Mid-America Apartment Communities
Annual Report 2008

Plain-text annual report

the key to progress… Annual Report: 2008 d a l l a s | ja c k s o n v i l l e | at l a n ta | h o u s t o n | n a s h v i l l e | au s t i n | ta m pa | r a l e i g h | p h o e n i x | o r l a n d o | m e m p h i s | c o l u m b u s | ja c k s o n Mid-America Apartment Communities, Inc. NYse: MAA S&P SmallCaP 600 Company profile: Mid-America Apartment Communities, Inc. is a publicly-traded real estate investment trust which owned or had an ownership interest in 145 multifamily apartment communities with 42,554 apartment homes throughout the Sunbelt region of the United States at year end. Today’s markets are challenging. Having the right strategy is necessary in order to capture long-term success from a real estate investment portfolio. Our track record of strong, stable and disciplined performance not only reflects the right locations, but also says a lot about the competitive advantages of our operating systems, the award-winning quality of our apartment commu nities, the disciplined nature in which we deploy capital, the strong service commitment of our people and the strength of our company culture. Let us tell you more… is Through our smart porTfolio sTraTegy… 1. Mid-America Apartment Communities, Inc. our goal To deliver now and in The fuTure strong and sTable resulTs… 2. 2008 Annual Report Letter: H. Eric Bolton, Jr. To The shareholders of Mid-aMerica aparTMenT coMMuniTies, inc.: Over the course of 2008 the US experienced deterioration in the economy and capital markets that was far worse than most anyone imagined was likely to occur. Unemployment trends reached levels not seen in the last 25 years and the credit markets simply collapsed. The overall result for Mid-America Apartment Communities, Inc., or MAAC, was a year with challenges beyond anything we’ve seen in our 15 years as a public company. Despite the pressures in 2008, MAAC still generated a 5% growth in Funds from Operations, or FFO, per share to $3.73 which was a record performance for us. Delivering this solid year-over-year growth in FFO that was largely in line with original expectations, despite the unexpected pressures brought on by a deteriorating job market and very volatile capital markets, is a statement about the disciplined approach we take to deploying MAAC’s capital, the strength of our operating platform and the soundness of our financing strategy. All signs point towards another tough year for leasing fundamentals in 2009 as job loss trends continue to put pressure on the demand for apartment housing. Most forecasters believe that it will be late 2010 before we begin to see meaningful improvement in the economy and employment markets start to recover. MAAC’s a2004 a2005 a2006 a2007 ability to hold up comparatively well during down cycles and make steady progress a2008 in the face of such challenges is grounded in a few key strategies that have guided our approach to creating value for the last 15 years. In this year’s annual report I’d like to recap for you what the key variables are that define our strategy and serve as the foundation for what we believe will be an ability to not only weather this down cycle in the economy, but also capture new value growth as opportunities emerge. It starts with capital deployment and how we execute on this important first step in the value creation cycle. The analysis, judgment and discipline applied in making investment decisions are the most critical aspect of the value creation cycle. Get this decision wrong and it is hard to fix it. At MAAC we are guided by principles of applying realistic underwriting assumptions and a careful approach to investment modeling. We are committed to a belief that while steady new growth and value creation is important, and something we work hard to achieve, we avoid setting aggressive growth goals that can generate pressure to just get deals done. We aren’t $ 3 . 7 3 $ 3 . 5 5 $ 3 . 3 3 $ 3 . 2 0 $ 3 . 