10-K405 1 a2074950z10-k405.txt 10-K405 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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, 2001 COMMISSION FILE NUMBER: 1-12762 MID-AMERICA APARTMENT COMMUNITIES, INC. (Exact Name of Registrant as Specified in Charter) TENNESSEE 62-1543819 (State of Incorporation) (I.R.S. Employer Identification Number) 6584 POPLAR AVENUE, SUITE 300 MEMPHIS, TENNESSEE 38138 (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:

NAME OF EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------------ Common Stock, par value $.01 per share New York Stock Exchange Series A Cumulative Preferred Stock, par value $.01 per share New York Stock Exchange Series B Cumulative Preferred Stock, par value $.01 per share New York Stock Exchange Series C Cumulative Redeemable Preferred Stock, par value $.01 per share New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: None ------------------------ 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 such filing requirements for the past 90 days. Yes /X/ 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. /X/ The aggregate market value of the voting stock held by non-affiliates of the Registrant, (based on the closing price of such stock ($25.84 per share), as reported on the New York Stock Exchange, on March 15, 2002) was approximately $396,000,000 (for purposes of this calculation, directors and executive officers are treated as affiliates). The number of shares outstanding of the Registrant's common stock as of March 15, 2002, was 17,480,545 shares, of which approximately 2,160,635 were held by affiliates. The Registrant's definitive proxy statement in connection with the 2002 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A) is incorporated by reference into Part III of this Annual Report on Form 10-K. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- MID-AMERICA APARTMENT COMMUNITIES, INC. TABLE OF CONTENTS

ITEM PAGE ---- -------- PART I 1. Business.................................................... 2 2. Properties.................................................. 6 3. Legal Proceedings........................................... 11 4. Submission of Matters to Vote of Security Holders........... 11 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 11 6. Selected Financial Data..................................... 12 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 23 8. Financial Statements and Supplementary Data................. 24 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 24 PART III 10. Directors and Executive Officers of the Registrant.......... 24 11. Executive Compensation...................................... 24 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 24 13. Certain Relationships and Related Transactions.............. 24 PART IV 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K......................................................... 24

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These statements include, but are not limited to, the plans and objectives of management for future operations and the future financial performance of Mid-America Apartment Communities, Inc. (the "Company), including plans and objectives relating to capital expenditures, rehabilitation costs on the apartment communities, future development, anticipated growth rates of revenues and expenses, and anticipated share repurchases. Words such as "expects," "plans," "estimates," "projects," "objectives," "goals" and similar expressions are intended to identify forward-looking statements. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward- looking statements included in the Annual Report on Form 10-K will prove to be accurate. A variety of factors, including but not limited to those discussed in this report under the headings "Strategies," "Competition," and "Management's Discussion and Analysis of Financial Condition and Results of Operations", could cause actual results to differ materially from the anticipated results and other expectations expressed in the forward-looking statements. Other factors set forth from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission should also be considered. 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 the Company or any other person that the objectives of the Company will be achieved. The Company does not assume any obligation to update the forward-looking statements contained in this report or the reasons why actual results could differ from those projected in such forward-looking statements. PART I ITEM 1. BUSINESS THE COMPANY Founded in 1994, Mid-America Apartment Communities, Inc. (the "Company") is a Memphis, Tennessee-based self-administered and self-managed umbrella partnership real estate investment trust ("REIT") that focuses on acquiring, constructing, developing, owning and operating apartment communities. Between 1994 and December 31, 2001, the Company increased the number of properties of which it is the sole owner from 22 to 112 properties with 30,618 apartment units, representing an increase of 25,038 apartment units. The Company is also a participant in a joint venture (the "Joint Venture") with Blackstone Real Estate Acquisitions, LLC ("Blackstone"). The Joint Venture owned 10 properties, representing 2,793 apartment units at December 31, 2001. The Company retains a 33.33% ownership interest in the Joint Venture and has an agreement to manage the operations of the communities for a fee of 4% of revenues. The Company's business is conducted principally through Mid-America Apartments, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership, holding 180,404 common units of partnership interest ("Common Units") comprising a 1% general partnership interest in the Operating Partnership as of December 31, 2001. The Company's wholly-owned qualified REIT subsidiary, MAC II of Delaware, Inc., a Delaware corporation, is a limited partner in the Operating Partnership and, as of December 31, 2001, held 14,928,568 Common Units, or 82.75% of all outstanding Common Units. The Company employed 987 full time and 118 part time employees at December 31, 2001. 2 OPERATING PHILOSOPHY INVESTMENT FOCUS. Depending on opportunities and the real estate cycle, Company management uses its real estate skills and experience to invest profitably. Between 1994 and 1997, the Company focused on the acquisition and redevelopment of existing apartments. Between 1998 and 2000, its concentration was on development of new apartments. In 1999, the Company established a joint venture and sold assets to that joint venture. Between August 1999 and December 2001, the Company repurchased approximately 1.86 million shares of its common stock, funded in part by asset sales. The Company's present focus is on the acquisition of properties that it believes can be repositioned with approporiate use of capital and its operating management skills. The Company is also interested in increasing its investment in properties in larger and faster growing markets within its current market area, and intends to do this through acquiring apartment communities with the potential for above average growth and return through investments in joint ventures and in direct purchases. The Company will continue its established process of the sale of mature assets, and will adapt its investment focus to opportunities and markets. HIGH QUALITY ASSETS. The Company maintains its assets in excellent condition, believing that continuous maintenance will lead to higher long-run returns on investment. It believes that being recognized by third parties for its quality of properties, landscaping, and property management will lead to higher rents and profitability. The Company sells assets selectively in order to ensure that its portfolio consists only of high quality, well-located assets within its market area. DIVERSIFIED MARKET FOCUS. The Company focuses on owning, operating, developing, constructing and acquiring apartment communities (the "Communities") throughout the southeastern United States and Texas. INTENSIVE MANAGEMENT FOCUS. The Company strongly emphasizes on-site property management. Particular attention is paid to opportunities to increase rents, raise average occupancy rates, and control costs, with property managers and regional management being given the responsibility for monitoring market trends and the discretion to react to such trends. The Company, as part of its intense management focus, has established regional training facilities to produce highly trained property managers, leasing consultants and service technicians who work on-site at each of the Communities. DECENTRALIZED OPERATIONAL STRUCTURE. The Company's operational structure is organized on a decentralized basis. Management believes that its decentralized operating structure capitalizes on specific market knowledge, increases personal accountability relative to a centralized structure and is beneficial in the acquisition, redevelopment and development processes. PROACTIVE BALANCE SHEET AND PORTFOLIO MANAGEMENT The Company focuses on maximizing the return on assets and adding to the intrinsic underlying value of each share, routinely reviewing each asset based on its determined value and selling those which no longer fit its investment criteria. The Company constantly evaluates the effectiveness of its capital allocations and makes adjustments to its strategy, including investing in acquisitions and new development, debt retirement, and repurchases of shares of the Company's common stock. STRATEGIES The Company 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. Management's goal is to maximize the Company's return on investment in each Community by increasing rental rates and reducing operating expenses while 3 maintaining high occupancy levels. The Company seeks higher net rental revenues by enhancing and maintaining the competitiveness of the Communities and manages expenses through its system of detailed management reporting and accountability in order to achieve increases in operating cash flow. The steps taken to meet these objectives include: - empowering the Company's property managers to adjust rents in response to local market conditions and to concentrate resident turnover in peak rental demand months; - offering new services to residents, including telephone, cable, and internet access, on which it generates fee and commission income; - implementing programs to control expenses through investment in cost-saving initiatives, such as the installation of individual apartment unit water and utility meters in certain Communities; - improving the "curb appeal" of the Communities through extensive landscaping and exterior improvements and repositioning 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; and - selling or exchanging underperforming assets and repurchasing common stock when cost of capital and asset values permit. DEVELOPMENT STRATEGY. In late 1997, the Company's emphasis shifted from acquisitions to development because of its belief that under then-current market conditions, such development would generate higher quality assets and higher long-term investment returns. In 2002, the Company will complete a four-year $300 million construction program of high quality apartments in multiple markets. This represents the completion of the development pipeline initiated in 1997. In 1999, management decided to exit the construction and development business upon completion of the Company's existing development pipeline after determining that market conditions were changing, making it unlikely that future proposed projects would meet the Company's profitability targets. In 2001, the Company completed the Grande View development project in Nashville, Tennessee, consisting of 433 apartment units, which are currently in lease-up. At December 31, 2001, the Company had one uncompleted development property with 244 apartment units in various stages of lease-up and construction, all scheduled to be completed and leased in 2002. The Company anticipates an additional capital investment in this development of approximately $537,000 in 2002, which will be funded through use of its outstanding lines of credit. ACQUISITION STRATEGY. One of the Company's strategies is to acquire and redevelop apartment communities that meet its investment criteria and focus as discussed above. The Company has extensive experience and research-based skills in the acquisition and repositioning of multifamily properties. While the markets were not conducive to the acquisition of properties in 2001, the Company will evaluate opportunities that arise, and will utilize this strategy to increase the share of its assets in faster growing and larger markets in the Southeast and Texas. JOINT VENTURE STRATEGY. One of the Company's strategies is to co-invest with joint venture partners in joint venture opportunities which enable it to obtain a higher return on its investment through management (and other) fees, which leverages the Company's recognized skills in acquiring, repositioning, redeveloping and managing multifamily investments. The Company is actively seeking 4 attractively priced opportunities in which it and joint venture partners can invest. The Company established a joint venture in 1999 with Blackstone. DISPOSITION STRATEGY. The Company is committed to the selective disposition of mature assets, defined as those apartment communities that no longer meet the Company's investment criteria and long-term strategic objectives. Typically, the Company selects assets for disposition that do not meet its present investment criteria including future return on investment, location, market, potential for growth, and capital needs. The following apartment communities, containing an aggregate of 572 apartment units, were sold during 2001:

GROSS PROPERTY LOCATION NUMBER OF UNITS DATE PROCEEDS ------------------------------ ------------- ---------------- --------------- ----------- Canyon Creek.................. St. Louis, MO 320 July 2, 2001 $15,600,000 Advantages.................... Jackson, MS 252 August 22, 2001 6,900,000 --- ----------- Total........................................ 572 $22,500,000 === ===========

SHARE REPURCHASE PROGRAM In 1999, the Company's Board of Directors approved an increase in the number of shares of the Company's common stock authorized to be repurchased to 4 million shares. As of December 31, 2001 the Company had repurchased a total of approximately 1.86 million shares (8% of the shares of common stock and Common Units outstanding). From time to time the Company intends to sell assets based on its disposition strategy outlined in this Annual Report and use the proceeds to repurchase shares when it believes that shareholder value is enhanced. Factors affecting this determination include the share price, asset dispositions and pricing, financing agreements and rates of return of alternative investments. COMPETITION All of the Company's 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 Company's properties compete with numerous other multifamily properties, the owners of which may have greater resources than the Company and whose management may have more experience than the Company'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 internal amenities, and apartment community amenities, including recreational facilities, management services, and physical property condition. The Company makes capital improvements to both the communities and individual apartments on a regular basis in order to maintain a competitive position in each individual market. ENVIRONMENTAL MATTERS The Company generally obtains environmental audits on all of its Communities from various outside environmental engineering firms. The purpose of these audits is to identify potential sources of contamination at the communities and to assess the status of environmental regulatory compliance. These audits generally include historical reviews of the community, reviews of certain public records, preliminary investigations of the site and surrounding properties, visual inspection for the presence of asbestos, PCBs and underground storage tanks and the preparation and issuance of a written report. 5 Depending on the results of these audits, more invasive procedures, such as soil sampling or ground water analysis, will be performed to investigate potential sources of contamination. These audits must be satisfactorily completed before the Company takes ownership of an acquisition property, however, no assurance can be given that the audits 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 or 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 or not 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 abiltity to sell such real estate or to borrow using such real estate as collateral. The Company 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. The Company has also purchased a $2 million insurance policy that covers remediation and exposure to mold. The Company, therefore, believes that its exposure to this issue is limited and controlled. The environmental audit reports received by the Company do not reveal any material environmental liability. The Company is not aware of any existing conditions that would currently be considered an environmental liability. Nevertheless, it is possible that the audit reports do not reveal all environmental liabilities or that there are material environmental liabilties of which the Company 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. The Company believes that its 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. RECENT DEVELOPMENTS In January 2002, the Company announced a quarterly distribution to common shareholders of $.585 per share, paid on January 31, 2002. ITEM 2. PROPERTIES The Company seeks to acquire and develop apartment communities located in the southeastern United States and Texas that are appealing to middle and upper income residents with the potential for above average growth and return on investment. Approximately 73% of the Company's apartment units are located in Georgia, Florida, Tennessee and Texas markets. The Company's strategic focus is to provide its residents high quality apartment units in attractive community settings, characterized by extensive landscaping and attention to aesthetic detail. The Company utilizes its experience and expertise in maintenance, landscaping, marketing and management to effectively "reposition" many of the apartment communities it acquires to raise occupancy levels and per unit average rentals. The following table sets forth certain historical information for the communities the Company owned or maintained an ownership interest in, including the 10 properties containing 2,793 apartment units owned by the Joint Venture, at December 31, 2001: 6

APPROXIMATE AVERAGE YEAR RENTABLE UNIT YEAR MANAGEMENT NUMBER AREA SIZE PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.) -------- --------------------- ------------- ---------- -------- ------------ ------------ COMPLETED AND OWNED: Eagle Ridge......................... Birmingham, AL 1986 1998 200 181,400 907 Abbington Place..................... Huntsville, AL 1987 1998 152 162,792 1,071 Paddock Club--Huntsville............ Huntsville, AL 1998/99 1997 392 414,736 1,058 Paddock Club Montgomery I&II........ Montgomery, AL 1999 1998 208 230,880 1,110 ------ ---------- ----- 952 989,808 1,040 ------ ---------- ----- Calais Forest....................... Little Rock, AR 1987 1994 260 195,000 750 Napa Valley......................... Little Rock, AR 1984 1996 240 183,120 763 Westside Creek I.................... Little Rock, AR 1984 1997 142 147,964 1,042 Westside Creek II................... Little Rock, AR 1986 1997 166 172,972 1,042 ------ ---------- ----- 808 699,056 865 ------ ---------- ----- Tiffany Oaks........................ Altamonte Springs, FL 1985 1996 288 234,144 813 Marsh Oaks.......................... Atlantic Beach, FL 1986 1995 120 93,240 777 Indigo Point........................ Brandon, FL 1989 2000 240 194,640 811 Paddock Club--Brandon I & II........ Brandon, FL 1997/99 1997 440 516,120 1,173 Anatole............................. Daytona Beach, FL 1986 1995 208 149,136 717 Paddock Club-Gainsville............. Gainsville, FL 1999 1998 264 293,040 1,110 Cooper's Hawk....................... Jacksonville, FL 1987 1995 208 218,400 1,050 Hunter's Ridge at Deerwood.......... Jacksonville, FL 1987 1997 336 295,008 878 Lakeside............................ Jacksonville, FL 1985 1996 416 344,032 827 Paddock Club-Jacksonville I,II&III............................ Jacksonville, FL 1989/96 1997 440 475,200 1,080 Paddock Club-Mandarin............... Jacksonville, FL 1998 1998 288 330,336 1,147 St. Augustine....................... Jacksonville, FL 1987 1995 400 304,400 761 Woodbridge at the Lake.............. Jacksonville, FL 1985 1994 188 166,004 883 Woodhollow.......................... Jacksonville, FL 1986 1997 450 342,000 760 Paddock Club-Lakeland............... Lakeland, FL 1988/90 1997 464 505,296 1,089 Savannahs at James Landing.......... Melbourne, FL 1990 1995 256 238,592 932 Paddock Park-Ocala I................ Ocala, FL 1986 1997 200 202,200 1,011 Paddock Park-Ocala II............... Ocala, FL 1988 1997 280 283,080 1,011 Paddock Club-Panama City............ Panama City, FL 2000 1998 254 283,972 1,118 Paddock Club-Tallahassee I.......... Tallahassee, FL 1990 1997 192 207,936 1,083 Paddock Club-Tallahassee II......... Tallahassee, FL 1995 1997 112 121,296 1,083 Belmere............................. Tampa, FL 1984 1994 210 202,440 964 Links at Carrollwood................ Tampa, FL 1980 1998 230 214,820 934 ------ ---------- ----- 6,484 6,215,332 959 ------ ---------- ----- High Ridge.......................... Athens, GA 1987 1997 160 186,560 1,166 Bradford Pointe..................... Augusta, GA 1986 1997 192 156,288 814 Shenandoah Ridge.................... Augusta, GA 1975/84 1994 272 222,768 819 Westbury Creek...................... Augusta, GA 1984 1997 120 107,040 892 Fountain Lake....................... Brunswick, GA 1983 1997 110 129,800 1,180 Park Walk........................... College Park, GA 1985 1997 124 112,716 909 Whisperwood Spa and Club............ Columbus, GA 1980/86/88/98 1997 1,008 1,220,688 1,211 Willow Creek........................ Columbus, GA 1968/78 1997 285 246,810 866

ENCUMBRANCES AT RENT PER AVERAGE DECEMBER 31, 2001 UNIT OCCUPANCY --------------------------------- UNIT AT % AT MORTGAGE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY PROPERTY 2001 2001 (000'S) RATE DATE -------- ------------- ------------- --------- -------- ---------- COMPLETED AND OWNED: Eagle Ridge......................... $637 93.00% $ --(1) (1) (1) Abbington Place..................... $575 90.79% $ --(1) (1) (1) Paddock Club--Huntsville............ $653 94.39% $ --(1) (1) (1) Paddock Club Montgomery I&II........ $726 95.67% $ --(1) (1) (1) ---- ------ -------- $653 93.80% $ -- ---- ------ -------- Calais Forest....................... $595 91.92% $ --(1) (1) (1) Napa Valley......................... $591 90.42% $ --(2) (2) (2) Westside Creek I.................... $672 87.32% $ --(2) (2) (2) Westside Creek II................... $625 92.77% $ 4,776 8.760% 10/1/2006 ---- ------ -------- $614 90.84% $ 4,776 ---- ------ -------- Tiffany Oaks........................ $645 94.44% $ --(2) (2) (2) Marsh Oaks.......................... $608 98.33% $ --(2) (2) (2) Indigo Point........................ $682 92.92% $ --(3) (3) (3) Paddock Club--Brandon I & II........ $823 94.32% $ --(1) (1) (1) Anatole............................. $625 96.63% $ 7,000 2.650% 12/1/2027 Paddock Club-Gainsville............. $820 94.32% $ --(1) (1) (1) Cooper's Hawk....................... $708 90.87% $ --(5) (5) (5) Hunter's Ridge at Deerwood.......... $671 90.77% $ --(6) (6) (6) Lakeside............................ $639 95.91% $ --(2) (2) (2) Paddock Club-Jacksonville I,II&III............................ $762 92.27% $ --(7) (7) (7) Paddock Club-Mandarin............... $793 93.06% $ --(1) (1) (1) St. Augustine....................... $584 95.50% $ --(5) (5) (5) Woodbridge at the Lake.............. $655 94.68% $ --(1) (1) (1) Woodhollow.......................... $646 93.56% $ 9,359 7.500% 9/1/2002 Paddock Club-Lakeland............... $693 83.41% $ --(7) (7) (7) Savannahs at James Landing.......... $637 99.22% $ --(5) (5) (5) Paddock Park-Ocala I................ $670 97.50% $ 6,805 7.500% 10/1/2008 Paddock Park-Ocala II............... $701 8.93% $ --(1) (1) (1) Paddock Club-Panama City............ $796 93.70% $ --(1) (1) (1) Paddock Club-Tallahassee I.......... $763 96.35% $ --(1) (1) (1) Paddock Club-Tallahassee II......... $760 98.21% $ --(1) (1) (1) Belmere............................. $701 93.81% $ --(2) (2) (2) Links at Carrollwood................ $713 95.22% $ 5,502 8.750% 2/1/2003 ---- ------ -------- $700 93.89% $ 28,665 ---- ------ -------- High Ridge.......................... $784 82.50% $ --(2) (2) (2) Bradford Pointe..................... $575 94.79% $ 4,760 2.600% 6/1/2028 Shenandoah Ridge.................... $505 94.12% $ --(2) (2) (2) Westbury Creek...................... $585 96.67% $ 3,019 7.594% 11/1/2024 Fountain Lake....................... $686 90.91% $ -- Park Walk........................... $694 100.00% $ 3,235 6.370% 11/1/2025 Whisperwood Spa and Club............ $688 95.63% $ --(1) (1) (1) Willow Creek........................ $542 92.28% $ --(2) (2) (2)

