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Mid-America Apartment Communities 10-K 2009

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008.

OR

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

For the transition period from ______ to ______

Commission File Number: 1-12762

MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)

TENNESSEE  62-1543819 
(State or other jurisdiction of  (I.R.S. Employer 
Incorporation or Organization)  Identification No.) 
 
6584 POPLAR AVENUE  38138 
MEMPHIS, TENNESSEE  (Zip Code) 
(Address of principal executive offices)   
 
(901) 682-6600 
(Registrant's telephone number, including area code) 
 
Securities registered pursuant to Section 12(b) of the Act: 
 
 Title of each class  Name of each exchange on which registered
Common Stock, par value $.01 per share  New York Stock Exchange
Series H Cumulative Redeemable Preferred Stock, Par   New York Stock Exchange
value $.01 per share  

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. o Yes þ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. þ Yes o No


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of June 30, 2008, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $1,370,618,258, based on the closing sale price as reported on the New York Stock Exchange.

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

Class  Outstanding at February 6, 2009 
Common Stock, $.01 par value per share  28,226,241 shares 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Document  Parts Into Which Incorporated 
Certain portions of the Proxy Statement for the  Part III 
Annual Meeting of Shareholders to be held May 28,   
2009 to be filed with the Securities and Exchange   
Commission pursuant to Regulation 14A, not later   
than 120 days after the end of the fiscal year covered   
by this Annual Report on Form 10-K.   


MID-AMERICA APARTMENT COMMUNITIES, INC.

TABLE OF CONTENTS

   Item          Page   
PART I
 
1. Business. 4
1A. Risk Factors. 11
1B. Unresolved Staff Comments. 18
2. Properties. 18
3. Legal Proceedings. 23
4. Submission of Matters to Vote of Security Holders. 23
 
PART II
 
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 23
6. Selected Financial Data. 25
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 27
7A. Quantitative and Qualitative Disclosures About Market Risk. 41
8. Financial Statements and Supplementary Data. 42
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 42
9A. Controls and Procedures. 42
9A(T). Controls and Procedures. 43
9B. Other Information. 43
 
PART III
 
10. Directors, Executive Officers and Corporate Governance. 43
11. Executive Compensation. 43
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 43
13. Certain Relationships and Related Transactions, and Director Independence. 43
14. Principal Accounting Fees and Services.  44
 
PART IV
 
15. Exhibits, Financial Statement Schedules. 44


PART I

Risks Associated with Forward-Looking Statements

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

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

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

  • increasing real estate taxes and insurance costs;

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

  • failure of development communities to lease-up as anticipated;

  • inability of a joint venture to perform as expected;

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

  • losses from catastrophes in excess of our insurance coverage;

  • unexpected capital needs;

  • inability to attract and retain qualified personnel;

  • potential liability for environmental contamination;

  • adverse legislative or regulatory tax changes;

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

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

  • inability to acquire funding through the capital markets;

  • inability to pay required distributions to maintain REIT status due to required debt payments;

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

  • loss of hedge accounting treatment for interest rate swaps due to volatility in the financial markets;

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

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  • the availability of credit, including mortgage financing, and the liquidity of the debt markets, including that provided to us by Fannie Mae and Freddie Mac, at present operating under the conservatorship of the United States Government; and

  • inability to meet loan covenants.

ITEM 1. BUSINESS.

Overview of Mid-America

     Founded in 1994, Mid-America Apartment Communities, Inc. is a Memphis, Tennessee-based self-administered and self-managed real estate investment trust, or REIT, that focuses on acquiring, owning and operating apartment communities in the Sunbelt region of the United States. We, together with our subsidiaries, report as a single business segment. As of December 31, 2008, we owned 100% of 143 properties representing 41,928 apartment units, 20 of which were under construction, and had a 33.33% ownership interest in Mid-America Multifamily Fund I, LLC, or Fund I, which owned 2 properties containing 626 apartment units. Our apartment communities were located in 13 states.

     Mid-America’s business is conducted principally through Mid-America Apartments, L.P., which we refer to as our operating partnership. Mid-America is the sole general partner of the operating partnership, holding 289,449 common units of partnership interest, or common units, comprising a 1% general partnership interest in the operating partnership as of December 31, 2008. Mid-America’s wholly-owned qualified REIT subsidiary, MAC II of Delaware, Inc. is a limited partner in the operating partnership and, as of December 31, 2008, held 26,251,923 common units, or 90.70% of all outstanding common units.

     Our corporate offices are located at 6584 Poplar Avenue, Memphis Tennessee 38138 and our telephone number is (901) 682-6600. As of December 31, 2008, we had 1,173 full time employees and 72 part time employees.

     Unless the context otherwise requires, all references in this Annual Report on Form 10-K to “we,” “us,” “our,” “the company,” or “Mid-America” refer collectively to Mid-America Apartment Communities, Inc. and its subsidiaries.

Operating Philosophy

     Mid-America’s primary objectives are to protect and grow existing property values, to maintain a stable and increasing cash flow that will fund its dividend through all parts of the real estate investment cycle, and to create new shareholder value by growing in a disciplined manner. Mid-America focuses on growing shareholder value by effectively and efficiently operating our existing investments and, when accretive to shareholder value, through new investments.

     Investment Focus. Mid-America’s primary investment focus is on apartment communities in the Sunbelt region of the United States. We believe that sustaining a relatively young portfolio with continued growth potential is important, and believe that we have one of the younger portfolios in the apartment sector. We are focused on the acquisition of new properties with exceptional growth potential and properties that we believe can be repositioned with appropriate use of capital and our operating management skills. We are currently focusing on increasing our investments in relatively new properties within our current geographic area with the potential for above average growth. We have an existing joint venture whose goal is to acquire and reposition properties 7 – 15 years old that has now completed its investment program. We are working to establish a new joint venture to continue this investment strategy.

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     Beginning in 2005, Mid-America began an initiative of upgrading a significant number of our existing apartment communities, as well as a limited program of developing new apartments, principally as expansions of existing communities. We will continue our established process of selling mature assets, and will adapt our investment focus to opportunities and markets. In order to improve our return on investment, we have from time-to-time invested with joint venture partners and anticipate this will be a growing part of our strategy.

     High Quality Assets. Mid-America has one of the younger REIT portfolios, and strives to maintain a young portfolio of our assets in excellent condition, believing that continuous capital replacement and maintenance will lead to higher long-run returns on investment. Mid-America periodically and selectively sells assets to ensure that our portfolio consists primarily of high quality, well-located properties within our market area.

     Diversified Market Focus. We believe the stability of our cash flow is enhanced and it will generate higher risk adjusted cash flow returns, with lower volatility, through our diversified strategy of investments over both primary and secondary markets throughout the Sunbelt region of the United States.

     Intensive Property and Asset Management Focus. Mid-America has traditionally emphasized property management, and over the past several years, we have deepened our asset management functions to provide additional support in marketing, training, ancillary income and, most recently, revenue management. A large majority of Mid-America’s property managers are Certified Apartment Managers, a designation established by the National Apartment Association, which provides training for on-site manager professionals. Mid-America also provides our own in-house leadership development program consisting of an 18-month, three-module program followed by two comprehensive case studies which was developed with the assistance of U.S. Learning, Inc.

     Decentralized Operational Structure. Mid-America operates in a decentralized manner. We believe that our decentralized operating structure capitalizes on specific market knowledge, provides greater personal accountability than a centralized structure and is beneficial in the acquisition and redevelopment processes. To support this decentralized operational structure, senior and executive management, along with various asset management functions, are proactively involved in supporting and reviewing property management through extensive reporting processes and frequent on-site visitations. In 2004, Mid-America completed the installation of the property and accounting modules of a new web-based property management system that increased the amount of information shared between senior and executive management and the properties on a real time basis, improving the support provided to on-site property operations. In 2005, we made significant improvements to our operating platform and we expect these enhancements will help capture more operating efficiencies, continue to support effective expense control and provide for various expanded revenue management practices. In 2007, we implemented a new “yield management” pricing program that we expect will help our property managers to optimize rental revenues. We also installed new purchase order and accounts payable software in 2007 and implemented processes to provide improved controls and management information. In 2008, we implemented revised utility billing processes, rolled out new web-sites enabling on-line lease applications and improved web-based marketing programs, and we anticipate continued enhancements in 2009.

Proactive Balance Sheet and Portfolio Management

     Mid-America focuses on improving the net present value of each share of Mid-America common stock. We routinely evaluate each asset and from time-to-time sell those that no longer fit our strategy. We make new investments and issue new equity when management believes it can add to value per share. In the past, Mid-America has sold assets to fund share repurchases when, in management’s view, shareholder value would be enhanced.

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Strategies

     Mid-America seeks to increase operating cash flow and earnings per share to maximize shareholder value through a balanced strategy of internal and external growth.

     Operating Growth Strategy. Mid-America's goal is to maximize our return on investment in each apartment community by increasing revenues, tightly controlling operating expenses, maintaining high occupancy levels and reinvesting as appropriate. The steps taken to meet these objectives include:

  • providing management information and improved customer services through technology innovations;

  • utilizing systems to enhance property managers’ ability to optimize revenue by adjusting rents in response to local market conditions and individual unit amenities;

  • developing new ancillary income programs aimed at offering new services to residents, including telephone, cable, and internet access, on which we generate fee and commission income;

  • implementing programs to control expenses through investment in cost-saving initiatives, including measuring and passing on to residents the cost of various expenses, including water and other utility costs;

  • analyzing individual asset productivity performances to identify best practices and improvement areas;

  • proactively maintaining the physical condition of each property;

  • improving the “curb appeal” of the apartment communities through extensive landscaping and exterior improvements, and repositioning apartment communities from time-to-time to maintain market leadership positions;

  • compensating employees through performance-based compensation and stock ownership programs;

  • maintaining a hands-on management style and “flat” organizational structure that emphasizes senior management's continued close contact with the market and employees;

  • selling or exchanging underperforming assets;

  • repurchasing or issuing shares of common or preferred stock when cost of capital and asset values permit;

  • aggressively managing lease expirations to align with peak leasing traffic patterns and to maximize productivity of property staffing; 

  • allocating additional capital, including capital for selective interior and exterior improvements, where the investment will generate the highest returns for Mid-America; and

  • acquiring and from time to time developing properties when expected returns exceed our investment hurdle rate.

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     Joint Venture Strategy. One of Mid-America’s strategies is to co-invest with partners in joint venture opportunities from time-to-time to the extent we believe that a joint venture will enable us to obtain a higher return on our investment through management and other fees, which leverage our skills in acquiring, repositioning, redeveloping and managing multifamily investments. In addition, the joint venture investment strategy can provide a platform for creating more capital diversification and lower investment risk for Mid-America. At present, we have focused the investment on properties 7 years old or older, with younger acquisitions becoming part of the wholly-owned portfolio.

     Disposition Strategy. Mid-America from time-to-time disposes of mature assets, defined as those apartment communities that no longer meet our investment criteria and long-term strategic objectives. Typically, Mid-America selects assets for disposition that do not meet our present investment criteria, including estimated future return on investment, location, market, potential for growth, and capital needs. Mid-America may from time-to-time also dispose of assets for which we receive an offer meeting or exceeding our return on investment criteria even though those assets may not meet the disposition criteria disclosed above. No apartment communities were sold during 2008.

     Acquisition Strategy. One of Mid-America’s growth strategies is to acquire and redevelop apartment communities that meet our investment criteria and focus as discussed above when the expected returns exceed our investment hurdle rate, generally defined as our estimated cost of equity plus 20%. Mid-America has extensive experience and research-based skills in the acquisition and repositioning of multifamily communities. In addition, Mid-America will acquire newly built and developed communities that can be purchased on a favorable pricing basis. We will continue to evaluate opportunities that arise, and will utilize this strategy to increase the number of apartment communities in strong and growing markets in the Sunbelt region of the United States.

     The following apartment communities were purchased during 2008:

                Number        
Property  Location    of Units       Date Purchased    
100% Owned Properties:      
     Cascade at Fall Creek Humble (Houston), TX 246 January 10, 2008
     Providence at Brier Creek   Raleigh, NC   313 May 21, 2008
     The Edge at Lyon's Gate Gilbert (Phoenix), AZ 312   July 31, 2008
     The Sanctuary at Oglethorpe Atlanta, GA 250 August 13, 2008
     Village Oaks Temple Terrace (Tampa), FL 215 August 27, 2008
     Village Oaks (1)  Temple Terrace (Tampa), FL 4 Various
    1,340  
 
33.33% Owned Properties through Fund I:    
     Milstead Village Kennesaw (Atlanta), GA 310 January 17, 2008
     Greenwood Forest Greenwood Forest (Houston), TX 316 March 27, 2008
    626  
 
Total 2008 Acquisitions    1,966  
____________________
 
(1)   On August 27, 2008, we purchased 215 units of the 234-unit Village Oaks apartments located in Temple Terrace, Florida, a suburb of Tampa. The remaining 19 units had previously been sold as condominiums and it is our intent to acquire these units if and when they become available, and operate them as apartment rentals with the rest of the community. During the remainder of 2008, we acquired four of the remaining 19 units.