0 0 FFO Per Share/Unit ‘04 ‘05 ‘06 ‘07 ‘08 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 MAAC’s Portfolio Diversification Secondary Markets 42% Primary Markets 58% Sunbelt region into growth for growth’s sake. Looking back over our 15-year history, I take as much 3. Mid-America Apartment Communities, Inc. 1 1 % 9 % 8 % 6 % MAAC SNL SNL Multifamily Equity REITs REITs S&P 500 12 10 8 6 4 2 0 Total Annual Investment Returns on MAAC’s15-Year Anniversary White House Stimulus Projections: Where the jobs will be West 791,000 Midwest 781,000 Northeast 629,000 South 1,259,000 Letter: H. Eric Bolton, Jr. White House Stimulus Projections: Where the jobs will be West 791,000 Midwest 781,000 Northeast 629,000 South 1,259,000 4.0 3.5 3.0 2.5 2.0 1.5 1.0 gratification from a number of decisions we have made to pass on deals as I have 0.5 from those successful investment decisions that were made. 0.0 a2004 a2005 a2006 a2007 a2008 We believe the Sunbelt region of the country offers the best long-term performance fundamentals for our business. The Sunbelt markets lead the nation in long-term job growth performance, positive migration trends and positive immigration trends. It is important to be invested in markets where demand is going to be strong over the long haul. You can’t create job growth, driving demand, in a given market…it is either there or it isn’t. We recognize that a number of Sunbelt region markets are challenged by lower “barriers to entry” as compared to some of the coastal markets and too much new construction can take place from time to time. However, we believe that through disciplined investing, with a focus on buying at a discount to replacement value, value-oriented investors can generate growth in revenue and attractive long-term performance that will drive internal rates of return that compete favorably with other regions and markets. By buying right and then, very importantly, operating aggressively, we believe MAAC shareholders will realize risk-adjusted returns on their capital that will compare favorably with portfolio strategies focused both on other regions and nationally. We also believe that it is important as a long-term investor to diversify capital across the Sunbelt region in order to lower volatility and risks. By diversifying capital across the region in both primary and secondary markets we are able to establish an earnings platform that over the long haul will better weather down cycles and also capture strong performance when leasing fundamentals are positive. We invest for the long haul and we believe a portfolio strategy that considers the full economic cycle is important to delivering higher risk-adjusted returns to our shareholders and meeting the dividend paying responsibilities of a REIT platform. Our focus on steady performance and value growth is a goal for each property in our portfolio. At our core, MAAC’s culture is all about property management and operations. We have a relentless focus on innovation and driving higher efficiency in the way we operate each property. Over the last few years we have trans- formed essentially every aspect of our operating platform through embracing new 4. 2008 Annual Report Underlying Economy of the Sunbelt Region • Positive demographic flows • Positive migration, immigration flows • Low business, living costs • Pro-business regulatory environment • Increasing port of entry for imports • Good transportation infrastructure $ 3 . 5 5 $ 3 . 7 3 $ 3 . 3 3 $ 3 . 2 0 $ 3 . 0 0 FFO Per Share/Unit ‘04 ‘05 ‘06 ‘07 ‘08 MAAC’s Portfolio Diversification Secondary Markets 42% Primary Markets 58% Sunbelt region 1 1 % 9 % 8 % 6 % MAAC SNL Multifamily REITs SNL Equity REITs S&P 500 12 10 8 6 4 2 0 Total Annual Investment Returns on MAAC’s15-Year Anniversary our coMMiTMenT To an invesTMenT process wiTh discipline esTablishing a foundaTion for sTrong long-TerM value growTh… 5. Mid-America Apartment Communities, Inc. our use of Technology To efficiently aTTracT new residenTs and Manage operaTions… 6. 2008 Annual Report Letter: H. Eric Bolton, Jr. Debt to Gross Assets (at December 31) Fixed Charge Coverage 2008 50% 2007 53% 2006 52% 2.47x 2.27x 2.15x Common per Share Dividends Paid $ 2.46 $ 2.42 $ 2.38 Adjusted Funds From Operations Per Share/Unit $ 2.99 $ 2.91 $ 2.59 technologies for capturing and managing resident information and transaction activity. Through expanded use of the internet we are driving higher levels of leasing traffic to each of our properties, generating more efficiency in capturing transaction and lease data, providing more in-depth and timely management information to run our properties, offering a fully automated leasing process to prospective renters and enhancing the efficiency of our inventory management practices. The apartment business is a competitive business. The strength and efficiency of our operating sys- tems is a significant competitive advantage in our markets and is a very important component of our steady progress as a company. Of course, a critical aspect in making steady progress for any company is a strong financial foundation. I believe this is especially true for REITs who have a responsibility to pay a high percentage of earnings each year as dividends to shareholders. Over the last few years of easy access to capital, as many companies and individuals have taken significantly higher risks with their balance