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APPROXIMATE AVERAGE YEAR RENTABLE UNIT YEAR MANAGEMENT NUMBER AREA SIZE PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.) -------- --------------------- ------------- ---------- -------- ------------ ------------ Terraces at Fieldstone.............. Conyers, GA 1999 1998 316 351,076 1,111 Whispering Pines.................... LaGrange, GA 1982/84 1997 216 223,128 1,033 Westbury Springs.................... Lilburn, GA 1983 1997 150 137,700 918 Austin Chase........................ Macon, GA 1996 1997 256 292,864 1,144 The Vistas.......................... Macon, GA 1985 997 144 153,792 1,068 Georgetown Grove.................... Savannah, GA 1997 1998 220 239,800 1,090 Island Retreat...................... St. Simons Island, GA 1978 1998 112 129,584 1,157 Wildwood I.......................... Thomasville, GA 1980 1997 120 123,960 1,033 Wildwood II......................... Thomasville, GA 1984 1997 96 99,168 1,033 Hidden Lake I....................... Union City, GA 1985 1997 160 171,200 1,070 Hidden Lake II...................... Union City, GA 1987 1997 160 171,200 1,070 Three Oaks I........................ Valdosta, GA 1983 1997 120 123,960 1,033 Three Oaks II....................... Valdosta, GA 1984 1997 120 123,960 1,033 Huntington Chase.................... Warner Robins, GA 1997 2000 200 218,400 1,092 Southland Station I................. Warner Robins, GA 1987 1997 160 186,720 1,167 Southland Station II................ Warner Robins, GA 1990 1997 144 168,048 1,167 Terraces at Towne Lake.............. Woodstock, GA 1998 1997 264 286,968 1,087 Terraces at Towne Lake II........... Woodstock, GA 1999 1998 238 272,986 1,147 ------ ---------- ----- 5,467 5,857,184 1,071 ------ ---------- ----- Fairways at Hartland................ Bowling Green, KY 1996 1997 240 251,280 1,047 Paddock Club Florence............... Florence, KY 1994 1997 200 207,000 1,035 Lakepointe.......................... Lexington, KY 1986 1994 118 90,624 768 Mansion, The........................ Lexington, KY 1989 1994 184 138,736 754 Village, The........................ Lexington, KY 1987 1994 252 182,700 725 Stonemill Village................... Louisville, KY 1985 1994 384 324,096 844 ------ ---------- ----- 1,378 1,194,436 867 ------ ---------- ----- Riverhills.......................... Grenada, MS 1972 1985 96 81,984 854 Crosswinds.......................... Jackson, MS 1988/89 1996 360 443,160 1,231 Pear Orchard........................ Jackson, MS 1985 1994 389 338,430 870 Reflection Pointe................... Jackson, MS 1986 1988 296 254,856 861 Somerset............................ Jackson, MS 1980 1995 144 126,864 881 Woodridge........................... Jackson, MS 1987 1988 192 175,104 912 ------ ---------- ----- 1,477 1,420,398 962 ------ ---------- ----- Hermitage at Beechtree.............. Cary, NC 1988 1997 194 169,750 875 Corners, The........................ Winston-Salem. NC 1982 1993 240 173,520 723 ------ ---------- ----- 434 343,270 791 ------ ---------- ----- Fairways at Royal Oak............... Cincinnati, OH 1988 1994 214 214,428 1,002 ------ ---------- ----- Woodwinds........................... Aiken, SC 1988 1997 144 165,168 1,147

ENCUMBRANCES AT RENT PER AVERAGE DECEMBER 31, 2001 UNIT OCCUPANCY --------------------------------- UNIT AT % AT MORTGAGE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY PROPERTY 2001 2001 (000'S) RATE DATE -------- ------------- ------------- --------- -------- ---------- Terraces at Fieldstone.............. $861 91.14% $ --(1) (1) (1) Whispering Pines.................... $590 86.57% $ 2,390 6.150% 12/1/2024 Westbury Springs.................... $719 92.00% $ --(1) (1) (1) Austin Chase........................ $690 96.48% $ --(6) (6) (6) The Vistas.......................... $620 7.22% $ 3,885 6.230% 3/1/2028 Georgetown Grove.................... $744 96.82% $ 10,358 7.750% 7/1/2037 Island Retreat...................... $727 87.50% $ 3,243 7.215% 3/1/2003 Wildwood I.......................... $526 97.50% $ --(1) (1) (1) Wildwood II......................... $551 95.83% $ 1,916 6.573% 7/1/2024 Hidden Lake I....................... $711 93.13% $ 4,310 6.340% 12/1/2026 Hidden Lake II...................... $687 94.38% $ --(2) (2) (2) Three Oaks I........................ $551 95.00% $ --(1) (1) (1) Three Oaks II....................... $568 93.33% $ 2,780 6.259% 7/1/2024 Huntington Chase.................... $690 97.50% $ 9,397 6.850% 11/1/2008 Southland Station I................. $673 91.88% $ --(2) (2) (2) Southland Station II................ $695 90.28% $ --(1) (1) (1) Terraces at Towne Lake.............. $844 87.50% $ 14,997 8.250% 1/1/2037 Terraces at Towne Lake II........... $852 85.71% $ --(1) (1) (1) ---- ------ -------- $680 93.10% $ 64,291 ---- ------ -------- Fairways at Hartland................ $621 96.67% $ --(1) (1) (1) Paddock Club Florence............... $763 86.50% $ 9,502 7.250% 2/1/2036 Lakepointe.......................... $593 97.46% $ --(2) (2) (2) Mansion, The........................ $596 97.83% $ --(1) (1) (1) Village, The........................ $606 90.08% $ --(2) (2) (2) Stonemill Village................... $618 91.67% $ --(1) (1) (1) ---- ------ -------- $632 92.82% $ 9,502 ---- ------ -------- Riverhills.......................... $407 91.67% $ --(1) (1) (1) Crosswinds.......................... $630 93.89% $ --(2) (2) (2) Pear Orchard........................ $607 92.03% $ --(2) (2) (2) Reflection Pointe................... $609 95.95% $ 5,880 5.037% 6/15/2008 Somerset............................ $533 94.44% $ --(2) (2) (2) Woodridge........................... $548 96.35% $ 4,549 6.500% 10/1/2027 ---- ------ -------- $585 94.04% $ 10,429 ---- ------ -------- Hermitage at Beechtree.............. $716 91.75% $ --(2) (2) (2) Corners, The........................ $590 93.75% $ 3,818 7.850% 6/15/2003 ---- ------ -------- $646 92.86% $ 3,818 ---- ------ -------- Fairways at Royal Oak............... $661 88.32% $ --(2) (2) (2) ---- ------ -------- Woodwinds........................... $655 98.61% $ 3,387 8.840% 6/1/2005

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APPROXIMATE AVERAGE YEAR RENTABLE UNIT YEAR MANAGEMENT NUMBER AREA SIZE PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.) -------- --------------------- ------------- ---------- -------- ------------ ------------ Tanglewood.......................... Anderson, SC 1980 1994 168 140,784 838 Paddock Club-Columbia............... Columbia, SC 1989/95 1997 336 367,584 1,094 The Fairways........................ Columbia, SC 1992 1994 240 213,840 891 Highland Ridge...................... Greenville, SC 1984 1995 168 143,976 857 Howell Commons...................... Greenville, SC 1986/88 1997 348 292,668 841 Paddock Club-Greenville............. Greenville, SC 1996 1997 208 212,160 1,020 Park Haywood........................ Greenville, SC 1983 1993 208 156,832 754 Spring Creek........................ Greenville, SC 1985 1995 208 182,000 875 Runaway Bay......................... Mt. Pleasant, SC 1988 1995 208 177,840 855 Park Place.......................... Spartanburg, SC 1987 1997 184 195,224 1,061 ------ ---------- ----- 2,420 2,248,076 929 ------ ---------- ----- Steeplechase........................ Chattanooga, TN 1986 1991 108 98,604 913 Windridge........................... Chattanooga, TN 1984 1997 174 238,728 1,372 Oaks, The........................... Jackson, TN 1978 1993 100 87,500 875 Post House Jackson.................. Jackson, TN 1987 1989 150 163,650 1,091 Post House North.................... Jackson, TN 1987 1989 144 144,720 1,005 Bradford Chase...................... Jackson, TN 1987 1994 148 121,360 820 Woods at Post House................. Jackson, TN 1997 1995 122 118,950 975 Crossings........................... Memphis, TN 1973 1991 80 90,000 1,125 Eastview............................ Memphis, TN 1973 1984 432 356,400 825 Gleneagles.......................... Memphis, TN 1975 1990 184 189,520 1,030 Greenbrook Memphis, TN 1980 1988 1,037 939,522 906 Hickory Farm........................ Memphis, TN 1985 1994 200 150,200 751 Kirby Station....................... Memphis, TN 1978 1994 371 310,156 836 Lincoln on the Green................ Memphis, TN 1988/98 1994 618 535,188 866 Park Estate......................... Memphis, TN 1974 1977 82 96,924 1,182 Reserve at Dexter Lake I............ Memphis, TN 1999 998 252 262,332 1,041 River Trace I....................... Memphis, TN 1981 1997 244 205,692 843 River Trace II...................... Memphis, TN 1985 1997 196 165,228 43 Savannah Creek...................... Memphis, TN 1989 1996 204 237,048 1,162 Sutton Place........................ Memphis, TN 1991 1996 253 268,686 1,062 Paddock Club-Murfreesboro........... Murfreesboro, TN 1999 1998 240 268,800 1,120 Brentwood Downs..................... Nashville, TN 1986 1994 286 220,220 770 Park at Hermitage................... Nashville, TN 1987 1995 440 392,480 892 ------ ---------- ----- 6,065 5,661,908 934 ------ ---------- ----- Balcones Woods...................... Austin, TX 1983 1997 384 313,728 817 Stassney Woods...................... Austin, TX 1985 1995 288 248,832 864 Travis Station...................... Austin, TX 1987 1995 304 249,888 822 Celery Stalk........................ Dallas, TX 1978 1994 410 374,740 914 Courtyards at Campbell.............. Dallas, TX 1986 1998 232 168,200 725 Deer Run............................ Dallas, TX 1985 1998 304 206,720 680 Lodge at Timberglen................. Dallas, TX 1983 1994 260 226,200 870 Westborough Crossing................ Katy, TX 1984 1994 274 197,280 720 Kenwood Club........................ Katy, TX 2000 1999 320 318,080 994 Highwood............................ Plano, TX 1983 1998 196 156,800 800 Cypresswood Court................... Spring, TX 1984 1994 208 160,576 772

ENCUMBRANCES AT RENT PER AVERAGE DECEMBER 31, 2001 UNIT OCCUPANCY --------------------------------- UNIT AT % AT MORTGAGE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY PROPERTY 2001 2001 (000'S) RATE DATE -------- ------------- ------------- --------- -------- ---------- Tanglewood.......................... $563 94.05% $ 2,216 7.600% 11/15/2002 Paddock Club-Columbia............... $702 97.02% $ --(1) (1) (1) The Fairways........................ $648 92.92% $ 7,735 5.287% 6/15/2008 Highland Ridge...................... $533 89.88% $ --(8) (8) (8) Howell Commons...................... $545 91.09% $ --(2) (2) (2) Paddock Club-Greenville............. $721 89.90% $ --(1) (1) (1) Park Haywood........................ $569 88.46% $ --(2) (2) (2) Spring Creek........................ $571 91.83% $ --(8) (8) (8) Runaway Bay......................... $735 95.19% $ --(8) (8) (8) Park Place.......................... $628 95.65% $ --(2) (2) (2) ---- ------ -------- $626 93.10% $ 13,337 ---- ------ -------- Steeplechase........................ $599 97.22% $ --(2) (2) (2) Windridge........................... $681 93.68% $ 5,202 6.314% 12/1/2024 Oaks, The........................... $552 84.00% $ --(1) (1) (1) Post House Jackson.................. $617 88.00% $ 4,949 8.170% 10/1/2027 Post House North.................... $623 88.89% $ 3,375 5.037% 6/15/2008 Bradford Chase...................... $562 93.24% $ --(2) (2) (2) Woods at Post House................. $666 96.72% $ 5,189 7.250% 9/1/2035 Crossings........................... $752 83.75% $ -- Eastview............................ $538 84.72% $ 11,481 7.320% 4/1/2009 Gleneagles.......................... $622 88.04% $ --(1) (1) (1) Greenbrook $582 84.96% $ --(3) (3) (3) Hickory Farm........................ $585 96.00% $ --(1) (1) (1) Kirby Station....................... $622 90.84% $ --(2) (2) (2) Lincoln on the Green................ $678 85.92% $ --(7) (7) (7) Park Estate......................... $832 91.46% $ --(3) (3) (3) Reserve at Dexter Lake I............ $800 92.06% $ --(4) (4) (4) River Trace I....................... $555 99.18% $ --(1) (1) (1) River Trace II...................... $586 96.94% $ 5,407 6.380% 2/1/2026 Savannah Creek...................... $657 93.63% $ --(2) (2) (2) Sutton Place........................ $642 91.70% $ --(2) (2) (2) Paddock Club-Murfreesboro........... $797 94.17% $ --(1) (1) (1) Brentwood Downs..................... $689 95.45% $ --(1) (1) (1) Park at Hermitage................... $630 92.27% $ 7,300 5.790% 2/1/2019 ---- ------ -------- $634 90.21% $ 42,899 ---- ------ -------- Balcones Woods...................... $766 93.23% $ --(1) (1) (1) Stassney Woods...................... $689 96.88% $ 4,340 6.600% 4/1/2019 Travis Station...................... $636 93.09% $ 3,835 6.600% 4/1/2019 Celery Stalk........................ $678 92.20% $ 8,460 9.006% 12/1/2004 Courtyards at Campbell.............. $689 89.66% $ --(1) (1) (1) Deer Run............................ $644 92.11% $ --(1) (1) (1) Lodge at Timberglen................. $690 87.31% $ 4,740 9.006% 12/1/2004 Westborough Crossing................ $576 94.16% $ 3,958 9.006% 12/1/2004 Kenwood Club........................ $804 97.19% $ --(1) (1) (1) Highwood............................ $713 89.29% $ --(3) (3) (3) Cypresswood Court................... $577 97.60% $ 3,330 9.006% 12/1/2004

9

APPROXIMATE AVERAGE YEAR RENTABLE UNIT YEAR MANAGEMENT NUMBER AREA SIZE PROPERTY LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.) -------- --------------------- ------------- ---------- -------- ------------ ------------ Green Tree Place.................... Woodlands, TX 1984 1994 200 152,200 761 ------ ---------- ----- 3,380 2,773,244 820 ------ ---------- ----- Township............................ Hampton, VA 1987 1995 296 248,048 838 ------ ---------- ----- TOTAL COMPLETED AND OWNED PROPERTIES.................... 29,375 27,865,188 949 ------ ---------- ----- JOINT VENTURE PROPERTIES: Colony at South Park................ Aiken , SC 1989/91 1997 184 174,800 950 Lane at Towne Crossing.............. Mesquite, TX 1983 1994 384 277,632 723 Northwood........................... Arlington, TX 1980 1998 270 224,100 830 Walden Run.......................... McDonough, GA 1997 998 240 271,200 1,130 Woods, The.......................... Austin, TX 1977 1997 278 214,060 770 Woodstream.......................... Greensboro, NC 1983 1994 304 217,056 714 Cedar Mill.......................... Memphis, TN 1973/86 1982/94 276 297,804 1,079 Hamilton Pointe..................... Chattanooga, TN 1989 1992 361 256,671 711 Hidden Creek........................ Chattanooga, TN 1987 1988 300 259,200 864 Lakeshore Landing................... Ridgeland, MS 1974 1994 196 171,108 873 ------ ---------- ----- TOTAL JOINT VENTURE PROPERTIES.................... 2,793 2,363,631 846 ------ ---------- ----- DEVELOPMENT PROPERTIES: Reserve at Dexter Lake Phase II..... Memphis, TN 2000 1999 244 257,176 1,054 Reserve at Dexter Lake Phase III.... Memphis, TN 2001 2000 196 206,584 1,054 Grand Reserve Lexington............. Lexington, KY 2000 1999 370 432,530 1,169 Grand View Nashville................ Nashville, TN 2001 1999 433 479,331 1,107 ------ ---------- ----- TOTAL DEVELOPMENT PROPERTIES.... 1,243 1,375,621 1,107 ------ ---------- ----- TOTAL PROPERTIES................ 33,411 31,604,440 946 ====== ========== =====

ENCUMBRANCES AT RENT PER AVERAGE DECEMBER 31, 2001 UNIT OCCUPANCY --------------------------------- UNIT AT % AT MORTGAGE DECEMBER 31, DECEMBER 31, PRINCIPAL INTEREST MATURITY PROPERTY 2001 2001 (000'S) RATE DATE -------- ------------- ------------- --------- -------- ---------- Green Tree Place.................... $631 100.00% $ 3,180 9.006% 12/1/2004 ---- ------ -------- $680 93.49% $ 31,843 ---- ------ -------- Township............................ $674 98.31% $ 10,800 2.900% 2/1/2028 ---- ------ -------- TOTAL COMPLETED AND OWNED PROPERTIES.................... $660 92.73% $220,360 ---- ------ -------- JOINT VENTURE PROPERTIES: Colony at South Park................ $632 97.83% N/A Lane at Towne Crossing.............. $599 89.32% N/A Northwood........................... $578 97.04% N/A Walden Run.......................... $766 89.17% N/A Woods, The.......................... $774 95.32% N/A Woodstream.......................... $582 94.74% N/A Cedar Mill.......................... $611 90.22% N/A Hamilton Pointe..................... $500 95.84% N/A Hidden Creek........................ $515 95.67% N/A Lakeshore Landing................... $559 95.41% N/A ---- ------ -------- TOTAL JOINT VENTURE PROPERTIES.................... $605 93.84% $ -- ---- ------ -------- DEVELOPMENT PROPERTIES: Reserve at Dexter Lake Phase II..... $847 87.04% $ --(4) (4) (4) Reserve at Dexter Lake Phase III.... $802 8.16% $ --(4) (4) (4) Grand Reserve Lexington............. $977 82.97% $ --(4) (4) (4) Grand View Nashville................ $954 77.08% $ --(4) (4) (4) ---- ------ -------- TOTAL DEVELOPMENT PROPERTIES.... $916 69.92% $ -- ---- ------ -------- TOTAL PROPERTIES................ $665 91.98% $220,360 ==== ====== ========

---------------------------------- (1) Encumbered by the FNMA Facility, with an outstanding balance of $81.7 million with a variable interest rate of 2.782%, $65 million with a fixed rate of 7.712%, $25 million with a fixed rate of 6.920%, $20 million with a fixed rate of 5.770% and four interest rate swap agreements all for $25 million at 7.4125%, 7.390%, 6.195% and 6.330% at December 31, 2001. (2) Encumbered by a $142 million bond with a maturity of March 3, 2003 and an average interest rate of 6.376% (3) Encumbered, along with one corporate property, by a $35.1 million mortgage with a maturity of October 1, 2006 and an interest rate of 6.05% (4) Encumbered by the AmSouth Credit Line, with no outstanding balance at December 31, 2001,with a variable interest rate of 3.23125%. (5) Encumbered by a $15.2 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.750% (6) Encumbered by a $13.5 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.281% (7) Encumbered by a $47.5 million mortgage with a maturity of December 15, 2004 and an interest rate of 6.040% (8) Encumbered by a $9.4 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.090% 10 ITEM 3. LEGAL PROCEEDINGS The Company is not presently subject to any material litigation nor, to the Company's knowledge, is any material litigation threatened against the Company, other than 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 the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock has been listed and traded on the New York Stock Exchange ("NYSE") under the symbol "MAA" since its initial public offering in February 1994. On March 15, 2002, the reported last sale price of the Company's common stock on the NYSE was $25.84 per share, and there were approximately 1,700 holders of record of the common stock. The Company estimates there are approximately 14,500 beneficial owners of its common stock. The following table sets forth the quarterly high and low sales prices of the Company's common stock as reported on the NYSE and the dividends declared by the Company with respect to the periods indicated.