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     Development Strategy. In 2006, Mid-America began some limited expansion development projects on adjacent land to existing apartment communities using fixed price contracts. We do not currently intend to maintain a dedicated development staff or to expand into development in a significant way. We prefer to capture accretive new growth through opportunistically acquiring new properties.

Common and Preferred Stock

     Mid-America continuously reviews opportunities for lowering our cost of capital, and increasing net present value per share. We evaluate opportunities to repurchase stock when we believe that our stock price is below our net present value and accordingly repurchased common stock, funded by asset sales, between 1999 and 2001. Mid-America also looks for opportunities where we can acquire or develop apartment communities, selectively funded or partially funded by stock sales, when the investment return is projected to substantially exceed our cost of capital. We will also opportunistically seek to lower our cost of capital through refinancing preferred stock as we did in 2003, 2006 and 2007.

     On November 3, 2006, Mid-America entered into a sales agreement with Cantor Fitzgerald & Co. to sell up to 2,000,000 shares of Mid-America’s common stock, from time-to-time in at-the-market offerings or negotiated transactions through a controlled equity offering program. In July, 2008, we entered into a second controlled equity offering sales agreement with similar terms authorizing the sale of up to 1,350,000 shares of common stock.

     The following are the issuances of common stock which have been made through these agreements through December 31, 2008:

Net
Number of Net Average
      Shares Sold       Proceeds       Sales Price
2006   194,000     $ 11,481,292     $ 59.18   
2007     323,700   $ 18,773,485     $ 58.00
2008   1,955,300     $ 103,588,758     $ 52.98  
Total    2,473,000   $ 133,843,535   $ 54.12  

     In October 2007, Mid-America redeemed all of our issued and outstanding 9¼% Series F Cumulative Redeemable Preferred Stock for $11.9 million.

     Mid-America also has a direct stock purchase plan which allows for the optional cash purchase of common stock of at least $250, but not more than $5,000 in any given month, free of brokerage commissions and charges. We, in our absolute discretion, may grant waivers to allow for optional cash payments in excess of $5,000. Throughout 2008, we issued a total of 402,593 shares through the direct stock purchase plan at an average 1.5% discount, and terminated the discount in December, 2008. No waivers were granted during 2008.

Share Repurchase Program

     In 1999, Mid-America’s Board of Directors approved an increase in the number of shares of Mid-America’s common stock authorized to be repurchased to 4 million shares. As of December 31, 2008, Mid-America had repurchased a total of approximately 1.86 million shares (8% of the shares of common stock and common units outstanding as of the beginning of the repurchase program). From time-to-time, we intend to sell assets based on our disposition strategy outlined in this Annual Report and use the proceeds to repurchase shares when we believe that shareholder value is enhanced. Factors affecting this determination include the share price, asset dispositions and pricing, financing agreements and rates of return. No shares were repurchased from 2002 through 2008 under this plan.

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Competition

     All of Mid-America’s apartment communities are located in areas that include other apartment communities. Occupancy and rental rates are affected by the number of competitive apartment communities in a particular area. The owners of competing apartment communities may have greater resources than Mid-America, and the managers of these apartment communities may have more experience than Mid-America’s management. Moreover, single-family rental housing, manufactured housing, condominiums and the new and existing home markets provide housing alternatives to potential residents of apartment communities.

     Apartment communities compete on the basis of monthly rent, discounts, and facilities offered such as apartment size and amenities, and apartment community amenities, including recreational facilities, resident services, and physical property condition. Mid-America makes capital improvements to both our apartment communities and individual apartments on a regular basis in order to maintain a competitive position in each individual market.

Environmental Matters

     As part of the acquisition process, Mid-America obtains environmental studies on all of our apartment communities from various outside environmental engineering firms. The purpose of these studies is to identify potential sources of contamination at the apartment communities and to assess the status of environmental regulatory compliance. These studies generally include historical reviews of the apartment communities, reviews of certain public records, preliminary investigations of the sites and surrounding properties, visual inspection for the presence of asbestos, poly-chlorinated biphenyls, or PCBs, and underground storage tanks and the preparation and issuance of written reports. Depending on the results of these studies, more invasive procedures, such as soil sampling or ground water analysis, will be performed to investigate potential sources of contamination. These studies must be satisfactorily completed before Mid-America takes ownership of an acquisition community; however, no assurance can be given that the studies identify all significant environmental problems.

     Under various federal, state and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on properties. Such laws often impose such liability without regard to whether the owner caused or knew of the presence of hazardous or toxic substances and whether the storage of such substances was in violation of a resident’s lease. Furthermore, the cost of remediation and removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’s ability to sell such real estate or to borrow using such real estate as collateral.

     Mid-America is aware of environmental concerns specifically relating to potential issues resulting from mold in residential properties and has in place an active management and preventive maintenance program that includes procedures specifically related to mold. Mid-America has established a policy requiring residents to sign a mold addendum to lease. Mid-America has also purchased a $5 million insurance policy that covers remediation and exposure to mold. The current policy expires in 2010 but is renewable at that time. Mid-America, therefore, believes that our exposure to this issue is limited and controlled.

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     The environmental studies received by Mid-America have not revealed any material environmental liabilities. Mid-America is not aware of any existing conditions that would currently be considered an environmental liability. Nevertheless, it is possible that the studies do not reveal all environmental liabilities or that there are material environmental liabilities of which Mid-America is unaware. Moreover, no assurance can be given concerning future laws, ordinances or regulations, or the potential introduction of hazardous or toxic substances by neighboring properties or residents. 

     Mid-America believes that our apartment communities are in compliance in all material respects with all applicable federal, state and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters.

Website Access to Registrant’s Reports

     Mid-America files annual and periodic reports with the Securities and Exchange Commission. All filings made by Mid-America with the SEC may be copied or read at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC as Mid-America does. The website is http://www.sec.gov.

     Additionally, a copy of this Annual Report on Form 10-K, along with Mid-America’s Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to the aforementioned filings, are available on Mid-America’s website free of charge. The filings can be found on the Investor Relations page under SEC Filings. Mid-America’s website also contains our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of the committees of the Board of Directors. These items can also be found on the Investor Relations page under Governance Documents. Mid-America’s website address is http://www.maac.net. Reference to Mid-America’s website does not constitute incorporation by reference of the information contained on the site and should not be considered part of this document. All of the aforementioned materials may also be obtained free of charge by contacting the Investor Relations Department at Mid-America Apartment Communities, Inc., 6584 Poplar Avenue, Memphis, TN 38138.

Recent Developments

     Dispositions. On January 15, 2009, Mid-America sold the Woodstream apartments, a 304-unit community in Greensboro, North Carolina.

     Acquisitions. On January 16, 2009, Mid-America acquired one of the 15 remaining units of the Village Oaks apartments located in Temple Terrace (Tampa), Florida.

Qualification as a Real Estate Investment Trust

     We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Code. To continue to qualify as a REIT, we must continue to meet certain tests which, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than our net capital gain) to our shareholders annually. As a qualified REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent we distribute such net income to our shareholders annually. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and our property. In 2008, we declared total distributions of $2.46 per common share to our shareholders.

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ITEM 1A. RISK FACTORS.

     In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. Please note that additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.

Failure to generate sufficient cash flows could limit our ability to pay distributions to shareholders.

     Our ability to generate sufficient cash flow in order to pay common dividends to our shareholders depends on our ability to generate funds from operations in excess of capital expenditure requirements and preferred dividends, and/or to have access to the markets for debt and equity financing. Funds from operations and the value of our apartment communities may be insufficient because of factors which are beyond our control. Such events or conditions could include:

  • competition from other apartment communities;

  • overbuilding of new apartment units or oversupply of available apartment units in our markets, which might adversely affect apartment occupancy or rental rates and/or require rent concessions in order to lease apartment units;

  • conversion of condominiums and single family houses to rental use;

  • job losses resulting from further declines in economic activity;

  • increases in operating costs (including real estate taxes and insurance premiums) due to inflation and other factors, which may not be offset by increased rents;

  • inability to rent apartments on favorable economic terms;

  • changes in governmental regulations and the related costs of compliance;

  • changes in tax laws and housing laws including the enactment of rent control laws or other laws regulating multifamily housing;

  • withdrawal of Government support of apartment financing through its financial backing of Federal National Mortgage Association, or FNMA, and Federal Home Loan Mortgage Corporation, or Freddie Mac;

  • an uninsured loss, resulting from a catastrophic storm or act of terrorism;

  • changes in interest rate levels and the availability of financing, borrower credit standards, and down-payment requirements which could lead renters to purchase homes (if interest rates decrease and home loans are more readily available) or increase our acquisition and operating costs (if interest rates increase and financing is less readily available);

  • weakness in the overall economy which lowers job growth and the associated demand for apartment housing; and

  • the relative illiquidity of real estate investments.

     At times, we rely on external funding sources to fully fund the payment of distributions to shareholders and our capital investment program (including our existing property expansion developments). While we have sufficient liquidity to permit distributions at current rates through additional borrowings if necessary, any significant and sustained deterioration in operations could result in our financial resources being insufficient to pay distributions to shareholders at the current rate, in which event we would be required to reduce the distribution rate. Any decline in our funds from operations could adversely affect our ability to make distributions to our shareholders or to meet our loan covenants and could have a material adverse effect on our stock price.

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Our financing could be impacted by negative capital market conditions.

     Recently, domestic financial markets have experienced unusual volatility and uncertainty. Liquidity has tightened in financial markets, including the investment grade debt, the CMBS, commercial paper, and equity capital markets. A large majority of apartment financing, and as of December 31, 2008, 89% of our outstanding debt, is provided by or credit-enhanced by FNMA and Freddie Mac, which are now under the conservatorship of the U.S. Government. We have seen an increase in the volatility of short term interest rates and changes in historic relationships between LIBOR (which is the basis for the payments to us by our swap counterparties) and the actual interest rate we pay through the Fannie Mae Discount Mortgage Backed Security, or DMBS, and the Freddie Mac Reference Bill programs, which we believe to be temporary. This creates a risk that our interest expense will fluctuate to a greater extent than it has in the past, and it makes forecasting more difficult. Were our credit arrangements with Prudential Mortgage Capital, credit-enhanced by FNMA, or with Financial Federal, credit-enhanced by Freddie Mac, to fail, or their ability to lend money to finance apartment communities to become impaired, we would have to seek alternative sources of capital, which might not be available on terms acceptable to us, if at all. In addition, any such event would most likely cause our interest costs to rise. This could also cause our swaps to become ineffective, triggering a default in one or more of our credit agreements. If any of the foregoing events were to occur it could have a material adverse affect on our business, financial condition and prospects.

     Our credit facilities with FNMA and Freddie Mac expire 2011 – 2018, and we anticipate that replacement facilities will be at a higher cost and have less attractive terms.

A change in U.S. government policy with regard to FNMA and Freddie Mac could seriously impact our financial condition.

     The U. S. government has committed $200 billion of preferred equity each to FNMA and Freddie Mac, and placed them in conservatorship through the end of 2009. The Treasury Department has recently increased FNMA and Freddie Mac’s portfolio limitation to $900 billion, which at present is required to be reduced on a phased basis beginning in 2010. Through expansion of their off-balance sheet lending products (which form the large majority of our borrowing), we believe that FNMA and Freddie Mac balance sheet limitations will not restrict their support of lending to the multifamily industry and to us in particular. Statements supporting their involvement in apartment lending by the heads of multifamily lending of FNMA, Freddie Mac, and their regulator have recently been reiterated. Should this support change, it would have a material adverse affect on both us and the multifamily industry, and we would seek alternative sources of funding. This could jeopardize the effectiveness of our interest rate swaps, potentially causing a breach in one or more of our loan covenants, and through reduced loan availability, impact the value of multifamily assets, which could impair the value of our properties.

A change in the value of our assets could cause us to experience a cash shortfall and be in default of our loan covenants.

     Mid-America borrows on a secured basis from FNMA, Freddie Mac, and Regions Bank. A significant reduction in value could require us to post additional collateral. While we believe that we have significant excess collateral and capacity, future asset values are uncertain. If we were unable to meet a request to add collateral to a credit facility, this would have a material adverse affect on our liquidity and our ability to meet our loan covenants.

12


Debt level, refinancing and loan covenant risk may adversely affect our financial condition and operating results and our ability to maintain our status as a REIT.

     At December 31, 2008, we had total debt outstanding of $1.3 billion. Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate the apartment communities or pay distributions that are required to be paid in order for us to maintain our qualification as a REIT. We currently intend to limit our total debt to approximately 60% of the undepreciated book value of our assets, although our charter and bylaws do not limit our debt levels. Circumstances may cause us to exceed that target from time-to-time. As of December 31, 2008, our ratio of debt to undepreciated book value was approximately 50%. Our Board of Directors can modify this policy at any time which could allow us to become more highly leveraged and decrease our ability to make distributions to our shareholders. In addition, we must repay our debt upon maturity, and the inability to access debt or equity capital at attractive rates could adversely affect our financial condition and/or our funds from operations. We rely on FNMA and Freddie Mac, which we refer to as the Agencies, for the majority of our debt financing and have agreements with the Agencies and with other lenders that require us to comply with certain covenants, including maintaining adequate collateral that is subject to revaluation quarterly. The breach of any one of these covenants would place us in default with our lenders and may have serious consequences on our operations. 

