1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file numbers 1-12080 and 0-28226
------------------------
POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1550675
GEORGIA 58-2053632
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4401 NORTHSIDE PARKWAY, SUITE 800, ATLANTA, GEORGIA 30327
(Address of principal executive offices -- zip code)
(404) 846-5000
(Registrant's telephone number, including area code)
3350 CUMBERLAND CIRCLE, SUITE 2200, ATLANTA, GEORGIA 30339
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrants (1) have 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) have been subject to such
filing requirements for the past 90 days.
Post Properties, Inc. Yes [X] No [ ]
Post Apartment Homes, L.P. Yes [X] No [ ]
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
38,794,776 shares of common stock outstanding as of May 7, 2001
(excluding treasury stock).
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2
POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
POST PROPERTIES, INC.
Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000.................... 1
Consolidated Statements of Operations for the three months ended
March 31, 2001 and 2000................................................................ 2
Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the
three months ended March 31, 2001...................................................... 3
Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000................................................................ 4
Notes to Consolidated Financial Statements................................................ 5
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000.................... 11
Consolidated Statements of Operations for the three months ended
March 31, 2001 and 2000................................................................ 12
Consolidated Statement of Partners' Equity for the three months ended
March 31, 2001......................................................................... 13
Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000................................................................ 14
Notes to Consolidated Financial Statements ............................................... 15
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 21
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................. 32
PART II OTHER INFORMATION............................................................................. 33
ITEM 1 LEGAL PROCEEDINGS
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDER
ITEM 5 OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES.................................................................................... 34
3
POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
(UNAUDITED)
ASSETS
Real estate:
Land .................................................................... $ 264,293 $ 281,525
Building and improvements ............................................... 1,631,019 1,681,798
Furniture, fixtures and equipment ....................................... 193,387 190,968
Construction in progress ................................................ 517,910 509,702
Land held for future development ........................................ 35,873 28,995
----------- -----------
2,642,482 2,692,988
Less: accumulated depreciation .......................................... (349,608) (345,121)
Assets held for sale .................................................... 240,719 122,047
----------- -----------
Real estate assets ........................................................ 2,533,593 2,469,914
Cash and cash equivalents ................................................. 3,026 7,459
Restricted cash ........................................................... 1,276 1,272
Deferred charges, net ..................................................... 21,805 21,700
Other assets .............................................................. 55,378 50,892
----------- -----------
Total assets ............................................................ $ 2,615,078 $ 2,551,237
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable ............................................................. $ 1,289,954 $ 1,213,309
Accrued interest payable .................................................. 18,605 10,751
Dividends and distributions payable ....................................... 34,756 33,933
Accounts payable and accrued expenses ..................................... 65,764 67,136
Security deposits and prepaid rents ....................................... 9,880 9,407
----------- -----------
Total liabilities ....................................................... 1,418,959 1,334,536
----------- -----------
Commitments and contingencies ............................................. -- --
Minority interest of preferred unitholders in Operating Partnership ....... 70,000 70,000
Minority interest of common unitholders in Operating Partnership .......... 115,767 118,091
Shareholders' equity
Preferred stock, $.01 par value, 20,000,000 authorized:
8 1/2% Series A Cumulative Redeemable Shares, liquidation
preference $50 per share, 1,000,000 shares issued and outstanding ..... 10 10
7 5/8% Series B Cumulative Redeemable Shares, liquidation
preference $25 per share, 2,000,000 shares issued and outstanding ..... 20 20
7 5/8% Series C Cumulative Redeemable Shares, liquidation
preference $25 per share, 2,000,000 shares issued and outstanding ..... 20 20
Common stock, $.01 par value, 100,000,000 authorized,
39,676,204 and 39,662,192 shares issued, 38,782,232 and 38,853,596
shares outstanding at March 31, 2001 and December 31, 2000,
respectively .......................................................... 396 396
Additional paid-in capital .............................................. 1,046,244 1,057,067
Accumulated earnings .................................................... -- --
Accumulated other comprehensive income, net of minority interest ........ (4,063) --
----------- -----------
1,042,627 1,057,513
Less common stock in treasury at cost, 893,972 shares ................... (32,275) (28,903)
----------- -----------
Total shareholders' equity .............................................. 1,010,352 1,028,610
----------- -----------
Total liabilities and shareholders' equity .............................. $ 2,615,078 $ 2,551,237
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
- 1 -
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POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2001 2000