SALES PRICES ------------------- DIVIDENDS HIGH LOW DECLARED -------- -------- --------- 2000: First Quarter.................................... $23.375 $22.000 $.580 Second Quarter................................... $24.500 $22.375 $.580 Third Quarter.................................... $24.875 $23.000 $.580 Fourth Quarter................................... $23.875 $21.250 $.585 2001: First Quarter.................................... $23.875 $21.730 $.585 Second Quarter................................... $25.750 $22.420 $.585 Third Quarter.................................... $26.420 $24.400 $.585 Fourth Quarter................................... $26.760 $24.400 $.585

The Company's quarterly dividend rate is currently $0.585 per common share. The Board of Directors reviews and declares the dividend rate quarterly. Actual dividends made by the Company will be affected by a number of factors, including the gross revenues received from the Communities, the operating expenses of the Company, the interest expense incurred on borrowings and unanticipated capital expenditures. The Company pays a preferential regular distribution on the Series A, Series B, Series C and Series E Preferred Stock at annual rates of $2.375, $2.21875, $2.34375 and $2.375 per share, respectively. No distribution may be made on the Company's common stock unless all accrued distributions have been made with respect to each series of preferred stock. No assurance can be given that the Company will be able to maintain its distribution rate on its common stock or make required distributions with respect to the Series A, Series B, Series C, and Series E Preferred Stock. Future distributions by the Company will be at the discretion of the Board of Directors and will depend on the actual funds available for distribution of the Company, its 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. 11 In 1999, the Company implemented the Direct Stock Purchase and Distribution Reinvestment Plan (the "DSPDRP") under which holders of common stock (and Series A, Series B, Series C and Series E Preferred Stock) can elect automatically to reinvest their distributions in additional shares of common stock and/or to make optional purchases of common stock free of brokerage commissions and charges. Shares purchased directly from the Company pursuant to the DSPDRP are purchased at up to a 5% discount from their fair market value at the Company's discretion. To fulfill its obligations under the DSPDRP, the Company may either issue additional shares of common stock or repurchase common stock in the open market. During 2001, no shares were purchased at a discount. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data on an historical basis for the Company. 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.

YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total revenues.................................. $ 228,039 $ 224,640 $ 226,322 $ 215,543 $ 139,116 Expenses: Property operating expenses................... 84,584 83,446 84,885 79,917 52,404 Depreciation and amortization................. 52,051 51,844 49,903 46,021 27,737 General and administrative and property management expenses......................... 16,083 14,826 14,479 11,960 6,602 Interest...................................... 52,598 50,736 48,302 45,704 28,943 Amortization of deferred financing costs...... 2,352 2,758 2,854 2,348 888 Gain on dispositions, net....................... 11,933 11,587 10,237 408 -- ---------- ---------- ---------- ---------- ---------- Income before minority interest in operating partnership income and extraordinary items...... 32,304 32,617 36,136 30,001 22,542 Minority interest in operating partnership income.......................................... (2,573) (2,626) (2,497) (2,254) (2,693) Extraordinary items............................... (1,033) (204) (67) (990) (8,622) ---------- ---------- ---------- ---------- ---------- Net income........................................ 28,698 29,787 33,572 26,757 11,227 Preferred dividends............................... 16,113 16,114 16,114 11,430 5,252 ---------- ---------- ---------- ---------- ---------- Net income available for common shareholders...... $ 12,585 $ 13,673 $ 17,458 $ 15,327 $ 5,975 ========== ========== ========== ========== ========== PER SHARE DATA: Basic and diluted: Before extraordinary items.................... $ 0.78 $ 0.79 $ 0.93 $ 0.87 $ 1.05 Extraordinary items........................... (0.06) (0.01) -- (0.05) (0.62) ---------- ---------- ---------- ---------- ---------- Net income available per common share......... $ 0.72 $ 0.78 $ 0.93 $ 0.82 $ 0.43 ========== ========== ========== ========== ========== Dividends declared.............................. $ 2.340 $ 2.325 $ 2.305 $ 2.225 $ 2.155 BALANCE SHEET DATA: Real estate owned, at cost...................... $1,449,720 $1,430,378 $1,396,743 $1,434,733 $1,211,693 Real estate owned, net.......................... $1,216,933 $1,244,475 $1,248,051 $1,315,368 $1,134,704 Total assets.................................... $1,263,488 $1,303,771 $1,298,823 $1,366,427 $1,193,870 Total debt...................................... $ 779,664 $ 781,089 $ 744,238 $ 753,427 $ 632,213 Minority interest............................... $ 46,431 $ 51,383 $ 56,060 $ 61,441 $ 62,865 Shareholders' equity............................ $ 395,829 $ 433,993 $ 463,884 $ 517,299 $ 461,300 Weighted average common shares (000's): Basic......................................... 17,427 17,544 18,784 18,725 13,892 Diluted....................................... 17,532 17,597 18,808 18,770 13,955

12

YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- OTHER DATA (AT END OF PERIOD): Market capitalization (shares and units)........ $ 709,224 $ 634,903 $ 639,095 $ 670,123 $ 710,175 Ratio of total debt to total capitalization(1)............................. 52.4% 55.2% 53.8% 52.9% 47.1% Number of properties with ownership interest.... 122 124 129 129 116 Number of apartment units with ownership interest...................................... 33,411 33,612 33,901 33,831 30,579

-------------------------- (1) Total capitalization is total debt and market capitalization of preferred shares (value based on $25 per share liquidation preference), common shares and partnership units (value based on common stock equivalency). 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 the Company's consolidated financial statements, and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires the Company to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, the Company evaluates its estimates and assumptions based upon historical experience and various other factors and circumstances. The Company believes that its estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates and assumptions under different future conditions. The Company believes that the estimates and assumptions that are most important to the portrayal of its financial condition and results of operations, in that they require the most subjective judgments, form the basis of accounting policies deemed to be most critical. These critical accounting policies include capitalization of expenditures and depreciation of assets, impairment of long-lived assets, including goodwill, and fair value of derivative financial instruments. CAPITALIZATION OF EXPENDITURES AND DEPRECIATION OF ASSETS The Company carries its real estate assets at their 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, to 5 years for furniture, fixtures, and equipment, all of which are judgmental 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 the Company in order to elevate the condition of the property to the Company's standards are capitalized as incurred. IMPAIRMENT OF LONG-LIVED ASSETS, INCLUDING GOODWILL The Company accounts for long-lived assets, including goodwill, in accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company periodically evaluates its long-lived assets, including its 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, costs to complete development projects, and legal factors. Future events could occur which would cause the Company to conclude that impairment indicators exist and that the Company should record an impairment loss. 13 FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes certain derivative financial instruments during the normal course of business to manage, or hedge, its interest rate risk associated with the Company's variable rate debt or as hedges in anticipation of future debt transactions to manage well-defined interest rate risk associated with the transaction. The valuation of the derivative financial instruments under SFAS No. 133 requires the Company to make estimates and judgments that affect the fair value of the instruments. OVERVIEW The following is a discussion of the consolidated financial condition and results of operations of the Company for the years ended December 31, 2001, 2000, and 1999. 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, 2001, the total number of apartment units the Company owned or had an ownership interest in, including the 10 properties containing 2,793 apartment units owned by the Joint Venture was 33,411 in 122 Communities, compared to the 33,612 units in 124 Communities owned at December 31, 2000 and 33,901 in 129 Communities owned at December 31, 1999. For properties owned 100% by the Company, the average monthly rental per apartment unit, excluding units in lease-up, increased to $660 at December 31, 2001 from $642 at December 31, 2000 and $610 at December 31, 1999. For these same units, overall occupancy at December 31, 2001, 2000 and 1999 was 92.7%, 94.2% and 94.6%, respectively. FUNDS FROM OPERATIONS Funds from operations ("FFO") represents net income (computed in accordance with accounting principles generally accepted in the United States of America, or "GAAP") excluding extraordinary items, minority interest in Operating Partnership income, gain or loss on disposition of real estate assets, plus depreciation and amortization related to real estate, and adjustments for the Joint Venture to reflect FFO on the same basis. This definition of FFO is in accordance with the National Association of Real Estate Investment Trust's ("NAREIT") recommended definition. The Company'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. The Company believes that FFO is helpful in understanding the Company's results of operations in that such calculation reflects the Company's ability to support interest payments and general operating expenses before the impact of certain activities such as changes in other assets and accounts payable. The Company'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. FFO decreased during 2001 by approximately $244,000 to $57,212,000 versus $57,456,000 in 2000, principally because revenue increases were insufficient to completely offset the impact of property dispositions and the carrying cost of asset still in lease-up and development. Over the last three years, the Company has sold a total of 6,405 units under its disposition strategy, discussed earlier in this Annual Report, and reallocated the majority of the proceeds from those sales to the reduction of debt, the share repurchase program and the completion of the development pipeline, all uses which management believes have increased remaining shareholder value. 14 For the three years ended December 31, 2001, 2000 and 1999, FFO is calculated as follows (dollars in thousands):

YEARS ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- Net income available for common shareholders................ $12,585 $13,673 $17,458 Real estate depreciation and amortization................... 51,457 51,330 49,188 Adjustment for joint venture depreciation................... 1,268 1,210 741 Minority interest........................................... 2,573 2,626 2,497 Gain on dispositions, net................................... (11,933) (11,587) (10,237) Gain on sale of non-depreciable assets...................... 229 -- -- Extraordinary items--loss on early extinguishment of debt... 1,033 204 67 ------- ------- ------- Funds from operations....................................... $57,212 $57,456 $59,714 ======= ======= ======= Weighted average shares and units: Basic..................................................... 20,359 20,498 21,794 Diluted................................................... 20,464 20,551 21,817

RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31, 2000 During 2001 the Company completed development of 365 total apartment units in 2 existing communities and sold 2 communities containing 572 total units. Property revenues for 2001 increased by approximately $3,738,000 due primarily to increases of (i) $7,041,000 from the development communities, (ii) $1,395,000 from the communities owned throughout both periods, and (iii) $1,157,000 from the acquisitions of the Huntington Chase and Indigo Point apartments in 2000 ("2000 Acquisitions"). These increases were partially offset by decreases of (i) $4,382,000 due to the sales of the Pine Trails, MacArthur Ridge, Clearbrook Village, McKellar Woods, Winchester Square, Whispering Oaks, 2000 Wynnton, Riverwind and Hollybrook apartments in 2000 ("2000 Dispositions"), and (ii) $1,473,000 due to the sales of the Advantages and Canyon Creek apartments in 2001 ("2001 Dispositions"). Property revenues in 2000 included approximately $787,000 of one-time ancillary income fees from an agreement made with an internet service provider. This agreement was terminated early in 2001. Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other property related costs. As a percentage of total property revenues, property operating expenses remained relatively flat at 37.4% in 2001 compared to 37.5% in 2000. Property operating expenses for 2001 increased by approximately $1,138,000 due primarily to increases of (i) $2,614,000 due to the development communities, (ii) $646,000 due to the communities owned throughout both periods, and (iii) $331,000 due to the 2000 Acquisitions. These increases were partially offset by decreases of (i) $1,980,000 from the 2000 Dispositions, and (ii) $473,000 from the 2001 Dispositions. Depreciation and amortization expense increased by approximately $207,000 primarily due to increases of (i) $971,000 due to the development communities, (ii) $353,000 due to communities owned throughout both periods, and (iii) $288,000 due to the 2000 Acquisitions. These increases were partially offset by decreases of (i) $1,099,000 from the 2000 Dispositions, and (ii) $306,000 from the 2001 Dispositions. Amortization of costs in excess of fair value of net assets ("goodwill") acquired was $259,000 and $312,000, for 2001 and 2000, respectively, which is included in depreciation and amortization in the accompanying consolidated statements of operations. 15 General and administrative expense increased 10.6% or $562,000 as compared to the prior year. The most significant items contributing to the increase were airplane costs, which increased $312,000 due to unusually high repair and maintenance experienced during the current year coupled with other travel costs while the repairs were being made, D&O insurance, which increased $110,000 due to increasing premiums, and bank service charges, which increased $140,000 due to the reduction of cash balances held by the Company throughout the year. Management remains focused on maintaining the efficiency of the support functions, and based on current plans expects general and administrative costs to sustain inflationary level increases over the next year. Property management expenses increased 7.3% or $695,000 as compared to the prior year. The most significant items contributing to the increase were landscape expenses, which increased by $306,000 predominantly due to increased vendor charges, and franchise and excise taxes, which increased by $261,000 as a result of the settlement of disputed prior years' tax assessments. Interest expense increased $1,862,000 due primarily to the movement of capitalized interest to interest expense as development properties were completed in 2001. This increase was partially offset by the Company's ability to take advantage of the fall in interest rates in the second half of 2001. The Company's average borrowing cost at December 31, 2001 was 6.3% as compared to 7.1% on December 31, 2000. The average maturity on the Company's debt was 10.0 years at December 31, 2001. Amortization of deferred financing costs was $2,352,000 and $2,758,000 for 2001 and 2000, respectively. For the year ended December 31, 2001, the Company recorded a net gain on disposition of assets totaling $11,933,000 primarily related to the disposition of the two properties during the year. For the year ended December 31, 2000, the Company recorded a net gain on disposition of assets totaling $11,587,000 primarily related to the disposition of the nine properties during the year of which two were non-taxable exchanges. In 2001, the Company recorded an extraordinary loss of approximately $1,033,000, net of minority interest, from the early extinguishment of debt related to the property dispositions during the year. In 2000, the Company recorded an extraordinary loss of approximately $204,000, net of minority interest, from the early extinguishment of debt related to the property dispositions during the year. As a result of the foregoing, income before minority interest and extraordinary items for the year ended December 31, 2001 decreased by $313,000 over 2000. COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31, 1999 During 2000 the Company completed development of 1,173 total apartment units in 2 new communities and 4 existing communities, sold 9 communities containing 1,902 total units and purchased 2 communities containing 440 units. Property revenues for 2000 decreased by approximately $1,682,000 due primarily to decreases of (i) $6,710,000 due to the sale of 10 properties to the BRE/MAAC Associates, L.L.C. joint venture ("Joint Venture") in 1999, (ii) $5,241,000 from the sale of the Hidden Oaks, Sailwinds at Lake Magdalene and Regency Club apartments ("1999 Dispositions") in 1999, and (iii) $6,913,000 from the sale or exchange of the Pine Trails, MacArthur Ridge, Clearbrook Village, Winchester Square, McKellar Woods, Whispering Oaks, Riverwind, 2000 Wynnton and Hollybrook apartments ("2000 Dispositions") in 2000. These decreases were partially offset by increases of (i) $8,993,000 from the development communities, (ii) $2,441,000 from the purchase of the Huntington Chase and Indigo Point apartments ("2000 Acquisitions") in 2000, and (iii) $5,748,000 from the communities owned throughout both periods. Property revenues in 2000 included approximately $787,000 of ancillary income from an agreement made with an internet service provider. This agreement was terminated early in 2001. 16 Property operating expenses include costs for property personnel, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other property related costs. As a percentage of total property revenues, property operating expenses decreased to 37.5% in 2000 from 37.9% in 1999. The majority of the decrease is due to utility expenses that dropped from 4.1% of property revenues in 1999 to 3.4% in 2000 as the Company continued to see savings from its program to submeter units for water usage. Property operating expenses for 2000 decreased by approximately $1,439,000 due primarily to decreases of (i) $2,755,000 from the sale of 10 properties to the Joint Venture in 1999, (ii) $2,578,000 from the 1999 Dispositions, and (iii) $3,018,000 from the 2000 Dispositions. These decreases were partially offset by increases of (i) $3,502,000 due to the development communities, (ii) $992,000 due to the 2000 Acquisitions, and (iii) $2,418,000 due to the communities owned throughout both periods. Depreciation and amortization expense increased by approximately $1,941,000 primarily due to (i) $494,000 from the 2000 Acquisitions, (ii) $3,538,000 from the development communities, and (iii) $2,355,000 from the communities owned throughout both periods. These increases were partially offset by decreases of (i) $1,623,000 due to the sale of 10 properties to the Joint Venture in 1999, (ii) $1,426,000 due to the 1999 Dispositions, and (iii) $1,397,000 due to the 2000 Dispositions. Amortization of costs in excess of fair value of net assets ("goodwill") acquired was $312,000 and $849,000, for 2000 and 1999, respectively, which is included in depreciation and amortization in the accompanying consolidated statements of operations. The decrease is primarily related to reduction of goodwill originally recorded in connection with the Flournoy Development Company ("Flournoy") acquisition, a large portion of which was written off in June 1999 when the development and construction assets were sold back to the former Flournoy principals. Property management expenses increased 1.6% or $149,000 as compared to the prior year. General and administrative expense increased 3.9% or $198,000 as compared to the prior year. The most significant item contributing to the increase was airplane costs, which increased due to unusually high repair and maintenance experienced during the current year coupled with other travel costs while the repairs were being made. Management remains focused on maintaining the efficiency of the support functions, and based on current plans expects general and administrative costs to sustain inflationary level increases over the next year. Interest expense increased approximately $2,434,000 due primarily to increased average borrowings related to the funding of the development pipeline and the higher short term interest rate environment experienced during the early quarters of 2000, which increased the cost of the Company's variable rate debt. As the interest rate environment improved near the end of 2000, the Company locked the rate on 86% of all outstanding debt versus 76% at December 31, 1999. The Company's average borrowing cost at December 31, 2000 was 7.14% as compared to 7.06% on December 31, 1999. The average maturity on the Company's debt was 10.9 years at December 31, 2000. Amortization of deferred financing costs was $2,758,000 and $2,854,000 for 2000 and 1999, respectively. For the year ended December 31, 2000, the Company recorded a net gain on disposition of assets totaling $11,587,000 primarily related to the disposition of the nine properties during the year of which two were non-taxable exchanges. For the year ended December 31, 1999, the Company recorded a net gain on disposition of assets totaling $10,237,000 from gains of (i) $9,264,000 from the sale of ten communities to the Company's joint venture with Blackstone and (ii) $5,004,000 from the sale of three communities during the year. These gains were partially offset by a $4,031,000 loss on the sale of Flournoy Development Company. 17 In 2000, the Company recorded an extraordinary loss of approximately $204,000, net of minority interest, from the early extinguishment of debt related to the property dispositions during the year. In 1999, the Company recorded an extraordinary loss of approximately $67,000, net of minority interest, related to the early extinguishment of the mortgage for the Eastview apartments. As a result of the foregoing, income before minority interest and extraordinary items for the year ended December 31, 2000 decreased by $3,519,000 over 1999. LIQUIDITY AND CAPITAL RESOURCES Net cash flow provided by operating activities increased to $90,641 in 2001 from $71,164 in 2000 primarily related to the elimination of required escrow accounts resulting from debt refinancings and refundings that occurred during 2001. During 2001, the Company invested $16,497,000 in construction of new assets, reduced from $53,389,000 during 2000. The Company expects to fund $537,000 during 2002 to complete the entire $300 million development program begun in 1997. The following table summarizes the Company's remaining communities in various stages of lease-up and construction as of December 31, 2001 (Dollars in 000's):

ANTICIPATED TOTAL COSTS TO FINISH INITIAL STABIL- LOCATION UNITS DATE DATE OCCUPANCY IZATION ------------- -------- -------- -------- --------- ----------- COMPLETED COMMUNITIES IN LEASE-UP: Grand Reserve Lexington.................... Lexington, KY 370 $31,288 3Q 2000 4Q 1999 2Q 2002 Reserve at Dexter Lake II.................. Memphis, TN 244 15,973 2Q 2001 1Q 2000 2Q 2002 Grand View Nashville....................... Nashville, TN 433 36,313 2Q 2001 3Q 2000 2Q 2002

ANTICIPATED ANTICIPATED TOTAL FORECASTED COSTS TO FINISH INITIAL STABIL- LOCATION UNITS COST DATE DATE OCCUPANCY IZATION ------------- -------- ---------- -------- ----------- --------- ----------- DEVELOPMENT COMMUNITIES UNDER CONSTRUCTION: Reserve at Dexter Lake III....... Memphis, TN 244 $15,541 $15,004 1Q 2002 2Q 2001 4Q 2002

The Company's projections assume that the three properties completed but still under lease-up will substantially stabilize during 2002. At December 31, 2001, 847 of the 1,047 apartments were leased, and the Company believes that the completion of stabilization of these properties in 2002 is highly likely. The Company does not anticipate that its liquidity will be impacted should these properties fail to stabilize in 2002. The one remaining property that was still under construction at year-end had 22 of 244 units leased. The Company has forecast that this property will stabilize late in 2002. Again, the Company does not anticipate any material lack of liquidity should the property fail to stabilize in 2002, but it has incorporated revenues from the lease-up into its 2002 projections. These revenues are projected to total $470,000. 18 Capital improvements to existing properties during 2001 totaled $19,365,000 of which the Company classified $11,567,000 as "Recurring Capital". Actual capital expenditures are summarized below (Dollars in 000's):

2001 2000 -------- -------- Recurring capital at stabilized properties................ $12,348 $12,697 Revenue enhancing capital at stabilized properties........ 6,173 3,973 Capital improvements to pre-stabilized properties......... -- 164 Corporate/Commercial capital improvements................. 844 635 ------- ------- $19,365 $17,469 ======= =======