Interest rate hedging may be ineffective.

     We rely on the financial markets to refinance debt maturities, and also are heavily reliant on the Agencies, which provide credit or credit enhancement for approximately $1.2 billion of our outstanding debt as of December 31, 2008. The debt is provided under the terms of credit facilities with Prudential Mortgage Capital (credit-enhanced by FNMA) and Financial Federal (credit-enhanced by Freddie Mac). We pay fees to the credit facility providers and the Agencies plus interest which is tied to the FNMA DMBS rate, and the Freddie Mac Reference Bill Rate. The Agencies have been placed into conservatorship by the U.S. Government (under the supervision of the Federal Housing Finance Agency), which has committed $200 billion of capital to each, if needed.

     The interest rate market for the FNMA DMBS rate and the Freddie Mac Reference Bill Rate, both of which have been highly correlated with LIBOR interest rates, are also an important component of our liquidity and interest rate swap effectiveness. In our experience, the FNMA DMBS rate has averaged 5 basis points to 12 basis points below LIBOR, and the Freddie Mac Reference Bill rate has averaged 15 basis points to 17 basis points below LIBOR, but in the past year the spreads have increased significantly and have been more volatile than we have historically seen. We believe that the current market illiquidity is an anomaly and that the spreads and the volatility will return to more stable historic trends, but we cannot forecast when or if the uncertainty and volatility in the market may change. Continued unusual volatility over a period of time could cause us to lose hedge accounting treatment for our interest rate swaps, resulting in material changes to our consolidated statements of operations and balance sheet, and potentially cause a breach with one of our debt covenants.

     The difference in interest rates between the DMBS and Reference Bill rates and three-month LIBOR, which is a component of the ineffectiveness of the LIBOR-based swaps, flows through interest expense in the current period, and together with the recognized ineffectiveness (which is also an adjustment to current period interest expense), reduces the effectiveness of the swaps.

     We also rely on the credit of the counterparties that provide swaps to hedge the interest rate risk on our credit facilities. We use three major banks to provide nearly 78% of our swaps, JP Morgan Chase, Royal Bank of Canada, and Deutsche Bank, all of which have high investment grade ratings from Moody’s and S&P. In the event that one of our swap providers should suffer a significant downgrade of its credit rating or fail, our swaps may become ineffective, in which case the value of the swap would be adjusted to value in the current period, possibly causing a substantial loss sufficient to cause a breach with one of our debt covenants.

13


One or more interest rate swap or cap counterparties could default, causing us significant financial exposure.

     We enter into interest rate swap and interest rate cap agreements only with counterparties that are highly rated (generally, AA- or above by Standard & Poors, or Aa3 or above by Moody’s). We also try to diversify our risk amongst several counterparties. In the event one or more of these counterparties were to go into liquidation or to experience a significant rating downgrade, this could cause us to liquidate the interest rate swap, or lose the interest rate protection of an interest rate cap. Liquidation of an interest rate swap could cause us to be required to pay the swap counter party the net present value of the swap, which may represent a significant current period cash charge, possibly sufficient to cause us to breach one or more loan covenants.

Variable interest rates may adversely affect funds from operations.

     At December 31, 2008, effectively $185 million of our debt bore interest at a variable rate and was not hedged by interest rate swaps or caps. We may incur additional debt in the future that also bears interest at variable rates. Variable rate debt creates higher debt service requirements if market interest rates increase, which would adversely affect our funds from operations and the amount of cash available to pay distributions to shareholders. Our $1.0 billion secured credit facilities with Prudential Mortgage Capital, credit enhanced by FNMA, are predominately floating rate facilities. We also have credit facilities with Freddie Mac totaling $300 million which are variable rate facilities. At December 31, 2008, a total of $1.2 billion was outstanding under these facilities. These facilities represent the majority of the variable interest rates we were exposed to at December 31, 2008. Large portions of the interest rates on these facilities have been hedged by means of a number of interest rate swaps and caps. Upon the termination of these swaps and caps, we will be exposed to the risks of varying interest rates.

Losses from catastrophes may exceed our insurance coverage.

     We carry comprehensive liability and property insurance on our communities, and intend to obtain similar coverage for communities we acquire in the future. Some losses, generally of a catastrophic nature, such as losses from floods, hurricanes or earthquakes, are subject to limitations, and thus may be uninsured. We exercise our discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance on our investments at a reasonable cost and on suitable terms. If we suffer a substantial loss, our insurance coverage may not be sufficient to pay the full current market value or current replacement value of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed.

Increasing real estate taxes and insurance costs may negatively impact financial condition.

     As a result of our substantial real estate holdings, the cost of real estate taxes and insuring our apartment communities is a significant component of expense. Real estate taxes and insurance premiums are subject to significant increases and fluctuations which can be widely outside of our control. If the costs associated with real estate taxes and insurance should rise, our financial condition could be negatively impacted and our ability to pay our dividend could be affected.

Property insurance limits may be inadequate and deductibles may be excessive in the event of a catastrophic loss or a series of major losses, and may cause a breach of a loan covenants.

     We have a significant proportion of our assets in areas exposed to windstorms and to the New Madrid earthquake zone. A major wind or earthquake loss, or series of losses, could require that we pay significant deductibles as well as additional amounts above the per occurrence limit of our insurance for these risks. We may then be judged to have breached one or more of our loan covenants, and any of the foregoing events could have a material adverse effect on our assets, financial condition, and results of operation.

14


Issuances of additional debt or equity may adversely impact our financial condition.

     Our capital requirements depend on numerous factors, including the occupancy and turnover rates of our apartment communities, development and capital expenditures, costs of operations and potential acquisitions. We cannot accurately predict the timing and amount of our capital requirements. If our capital requirements vary materially from our plans, we may require additional financing sooner than anticipated. Accordingly, we could become more leveraged, resulting in increased risk of default on our obligations and in an increase in our debt service requirements, both of which could adversely affect our financial condition and ability to access debt and equity capital markets in the future.

We are dependent on key personnel.

     Our success depends in part on our ability to attract and retain the services of executive officers and other personnel. There is substantial competition for qualified personnel in the real estate industry and the loss of several of our key personnel could have an adverse effect on us.

New acquisitions may fail to perform as expected and failure to integrate acquired communities and new personnel could create inefficiencies.

     We intend to actively acquire and improve multifamily communities for rental operations. We may underestimate the costs necessary to bring an acquired community up to standards established for our intended market position. Additionally, to grow successfully, we must be able to apply our experience in managing our existing portfolio of apartment communities to a larger number of properties. We must also be able to integrate new management and operations personnel as our organization grows in size and complexity. Failures in either area will result in inefficiencies that could adversely affect our overall profitability.

We may not be able to sell communities when appropriate.

     Real estate investments are relatively illiquid and generally cannot be sold quickly. We may not be able to change our portfolio promptly in response to economic or other conditions. Further, we own seven communities (of 145 total) which are subject to restrictions on sale, and are required to be exchanged through a 1031b tax-free exchange, unless we pay the tax liability of the contributing partners. This inability to respond promptly to changes in the performance of our investments could adversely affect our financial condition and ability to make distributions to our security holders.

Environmental problems are possible and can be costly.

     Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real estate to investigate and clean up hazardous or toxic substances or petroleum product releases at such community. The owner or operator may have to pay a governmental entity or third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. Even if more than one person may have been responsible for the contamination each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site. All of our communities have been the subject of environmental assessments completed by qualified independent environmental consultant companies. These environmental assessments have not revealed, nor are we aware of, any environmental liability that we believe would have a material adverse effect on our business, results of operations, financial condition or liquidity. Over the past several years, there have been an increasing number of lawsuits against owners and managers of multifamily properties alleging personal injury and property damage caused by the presence of mold in residential real estate.  

15


     Some of these lawsuits have resulted in substantial monetary judgments or settlements. We cannot be assured that existing environmental assessments of our communities reveal all environmental liabilities, that any prior owner of any of our properties did not create a material environmental condition not known to us, or that a material environmental condition does not otherwise exist.

Our ownership limit restricts the transferability of our capital stock.

     Our charter limits ownership of our capital stock by any single shareholder to 9.9% of the value of all outstanding shares of our capital stock, both common and preferred. The charter also prohibits anyone from buying shares if the purchase would result in our losing REIT status. This could happen if a share transaction results in fewer than 100 persons owning all of our shares or in five or fewer persons, applying certain broad attribution rules of the Internal Revenue Code of 1986, as amended, or the Code, owning 50% or more of our shares. If you acquire shares in excess of the ownership limit or in violation of the ownership requirements of the Code for REITs, we:

  • will consider the transfer to be null and void;
     
  • will not reflect the transaction on our books;
     
  • may institute legal action to enjoin the transaction;
     
  • will not pay dividends or other distributions with respect to those shares;
     
  • will not recognize any voting rights for those shares;
     
  • will consider the shares held in trust for our benefit; and
     
  • will either direct you to sell the shares and turn over any profit to us, or we will redeem the shares. If we redeem the shares, you will be paid a price equal to the lesser of:

                 1.       the price you paid for the shares; or
 
2. the average of the last reported sales prices on the New York Stock Exchange on the ten trading days immediately preceding the date fixed for redemption by our Board of Directors.
 
If you acquire shares in violation of the limits on ownership described above:
  • you may lose your power to dispose of the shares;
     
  • you may not recognize profit from the sale of such shares if the market price of the shares increases; and
     
  • you may be required to recognize a loss from the sale of such shares if the market price decreases.

Provisions of our charter and Tennessee law may limit the ability of a third party to acquire control of us.

Ownership Limit. The 9.9% ownership limit discussed above may have the effect of precluding acquisition of control of us by a third party without the consent of our Board of Directors.

Preferred Stock. Our charter authorizes our Board of Directors to issue up to 20,000,000 shares of preferred stock. The Board of Directors may establish the preferences and rights of any preferred shares issued. The issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our shareholders’ best interests. Currently, we have 6,200,000 shares of 8.30% Series H Cumulative Redeemable Preferred Stock issued and outstanding.

Tennessee Anti-Takeover Statutes. As a Tennessee corporation, we are subject to various legislative acts, which impose restrictions on and require compliance with procedures designed to protect shareholders against unfair or coercive mergers and acquisitions. These statutes may delay or prevent offers to acquire us and increase the difficulty of consummating any such offers, even if our acquisition would be in our shareholders’ best interests.

16


Our investments in joint ventures may involve risks.

     Investments in joint ventures may involve risks which may not otherwise be present in our direct investments such as:

  • the potential inability of our joint venture partner to perform;
     
  • the joint venture partner may have economic or business interests or goals which are inconsistent with or adverse to ours;
     
  • the joint venture partner may take actions contrary to our requests or instructions or contrary to our objectives or policies; and
     
  • the joint venturers may not be able to agree on matters relating to the property they jointly own.

     Although each joint owner will have a right of first refusal to purchase the other owner’s interest, in the event a sale is desired, the joint owner may not have sufficient resources to exercise such right of first refusal.

Failure to qualify as a REIT would cause us to be taxed as a corporation.

     If we failed to qualify as a REIT for federal income tax purposes, we would be taxed as a corporation. The Internal Revenue Service may challenge our qualification as a REIT for prior years, and new legislation, regulations, administrative interpretations or court decisions may change the tax laws with respect to qualification as a REIT or the federal tax consequences of such qualification. For any taxable year that we fail to qualify as a REIT, we would be subject to federal income tax on our taxable income at corporate rates, plus any applicable alternative minimum tax. In addition, unless entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would reduce our net earnings available for investment or distribution to shareholders because of the additional tax liability for the year or years involved. In addition, distributions would no longer qualify for the dividends paid deduction nor be required to be made in order to preserve REIT status. We might be required to borrow funds or to liquidate some of our investments to pay any applicable tax resulting from our failure to qualify as a REIT.

Compliance or failure to comply with laws requiring access to our properties by disabled persons could result in substantial cost.

     The Americans with Disabilities Act, the Fair Housing Act of 1988 and other federal, state and local laws generally require that public accommodations be made accessible to disabled persons. Noncompliance could result in the imposition of fines by the government or the award of damages to private litigants. These laws may require us to modify our existing communities. These laws may also restrict renovations by requiring improved access to such buildings by disabled persons or may require us to add other structural features that increase our construction costs. Legislation or regulations adopted in the future may impose further burdens or restrictions on us with respect to improved access by disabled persons. We cannot ascertain the costs of compliance with these laws, which may be substantial.

17


Failure to make required distributions would subject us to income taxation.

     In order to qualify as a REIT, each year we must distribute to stockholders at least 90% of our taxable income (determined without regard to the dividend paid deduction and by excluding net capital gains). To the extent that we satisfy the distribution requirement, but distribute less than 100% of taxable income, we will be subject to federal corporate income tax on the undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of:

  • 85% of ordinary income for that year;
     
  • 95% of capital gain net income for that year; and
     
  • 100% of undistributed taxable income from prior years.

     Differences in timing between the recognition of income and the related cash receipts or the effect of required debt amortization payments could require us to borrow money or sell assets to pay out enough of the taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax in a particular year.

Complying with REIT requirements may cause us to forgo otherwise attractive opportunities or engage in marginal investment opportunities.