------------ ------------
REVENUE:
Rental ......................................................................... $ 94,851 $ 87,825
Property management - third-party .............................................. 1,176 908
Landscape services - third-party ............................................... 2,430 2,102
Interest ....................................................................... 484 539
Other .......................................................................... 3,642 4,066
------------ ------------
Total revenue .............................................................. 102,583 95,440
------------ ------------
EXPENSES:
Property operating and maintenance expense
(exclusive of items shown separately below) ................................. 35,794 30,651
Depreciation expense ........................................................... 17,888 17,005
Property management - third-party .............................................. 937 788
Landscape services - third-party ............................................... 2,263 2,005
Interest ....................................................................... 14,985 10,701
Amortization of deferred loan costs ............................................ 455 385
General and administrative ..................................................... 3,076 2,494
Minority interest in consolidated property partnerships ........................ (281) (555)
------------ ------------
Total expense ............................................................. 75,117 63,474
------------ ------------
Income before net gain on sale of assets, minority interest of unitholders in
Operating Partnership and cumulative effect of accounting change ............... 27,466 31,966
Net gain on sale of assets ....................................................... 111 687
Minority interest of preferred unitholders in Operating Partnership .............. (1,400) (1,400)
Minority interest of common unitholders in Operating Partnership ................. (2,729) (3,320)
------------ ------------
Income before cumulative effect of accounting change ............................. 23,448 27,933
Cumulative effect of accounting change, net of minority interest ................. (613) --
------------ ------------
Net income .............................................................. 22,835 27,933
Dividends to preferred shareholders ..................................... (2,969) (2,969)
------------ ------------
Net income available to common shareholders ............................. $ 19,866 $ 24,964
============ ============
EARNINGS PER COMMON SHARE - BASIC
Income before cumulative effect of accounting change (net of preferred
dividends) ..................................................................... $ 0.53 $ 0.64
Cumulative effect of accounting change, net of minority interest ............... (0.02) --
------------ ------------
Net income available to common shareholders .................................... $ 0.51 $ 0.64
============ ============
Weighted average common shares outstanding ....................................... 38,848,148 39,025,775
============ ============
Earnings per common share - diluted
Income before cumulative effect of accounting change (net of preferred
dividends) ..................................................................... $ 0.53 $ 0.63
Cumulative effect of accounting change, net of minority interest ............... (0.02) --
------------ ------------
Net income available to common shareholders .................................... $ 0.51 $ 0.63
============ ============
Weighted average common shares outstanding - diluted ........................... 39,108,476 39,407,667
============ ============
Dividends declared ............................................................. $ 0.78 $ 0.76
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
- 2 -
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POST PROPERTIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN ACCUMULATED COMPREHENSIVE
SHARES SHARES CAPITAL EARNINGS INCOME
--------- ------ ----------- ----------- -------------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
DECEMBER 31, 2000 ................................ $ 50 $396 $ 1,057,067 $ -- $ --
Proceeds from Employee Stock Purchase Plans .... -- -- (828) -- --
Adjustment for minority interest of
unitholders in Operating Partnership at
dates of capital transactions .................. -- -- 390 -- --
Comprehensive Income:
Net income ..................................... -- -- -- 22,835 --
Net transition adjustment, net of minority
interest ....................................... -- -- -- -- (1,299)
Net change in hedge value, net of minority
interest ....................................... -- -- -- -- (2,764)
Total Comprehensive Income ................. -- -- -- -- --
Treasury stock acquisitions .................... -- -- -- -- --
Dividends to preferred shareholders ............ -- -- -- (2,969) --
Dividends to common shareholders ............... -- -- (10,385) (19,866) --
------- ---- ----------- -------- -------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
MARCH 31, 2001 ................................... $ 50 $396 $ 1,046,244 $ -- $(4,063)
======= ==== =========== ======== =======
TREASURY
STOCK TOTAL
-------- -----------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
DECEMBER 31, 2000 ................................ $(28,903) $ 1,028,610
Proceeds from Employee Stock Purchase Plans .... 8,383 7,555
Adjustment for minority interest of
unitholders in Operating Partnership at
dates of capital transactions .................. -- 390
Comprehensive Income:
Net income ..................................... -- 22,835
Net transition adjustment, net of minority
interest ....................................... -- (1,299)
Net change in hedge value, net of minority
interest ....................................... -- (2,764)
-----------
Total Comprehensive Income ................. 18,772
Treasury stock acquisitions .................... (11,755) (11,755)
Dividends to preferred shareholders ............ -- (2,969)
Dividends to common shareholders ............... -- (30,251)
-------- -----------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
MARCH 31, 2001 ................................... $(32,275) $ 1,010,352
======== ===========
The accompanying notes are an integral
part of these consolidated financial statements.