sheets, we have pursued a different direction. MAAC’s debt as a percentage of gross assets was at an all time low at December 31, 2008. MAAC’s fixed-charge coverage in the fourth quarter of 2008 had never been higher over our 15-year history as a public company. MAAC’s annual common dividend, as a percentage of adjusted funds from operations, has never been stronger. MAAC has no meaningful refinancing exposure between now and 2011. MAAC’s balance sheet is well positioned to take advantage of what will likely be some attractive buying opportunities that will emerge from this current down cycle in the economy. In summary, we think MAAC’s balance sheet is in a terrific position. January 28, 2009 marked the 15-year anniversary since MAAC’s initial public offering. Over that 15-year span MAAC has grown from 5,976 apartment homes to 42,554 apartment homes located in 145 communities. MAAC’s portfolio of properties has continued to improve and today is one of the youngest among the publicly-owned apartment REITs. Over the last 15 years our shareholders have been rewarded. Even when using the market’s current depressed pricing of MAA, over our first 15 years MAAC shareholders captured a total annual investment return of 11%. 7. Mid-America Apartment Communities, Inc. $ 3 . 7 3 $ 3 . 5 5 $ 3 . 3 3 $ 3 . 2 0 $ 3 . 0 0 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 FFO Per Share/Unit ‘04 ‘05 ‘06 ‘07 ‘08 a2004 a2005 a2006 a2007 a2008 MAAC’s Portfolio Diversification Secondary Markets 42% Primary Markets 58% Sunbelt region Letter: H. Eric Bolton, Jr. 1 1 % 9 % 8 % 6 % Total Annual Investment Returns on MAAC’s15-Year Anniversary MAAC SNL Multifamily REITs SNL Equity REITs S&P 500 12 10 8 6 4 2 0 This performance exceeded the S&P 500 by almost 500 basis points, it exceeded the overall REIT index by 300 basis points and it exceeded the apartment REIT index by 200 basis points. At some point the economy will regain its footing and a recovery will begin. The apartment business will snap back strong. New apartment construction has slowed significantly and is trending well below the level needed to support the growing demand for apartment housing. We are on the leading edge of a favorable demo- graphic trend with the 18 to 35 age group (which has the highest propensity to rent apartments) projected to grow significantly. This growth in demand from favorable demographics, coupled with the continued shift of the US housing market back to a normal balance between households renting versus owning, will combine to create much higher levels of demand for apartment housing. We think MAAC has the right investment discipline, portfolio strategy, operating platform and balance sheet to capture strong value growth from these long-term positive trends. MAAC’s steady progress and long-term success is a direct result of the hard work and dedication of our team of associates. I want to thank all the members of our team for their support and continued commitment to exceed the expectations of our resi- dents and our shareholders. Our success is also a direct result of the wise counsel and guidance provided by our Board of Directors. I am very appreciative of their steady support. And, finally, I want to thank you for your investment in Mid-America Apartment Communities. These are indeed worrisome times in our economy. While there can be no way of knowing what challenges lie ahead, I’m confident that we have our company in a strong position and we look forward to exceeding your expectations as an owner of MAAC. Very truly yours, H. Eric Bolton, Jr. Chief Executive Officer and Chairman of the Board 8. 2008 Annual Report and our sTable Tenure of leadership, The culTure ThaT binds us and principles ThaT guide us. 9. Mid-America Apartment Communities, Inc. Environmental: Mac Green living green mid-america’s environMenTal iniTiaTives recycle and repurpose Through “green” partnerships with vendors energy efficiency Many of our communities, particularly those water conservation An average family uses 100 gallons of like Sherwin Williams, in 2008 we recycled within our renovation program, carry appli- water per day for cleaning, cooking and approximately 80,000 pounds of yarn ance packages with the Energy Star rating. bathing. All Mid-America apartment homes from discarded carpets that would other- This government rating indicates a product’s have low flow water devices in place, sav- wise have gone into the landfill. superiority in using less energy, saving ing as much as 30% in water efficiency. Printed marketing materials are made from money and protecting the environment. Mid-America’s Ground Cover Initiative has 20% post-consumer recycled paper and Exterior