Mid-America Apartment Communities
Annual Report 2003

Plain-text annual report

Mid-America Apartment Communities Creating Great Places to LIVE... 2003 ANNUAL REPORT ...Work & Invest MID-AMERICA APARTMENT COMMUNITIES (MAA:NYSE) is a publicly traded real estate investment trust which currently owns or has ownership interest in 36,712 apartment homes throughout the southeast and south central United States. Stability Consistency Regional Focus Mid-America Apartment Communities FOCUSED on Operations… Paramount to Mid-America’s success is a company culture of supporting our associates working at the properties. We have a firm understanding that in addition to having superior properties and locations, ultimately, the act of actually “minding the store” is what matters. All of us at Mid-America are actively involved in supporting our associates working on the front line at the properties. We are constantly focused on searching for new and creative ways to drive more productivity and efficiency into our operation. This focus is a prominent component of our company’s philosophy. During 2004 we will be implementing a new web-based revenue and property management system. This new capability will provide an efficient platform for introducing more “pricing points” in Mid-America’s overall pricing structure, create enhanced capabilities for more aggressive inventory management practices and generate more efficiencies in both on-site and corporate level payables and bookkeeping operations. The Open Arms Foundation is Mid-America’s corporate charity. Since 1994, Open Arms has provided a home away from home for families in medical crisis by offering fully-furnished and equipped two-bedroom apartment homes free of charge to families with long-term hospital care needs away from their normal residence. In 2003, Open Arms gave 6,734 nights of comfort to families in need. Financial HIGHLIGHTS (Dollars and shares in thousands, except per share data) Net income Preferred dividend distribution Premiums and original issuance costs associated with the redemption of preferred stock(1) Net income (loss) available for common shareholders Depreciation and amortization real estate assets Depreciation and amortization real estate assets of unconsolidated entities Minority interest in operating partnership income Net gain on insurance settlement proceeds and disposition of assets (Gain) loss on sale of non-depreciable assets Depreciation and amortization real estate assets of discontinued operations Gain on sale of discontinued operations Funds from operations Weighted average shares, diluted(2) Net income (loss) available for common shareholders, diluted(2) Weighted average shares and units, diluted Funds from operations per shares and units, diluted Dividends per share Real estate owned, at cost Capital improvements in progress(3) Investment in real estate joint ventures Total debt Shareholders’ equity and minority interest Market capitalization, shares and units Number of properties, including ownership interest(4) Number of apartment units, including ownership interest(4) Years Ended December 31 2002 2003 2001 $ 20,206 (15,419) $ 16,141 (16,029) $ 28,698 (16,113) (5,987) (1,200) 57,645 2,345 1,360 (2,942) — 78 (1,919) (2,041) (1,929) 53,753 1,430 388 (397) (45) 153 — — 12,585 51,332 1,268 2,417 (11,933) 229 125 — 55,367 $ 53,353 $ 56,023 18,374 17,561 (0.07) $ (0.11) $ $ $ 21,354 2.59 $ 2.34 $ $1,695,111 7,335 $ $ 12,620 $ 951,941 $ 393,313 $ 939,581 127 35,734 20,613 2.59 $ 2.34 $ $1,478,793 3,223 $ $ 15,000 $ 803,703 $ 371,576 $ 673,431 123 33,923 17,532 0.72 20,464 2.74 $ 2.34 $ $1,449,720 10,915 $ $ 7,045 $ 779,664 $ 442,260 $ 709,224 122 33,411 (1) Original issuance costs represent non-cash charges. (2) 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 for common shareholders per common shares computations because including such shares would be anti-dilutive. (3) Total for 2001 includes construction in progress. (4) Years prior to the period in which the sale of a community classified it as a discontinued operation do not exclude the property from property and apartment unit totals. ANNUALIZED COMMON SHAREHOLDER RETURNS As of February 26, 2004 As of December 31, 2003 . 4 6 9 % M A A 2 0 0 3 . 2 9 8 % . 2 5 3 % . 2 8 7 % . 2 6 9 % M A A 3 - Y e a r D o w J o n e s I n d e x Y T D 2 0 0 3 A p a r t m e n t S e c t o r o f M o r g a n S t a n l e y R E I T I n d e x Y T D 2 0 0 3 S & P 5 0 0 T o t a l R e t u r n Y T D 2 0 0 3 . 1 6 0 % M A A S i n c e I P O . 9 2 % M A A Y T D 2 0 0 4 1 . 0 % A p a r t m e n t S e c t o r o f M o r g a n S t a n l e y R E I T I n d e x Y T D 2 0 0 4 1 . 2 % D o w J o n e s I n d e x Y T D 2 0 0 4 3 . 2 % S & P 5 0 0 T o t a l R e t u r n Y T D 2 0 0 4 DIVIDEND PER COMMON SHARE (in dollars) 0 3 2 $ . 2 3 2 $ . 4 3 2 $ . 4 3 2 $ . 4 3 . 2 $ 0 2 2 $ . 4 1 2 $ . 4 0 2 $ . 0 0 2 $ . 1 2 1 $ . ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 1 Creating Great Places to Live... 2 Through STABILITY Mid-America out-performed the apartment located in desirable neighborhoods, which tar- REIT sector last year, as well as over 3-year, 5-year gets the largest segment of the rental market. By and 10-year timeframes, as a result of several offering a rental product catering to the large factors: A diversified regional approach, an middle market segment, avoiding the risks and appealing product, an intense focus on property volatility at both the low end and the very upper management operations—what we call “minding the store”—and a conservative business strategy. “MID-AMERICA OUT-PERFORMED THE In the last few years Mid-America APARTMENT REIT end product spectrum, we maintain more stability in portfolio perform- ance and greater capability to com- pete in all market environments. has concentrated on the acquisition SECTOR LAST YEAR, AS Another important aspect of —not the development—of apart- WELL AS OVER 3-YEAR, ensuring stable performance is our ment properties. We know that new 5-YEAR AND 10-YEAR focus on property operations and development is inherently more risky and less predictable. We will continue to introduce new prop- HORIZONS” our constant push for new produc- tivity and efficiencies. In addition to the new web-based revenue and erties into the portfolio, but we will do so property management system, this year we are through opportunistically acquiring them rather also rolling out a new on-line marketing and than building them. Our concentration on own- advertising program focused on leveraging ing and buying established properties assures greater use of the internet and our e-commerce our shareholders a more predictable cash flow platform. We believe finding new ways to reach and enables us to generate more stable returns out to new and existing residents, and making to investors with lower risk. their communication and transaction interface Mid-America’s apartment product focus is moderate to slightly higher-priced rental housing with our properties easier, will continue to deliver stable, positive results. 3 Creating Great Places to Live... Mid-America properties continued to earn numerous civic During 2003 we completed new “revenue enhancing” and industry accolades throughout 2003, supporting our belief projects of $9.5 million throughout the portfolio, with that the Mid-America portfolio of properties represents one another $5.4 million slated to be completed in 2004. This of the highest quality portfolios among the apartment REIT consistent focus on protecting and upgrading property quality sector. Mid-America’s portfolio has an average age of 12.9 helps to ensure that Mid-America’s properties will continue years; one of the newer portfolios of any apartment REIT. to compete well in these highly Over the course of the last five years Mid-America has “OUR CONSISTENT competitive markets, but also added $267 million of new properties to the portfolio FOCUS ON PROTECT- ensures that as market conditions while selling $126 million of properties with an average age ING AND UPGRADING improve, our properties will be of 21.7 years. Additionally, we have maintained a very dis- ciplined and steady program of maintenance and capital reinvestment into our properties. well poised to recapture, and then exceed, historically higher financial performance levels. PROPERTY QUALITY HELPS TO ENSURE THAT MID-AMERICA’S PROPERTIES WILL CONTINUE TO COMPETE WELL” 4 Through CONSISTENCY 5 Creating Great Places to Live... Mid-America’s portfolio of properties is diversified across the strongest and most stable job growth sector of the country…the southeast and south central region states. While this region has certainly felt pressure from the weak economy of the last couple of years, the southeastern job markets can be counted on to bounce back sooner and stronger when compared to other regions of the country. Job formation, immigration growth and migration trends will continue to significantly favor the southeastern and south central markets. Mid-America’s overall portfolio of investments is well diversified in not only larger metropolitan markets, but also in more stable mid-size and small- tier markets. These three market segments each provide different performance and value creation opportunities, thus driving an overall more stable and higher risk-adjusted portfolio performance. By maintaining a well-diversified focus on each of the market segments, we have demonstrated an ability to deliver a more predictable, stable and higher risk-adjusted performance through the full real estate and market cycle. We are currently over-weighting new growth in the larger metro markets as we expect these markets will offer attractive year-over-year growth prospects for the next five years as the economy begins to pick up steam. We believe that the net result of this new growth will be an even more balanced portfolio allocation and higher levels of stable operating performance for Mid-America. 6 Alabama Arkansas Florida Georgia Kentucky Mississippi North Carolina Ohio South Carolina Tennessee Texas Virginia Through REGIONAL FOCUS Birmingham, Huntsville 2, Montgomery Little Rock 3 Daytona Beach, Gainesville, Jacksonville 11, Lakeland, Melbourne, Ocala, Orlando, Panama City Beach, Tallahassee, Tampa Metro 4 Athens, Atlanta Metro 8, Augusta 3, Brunswick, Columbus 2, La Grange, Macon/Warner Robins 4, Savannah, St. Simons Island, Thomasville, Valdosta Bowling Green, Florence, Lexington 4, Louisville Grenada, Jackson 6, Southaven 2 Greensboro, Raleigh, Winston-Salem Cincinnati Aiken 2, Anderson, Charleston, Columbia 2, Greenville 5, Spartanburg Chattanooga 4, Jackson 5, Memphis 10, Nashville 5 Austin 4, Dallas 10, Houston 5 Hampton Property Locations 7 T O M Y F E L L O W S H A R E H O L D E R S : A DECADE OF DISTINCTION. January, 2004 marked a significant mile- stone for Mid-America Apartment Communities: The 10th anniversary of the company’s initial public offering. As we move forward with our strategy and plans to create new value for Mid-America shareholders, we have