- 3 -
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POST PROPERTIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................... $ 22,835 $ 27,933
Adjustments to reconcile net income to net cash provided by operating
activities:
Net gain on sale of assets ................................................. (111) (687)
Minority interest of preferred unitholders in Operating Partnership ........ 1,400 1,400
Minority interest of common unitholders in Operating Partnership ........... 2,729 3,320
Minority interest of cumulative accounting change .......................... (82) --
Depreciation ............................................................... 17,888 17,005
Amortization of deferred loan costs ........................................ 455 385
Changes in assets, (increase) decrease in:
Restricted cash ............................................................ (4) (626)
Other assets ............................................................... (6,169) (8,439)
Deferred charges ........................................................... (814) 122
Changes in liabilities, increase (decrease) in:
Accrued interest payable ................................................... 7,854 2,251
Accounts payable and accrued expenses ...................................... (9,523) (574)
Security deposits and prepaid rents ........................................ 473 270
---------- ----------
Net cash provided by operating activities .................................... 36,931 42,360
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets, net of payables .......... (65,165) (81,996)
Net proceeds from sale of assets ............................................. -- 31,432
Capitalized interest ......................................................... (5,948) (5,567)
Recurring capital expenditures ............................................... (2,626) (1,938)
Corporate additions and improvements ......................................... (511) (912)
Non-recurring capital expenditures ........................................... (322) (830)
Revenue generating capital expenditures ...................................... (1,102) (576)
---------- ----------
Net cash used in investing activities ........................................ (75,674) (60,387)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ................................................... (300) --
Debt proceeds ................................................................ 130,000 105,000
Debt payments ................................................................ (53,355) (47,736)
Distributions to preferred unitholders ....................................... (1,400) (1,400)
Distributions to common unitholders .......................................... (3,937) (3,635)
Proceeds from Dividend Reinvestment and
Employee Stock Purchase Plans .............................................. 7,555 9,424
Treasury stock acquisitions................................................... (11,755) --
Dividends paid to preferred shareholders ..................................... (2,969) (2,969)
Dividends paid to common shareholders ........................................ (29,529) (27,184)
---------- ----------
Net cash provided by financing activities .................................... 34,310 31,500
---------- ----------
Net (decrease) increase in cash and cash equivalents ......................... (4,433) 13,473
Cash and cash equivalents, beginning of period ............................... 7,459 5,870
---------- ----------
Cash and cash equivalents, end of period ..................................... $ 3,026 $ 19,343
========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
- 4 -
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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
1. ORGANIZATION AND FORMATION OF THE COMPANY
Post Properties, Inc. (the "Company"), which was incorporated on
January 25, 1984, is the successor by merger to the original Post
Properties, Inc., a Georgia corporation which was formed in 1971. The
Company was formed to develop, lease and manage upscale multi-family
apartment communities.
The Company elected to be taxed as a real estate investment trust
("REIT") for Federal income tax purposes beginning with the taxable
year ended December 31, 1993. A REIT is a legal entity which holds real
estate interests and, through payments of dividends to shareholders, in
practical effect is not subject to Federal income taxes at the
corporate level.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
the Company's management in accordance with generally accepted
accounting principles for interim financial information and applicable
rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normally recurring adjustments) considered
necessary for a fair presentation have been included. The results of
operations for the three month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the full
year. These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto included in
the Post Properties, Inc. Annual Report on Form 10-K for the year ended
December 31, 2000. Certain 2000 amounts have been reclassified to
conform to the current year's financial statement presentation.
2. NOTES PAYABLE
Post Apartment Homes, L.P. (the "Operating Partnership") has
established a program for the sale of Medium-Term Notes due three
months or more from date of issue (the "MTN Program"). As of March 31,
2001, the Operating Partnership had $360,000 aggregate principal amount
of notes outstanding under the MTN Program. A $37,000 Medium Term Note
was repaid April 2, 2001.