Net cash used in financing activities increased from $42,199,000 in the year ending December 31, 2000 to $71,301,000 during 2001. During 2001 the Company paid down its total debt outstanding by $2,614,000, mainly as a result of property dispositions and by reducing its cash and restricted cash outstanding. Also during 2001, the Company used a net of $3,280,000 to repurchase shares of its common stock and distributed a total of $63,806,000 to unitholders, common shareholders, and preferred shareholders. At December 31, 2001, the Company had $291,719,000 outstanding of a $295,000,000 secured credit facility with Prudential Mortgage Capital, credit-enhanced by FNMA ("FNMA Facility"), which matures in 2009. The FNMA facility provides for both fixed and variable rate borrowings, and at year-end was fully drawn under the terms of the borrowing base calculations in effect. The interest rate on the variable portion renews every 90 days and is based on the FNMA Discount Mortgage Backed Security ("DMBS") rate on the date of renewal, which has typically approximated three-month Libor less an average spread of 0.09%, plus a credit enhancement fee of 0.67% based on the outstanding borrowings. The variable interest rate was 2.78% at December 31, 2001. Fixed rate borrowings under the facility totaled $110 million at December 31, 2001, at interest rates (inclusive of credit-enhancement fees) from 5.77% to 7.71%, and maturities from 2006 to 2009. Borrowings under the FNMA Facility were increased from $198,070,000 at the end of 2000 to $291,719,000 at the end of 2001. The increase was used to refinance borrowings during the year, including current maturities of debt of $39,550,000 with Prudential and various other individual mortgages. In June 2001, the Company completed the refinancing of three tax-free bonds totaling $16,990,000 as part of a new tax-free bond credit facility with Prudential Mortgage Capital, credit-enhanced by Fannie Mae (the "Tax-Free Bond Facility"). During 2001, as a result of completing the majority of its construction program, the Company reduced its credit facility with a group of banks from $85 million to $70 million. At year-end, $32,035,070 was available to be borrowed under the terms of this facility, and there were no outstanding amounts under this facility except for $24,403,000 of letters of credit, predominately used to credit-enhance certain tax-free bonds. Compass Bank provides an unsecured credit facility to the Company from time to time; there was $5 million outstanding under this facility at year-end. The Company uses interest rate swaps to manage its current and future interest rate risk. The Company has $100 million of interest rate swaps outstanding of three-month Libor fixed leg and $25 million of interest rate swaps outstanding of one-month Libor fixed leg, with expirations between 2003 and 2007, and which have to date proven to be highly efficient hedges of the Company's variable rate debt. Through the use of these swaps the Company believes it has effectively fixed the rate during these periods of $125 million of variable rate borrowings issued through the FNMA Facility and 19 Compass Bank, leaving only $61,719,000 of the FNMA Facility of which the interest rate has not been hedged. The Company also issued a $16,990,000 swap of the BMA Municipal index, expiring in June, 2008, effectively setting the rate of the Tax-Free Bond Facility at 5.15% through this period, which is a highly effective hedge. In 2001, the Company executed two $25 million forward interest rate swaps of three-month Libor fixed leg: a two-year swap effective March 2003, and a four-year swap effective September, 2003. These are intended to reduce the interest rate risk of future planned refinancings. The weighted average interest rate and the weighted average maturity at December 31, 2001, for the $779.66 million of debt outstanding were 6.3% and 10.0 years, compared to 7.1% and 10.9 years at December 31, 2000. In 2002, the Company has two individual mortgages that mature totaling $11.6 million. The Company plans to refinance these mortgages, and in the event of a sudden lack of liquidity in the debt markets, would pay off the mortgages using its bank credit facility. The Company also has $4.0 million of scheduled principal payments on amortizing mortgage debt, which it anticipates will be funded from operating cash flow and the Company's credit facilities. In 2003, the Company has debt maturities approximating $151 million, which it anticipates will be funded by replacement debt issued at comparable interest rates. There is both interest rate and financing risk associated with these refinancings; however, the Company believes it to be extremely unlikely that there will be a refinancing problem due to the large amount of collateral available to support the amount of debt. In the highly unlikely event of a complete collapse of the debt markets, the Company could be faced with liquidity concerns. Beginning in December 2003, with six months' notice, the holder of the Series E Preferred, (totaling $25 million), has the option of redeeming all or part of the shares for cash or an equivalent value in the Company's common stock (at the Company's choice). The Company anticipates that the Series "E" Preferred will not be redeemed for common stock, and plans to maintain credit facilities and balance sheet capacity sufficient to redeem the entire series for cash should the opportunity for repurchase be presented. The Company believes that it has adequate resources to fund both its current operations, regular annual refurbishment of its properties, and incremental investment in new apartment properties. The Company believes that the income from the full lease-up and stabilization of its development properties and its growth of same-store NOI will create greater asset values, which enables it to increase its borrowing capacity while lowering or maintaining its loan to value ratio. The Company is relying on the efficient operation of the financial markets to finance debt maturities, and also is heavily reliant on the creditworthiness of FNMA, which provides credit enhancement for over $300 million of its debt. The market for FNMA DMBS, which in the Company's experience is highly effective with three-month Libor fixed leg, is also an important component of the Company's liquidity and swap effectiveness. In the event that these markets became less efficient, or the credit of FNMA became impaired, the Company would seek alternative sources of debt financing. The Company believes that cash provided by operations is adequate and anticipates that it will continue to be adequate in both the short and long-term to meet operating requirements (including recurring capital expenditures at the Communities) and payment of distributions by the Company in accordance with REIT requirements under the Internal Revenue Code. The Company has loan covenants that limit the total amount of distributions, but believes that it is unlikely that these will be a limiting factor on the Company's future levels of distributions. The Company expects to meet its long-term liquidity requirements, such as scheduled mortgage debt maturities, property acquisitions, preferred stock redemptions, expansions, and non-recurring capital expenditures, through long and medium term collateralized fixed rate borrowings, issuance of debt or additional equity securities in the Company, potential joint venture transactions and the Company's credit facilities. 20 The following table reflects the Company's total contractual cash obligations as of December 31, 2001 (Dollars in 000's):

TOTAL 2002 2003 2004 2005 2006 THEREAFTER -------- -------- -------- -------- -------- -------- ---------- Long-Term Debt and Capital Leases... $779,664 $20,346 $157,860 $75,030 $7,301 $40,176 $478,951 Operating Leases.................... 1,776 588 588 343 257 -- -- -------- ------- -------- ------- ------ ------- -------- Total Contractual Cash Obligations....................... $781,440 $20,934 $158,448 $75,373 $7,558 $40,176 $478,951

At December 31, 2001 and 2000, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. The Company's joint venture with Blackstone was established in order to sell assets to fund development while acquiring management fees to help offset the reduction in revenues from the sale. In addition, the Company does not engage in trading activities involving non-exchange traded contracts. As such, the Company is not materially exposed to any financing, liquidity, market, or credit risk that could arise if it had engaged in such relationships. The Company does not have any relationships or transactions with persons or entities that derive benefits from their non-independent relationships with the Company or its related parties other than what is disclosed in Item 8. Financial Statements and Supplementary Data--Notes to Consolidated Financial Statements Note 11. INSURANCE In the opinion of management, property and casualty insurance is in place which provides adequate coverage to provide financial protection against normal insurable risks such that it believes that any loss experienced would not have a significant impact on the Company's liquidity, financial position, or results of operations. INFLATION Substantially all of the resident leases at the Communities allow, at the time of renewal, for adjustments in the rent payable thereunder, and thus may enable the Company to seek rent increases. The substantial majority of these leases are for one year or less. The short-term nature of these leases generally serves to reduce the risk to the Company of the adverse effects of inflation. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with FAS Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company adopted the provisions of Statement 141 as of July 1, 2001, except with regard to business combinations initiated prior to July 1, 2001. The Company will adopt the provisions of Statement 142 effective January 1, 2002. Furthermore, goodwill and intangible assets determined to 21 have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001, but before Statement 142 is adopted in full will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized and tested for impairment in accordance with the appropriate pre-Statement 142 accounting requirements prior to the adoption of Statement 142. Statement 141 will require upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. As of the date of adoption, the Company expects to have unamortized goodwill of approximately $5,800,000, which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $264,000 and $317,000 for the years ended December 31, 2001 and 2000, respectively. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial statements at the date of this report, including whether it will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle. In August 2001, FASB issued Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (Statement 144), which supersedes both FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (Statement 121) and the accounting and reporting provisions of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS (Opinion 30), for the disposal of a segment of a business (as previously defined in that Opinion). Statement 144 retains the fundamental provisions in Statement 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with Statement 121. For example, Statement 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. Statement 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike Statement 121, an impairment assessment under Statement 144 will not result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. The Company is required to adopt Statement 144 no later than the year beginning after December 15, 2001, and plans to adopt its provisions for the quarter ending March 31, 2002. Management does not expect the adoption of Statement 144 for long-lived assets held for use to have a material impact on the Company's financial statements because the impairment assessment under Statement 144 is largely unchanged from Statement 121. The provisions of the Statement for assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated disposal activities. Therefore, management cannot determine the potential effects that adoption of Statement 144 will have on the Company's financial statements. 22 RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS The Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These statements include, but are not limited to, the plans and objectives of management for future operations, including plans and objectives relating to capital expenditures, rehabilitation costs on the apartment communities, future development, anticipated growth rates of revenues and expenses, and anticipated share repurchases. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that such forward-looking statements included in this report on Form 10-K will 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 the Company or any other person that the objectives and plans of the Company will be achieved. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is to changes in interest rates obtainable on its secured and unsecured borrowings. At December 31, 2001, 52% of the Company's total capitalization consisted of borrowings. The Company's interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower its overall borrowing costs. To achieve this objective, the Company manages its exposure to fluctuations in market interest rates for its borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks to mitigate its interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of its variable debt. The Company does not enter into derivative or interest rate transactions for trading purposes. Approximately 89% of the Company's outstanding debt was subject to fixed rates with a weighted average of 6.8% at December 31, 2001. The Company regularly reviews interest rate exposure on its outstanding borrowings in an effort to minimize the risk of interest rate fluctuations. The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average variable rates are based on rates in effect at the reporting date (Dollars in 000's).

TOTAL FAIR 2002 2003 2004 2005 2006 THEREAFTER TOTAL VALUE -------- -------- -------- -------- -------- ---------- -------- -------- Long-term Debt Fixed Rate..................... $15,346 $157,860 $75,030 $ 7,302 $60,176 $237,681 $553,395 $515,002 Average interest rate.......... 7.52% 6.51% 7.03% 8.84% 6.17% 6.99% 6.81% Variable Rate*................. $ 5,000 $ -- $ -- $ -- $ -- $241,269 $246,269 $246,269 Average interest rate.......... 3.27% 0.00% 0.00% 0.00% 0.00% 2.96% 2.97% Interest Rate Swaps Variable to Fixed.............. $ -- $ -- $ -- $50,000 $25,000 $ 66,990 $141,990 $ (8,756) Average pay rate............. 0.00% 0.00% 0.00% 6.81% 7.39% 6.34% 6.69%

------------------------------ * Excluding the effect of interest rate swap agreements. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report, Consolidated Financial Statements and Selected Quarterly Financial Information are set forth on pages F-1 to F-27 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's independent accountants on any matter of accounting principles or practices or financial statement disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Independent Auditors' Report..................................... F-1 Consolidated Balance Sheets as of December 31, 2001 and 2000..... F-2 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999............................... F-3 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999......................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999............................... F-5 Notes to Consolidated Financial Statements for the years ended December 31, 2001, 2000 and 1999............................... F-6 2. Financial Statement Schedule required to be filed by Item 8 and Paragraph (d) of this Item 14: Schedule III--Real Estate Investments and Accumulated Depreciation as of December 31, 2001........................... F-23 3. The exhibits required by Item 601 of Regulation S-K, except as otherwise noted, have been filed with previous reports by the registrant and are herein incorporated by reference. 24

EXHIBIT NUMBERS EXHIBIT DESCRIPTION ------- -------------------------------------------------------------------------------------------------------------- 3.1+ Amended and Restated Charter of Mid-America Apartment Communities, Inc. dated as of January 10, 1994, as filed with the Tennessee Secretary of State on January 25, 1994 3.2****** Articles of Amendment to the Charter of Mid-America Apartment Communities, Inc. dated as of January 28, 1994, as filed with the Tennessee Secretary of State on January 28, 1994 3.3** Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating and Fixing the Rights and Preferences of a Series of Preferred Stock dated as of October 9, 1996, as filed with the Tennessee Secretary of State on October 10, 1996 3.4+ Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated November 17, 1997, as filed with the Tennessee Secretary of State on November 18, 1997 3.5*** Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating and Fixing the Rights and Preferences of a Series of Preferred Stock dated as of November 17, 1997, as filed with the Tennessee Secretary of State on November 18, 1997 3.6+ Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated December 15, 1997, as filed with the Tennessee Secretary of State on December 31, 1997 3.7++ Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated June 25, 1998, as filed with the Tennessee Secretary of State on June 30, 1998 3.8++++ Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated December 28, 1998, as filed with the Tennessee Secretary of State on December 28, 1998 3.9* Bylaws of Mid-America Apartment Communities, Inc. 4.1+ Form of Common Share Certificate 4.2**** Form of 9.5% Series A Cumulative Preferred Stock Certificate 4.3***** Form of 8 7/8% Series B Cumulative Preferred Stock Certificate 4.4+++ Form of 9.375% Series C Cumulative Preferred Stock Certificate 4.5++++ Form of 9.5% Series E Cumulative Preferred Stock Certificate 4.6++++ Shareholder Protection Rights Plan dated March 1, 1999 10.1 Second Amended and Restated Agreement of Limited Partnership of Mid-America Apartments, L.P., a Tennessee limited partnership 10.2+++++ Employment Agreement between the Registrant and George E. Cates dated December , 1999 10.3+++++ Employment Agreement between the Registrant and H. Eric Bolton dated December , 1999

25 10.4+++++ Employment Agreement between the Registrant and Simon R.C. Wadsworth dated December , 1999 10.5# Third Amended and Restated 1994 Restricted Stock and Stock Option Plan 10.6++++ Revolving Credit Agreement between the Registrant and AmSouth Bank dated March 16, 1998 10.7+++++ Sixth Amendment to Revolving Credit Agreement between the Registrant and AmSouth Bank dated November 12, 1999 10.8## Seventh Amendment to Revolving Credit Agreement between the Registrant and AmSouth Bank dated July 21, 2000 10.9 Eighth Amendment to Revolving Credit Agreement between the Registrant and AmSouth Bank dated April 19, 2001 10.10+++++ Master Credit Facility Agreement between the Registrant and WMF Washington Mortgage Corp. dated November 10, 1999 10.11+ Note Purchase Agreement of the Operating Partnership and the Registrant and Prudential Insurance Company of America 10.12+ Amendment 1 to Note Purchase Agreement of the Operating Partnership and the Registrant and Prudential Insurance Company of America 11.1 Statement re: computation of per share earnings (included within the Form 10-K) 12.1 Statement re: computation of ratios (definition of ratios used are disclosed as footnotes on the related table(s) within the Form 10-K) 21.1 List of Subsidiaries 23.1 Consent of KPMG LLP ------------------------ * Filed as an exhibit to the Registrant's Registration Statement on Form S-11/A (SEC File No. 33-69434) filed on January 21, 1994 ** Filed as Exhibit 1 to the Registrant's Registration Statement on Form 8-A filed with the Commission on October 11, 1996 *** Filed as Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A filed with the Commission on November 19, 1997 **** Filed as Exhibit 2 to the Registrant's Registration Statement on Form 8-A filed with the Commission on October 11, 1996 ***** Filed as Exhibit 4.3 to the Registrant's Registration Statement on Form 8-A filed with the Commission on November 19, 1997 ****** Filed as an exhibit to the 1996 Annual Report of the Registrant on Form 10-K for the year ended December 31, 1996 ******* Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-81970), as amended, of the Registrant filed on August 17, 1994 + Filed as an exhibit to the 1997 Annual Report of the Registrant on Form 10-K for the year ended December 31, 1997 ++ Filed as Exhibit 4.3 to the Registrant's Registration Statement on Form 8-A filed with the Commission on June 26, 1998 +++ Filed as Exhibit 4.2 to the Registrant's Registration Statement on Form 8-A filed with the Commission on June 26, 1998 ++++ Filed as an exhibit to the 1998 Annual Report of the Registrant on Form 10-K for the year ended December 31, 1998 26 +++++ Filed as an exhibit to the 1999 Annual Report of the Registrant on Form 10-K for the year ended December 31, 1999 # Filed as an exhibit to the Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders ## Filed as an exhibit to the 2000 Annual Report of the Registrant on Form 10-K for the year ended December 31, 2000 (b) Reports on Form 8-K The following reports were filed on Form 8-K by the registrant during the fourth quarter of 2001:

FORM EVENTS REPORTED DATE OF REPORT ---- ------------------------------------------------------------ -------------- 8-K Announcement of effective succession of CEO................. 10/1/2001 8-K Announcement of revision of earnings estimate............... 10/16/2001 Third quarter 2001 conference call transcript with third 8-K quarter 2001 earnings release and supplemental data....... 11/2/2001

(c) Exhibits: See Item 14(a)(3) above. (d) Financial Statement Schedules: See Item 14(a)(2) above. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MID-AMERICA APARTMENT COMMUNITIES, INC. Date: March 27, 2002 /s/ H. ERIC BOLTON, JR. ------------------------------------------------ H. Eric Bolton, Jr. PRESIDENT AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Date: March 27, 2002 /s/ GEORGE E. CATES --------------------------------------------- George E. Cates Chairman of the Board of Directors Date: March 27, 2002 /s/ H. ERIC BOLTON, JR. --------------------------------------------- H. Eric Bolton, Jr. President and Chief Executive Officer (Principal Executive Officer) Date: March 27, 2002 /s/ SIMON R.C. WADSWORTH --------------------------------------------- Simon R.C. Wadsworth Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 27, 2002 /s/ JOHN F. FLOURNOY --------------------------------------------- John F. Flournoy Director Date: March 27, 2002 /s/ ROBERT F. FOGELMAN --------------------------------------------- Robert F. Fogelman Director 28 Date: March 27, 2002 /s/ JOHN S. GRINALDS --------------------------------------------- John S. Grinalds Director Date: March 27, 2002 /s/ O. MASON HAWKINS --------------------------------------------- O. Mason Hawkins Director Date: March 27, 2002 /s/ RALPH HORN --------------------------------------------- Ralph Horn Director Date: March 27, 2002 /s/ MICHAEL S. STARNES --------------------------------------------- Michael S. Starnes Director 29 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Mid-America Apartment Communities, Inc. We have audited the accompanying consolidated balance sheets of Mid-America Apartment Communities, Inc. and subsidiaries (the "Company") as of December 31, 2001 and 2000 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2001. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement Schedule III: Real Estate and Accumulated Depreciation. These financial statements and the financial statement schedule are the responsibility of the management of the Company. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of the Company as of December 31, 2001 and 2000, and the results of the their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule when considered in relationship to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Memphis, Tennessee February 13, 2002 F-1 MID-AMERICA APARTMENT COMMUNTIES, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000 (DOLLARS IN THOUSANDS)

2001 2000 ---------- ---------- ASSETS: REAL ESTATE ASSETS: Land...................................................... $ 124,993 $ 124,867 Buildings and improvements................................ 1,265,327 1,231,603 Furniture, fixtures and equipment......................... 32,290 29,094 Construction in progress.................................. 10,915 28,523 ---------- ---------- 1,433,525 1,414,087 Less accumulated depreciation............................. (229,913) (183,652) ---------- ---------- 1,203,612 1,230,435 Land held for future development.......................... 1,366 1,366 Commercial properties, net................................ 4,910 5,044 Investment in and advances to real estate joint venture... 7,045 7,630 ---------- ---------- REAL ESTATE ASSETS, NET................................. 1,216,933 1,244,475 Cash and cash equivalents................................... 12,192 16,095 Restricted cash............................................. 11,240 17,472 Deferred financing costs, net............................... 10,415 9,700 Other assets................................................ 12,708 16,029 ---------- ---------- TOTAL ASSETS............................................ $1,263,488 $1,303,771 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Notes payable............................................. $ 779,664 $ 781,089 Accounts payable.......................................... 1,219 1,740 Accrued expenses and other liabilities.................... 31,691 26,589 Security deposits......................................... 4,514 4,611 Deferred gain on disposition of properties................ 4,140 4,366 ---------- ---------- TOTAL LIABILITIES AND DEFERRED GAIN..................... 821,228 818,395 MINORITY INTEREST........................................... 46,431 51,383 SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value, 20,000,000 shares authorized, $173,470,750 or $25 per share liquidation preference: 2,000,000 shares at 9.5% Series A Cumulative............ 20 20 1,938,830 shares at 8.875% Series B Cumulative.......... 19 19 2,000,000 shares at 9.375% Series C Cumulative.......... 20 20 1,000,000 shares at 9.5% Series E Cumulative............ 10 10 Common stock, $.01 par value authorized 50,000,000 shares; issued 17,452,678 and 17,506,968 shares at December 31, 2001 and 2000, respectively............................. 175 175 Additional paid-in capital................................ 550,176 551,809 Other..................................................... (774) (1,171) Accumulated distributions in excess of net income......... (145,061) (116,889) Accumulated other comprehensive income (loss)............. (8,756) -- ---------- ---------- TOTAL SHAREHOLDERS' EQUITY.............................. 395,829 433,993 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $1,263,488 $1,303,771 ========== ==========