community lighting has been reduced lawn areas by 120,000 square soy-based inks. changed from incandescent to more effi- feet throughout our communities to reduce Online portals allow our customers to complete routine transactions with us elec- cient forms of lighting, such as high pressure the need for irrigation and fertilization. sodium vapor, or metal halides. Ground covers replace grassy areas to tronically, offering more convenience while Mid-America’s Austin, TX, communities reducing the need for paper transactions. participate in the Austin Multi-Family New customers can complete the entire Program, dedicated to improving environ- application process online, including apply- mental qualities and energy efficiencies beautify the community while requiring no need for irrigation or fertilization after the establishment period. 55% of plant material on our communities is now drought tolerant. ing and submitting payment for their new in the apartment homes. The collection “Smart” irrigation systems have been apartment home. Residents can complete of programs includes low volume toilet installed on four apartment communities, routine tasks online, including service request replacement, HVAC duct work repairs/ with the plan to expand this system to submission and electronic rent payment. sealing, solar screen additions, and com- more communities in 2009. ET irrigation Mid-America’s Jacksonville, FL, communities actively endorse and participate in The St. Johns Riverkeeper’s “River Friendly Yards Program.” This program is dedicated to protecting the St. Johns River eco-system through “greener” lawn maintenance practices related to fertilization and water runoff. pact florescent light conversions. The monitors rainfall and atmospheric condi- “cycling” digital thermostat program allows tions, along with soil and plant types. The Austin Energy to cycle the exterior HVAC expected impact is a 30% reduction in compressor off during peak electrical water consumption by customizing water- usage periods of the day. ing needs to the plants and automated alerts when system troubles occur, thereby avoiding unnecessary watering. 10. 2008 Annual Report Financial highlights: fiscal year end December 31 The proof is in our results (Dollars and shares in thousands, except per share data) Net income Preferred dividend distributions Premiums and original issuance costs associated with the redemption of preferred stock $ Net income available for common shareholders Depreciation of real estate assets Net casualty (gains) loss and other settlement proceeds Gains on dispositions within real estate joint ventures Depreciation of real estate assets of discontinued operations (Gains) loss on sales of discontinued operations Depreciation of real estate assets of real estate joint ventures Minority interest in operating partnership income Years Ended December 31, 2008 2007 2006 $ $ 30,249 12,865 — 17,384 88,555 247 (38) 706 120 953 1,822 39,946 13,688 589 25,669 83,532 (589) (5,388) 1,517 (9,164) 15 3,510 20,945 13,962 — 6,983 76,205 (84) — 2,003 — 500 1,590 Funds from operations $ 109,749 $ 99,102 $ 87,197 Weighted average shares, diluted Net income available for common shareholders, diluted Weighted average shares and units, diluted Funds from operations per share and unit, diluted Dividends paid per share Real estate owned, at cost Capital improvements in progress Investments in real estate joint ventures Total debt Shareholders’ equity, redeemable stock and minority interest Market capitalization (shares and units)(1) Number of properties, including joint venture ownership interest(2) Number of apartment units, including joint venture ownership interest(2) 27,046 0.64 29,459 3.73 2.46 $ $ $ $ 2,552,808 25,268 $ $ 6,824 $ 1,323,056 $ 444,422 $ 1,293,145 25,462 1.01 27,943 3.55 2.42 $ $ $ $ 2,343,130 12,886 $ $ 168 $ 1,264,620 $ 432,398 $ 1,358,100 23,698 0.29 26,204 3.33 2.38 $ $ $ $ 2,218,532 20,689 $ $ 3,718 $ 1,196,349 $ 481,666 $ 1,745,674 145 42,554 137 40,248 138 40,293 (1) Market capitalization includes all series of preferred shares (value based on $25 per share liquidation preference) and common shares, regardless of classification on balance sheet, and partnership units (value based on common stock equivalency). (2) Property and apartment unit totals have not been adjusted to exclude properties held for sale. 11. Mid-America Apartment Communities, Inc. Financial highlights: fiscal year end December 31 consolidaTed balance sheeTs (Dollars in thousands, except per share data) 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 Investments in real estate joint ventures Real estate assets, net Cash and cash equivalents Restricted cash Deferred