     To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of income, the nature and diversification of assets, the amounts distributed to shareholders and the ownership of our stock. In order to meet these tests, we may be required to forgo attractive business or investment opportunities or engage in marginal investment opportunities. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

     None.

ITEM 2. PROPERTIES.

     Mid-America seeks to acquire newer apartment communities and those with opportunities for repositioning through capital additions and management improvement located in the Sunbelt region of the United States that are primarily appealing to middle income residents with the potential for above average growth and return on investment. Approximately 75% of Mid-America's apartment units are located in Georgia, Florida, Tennessee, and Texas markets. Mid-America's strategic focus is to provide our residents high quality apartment units in attractive community settings, characterized by extensive landscaping and attention to aesthetic detail. We utilize our experience and expertise in maintenance, landscaping, marketing and management to effectively reposition many of the apartment communities we acquire to raise occupancy levels and per unit average rents.

     The following table sets forth certain historical information for the apartment communities we owned at December 31, 2008:

18



Approximate Average Monthly Average Encumbrances at
Rentable Unit Rent per Occupancy December 31, 2008
Year Area Size Unit at Percent at Mortgage/Bond
Year Management Number (Square (Square December 31,   December 31, Principal Interest Maturity
Property      Location      Completed      Commenced      of Units      Footage)      Footage)      2008      2008      (000's)           Rate           Date     
100% Owned                      
       Eagle Ridge Birmingham, AL 1986 1998 200 181,400 907 $ 708.51 95.00 % $      (1)    (1)   (1)
       Abbington Place Huntsville, AL 1987 1998 152 162,792 1,071 $ 618.55 95.39 % $   (1) (1)   (1)
       Paddock Club Huntsville Huntsville, AL 1989/98 1997 392 414,736 1,058 $ 724.17 91.07 % $   (1) (1)   (1)
       Paddock Club Montgomery Montgomery, AL 1999 1998 208 230,880 1,110 $ 767.49 93.75 % $   (1) (1)   (1)
        952 989,808 1,040 $ 713.48 93.17 %    
       Calais Forest Little Rock, AR 1987 1994 260 195,000 750 $ 659.76 96.54 % $   (1) (1)   (1)
       Napa Valley Little Rock, AR 1984 1996 240 183,120 763 $ 627.62 93.75 % $   (1) (1)   (1)
       Westside Creek I & II Little Rock, AR 1984/86 1997 308 320,936 1,042 $ 704.85 97.08 % $   (1) (1)   (1)
        808 699,056 865 $ 667.40 95.92 %    
       Edge at Lyon's Gate Phoenix, AZ 2007 2008 312 299,208 959 $ 821.66 91.67 % $    
       Talus Ranch Phoenix, AZ 2005 2006 480 437,280 911 $ 758.16 85.83 % $    
        792 736,488 930 $ 783.18 88.13 %    
       Tiffany Oaks Altamonte Springs, FL 1985 1996 288 234,144 813 $ 755.67 92.36 % $   (1) (1)   (1)
       Marsh Oaks Atlantic Beach, FL 1986 1995 120 93,240 777 $ 702.61 80.83 % $   (1) (1)   (1)
       Indigo Point Brandon, FL 1989 2000 240 194,640 811 $ 800.16 95.42 % $   (4) (4)   (4)
       Paddock Club Brandon Brandon, FL 1997/99 1997 440 516,120 1,173 $ 917.87 94.77 % $   (2) (2)   (2)
       Preserve at Coral Square Coral Springs, FL 1996 2004 480 528,480 1,101 $ 1,255.96 94.79 % $   (7) (7)   (7)
       Anatole Daytona Beach, FL 1986 1995 208 149,136 717 $ 738.08 96.63 %   $ 7,000 (10)    1.795%  (10) 10/15/2032 (10)
       Paddock Club Gainesville Gainesville, FL 1999 1998 264 293,040 1,110 $ 907.20 93.56 % $   (2) (2)   (2)
       Cooper's Hawk Jacksonville, FL 1987 1995 208 218,400 1,050 $ 796.26 96.15 % $   (2) (2)   (2)
       Hunter's Ridge at Deerwood Jacksonville, FL 1987 1997 336 295,008 878 $ 818.54 93.45 % $   (8) (8)   (8)
       Lakeside Jacksonville, FL 1985 1996 416 344,032 827 $ 733.01 96.88 % $   (1) (1)   (1)
       Lighthouse at Fleming Island Jacksonville, FL 2003 2003 501 556,110 1,110 $ 905.14 92.81 % $   (1) (1)   (1)
       Paddock Club Jacksonville Jacksonville, FL 1989/96 1997 440 475,200 1,080 $ 854.66 90.23 % $   (1) (1)   (1)
       Paddock Club Mandarin Jacksonville, FL 1998 1998 288 330,336 1,147 $ 872.03 92.71 % $   (2) (2)   (2)
       St. Augustine I & II Jacksonville, FL 1987/2008 1995 524 423,392 808 $ 718.70 84.92 %   $    13,235 (20) (20)   (20)
       Woodbridge at the Lake Jacksonville, FL 1985 1994 188 166,004 883 $ 750.03 92.55 % $   (2) (2)   (2)
       Woodhollow Jacksonville, FL 1986 1997 450 342,000 760 $ 729.27 94.67 % $   (1) (1)   (1)
       Paddock Club Lakeland Lakeland, FL 1988/90 1997 464 505,296 1,089 $ 757.13 91.81 % $   (1) (1)   (1)
       Savannahs at James Landing Melbourne, FL 1990 1995 256 238,592 932 $ 739.63 93.75 % $   (2) (2)   (2)
       Paddock Park Ocala Ocala, FL 1986/88 1997 480 485,280 1,011 $ 714.22 79.17 %   $ 6,805    (2)(3)      (2)(3)      (2)(3)
       Paddock Club Panama City Panama City, FL 2000 1998 254 283,972 1,118 $ 895.11 92.13 % $   (2) (2)   (2)
       Paddock Club Tallahassee Tallahassee, FL 1990/95 1997 304 329,232 1,083 $ 847.22 93.42 % $   (2) (2)   (2)
       Belmere Tampa, FL 1984 1994 210 202,440 964 $ 801.47 95.71 % $   (1) (1)   (1)
       Links at Carrollwood Tampa, FL 1980 1998 230 214,820 934 $ 848.04 96.52 % $   (1) (1)   (1)
       Village Oaks Tampa, FL 2005 2008 219 252,726 1,154 $ 990.66 96.35 % $    
        7,808 7,671,640 983 $ 834.33 92.23 %    
       High Ridge Athens, GA 1987 1997 160 186,560 1,166 $ 742.72 93.13 % $   (1) (1)   (1)
       Sanctuary at Oglethorpe Atlanta, GA 1995 2008 250 287,500 1,150 $ 1,217.07 96.80 %   $ 23,500 6.210% 11/15/2015
       Bradford Pointe Augusta, GA 1986 1997 192 156,288 814 $ 639.69 98.96 % $   (5) (5)   (5)
       Shenandoah Ridge Augusta, GA 1982 1994 272 222,768 819 $ 590.34 94.12 % $   (1) (1)   (1)
       Westbury Creek Augusta, GA 1984 1997 120 107,040 892 $ 641.42 93.33 %   $ 3,480 (15) (15) 5/15/2033 (15)
       Fountain Lake Brunswick, GA 1983 1997 110 129,800 1,180 $ 824.16 88.18 % $   (5) (5)   (5)
       Park Walk College Park, GA 1985 1997 124 112,716 909 $ 635.24 95.16 % $   (1) (1)   (1)
       Whisperwood Columbus, GA 80/82/84/86/98 1997 1,008 1,220,688 1,211 $ 779.07 88.89 % $   (1) (1)   (1)
       Willow Creek Columbus, GA 1971/77 1997 285 246,810 866 $ 597.88 96.84 % $   (1) (1)   (1)
       Terraces at Fieldstone Conyers, GA 1999 1998 316 351,076 1,111 $ 802.10 96.52 % $   (1) (1)   (1)
       Prescott Duluth, GA 2001 2004 384 370,176 964 $ 800.76 94.01 % $   (6) (6)   (6)
       Lanier Gainesville, GA 1998 2005 344 395,944 1,151 $ 808.29 92.15 %   $ 18,984 5.300% 3/1/2014
       Lake Club Gainesville, GA 2001 2005 313 359,950 1,150 $ 754.64 84.35 % $   (6) (6)   (6)
       Whispering Pines LaGrange, GA 1982/84 1997 216 223,128 1,033 $ 617.81 95.37 % $   (5) (5)   (5)
       Westbury Springs Lilburn, GA 1983 1997 150 137,700 918 $ 677.69 89.33 % $   (1) (1)   (1)
       Austin Chase Macon, GA 1996 1997 256 292,864 1,144 $ 756.92 94.14 % $   (8) (8)   (8)
       The Vistas Macon, GA 1985 1997 144 153,792 1,068 $ 642.86 97.22 % $   (1) (1)   (1)

19



Approximate Average Monthly Average Encumbrances at
Rentable Unit Rent per Occupancy December 31, 2008
Year Area Size Unit at Percent at Mortgage/Bond
Year Management Number (Square (Square December 31,   December 31, Principal Interest Maturity
Property      Location      Completed      Commenced      of Units      Footage)      Footage)      2008      2008      (000's)           Rate           Date     
       Walden Run McDonough, GA 1997 1998 240 271,200 1,130 $ 717.90 94.17 % $   (1) (1)   (1)
       Georgetown Grove Savannah, GA 1997 1998 220 239,800 1,090 $ 848.78 98.18 % $    
       Oaks at Wilmington Island Savannah, GA 1999 2006 306 300,492 982 $ 871.95 96.41 % $   (7) (7)   (7)
       Wildwood Thomasville, GA 1980/84 1997 216 223,128 1,033 $ 619.44 93.98 % $   (1) (1)   (1)
       Hidden Lake Union City, GA 1985/87 1997 320 342,400 1,070 $ 690.09 87.19 % $   (1) (1)   (1)
       Three Oaks Valdosta, GA 1983/84 1997 240 247,920 1,033 $ 667.66 90.42 % $   (1) (1)   (1)
       Huntington Chase Warner Robins, GA 1997 2000 200 218,400 1,092 $ 712.05 95.50 % $    
       Southland Station Warner Robins, GA 1987/90 1997 304 354,768 1,167 $ 701.48 94.74 % $   (1) (1)   (1)
       Terraces at Townelake Woodstock, GA 1999 1998 502 575,794 1,147 $ 773.47 88.65 % $   (1) (1)   (1)
        7,192 7,728,702 1,075 $ 749.43 92.66 %    
       Fairways at Hartland Bowling Green, KY 1996 1997 240 251,280 1,047 $ 705.95 92.08 % $   (1) (1)   (1)
       Paddock Club Florence Florence, KY 1994 1997 200 207,000 1,035 $ 735.13 90.50 %   $ 9,378 5.875% 1/1/2044
       Grand Reserve Lexington Lexington, KY 2000 1999 370 432,530 1,169 $ 891.10 88.11 % $   (1) (1)   (1)
       Lakepointe Lexington, KY 1986 1994 118 90,624 768 $ 618.00 97.46 % $   (1) (1)   (1)
       Mansion, The Lexington, KY 1989 1994 184 138,736 754 $ 652.28 92.39 % $   (1) (1)   (1)
       Village, The Lexington, KY 1989 1994 252 182,700 725 $ 633.87 96.03 % $   (1) (1)   (1)
       Stonemill Village Louisville, KY 1985 1994 384 324,096 844 $ 643.94 94.79 % $   (1) (1)   (1)
        1,748 1,626,966 931 $ 712.88 92.62 %    
       Riverhills Grenada, MS 1972 1985 96 81,984 854 $ 445.23 96.88 % $    
       Crosswinds Jackson, MS 1988/90 1996 360 443,160 1,231 $ 746.69 96.94 % $   (1) (1)   (1)
       Pear Orchard Jackson, MS 1985 1994 389 338,430 870 $ 698.82 96.66 % $   (1) (1)   (1)
       Reflection Pointe Jackson, MS 1986 1988 296 254,856 861 $ 720.52 91.22 %   $ 5,880      (11) 1.705%      (11) 5/15/2031      (11)
       Lakeshore Landing Ridgeland, MS 1974 1994 196 171,108 873 $ 653.03 96.43 % $   (1) (1)   (1)
       Savannah Creek Southaven, MS 1989 1996 204 237,048 1,162 $ 733.97 94.12 % $   (1) (1)   (1)
       Sutton Place Southaven, MS 1991 1996 253 268,686 1,062 $ 696.40 97.23 % $   (1) (1)   (1)
        1,794 1,795,272 1,001 $ 697.09 95.60 %    
       Hermitage at Beechtree Cary, NC 1988 1997 194 169,750 875 $ 712.45 93.30 % $   (1) (1)   (1)
       Waterford Forest Cary, NC 1996 2005 384 344,448 897 $ 704.89 94.27 % $   (6) (6)   (6)
       Woodstream Greensboro, NC 1983 1994 304 217,056 714 $ 548.69 94.41 % $    
       Preserve at Brier Creek Raleigh, NC 2002/07 2006 450 518,850 1,153 $ 937.85 93.33 % $   (1) (1)   (1)
       Providence at Brier Creek Raleigh, NC 2007 2008 313 297,037 949 $ 871.57 70.61 % $    
       Corners, The Winston-Salem, NC 1982 1993 240 173,520 723 $ 570.00 90.83 % $   (2) (2)   (2)
        1,885 1,720,661 913 $ 746.59 89.60 %    
       Fairways at Royal Oak Cincinnati, OH 1988 1994 214 214,428 1,002 $ 664.77 89.25 % $   (1) (1)   (1)
        214 214,428 1,002 $ 664.77 89.25 %    
       Colony at South Park Aiken, SC 1989/91 1997 184 174,800 950 $ 732.52 92.39 % $   (1) (1)   (1)
       Woodwinds Aiken, SC 1988 1997 144 165,168 1,147 $ 739.34 88.89 % $   (1) (1)   (1)
       Tanglewood Anderson, SC 1980 1994 168 146,664 873 $ 579.06 91.07 % $   (1) (1)   (1)
       Fairways, The Columbia, SC 1992 1994 240 213,840 891 $ 657.94 94.17 %   $ 7,735 (12) 1.854% (12) 5/15/2031 (12)
       Paddock Club Columbia Columbia, SC 1989/95 1997 336 367,584 1,094 $ 754.00 92.26 % $   (1) (1)   (1)
       Highland Ridge Greenville, SC 1984 1995 168 143,976 857 $ 559.45 94.64 % $   (1) (1)   (1)
       Howell Commons Greenville, SC 1986/88 1997 348 292,668 841 $ 575.74 95.11 % $   (1) (1)   (1)
       Paddock Club Greenville Greenville, SC 1996 1997 208 212,160 1,020 $ 728.11 93.75 % $   (1) (1)   (1)
       Park Haywood Greenville, SC 1983 1993 208 156,832 754 $ 566.65 93.27 % $   (1) (1)   (1)
       Spring Creek Greenville, SC 1985 1995 208 182,000 875 $ 576.86 96.63 % $   (1) (1)   (1)
       Runaway Bay Mt. Pleasant, SC 1988 1995 208 177,840 855 $ 923.40 98.08 %   $ 8,365 (9) 1.825% (9) 11/15/2035 (9)
       Park Place Spartanburg, SC 1987 1997 184 195,224 1,061 $ 656.69 95.65 % $   (1) (1)   (1)