a strong sense of pride in the accomplishments that describe our past and enthusiasm for the opportunities that will define our future. The annual compounded total investment return of 16% produced over the last ten years for Mid-America shareholders; the high-quality, well located and award-winning properties of our company; the enthusiastic and professional service delivered to Mid-America residents by our associates and the many families that have found assistance and comfort through Mid-America’s Open Arms(cid:2) Program represent just some of the things that we all take pride in at our company. And while we reflect on this foundation of performance, we understand that our energy must be forward-focused. Our eye is securely on the future and all Mid-America associates are working hard to exceed the expectations of those we serve and to achieve another decade of distinction. OUT-PERFORMING. The weak job market, along with a very attractive home buying environment, continued to temporarily dampen demand for apartment housing last year. The low interest-rate environment also helped fuel a robust pace of new apartment construction, further pressuring apartment owners’ ability to achieve occupancy and revenue growth performance in line with historical norms. And while our portfolio of properties did not fully escape the market pressures, Mid-America’s “recession resistant” portfolio and operating strategy did come through. Your company delivered one of the apartment REIT sector’s top operating performances in 2003. In addition, Mid-America shareholders captured one of the best total investment returns of any REIT in 2003 at 46.9%. While we were pleased in the strength of our relative performance during 2003, we believe that the opportunities to recapture higher performance levels in a return to more normal market conditions, coupled with our improved platform for generating steady new growth, will continue to deliver attractive returns for our shareholders. STABLE AND WELL POSITIONED. Despite the challenging operating environment, your company made significant progress in 2003. Over this past year Mid-America completed a number of equity and debt financings on advantageous terms, which improved coverage ratios, lowered borrowing costs, lowered preferred stock financing costs and improved the flexibility of our balance sheet. And importantly, in this very competitive leasing envi- ronment, our property management group protected your property values by remaining committed to Mid-America’s resident qualifying standards, protecting rent pricing levels and maintaining the high-quality condition of our portfolio through steady capital spending and improvement. We believe these actions and results will be very beneficial as market conditions begin to strengthen. 8 BALANCE SHEET STRENGTHENED. There were a significant STRONG GOVERNANCE. You should take pride in the very number of refinancing transactions and improvements made to strong and experienced group of independent directors com- our balance sheet during 2003. In terms of fixed charge cov- prising Mid-America’s Board of Directors. Your Board possesses erage ratios and loan covenant compliance, Mid-America’s extensive experience in apartment operations, real estate balance sheet is stronger now than it has been in over five investment, public company governance and capital market years. Approximately 80% of our debt cost is now fixed, transactions. Mid-America’s Board is active in review of our swapped, forward-swapped or capped. During 2004 we will be strategic plan, operating results and capital deployment trans- refinancing another $192 million of debt and expect to reduce actions. The Board’s Nominating and Corporate Governance borrowing costs another $4–$5 million on an annualized Committee, Audit Committee and Compensation Committee basis. After the planned 2004 refinancing transactions, we are active in their oversight and specific responsibilities. As will have future maturities laddered in such a way as to have significant owners of the company themselves, our directors no more than ten percent of our total debt exposed to high take their responsibilities seriously and I am grateful for their cost refinancing over the next five years. insight and guidance. During the course of 2003 we were also successful in POSITIONED FOR GROWTH. While we all take pride in raising $51.4 million in new common equity capital that was Mid-America’s record of performance over the last ten years, immediately invested in new earnings growth that met our we understand our responsibilities are forward-focused. We stringent investment hurdle requirements. This new capital continue to believe that the economy and job growth will investment provided current earnings and dividend coverage gain traction late this year and into next year. There are early improvement for existing shareholders. signs of such recovery in our larger markets which felt the full DISCIPLINED GROWTH. We were successful in acquiring $252 million of real estate in 2003; including the buy-out of the joint venture that we had with Blackstone Realty Advisors. The market for acquiring good-quality apartment properties remains very competitive as investment capital continues to be very attracted to the sector. Long-term demographics and other macro-economic factors are expected to generate strong operating and investment performance results for the multi- family sector over the next decade and thus the strong attrac- effect of