financing costs, net Other assets Goodwill Assets held for sale Total assets Liabilities and Shareholders’ Equity: Liabilities: Notes payable Accounts payable Fair market value of interest rate swaps Accrued expenses and other liabilities Security deposits Liabilities associated with assets held for sale Total liabilities Minority interest Redeemable stock Shareholders’ equity: Preferred stock, $0.01 par value per share, 20,000,000 shares authorized, $155,000 or $25 per share liquidation preference; 8.30% Series H Cumulative Redeemable Preferred Stock, 6,200,000 shares authorized, 6,200,000 shares issued and outstanding Common stock, $0.01 par value per share, 50,000,000 shares authorized, 28,224,708 and 25,718,880 shares issued and outstanding at December 31, 2008, and December 31, 2007, respectively(1) Additional paid-in capital Accumulated distributions in excess of net income Accumulated other comprehensive income Total shareholders’ equity Total liabilities and shareholders’ equity See Form 10-K for related footnote disclosures. December 31, 2008 2007 $ 240,426 2,198,063 65,540 25,268 $ 214,743 2,044,380 55,602 12,886 2,529,297 (694,054) 1,835,243 1,306 7,958 6,824 1,851,331 9,426 414 15,681 16,840 4,106 24,157 2,327,611 (616,364) 1,711,247 2,360 6,778 168 1,720,553 17,192 3,724 15,219 23,028 4,106 — $ 1,921,955 $ 1,783,822 $ 1,323,056 1,234 76,961 66,982 8,705 595 1,477,533 30,471 1,805 $ 1,264,620 1,099 16,039 61,213 8,453 — 1,351,424 28,868 2,574 62 62 282 954,127 (464,617) (77,708) 257 832,511 (414,966) (16,908) 412,146 400,956 $ 1,921,955 $ 1,783,822 (1) Number of shares issued and outstanding represent total shares of common stock regardless of classification on the consolidated balance sheet. The number of shares classified as redeemable stock on the consolidated balance sheet for December 31, 2008 and December 31, 2007, are 48,579 and 60,212, respectively. 12. 2008 Annual Report Financial highlights: fiscal year end December 31 consolidaTed sTaTeMenTs of operations (Dollars in thousands, except per share data) Operating revenues: Rental revenues Other property revenues Total property revenues Management fee income Total operating revenues Property operating expenses: Personnel Building repairs and maintenance Real estate taxes and insurance Utilities Landscaping Other operating Depreciation Total property operating expenses Property management expenses General and administrative expenses Income from continuing operations before non-operating items Interest and other non-property income Interest expense Loss on debt extinguishment Amortization of deferred financing costs Incentive fees from real estate joint ventures Net casualty (loss) gains and other settlement proceeds (Loss) gains on sale of non-depreciable assets Income from continuing operations before minority interest and investments in real estate joint ventures Minority interest in operating partnership income (Loss) income from real estate joint ventures Income from continuing operations Discontinued operations: Income from discontinued operations before gain (loss) on sale (Loss) gain on sale of discontinued operations Net income Preferred dividend distributions Premiums and original issuance costs associated with the redemption of preferred stock Net income available for common shareholders Weighted average shares outstanding (in thousands): Basic Effect of dilutive stock options Diluted Net income available for common shareholders Discontinued property operations Income from continuing operations available for common shareholders Earnings per share—basic: Income from continuing operations available for common shareholders Discontinued property operations Net income available for common shareholders Earnings per share—diluted: Income from continuing operations available for common shareholders Discontinued property operations Net income available for common shareholders See Form 10-K for related footnote disclosures. 13. Mid-America Apartment Communities, Inc. Years ended December 31, 2008 2007 2006 $ 352,607 17,038 $ 331,788 15,524 $ 304,237 13,923 369,645 206 347,312 34 318,160 210 369,851 347,346 318,370 46,139 13,688 45,652 21,908 9,146 18,617 90,168 245,318 16,799 11,837 95,897 509 (62,010) (116) (2,307) — (247) (3) 31,723 (1,822) (844) 29,057 1,312 (120) 30,249 12,865 42,102 12,900 42,639 20,009 8,594 16,039 84,789 39,137 11,603 39,929 19,123 8,119 14,592 77,545 227,072 17,918 10,808 210,048 13,124 9,877 91,548 195 (63,639) (123) (2,407) 1,019 589 534 85,321 663 (62,308) (578) (2,036) — 84 50 27,716 (3,510) 5,330 21,196 (1,590) (114) 29,536 19,492 1,246 9,164 39,946 13,688 1,453 — 20,945 13,962 — 589 — $ 17,384 $ 25,669 $ 6,983 26,943 103 27,046 25,296 166 23,474 224 25,462 23,698 $ 17,384 (1,192) $ 25,669 (10,410) $ 6,983 (1,453) $ 16,192 $ 15,259 $ 5,530 $ $ 0.60 0.05 $ 0.60 0.41 0.24 0.06 $ 0.65 $ 1.01 $ 0.30 $ $ 0.60 0.04 $ 0.60 0.41 0.23 0.06 $ 0.64 $ 1.01 $ 0.29 Financial highlights: fiscal year end December 31 reporT of independenT regisTered public accounTing firM The Board of Directors and Shareholders of Mid-America Apartment Communities, Inc. We have audited the accompanying consolidated balance sheets of Mid-America Apartment Communities, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These consolidated financial statements and schedule are the responsibility of the Company’s manage- ment. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mid-America Apartment Communities, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Mid-America Apartment Communities, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2009 expressed an unqualified opinion thereon. Memphis, Tennessee February 24, 2009 14. 2008 Annual Report Financial highlights: fiscal year end December 31 reporT of independenT regisTered public accounTing firM The Board of Directors and Shareholders of Mid-America Apartment Communities, Inc. We have audited Mid-America Apartment Communities, Inc.’s internal in accordance with generally accepted accounting principles, and that control over financial reporting as of December 31, 2008, based on receipts and expenditures of the company are being made only in accord- criteria established in Internal Control—Integrated Framework issued by ance with authorizations of management and directors of the company; the Committee of Sponsoring Organizations of the Treadway Commission and (3) provide reasonable assurance regarding prevention or timely (the COSO criteria). Mid-America Apartment Communities, Inc.’s manage- detection of unauthorized acquisition, use, or disposition of the company’s ment is responsible for maintaining effective internal control over financial assets that could have a material effect on the financial statements. reporting, and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assur- ance about whether effective internal control over financial reporting Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evalua- tion of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Mid-America Apartment Communities, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria. was maintained in all material respects. Our audit included obtaining an We also have audited, in accordance with the standards of the Public understanding of internal control over financial reporting, assessing the Company Accounting Oversight Board (United States), the consolidated risk that a material weakness exists, testing and evaluating the design balance sheets of Mid-America Apartment Communities, Inc. as of and operating effectiveness of internal control based on the assessed risk, December 31, 2008 and 2007, and the related consolidated statements and performing such other procedures as we considered necessary in the of income, shareholders’ equity, and cash flows for each of the three years circum stances. We believe that our audit provides a reasonable basis in the period ended December 31, 2008, of Mid-America Apartment for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and proce- dures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements Communities, Inc. and our report dated February 24, 2009, expressed an unqualified opinion thereon. Memphis, Tennessee February 24, 2009 15. Mid-America Apartment Communities, Inc. Awards: 2008 civic and industry 2008 civic and indusTry awards MID-AMERICA: 2008 Best Places to Work in TN, BusinessTN/SHRM BRADFORD CHASE: Mayor’s Civic Pride Award, City of Jackson, TN PRESERvE AT BRIER CREEk: 2008 Property of the Year, Triad Apartment Association MID-AMERICA: 2008 Best Places to Work in Memphis, Memphis Business Journal BRENTWOOD DOWNS: 1st Place Beautifica- tion, Nashville Apartment Association RESERvE AT DExTER LAkE: Best Waterscapes, Memphis Apartment Association MID-AMERICA: Gold Award for Website in the Large Cap Category, NAREIT BRENTWOOD DOWNS: 2nd Place Flowers, Nashville Apartment Association ABBY LLOYD/CALAIS FOREST: Property Manager of the Year, Little Rock Apartment Association DARRELL TOTTEN/GREENBROOk: Outstanding Maintenance Supervisor, Memphis Apartment Association FRANCISCO MATOS/TPC COLUMBIA: Maintenance Supervisor of the Year, Apartment Association of Greater Columbia JEREMIAH MANGRUM/RESERvE AT DExTER LAkE: Outstanding Leasing Professional, Memphis Apartment Association JULIE SMALL/EAST REGION AREA LEADER: Regional Manager of the Year, Triad Apartment Association kATIE SWANSON/GRAND