On March 12, 2001 the Operating Partnership issued $50,000 of senior
unsecured notes. These notes bear interest at 6.71% and mature on March
13, 2006. Net proceeds of $49,700 were used to repay outstanding
indebtedness.
3. ASSETS HELD FOR SALE
At December 31, 2000, the Company had four communities, two commercial
properties and one tract of land held for sale. During the first
quarter of 2001, the Company authorized the sale of an additional four
communities and seven tracts of land: three communities and five tracts
of land in Dallas, Texas, one community in Atlanta, Georgia, one tract
in Charlotte, North Carolina, and one tract in Phoenix, Arizona. At
March 31, 2001, the eight communities, eight tracts of land, and two
commercial properties consisting of land, buildings and improvements
and furniture, fixture, and equipment were recorded at $240,719, which
represented the lower of depreciated cost or fair value less cost to
sell. The Company recorded a net gain of $111 in the statement of
operations based on revised estimated proceeds on certain assets held
for sale at December 31, 2000 and management's best estimate of the
effect of the sale of the remaining assets. The Company expects the
sale of these assets to occur in 2001.
For the quarters ended March 31, 2001 and 2000, the consolidated
statements of operations include revenue less property operating and
maintenance expenses, exclusive of depreciation expense, of $5,882 and
$5,749, respectively, from communities held for sale at March 31,2001.
No current year depreciation expense has been recognized on these
assets.
- 5 -
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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
4. EARNINGS PER SHARE
For the three months ended March 31, 2001 and 2000, a reconciliation of
the numerator and denominator used in the computation of basic and
diluted earnings per share is as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
----------- -----------
Basic and diluted income available to common
Shareholders (numerator):
Income before cumulative effect of accounting change ...... $ 22,835 $ 27,933
Less: Preferred stock dividends ......................... (2,969) (2,969)
----------- -----------
Income available to common shareholders
before cumulative effect of accounting change ........... $ 19,866 $ 24,964
=========== ===========
Common shares (denominator):
Weighted average shares outstanding-basic ................. 38,848,148 39,025,775
Incremental shares from assumed conversion
of options .............................................. 260,328 381,892
----------- -----------
Weighted average shares outstanding - diluted ............. 39,108,476 39,407,667
=========== ===========
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the three months ended
March 31, 2001 and 2000 were as follows:
During the three months ended March 31, 2001, holders of 2,600 units in
the Operating Partnership exercised their option to convert their units
to shares of Common Stock of the Company on a one-for-one basis. These
conversions and adjustments for the dilutive impact of the Dividend
Reinvestment and Employee Stock Purchase and Option Plans and capital
transactions result in adjustments to minority interest. The net effect
of the conversions and adjustments was a reclassification decreasing
minority interest and increasing shareholders' equity in the amount of
$390 for the three months ended March 31, 2001 and increasing minority
interest and decreasing shareholders' equity in the amount of $269 for
the three months ended March 31, 2000.
6. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No.
138, "Accounting for Certain Derivative Instruments and Hedging
Activities." This standard establishes accounting and reporting
standards for derivative and hedging activities and requires the
Company to recognize all derivative instruments on its balance sheet
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.
Upon adoption of SFAS No. 133, the Company recorded a derivative
instrument liability of $1,299, net of minority interest, and an
adjustment of $1,299, net of minority interest, to accumulated other
comprehensive income, a shareholders' equity account, representing the
fair value of its outstanding interest rate swap agreements.
The Company also recorded a net transition adjustment loss in the
statement of operations of $613, net of minority interest, relating to
the write down of the book value of its interest rate cap agreements
to their fair value.
In the normal course of business, the Company is exposed to the effect
of interest rate changes. The Company limits these risks by following
established risk management policies and procedures including the use
of derivatives. The Company's outstanding derivative financial
instruments represent cash flow hedges that are designated
specifically to reduce exposure to interest rate risk by locking in
the expected future cash payments on certain designated debt
obligations. This was accomplished using interest rate swap and
interest rate cap arrangements.
For all outstanding derivative financial instruments and for future
use of derivative financial instruments, the Company designates the
specific instruments as a hedge of identified cash flow exposure. The
Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management
objective and strategy for undertaking various hedged transactions.