the market slow down. We are encouraged by the strengthening performance of our properties and operations. We believe the southeastern and south central states will gen- erate some of the best apartment markets in the country as recovery takes hold. By remaining well diversified across this solid growth region, Mid-America will be both well positioned for a continuation of steady results in a very competitive apartment leasing environment, while also being well poised for market recovery. tion for investment capital. We remain disciplined in our Thank you for your support and confidence in our team. underwriting and acquisition operations. A key requirement to We look forward to another decade of exceeding the expecta- effectively compete against periodic new construction pressures tions of those we serve. is to ensure that Mid-America’s investment basis in each of our properties is appropriate for the market…in other words, it is Sincerely, crucial that we have not over-paid for an apartment property. We understand this principal and remain disciplined with our shareholders’ capital. H. Eric Bolton, Jr. Chairman and Chief Executive Officer 9 M A N AG E M E N T D I S C U S S I O N A N D A N A LY S I S question WHAT ARE YOUR PLANS FOR RAISING THE DIVIDEND? answer “Despite a very challenging operating environment, we have made steady progress over the last two years in strengthening the current dividend. As market conditions improve, we expect that internal earnings growth from our same store portfolio will quickly recover and strengthen. We see this component of our earnings stream as largely the “recurring” source of funding for a steady and growing dividend. A combination of improving leasing conditions, new ancillary revenue opportunities and growing operating efficiencies will drive higher levels of profitability from this portfolio. We are of course also focused on adding new earnings through growing our existing portfolio of properties. While the timing is difficult to pinpoint, we fully intend to position Mid-America’s balance sheet and operation to support a steady and growing dividend through full market cyclicality.” SIMON WADSWORTH, EXECUTIVE VICE-PRESIDENT AND CFO QUESTIONS question HOW HAVE VARIOUS ASPECTS OF MID-AMERICA’S OPERATIONS CHANGED OVER THE LAST YEAR OR SO AS A RESULT OF NEW TECHNOLOGIES AND THE EXPANDING USE OF THE INTERNET? answer “We have a significant focus in our company on constantly pushing for improvements in productivity. Advances in technology and the internet have allowed us to continue to raise the bar and achieve improvement in service and responsiveness for our residents, while also driving greater efficiency into our operation. The internet serves as a platform for our lease application credit screening and back- ground check policies. We are able to process applications in a matter of minutes, instead of several hours. Our use of the internet for attracting and capturing potential renters has also grown tremendously over the last couple of years. During 2004 we will be rolling out a new web-based revenue and property management system that will open up exciting new opportunities in pricing, asset manage- ment practices and back-room processing.” ERIC BOLTON, CHAIRMAN AND CEO question MID-AMERICA’S PORTFOLIO IS UNIQUE AMONG MOST IN THE APARTMENT REIT SECTOR DUE TO A LARGE ALLOCATION TO SECONDARY AND SOME TERTIARY MARKETS. LATELY, YOU HAVE BEEN MORE ACTIVE WITH ACQUISITIONS IN THE LARGE METRO MARKETS OF THE SOUTHEAST. IS THIS A CHANGE IN PORTFOLIO STRATEGY OR DIRECTION? question SARBANES-OXLEY AND NEW CORPORATE GOVERNANCE GUIDELINES HAVE IMPACTED ALL PUBLIC COMPANIES IN THE LAST YEAR OR SO IN VARIOUS WAYS. HOW answer “No, we intend to remain committed to our diversified portfolio strategy based on allocating capital to all three market segments…large, secondary and select tertiary markets. We believe that our focus on delivering a steady, growing and low-risk dividend stream, through full economic and market cycles, is based to a large degree on our unique market diversification strategy. As a result of several property sales and our acquisition of the Flournoy portfolio several years back, we have carried a slight overweight in smaller markets for the last several years. Our recent acquisitions reflect a move back towards a more equally weighted market segment allocation.” AL CAMPBELL, SENIOR VICE-PRESIDENT, TREASURER AND DIRECTOR OF FINANCIAL PLANNING question WHAT EARNINGS UPSIDE IS “EMBEDDED” IN THE CURRENT PORTFOLIO THAT YOU EXPECT TO RECAPTURE AS MARKET CONDITIONS IMPROVE? answer “Our same store portfolio generated approximately $134 million of net operating income in 2001, as compared to $125 million in 2003’s weaker market environment. We believe that most markets are slowly trending towards historically normal market conditions as the economy continues to recover. The weaker leasing environment of the last two years drove leasing concessions and vacancy loss higher, with some pressure also felt in collections. And while the Mid-America portfolio was able to avoid some of the pressure felt by other REITs to aggressively reduce rents, it is clear that rent growth has been anemic at our properties over the last two years. Overall, it will take a resumption of job growth in the economy and a rising interest rate environment to generate a trend towards normal market conditions. In that environment, we expect to see occupancy levels move towards a range of 94% to 95%, concessions fall