. It’s been an amazing experi- ence that has had a profound effect on all who work at Mid-America — deepening our respect for others and broadening the service we provide to our com- munities. WE ARE ALL ALIGNED AS OWNERS, AND HAVE ALL BEEN LARGELY RESPONSIBLE FOR A SOLID INVESTMENT RETURN You can rest assured that at Mid-America we take our responsibility for corporate governance seri- ously. Your Board of Directors is one of the most qualified and experienced boards of any public company and is comprised of a majority of non-management and inde- pendent directors who have a significant stake in the value and dividends associated with Mid-America’s stock. We are all aligned as owners, and have all been largely responsible for a solid investment return of 11.9 percent compounded annu- ally since going public in 1994. And the majority of that return to you has been in real terms — cash dividends. While we know that 2003 will present another challenging operating year for our industry as the economy works to reestablish a footing and build momentum, Mid-America is well positioned to meet the challenge. Our focus is on con- tinuing to strengthen dividend coverage, protect shareholder value and position for steady FFO growth from our existing properties as market conditions improve. We remain very disciplined in our approach to investing your capital and will only make new acquisitions that meet very thorough underwriting and strict investment guidelines. The apartment housing market is poised to rebound as the economy recovers, and the long-term outlook remains very positive. The forecasted continued movement of the “Y Generation” into the job market will further strengthen the demand for apartment housing — especially in the southeast and south central U.S. This year’s annual report is about getting real, which implies not only “real estate” investment, but also our focus to deliver real value for our shareholders by combining real assets with the hard work and capabilities of all our associates at Mid-America. We appreciate your support and trust in our team. H. Eric Bolton Jr. CHAIRMAN AND CEO 2 3 REAL DIVIDEND ADVANTAGES IN VOLATILE ECONOMIES As a real estate investment trust (REIT), Mid-America offers shareholders a hedge against volatility, a history of stable investment returns and a way to invest in real estate without the expense and headaches of being a landlord. REITs are required by law to distribute at least 90 percent of taxable income to shareholders. Over the past three turbulent economic years, Mid-America has outperformed U.S. benchmarks, including the Dow Jones Index, NASDAQ and the apartment sector of the Morgan Stanley REIT Index, which measures us against our peers. Our continual focus is on strengthening dividend payouts by keeping our award-winning properties profitable in all economic environments. That’s why we con- centrate our operations in the stable growth region of the southeast and south central U.S. with hands-on management of apartment communities targeted to the largest market segment of renters. It’s a conservative strategy focused on steady performance and careful growth that results in a real dividend advantage for our shareholders in all economic environments. HAVING OUTPERFORMED THE DOW JONES INDEX, NASDAQ AND OUR APARTMENT REIT PEER GROUP, MID-AMERICA IS GIVING INVESTORS SOMETHING TO SMILE ABOUT. Stephen A. Wechsler, president and CEO of NAREIT (speaking with John Salustri of GlobeSt.com) 5 “REITs have outperformed all the major indices, whether it’s the S&P 500, NASDAQ or Dow Jones. REITs have done better and with less volatility. One of the reasons is the dividend. They’re significant and not to be underestimated.” REAL ASSETS CONSISTENTLY RECOGNIZED AS SUPERIOR A REIT is only as good as the properties it owns. Mid-America’s 34,500 apartment homes in the southeast and south central United States continue to earn overwhelming recognition for management, landscaping and curb appeal. At 12 years, our average portfolio age is among the newest of all apartment REITs. Our $300 million new