RESERvE: Leasing Consultant of the Year, The Greater Lexington Apartment Association kEvIN STOTZ/LAkEPOINTE: Maintenance Supervisor of the Year, The Greater Lexington Apartment Association LAURA SOTO/GREENBROOk: Outstanding Housekeeper, Memphis Apartment Association PAIGE CARPENTER/GREENBROOk: Outstanding Assistant Property Manager, Memphis Apartment Association RACHEL MASCARO/CALAIS FOREST: Leasing Consultant of the Year, Little Rock Apartment Association LExINGTON AREA OPERATIONS TEAM: Management Company of the Year, The Greater Lexington Apartment Association ABBINGTON PLACE: Beautification Award, City of Huntsville EAGLE RIDGE: 3rd Place Beautification Award, Apartment Finders GEORGETOWN GROvE: 2008 Platinum Award, Savannah Apartment Association GEORGETOWN GROvE: Judges Award for Most Beautiful Landscape, Savannah Apartment Association GRAND RESERvE: 3rd Place Beautification Award, The Greater Lexington Apartment Association GRANDE vIEW: Best of the Best Landscape Award, Nashville Apartment Association GREENBROOk: Best Landscape in category, Memphis Apartment Association HIDDEN CREEk: 1st Place Beautification, Chattanooga Apartment Association LAkESHORE LANDING: Beautification Award, Jackson Apartment Association LINCOLN ON THE GREEN: Best Website Property Management, Memphis Apartment Association NORTHWOOD PLACE: Community Team of the Year, Tarrant County Apartment Association PARk ESTATE: Best Landscape in category, Memphis Apartment Association PARk PLACE: 2nd Place Landscape Award, Spartanburg Area Chamber of Commerce, Men’s Garden Club PEAR ORCHARD: Beautification Award, Jackson Apartment Association PEAR ORCHARD: Best Entrance, Jackson Apartment Association RESERvE AT DExTER LAkE: Outstanding Maintenance Team, Memphis Apartment Association RESERvE AT DExTER LAkE: Outstanding Management Team, Memphis Apartment Association RESERvE AT DExTER LAkE: Memphis’ Most Finalist, The Commercial Appeal STEEPLECHASE: 1st Place Beautification, Chattanooga Apartment Association STONEMILL vILLAGE: 1st Place Outstanding Landscaping and Maintenance of Grounds Award, Beautification League of Louisville and Jefferson County THE FAIRWAYS: Beautification Award, Apartment Association of Greater Columbia THE OAkS: Gold Landscape Award, Savannah Apartment Association THE vILLAGE: Best Overall Maintenance Team, The Greater Lexington Apartment Association THE vILLAGE: 2nd Place Beautification Award, The Greater Lexington Apartment Association THE vISTAS: Beautification Award, Mid-Georgia Apartment Association TOWNSHIP: 2008 Award of Excellence— Gold, The Peninsula Apartment Association TPC HUNTSvILLE: Beautification Award, City of Huntsville WESTBURY CREEk: Beautification Award, Apartment Association of Greater Augusta 16. 2008 Annual Report CorPorate InformatIon Corporate Headquarters Mid-America Apartment Communities, Inc. 6584 Poplar Avenue Memphis, TN 38138 901-682-6600 www.maac.net Independent Registered Public Accounting Firm Ernst & Young LLP, Memphis, TN General Counsel Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Memphis, TN Annual Shareholders Meeting Mid-America Apartment Communities, Inc. will hold its 2009 Annual Meeting of Shareholders on Thursday, May 28, 2009, at 1:00 p.m. CST at the Reserve at Dexter Lake apartments in Memphis, TN. Stock Listings Mid-America’s stock is listed on the New York Stock Exchange (NYSE). Our common stock is traded under the stock symbol MAA. We have one outstanding series of publicly traded preferred stock which is traded under the stock symbol MAA Pr H. Transfer Agent and Registrar American Stock Transfer & Trust Company 866-668-6550 shareholder toll-free line www.amstock.com 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 or direct stock purchase plan should contact American Stock Transfer & Trust Company at the share- holder service number listed above or access their account at the web-site listed above. Limited partners of Mid-America Apartments, L.P. wishing to transfer their units or convert units into shares of common stock of Mid- America Apartment Communities, Inc. should contact Mid-America directly at the corpo- rate headquarters. Annual Report and Form 10-K A copy of Mid-America’s Annual Report and Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission (SEC) will be sent without charge upon written request to the corporate headquarters address, attention Investor Relations, and is also available on the Investor Relations page of our web-site at www.maac.net. Mid-America’s other SEC filings as well as our corporate governance documents are also available. CEO and CFO Certifications As is required by Section 303A.12(a) of the NYSE’s corporate governance standards, the