20



Approximate Average Monthly Average Encumbrances at
Rentable Unit Rent per Occupancy December 31, 2008
Year Area Size Unit at Percent at Mortgage/Bond
Year Management Number (Square (Square December 31,   December 31, Principal Interest Maturity
Property      Location      Completed      Commenced      of Units      Footage)      Footage)      2008      2008      (000's)           Rate           Date     
       Farmington Village Summerville, SC 2007 2007 280 307,440 1,098 $ 886.09 92.50 % $ 15,200 3.769% 12/10/2015
        2,884 2,736,196 949 $ 691.55 93.83 %    
       Hamilton Pointe Chattanooga, TN 1989 1992 361 256,671 711 $ 557.24 96.95 % $   (1) (1)   (1)
       Hidden Creek Chattanooga, TN 1987 1988 300 259,200 864 $ 589.36 97.67 % $    (1) (1)   (1)
       Steeplechase Chattanooga, TN 1986 1991 108 98,604 913 $ 655.19 95.37 % $    (1) (1)   (1)
       Windridge Chattanooga, TN 1984 1997 174 238,728 1,372 $ 848.05 98.28 % $ 5,465      (16)      (16) 5/15/2033      (16)
       Oaks, The Jackson, TN 1978 1993 100 87,500 875 $ 579.10 87.00 % $    (1) (1)   (1)
       Post House Jackson Jackson, TN 1987 1989 150 163,650 1,091 $ 655.35 94.67 % $ 5,095 1.655% 10/15/2032
       Post House North Jackson, TN 1987 1989 144 144,720 1,005 $ 656.55 90.28 % $ 3,375 (13) 1.705% (13) 5/15/2031 (13)
       Bradford Chase Jackson, TN 1987 1994 148 121,360 820 $ 593.47 87.16 % $    (1) (1)   (1)
       Woods at Post House Jackson, TN 1997 1995 122 118,950 975 $ 679.85 90.16 % $ 4,801 6.070% 9/1/2035
       Cedar Mill Memphis, TN 1973/86 1982/94 276 297,804 1,079 $ 571.18 97.10 % $    (1) (1)   (1)
       Greenbrook Memphis, TN 1974/78/83/86 1988 1,037 939,522 906 $ 616.71 91.90 % $    (4) (4)   (4)
       Kirby Station Memphis, TN 1978 1994 371 310,156 836 $ 690.85 96.77 % $    (1) (1)   (1)
       Lincoln on the Green Memphis, TN 1988/98 1994 618 535,188 866 $ 687.32 92.88 % $    (1) (1)   (1)
       Park Estate Memphis, TN 1974 1977 82 96,924 1,182 $ 1,027.14 95.12 % $    (4) (4)   (4)
       Reserve at Dexter Lake Memphis, TN 1999/01 1998 740 792,540 1,071 $ 807.24 94.59 % $    (5) (5)   (5)
       River Trace Memphis, TN 1981/85 1997 440 370,920 843 $ 574.04 96.59 % $     
       Paddock Club Murfreesboro Murfreesboro, TN 1999 1998 240 268,800 1,120 $ 841.18 94.17 % $   (1) (1)   (1)
       Brentwood Downs Nashville, TN 1986 1994 286 220,220 770 $ 792.96 96.15 % $   (1) (1)   (1)
       Grand View Nashville Nashville, TN 2001 1999 433 479,331 1,107 $ 914.85 94.46 % $   (1) (1)   (1)
       Monthaven Park Nashville, TN 1999/01 2004 456 427,728 938 $ 795.10 95.39 % $    (7) (7)   (7)
       Park at Hermitage Nashville, TN 1987 1995 440 392,480 892 $ 661.67 91.59 % $ 6,645 (17) 1.805% (17) 2/15/2034 (17)
        7,026 6,620,996 942 $ 698.65 94.22 %    
       Northwood Arlington, TX 1980 1998 270 224,100 830 $ 610.05 90.74 % $   (2) (2)   (2)
       Balcones Woods Austin, TX 1983 1997 384 313,728 817 $ 803.01 87.76 % $    (2) (2)   (2)
       Grand Reserve at Sunset Valley Austin, TX 1996 2004 210 198,240 944 $ 914.83 94.76 % $    (7) (7)   (7)
       Silverado Austin, TX 2003 2006 312 303,264 972 $ 839.96 90.06 % $    (7) (7)   (7)
       Stassney Woods Austin, TX 1985 1995 288 248,832 864 $ 687.28 94.79 % $ 4,050 (18) 1.805% (18) 2/15/2034 (18)
       Travis Station Austin, TX 1987 1995 304 249,888 822 $ 624.57 91.12 % $ 3,585 (19) 1.805% (19) 2/15/2034 (19)
       Woods, The Austin, TX 1977 1997 278 214,060 770 $ 888.50 93.53 % $    (2) (2)   (2)
       Celery Stalk Dallas, TX 1978 1994 410 374,740 914 $ 667.58 96.59 % $    (6) (6)   (6)
       Courtyards at Campbell Dallas, TX 1986 1998 232 168,200 725 $ 702.22 98.71 % $    (2) (2)   (2)
       Deer Run Dallas, TX 1985 1998 304 206,720 680 $ 608.10 95.39 % $    (2) (2)   (2)
       Grand Courtyard Dallas, TX 2000 2006 390 341,250 875 $ 811.68 93.85 % $    (7) (7)   (7)
       Lodge at Timberglen Dallas, TX 1983 1994 260 226,200 870 $ 649.68 92.31 % $    (6) (6)   (6)
       Watermark Dallas, TX 2002 2004 240 205,200 855 $ 777.03 92.50 % $    (6) (6)   (6)
       Legacy Pines Houston, TX 1999 2003 308 283,360 920 $ 840.65 96.10 % $    (2) (2)   (2)
       Park Place (Houston) Houston, TX 1996 2007 229 207,016 904 $ 864.32 94.76 % $     
       Ranchstone Houston, TX 1996 2007 220 193,160 878 $ 811.37 95.00 % $    (7) (7)   (7)
       Reserve at Woodwind Lakes Houston, TX 1999 2006 328 316,192 964 $ 831.53 92.07 % $ 14,820 5.930% 6/15/2015
       Cascade at Fall Creek Humble, TX 2007 2008 246 227,796 926 $ 973.07 96.34 % $     
       Chalet at Fall Creek Humble, TX 2006 2007 268 260,228 971 $ 933.31 93.28 % $    (7) (7)   (7)
       Westborough Crossing Katy, TX 1984 1994 274 197,280 720 $ 629.94 95.62 % $    (6) (6)   (6)
       Kenwood Club Katy, TX 2000 1999 320 318,080 994 $ 794.85 95.63 % $    (2) (2)   (2)
       Lane at Towne Crossing Mesquite, TX 1983 1994 384 277,632 723 $ 590.22 94.01 % $    (2) (2)   (2)
       Highwood Plano, TX 1983 1998 196 156,800 800 $ 740.00 97.96 % $    (4) (4)   (4)
       Los Rios Park Plano, TX 2000 2003 498 470,112 944 $ 797.58 95.98 % $    (2) (2)   (2)
       Boulder Ridge Roanoke, TX 1999/2008 2005 494 446,082 903 $ 804.48 88.26 % $    (2) (2)   (2)
       Copper Ridge Roanoke, TX 2008 2008 200 254,000 1,270 $ 904.43 51.00 % $     
       Cypresswood Court Spring, TX 1984 1994 208 160,576 772 $ 684.59 95.67 % $    (6) (6)   (6)
       Villages at Kirkwood Stafford, TX 1996 2004 274 244,682 893 $ 882.83 94.89 % $    (7) (7)   (7)


21



Approximate Average Monthly Average Encumbrances at
Rentable Unit Rent per Occupancy December 31, 2008
Year Area Size Unit at Percent at Mortgage/Bond
Year Management Number (Square (Square December 31,   December 31, Principal Interest Maturity
Property      Location      Completed      Commenced      of Units      Footage)      Footage)      2008      2008      (000's)           Rate           Date     
       Green Tree Place Woodlands, TX 1984 1994 200 152,200 761 $ 707.53 97.50 % $   (6)   (6)     (6)
        8,529 7,439,618 872 $ 768.32 92.82 %        
       Township Hampton, VA 1987 1995 296 248,048 838 $ 977.21 92.91 % $ 10,800     (14)   1.795%     (14)   10/15/2032     (14)
        296 248,048 838 $ 977.21 92.91 %        
 
Subtotal 100% Owned             41,928   40,227,879 959 $ 752.12   92.91 %                         
 
Joint Venture Properties                        
       Milstead Village Kennesaw, GA 1998 2008 310 356,190 1,149 $ 912.59 85.16 %   N/A      
       Greenwood Forest Houston, TX 1994 2008 316 310,944 984 $ 857.06 94.62 %   N/A      
 
Subtotal Joint Venture Properties             626   667,134 1,066 $ 884.56   89.94 %                          
 
    Total 100% Owned and Joint Venture Properties                 42,554   40,895,013 961 $ 754.07   92.87 %                     
____________________
 
(1)   Encumbered by a $691.8 million FNMA facility, with $691.8 million available and $596.8 million outstanding with a variable interest rate of 2.85% on which there exists in combination with the FNMA facility mentioned in note (2) eighteen interest rate swap agreements totaling $640 million at an average rate of 5.37% at December 31, 2008.
     
(2)   Encumbered by a $243.2 million FNMA facility, with $243.2 million available and $198.6 million outstanding, $65 million with a fixed rate of 7.71% and $133.6 million of which had a variable interest rate of 3.60% on which there exists interest rate swaps as mentioned in note (1) at December 31, 2008.
     
(3)  

Phase I of Paddock Park - Ocala is encumbered by $6.8 million in bonds on which there exists a $6.8 million interest rate cap of 6.00% which terminates on October 24, 2012.

     
(4)  

Encumbered, along with one corporate property, by a term loan with a principal balance of $38.6 million at December 31, 2008, with a maturity of April 1, 2009 and an interest rate of 3.20% on which there is a $25 million interest rate swap agreement with a rate of 4.98%, maturing on March 1, 2009.

     
(5)   Encumbered by a credit line with AmSouth Bank, with an outstanding balance of $0.7 million at December 31, 2008.
     
(6)   Encumbered by a $100 million Freddie Mac facility, with $96.4 million available and an outstanding balance of $96.4 million and a variable interest rate of 1.50% on which there exists five interest rate swap agreements totaling $83 million at an average rate of 5.41% at December 31, 2008.
     
(7)  

Encumbered by a $200 million Freddie Mac facility, with $179.5 million available and an outstanding balance of $179.5 million and a variable interest rate of 0.89% on which there exists eight interest rate swap agreements totaling $134 million at an average rate of 5.18% at December 31, 2008.

     
(8)  

Encumbered by a mortgage securing a tax-exempt bond amortizing over 25 years with a principal balance of $11.6 million at December 31, 2008, and an average interest rate of 5.25%.

     
(9)        

Encumbered by $8.4 million in bonds on which there exists a $8.4 million interest rate swap agreement fixed at 4.73% and maturing on September 15, 2010.