See accompanying notes to consolidated financial statements. F-2 MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

2001 2000 1999 -------- -------- -------- Revenues: Rental revenues........................................... $223,410 $219,039 $221,342 Other property revenues................................... 2,860 3,493 2,872 -------- -------- -------- Total property revenues................................... 226,270 222,532 224,214 Interest and other non-property income.................... 1,310 1,526 1,388 Management and development income, net.................... 755 739 751 Equity in loss of real estate joint venture............... (296) (157) (31) -------- -------- -------- Total revenues............................................ 228,039 224,640 226,322 -------- -------- -------- Expenses: Property operating expenses: Personnel............................................... 24,704 24,268 25,239 Building repairs and maintenance........................ 9,443 9,701 10,107 Real estate taxes and insurance......................... 26,594 25,021 24,561 Utilities............................................... 7,164 7,635 9,119 Landscaping............................................. 6,278 6,027 5,634 Other operating......................................... 10,401 10,794 10,225 Depreciation and amortization........................... 52,051 51,844 49,903 -------- -------- -------- 136,635 135,290 134,788 Property management expenses.............................. 10,204 9,509 9,360 General and administrative expenses....................... 5,879 5,317 5,119 Interest expense.......................................... 52,598 50,736 48,302 Amortization of deferred financing costs.................. 2,352 2,758 2,854 -------- -------- -------- Total expenses............................................ 207,668 203,610 200,423 -------- -------- -------- Income before gain on dispositions, minority interest in operating partnership income and extraordinary items...... 20,371 21,030 25,899 Gain on dispositions, net................................... 11,933 11,587 10,237 -------- -------- -------- Income before minority interest in operating partnership income and extraordinary items............................ 32,304 32,617 36,136 Minority interest in operating partnership income........... 2,573 2,626 2,497 -------- -------- -------- Income before extraordinary items........................... 29,731 29,991 33,639 Extraordinary items--loss on debt extinguishment, net of minority interst.......................................... (1,033) (204) (67) -------- -------- -------- Net income.................................................. 28,698 29,787 33,572 Preferred dividend distribution............................. 16,113 16,114 16,114 -------- -------- -------- Net income available for common shareholders................ $ 12,585 $ 13,673 $ 17,458 ======== ======== ======== Net income available per common share: Basic (in thousands): Average common shares outstanding....................... 17,427 17,544 18,784 ======== ======== ======== Basic earnings per share: Net income available per common share before extraordinary items.................................... $ 0.78 $ 0.79 $ 0.93 Extraordinary items..................................... (0.06) (0.01) -- -------- -------- -------- Net income available per common share................... $ 0.72 $ 0.78 $ 0.93 ======== ======== ======== Diluted (in thousands): Average common shares outstanding....................... 17,427 17,544 18,784 Effect of dilutive stock options........................ 105 53 24 -------- -------- -------- Average dilutive common shares outstanding.............. 17,532 17,597 18,808 ======== ======== ======== Diluted earnings per share: Net income available per common share before extraordinary items.................................... $ 0.78 $ 0.79 $ 0.93 Extraordinary items..................................... (0.06) (0.01) -- -------- -------- -------- Net income available per common share................... $ 0.72 $ 0.78 $ 0.93 ======== ======== ========

See accompanying notes to consolidated financial statements. F-3 MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (DOLLARS AND SHARES IN THOUSANDS)

ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL DISTRIBUTIONS ------------------- ------------------- PAID-IN IN EXCESS OF TREASURY SHARES AMOUNT SHARES AMOUNT CAPITAL OTHER NET INCOME STOCK -------- -------- -------- -------- ---------- -------- ------------- -------- BALANCE DECEMBER 31, 1998.......... 6,939 $69 18,878 $189 $583,154 $(2,237) $ (63,876) $ -- Repurchase of common shares (Note 8)......................... -- -- (1,118) (11) (25,072) -- -- (7,990) Issuance of common shares.......... -- -- 154 2 3,516 -- -- -- Exercise of stock options.......... -- -- -- -- 27 -- -- -- Notes receivable issued for shares (Note 9)......................... -- -- 9 -- -- (100) -- -- Payments received on notes receivable (Note 9).............. -- -- -- -- -- 343 -- -- Amortization of LESOP Provision employee advances (Note 9)....... -- -- -- -- -- 447 -- -- Shares issued in exchange for units............................ -- -- 49 -- 922 -- -- -- Amortization of unearned compensation..................... -- -- -- -- -- 494 -- -- Dividends on common stock ($2.30 per share)....................... -- -- -- -- -- -- (43,451) -- Dividends on preferred stock....... -- -- -- -- -- -- (16,114) -- Net income......................... -- -- -- -- -- -- 33,572 -- ----- --- ------ ---- -------- ------- --------- ------- BALANCE DECEMBER 31, 1999.......... 6,939 69 17,972 180 562,547 (1,053) (89,869) (7,990) Retire treasury stock.............. -- -- (356) (4) (7,986) -- -- 7,990 Repurchase of common shares (Note 8)......................... -- -- (259) (3) (6,087) -- -- -- Issuance of common shares.......... -- -- 60 1 1,371 -- -- -- Exercise of stock options.......... -- -- 1 -- 22 -- -- -- Restricted shares issued to officers and directors (Note 9)......................... -- -- 16 -- 359 (359) -- -- Notes receivable issued for shares (Note 9)......................... -- -- 53 1 1,218 (206) -- -- Amortization of LESOP Provision employee advances (Note 9)....... -- -- -- -- -- 327 -- -- Shares issued in exchange for units............................ -- -- 20 -- 365 -- -- -- Amortization of unearned compensation..................... -- -- -- -- -- 120 -- -- Dividends on common stock ($2.32 per share)....................... -- -- -- -- -- -- (40,693) -- Dividends on preferred stock....... -- -- -- -- -- -- (16,114) -- Net income......................... -- -- -- -- -- -- 29,787 -- ----- --- ------ ---- -------- ------- --------- ------- BALANCE DECEMBER 31, 2000.......... 6,939 69 17,507 175 551,809 (1,171) (116,889) -- Repurchase of common shares (Note 8)......................... -- -- (129) (1) (3,279) -- -- -- Issuance of common shares.......... -- -- 39 1 969 -- -- -- Exercise of stock options.......... -- -- 5 -- 124 -- -- -- Restricted shares issued to officers and directors (Note 9)......................... -- -- 5 -- 120 (120) -- -- Amortization of LESOP Provision employee advances (Note 9)....... -- -- -- -- -- 372 -- -- Shares issued in exchange for units............................ -- -- 26 -- 433 -- -- -- Amortization of unearned compensation..................... -- -- -- -- -- 145 -- -- Derivative instruments--cash flow hedges........................... -- -- -- -- -- -- -- -- Dividends on common stock ($2.34 per share)....................... -- -- -- -- -- -- (40,757) -- Dividends on preferred stock....... -- -- -- -- -- -- (16,113) -- Net income......................... -- -- -- -- -- -- 28,698 -- ----- --- ------ ---- -------- ------- --------- ------- BALANCE DECEMBER 31, 2001.......... 6,939 $69 17,453 $175 $550,176 $ (774) $(145,061) $ -- ===== === ====== ==== ======== ======= ========= =======

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) TOTAL -------------- -------- BALANCE DECEMBER 31, 1998.......... $ -- $517,299 Repurchase of common shares (Note 8)......................... -- (33,073) Issuance of common shares.......... -- 3,518 Exercise of stock options.......... -- 27 Notes receivable issued for shares (Note 9)......................... -- (100) Payments received on notes receivable (Note 9).............. -- 343 Amortization of LESOP Provision employee advances (Note 9)....... -- 447 Shares issued in exchange for units............................ -- 922 Amortization of unearned compensation..................... -- 494 Dividends on common stock ($2.30 per share)....................... -- (43,451) Dividends on preferred stock....... -- (16,114) Net income......................... -- 33,572 ------- -------- BALANCE DECEMBER 31, 1999.......... -- 463,884 Retire treasury stock.............. -- -- Repurchase of common shares (Note 8)......................... -- (6,090) Issuance of common shares.......... -- 1,372 Exercise of stock options.......... -- 22 Restricted shares issued to officers and directors (Note 9)......................... -- -- Notes receivable issued for shares (Note 9)......................... -- 1,013 Amortization of LESOP Provision employee advances (Note 9)....... -- 327 Shares issued in exchange for units............................ -- 365 Amortization of unearned compensation..................... -- 120 Dividends on common stock ($2.32 per share)....................... -- (40,693) Dividends on preferred stock....... -- (16,114) Net income......................... -- 29,787 ------- -------- BALANCE DECEMBER 31, 2000.......... -- 433,993 Repurchase of common shares (Note 8)......................... -- (3,280) Issuance of common shares.......... -- 970 Exercise of stock options.......... -- 124 Restricted shares issued to officers and directors (Note 9)......................... -- -- Amortization of LESOP Provision employee advances (Note 9)....... -- 372 Shares issued in exchange for units............................ -- 433 Amortization of unearned compensation..................... -- 145 Derivative instruments--cash flow hedges........................... (8,756) (8,756) Dividends on common stock ($2.34 per share)....................... -- (40,757) Dividends on preferred stock....... -- (16,113) Net income......................... -- 28,698 ------- -------- BALANCE DECEMBER 31, 2001.......... $(8,756) $395,829 ======= ========

See accompanying notes to consolidated financial statement. F-4 MID-AMERICA APARTMENT COMMUNITIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (DOLLARS IN THOUSANDS)

2001 2000 1999 --------- -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 28,698 $29,787 $ 33,572 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 54,403 54,602 52,757 Amortization of unearned stock compensation............. 145 120 494 Equity in loss of real estate joint venture............. 296 157 31 Minority interest in operating partnership income....... 2,573 2,626 2,497 Extraordinary items..................................... 1,033 204 67 Gain on dispositions, net............................... (11,933) (11,587) (10,237) Changes in assets and liabilities: Restricted cash....................................... 6,232 (4,935) (3,300) Other assets.......................................... 3,062 (2,475) (4,591) Accounts payable...................................... (521) (382) (4,459) Accrued expenses and other liabilities................ 6,750 3,175 8,325 Security deposits..................................... (97) (128) (178) --------- ------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES............... 90,641 71,164 74,978 --------- ------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of real estate assets......................... (251) (14,799) -- Improvements to properties.............................. (19,365) (17,469) (34,377) Construction of units in progress and future development............................................ (16,497) (53,389) (71,563) Proceeds from disposition of real estate assets......... 12,581 58,428 134,977 Proceeds from sale of development and construction assets................................................. -- -- 18,134 Distributions from (contributions to) real estate joint venture................................................ 289 267 (8,085) --------- ------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES..... (23,243) (26,962) 39,086 --------- ------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in credit lines.............................. (12,432) (32,393) 56,389 Proceeds from notes payable............................. 110,641 75,000 11,760 Principal payments on notes payable..................... (100,823) (15,559) (75,989) Payment of deferred financing costs..................... (3,067) (2,186) (3,420) Repurchase of common stock.............................. (3,280) (6,090) (33,073) Proceeds from issuances of common shares and units...... 1,466 2,734 3,549 Distributions to unitholders............................ (6,936) (6,898) (6,860) Dividends paid on common shares......................... (40,757) (40,693) (43,451) Dividends paid on preferred shares...................... (16,113) (16,114) (16,114) --------- ------- --------- NET CASH USED IN FINANCING ACTIVITIES................... (71,301) (42,199) (107,209) --------- ------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (3,903) 2,003 6,855 --------- ------- --------- Cash and cash equivalents, beginning of period.............. 16,095 14,092 7,237 --------- ------- --------- Cash and cash equivalents, end of period.................... $ 12,192 $16,095 $ 14,092 ========= ======= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid............................................. $ 52,658 $50,277 $ 49,375 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Assumption of debt related to property acquisitions....... $ -- $ 9,559 $ -- Conversion of units for common shares..................... $ 433 $ 365 $ 922 Issuance of advances in exchange for common shares and units................................................... $ 120 $ 238 $ 100 Interest capitalized...................................... $ 1,382 $ 3,730 $ 3,967

See accompanying notes to consolidated financial statements. F-5 MID-AMERICA APARTMENT COMMUNITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND FORMATION OF THE COMPANY Mid-America Apartment Communities, Inc. ("Mid-America") is a self-administrated and self-managed real estate investment trust which owns, develops, constructs, acquires and operates multifamily apartment communities mainly in the southeastern United States, and in Texas. The company owns and operates 112 apartment communities principally through its majority owned subsidiary, Mid-America Apartments, L.P. (the "Operating Partnership") and its subsidiary, Mid-America Capital Partners, L.P. ("MACP"). MACP is a special purpose entity established in 1997 to issue first mortgage bonds. The Company also owns a 33.33% interest in a real estate joint venture which owns 10 apartment communities, for which the Company provides management services. From the period November 1997 through June 1999, the company conducted third party property management, construction and development activities through its service corporation, Flournoy Development Corporation. BASIS OF PRESENTATION The consolidated financial statements presented herein include the accounts of Mid-America, the Operating Partnership, MACP, and all other subsidiaries ("the Company"). The Company owns 51% to 100% of all consolidated subsidiaries. The Company uses the equity method of accounting for its investments in 20 to 50 percent-owned entities for which the Company does not have the ability to exercise control. All significant intercompany accounts and transactions have been eliminated in consolidation. MINORITY INTEREST Minority interest in the accompanying consolidated financial statements relates to the ownership interest in the Operating Partnership by the holders of Class A Common Units of the Operating Partnership ("Operating Partnership Units"). Mid-America is the sole general partner of the Operating Partnership. Net income is allocated to the minority interest based on their respective ownership percentage of the Operating Partnership. Issuance of additional common shares or Operating Partnership Units changes the ownership of both the minority interest and Mid-America. Such transactions and the proceeds therefrom are treated as capital transactions and result in an allocation between shareholders' equity and minority interest to account for the change in the respective percentage ownership of the underlying equity of the Operating Partnership. The Company's Board of Directors established economic rights in respect to each Operating Partnership Unit that were equivalent to the economic rights in respect to each share of common stock. The holder of each unit may redeem their units in exchange for one share of common stock or cash, at the option of the Company. The Operating Partnership has followed the policy of paying the same per unit distribution in respect to the units as the per share distribution in respect to the common stock. Operating Partnership net income for 2001, 2000 and 1999 was allocated approximately 16.2%, 16.3% and 15.6%, respectively, to holders of Operating Partnership Units and 83.8%, 83.7% and 84.4%, respectively, to Mid-America. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported F-6 amounts of revenues and expenses to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. REVENUE RECOGNITION The Company leases multifamily residential apartments under operating leases primarily with terms of one year or less. Rental and other revenues are recorded when earned. The Company records all gains and losses on real estate in accordance with SFAS No. 66. RENTAL COSTS Costs associated with rental activities are expensed as incurred. Certain costs associated with the lease-up of development projects, including cost of model units, their furnishings, signs, and "grand openings" are capitalized and amortized over their respective estimated useful lives. All other costs relating to renting development projects are expensed as incurred. CASH AND CASH EQUIVALENTS The Company considers cash, investments in money market accounts and certificates of deposit with original maturities of three months or less to be cash equivalents. RESTRICTED CASH Restricted cash consists of escrow deposits held by lenders for property taxes, insurance, debt service and replacement reserves. REAL ESTATE ASSETS AND DEPRECIATION Real estate assets are carried at depreciated cost. Repairs and maintenance costs are expensed as incurred while significant improvements, renovations, and replacements are capitalized. The cost of interior painting, vinyl flooring and blinds are expensed as incurred. In conjunction with acquisitions of properties, the Company's policy is to provide in its acquisition budgets adequate funds to complete any deferred maintenance items to bring the properties to the required standard, including the cost of replacement appliances, carpet, interior painting, vinyl flooring and blinds. These costs are capitalized. 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 and 5 years for furniture, fixtures and equipment. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF Long-lived assets and certain identifiable intangibles 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 future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Development projects and the related carrying costs, including interest, property taxes, insurance and allocated development overhead during the construction period, are capitalized and reported in the accompanying balance sheet as "construction in progress" during the construction period. Upon F-7 completion and certification for occupancy of individual units within a development, amounts representing the completed unit's portion of total estimated development costs for the project are transferred to land, buildings, and furniture, fixtures and equipment as real estate held for investment. Capitalization of interest, property taxes, insurance and allocated development overhead costs ceases upon the transfer, and the assets are depreciated over their estimated useful lives. Total interest capitalized during 2001, 2000 and 1999 was $1,382,000, $3,730,000 and $3,967,000, respectively. LAND HELD FOR FUTURE DEVELOPMENT Real estate held for future development are sites intended for future multifamily developments. INVESTMENT IN AND ADVANCES TO REAL ESTATE JOINT VENTURE The Company's investment in an unconsolidated real estate joint venture is recorded on the equity method as the Company does not have a controlling interest in the joint venture. The portion of the gain realized upon the Company's sale of apartment communities to a joint venture was deferred in proportion to the Company's ownership interest in the joint venture. The deferred gain will be amortized over 20 years, which approximates the useful life of the joint venture's real estate assets. DEFERRED COSTS AND OTHER INTANGIBLES Deferred financing costs are amortized over the terms of the related debt using a method which approximates the interest method. Cost in excess of fair value of net assets acquired is amortized using the straight-line method over 30 years. DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Company uses certain derivative financial instruments to manage, or hedge, the interest rate risk associated with the Company's variable rate debt or as hedges in anticipation of future debt transactions to manage well-defined interest rate risk associated with the transaction. The Company does not use derivative financial instruments for speculative or trading purposes. Further, the Company has a policy of entering into contracts with major financial institutions based upon their credit rating and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designated to hedge, the Company has not sustained any material loss from those instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives. On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities." SFAS 133, as amended, established accounting and reporting standards for derivative instruments. Specifically, SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. As of January 1, 2001, the adoption of the new standard resulted in derivative instruments reported on the balance sheet as liabilities of $2,184,000 and an increase of $2,184,000 to "Accumulated Other Comprehensive Income." The adoption did not impact the Company's results of operations or cash flows for any period presented in the accompanying financial statements. The Company requires that hedging derivatives instruments are effective in reducing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting. Instruments that meet these hedging criteria are formally designated as hedges at the F-8 inception of the derivative contract. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction. This process includes linking all derivatives that are designated as fair-value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives used are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. All of the Company's derivative financial instruments that are reported at fair value and are represented on the balance sheet were characterized as cash flow hedges. These transactions hedge the future cash flows of debt transactions through interest rate swaps that convert variable payments to fixed payments. The unrealized gains/losses in the fair value of these hedges are reported on the balance sheet with a corresponding adjustment to accumulated other comprehensive income, with any ineffective portion of the hedging transaction reclassified to earnings. During the year ended December 31, 2001, the ineffective portion of the hedging transaction was not significant. Within the next twelve months, the Company expects to reclassify to earnings an estimated $100,000 of the current balance held in accumulated other comprehensive income. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company is required to adopt the provisions of Statement 141 immediately, except with regard to business combinations initiated prior to July 1, 2001, which it expects to account for using the pooling-of-interests method, and Statement 142 effective January 1, 2002. Furthermore, goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001, but before Statement 142 is adopted in full will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized and tested for impairment in accordance with the appropriate pre-Statement 142 accounting requirements prior to the adoption of Statement 142. Statement 141 will require upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 F-9 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. As of the date of adoption, the Company expects to have unamortized goodwill of approximately $5,800,000, which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $264,000 and $317,000 for the years ended December 31, 2001 and 2000, respectively. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial statements at the date of this report, including whether it will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle. In August 2001, FASB issued Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (Statement 144), which supersedes both FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (Statement 121) and the accounting and reporting provisions of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS (Opinion 30), for the disposal of a segment of a business (as previously defined in that Opinion). Statement 144 retains the fundamental provisions in Statement 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with Statement 121. For example, Statement 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. Statement 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike Statement 121, an impairment assessment under Statement 144 will not result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. The Company is required to adopt Statement 144 no later than the year beginning after December 15, 2001, and plans to adopt its provisions for the quarter ending March 31, 2002. Management does not expect the adoption of Statement 144 for long-lived assets held for use to have a material impact on the Company's financial statements because the impairment assessment under Statement 144 is largely unchanged from Statement 121. The provisions of the Statement for assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated disposal activities. Therefore, management cannot determine the potential effects that adoption of Statement 144 will have on the Company's financial statements. RECLASSIFICATION Certain prior year amounts have been reclassified to conform to 2001 presentation. The reclassifications had no effect on net income available for common shareholders. 2. SALE OF DEVELOPMENT, CONSTRUCTION AND FEE MANAGEMENT BUSINESSES On June 30, 1999, the Company sold its development, construction and fee management businesses back to the principals of Flournoy Development Company ("Flournoy"). The Company received net proceeds of $18.1 million for these assets and recorded a net loss of approximately $4.0 million, relating mainly to the write-off of goodwill related to the original purchase transaction. In the transaction, Flournoy reacquired the development businesses, related fixed assets including single family development, land and property held for sale, and the fee management business of 5,131 tax credit apartment units. The Company has contracted with Flournoy to complete the remaining portion of its development pipeline, which was estimated to be approximately $537,000 at December 31, 2001. F-10 3. REAL ESTATE JOINT VENTURE The Company currently owns a 33.33% interest in a joint venture (the "JV") with Blackstone Real Estate Acquisitions, LLC ("Blackstone") which was formed in 1999 when the Company sold 10 apartment communities containing 2,793 apartment units to the JV for $97.9 million. The following is a summary of the financial position of the JV as of December 31, 2001 (Dollars in 000's): Assets Real Estate Assets, Gross................................... $104,100 Real Estate Assets, Net..................................... 94,427 Other Assets................................................ 4,187 -------- Total Assets................................................ $ 98,614 Liabilities and Equity Mortgage Debt............................................... $ 81,330 Debt--Mid-America Apartments, LP............................ 3,418 Other Liabilities........................................... 3,330 Equity...................................................... 10,536 -------- Total Liabilities and Equity................................ $ 98,614 Total Revenues.............................................. $ 18,927 Net Operating Income........................................ $ 10,485 Depreciation Expense........................................ $ 3,808 Net Loss.................................................... $ 194 The Company earns interest on its loan to the JV at an average interest rate of 9.6% and manages the communities for a fee of 4% of revenues. Upon the original sale of the assets to the JV, Mid-America recognized a gain of approximately $9.0 million and deferred gains for the Company's retained interest of approximately $4.8 million. Distributions to Blackstone from one of the properties is subject to a minimum threshold, supported by Mid-America's share of distributions from the JV, which reduced Mid-America's share of total distributions by $218,000 in 2001. Effective April 2002, each partner's interest is subject to a "right of first offer" in which the Offeror can offer to sell its investment in any one or more properties to the other partner (the Offeree). In the event the Offeree declines to purchase the Offeror's investment, the property is then put up for sale. 4. BORROWINGS The Company maintains a $70 million secured credit facility with a group of banks led by AmSouth Bank (the "AmSouth Credit Line"). The AmSouth Credit Line bears interest at a rate of LIBOR plus a spread ranging from 1.35% to 1.75% (1.35% at December 31, 2001) based on certain quarterly coverage calculations established by the agreement. This credit line expires in May 2003 and is subject to certain borrowing base calculations that effectively reduce the amount that may be borrowed. At December 31, 2001, the Company had $32.0 million available to be borrowed under the AmSouth Credit Line agreement. There were no outstanding amounts under this facility except for $24,403,000 of letters of credit, predominately used to credit-enhance certain tax-free bonds. The Company also maintains a $295 million secured credit facility with Prudential Mortgage Capital, credit-enhanced by FNMA (the "FNMA Facility") which matures in 2009. The FNMA Facility provides for both fixed and variable rate borrowings. The interest rate on the variable portion renews every 90 days and is based on the FNMA discount mortgage backed security rate on the date of renewal, which, for the Company, has historically approximated three-month LIBOR less an average of .09%, plus a fee of .67%. Borrowings under the FNMA Facility totaled $291.7 million at December 31, F-11 2001, consisting of $110 million under the fixed portion at a rate of 7.179% and the remaining $181.7 million under the variable rate portion of the facility. The Company has five interest rate swap agreements, totaling $125 million to lock the interest rate on a portion of the variable rate borrowings outstanding under the FNMA Facility at approximately 6.9%. The FNMA Facility is subject to certain borrowing base calculations that effectively reduce the amount that may be borrowed. The total amount available under these calculations was outstanding as of December 31, 2001. The Company also had outstanding at December 31, 2001 a $5 million unsecured short-term note payable with Compass Bank, which matures in January 2002. At December 31, 2001, the Company had $61.7 million (after considering the interest rate swaps) variable rate debt outstanding at an average interest rate of 2.8% and an additional $23 million of tax-free variable rate debt outstanding at an average rate of 2.8%. The interest rate on all other debt was hedged or fixed at an average interest rate of 6.8%. During 2001, the Company refinanced multiple properties and moved them under the FNMA facility. The Company also refinanced three tax-free bonds and moved them into a new tax-free bond credit facility with Prudential Mortgage Capital, credit-enhanced by FNMA. The Company issued a seven-year $16,990,000 swap in order to lock the interest rate on all of the outstsanding balance during this period at 5.15%. The Company incurred a prepayment penalty of approximately $1,033,000, net of minority interest, related to the early extinguishment of the debt which is included in "Extraordinary items--loss on early extinguishment of debt" in the accompanying financial statements. The Company had approximately $482.9 million and $565.6 million at December 31, 2001 and 2000, respectively, outstanding under various mortgage notes and bonds payable secured by real estate assets. The Company had outstanding $142 million aggregate principal amount of 6.376% bonds due in 2003 (the "Bonds"). The Bonds are secured by a first priority deed of trust, security agreement and assignment of rents and leases in 26 mortgaged properties. During 2000, the Company paid off a portion of its note payable to Prudential Mortgage, which is secured by several properties. The payment was related to the disposition of one of the properties securing the note, and the Company incurred a prepayment penalty of approximately $204,000, net of minority interest, related to the early extinguishment of the mortgage. During 1999, the Company paid certain borrowings prior to maturity and incurred prepayment costs of $67,000, net of minority interest, related to the early extinguishment. For 2000 and 1999, these costs are included in "Extraordinary items--loss on early extinguishment of debt" in the accompanying financial statements. As of December 31, 2001, the Company estimated that the weighted average interest rate on the Company's debt was 6.3% with an average maturity of 10.0 years. F-12 The following table summarizes the Company's indebtedness at December 31, 2001, and 2000.

