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Financial Instruments and Derivatives | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Financial Instruments and Derivatives | 7. Financial Instruments and Derivatives Financial Instruments Not Carried at Fair Value Cash and cash equivalents, restricted cash and accrued expenses and other liabilities are carried at amounts that reasonably approximate their fair value due to their short term nature. Fixed rate notes payable as of September 30, 2021 and December 31, 2020, totaled $4.5 billion and $4.4 billion, respectively, and had estimated fair values of $4.9 billion and $4.9 billion (excluding prepayment penalties) as of September 30, 2021 and December 31, 2020, respectively. The fair values of fixed rate debt are determined by using the present value of future cash outflows discounted with the applicable current market rate plus a credit spread. The carrying values of variable rate debt as of September 30, 2021 and December 31, 2020, totaled $25.0 million and $172.0 million, respectively, and had estimated fair values of $25.0 million and $172.0 million (excluding prepayment penalties) as of September 30, 2021 and December 31, 2020, respectively. The fair values of variable rate debt are determined using the stated variable rate plus the current market credit spread. The variable rates reset at various maturities, typically less than 30 days, and management concluded these rates reasonably estimate current market rates. Financial Instruments Measured at Fair Value on a Recurring Basis As of September 30, 2021, the Company had one outstanding series of cumulative redeemable preferred stock, which is referred to as the MAA Series I preferred stock (see Note 8). The Company has recognized a derivative asset related to the redemption feature embedded in the MAA Series I preferred stock. The derivative asset is valued using widely accepted valuation techniques, including a discounted cash flow analysis in which the perpetual value of the preferred shares is compared to the value of the preferred shares assuming the call option is exercised, with the value of the bifurcated call option as the difference between the two values. The analysis reflects the contractual terms of the redeemable preferred shares, which are redeemable at the Company’s option beginning on October 1, 2026 at the redemption price of $50.00 per share. The Company uses various inputs in the analysis, including trading data available on the preferred shares, coupon yields on preferred stock issuances from REITs with similar credit ratings as MAA and treasury rates to determine the fair value of the bifurcated call option. The redemption feature embedded in the MAA Series I preferred stock is reported as a derivative asset in “Other assets” in the accompanying Condensed Consolidated Balance Sheets and is adjusted to its fair value at each reporting date, with a corresponding non-cash adjustment to “Other non-operating (income) expense” in the accompanying Condensed Consolidated Statements of Operations. As a result of adjustments of non-cash expense recorded to reflect the change in fair value of the derivative asset during the nine months ended September 30, 2021, the fair value of the embedded derivative asset increased to $50.5 million as of September 30, 2021 as compared to $39.0 million as of December 31, 2020. The Company has determined the majority of the inputs used to value its outstanding debt and its embedded derivative fall within Level 2 of the fair value hierarchy, and as a result, the fair value valuation of its debt and embedded derivative held as of September 30, 2021 and December 31, 2020 were classified as Level 2 in the fair value hierarchy. Terminated Cash Flow Hedges of Interest As of September 30, 2021, the Company had $11.7 million recorded in “Accumulated other comprehensive loss” related to realized losses associated with terminated interest rate swaps that were designated as cash flow hedging instruments prior to their termination. The realized losses associated with the terminated interest rate swaps are reclassified to interest expense as interest payments are made on the Company’s debt and will continue to be reclassified to interest expense until the debt’s maturity. During the next twelve months, the Company estimates an additional $1.1 million will be reclassified to earnings as an increase to “Interest expense”. Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations The tables below present the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):
Derivatives in Cash Flow Hedging Relationships |  | Location of Loss Reclassified |  | Net Loss Reclassified from Accumulated OCL into Interest Expense(1) |
Three months ended September 30, |  | from Accumulated OCL into Income |  | 2021 |  |  | 2020 |
Terminated interest rate swaps |  | Interest expense |  | $ | (278 | ) |  | $ | (279 | )
Nine months ended September 30, |  |  |  |  |  |  |  |
Terminated interest rate swaps |  | Interest expense |  | $ | (835 | ) |  | $ | (810 | )
(1) See the Condensed Consolidated Statements of Comprehensive Income for changes in accumulated other comprehensive loss as these changes are presented net of the allocation to noncontrolling interests.
Derivative Not Designated as Hedging Instrument |  | Location of Gain (Loss) Recognized |  | Gain (Loss) Recognized in Earnings on Derivative |
Three months ended September 30, |  | in Income on Derivative |  | 2021 |  |  | 2020 |
Preferred stock embedded derivative |  | Other non-operating (income) expense |  | $ | 13,432 |  |  | $ | 1,342 |
Nine months ended September 30, |  |  |  |  |  |  |  |
Preferred stock embedded derivative |  | Other non-operating (income) expense |  | $ | 11,492 |  |  | $ | (14,603 | )

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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