CEO Certification has been previously filed without qualification with the NYSE. Certifications of the CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 have been filed as exhibits to Mid-America’s Form 10-K. The Open Arms Foundation The Open Arms Foundation is Mid-America’s award-winning corporate charity that pro- vides fully-furnished, two-bedroom apartment homes free of charge to families displaced from their own homes by long-term medical care needs. At the time of printing of this report, The Open Arms Foundation was providing 37 homes to families in medical crisis. In its 15-year history, the foundation has provided nearly 2,000 families with almost 12,000 nights of rest away from home. To find out more about The Open Arms Foundation please visit www.openarmshomes.com Board of directors H. Eric Bolton, Jr. Chief Executive Officer and Chairman of the Board Mid-America Apartment Communities, Inc. Alan B. Graf, Jr. Executive Vice President and Chief Financial Officer FedEx Corporation Committees: Audit (chairman) Major General John S. Grinalds, USMC (Ret.) Past President The Citadel Committees: Audit Ralph Horn Past President, Chief Executive Officer and Chairman of the Board First Horizon National Corporation Committees: Compensation (chairman), Nominating and Corporate Governance (chairman) Mary E. McCormick Past Assistant Investment Officer Ohio Public Employees Retirement System Committees: Audit Philip W. Norwood President and Chief Executive Officer Faison Enterprises, Inc. Committees: Compensation, Nominating and Corporate Governance William B. Sansom President, Chief Executive Officer and Chairman of the Board H.T. Hackney Co. Committees: Compensation, Nominating and Corporate Governance Simon R.C. Wadsworth Executive Vice President and Chief Financial Officer Mid-America Apartment Communities, Inc. Designed by Curran & Connors, Inc. / www.curran-connors.com • Cover photography and photography on pages 1, 5 and 6 by Jeffrey Jacobs Photography. • Photography on pages 2 and 8 by Phillip Parker Photography. • Photography on page 9 by Keith Douglas Photography. Mid-America Apartment Communities, Inc. Trees trees.eps Energy energy.eps 10% Cert no. SGS-COC-2420 The savings below are achieved when PC recycled fiber is used in place of virgin fiber. This annual report uses 4337 lbs. of paper which has a recycled percentage of 10%. 10% 100% Trees trees.eps Water water.eps Solid Waste solid_waste.eps Atmospheric Emissions atmosphere.eps Energy energy.eps Air air.eps Automobile Miles auto_miles.eps Natural Gas natural_gas.eps Trees trees.eps 4 trees preserved for the future Water water.eps Solid Waste solid_waste.eps Waterborne Waste waterborne.eps 11 lbs. waterborne waste not created Atmospheric Emissions atmosphere.eps Trees Cut Down/Preserved for the Future trees_cut.eps Trees trees.eps Water water.eps Crude Oil crude_oil.eps 1,548 gallons waste- water flow saved Trees trees.eps Solid Waste solid_waste.eps Atmospheric Emissions atmosphere.eps Water water.eps Solid Waste solid_waste.eps Atmospheric Emissions atmosphere.eps Energy energy.eps Air air.eps Automobile Miles auto_miles.eps Natural Gas natural_gas.eps Energy energy.eps Air air.eps Automobile Miles auto_miles.eps Natural Gas natural_gas.eps Water water.eps Trees trees.eps Solid Waste solid_waste.eps Water water.eps Solid Waste Atmospheric Emissions solid_waste.eps atmosphere.eps Atmospheric Emissions atmosphere.eps 171 lbs. solid waste not generated 337 lbs. net greenhouse gases prevented Energy energy.eps 2,580,515 BTUs energy not consumed Air air.eps Automobile Miles auto_miles.eps Natural Gas natural_gas.eps Waterborne Waste waterborne.eps Trees Cut Down/Preserved for the Future trees_cut.eps Crude Oil crude_oil.eps Waterborne Waste waterborne.eps Trees Cut Down/Preserved for the Future trees_cut.eps Crude Oil crude_oil.eps Source: Primary values were derived from information publicly available at: Air air.eps Energy energy.eps Air Automobile Miles air.eps auto_miles.eps Natural Gas natural_gas.eps Automobile Miles auto_miles.eps Natural Gas natural_gas.eps http://www.environmentaldefense.org/documents/1687_figures.pdf and Waterborne Waste waterborne.eps Trees Cut Down/Preserved for the Future trees_cut.eps Crude Oil crude_oil.eps http://www.epa.gov/stateply/resources/index.html. Waterborne Waste waterborne.eps Trees Cut Down/Preserved for the Future trees_cut.eps Waterborne Waste waterborne.eps Trees Cut Down/Preserved for the Future trees_cut.eps Crude Oil crude_oil.eps Crude Oil crude_oil.eps MAA Mid-America Apartment Communities, Inc. 6584 Poplar Avenue Memphis, TN 38138 901-682-6600 www.maac.net 

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