development phase is at an end and poised to produce higher revenues. Our portfolio is stabi- lized, in excellent condition and in position to generate higher profits and value as the economy recovers. Our management style is hands-on. We hire and fully-train all on-site personnel, and management is actively and directly engaged in all operations. The community environment at all of our properties includes activities for residents and opportunities for involvement with surrounding neighbors. We create great places to live, and that’s one reason Mid-America’s properties consistently outperform market occupancy levels and rent growth, adding value to our real assets. THE LOCATIONS, QUALITY AND STYLE OF OUR AWARD-WINNING APARTMENT COMMUNITIES ENABLE US TO ATTRACT A GREATER NUMBER OF RESIDENTS AND CONSISTENTLY OUTPERFORM MARKET OCCUPANCY LEVELS AND RENT GROWTH. Lynette Khalfani, DowJones Magazine 7 “The reason a REIT makes sense for most real estate investors is the same reason a mutual fund does. You probably don’t want to manage individual properties any more than you want to spend your days and nights looking after the 100 or so individual companies in your mutual fund.” REAL PEOPLE DEDICATED TO THOSE WE SERVE Mid-America’s corporate culture is driven by dedication to the people we serve — our residents, employees and shareholders. We provide homes where people live and raise their families, and we get involved with our residents. Our Open Arms Foundation, an employee-driven plan to donate apartments to families facing medical crisis or long-term medical treat- ments, helped more than 127 families in 2002. Management maintains an open dialogue with employees, visiting them often on site. We are also mindful of the people behind the investments and the trust we have been given by thousands of Mid-America shareholders. “Our first, and probably our most important, guiding principal is to treat people with respect,” says H. Eric Bolton Jr., chairman and CEO of Mid-America. Couple that respect with sound financial sense, and you’ll know why Mid-America is a great place to live, to work and to invest for real people. RICK TARR, SERVICE TECHNICIAN AT THE RESERVE AT DEXTER LAKE, AND ANGEL RANDOLPH, PROPERTY MANAGER AT GLENEAGLES APARTMENTS, REPRESENT MID-AMERICA EMPLOYEES WHOSE COMBINED EFFORTS AND COMMITMENT HELP PRODUCE OUR BOTTOM-LINE PERFORMANCE. Miriam Lupkin, Editor, Multifamily Executive Magazine (speaking about H. Eric Bolton Jr., chairman and CEO of Mid-America) 9 “His goal is to meet the expectations of Mid-America’s three constituents — residents, employees and shareholders — and he does that by leading his team with compassion and faith, which makes Mid-America’s communities a place where people want to live and work.” REAL STABILITY THROUGHOUT MARKET AND ECONOMIC CYCLES Location, location, location — it’s the first rule of real estate. And Mid- America has been focused on profitable locations from the beginning. We choose to concentrate our efforts in the southeast and south central United States in large, middle and small tier markets, in part, because of the lower volatility provided by such a strategy. Greater population influx and greater job growth and stability in all economies hold truer in this region than any other part of the country. Keeping properties in the markets we best know and understand also corresponds well with our hands-on approach to property management. Our focus on operations and productivity improvement serves us well in all phases of the economic cycle. It is a key differentiating factor for Mid-America in this highly com- petitive industry and one of the reasons for our stable performance levels. ACQUISITION TEAM DON ALDRIDGE AND MELANIE WHITSON ASSIST MID-AMERICA IN ACQUIRING PROPERTIES THAT MEET OUR THOROUGH UNDERWRITING REQUIREMENTS. Mary M. Kent and Mark Mather, “What Drives U.S. Population Growth?” (Source: U.S. Census Bureau, Census 2000 Redistricting Data (P.L. 94-171) Summary File and 1990 Census (April 2, 2001, release; www.census.gov, accessed Nov. 18, 2002). 