and rent growth resume.” TOM GRIMES, SENIOR VICE-PRESIDENT, DIRECTOR OF PROPERTY MANAGEMENT question HOW WILL A RISING INTEREST RATE ENVIRONMENT IMPACT MID-AMERICA? answer “We have taken advantage of the low interest rate environment of the last couple of years to refinance a total of over $430 million of our capital structure. In 2004 we plan to refi- nance an additional $192 million. Upon completion of the planned refinancings in 2004, we will have lowered our cost of capital by a total of $15.2 million of FFO on an annu- alized basis. At this point, we feel that the balance sheet is well positioned for a rising rate environment. Currently, we have 80% of our debt structure with interest cost that is fixed, swapped, forward-swapped or capped. In addition, our future debt maturities have been effectively laddered such that we have no more than 10% of our debt structure exposed to refinancing in a rising rate environment for each of the next 5 years. Further, a rising rate environment will serve to reduce some of the operating pressure we have felt at the properties due to the very attractive home buying environment fueled by the low mortgage rate environment.” SIMON WADSWORTH, EXECUTIVE VICE-PRESIDENT AND CFO HAS MID-AMERICA RESPONDED TO THESE NEW GUIDELINES? answer “Mid-America has always maintained a Board of Directors comprised of a majority of independent directors, encompassing significant experience in real estate, public capital markets and public company governance, thus no changes to the actual membership were necessary. We have of course implemented all of the new regulatory requirements established by both the SEC and NYSE following Sarbanes-Oxley. Our Board of Directors maintains an active Nominating and Corporate Governance Committee, an Audit Committee and a Compensation Committee. Each of these committees has charters and evaluation processes, as does the overall Board of Directors. While we have always had a significant focus on internal controls and various checks and balances in our reporting processes, in compliance with the NYSE we will also be formalizing an Internal Audit function in 2004 with direct reporting responsibility to the Audit Committee. You can find more information relating to our corporate governance guidelines in the Corporate Governance section of our Investors page on our web-site at www.maac.net.” ERIC BOLTON, CHAIRMAN AND CEO ANSWERS Seated left to right: TOM GRIMES, SENIOR VICE PRESIDENT, DIRECTOR OF PROPERTY MANAGEMENT AL CAMPBELL, SENIOR VICE PRESIDENT, TREASURER AND DIRECTOR OF FINANCIAL PLANNING SIMON WADSWORTH, EXECUTIVE VICE PRESIDENT AND CFO Standing left to right: JAMES MACLIN, VICE PRESIDENT, DIRECTOR OF ASSET MANAGEMENT NANCY ROBERTS, SENIOR VICE PRESIDENT, DIRECTOR OF ORGANIZATIONAL DEVELOPMENT KEVIN PERKINS, VICE PRESIDENT, DIRECTOR OF CAPITAL IMPROVEMENTS AND MAINTENANCE OPERATIONS ERIC BOLTON, CHAIRMAN AND CEO GINNY DOANE, SENIOR VICE PRESIDENT, OPERATIONS DIRECTOR DAVID NISCHWITZ, VICE PRESIDENT, DIRECTOR OF LANDSCAPING 10 11 2 0 0 3 C I V I C A N D I N D U S T R Y A WA R D S MID-AMERICA APARTMENT COMMUNITIES, INC. 2002 ANNUAL REPORT Gold Award, League of American Communications Professional Vision Awards Competition, June 27 GEORGETOWN GROVE SAVANNAH, GEORGIA Platinum Award, Savannah Apartment Association, July 8 KIRBY STATION MEMPHIS, TENNESSEE First Place, Plant the Town Red Competition, City of Memphis, July 10 PARK ESTATE MEMPHIS, TENNESSEE First Place, Plant the Town Red Competition, City of Memphis, July 10 EAGLE RIDGE BIRMINGHAM, ALABAMA Beautification Award, Greater Birmingham Association of Home Builders Multi-family Council Beautification Awards, July 10 EAGLE RIDGE BIRMINGHAM, ALABAMA Best Seasonal Color Program, Greater Birmingham Association of Home Builders Multi-family Council Beautification Awards, July 10 EAGLE RIDGE BIRMINGHAM, ALABAMA Best Seasonal Color Program Manager, Greater Birmingham Association of Home Builders Multi-family Council Beautification Awards, July 10 ABBINGTON PLACE HUNTSVILLE, ALABAMA Beautification Award, City of Huntsville, July 16 THE PADDOCK CLUB HUNTSVILLE, ALABAMA Beautification Award, City of Huntsville, July 16 MID-AMERICA APARTMENT COMMUNITIES, INC. COMMUNITY OUTREACH DEPARTMENT, OPEN ARMS FOUNDATION Finalist for the Memphis Business Journal’s “Health Heroes” Awards for Community Outreach, July WOODS OF POST HOUSE JACKSON, TENNESSEE City Beautiful Award, City of Jackson Beautification Committee, July POST HOUSE NORTH JACKSON, TENNESSEE Honorable Mention, City of Jackson Beautification Committee, July TOWNSHIP IN HAMPTON WOODS HAMPTON, VIRGINIA Best Overall Apartment Community, Peninsula Apartment Association, August 16 AMY ARNETT TOWNSHIP IN HAMPTON WOODS Leasing Professional of the Year, Peninsula Apartment Association, August 16 STONEMILL VILLAGE LOUISVILLE, KENTUCKY First Place, Louisville and Jefferson County Beautification League, October 15 CROSSWINDS JACKSON, MISSISSIPPI First Place Beautification Award, Mississippi Multifamily Council Beautification Showcase Awards, October 21 REFLECTION POINTE JACKSON, MISSISSIPPI First Place Beautification Award, Mississippi Multifamily Council Beautification Showcase Awards, October 21 LAKESHORE LANDING JACKSON, MISSISSIPPI First Place Beautification Award, Mississippi Multifamily Council Beautification Showcase Awards, October 21 PEAR ORCHARD JACKSON, MISSISSIPPI Second Place Beautification Award, Mississippi Multifamily Beautification Showcase Awards, October 21 WOODRIDGE