     
(10)   Encumbered by $7.0 million in bonds on which there exists a $7.0 million interest rate swap agreement fixed at 4.42% and maturing on October 15, 2012.
     
(11)         Encumbered by $5.9 million in bonds on which there exists a $5.9 million interest rate cap of 6.00% which terminates on October 31, 2012.
        
(12)  

Encumbered by $7.7 million in bonds on which there exists a $7.7 million interest rate cap of 6.00% which terminates on October 31, 2012.

       
(13)  

Encumbered by $3.4 million in bonds on which there exists a $3.4 million interest rate cap of 6.00% which terminates on October 31, 2012.

       
(14)  

Encumbered by $10.8 million in bonds on which there exists a $10.8 million interest rate swap agreement fixed at 4.42% and maturing on October 15, 2012.

     
(15)   Encumbered by $3.5 million in bonds $0.5 million having a variable rate of 4.42% and $3.0 million with a variable rate of 1.785% on which there exists a $3.0 million interest rate cap of 6.00% which terminates on May 31, 2013.
      
(16)   Encumbered by $5.5 million in bonds $0.5 million having a variable rate of 4.42% and $5.0 million with a variable rate of 1.785% on which there exists a $5.0 million interest rate cap of 6.00% which terminates on May 31, 2013.
      
(17)    Encumbered by $6.6 million in bonds on which there exists a $6.6 million interest rate cap of 6.00% which terminates on November 15, 2011. Also encumbered by a $17.9 million FNMA facility maturing on March 1, 2014 with a variable interest rate of 2.83% which there exists a $11.7 million and a $6.2 million interest rate cap of 6.00% and 6.50% respectively which terminates on March 1, 2009 and March 15, 2011 respectively.
     
(18)   Encumbered by $4.0 million in bonds on which there exists a $4.0 million interest rate cap of 6.00% which terminates on November 15, 2011. Also encumbered by a $17.9 million FNMA facility maturing on March 1, 2014 with a variable interest rate of 2.83% which there exists a $11.7 million and a $6.2 million interest rate cap of 6.00% and 6.50% respectively which terminates on March 1, 2009 and March 15, 2011 respectively.
     
(19)    Encumbered by $3.6 million in bonds on which there exists a $3.6 million interest rate cap of 6.00% which terminates on November 15, 2011. Also encumbered by a $17.9 million FNMA facility maturing on March 1, 2014 with a variable interest rate of 2.83% which there exists a $11.7 million and a $6.2 million interest rate cap of 6.00% and 6.50% respectively which terminates on March 1, 2009 and March 15, 2011 respectively.
     
(20)    Phase I of St. Augustine is encumbered by $13.2 million in bonds on which there exists a $13.2 million interest rate cap of 6.00% which terminates on March 15, 2011. Also encumbered by a $17.9 million FNMA facility maturing on March 1, 2014 with a variable interest rate of 2.83% which there exists a $11.7 million and a $6.2 million interest rate cap of 6.00% and 6.50% respectively which terminates on March 1, 2009 and March 15, 2011 respectively.

22


ITEM 3. LEGAL PROCEEDINGS.

     Mid-America is not presently subject to any material litigation nor, to Mid-America’s knowledge, is any material litigation threatened against us. Mid-America is presently subject to routine litigation arising in the ordinary course of business, some of which is expected to be covered by liability insurance and none of which is expected to have a material adverse effect on the business, financial condition, liquidity or results of operations of Mid-America.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

     Mid-America’s common stock has been listed and traded on the New York Stock Exchange, or NYSE, under the symbol “MAA” since our initial public offering in February 1994. On February 6, 2009, the reported last sale price of Mid-America’s common stock on the NYSE was $29.31 per share, and there were approximately 1,728 holders of record of the common stock. Mid-America believes we have a significantly larger number of beneficial owners of our common stock. The following table sets forth the quarterly high and low sales prices of our common stock and the dividends declared by Mid-America with respect to the periods indicated.

  Sales Prices       Dividends       Dividends
      High       Low Paid Declared
2008:          
First Quarter    $54.700     $38.280    $0.615     $0.615 
Second Quarter    $57.820     $49.760    $0.615     $0.615 
Third Quarter    $60.660     $45.000    $0.615     $0.615 
Fourth Quarter    $49.560     $23.630    $0.615     $0.615 
 
2007:          
First Quarter    $60.740     $51.700    $0.605     $0.605 
Second Quarter    $59.620     $50.110    $0.605     $0.605 
Third Quarter    $56.000     $43.150    $0.605     $0.605 
Fourth Quarter    $54.590     $41.750    $0.605     $0.615 

     Mid-America’s quarterly dividend rate is currently $0.615 per common share. The Board of Directors reviews and declares the dividend rate quarterly. Actual dividends made by Mid-America will be affected by a number of factors, including the gross revenues received from the apartment communities, the operating expenses of Mid-America, the interest expense incurred on borrowings and unanticipated capital expenditures.

     Mid-America expects to make future quarterly distributions to shareholders; however, future distributions by Mid-America will be at the discretion of the Board of Directors and will depend on the actual funds from operations of Mid-America, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as the Board of Directors deems relevant.

23


     Mid-America has established the Direct Stock Purchase and Distribution Reinvestment Plan, or DRSPP, under which holders of common stock, preferred stock and limited partnership interests in Mid-America Apartments, L.P. can elect to automatically reinvest their distributions in additional shares of common stock. The plan also allows for the optional purchase of common stock of at least $250, but not more than $5,000 in any given month, free of brokerage commissions and charges. Mid-America, in our absolute discretion, may grant waivers to allow for optional cash payments in excess of $5,000. To fulfill our obligations under the DRSPP, Mid-America may either issue additional shares of common stock or repurchase common stock in the open market. Mid-America may elect to sell shares under the DRSPP at up to a 5% discount.

     In 2006, Mid-America issued a total of 1,356,015 shares through our DRSPP and offered an average discount of 1.5% for optional cash purchases. In 2007, Mid-America issued a total of 136,483 shares through our DRSPP and offered an average discount of 1.5% for optional cash purchases. In 2008, Mid-America issued a total of 421,794 shares through our DRSPP and offered an average discount of 1.5% for optional cash purchases.

     The following table provides information with respect to compensation plans under which our equity securities are authorized for issuance as of December 31, 2008.


                        Number of Securities
  Number of Securities     Remaining Available for
  to be Issued upon   Weighted Average Future Issuance under
  Exercise of Outstanding   Exercise Price of Equity Compensation Plans
  Options, Warrants   Outstanding Options (excluding securities
  and Rights   Warrants and Rights reflected in column (a))
    (a) (1)   (b) (1)   (c) (2)
Equity compensation       
     plans approved     
     by security holders  25,782   $ 25.38 447,581
 
Equity compensation     
     plans not approved     
     by security holders  N/A     N/A N/A
 
Total  25,782   $ 25.38 447,581
____________________
 
(1)       Columns (a) and (b) above do not include 67,679 shares of restricted stock that are subject to vesting requirements which were issued through Mid-America’s Fourth Amended and Restated 1994 Restricted Stock and Stock Option Plan, 67,786 shares of restricted stock that are subject to vesting requirements which were issued through Mid-America’s 2004 Stock Plan, or 65,436 shares of common stock which have been purchased by employees through the Employee Stock Purchase Plan. See Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 2 for more information on these plans.
 
(2) Column (c) above includes 363,017 shares available to be issued under Mid-America’s 2004 Stock Plan and 84,564 shares available to be issued under Mid-America’s Employee Stock Purchase Plan. See Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 2 for more information on these plans.

     Mid-America has not granted any stock options since 2002.

24


     The following graph compares the cumulative total returns of the shareholders of Mid-America since December 31, 2003 with the S&P 500 Index and the FTSE NAREIT Equity Index prepared by the National Association of Real Estate Investment Trusts, or NAREIT. The graph assumes that the base share price for Mid-America’s common stock and each index is $100 and that all dividends are reinvested. The performance graph is not necessarily indicative of future investment performance.


         Dec '03         Dec '04         Dec '05         Dec '06         Dec '07         Dec '08 
Mid-America     $100.00     $131.05     $163.17     $201.12     $156.86     $143.66 
S&P 500     $100.00     $110.88     $116.33     $134.70     $142.10     $  89.53 
FTSE NAREIT Equity Index     $100.00     $131.58     $147.58     $199.32     $168.05     $  89.91 
 

ITEM 6. SELECTED FINANCIAL DATA.

     The following table sets forth selected financial data on a historical basis for Mid-America. This data should be read in conjunction with the consolidated financial statements and notes thereto and “Management's Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K.

25


Mid-America Apartment Communities, Inc.
Selected Financial Data
(Dollars in thousands except per share data)

  Year Ended December 31,
  2008       2007       2006       2005       2004
Operating Data:                  
       Total operating revenues $ 369,851   $ 347,346   $ 318,370   $ 288,536   $ 268,986  
       Expenses:          
              Property operating expenses 155,150   142,283   132,503   121,661   114,857  
              Depreciation 90,168   84,789   77,545   72,590   68,929  
              Property management and general and administrative expenses 28,636   28,726   23,001   20,862   18,363  
Income from continuing operations before non-operating items 95,897   91,548   85,321   73,423   66,837  
Interest and other non-property income 509   195   663   495   604  
Interest expense (62,010 ) (63,639 ) (62,308 ) (57,318 ) (50,954 )
(Loss) gain on debt extinguishment (116 ) (123 ) (578 ) (419 ) 1,342  
Amortization of deferred financing costs (2,307 ) (2,407 ) (2,036 ) (2,011 ) (1,753 )
Incentive fees from real estate joint ventures   1,019     1,723    
Net casualty (loss) gains and other settlement proceeds (247 ) 589   84   749   2,683  
(Loss) gains on sale of non-depreciable assets (3 ) 534   50   18    
Income from continuing operations before minority interest and          
       investments in real estate joint ventures 31,723   27,716   21,196   16,660   18,759  
Minority interest in operating partnership income (1,822 ) (3,510 ) (1,590 ) (1,571 ) (2,264 )
(Loss) income from real estate joint ventures (844 ) 5,330   (114 ) 3,099   2,962  
Income from continuing operations 29,057   29,536   19,492   18,188   19,457  
Discontinued operations:          
       Income (loss) from discontinued operations before asset impairment,          
              settlement proceeds and gain on sale 1,312   1,246   1,453   1,824   (410 )
       Asset impairment of discontinued operations       (243 ) (200 )
       Net (loss) gain on insurance and other settlement proceeds of          
              discontinued operations       (25 ) 526  
       (Loss) gains on sale of discontinued operations (120 ) 9,164       5,825  
Net income 30,249   39,946   20,945   19,744   25,198  
Preferred dividend distributions 12,865   13,688   13,962   14,329   14,825  
Premiums and original issuance costs associated with the redemption          
       of preferred stock   589        
Net income available for common shareholders $ 17,384   $ 25,669   $ 6,983   $ 5,415   $ 10,373  
 
Per Share Data:          
Weighted average shares outstanding (in thousands):          
       Basic 26,943   25,296   23,474   21,405   20,317  
       Effect of dilutive stock options 103   166   224   202   335  
       Diluted 27,046   25,462   23,698   21,607   20,652  
 
Net income available for common shareholders $ 17,384   $ 25,669   $ 6,983   $ 5,415   $ 10,373  
Discontinued property operations (1,192 ) (10,410 ) (1,453 ) (1,556 ) (5,741 )
Income from continuing operations available for common shareholders $ 16,192   $ 15,259   $ 5,530   $ 3,859   $ 4,632  
 
Earnings per share - basic:          
       Income from continuing operations available for common shareholders $ 0.60   $ 0.60   $ 0.24   $ 0.18   $ 0.23  
       Discontinued property operations 0.05   0.41   0.06   0.07   0.28  
       Net income available for common shareholders $ 0.65   $ 1.01   $ 0.30   $ 0.25   $ 0.51  
 
Earnings per share - diluted:          
       Income from continuing operations available for common shareholders $ 0.60   $ 0.60   $ 0.23   $ 0.18   $ 0.22  
       Discontinued property operations 0.04   0.41   0.06   0.07   0.28  
       Net income available for common shareholders $ 0.64   $ 1.01   $ 0.29   $ 0.25   $ 0.50  
 
Balance Sheet Data:          
       Real estate owned, at cost $ 2,552,808   $ 2,343,130   $ 2,218,532   $ 1,987,853   $ 1,862,850  
       Real estate assets, net $ 1,851,331   $ 1,720,553   $ 1,669,539   $ 1,510,289   $ 1,459,952  
       Total assets $ 1,921,955   $ 1,783,822   $ 1,746,646   $ 1,580,125   $ 1,522,525  
       Total debt $ 1,323,056   $ 1,264,620   $ 1,196,349   $ 1,140,046   $ 1,083,473  
       Minority interest $ 30,471   $ 28,868   $ 32,600   $ 29,798   $ 31,376  
       Shareholders' equity and redeemable stock $ 413,951   $ 403,530   $ 449,066   $ 362,526   $ 347,325  
 
Other Data (at end of period):          
       Market capitalization (shares and units) (1) $ 1,293,145   $ 1,358,100   $ 1,745,674   $ 1,358,725   $ 1,145,183  
       Ratio of total debt to total capitalization (2) 50.6 % 48.2 % 40.7 % 45.6 % 48.6 %
       Number of properties, including joint venture ownership interest (3) 145   137   138   132   132  
       Number of apartment units, including joint venture ownership interest (3) 42,554   40,248   40,293   38,227   37,904  
____________________
 
(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, as well as partnership units (value based on common stock equivalency).
 