11 “The most impressive growth in recent decades has been in the South, which included 36 percent of the U.S. population in 2000, up from 31 percent in 1950. Population growth in the Southern and Western metro areas far outstripped that in the major metropolitan areas in the Northeast and Midwest, which experienced slow growth or even population losses.” MANAGEMENT’S DISCUSSION FROM LEFT: ERIC BOLTON, CHAIRMAN AND CEO; SIMON WADSWORTH, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER; AL CAMPBELL, VICE PRESIDENT, FINANCIAL PLANNING; TOM GRIMES, SENIOR VICE PRESIDENT, OPERATIONS DIRECTOR; NANCY ROBERTS, SENIOR VICE PRESIDENT, DIRECTOR OF ORGANIZATIONAL DEVELOPMENT; AND KEVIN PERKINS, VICE PRESIDENT, DIRECTOR OF CAPITAL IMPROVEMENTS AND MAINTENANCE OPERATIONS. Q. How has Mid-America responded to the recent new regulations surrounding Sarbanes-Oxley and requirements associated with corporate governance? A. Because we have always maintained a board of directors comprised of a majority of non- management and independent directors, it was not necessary to recommend to our shareholders changes to the composition of their Board. We asked each of our board committees to review their charters and have accordingly expanded and more specifically defined each committee’s roles and responsibilities. The Audit Committee of the Board of Directors has modified their process slightly as it pertains to quarterly earnings releases and is generally more involved in the review and release of quarterly earnings. Chief Financial Officer Simon Wadsworth and I have of course responded to new rules regarding management’s formal sign-off of the quarterly financials and stand behind the numbers that have been reported. continued to perform in a relatively stable and predictable fashion during this down part of the cycle. (2) The current gap between “funds available for distribution” and the distribution level is very manageable on our balance sheet. (3) As market conditions begin to improve, we believe that our stabilized portfolio of properties, by returning to “normal” levels of occupancy and leasing con- cessions, will clearly increase “funds available for distribution” to a point in excess of current dis- tributions. Furthermore, as we continue to make new property acquisitions our revenues and cash flow available for distribution is growing. Simon Wadsworth / Executive Vice President and Chief Financial Officer Q. Mid-America announced several new acquisitions over the last six months. Can you explain Eric Bolton / Chairman and Chief Executive Officer how you decide to invest and what requirements you have for investing shareholders’ capital? Q. How has Mid-America responded to the weaker market conditions and more sluggish rev- enue environment? A. We have always maintained a very heavy focus on property management operations and it is during these highly competitive phases of the real estate cycle where that strength and emphasis on property management really makes a difference. Thus our operations and approach remained rel- atively unchanged, with some increases in advertising and marketing activities. As important as assessing what we are doing during these highly competitive times, it is equally important to assess what we are not doing. We are not compromising our commitment to maintaining our properties in top condition and we are not compromising our leasing standards by allowing non-qualified resi- dents to move into our properties. In fact, over the course of 2002, we have instituted new web- based lease application review processes designed to strengthen lease qualification procedures. Tom Grimes / Senior Vice President and Operations Director Q. Mid-America did not increase its dividend level in 2002 as it had in prior years. Several of your peers announced reductions in their dividend pay-out levels. Is Mid-America’s current dividend level safe? A. Within the range of our earnings forecast for 2003, we believe that our current level of div- idend pay-out is secure and we remain focused on continuing to improve coverage. Our position that the current