JACKSON, MISSISSIPPI Third Place Beautification Award, Mississippi Multifamily Council Beautification Showcase Awards, October 21 CROSSWINDS JACKSON, MISSISSIPPI Best Playground, Mississippi Multifamily Council Beautification Showcase Awards, October 21 MID-AMERICA APARTMENT COMMUNITIES, INC. Property Management Company of the Year, Lexington Apartment Association Crowne Excellence Awards Gala, November 1 GRAND RESERVE LEXINGTON, KENTUCKY Triple Crowne Award, Lexington Apartment Association Crowne Excellence Awards Gala, November 1 THE MANSION LEXINGTON, KENTUCKY Triple Crowne Award, Lexington Apartment Association Crowne Excellence Awards Gala, November 1 LAKEPOINTE LEXINGTON, KENTUCKY Triple Crowne Award, Lexington Apartment Association Crowne Excellence Awards Gala, November 1 THE VILLAGE LEXINGTON, KENTUCKY Keeneland Award, Lexington Apartment Association Crowne Excellence Awards Gala, November 1 SHARON CLARK THE VILLAGE Best Support Manager, Lexington Apartment Association Crowne Excellence Awards Gala, November 1 JEFF MCKINNEY THE MANSION Best Lead Service Technician, Lexington Apartment Association Crowne Excellence Awards Gala, November 1 LISA ADAMS SOUTH REGION Multi-Site Manager of the Year, Atlanta Apartment Association, November 20 THE PADDOCK CLUB MURFREESBORO, TENNESSEE First Place Beautification Award, Rutherford County Apartment Association, November 21 BRENTWOOD DOWNS NASHVILLE, TENNESSEE Second Place Beautification Award, Greater Nashville Apartment Association, November 22 GRANDE VIEW NASHVILLE, TENNESSEE Second Place Beautification Award, Greater Nashville Apartment Association, November 22 THE PADDOCK CLUB MURFREESBORO, TENNESSEE First Place Beautification Award, Greater Nashville Apartment Association, November 22 PARK HAYWOOD GREENVILLE, SOUTH CAROLINA First Place for Floral Design, Upper State Apartment Association Crowne Excellence Awards, December 2 PARK PLACE GREENVILLE, SOUTH CAROLINA First Place for Floral Design, Upper State Apartment Association Crowne Excellence Awards, December 2 MID-AMERICA APARTMENT COMMUNITIES Finalist—Property Management Company of the Year Pillars of the Industry Awards (National Association of Home Builders), January JACKIE MELNICK EAST REGION Regional/Multi-Site Manager of the Year Pillars of the Industry Awards (National Association of Home Builders) March 23 NANCY NANCE FLORIDA REGION Regional Property Manager of the Year, conventional communities Jacksonville Apartment Alliance, February 13 THE PADDOCK CLUB MANDARIN, FLORIDA Gold Award, Jacksonville Apartment Association, March 13 WOODBRIDGE AT THE LAKE JACKSONVILLE, FLORIDA Silver Award, Jacksonville Apartment Alliance, March 13 HUNTER’S RIDGE JACKSONVILLE, FLORIDA Silver Award, Jacksonville Apartment Alliance, March 13 WOODHOLLOW JACKSONVILLE, FLORIDA Silver Award, Jacksonville Apartment Alliance, March 13 LAKESIDE APARTMENTS JACKSONVILLE, FLORIDA Bronze Award, Jacksonville Apartment Alliance, March 13 MARSH OAKS ATLANTIC BEACH, FLORIDA Bronze Award, Jacksonville Apartment Alliance, March 13 PARK PLACE SPARTANBURG, SOUTH CAROLINA First Place Award, Garden Club of Spartanburg/Chamber of Commerce, May 21 WESTSIDE CREEK LITTLE ROCK, ARKANSAS Runner up, “Best of Arkansas,” Arkansas Times, June NAPA VALLEY LITTLE ROCK, ARKANSAS Runner up, “Best of Arkansas,” Arkansas Times, June 12 S E L E C T E D F I N A N C I A L DATA (Dollars in thousands, except per share data) OPERATING DATA: Total revenues Expenses: Property operating expenses Depreciation and amortization Property management and general and administrative expenses Interest Loss (gain) on debt extinguishment Amortization of deferred financing costs Income from continuing operations before minority interest in operating partnership income, loss from investments in unconsolidated entities and net gain on insurance settlement proceeds and disposition of assets Minority interest in operating partnership income Loss from investments in unconsolidated entities Net gain on insurance settlement proceeds and disposition of assets Income from continuing operations Discontinued operations: Property operations Gain on sale Net income Preferred dividend distribution Premiums and original issuance costs associated with the redemption of preferred stock(1) 2003 2002 Year Ended December 31 2001 2000 1999 $ 240,906 $ 233,044 $ 232,642 $ 227,022 $ 225,745 100,526 59,018 15,670 46,032 (111) 2,062 17,709 (1,360) (949) 2,942 18,342 (55) 1,919 20,206 15,419 5,987 92,530 55,110 15,298 49,448 1,444 2,712 16,502 (388) (532) 397 15,979 162 — 16,141 16,029 2,041 89,224 51,925 16,083 52,598 1,189 2,352 19,271 (2,417) (296) 11,933 28,491 207 — 28,698 16,113 — 86,038 51,719 14,826 50,736 243 2,758 20,702 (2,587) (157) 11,587 29,545 242 — 29,787 16,114 — 84,641 49,788 14,479 48,302 79 2,854 25,602 (2,485) (31) 10,237 33,323 249 — 33,572 16,114 — Net income available for common shareholders $ (1,200) $ (1,929) $ 12,585 $ 13,673 $ 17,458 PER SHARE DATA: Basic and diluted: 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 capitalization(2) Number of properties, including joint venture ownership interest(3) Number of apartment units, including joint venture ownership interest(3) $ $ (0.07) 2.340 $ $ (0.11) 2.340 $ $ 0.72 2.340 $ $ 0.78 2.325 $ $ 0.93 2.305 $1,695,111 $1,351,849 $1,406,533 $ 951,941 $ 32,019 $ 361,294 $1,478,793 $1,192,539 $1,239,467 $ 803,703 $ 33,405 $ 338,171 $1,449,720 $1,216,933 $1,263,488 $ 779,664 $ 43,902 $ 398,358 $1,430,378 $1,244,475 $1,303,771 $ 781,089 $ 50,020 $ 435,356 $1,396,743 $1,248,051 $1,298,823 $ 744,238 $ 55,550 $ 464,394 18,374 18,374 17,561 17,561 17,427 17,532 17,544 17,597 18,784 18,808 $ 939,581 $ 673,431 $ 709,224 $ 634,903 $ 639,095 50.3% 54.4% 52.4% 55.2% 53.8% 127 123 122 124 129 35,734 33,923 33,411 33,612 33,901 (1)Original issuance costs represent non-cash charges. (2)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). (3)Years prior to the period in which the sale of a community classified it as a discontinued operation do not exclude the property from property and apartment unit totals. 