ACTUAL AVERAGE INTEREST RATES INTEREST RATE MATURITY 2001 2000 -------------- ------------- --------- -------- -------- Fixed Rate: Taxable................................ 5.770-9.006% 6.923% 2002-2037 $451.5 $504.3 Tax-exempt 5.281-8.170% 6.277% 2008-2028 101.9 94.5 Interest rate swaps.................... 5.037-7.413% 6.899% 2005-2008 142.0 75.0 ------ ------ $695.4 $673.8 ------ ------ Variable Rate: Taxable................................ 2.782% 2.782% 2009 $ 61.7 $ 75.5 Tax-exempt............................. 2.600-2.900% 2.759% 2027-2028 22.6 31.8 ------ ------ $ 84.3 $107.3 ------ ------ $779.7 $781.1 ====== ======

Scheduled principal repayments on the borrowings at December 31, 2001 are as follows (Dollars in 000's):

YEAR AMORTIZATION MATURITIES TOTAL ---- ------------ ---------- -------- 2002........................................ $ 3,956 $ 16,390 $ 20,346 2003........................................ 3,740 154,120 157,860 2004........................................ 3,862 71,168 75,030 2005........................................ 4,086 3,215 7,301 2006........................................ 4,166 36,010 40,176 Thereafter.................................. 129,755 349,196 478,951 -------- -------- -------- $149,565 $630,099 $779,664 ======== ======== ========

The Company's indebtedness includes various restrictive financial covenants. The Company believes that it was in compliance with these covenants as of December 31, 2001. 5. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS Cash and cash equivalents, restricted cash, accounts payable, accrued expenses and other liabilities and security deposits are carried at amounts which reasonably approximate their fair value due to their short term nature. Fixed rate notes payable at December 31, 2001 and 2000 total $695.4 million and $673.8 million, respectively, and have an estimated fair value of $506.2 million and $602.9 million (excluding prepayment penalties) based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of December 31, 2001 and 2000. The carrying value of variable rate notes payable at December 31, 2001 and 2000 total $84.3 million and $107.3 million, respectively, which reasonably approximates their fair value because the related variable interest rates available for the issuance of debt with similar terms and remaining maturities reasonably approximate market rates. The Company has six interest rate swap agreements totalling $142.0 million notional amount which were outstanding as of December 31, 2001. The Company estimates that at December 31, 2001, the combined fair market value of all the interest rate swaps outstanding was $(8.8) million. The fair value estimates presented herein are based on information available to management as of December 31, 2001 and 2000. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively F-13 revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. 6. COMMITMENTS AND CONTINGENCIES The Company is not presently subject to any material litigation nor, to the Company's knowledge, with advice of legal counsel, is any material litigation threatened against the Company, other than 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 consolidated financial statements of the Company. The Company had total expenses related to operating leases for the years ended December 31, 2001, 2000, and 1999 of $527,000, $407,000, and $256,000, respectively. The Company's commitments for the next five years under operating lease agreements outstanding at December 31, 2001 are as follows (in Dollars):

YEAR ---- 2002........................................................ $ 587,971 2003........................................................ 587,971 2004........................................................ 342,919 2005........................................................ 257,189 2006........................................................ -- ---------- Total....................................................... $1,776,050 ==========

7. INCOME TAXES No provision for federal income taxes has been made in the accompanying consolidated financial statements. The Company has made an election to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Code. As a REIT, the Company generally is not subject to Federal income tax to the extent it distributes 95% (through December 31, 2000 and 90% thereafter) of its REIT taxable income to its shareholders and meets certain other tests relating to the number of shareholders, types of assets and allocable income. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to the Federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Even though the Company qualifies for taxation as a REIT, the Company may be subject to certain Federal, state and local taxes on its income and property and to Federal income and excise tax on its undistributed income. Earnings and profits, which determine the taxability of dividends to shareholders, differ from net income reported for financial reporting purposes primarily because of differences in depreciable lives, bases of certain assets and liabilities and in the timing of recognition of earnings upon disposition of properties. For federal income tax purposes, the following summarizes the taxability of cash distributions paid on the common shares in 2000 and 1999 and the estimated taxability for 2001:

2001 2000 1999 -------- -------- -------- Per common share Ordinary income...................................... $1.28 $1.31 $1.40 Capital gains........................................ .32 .25 .18 Return of capital.................................... .74 .76 .72 ----- ----- ----- Total.............................................. $2.34 $2.32 $2.30 ===== ===== =====

F-14 8. SHAREHOLDERS' EQUITY SERIES A PREFERRED STOCK Series A Cumulative Preferred Stock ("Series A Preferred Stock") has a $25.00 per share liquidation preference and a preferential cumulative annual distribution of $2.375 per share, payable monthly. The Company has outstanding 2,000,000 Series A Preferred shares for which it received net proceeds of $47.8 million. Since November 1, 2001, the Series A Preferred shares have been redeemable for cash at the option of the Company, in whole or in part, at a redemption price equal to the liquidation preference plus dividends accrued and unpaid to the redemption date. SERIES B PREFERRED STOCK Series B Cumulative Preferred Stock ("Series B Preferred Stock") has a $25.00 per share liquidation preference and a preferential cumulative annual distribution of $2.21875 per share, payable monthly. The Company has outstanding 1,938,830 Series B Preferred shares for which it received net proceeds of $46.6 million. On and after December 1, 2002, the Series B Preferred shares will be redeemable for cash at the option of the Company, in whole or in part, at a redemption price equal to the liquidation preference plus dividends accrued and unpaid to the redemption date. SERIES C PREFERRED STOCK Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") has a $25.00 per share liquidation preference and a preferential cumulative annual distribution of $2.34375 per share, payable quarterly. The Company has outstanding 2,000,000 Series C Preferred shares for which it received net proceeds of $48.1 million. On and after June 30, 2003, the Series C Preferred shares will be redeemable for cash at the option of the Company, in whole or in part, at a redemption price equal to the liquidation preference plus dividends accrued and unpaid to the redemption date. SERIES D PREFERRED STOCK--SHAREHOLDERS RIGHTS PLAN During December 1998, the Board of Directors authorized a Shareholders Rights Plan (the "Rights Plan"). In implementing the Rights Plan, the Board declared a distribution of one right for each of the Company's outstanding common shares which would become exercisable only if a person or group (the "Acquiring Person") becomes the beneficial owner of 10% or more of the common shares or announces a tender or exchange offer that would result in ownership of 10% of the Company's common shares. The rights will trade with the Company's common stock until exercisable. Each holder of a right, other than the Acquiring Person, is in that event entitled to purchase one common share of the Company for each right at one half of the then current price. SERIES E PREFERRED STOCK Series E Cumulative Preferred Stock ("Series E Preferred Stock") has a $25.00 per share liquidation preference and a preferential cumulative annual distribution of $2.375 per share, payable monthly. The Company has outstanding 1,000,000 Series E Preferred shares issued in a direct placement with a private investor. The Company received net proceeds of $24.7 million. In December 2003, the securities may be required by the purchaser to be redeemed by the Company in cash or common stock, at the Company's option, at the then market price. The Series E Preferred Stock is equal in rank with the Company's other series of Preferred Stock with respect to the payment of dividends and amounts upon liquidation, dissolution or winding up. F-15 DIRECT STOCK PURCHASE AND DISTRIBUTION REINVESTMENT PLAN The Company has a Direct Stock Purchase and Distribution Reinvestment Plan ("DSPDRP") pursuant to which the Company's shareholders have the ability to reinvest all or part of distributions from Mid-America common stock, preferred stock or limited partnership interests in Mid-America Apartments, L.P. Also, the plan provides the opportunity for shareholders to buy additional shares through an optional cash investment. The Company has registered with the Securities and Exchange Commission the offer and sale of up to 1,600,000 shares of common stock pursuant to the DSPDRP. Additional shares will be purchased at the market price on the "Investment Date" each month, which shall in no case be later than ten business days following the distribution payment date. Common stock shares totaling 27,090, in 2001, 25,242 in 2000, and 111,637 in 1999 were acquired by shareholders. STOCK REPURCHASE PLAN In 1999, the Company's Board of Directors approved a stock repurchase plan to acquire up to a total of 4.0 million shares of the Company's common shares. Through December 31, 2001, the Company has repurchased and retired approximately 1.9 million shares of common stock for a cost of approximately $42 million at an average price per common share of $22.54. EARNINGS PER SHARE The computation of basic earnings per share is based on the weighted average number of common shares outstanding. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding plus the shares resulting from the assumed exercise of all dilutive outstanding options using the treasury stock method. A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 2001, 2000 and 1999 is presented on the Consolidated Statements of Operations. 9. EMPLOYEE BENEFIT PLANS 401 (K) SAVINGS PLAN The Mid-America Apartment Communities, Inc. 401(k) Savings Plan is a defined contribution plan that satisfies the requirements of Section 401(a) and 401(k) of the Code. The Company may, but is not obligated to, make a matching contribution of $.50 for each $1.00 contributed, up to 6% of the participant's compensation. The Company's contribution to this plan was $240,000, $216,000 and $204,200 in 2001, 2000 and 1999, respectively. NON-QUALIFIED DEFERRED COMPENSATION PLAN The Company has adopted a non-qualified deferred compensation plan for key employees who are not qualified for participation in the Company's 401(k) Savings Plan. Under the terms of the plan, employees may elect to defer a percentage of their compensation and the Company matches a portion of their salary deferral. The plan is designed so that the employees' investment earnings under the non-qualified plan should be the same as the earning assets in the Company's 401(k) Savings Plan. The Company's match to this plan in 2001, 2000 and 1999 was $30,200, $27,800 and $17,300, respectively. EMPLOYEE STOCK PURCHASE PLAN The Mid-America Apartment Communities, Inc. Employee Stock Purchase Plan (the "ESPP") provides a means for employees to purchase common stock of the Company. The Board has authorized the issuance of 150,000 shares for the plan. The ESPP is administered by the Compensation Committee who may annually grant options to employees to purchase annually up to an aggregate of 15,000 shares F-16 of common stock at a price equal to 85% of the market price of the common stock. During 2001, 2000 and 1999, the ESPP purchased 4,163, 4,326 and 6,721 shares, respectively. EMPLOYEE STOCK OWNERSHIP PLAN The Mid-America Apartment Communities, Inc. Employee Stock Ownership Plan (the "ESOP") is a non-contributory stock bonus plan that satisfies the requirements of Section 401(a) of the Internal Revenue Code. Each employee of the Company is eligible to participate in the ESOP after attaining the age of 21 years and completing one year of service with the Company. Participants' ESOP accounts will be 100% vested after five years of continuous service, with no vesting prior to that time. The Company contributed 22,500 shares of common stock to the ESOP upon conclusion of the Initial Offering. During 2001, 2000 and 1999, the Company contributed approximately $600,000, $600,000 and $640,000, respectively, to the ESOP which purchased an additional 22,562, 25,967 and 28,233 shares, respectively. STOCK OPTION PLAN The Company has adopted the 1994 Restricted Stock and Stock Option Plan (the "Plan") to provide incentives to attract and retain independent directors, executive officers and key employees. The Plan provides for the grant of options to purchase a specified number of shares of common stock ("Options") or grants of restricted shares of common stock ("Restricted Stock"). The Plan also allows the Company to grant options to purchase Operating Partnership Units at the price of the common stock on the New York Stock Exchange on the day prior to issuance of the units (the "LESOP Provision"). The Plan authorizes the issuance of 2,000,000 common shares or options to acquire shares which vest over five years. Under the terms of the Plan, the Company can advance directors, executive officers, and key employees a portion of the cost of the common stock or units. The employee advances mature five years from date of issuance and accrue interest, payable in arrears, at a rate established at the date of issuance. The Company has also entered into supplemental bonus agreements with the employees which are intended to fund the payment of a portion of the advances over a five year period. Under the terms of the supplemental bonus agreements, the Company will pay bonuses to these employees equal to 3% of the original note balance on each anniversary date of the advance, limited to 15% of the aggregate purchase price of the shares and units. The advances become due and payable and the bonus agreement will terminate if the employees voluntarily terminate their employment with the Company. The Company also agreed to pay a bonus to certain executive officers in an amount equal to the debt service on the advances for as long as they remain employed by the Company. As of December 31, 2001, the Company had advances outstanding relating to the Plan totaling $782,000, which is presented as a reduction to shareholders' equity in the accompanying consolidated balance sheets. Advances to executive officers totaled $535,000 at interest rates ranging from 5.59%-6.49% and maturing at various dates from 2002 to 2005. Advances to key employees totaled $247,000 at interest rates ranging from 7.5%-9.0% maturing at various dates from 2002 to 2005. Additionally in 2001, the Company issued 5,450 restricted shares to current independent directors at a price of $22.14 per share. These shares will vest in one year. In 2000, 5,450 restricted shares were also issued to independent directors at a price of $22.1875. In 2000, the Company issued 10,750 restricted shares to executive officers at a price of $22.1875. These shares will vest 10% each over the next ten years. The executive officers have the option to accelerate the vesting in lieu of bonuses. F-17 A summary of changes in Options to acquire shares of the Company's common stock and Operating Partnership Units, including grants and exercises pursuant to the LESOP provision, for the three years ended December 31, 2001 is as follows:

WEIGHTED AVERAGE OPTIONS EXERCISE PRICE --------- ---------------- Outstanding at December 31, 1998................... 795,319 26.87 Granted.......................................... 371,750 22.25 Forfeited........................................ (243,800) 25.86 --------- Outstanding at December 31, 1999................... 923,269 25.35 Granted.......................................... 401,000 22.29 Exercised........................................ (54,350) 22.93 Forfeited........................................ (70,325) 24.78 --------- Outstanding at December 31, 2000................... 1,199,594 24.47 Granted.......................................... 341,700 22.14 Exercised........................................ (69,900) 20.84 Forfeited........................................ (241,900) 23.81 --------- Outstanding at December 31, 2001................... 1,229,494 23.94 --------- Options exercisable: December 31, 1999................................ 285,694 23.34 December 31, 2000................................ 381,744 24.25 December 31, 2001................................ 425,694 25.24