dividend pay-out level is safe is supported by the following: (1) Unlike most of the other apartment REITs that have been forced to cut their dividend pay-outs, Mid-America does not currently have a new development pipeline that must be paid for. Our portfolio of properties has A. We have always maintained a very disciplined approach to investing capital. Overall, our approach is governed by, first, a detailed underwriting and very thorough inspection and review of the real estate and surrounding market conditions — all reflected in conservative assumptions per- taining to forecasted operating performance. Second, our forecasted return on capital must clear a minimum internal rate of return threshold within a five-year investment performance window. And finally, our assumptions regarding eventual exit or sale of the investment are conservatively made with exit “cap rates” equal to the purchase cap rate with no more than a 50 basis point swing, thereby requiring the return to be supported by operating performance rather than easily manipu- lated sales price assumptions. Al Campbell / Vice President of Financial Planning Q. How has Mid-America responded to the record low interest rate environment? A. Since year-end 2001, we have refinanced $271 million of our total debt. As a result, as of early March, the average cost of debt for Mid-America is at 5.4 percent, a full 90 basis points below our cost of debt at year-end 2001. In addition to achieving a significant reduction in our cost of debt, we have also reworked maturities and have “laddered” the interest rate risk within our debt portfolio such that we have between $50 million and $81 million scheduled to mature in each year through 2009, a very steady and manageable refinancing forecast which will help us manage debt cost in a rising interest rate environment. In addition to refinancing debt, we also completed a $25 million refinancing of our preferred stock, and lowered the cost of this capital by 40 basis points on an annual basis. Simon Wadsworth / Executive Vice President and Chief Financial Officer 12 13 FROM LEFT: LEE LITTLE, SENIOR VICE PRESIDENT, OPERATIONS DIRECTOR; JAMES MACLIN, VICE PRESIDENT, DIRECTOR OF ASSET MANAGEMENT; AND GINNY DOANE, SENIOR VICE PRESIDENT, OPERATIONS DIRECTOR. Q. What do you see as the immediate and long-term prospects for multifamily housing and Mid- America? A. We expect market conditions to remain sluggish until the economy begins to create a more robust job growth environment. In addition, the strength and timing of the apartment market recovery will be tied to the level of new construction supply that is delivered to the markets over the next year or so. A rise in interest rates will likely be necessary to choke off the supply train that has con- tinued to deliver new units into an overall market where demand is down. We expect that it will likely be sometime in 2004 before we see market conditions improve appreciably. Of course, various markets will react differently during this cycle and subsequent recovery. We expect that our smaller market group will continue to perform in a fairly stable fashion over the next year. Several of our middle market areas should continue to post good year-over-year improvement, including Memphis and Jacksonville. It will be next year before we see a resumption of significant improvement in large markets such as Dallas and Atlanta. Long-term, the outlook for apartment housing looks very good. Through the steady movement of the “Y-Generation” demographic group into their early career years, the demand side of the equation looks very promising for apartment housing. This is especially true for the southeast and south central region of the U.S. Eric Bolton / Chairman and Chief Executive Officer 14 FINANCIAL SUMMARY CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF OPERATIONS 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 ventures 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, $170,333,250 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 at December 31, 2001, 0 shares at 