13 C O N S O L I DAT E D B A L A N C E S H E E T S (Dollars in thousands) ASSETS: Real estate assets: Land Buildings and improvements Furniture, fixtures and equipment Capital improvements 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 Goodwill, net 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, $176,862,500 or $25 per share liquidation preference: 0 and 2,000,000 shares at 9.5% Series A Cumulative on December 31, 2003 and 2002, respectively 0 and 1,938,830 shares at 8.875% Series B Cumulative on December 31, 2003 and 2002, respectively 0 and 2,000,000 shares at 9.375% Series C Cumulative on December 31, 2003 and 2002, respectively 474,500 shares at 9.25% Series F Cumulative 400,000 shares at 8.625% Series G Cumulative 6,200,000 and 0 shares of 8.30% Series H Cumulative on December 31, 2003 and 2002, respectively Common stock, $.01 par value (authorized 50,000,000 shares; issued 20,031,614 and 17,840,183 shares at December 31, 2003 and 2002, 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 14 December 31 2003 2002 $ 142,416 1,481,854 38,812 7,335 $ 124,130 1,290,478 34,531 3,223 1,670,417 (339,704) 1,330,713 1,366 7,150 12,620 1,452,362 (283,277) 1,169,085 1,366 7,088 15,000 1,351,849 1,192,539 10,152 10,728 13,185 14,857 5,762 10,594 7,463 10,296 12,813 5,762 $1,406,533 $1,239,467 $ 951,941 1,696 54,547 5,036 — $ 803,703 464 55,372 4,406 3,946 1,013,220 867,891 32,019 33,405 — — — 5 4 62 20 19 20 5 4 — 200 622,406 (3,711) (232,224) (25,448) 361,294 178 558,479 (4,299) (188,155) (28,100) 338,171 $1,406,533 $1,239,467 C O N S O L I DAT E D S TAT E M E N T S O F O P E R AT I O N S (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 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 Loss (gain) on debt extinguishment Amortization of deferred financing costs Total expenses Income before minority interest in operating partnership income, loss from investments in unconsolidated entities, net gain on insurance settlement proceeds and disposition of assets, and discontinued operations Minority interest in operating partnership income Loss from investments in unconsolidated entities Net gain on insurance settlement proceeds and disposition of assets Income from continuing operations Discontinued operations: Property operations Gain on sale of discontinued operations Net income Preferred dividend distribution Premiums and original issuance costs associated with the redemption of preferred stock(1) Net income (loss) available for common shareholders Net income (loss) available per common share: Basic (in thousands): Average common shares outstanding Net income (loss) available per common share—Basic Diluted (in thousands): Average common shares outstanding Effect of dilutive stock options Average dilutive common shares outstanding Net income (loss) available per common share—Diluted (1)Original issuance costs represent non-cash charges. Year Ended December 31 2002 2003 2001 $230,762 8,483 $223,497 8,035 $222,798 7,779 239,245 839 822 240,906 28,046 9,342 31,839 12,262 6,556 12,481 59,018 159,544 8,435 7,235 46,032 (111) 2,062 223,197 17,709 (1,360) (949) 2,942 18,342 (55) 1,919 20,206 15,419 5,987 231,532 737 775 233,044 26,166 9,340 28,845 11,334 6,194 10,651 55,110 147,640 8,633 6,665 49,448 1,444 2,712 216,542 16,502 (388) (532) 397 15,979 162 — 16,141 16,029 2,041 230,577 1,310 755 232,642 24,624 9,405 26,491 11,875 6,262 10,567 51,925 141,149 9,561 6,522 52,598 1,189 2,352 213,371 19,271 (2,417) (296) 11,933 28,491 207 — 28,698 16,113 — $ (1,200) $ (1,929) $ 12,585 18,374 (0.07) $ 17,561 (0.11) $ 17,427 0.72 $ 18,374 — 18,374 17,561 — 17,561 17,427 105 17,532 $ (0.07) $ (0.11) $ 0.72 15 I N D E P E N D E N T A U D I T O R S ’ R E P O R T 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, 2003, and 2002, 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, 2003 (not presented herein); and in our report dated February 9, 2004, we expressed an unqualified opinion on those consolidated financial statements. As described in Note 1 to those consolidated financial statements, the consolidated financial state- ments reflect the Company’s adoption of Statements of Financial Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. In our opinion, the information set forth in the accompanying consolidated financial 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 9, 2004 C O R P O R AT E I N F O R M AT I O N ANNUAL SHAREHOLDERS MEETING INDEPENDENT AUDITORS Mid-America Apartment Communities, Inc. will hold its 2004 annual KPMG LLP, Memphis, TN meeting of shareholders on Monday, May 24th, at 4:00 p.m. CST in the clubhouse at The Reserve at Dexter Lake, Memphis, TN. GENERAL COUNSEL Bass, Berry & Sims, Memphis, TN ANNUAL REPORT AND FORM 10-K A copy of Mid-America’s Annual Report and Form 10-K for the year STOCK LISTING AND COMMON STOCK PRICE ended December 31, 2003, as filed with the Securities and Exchange Mid-America’s stock is traded on the New York