Exercise prices for options outstanding as of December 31, 2001 ranged from $19.75 to $29.50. The weighted average remaining contractual life of those options is 6.8 years. The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation", which requires either the (i) fair value of employee stock-based compensation plans be recorded as a component of compensation expense in the statement of operations as of the date of grant of awards related to such plans, or (ii) impact of such fair value on net income and earnings per share be disclosed on a pro forma basis in a footnote to financial statements for awards granted after December 15, 1994, if the accounting for such awards continues to be in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25"). The Company will continue such accounting under the provisions of APB 25. If the fair value method of accounting allowed under SFAS No. 123 had been used by the Company, the pro forma net income available to common shareholders would have been $12,398,000, $13,494,000, $17,254,000 for 2001, 2000 and 1999, respectively. The pro forma diluted net income available per common share would have been $0.71, $0.77 and $0.92 for 2001, 2000 and 1999, respectively. The calculation was prepared using the Black-Scholes option pricing model using the following factors: 1) risk free interest rate of 4.86%, 5.28% and 6.38% for 2001, 2000 and 1999, respectively, 2) expected life of 6.8 years, 7.0 years, and 7.3 years for 2001, 2000 and 1999, respectively, 3) expected volatility of 13.65%, 14.05% and 19.14% for 2001, 2000 and 1999, respectively, and 4) expected dividends of 8.90%, 10.16% and 10.16% for 2001, 2000 and 1999, respectively. The weighted average fair value of all options granted during the year is $7,565,000 at a weighted average option price of $22.14 per share. 10. DERIVATIVE FINANCIAL INSTRUMENTS The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company occasionally utilizes derivative financial instruments as hedges in anticipation of future debt transactions to manage well-defined interest rate risk or as protection to F-18 hedge the interest rate risk of the Company's variable rate debt by locking the effective rate on portions of the outstanding lines of credit. During 2001, the Company entered two interest rate swap agreements, each with a notional amount of $25 million, to effectively lock the interest rate on $50 million of the FNMA Facility at approximately 6.3%. The swap agreements expire in December 2005, and June 2007. The Company also entered into a $16.99 million interest rate swap agreement expiring in June 2008 to effectively fix the rate at 5.15% on a new tax-free bond credit facility with Prudential Mortgage Capital, credit-enhanced by FNMA. Also during 2001, the Company entered into two forward interest rate swaps. Both swaps begin in 2003 and have a notional amount of $25 million of three-month LIBOR fixed leg. These interest rate swaps will effectively lock the interest rate at approximately 5.9% During 2000, the Company entered two interest rate swap agreements, each with a notional amount of $25 million, to effectively lock the interest rate on $50 million of the FNMA Credit Facility at approximately 7.4%. The swap agreements expire in September of 2005 and 2006. In 1998, the Company entered an interest rate swap agreement which expires on May 23, 2003 that effectively locks the interest rate the Company pays on a portion of its AmSouth Credit Line. As of December 31, 2001, $25 million notional amount was outstanding on this agreement with a fixed interest rate paid by the Company of 7.17%. At December 31, 2001 all of these interest rate swaps were designated as cash flow hedges in accordance with SFAS No. 133 and have a net liabiltity fair value of ($8,756,000). 11. RELATED PARTY TRANSACTIONS Pursuant to a management contract with the Joint Venture, the Company manages the operations of the 10 Joint Venture apartment communities for a fee of 4% of the revenues of the Joint Venture. The Company received approximately $755,000, $739,000 and $453,000 as management fees from the Joint Venture in 2001, 2000 and 1999, respectively. As described in Note 2, the Company sold its development, construction and management fee business in June 1999 to a director of the Company. The director was a former principal of Flournoy, which was acquired by the Company in November 1997. The Company has contracted with Flournoy to complete the remaining portion of its development pipeline, which is expected to be accomplished during 2002. The Company has a line of credit with a group of banks led by AmSouth Bank. First Tennessee Bank, the principal banking subsidiary of First Tennessee National Corporation ("FTNC"), has committed approximately $20 million towards this line of credit. The Company has also entered into a forward interest rate swap agreement with FTNC for a notional amount of $25 million with a three- month LIBOR fixed leg. One of the Company's directors, Mr. Horn, is Chairman, Chief Executive Officer and President of FTNC. The line of credit was entered into in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions between unrelated parties. The Company's 401(k) is invested in three Longleaf Partners funds. One of the Company's directors, Mr. Hawkins, is the Chairman and Chief Executive Officer of Southeastern Asset Management, Inc, which serves as the investment advisor for Longleaf Partners Funds Trust. Mr. Hawkins is also a director of Longleaf Partners Funds Trust. The performance of the 401(k) is routinely reviewed by the trustees of the plan in conjunction with the plan's independent administrative consultants. The investments were entered into in the ordinary course of business on substantially the F-19 same terms, including fees and costs, as those prevailing at the time for comparable transactions between unrelated parties. 12. SEGMENT INFORMATION At December 31, 2001, the Company owned or had an ownership interest in 122 multifamily apartment communities, including the 10 apartment communities owned by the Joint Venture, in 12 different states from which it derives all significant sources of earnings and operating cash flows. The Company's operational structure is organized on a decentralized basis, with individual property managers having overall responsibility and authority regarding the operations of their respective properties. Each property manager individually monitors local and area trends in rental rates, occupancy percentages, and operating costs. Property managers are given the on-site responsibility and discretion to react to such trends in the best interest of the Company. The Company's chief operating decision maker evaluates the performance of each individual property based on its contribution to net operating income in order to ensure that the individual property continues to meet the Company's return criteria and long term investment goals. The Company defines each of its multifamily communities as an individual operating segment. It has also determined that all of its communities have similar economic characteristics and also meet the other criteria which permit the communities to be aggregated into one reportable segment, which is acquisition, development, and operation of the multifamily communities owned. The revenues, net operating income, assets and real estate investment capital expenditures for the aggregated multifamily segment are summarized as follows for the years ended as of December 31, 2001, 2000 and 1999 (Dollars in 000's): For purposes of this disclosure, multifamily revenues, net operating income and real estate assets include amounts related to the 10 properties owned by the unconsolidated Joint Venture. F-20

2001 2000 1999 ---------- ---------- -------- Multifamily rental revenues................................. $ 242,189 $ 237,330 $233,442 Other multifamily revenues.................................. 3,008 3,670 2,116 ---------- ---------- -------- Segment revenues.......................................... 245,197 241,000 235,558 Reconciling items to consolidated revenues: Joint Venture revenues.................................... (18,927) (18,468) (11,344) Interest income and other revenues........................ 1,310 1,526 1,388 Management and development income, net.................... 755 739 751 Equity in loss of real estate joint venture............... (296) (157) (31) ---------- ---------- -------- Total revenues.......................................... $ 228,039 $ 224,640 $226,322 ========== ========== ======== Multifamily net operating income............................ 152,171 149,288 145,874 Reconciling items to net income: Joint Venture net operating income........................ (10,485) (10,202) (6,545) Interest income and other revenues........................ 1,310 1,526 1,388 Management and development income, net.................... 755 739 751 Equity in loss of real estate joint venture............... (296) (157) (31) Depreciation and amortization............................. (52,051) (51,844) (49,903) Property management expenses.............................. (10,204) (9,509) (9,360) General and administrative expenses....................... (5,879) (5,317) (5,119) Interest expense.......................................... (52,598) (50,736) (48,302) Amortization of deferred financing costs.................. (2,352) (2,758) (2,854) Gain on dispositions, net................................. 11,933 11,587 10,237 Extraordinary items--loss on early extinguishment of debt.................................................... (1,033) (204) (67) Minority interest in operating partnership income......... (2,573) (2,626) (2,497) Dividends on preferred shares............................. (16,113) (16,114) (16,114) ---------- ---------- -------- Net income available for common shareholders............ $ 12,585 $ 13,673 $ 17,458 ========== ========== ========

2001 2000 ---------- ---------- ASSETS: Multifamily real estate assets.............................. $1,537,625 $1,516,096 Accumulated depreciation--multifamily assets................ (239,586) (189,516) ---------- ---------- 1,298,039 1,326,580 Reconciling items to total assets: Joint Venture multifamily real estate assets, net......... 94,427 96,145 Land held for future development.......................... 1,366 1,366 Commercial properties, net................................ 4,910 5,044 Investment in and advances to real estate joint venture... 7,045 7,630 Cash and restricted cash.................................. 23,432 33,567 Other assets.............................................. 23,123 25,729 ---------- ---------- Total Assets............................................ $1,263,488 $1,303,771 ========== ==========

2001 2000 1999 ---------- ---------- -------- Multifamily expenditures for property improvements, acquisitions and construction............................. $ 37,953 $ 96,674 $107,508 Less reconciling items: Joint Venture property improvements....................... (2,091) (1,458) (1,568) ---------- ---------- -------- Total expenditures for property improvements, acquisitions and construction......................... $ 35,862 $ 95,216 $105,940 ========== ========== ========

13. SUBSEQUENT EVENT DECLARATION OF DIVIDEND The Company declared a 2001 fourth quarter common stock dividend of $0.585 per share in January 2002 to be paid January 31, 2002 to holders of record on January 24, 2002. F-21 14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) MID-AMERICA APARTMENT COMMUNITIES, INC. QUARTERLY FINANCIAL DATA (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31, 2001 ----------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- Total revenues.......................................... $56,611 $58,107 $57,177 $56,144 Income before minority interest in operating partnership income and extraordinary items........................ $ 4,963 $ 5,194 $15,126 $ 7,021 Minority interest in operating partnership income....... $ 102 $ 149 $ 1,853 $ 469 Extraordinary items, net of minority interest........... $ -- $ (443) $ (183) $ (407) Net income available for common shareholders............ $ 833 $ 573 $ 9,062 $ 2,117 Per share: Basic and diluted: Net income available per common shares Before extraordinary items............................ $ 0.05 $ 0.06 $ 0.53 $ 0.14 Extraordinary items................................... -- (0.03) (0.01) (0.02) ------- ------- ------- ------- Net income available per common share................. $ 0.05 $ 0.03 $ 0.52 $ 0.12 ======= ======= ======= ======= Dividend declared....................................... $ 0.585 $ 0.585 $ 0.585 $ 0.585

YEAR ENDED DECEMBER 31, 2000 ----------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- Total revenues.......................................... $55,408 $55,601 $56,937 $56,694 Income before minority interest in operating partnership income and extraordinary items........................ $ 7,912 $12,195 $ 5,964 $ 6,546 Minority interest in operating partnership income....... $ 540 $ 1,403 $ 337 $ 346 Extraordinary items, net of minority interest........... $ (56) $ (148) $ -- $ -- Net income available for common shareholders............ $ 3,286 $ 6,615 $ 1,599 $ 2,173 Per share: Basic and diluted: Net income available per common shares Before extraordinary items............................ $ 0.19 $ 0.38 $ 0.09 $ 0.13 Extraordinary items................................... -- (0.01) -- -- ------- ------- ------- ------- Net income available per common share................. $ 0.19 $ 0.37 $ 0.09 $ 0.13 ======= ======= ======= ======= Dividend declared....................................... $ 0.580 $ 0.580 $ 0.580 $ 0.585

F-22 MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2001 (DOLLARS IN THOUSANDS)

COST CAPITALIZED SUBSEQUENT TO INITIAL COST ACQUISITION --------------------- -------------------- BUILDINGS BUILDINGS AND AND PROPERTY LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES ------------------------------ ---------------------- -------------- -------- ---------- -------- --------- Completed Properties Eagle Ridge................... Birmingham, AL $ --(1) $ 851 $ 7,667 $ -- $ 737 Abbington Place............... Huntsville, AL --(1) 524 4,724 -- 861 Paddock Club--Huntsville I.... Huntsville, AL --(1) 830 7,470 -- 648 Paddock Huntsville, AL Club--Huntsville II......... --(1) 909 10,152 -- 99 Paddock Club Montgomery, AL Montgomery I&II............. --(1) 965 13,190 -- 382 Calais Forest................. Little Rock, AR --(1) 1,026 9,244 -- 1,878 Napa Valley................... Little Rock, AR --(2) 960 8,642 -- 1,079 Westside Creek I.............. Little Rock, AR --(2) 616 5,559 -- 702 Westside Creek II............. Little Rock, AR 4,776 654 5,904 -- 331 Tiffany Oaks.................. Altamonte Springs, FL --(2) 1,024 9,219 -- 1,510 Marsh Oaks.................... Atlantic Beach, FL --(2) 244 2,829 -- 774 Indigo Point.................. Brandon, FL --(3) 1,167 10,500 -- 886 Paddock Club--Brandon Brandon, FL I & II...................... --(1) 2,896 26,111 -- 259 Anatole....................... Daytona Beach, FL 7,000 1,227 5,879 -- 842 Paddock Club--Gainsville...... Gainsville, FL --(1) 1,800 15,879 -- 38 Cooper's Hawk................. Jacksonville, FL --(5) 854 7,500 -- 1,054 Hunter's Ridge at Deerwood.... Jacksonville, FL --(6) 1,533 13,835 -- 706 Lakeside...................... Jacksonville, FL --(2) 1,431 12,883 (1) 3,616 Paddock Club-- Jacksonville, FL Jacksonville I,II&III....... --(7) 2,294 20,750 (2) 640 Paddock Club--Mandarin........ Jacksonville, FL --(1) 1,410 14,967 -- 250 St. Augustine................. Jacksonville, FL --(5) 2,858 6,475 (1) 2,487 Woodbridge at the Lake........ Jacksonville, FL --(1) 645 5,804 -- 1,568 Woodhollow.................... Jacksonville, FL 9,359 1,686 15,179 -- 2,207 Paddock Club--Lakeland........ Lakeland, FL --(7) 2,254 20,452 -- 1,523 Savannahs at James Landing.... Melbourne, FL --(5) 582 7,868 -- 1,843 Paddock Park--Ocala I......... Ocala, FL 6,805 901 8,177 -- 1,089 Paddock Park--Ocala II........ Ocala, FL --(1) 1,383 12,547 -- 661 Paddock Club--Panama City..... Panama City, FL --(1) 898 14,276 -- 67

GROSS AMOUNT CARRIED AT DECEMBER 31, LIFE USED TO 2001(10) COMPUTE --------------------- DEPRECIATION BUILDINGS IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(9) ------------------------------ -------- ---------- ---------- ------------- ---------- ------------- ------------ Completed Properties Eagle Ridge................... $ 851 $ 8,404 $ 9,255 $ (1,143) $ 8,112 1986 5 - 40 Abbington Place............... 524 5,585 6,109 (844) 5,265 1987 5 - 40 Paddock Club--Huntsville I.... 830 8,118 8,948 (1,050) 7,898 1989 5 - 40 Paddock Club--Huntsville II......... 909 10,251 11,160 (1,136) 10,024 1998 5 - 40 Paddock Club Montgomery I&II............. 965 13,572 14,537 (1,211) 13,326 1999 5 - 40 Calais Forest................. 1,026 11,122 12,148 (2,925) 9,223 1987 5 - 40 Napa Valley................... 960 9,721 10,681 (1,881) 8,800 1984 5 - 40 Westside Creek I.............. 616 6,261 6,877 (1,113) 5,764 1984 5 - 40 Westside Creek II............. 654 6,235 6,889 (988) 5,901 1986 5 - 40 Tiffany Oaks.................. 1,024 10,729 11,753 (2,054) 9,699 1985 5 - 40 Marsh Oaks.................... 244 3,603 3,847 (987) 2,860 1986 5 - 40 Indigo Point.................. 1,167 11,386 12,553 (650) 11,903 1989 5 - 40 Paddock Club--Brandon I & II...................... 2,896 26,370 29,266 (3,417) 25,849 1997/99 5 - 40 Anatole....................... 1,227 6,721 7,948 (1,702) 6,246 1986 5 - 40 Paddock Club--Gainsville...... 1,800 15,917 17,717 (1,279) 16,438 1999 5 - 40 Cooper's Hawk................. 854 8,554 9,408 (2,190) 7,218 1987 5 - 40 Hunter's Ridge at Deerwood.... 1,533 14,541 16,074 (1,954) 14,120 1987 5 - 40 Lakeside...................... 1,430 16,499 17,929 (3,947) 13,982 1985 5 - 40 Paddock Club-- Jacksonville I,II&III....... 2,292 21,390 23,682 (2,934) 20,748 1989/96 5 - 40 Paddock Club--Mandarin........ 1,410 15,217 16,627 (1,464) 15,163 1998 5 - 40 St. Augustine................. 2,857 8,962 11,819 (2,711) 9,108 1987 5 - 40 Woodbridge at the Lake........ 645 7,372 8,017 (1,973) 6,044 1985 5 - 40 Woodhollow.................... 1,686 17,386 19,072 (3,281) 15,791 1986 5 - 40 Paddock Club--Lakeland........ 2,254 21,975 24,229 (3,309) 20,920 1988/90 5 - 40 Savannahs at James Landing.... 582 9,711 10,293 (2,410) 7,883 1990 5 - 40 Paddock Park--Ocala I......... 901 9,266 10,167 (1,439) 8,728 1986 5 - 40 Paddock Park--Ocala II........ 1,383 13,208 14,591 (2,039) 12,552 1988 5 - 40 Paddock Club--Panama City..... 898 14,343 15,241 (1,761) 13,480 2000 5 - 40

F-23

COST CAPITALIZED SUBSEQUENT TO INITIAL COST ACQUISITION --------------------- -------------------- BUILDINGS BUILDINGS AND AND PROPERTY LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES ------------------------------ ---------------------- -------------- -------- ---------- -------- --------- Paddock Tallahassee, FL Club--Tallahassee I......... --(1) 950 8,550 -- 356 Paddock Tallahassee, FL Club--Tallahassee II........ --(1) 530 4,805 -- 156 Belmere....................... Tampa, FL --(2) 851 7,667 1 2,005 Links at Carrollwood.......... Tampa, FL 5,502 817 7,355 110 2,395 High Ridge.................... Athens, GA --(2) 884 7,958 -- 444 Bradford Pointe............... Augusta, GA 4,760 772 6,949 -- 718 Shenandoah Ridge.............. Augusta, GA --(2) 650 5,850 8 2,210 Westbury Creek................ Augusta, GA 3,019 400 3,626 -- 507 Fountain Lake................. Brunswick, GA -- 502 4,551 -- 943 Park Walk..................... College Park, GA 3,235 536 4,859 -- 387 Whisperwood Spa and Club...... Columbus, GA --(1) 4,290 42,722 (4) 3,434 Willow Creek.................. Columbus, GA --(2) 614 5,523 -- 1,126 Terraces at Fieldstone........ Conyers, GA --(1) 1,284 15,819 -- 70 Whispering Pines.............. LaGrange, GA 2,390 824 7,470 -- 784 Westbury Springs.............. Lilburn, GA --(1) 665 6,038 -- 584 Austin Chase.................. Macon, GA --(6) 1,409 12,687 -- (183) The Vistas.................... Macon, GA 3,885 595 5,403 -- 562 Georgetown Grove.............. Savannah, GA 10,358 1,288 11,579 -- 387 Island Retreat................ St. Simons Island, GA 3,243 510 4,594 -- 611 Wildwood I.................... Thomasville, GA --(1) 438 3,971 -- 401 Wildwood II................... Thomasville, GA 1,916 372 3,372 -- 204 Hidden Lake I................. Union City, GA 4,310 675 6,128 -- 796 Hidden Lake II................ Union City, GA --(2) 621 5,587 -- 250 Three Oaks I.................. Valdosta, GA --(1) 462 4,188 -- 609 Three Oaks II................. Valdosta, GA 2,780 460 4,170 -- 300 Huntington Chase.............. Warner Robins, GA 9,397 1,160 10,437 -- 351 Southland Station I........... Warner Robins, GA --(2) 777 6,992 -- 799 Southland Station II.......... Warner Robins, GA --(1) 693 6,292 -- 404 Terraces at Towne Lake........ Woodstock, GA 14,997 1,689 15,321 -- 288 Terraces at Towne Lake II..... Woodstock, GA --(1) 1,331 11,918 -- 29 Fairways at Hartland.......... Bowling Green, KY --(1) 1,038 9,342 -- 1,113 Paddock Club Florence......... Florence, KY 9,502 1,209 10,969 -- 528 Lakepointe.................... Lexington, KY --(2) 411 3,699 -- 792 Mansion, The.................. Lexington, KY --(1) 694 6,242 -- 1,232 Village, The.................. Lexington, KY --(2) 900 8,097 -- 1,366 Stonemill Village............. Louisville, KY --(1) 1,169 10,518 -- 2,274 Riverhills.................... Grenada, MS --(1) 153 2,092 -- 546 Crosswinds.................... Jackson, MS --(2) 1,535 13,826 -- 1,489 Pear Orchard.................. Jackson, MS --(2) 1,352 12,168 (1) 1,984 Reflection Pointe............. Jackson, MS 5,880 710 8,770 140 2,859 Somerset...................... Jackson, MS --(2) 477 4,294 -- 845