9.5% Series E Cumulative at December 31, 2002 474,500 shares at 9.25% Series F Cumulative 400,000 shares at 8.625% Series G Cumulative Common stock, $.01 par value (authorized 50,000,000 shares; issued 17,840,183 and 17,452,678 shares at December 31, 2002 and December 31, 2001, respectively) Additional paid-in capital Other Accumulated distributions in excess of net income Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity December 31 2002 2001 $ 124,130 1,290,478 34,531 3,223 1,452,362 (283,593) 1,168,769 1,366 7,088 15,000 $ 124,993 1,265,327 32,290 10,915 1,433,525 (229,913) 1,203,612 1,366 4,910 7,045 1,192,223 1,216,933 10,594 7,463 10,296 18,891 12,192 11,240 10,415 12,708 $1,239,467 $1,263,488 $ 803,703 $ 779,664 464 55,372 4,406 3,946 867,891 1,219 31,691 4,514 4,140 821,228 33,405 43,902 20 19 20 — 5 4 20 19 20 10 — — 178 558,479 (4,299) (188,155) (28,100) 338,171 175 552,705 (774) (145,061) (8,756) 398,358 $1,239,467 $1,263,488 Dollars in thousands, except per share data Revenues: Rental revenues Other property revenues Total property revenues Interest and other non-property income Management and fee income, net Equity in loss of real estate joint ventures 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 disposition of assets and insurance settlement proceeds, minority interest in operating partnership income and extraordinary items Net gain on disposition of assets and insurance settlement proceeds 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 Amount paid to retire preferred stock in excess of carrying values Net income (loss) available for common shareholders Net income (loss) available per common share: Basic (in thousands): Average common shares outstanding Basic earnings per share: Year Ended December 31 2002 2001 2000 $224,120 8,039 232,159 737 775 (532) $223,410 7,782 231,192 1,310 755 (296) $219,039 6,340 225,379 1,526 739 (157) 233,139 232,961 227,487 26,267 9,387 28,950 11,351 6,210 10,677 55,263 148,105 8,633 6,665 49,448 2,712 215,563 24,704 9,443 26,594 11,893 6,278 10,594 52,051 24,268 9,701 25,021 10,481 6,027 10,795 51,844 141,557 138,137 9,561 6,522 52,598 2,352 8,808 6,018 50,736 2,758 212,590 206,457 17,576 20,371 21,030 397 11,933 11,587 17,973 493 17,480 (1,339) 16,141 16,029 2,041 32,304 2,573 29,731 (1,033) 28,698 16,113 — 32,617 2,626 29,991 (204) 29,787 16,114 — $ (1,929) $ 12,585 $ 13,673 17,561 17,427 17,544 Net income (loss) available per common share $ (0.03) $ 0.78 $ 0.79 before extraordinary items Extraordinary items Net income (loss) 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 (loss) available per common share before extraordinary items Extraordinary items Net income (loss) available per common share (0.08) $ (0.11) (0.06) $ 0.72 (0.01) $ 0.78 17,561 — 17,561 $ $ (0.03) (0.08) (0.11) 17,427 105 17,532 $ $ 0.78 (0.06) 0.72 17,544 53 17,597 $ $ 0.79 (0.01) 0.78 16 17 SELECTED FINANCIAL DATA 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, 2002, and 2001, 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, 2002 (not presented herein); and in our report dated February 10, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated finan- cial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. KPMG LLP Memphis, Tennessee February 10, 2003 Dollars in thousands, except per share data 2002 2001 2000 1999 1998 Year Ended December 31 OPERATING DATA Total revenues Expenses: Property operating expenses Depreciation and amortization General and administrative and property management expenses 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 Amount paid to retire preferred stock in excess of carrying values $ 233,139 $ 232,961 $ 227,487 $ 226,322 $ 215,543 92,842 55,263 15,298 49,448 2,712 397 17,973 (493) (1,339) 16,141 16,029 89,506 52,051 16,083 52,598 2,352 11,933 32,304 (2,573) (1,033) 28,698 16,113 86,293 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 2,041 — — — — Net income available for common shareholders $ (1,929) $ 12,585 $ 13,673 $ 17,458 $ 15,327 PER SHARE DATA Basic and diluted: Before extraordinary items Extraordinary items Net income