Stock Exchange. Its com- Commission, will be sent without charge upon written request to the mon stock is listed under the stock symbol MAA. Its Cumulative corporate headquarters address, attention Investor Relations, and is Preferred Stock is under the symbols MAA Pr F, and MAA Pr H 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 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. FISCAL 2003 First Quarter Second Quarter Third Quarter Fourth Quarter FISCAL 2002 First Quarter Second Quarter Third Quarter Fourth Quarter Sales Prices High $24.98 $27.45 $31.45 $34.29 Low $23.10 $23.67 $26.74 $30.02 Sales Prices High $26.75 $27.42 $26.90 $25.44 Low $25.10 $25.51 $22.25 $22.00 Dividends Declared $0.585 $0.585 $0.585 $0.585 Dividends Declared $0.585 $0.585 $0.585 $0.585 16 B O A R D O F D I R E C T O R S H. ERIC BOLTON, JR. Mr. Bolton has served as a director since February 1997. Mr. Bolton is our Chairman of the Board of Directors, President and Chief Executive Officer. Mr. Bolton joined us in 1994 as Vice President of Development and was named Chief Operating Officer in February 1996 and pro- moted to President in December 1996. Mr. Bolton assumed the position of Chief Executive Officer following the retirement of George E. Cates in October 2001 and became Chairman of the Board in September 2002. Mr. Bolton was with Trammell Crow Company for more than five years, and prior to joining us was Executive Vice President and Chief Financial Officer of Trammell Crow Realty Advisors. SIMON R. C. WADSWORTH Mr. Wadsworth has been Executive Vice President, Chief Financial Officer and a director since March 1994. Prior to his position with Mid-America, Mr. Wadsworth owned a distribution company in the Memphis area from 1982 until its successful sale in 1993. GEORGE E. CATES Mr. Cates has served as a director since 1994 and served as Chairman of the Board of Directors from the time of its initial public offering in February 1994 until September 2002. Mr. Cates served as our President and Chief Executive Officer from February 1994 until his planned retire- ment in October 2001. Mr. Cates was President and Chief Executive Officer of The Cates Company from 1977 until its merger with us in February 1994. Mr. Cates also serves as a director for First Tennessee National Corporation and The Marketing Alliance. JOHN F. FLOURNOY Mr. Flournoy has served as a director since November 1997. Mr. Flournoy has been the Chairman and Chief Executive Officer of Flournoy Development Company for 36 years. Flournoy Development Company has been in multi-family housing development and construction prima- rily in the Southeastern United States for over 30 years. Mr. Flournoy also serves as a director of the W.C. Bradley Company and the Columbus Bank and Trust Company. ROBERT F. FOGELMAN Committees: Compensation, Nominating and Corporate Governance Mr. Fogelman has served as a director since July 1994 and has been the President of Fogelman Investment Company, a privately owned invest- ment firm, for more than seven years. ALAN B. GRAF, JR. Committees: Audit (Chairman) Mr. Graf has served as a director since June 2002. Mr. Graf is the Executive Vice President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998 and is a member of FedEx Corporation’s Executive Committee. Prior to that time, he was Executive Vice President and Chief Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. Mr. Graf joined FedEx in 1980. He serves as a director for NIKE Inc. and Kimball International, Inc. JOHN S. GRINALDS Committees: Audit, Compensation, Nominating and Corporate Governance General Grinalds has served as a director since November 1997. General Grinalds became the President of The Citadel in Charleston, South Carolina in 1997. Prior to assuming the presidency of The Citadel, General Grinalds was the headmaster of Woodberry Forest School in Virginia. From 1989 to 1991, General Grinalds held the rank of Major General and was the commanding general of the Marine Corps Recruit Depot in San Diego, California. RALPH HORN Committees: Compensation (Chairman), Nominating and Corporate Governance (Chairman) Mr. Horn has served as a director since April 1998. Mr. Horn was elected President, Chief Operating Officer, and a director of First Tennessee National Corporation (“FTNC”) in July 1991 and Chief Executive Officer in April 1994. Mr. Horn was elected Chairman of the Board of FTNC in January 1996. Mr. Horn served as Chief Executive Officer and President of FTNC until July 2002, and as Chairman of the Board through December 2003. Mr. Horn is also a director of Harrah’s Entertainment, Inc., Gaylord Entertainment Corporation and The Church Health Center. MICHAEL S. STARNES Committees: Audit, Compensation, Nominating and Corporate Governance Mr. Starnes has served as a director since July 1998. Mr. Starnes founded M.S. Carriers, Inc., a truckload transportation and logistics company, in 1978 and served as Chairman and Chief Executive Officer until its merger with Swift Transportation Co., Inc. in June 2001. Since June 2001, Mr. Starnes has served as President of M.S. Carriers, a subsidiary of Swift Transportation Co., Inc. He is also a director of Swift Transportation Co., Inc. and Union Planters Corporation. m o c . s r o n n o c - n a r r u c . w w w / . c n I , s r o n n o C & n a r r u C y b d e n g i s e D MID-AMERICA APARTMENT COMMUNITIES, INC. 6584 Poplar Avenue, Suite 300 Memphis, TN 38138 901.682.6600 www.maac.net 

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