(2) Total capitalization is market capitalization plus total debt.
 
(3) Property and apartment unit totals have not been adjusted to exclude properties held for sale.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

     Revenue recognition

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

     We record all gains and losses on sales of real estate in accordance with Statement No. 66, Accounting for Sales of Real Estate.

     Capitalization of expenditures and depreciation of assets

     We carry real estate assets at depreciated cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets, which range from 8 to 40 years for land improvements and buildings, 5 years for furniture, fixtures, and equipment, 3 to 5 years for computers and software, and 1 year for acquired leases, all of which are subjective determinations. Repairs and maintenance costs are expensed as incurred while significant improvements, renovations, and replacements are capitalized. The cost to complete any deferred repairs and maintenance at properties acquired by us in order to elevate the condition of the property to our standards are capitalized as incurred.

     Development costs, which in 2008 were limited to adding new units to three existing properties, are capitalized in accordance with Statement of Financial Accounting Standards No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects and Statement of Financial Accounting Standards No. 34, Capitalization of Interest Cost.

     Impairment of long-lived assets, including goodwill

     We account for long-lived assets in accordance with the provisions of Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or Statement 144, and evaluate our goodwill for impairment under Statement No. 142, Goodwill and Other Intangible Assets, or Statement 142. We evaluate goodwill for impairment on an annual basis in our fiscal fourth quarter, or sooner if a goodwill impairment indicator is identified. We periodically evaluate long-lived assets, including investments in real estate and goodwill, for indicators that would suggest that the carrying amount of the assets may not be recoverable. The judgments regarding the existence of such indicators are based on factors such as operating performance, market conditions, and legal factors.

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       In accordance with Statement 144, long-lived assets, such as real estate assets, equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.

       In accordance with Statement 142, goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the reporting unit level and consists of two steps. First, we determine the fair value of a reporting unit and compare the fair value to its carrying amount. In the apartment industry, the primary method used for determining fair value is to divide annual operating cash flows by an appropriate capitalization rate. We determine the appropriate capitalization rate by reviewing the prevailing rates in a property’s market or submarket. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

       Fair value of derivative financial instruments

       Mid-America utilizes certain derivative financial instruments, primarily interest rate swaps and caps, during the normal course of business to manage, or hedge, the interest rate risk associated with our variable rate debt or as hedges in anticipation of future debt transactions to manage well-defined interest rate risk associated with the transaction.

       In order for a derivative contract to be designated as a hedging instrument, the relationship between the hedging instrument and the hedged item must be highly effective. While Mid-America’s calculation of hedge effectiveness contains some subjective determinations, the historical correlation of the hedging instruments and the underlying hedged item are measured by Mid-America before entering into the hedging relationship and have been found to be highly correlated.

       Mid-America measures ineffectiveness using the change in the variable cash flows method for interest rate swaps and the hypothetical derivative method for interest rate caps for each reporting period through the term of the hedging instruments. Any amounts determined to be ineffective are recorded in earnings. The change in fair value of the interest rate swaps and the intrinsic value or fair value of caps designated as cash flow hedges are recorded to accumulated other comprehensive income in the statement of shareholders’ equity.

       On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or Statement 157. Statement 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Statement 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

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       Statement 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, Statement 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

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

       The valuation of our derivative financial instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of Statement 157, Mid-America incorporates credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

       Although Mid-America has determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties. As of December 31, 2008, Mid-America has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and has determined that the credit valuation adjustments are significant to the overall valuation of our derivatives. As a result, Mid-America has determined that our derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. As of December 31, 2008, Mid-America had a total of $990.5 million of notional amount in derivative instruments, all of which had fair values measured using Level 3 inputs. Realized and unrealized losses did not materially affect our results of operations, liquidity or capital resources during the year. Mid-America experienced an overall decrease in fair value of our derivatives due to the fluctuations in the interest rate market throughout the year.

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OVERVIEW OF THE YEAR ENDED DECEMBER 31, 2008

       Mid-America experienced an increase in income from continuing operations before non-operating items in 2008 as we continued to grow our portfolio through acquisitions and limited development and our same store portfolio maintained an average occupancy of 95.3% and raised average effective rents by 1.8% over 2007. Our same store portfolio represents those communities that have been held and have been stabilized for at least 12 months. Communities excluded from the same store portfolio would include recent acquisitions, communities being developed or in lease-up, communities undergoing extensive renovations, and communities identified as discontinued operations.

     Mid-America has grown externally during the past three years by following its acquisition strategy to invest in large and mid-sized growing markets in the Sunbelt region of the United States. Mid-America acquired six properties in 2006, four properties in 2007 and five properties in 2008. Mid-America also purchased two properties through a joint venture in 2008. Offsetting some of this increased revenue stream is five property dispositions in 2007, one of which was through a joint venture.

     Mid-America also benefited from reduced interest expense in 2008 as our twelve month average interest rate dropped from 5.4% in 2007 to 4.9% in 2008.

     The following is a discussion of the consolidated financial condition and results of operations of Mid-America for the years ended December 31, 2008, 2007, and 2006. This discussion should be read in conjunction with all of the consolidated financial statements included in this Annual Report on Form 10-K.

     As of December 31, 2008, the total number of apartment units Mid-America owned or had an ownership interest in was 42,554 in 145 communities, compared to 40,248 apartment units in 137 communities at December 31, 2007, and 40,293 apartment units in 138 communities at December 31, 2006. For communities owned 100% by Mid-America, the average monthly rental per apartment unit, excluding units in lease-up, increased to $750 at December 31, 2008 from $743 at December 31, 2007, and $726 at December 31, 2006. For these same units, overall occupancy at December 31, 2008, 2007, and 2006 was 93.4%, 94.7%, and 94.2%, respectively.

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2008, TO THE YEAR ENDED DECEMBER 31, 2007

     Property revenues for the year ended December 31, 2008, increased by approximately $22.3 million from the year ended December 31, 2008, due to (i) a $7.1 million increase in property revenues from the five properties acquired in 2008, or the 2008 acquisitions, (ii) a $5.8 million increase in property revenues from the four properties acquired in 2007, or the 2007 acquisitions, (iii) a $1.7 million increase in property revenues from our development communities, and (iv) a $7.7 million increase in property revenues from the properties held throughout both periods. The increase in property revenues from properties held throughout both periods was generated primarily by Mid-America’s same store portfolio and was driven by a 1.8% increase in average effective rent per unit in 2008 over 2007.

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     Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other property related costs. Property operating expenses for the year ended December 31, 2008, increased by approximately $12.9 million from the year ended December 31, 2007, due primarily to increases of property operating expenses of (i) $3.5 million from the 2008 acquisitions, (ii) $2.9 million from the 2007 acquisitions, (iii) $0.8 million from our development communities, and (iv) $5.7 million from the properties held throughout both periods. The increase in property operating expenses from the properties held throughout both periods consisted primarily of Mid-America’s same store portfolio and represented an average 3.5% increase over prior year expenses and included $591,000 of expense related to Hurricane Ike.

     Depreciation expense increased by approximately $5.4 million primarily due to the increases of depreciation expense of (i) $2.3 million from the 2008 acquisitions, (ii) $1.6 million from the 2007 acquisitions, (iii) $0.3 million from our development communities, and (iv) $3.0 million from fixed asset additions at communities held throughout both periods. These increases were partially offset by a decrease in depreciation expense of $1.8 million from the expiration of the amortization of fair market value of leases of communities which we previously acquired.

     Property management expenses decreased by approximately $1.1 million from the year ended December 31, 2007, to the year ended December 31, 2008, due to decreased incentive compensation. General and administrative expenses increased by approximately $1.0 million over this same period mainly as a result of increased personnel costs.

     Interest expense decreased approximately $1.6 million in 2008 from 2007 due primarily to the decrease in our average annual borrowing cost from 5.4% in 2007 to 4.9% in 2008. This decrease was somewhat offset by an increase in our average debt outstanding by approximately $83.8 million from 2007 to 2008 to fund acquisitions and our development and redevelopment programs.

     For the year ended December 31, 2007, Mid-America recorded total gains of approximately $5.4 million from the sale of a community owned through a joint venture. The sale of this community resulted in an additional incentive fee being paid to Mid-America of approximately $1.0 million in 2007. In 2007, Mid-America also benefited from a $9.2 million gain resulting from the sale of four communities owned directly by Mid-America. Mid-America had no property dispositions in 2008.

     For the year ended December 31, 2007, Mid-America recorded net casualty gains and other settlement proceeds and gains on sale of land totaling $1.1 million. For the year ended December 31, 2008, Mid-America recorded a loss of $0.3 million for these same items.

     Primarily as a result of the foregoing, net income decreased by approximately $9.7 million in 2008 from 2007.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2007, TO THE YEAR ENDED DECEMBER 31, 2006

     Property revenues for the year ended December 31, 2007, increased by approximately $29.2 million from the year ended December 31, 2006, due to (i) a $4.8 million increase in property revenues from the 2007 acquisitions, (ii) an $11.5 million increase in property revenues from the six properties acquired in 2006, or the 2006 acquisitions, (iii) a $0.8 million increase in property revenues from the development communities, and (iv) a $12.1 million increase in property revenues from the properties held throughout both periods. The increase in property revenues from properties held throughout both periods was generated primarily by Mid-America’s same store portfolio and was driven by an average 2.5% increase in average rent per unit in 2007 over 2006.

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     Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other property related costs. Property operating expenses for the year ended December 31, 2007, increased by approximately $9.8 million from the year ended December 31, 2006, due primarily to increases of property operating expenses of (i) $2.1 million from the 2007 acquisitions, (ii) $5.0 million from the 2006 acquisitions, (iii) $0.3 million form the development communities, and (iv) $2.4 million from the properties held throughout both periods. The increase in property operating expenses from the properties held throughout both periods consisted primarily of Mid-America’s same store portfolio and represented an average 2.7% increase over prior year expenses.

     Depreciation expense increased by approximately $7.2 million primarily due to the increases of depreciation expense of (i) $1.2 million from the 2007 acquisitions, (ii) $3.3 million from the 2006 acquisitions, (iii) $0.2 million from the development communities, (iv) $1.8 million from fixed asset additions at the communities held throughout both periods, and (v) $0.7 million from the amortization of fair market value of leases of acquired communities.

     Property management expenses increased by approximately $4.8 million from the year ended December 31, 2006, to the year ended December 31, 2007, partially due to increased incentive compensation as a result of improved property performance and increased franchise and excise taxes due to state tax law changes. General and administrative expenses increased by approximately $0.9 million over this same period also partially related to increased incentive compensation due to improved performance.

     Interest expense increased approximately $1.3 million in 2007 from 2006 due primarily to the approximate $42.4 million increase in the average debt outstanding from 2006 due to acquisitions and our development and redevelopment programs.

     For the year ended December 31, 2007, Mid-America recorded total gains of approximately $5.4 million from the sale of a community owned through a joint venture. The sale of this community resulted in an additional incentive fee being paid to Mid-America of approximately $1.0 million in 2007. In 2007, Mid-America also benefited from a $9.2 million gain resulting from the sale of four communities owned directly by Mid-America. Mid-America had no property dispositions in 2006.

     For the year ended December 31, 2007, Mid-America recorded net casualty gains and other settlement proceeds and gains on sale of land totaling $1.1 million. For the year ended December 31, 2006, Mid-America recorded $0.1 million for these same items.

     Primarily as a result of the foregoing, net income increased by approximately $19.0 million in 2007 over 2006.

FUNDS FROM OPERATIONS

     Funds from operations, or FFO, represents net income (computed in accordance with U.S. generally accepted accounting principles, or GAAP) excluding extraordinary items, minority interest in operating partnership income, gains on disposition of real estate assets, plus depreciation of real estate, and adjustments for joint ventures to reflect FFO on the same basis. This definition of FFO is in accordance with the NAREIT definition. Disposition of real estate assets includes sales of discontinued operations as well as proceeds received from insurance and other settlements from property damage.

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     In response to the Securities and Exchange Commission’s Staff Policy Statement relating to EITF Topic D-42 concerning the calculation of earnings per share for the redemption of preferred stock, Mid-America has included the amount charged to retire preferred stock in excess of carrying values in our FFO calculation.

     Mid-America's policy is to expense the cost of interior painting, vinyl flooring, and blinds as incurred for stabilized properties. During the stabilization period for acquisition properties, these items are capitalized as part of the total repositioning program of newly acquired properties, and, thus are not deducted in calculating FFO.

     FFO should not be considered as an alternative to net income or any other GAAP measurement of performance, as an indicator of operating performance or as an alternative to cash flow from operating, investing, and financing activities as a measure of liquidity. Mid-America believes that FFO is helpful to investors in understanding Mid-America's operating performance in that such calculation excludes depreciation expense on real estate assets. Mid-America believes that GAAP historical cost depreciation of real estate assets is generally not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies. Mid-America’s calculation of FFO may differ from the methodology for calculating FFO utilized by other REITs and, accordingly, may not be comparable to such other REITs.