available per common share Dividends declared 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) Market capitalization (shares and units) Ratio of total debt to total capitalization1 Number of properties, including joint venture ownership interest Number of apartment units, including joint venture ownership interest $ $ $ (0.03) (0.08) (0.11) 2.340 $ $ $ 0.78 (0.06) 0.72 2.340 $ $ $ 0.79 (0.01) 0.78 2.325 $ $ $ 0.93 — 0.93 2.305 $ $ $ 0.87 (0.05) 0.82 2.225 $1,478,793 $1,449,720 $1,430,378 $1,396,743 $1,434,733 $1,192,223 $1,216,933 $1,244,475 $1,248,051 $1,315,368 $1,239,467 $1,263,488 $1,303,771 $1,298,823 $1,366,427 $ 803,703 $ 779,664 $ 781,089 $ 744,238 $ 753,427 $ 33,405 $ 43,902 $ 50,020 $ 55,550 $ 61,441 $ 338,171 $ 398,358 $ 435,356 $ 464,394 $ 517,299 17,561 17,561 17,427 17,532 17,544 17,597 18,784 18,808 18,725 18,770 $ 673,431 $ 709,224 $ 634,903 $ 639,095 $ 670,123 54.4% 123 52.4% 122 55.2% 124 53.8% 129 52.9% 129 33,923 33,411 33,612 33,901 33,831 1 Total capitalization is total debt and market capitalization of preferred shares (value based on $25 per share liquidation preference), common shares and partnership units (value based on common stock equivalency). 18 19 INVESTOR INFORMATION CIVIC AND INDUSTRY AWARDS DIRECTORS H. Eric Bolton Jr. Chairman and Chief Executive Officer Mid-America Apartment Communities George Cates Founder, Former Chairman and CEO Mid-America Apartment Communities Robert F. Fogelman President Fogelman Investment Company Simon R.C. Wadsworth Executive Vice President and Chief Financial Officer Mid-America Apartment Communities John F. Flournoy Chairman and Chief Executive Officer Flournoy Development Company John S. Grinalds President The Citadel Ralph Horn Chairman and Chief Executive Officer First Tennessee National Corporation Michael S. Starnes President M.S. Carriers, a subsidiary of Swift Transportation Alan B. Graf Jr. Executive Vice President and Chief Financial Officer FedEx Corporation 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 2003 annual meeting of shareholders on Monday, June 2nd, 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, 2002, 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 our web site at www.maac.net. TRANSFER AGENT AND REGISTRAR Wachovia Bank Shareholders who have questions about their accounts or who wish to change own- ership 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, MAA Pr C, and MAA Pr F. Sales Prices Dividends Sales Prices Dividends Fiscal 2002 High Low Declared Fiscal 2001 High Low Declared First Quarter $26.75 $25.10 $0.585 First Quarter $23.88 $21.73 $0.585 Second Quarter $27.42 $25.51 $0.585 Second Quarter $25.75 $22.42 $0.585 Third Quarter $26.90 $22.25 $0.585 Third Quarter $26.42 $24.40 $0.585 Fourth Quarter $25.44 $22.00 $0.585 Fourth Quarter $26.76 $24.40 $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 REFLECTION POINTE JACKSON, MISSISSIPPI Mississippi Multifamily Council Beautification Award THE RESERVE AT DEXTER LAKE MEMPHIS, TENNESSEE Best Landscaping and Best Clubhouse, Memphis Apartment Association Diamond Achievement Awards RUNAWAY BAY MT. PLEASANT, SOUTH CAROLINA Alhambra Applauds Award Mt. Pleasant Garden Club SAVANNAHS AT JAMES LANDING MELBOURNE, FLORIDA Beautification & Environmental Advisory Committee 2002 Beautification Award TANGLEWOOD ANDERSON, SOUTH CAROLINA First Place in Landscape Design – Golden Division, Upper State Association THE VILLAGE LEXINGTON, KENTUCKY Triple Crowne Award (Top Honors), Lexington Apartment Association WESTSIDE CREEK LITTLE ROCK, ARKANSAS Little Rock City Beautiful Award for Continued Excellence THE WOODS OF POST HOUSE JACKSON, TENNESSEE Mayor’s Civic Pride Award: Best Landscaping 2002 INDIVIDUAL WINNERS PROPERTY WINNERS H. ERIC BOLTON JR. CHAIRMAN AND CEO MID-AMERICA APARTMENT COMMUNITIES Multifamily Executive Magazine’s 2002 Executive of the Year DEBBIE BAXLEY PROPERTY MANAGER, GEORGETOWN GROVE SAVANNAH, GEORGIA Service Award, Savannah Apartment Association HECTOR CARRILLO LANDSCAPE TECHNICIAN, GREENBROOK MEMPHIS, TENNESSEE Groundskeeper of the Year, Memphis