GROSS AMOUNT CARRIED AT DECEMBER 31, LIFE USED TO 2001(10) COMPUTE --------------------- DEPRECIATION BUILDINGS IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(9) ------------------------------ -------- ---------- ---------- ------------- ---------- ------------- ------------ Paddock Club--Tallahassee I......... 950 8,906 9,856 (1,359) 8,497 1990 5 - 40 Paddock Club--Tallahassee II........ 530 4,961 5,491 (727) 4,764 1995 5 - 40 Belmere....................... 852 9,672 10,524 (2,559) 7,965 1984 5 - 40 Links at Carrollwood.......... 927 9,750 10,677 (1,142) 9,535 1980 5 - 40 High Ridge.................... 884 8,402 9,286 (1,267) 8,019 1987 5 - 40 Bradford Pointe............... 772 7,667 8,439 (1,150) 7,289 1986 5 - 40 Shenandoah Ridge.............. 658 8,060 8,718 (2,314) 6,404 1975/84 5 - 40 Westbury Creek................ 400 4,133 4,533 (652) 3,881 1984 5 - 40 Fountain Lake................. 502 5,494 5,996 (917) 5,079 1983 5 - 40 Park Walk..................... 536 5,246 5,782 (800) 4,982 1985 5 - 40 Whisperwood Spa and Club...... 4,286 46,156 50,442 (6,508) 43,934 1980/86/88/98 5 - 40 Willow Creek.................. 614 6,649 7,263 (1,063) 6,200 1968/78 5 - 40 Terraces at Fieldstone........ 1,284 15,889 17,173 (1,363) 15,810 1999 5 - 40 Whispering Pines.............. 824 8,254 9,078 (1,301) 7,777 1982/84 5 - 40 Westbury Springs.............. 665 6,622 7,287 (991) 6,296 1983 5 - 40 Austin Chase.................. 1,409 12,504 13,913 (1,403) 12,510 1996 5 - 40 The Vistas.................... 595 5,965 6,560 (908) 5,652 1985 5 - 40 Georgetown Grove.............. 1,288 11,966 13,254 (1,542) 11,712 1997 5 - 40 Island Retreat................ 510 5,205 5,715 (622) 5,093 1978 5 - 40 Wildwood I.................... 438 4,372 4,810 (668) 4,142 1980 5 - 40 Wildwood II................... 372 3,576 3,948 (555) 3,393 1984 5 - 40 Hidden Lake I................. 675 6,924 7,599 (1,021) 6,578 1985 5 - 40 Hidden Lake II................ 621 5,837 6,458 (881) 5,577 1987 5 - 40 Three Oaks I.................. 462 4,797 5,259 (798) 4,461 1983 5 - 40 Three Oaks II................. 460 4,470 4,930 (650) 4,280 1984 5 - 40 Huntington Chase.............. 1,160 10,788 11,948 (626) 11,322 1997 5 - 40 Southland Station I........... 777 7,791 8,568 (1,231) 7,337 1987 5 - 40 Southland Station II.......... 693 6,696 7,389 (1,015) 6,374 1990 5 - 40 Terraces at Towne Lake........ 1,689 15,609 17,298 (2,225) 15,073 1998 5 - 40 Terraces at Towne Lake II..... 1,331 11,947 13,278 (1,036) 12,242 1999 5 - 40 Fairways at Hartland.......... 1,038 10,455 11,493 (1,752) 9,741 1996 5 - 40 Paddock Club Florence......... 1,209 11,497 12,706 (1,679) 11,027 1994 5 - 40 Lakepointe.................... 411 4,491 4,902 (1,235) 3,667 1986 5 - 40 Mansion, The.................. 694 7,474 8,168 (1,949) 6,219 1989 5 - 40 Village, The.................. 900 9,463 10,363 (2,600) 7,763 1987 5 - 40 Stonemill Village............. 1,169 12,792 13,961 (3,540) 10,421 1985 5 - 40 Riverhills.................... 153 2,638 2,791 (976) 1,815 1972 5 - 40 Crosswinds.................... 1,535 15,315 16,850 (3,198) 13,652 1988/89 5 - 40 Pear Orchard.................. 1,351 14,152 15,503 (3,909) 11,594 1985 5 - 40 Reflection Pointe............. 850 11,629 12,479 (2,979) 9,500 1986 5 - 40 Somerset...................... 477 5,139 5,616 (1,392) 4,224 1980 5 - 40

F-24

COST CAPITALIZED SUBSEQUENT TO INITIAL COST ACQUISITION --------------------- -------------------- BUILDINGS BUILDINGS AND AND PROPERTY LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES ------------------------------ ---------------------- -------------- -------- ---------- -------- --------- Woodridge..................... Jackson, MS 4,549 471 5,522 -- 610 Hermitage at Beechtree........ Cary, NC --(2) 900 8,099 -- 1,060 Corners, The.................. Winston-Salem. NC 3,818 685 6,165 -- 939 Fairways at Royal Oak......... Cincinnati, OH --(2) 814 7,335 -- 1,121 Woodwinds..................... Aiken, SC 3,387 503 4,540 -- 537 Tanglewood.................... Anderson, SC 2,216 427 3,853 -- 945 Paddock Club--Columbia........ Columbia, SC --(1) 1,840 16,560 -- 760 The Fairways.................. Columbia, SC 7,735 910 8,207 -- 447 Highland Ridge................ Greenville, SC --(8) 482 4,337 -- 562 Howell Commons................ Greenville, SC --(2) 1,304 11,740 -- 841 Paddock Club--Greenville...... Greenville, SC --(1) 1,200 10,800 -- 434 Park Haywood.................. Greenville, SC --(2) 325 2,925 35 2,867 Spring Creek.................. Greenville, SC --(8) 597 5,374 -- 806 Runaway Bay................... Mt. Pleasant, SC --(8) 1,085 7,269 -- 1,073 Park Place.................... Spartanburg, SC --(2) 723 6,504 -- 1,005 Steeplechase.................. Chattanooga, TN --(2) 217 1,957 -- 1,457 Windridge..................... Chattanooga, TN 5,202 817 7,416 -- 629 Oaks, The..................... Jackson, TN --(1) 177 1,594 -- 855 Post House Jackson............ Jackson, TN 4,949 443 5,078 -- 1,034 Post House North.............. Jackson, TN 3,375 381 4,299 (57) 1,130 Williamsburg Village.......... Jackson, TN --(2) 523 4,711 -- 740 Woods at Post House........... Jackson, TN 5,189 240 6,839 -- 773 Crossings..................... Memphis, TN -- 554 2,216 -- 867 Eastview...................... Memphis, TN 11,481 700 9,646 -- 2,175 Gleneagles.................... Memphis, TN --(1) 443 3,983 -- 2,129 Greenbrook.................... Memphis, TN --(3) 2,100 24,468 25 12,831 Hickory Farm.................. Memphis, TN --(1) 580 5,220 (19) 1,134 Kirby Station................. Memphis, TN --(2) 1,148 10,337 -- 2,692 Lincoln on the Green.......... Memphis, TN --(7) 1,498 20,483 -- 8,544 Park Estate................... Memphis, TN --(3) 178 1,141 -- 2,640 Reserve at Dexter Lake I...... Memphis, TN --(4) 1,260 16,043 -- 44 River Trace I................. Memphis, TN --(1) 881 7,996 -- 1,254 River Trace II................ Memphis, TN 5,407 741 6,727 -- 426 Savannah Creek................ Memphis, TN --(2) 778 7,013 -- 948 Sutton Place.................. Memphis, TN --(2) 894 8,053 -- 1,211 Paddock Club--Murfreesboro.... Murfreesboro, TN --(1) 915 14,774 -- 60 Brentwood Downs............... Nashville, TN --(1) 1,193 10,739 -- 1,029 Park at Hermitage............. Nashville, TN 7,300 1,524 14,800 -- 2,148 Balcones Woods................ Austin, TX --(1) 1,598 14,398 -- 1,951 Stassney Woods................ Austin, TX 4,340 1,621 7,501 -- 1,912 Travis Station................ Austin, TX 3,835 2,282 6,169 (1) 1,468

GROSS AMOUNT CARRIED AT DECEMBER 31, LIFE USED TO 2001(10) COMPUTE --------------------- DEPRECIATION BUILDINGS IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(9) ------------------------------ -------- ---------- ---------- ------------- ---------- ------------- ------------ Woodridge..................... 471 6,132 6,603 (1,584) 5,019 1987 5 - 40 Hermitage at Beechtree........ 900 9,159 10,059 (1,473) 8,586 1988 5 - 40 Corners, The.................. 685 7,104 7,789 (2,022) 5,767 1982 5 - 40 Fairways at Royal Oak......... 814 8,456 9,270 (2,258) 7,012 1988 5 - 40 Woodwinds..................... 503 5,077 5,580 (822) 4,758 1988 5 - 40 Tanglewood.................... 427 4,798 5,225 (1,305) 3,920 1980 5 - 40 Paddock Club--Columbia........ 1,840 17,320 19,160 (2,549) 16,611 1989/95 5 - 40 The Fairways.................. 910 8,654 9,564 (2,275) 7,289 1992 5 - 40 Highland Ridge................ 482 4,899 5,381 (1,139) 4,242 1984 5 - 40 Howell Commons................ 1,304 12,581 13,885 (2,305) 11,580 1986/88 5 - 40 Paddock Club--Greenville...... 1,200 11,234 12,434 (1,666) 10,768 1996 5 - 40 Park Haywood.................. 360 5,792 6,152 (1,481) 4,671 1983 5 - 40 Spring Creek.................. 597 6,180 6,777 (1,441) 5,336 1985 5 - 40 Runaway Bay................... 1,085 8,342 9,427 (2,062) 7,365 1988 5 - 40 Park Place.................... 723 7,509 8,232 (1,194) 7,038 1987 5 - 40 Steeplechase.................. 217 3,414 3,631 (1,118) 2,513 1986 5 - 40 Windridge..................... 817 8,045 8,862 (1,177) 7,685 1984 5 - 40 Oaks, The..................... 177 2,449 2,626 (758) 1,868 1978 5 - 40 Post House Jackson............ 443 6,112 6,555 (1,596) 4,959 1987 5 - 40 Post House North.............. 324 5,429 5,753 (1,377) 4,376 1987 5 - 40 Williamsburg Village.......... 523 5,451 5,974 (1,440) 4,534 1987 5 - 40 Woods at Post House........... 240 7,612 7,852 (2,456) 5,396 1997 5 - 40 Crossings..................... 554 3,083 3,637 (1,116) 2,521 1973 5 - 40 Eastview...................... 700 11,821 12,521 (3,991) 8,530 1973 5 - 40 Gleneagles.................... 443 6,112 6,555 (2,750) 3,805 1975 5 - 40 Greenbrook.................... 2,125 37,299 39,424 (10,099) 29,325 1980 5 - 40 Hickory Farm.................. 561 6,354 6,915 (1,723) 5,192 1985 5 - 40 Kirby Station................. 1,148 13,029 14,177 (3,521) 10,656 1978 5 - 40 Lincoln on the Green.......... 1,498 29,027 30,525 (6,340) 24,185 1988/98 5 - 40 Park Estate................... 178 3,781 3,959 (1,192) 2,767 1974 5 - 40 Reserve at Dexter Lake I...... 1,260 16,087 17,347 (1,048) 16,299 1999 5 - 40 River Trace I................. 881 9,250 10,131 (1,438) 8,693 1981 5 - 40 River Trace II................ 741 7,153 7,894 (1,096) 6,798 1985 5 - 40 Savannah Creek................ 778 7,961 8,739 (1,658) 7,081 1989 5 - 40 Sutton Place.................. 894 9,264 10,158 (1,962) 8,196 1991 5 - 40 Paddock Club--Murfreesboro.... 915 14,834 15,749 (1,171) 14,578 1999 5 - 40 Brentwood Downs............... 1,193 11,768 12,961 (3,223) 9,738 1986 5 - 40 Park at Hermitage............. 1,524 16,948 18,472 (4,182) 14,290 1987 5 - 40 Balcones Woods................ 1,598 16,349 17,947 (3,064) 14,883 1983 5 - 40 Stassney Woods................ 1,621 9,413 11,034 (2,392) 8,642 1985 5 - 40 Travis Station................ 2,281 7,637 9,918 (1,877) 8,041 1987 5 - 40

F-25

COST CAPITALIZED SUBSEQUENT TO INITIAL COST ACQUISITION --------------------- -------------------- BUILDINGS BUILDINGS AND AND PROPERTY LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES ------------------------------ ---------------------- -------------- -------- ---------- -------- --------- Celery Stalk.................. Dallas, TX 8,460 1,463 13,165 (1) 2,821 Courtyards at Campbell........ Dallas, TX --(1) 988 8,893 -- 939 Deer Run...................... Dallas, TX --(1) 1,252 11,271 -- 1,212 Lodge at Timberglen........... Dallas, TX 4,740 825 7,422 (1) 2,170 Kenwood Club.................. Katy, TX --(1) 1,002 17,288 -- -- Westborough Crossing.......... Katy, TX 3,958 677 6,091 (1) 1,122 Highwood...................... Plano, TX --(3) 864 7,783 -- 910 Cypresswood Court............. Spring, TX 3,330 577 5,190 (1) 1,190 Green Tree Place.............. Woodlands, TX 3,180 539 4,850 -- 948 Township...................... Hampton, VA 10,800 1,509 8,189 -- 2,635 -------- -------- ---------- ---- -------- TOTAL COMPLETED PROPERTIES................ $220,360 $116,767 $1,069,053 $229 $145,727 -------- -------- ---------- ---- -------- CONSTRUCTION OF UNITS IN LEASE-UP Reserve at Dexter Lake Memphis, TN Phase II.................... --(4) 951 15,827 -- (171) Reserve at Dexter Lake Katy, TX Phase III................... $ --(4) $ 2,059 $ 12,994 $ -- $ -- Grand Reserve Lexington....... Lexington, KY --(4) 2,024 30,870 -- -- Grand View Nashville.......... Nashville, TN --(4) 2,963 33,348 -- 884 -------- -------- ---------- ---- -------- TOTAL CONSTRUCTION OF UNITS IN LEASE-UP............... $ -- $ 7,997 $ 93,039 $ -- $ 713 -------- -------- ---------- ---- -------- TOTAL PROPERTIES.......... $220,360 $124,764 $1,162,092 $229 $146,440 -------- -------- ---------- ---- -------- LAND HELD FOR FUTURE Various DEVELOPMENTS................ $ -- $ 1,366 $ -- $ -- COMMERCIAL PROPERTIES......... Various 300 2,769 -- 4,092 -------- -------- ---------- ---- -------- TOTAL OTHER................. $ -- $ 300 $ 4,135 $ -- $ 4,092 -------- -------- ---------- ---- -------- TOTAL REAL ESTATE ASSETS.................. $220,360 $125,064 $1,166,227 $229 $150,532 ======== ======== ========== ==== ========

GROSS AMOUNT CARRIED AT DECEMBER 31, LIFE USED TO 2001(10) COMPUTE --------------------- DEPRECIATION BUILDINGS IN LATEST AND ACCUMULATED DATE OF INCOME PROPERTY LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT(9) ------------------------------ -------- ---------- ---------- ------------- ---------- ------------- ------------ Celery Stalk.................. 1,462 15,986 17,448 (4,346) 13,102 1978 5 - 40 Courtyards at Campbell........ 988 9,832 10,820 (1,232) 9,588 1986 5 - 40 Deer Run...................... 1,252 12,483 13,735 (1,649) 12,086 1985 5 - 40 Lodge at Timberglen........... 824 9,592 10,416 (2,692) 7,724 1983 5 - 40 Kenwood Club.................. 1,002 17,288 18,290 (951) 17,339 2000 5 - 40 Westborough Crossing.......... 676 7,213 7,889 (1,960) 5,929 1984 5 - 40 Highwood...................... 864 8,693 9,557 (1,158) 8,399 1983 5 - 40 Cypresswood Court............. 576 6,380 6,956 (1,735) 5,221 1984 5 - 40 Green Tree Place.............. 539 5,798 6,337 (1,585) 4,752 1984 5 - 40 Township...................... 1,509 10,824 12,333 (1,801) 10,532 1987 5 - 40 -------- ---------- ---------- --------- ---------- TOTAL COMPLETED PROPERTIES................ $116,996 $1,214,780 $1,331,776 $(226,745) $1,105,031 -------- ---------- ---------- --------- ---------- CONSTRUCTION OF UNITS IN LEASE-UP Reserve at Dexter Lake Phase II.................... 951 15,656 16,607 (632) 15,975 2000 5 - 40 Reserve at Dexter Lake Phase III................... $ 2,059 $ 12,994 $ 15,053 $ (48) $ 15,005 2001 5 - 40 Grand Reserve Lexington....... 2,024 30,870 32,894 (1,607) 31,287 2000 5 - 40 Grand View Nashville.......... 2,963 34,232 37,195 (881) 36,314 2001 5 - 40 -------- ---------- ---------- --------- ---------- TOTAL CONSTRUCTION OF UNITS IN LEASE-UP............... $ 7,997 $ 93,752 $ 101,749 $ (3,168) $ 98,581 -------- ---------- ---------- --------- ---------- TOTAL PROPERTIES.......... $124,993 $1,308,532 $1,433,525 $(229,913) $1,203,612 -------- ---------- ---------- --------- ---------- LAND HELD FOR FUTURE DEVELOPMENTS................ $ -- $ 1,366 $ 1,366 $ -- $ 1,366 N/A N/A COMMERCIAL PROPERTIES......... 300 6,861 7,161 (2,251) 4,910 Various 5 - 40 -------- ---------- ---------- --------- ---------- TOTAL OTHER................. $ 300 $ 8,227 $ 8,527 $ (2,251) $ 6,276 -------- ---------- ---------- --------- ---------- TOTAL REAL ESTATE ASSETS.................. $125,293 $1,316,759 $1,442,052 $(232,164) $1,209,888 ======== ========== ========== ========= ==========

---------------------------------------- (1) Encumbered by the FNMA Facility, with an outstanding balance of $81.7 million with a variable interest rate of 2.782%, $65 million with a fixed rate of 7.712%, $25 million with a fixed rate of 6.920%, $20 million with a fixed rate of 5.770% and four interest rate swap agreements all for $25 million at 7.4125%, 7.390%, 6.195% and 6.330% at December 31, 2001. (2) Encumbered by a $142 million bond with a maturity of March 3, 2003 and an average interest rate of 6.376% (3) Encumbered, along with one corporate property, by a $35.1 million mortgage with a maturity of October 1, 2006 and an interest rate of 6.05% (4) Encumbered by the AmSouth Credit Line, with no outstanding balance at December 31, 2001,with a variable interest rate of 3.23125%. (5) Encumbered by a $15.2 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.750% (6) Encumbered by a $13.5 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.281% (7) Encumbered by a $47.5 million mortgage with a maturity of December 15, 2004 and an interest rate of 6.040% (8) Encumbered by a $9.4 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.090% (9) Depreciation is on a straight line basis over the estimated useful asset life which ranges from 8 to 40 years for land improvements and buildings and 5 years for furniture, fixtures and equipment. (10) The aggregate cost for Federal income tax purposes was approximately $1,482 million at December 31, 2001. The total gross amount of real estate assets for book purposes exceeds the aggregate cost for Federal income tax purposes, principally due to purchase accounting adjustments recorded under accounting principles generally accepted in the United States of America. F-26 MID-AMERICA APARTMENT COMMUNITIES, INC. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION A summary of activity for real estate investments and accumulated depreciation is as follows:

YEAR ENDED DECEMBER 31, ------------------------------------ 2001 2000 1999 ---------- ---------- ---------- DOLLARS IN THOUSANDS Real estate investments: Balance at beginning of year........................... $1,430,378 $1,396,743 $1,434,733 Acquisitions........................................... -- 24,358 -- Improvement and development............................ 35,862 70,858 105,940 Disposition of real estate assets...................... (15,935) (61,157) (152,015) Investment in and advances to real estate joint venture.............................................. (585) (424) 8,085 ---------- ---------- ---------- Balance at end of year............................... $1,449,720 $1,430,378 $1,396,743 ========== ========== ========== Accumulated depreciation: Balance at beginning of year........................... $ 183,652 $ 146,611 $ 117,773 Depreciation........................................... 52,273 50,985 48,687 Disposition of real estate assets...................... (6,012) (13,944) (19,849) ---------- ---------- ---------- Balance at end of year............................... $ 229,913 $ 183,652 $ 146,611 ========== ========== ==========

The Company's consolidated balance sheet at December 31, 2001 includes accumulated depreciation of $2,874 in the caption "Commercial properties, net". See accompanying independent auditors' report. F-27 [LOGO OF MID-AMERICA APARTMENT COMMUNITIES]