     The following table is a reconciliation of FFO to net income for the years ended December 31, 2008, 2007, and 2006 (dollars and shares in thousands):

  Years ended December 31,
  2008       2007       2006
Net income $ 30,249   $ 39,946   $ 20,945  
Depreciation of real estate assets 88,555   83,532   76,205  
Net casualty (gains) loss and other settlement proceeds 247   (589 ) (84 )
Gains on dispositions within real estate joint ventures (38 ) (5,388 )  
Depreciation of real estate assets of discontinued operations 706   1,517   2,003  
(Gains) loss on sales of discontinued operations 120     (9,164 )    
Depreciation of real estate assets of real estate joint ventures 953     15     500  
Preferred dividend distribution (12,865 ) (13,688 ) (13,962 )
Minority interest in operating partnership income 1,822   3,510   1,590  
Premiums and original issuance costs associated with      
     the redemption of preferred stock       (589 )    
Funds from operations $ 109,749   $ 99,102   $ 87,197  
 
Weighted average shares and units:      
     Basic 29,356   27,777   25,979  
     Diluted 29,459   27,943   26,204  

     FFO increases for both 2008 over 2007, and 2007 over 2006 were principally the result of improved community operations from Mid-America’s same store portfolio and the addition of communities from the 2006 acquisitions, 2007 acquisitions and 2008 acquisitions as previously reviewed in the net income discussion above.

 

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TRENDS

     During the first half of 2008, rental demand for apartments continued at robust levels in most of our markets with the notable exception of Florida, where after several years of good growth, markets weakened. Towards the end of the second quarter, we experienced a reduction in our rate of revenue growth, which we think is likely to be due to the slowdown in general economic conditions. During the third quarter and through the end of 2008, the rate of revenue growth continued to slow.

     Job formation, which is a primary driver of demand by apartment residents, weakened towards the end of the second quarter and through the end of 2008. On the supply side, new apartment construction continued to be limited, as in most markets, rents have yet to rise sufficiently to offset the rapid run-up of costs of new construction over the last five years and financing for new development has become difficult to obtain. Competition from condominiums reverting back to being rental units, or new condominiums being converted to rental, was not a major factor in most of our markets because most of our markets and submarkets have not been primary areas for condominium development. We have found the same to be true for rental competition from single family homes. We have avoided committing a significant amount of capital to markets where most of the excessive inflation in house prices has occurred. We are seeing significant rental competition from condominiums and single family houses in only a few submarkets.

     The primary reason that our residents leave us is to buy a house, but we have seen that reason as a percent of total move-outs drop over the past twelve months. Analysts point out that homeownership increased from 65% to over 69% of households over ten years ending in 2005. This increase, representing approximately five million households, was driven primarily by the availability of new mortgage products, many requiring no down-payment and minimal credit ratings. With a reversion of mortgage underwriting back to more traditional standards, it is possible that a long-term correction will occur, and that home ownership may return to more sustainable levels. This could be quite significant for the apartment business, and we believe, if this occurs, it could benefit us for several years.

     We believe that the signs of slower revenue growth will be temporary, and that revenue growth should resume in 2010. We also believe reduced availability of financing for new apartment construction will likely limit new apartment supply, and more sustainable credit terms for residential mortgages should work to favor rental demand at existing multi-family properties. At the same time, we expect long term demographic trends, including the growth of prime age groups for rentals, immigration, and population movement to the southeast and southwest will continue to build apartment rental demand for our markets.

     While it seems possible that in 2009 we will face declining economic growth as a result of reduced liquidity in the economy, we think that the supply of new apartments is not excessive, and that positive absorption of apartments will return for most of our markets in 2010. Should the economy fall into a deeper recession, the limited new supply of apartments and the more disciplined mortgage financing for single family home buying should lessen the impact.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash flow provided by operating activities increased by approximately $19.4 million to $137.9 million for 2008, compared to $118.6 million for 2007, mainly related to the growth of Mid-America through acquisitions and improved operating results in 2008. Net cash flow provided by operating activities increased by approximately $16.1 million to $118.6 million for 2007 compared to $102.5 million for 2006 mainly related to the growth of Mid-America through acquisitions and improved operating results in 2007. 

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     Net cash used in investing activities was approximately $243.0 million, $108.8 million and $241.1 million for 2008, 2007 and 2006, respectively. The change in net cash used in investing activities resulted mainly from the varying levels of acquisition activity. A total of approximately $156.3 million was invested in 2008 to acquire properties, this compares to approximately $88.6 million in 2007, and $195.0 million in 2006. Mid-America began limited development activities in 2006, which used net cash of approximately $10.9 million in 2006, $14.6 million in 2007 and $22.7 million in 2008. Mid-America also expanded our renovation activities using net cash of approximately $6.1 million in 2006, $11.3 million in 2007 and $18.2 million in 2008. In 2007, Mid-America received a total of $39.2 million from the disposition of real estate assets, mainly related to property sales. No communities were sold in 2006 or 2008.

     Net cash provided by financing activities was $97.3 million, $1.9 million and $130.1 million for 2008, 2007 and 2006, respectively. The fluctuation in net cash provided by financing activities was mainly impacted by proceeds from issuances of common shares and units. Proceeds from issuances of common shares and units increased in 2006 to approximately $152.0 million primarily due to Mid-America’s raising of funds through stock issuances from our direct stock purchase plan, a controlled equity plan and an overnight offering. During 2007, Mid-America was not as active in raising funds through these equity plans; however, in 2008 Mid-America raised a total of $126.0 million of proceeds from issuances of common shares and units, primarily through a controlled equity plan. Net cash provided by financing activities in 2007 was also impacted by the redemption of our 9¼% Series F Cumulative Redeemable Preferred Stock, or Series F, for $11.9 million.

     The weighted average interest rate at December 31, 2008 for the $1.3 billion of debt outstanding was 4.8%, compared to the weighted average interest rate of 5.4% on $1.3 billion of debt outstanding at December 31, 2007. We utilize both conventional and tax exempt debt to help finance our activities. Borrowings are made through individual property mortgages as well as company-wide secured credit facilities. We utilize fixed rate borrowings, interest rate swaps and interest rate caps to manage our current and future interest rate risk. More details on our borrowings can be found in the schedules presented later in this section.

     At December 31, 2008, we had secured credit facility relationships with Prudential Mortgage Capital which are credit enhanced by the Federal National Mortgage Association, or FNMA, Financial Federal which are credit enhanced by Federal Home Loan Mortgage Corporation, or Freddie Mac, and a $50 million bank facility. Together, these credit facilities provided a total line capacity of $1.39 billion and collateralized availability to borrow of $1.36 billion at December 31, 2008. We had total borrowings outstanding under these credit facilities of $1.18 billion at December 31, 2008.

     Approximately 68% of our outstanding obligations at December 31, 2008 were borrowed through facilities with/or credit enhanced by FNMA, also referred to as the FNMA Facilities. The FNMA Facilities have a combined line limit of $1.04 billion, all of which was collateralized and available to borrow at December 31, 2008. We had total borrowings outstanding under the FNMA Facilities of approximately $905 million at December 31, 2008. Various traunches of the FNMA Facilities mature from 2011 through 2018. The FNMA Facilities provide for both fixed and variable rate borrowings. The interest rate on the majority of the variable portion is based on the FNMA Discount Mortgage Backed Security, or DMBS, which are credit-enhanced by FNMA and are typically sold every 90 days by Prudential Mortgage Capital at interest rates approximating three-month LIBOR less an average spread of 0.05% - 0.13% over the life of the FNMA Facilities, plus a credit enhancement fee of 0.49% to 0.795%. While, generally, the DMBS continued to trade below three-month LIBOR, the spread between them increased during the fourth quarter of 2007 and during 2008, ranging from 0.05% above three-month LIBOR to 1.23% below three-month LIBOR. While we feel this recent volatility is an anomaly and believe that this spread will return to more historic levels, we cannot forecast when or if the uncertainty and volatility in the market may change. 

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     Approximately 21% of our outstanding obligations at December 31, 2008 were borrowed through facilities with/or credit enhanced by Freddie Mac, also referred to as the Freddie Mac Facilities. The Freddie Mac Facilities have a combined line limit of $300 million, of which $276 million was collateralized and available to borrow at December 31, 2008. We had total borrowings outstanding under the Freddie Mac Facilities of approximately $276 million at December 31, 2008. The Freddie Mac facilities mature in 2011 and 2014. The interest rate on the Freddie Mac Facilities renews every 30 or 90 days and is based on the Freddie Mac Reference Bill Rate on the date of renewal, which has historically approximated LIBOR, plus a credit enhancement fee of 65 basis points to 69 basis points. The Freddie Mac Reference Bill rate has traded consistently below LIBOR, and the historical average spread has risen recently from the more normal 15 basis points to 17 basis points below LIBOR to 41 basis points below LIBOR with a high of 200 basis points below LIBOR on November 1, 2008.

     Each of our secured credit facilities is subject to various covenants and conditions on usage, and is subject to periodic re-evaluation of collateral. If we were to fail to satisfy a condition to borrowing, the available credit under one or more of the facilities could not be drawn, which could adversely affect our liquidity. In the event of a reduction in real estate values the amount of available credit could be reduced. Moreover, if we were to fail to make a payment or violate a covenant under a credit facility, after applicable cure periods, one or more of our lenders could declare a default, accelerate the due date for repayment of all amounts outstanding and/or foreclose on properties securing such facilities. Any such event could have a material adverse effect.

     The following schedule details the line limits, collateralized availability and the outstanding balances of our various borrowings as of December 31, 2008 (in thousands):

  Line Amount Amount
  Limit      Collateralized      Borrowed
FNMA Credit Facilities  $  1,044,429 $ 1,044,429   $ 904,833
Freddie Mac Credit Facilities    300,000     275,929   275,929
Regions Credit Facility    50,000   43,863   661
Regions Term Loan    38,625   38,625   38,625
Other Borrowings    103,008   103,008   103,008
     Total Debt  $  1,536,062 $ 1,505,854 $ 1,323,056

     As of December 31, 2008, we had entered into interest rate swaps totaling a notional amount of $908 million. To date, these swaps have proven to be highly effective hedges. We had also entered into interest rate cap agreements totaling a notional amount of approximately $82 million as of December 31, 2008.

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     The following schedule outlines our variable versus fixed rate debt, including the impact of interest rate swaps and caps, outstanding as of December 31, 2008 (in thousands):

      Average   
      Years to   
  Principal Contract  Effective
  Balance                  Maturity                   Rate
Conventional - Fixed Rate or Swapped (1)  $ 1,018,484 4.1 5.5 % 
Tax-free - Fixed Rate or Swapped (1)    37,730   8.3 4.7 % 
Conventional - Variable Rate    179,796 5.2 2.5 % 
Tax-free - Variable Rate    4,760 19.4   3.9 % 
Conventional - Variable Rate - Capped (2)    17,936 0.9 2.8 % 
Tax-free - Variable Rate - Capped (2)    64,350 3.2 1.8 % 
     Total Debt Outstanding  $ 1,323,056 4.5 4.8 % 
____________________
 
(1)       Maturities on existing swapped balances are calculated using the life of the underlying variable debt.
 
(2) When the capped rates of 6.0% and 6.5% are not reached, the average rate represents the rate on the underlying variable debt.

     We only have two scheduled refinancings prior to 2011. One is a $39 million mortgage with Regions Bank that matures April 1, 2009. We plan to replace the Regions debt with mortgages from Freddie Mac which were put in place in the fourth quarter of 2008. The other is the $50 million credit facility with a group of banks led by Regions Bank that matures May 24, 2010.

     The following schedule outlines the contractual maturity dates of our outstanding debt as of December 31, 2008 (in thousands):

  Line Limit        
  Credit Facilities Regions        
  Fannie Mae                  Freddie Mac                  Regions                  Term Loan                  Other                  Total
2009  $ $ $ $ 38,625 $ $ 38,625
2010        50,000         50,000
2011    80,000     100,000           180,000
2012    80,000               80,000
2013    203,193           203,193
2014    321,236   200,000       18,984   540,220
2015    120,000         53,520   173,520
Thereafter    240,000         30,504   270,504
Total  $ 1,044,429 $ 300,000 $ 50,000 $ 38,625 $ 103,008 $ 1,536,062

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     The following schedule outlines the interest rate maturities of our outstanding interest rate swap agreements and fixed rate debt as of December 31, 2008 (in thousands):

  Swap Balances     Temporary Total
      SIFMA Fixed Rate Fixed Rate     Contract
  LIBOR                  (formerly BMA)                  Balances                  Balances (1)                  Balance                  Rate
2009  $ 25,000 $ $ $ 65,000 $ 90,000 6.9 % 
2010    140,000   8,365         148,365 5.7 % 
2011    158,000         158,000 5.2 % 
2012    150,000   17,800         167,800 5.1 % 
2013    190,000         190,000   5.2 % 
2014    144,000     18,984     162,984 5.7 % 
2015    75,000       38,321       113,321 5.6 % 
Thereafter        25,744     25,744 5.6 % 
Total  $ 882,000