Apartment Association Diamond Achievement Awards ROBERT DAUGHERTY ASSISTANT MANAGER,GREENBROOK MEMPHIS, TENNESSEE Assistant Manager of the Year, Memphis Apartment Association Diamond Achievement Awards TAMARA DAVIS PROPERTY MANAGER, GREENBROOK MEMPHIS, TENNESSEE Property Manager of the Year, Memphis Apartment Association Diamond Achievement Award CASEY KELVINGTON THE VILLAGE LEXINGTON, KENTUCKY Leasing Consultant of the Year, Lexington Apartment Association Crowne Excellence Awards LORI PENN GRAND RESERVE LEXINGTON, KENTUCKY Leasing Manager of the Year, Lexington Apartment Association Crowne Excellence Awards KATHERINE PITTMAN GRAND RESERVE LEXINGTON, KENTUCKY Housekeeper of the Year, Lexington Apartment Association Crowne Excellence Awards MELISSA WEST NORTH REGION, AREA MANAGER MID-AMERICA APARTMENT COMMUNITIES Property Supervisor of the Year, Lexington Apartment Association Crowne Excellence Awards KENNETH WAYNE WILKES LEAD SERVICE TECHNICIAN, GREENBROOK MEMPHIS, TENNESSEE Maintenance Technician of the Year, Memphis Apartment Association Diamond Achievement Awards LORETTA WILLIAMS HOUSEKEEPER, GREENBROOK MEMPHIS, TENNESSEE Housekeeper of the Year, Memphis Apartment Association Diamond Achievement Awards ABBINGTON PLACE HUNTSVILLE, ALABAMA City of Huntsville Beautiful Commission Beautification Award CALAIS FOREST LITTLE ROCK, ARKANSAS Little Rock City Beautiful Commission 2002 Landscape Award for Voluntary Upgrade THE COLONY AT SOUTH PARK AIKEN, SOUTH CAROLINA Best of the Best Apartment Community, Aiken Standard Readers’ Poll CROSSWINDS JACKSON, MISSISSIPPI Mississippi Multifamily Council Beautification Award EAGLE RIDGE BIRMINGHAM, ALABAMA First Place Beautification Award, Greater Birmingham Association of Home Builders Multifamily Council FAIRWAYS AT HARTLAND BOWLING GREEN, KENTUCKY Warren County Operation Pride Award FAIRWAYS AT ROYAL OAK CINCINNATI, OHIO Second Laurel Award in the Cincinnati Civic Garden Center’s Beautification Award GEORGETOWN GROVE SAVANNAH, GEORGIA Gold Winner – Landscaping, Best Display – 2002 Food Drive, Top Canner – 2002 Food Drive, Savannah Apartment Association GRAND RESERVE NASHVILLE, TN National Apartment Association PARAGON Award, Best Garden Apartment Community GRANDE RESERVE LEXINGTON, KENTUCKY Best in Show (Highest Award), Triple Crowne Award (Top Honors), Lexington Apartment Association GRANDE VIEW NASHVILLE, TENNESSEE Second Place Beautification Award, Greater Nashville Apartment Association GREENBROOK MEMPHIS, TENNESSEE Best Landscaping, Memphis Apartment Association Diamond Achievement Awards HIGHLAND RIDGE TAYLORS, SOUTH CAROLINA First Place in Floral Design – Golden Division, Second Place in Landscape Design – Golden Division, Upper State Apartment Association LAKEPOINTE LEXINGTON, KENTUCKY Triple Crowne Award (Top Honors), Lexington Apartment Association LAKESHORE LANDING JACKSON, MISSISSIPPI Mississippi Multifamily Beautification Award LINCOLN ON THE GREEN MEMPHIS, TENNESSEE Best Landscaping, Memphis Apartment Association Diamond Achievement Awards THE MANSION LEXINGTON, KENTUCKY Triple Crowne Award (Top Honors), Lexington Apartment Association; Lexington Federated Garden Club “Lexington in Bloom” Award THE PADDOCK CLUB HUNTSVILLE, ALABAMA City of Huntsville Beautiful Commission Beautification Award THE PADDOCK CLUB MURFREESBORO, TENNESSEE Third Place Beautification Award, Greater Nashville Apartment Association THE PARK HERMITAGE, TENNESSEE Second Place Beautification Award, Greater Nashville Apartment Association PARK PLACE SPARTANBURG, SOUTH CAROLINA First Place in Floral Design – Established Division and Second Place in Landscape Design – Established Division, Upper State Apartment Assoc.; Honorable Mention, Spartanburg Men’s Garden Club and Spartan- burg Chamber of Commerce Annual Beautification Awards PEAR ORCHARD JACKSON, MISSISSIPPI Business of the Month, City of Ridgeland Beautification Committee and Mississippi Multifamily Council Beautification Award 20 21 Mid-America Apartment Communities, Inc. 6584 Poplar Avenue, Suite 300 Memphis, TN 38138 901-682-6600 www.maac.net