In this documentation, the Company will specifically identify the
asset, liability, firm commitment, or forecasted transaction that has
been designated as a hedged item and will state how the hedged
instrument is expected to hedge the risks to the hedged item.
The Company will formally measure effectiveness of its hedging
relationships both at the hedge inception and on an ongoing basis in
accordance with its risk management policy. The Company may
discontinue hedge accounting prospectively when it is determined that
the derivative is no longer effective in offsetting changes in the
fair value or cash flows of a hedged item; when the derivative is
expired or sold, terminated or exercised; or when the derivative is
re-designated to no longer be a hedged instrument.
At March 31, 2001, the Company has outstanding interest rate swap
agreements with a notional value of $129,000 and maturity dates ranging
from 2005 to 2009. The Company recorded the unrealized loss of $4,063,
net of minority interest, on these cash flow hedges as a liability and
a reduction in accumulated other comprehensive income, a shareholders'
equity account, in the accompanying consolidated balance sheet. In
addition, the Company recorded the change in fair value of the
ineffective component of its outstanding interest rate cap agreements
in its statement of operations for the three months ended March 31,
2001. This charge against earnings during the period and the fair value
of the interest rate cap agreements as March 31, 2001 were not
significant to the Company's financial position or results of
operations. Within the next twelve months, the Company expects to
reclassify out of accumulated other comprehensive income approximately
$734.
- 6 -
9
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition, which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements. SAB 101 was implemented in the fourth quarter of
2000. The adoption of SAB 101 has had no significant effect on the
Company's results of operations or its financial position.
7. SEGMENT INFORMATION
SEGMENT DESCRIPTION
SFAS No. 131, "Disclosure About the Segments of an Enterprise and
Related Information" requires companies to present segment information
based on the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance.
The segment information is prepared on substantially the same basis as
the internally reported information used by the Company's chief
operating decision makers to manage the business.
The Company's chief operating decision makers focus on the Company's
primary sources of income, which are property rental operations and
third party services. Property rental operations are broken down into
five segments based on the various stages in the property ownership
lifecycle. Third party services are designated as one segment. The
Company's five segments are further described as follows:
Property Rental Operations
- Fully stabilized communities - those communities which have
been stabilized (the point at which a property reaches 95%
occupancy or one year after completion of construction) for
both the current and prior year.
- Communities stabilized during 2000 - communities which reached
stabilized occupancy in the prior year.
- 7 -
10
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- Development and lease up communities - those communities which
are in lease-up but were not stabilized by the beginning of
the current year, including communities which stabilized
during the current year.
- Communities held for sale - those communities that are
currently being actively marketed for sale.
- Sold communities - communities which were sold in the current
or prior year.
Third Party Services - fee income and related expenses from the
Company's apartment community management, landscaping and corporate
apartment rental services.
SEGMENT PERFORMANCE MEASURE
The Company uses the National Association of Real Estate Investment
Trusts ("NAREIT") definition of FFO to include in FFO all
non-recurring transactions, except those that are defined as
extraordinary under generally accepted accounting principles ("GAAP").
The Company adopted this new definition effective January 1, 2000. FFO
for any period means the Consolidated Net Income of the Company and its
subsidiaries for such period excluding gains or losses from debt
restructuring and sales of property plus depreciation of real estate
assets, and after adjustment for unconsolidated partnerships and joint
ventures, all determined on a consistent basis in accordance with GAAP.
FFO presented herein is not necessarily comparable to FFO presented by
other real estate companies because not all real estate companies use
the same definition. The Company's FFO is comparable to the FFO of real
estate companies that use the current NAREIT definition. FFO should not
be considered as an alternative to net income (determined in accordance
with GAAP) as a measure of the Company's liquidity, nor is it
necessarily indicative of sufficient cash flow to found all of the
Company's needs or ability to service indebtedness or make
distributions.
SEGMENT INFORMATION
The following table reflects each segment's contribution to FFO
together with a reconciliation of segment contribution to FFO, total
FFO and income before cumulative effect of accounting change and
preferred dividends. Additionally, substantially all of the Company's
assets relate to the Company's property rental operations. Asset cost,
depreciation and amortization by segment are not presented because such
information is not reported internally at the segment level.
- 8 -
11
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
Summarized financial information concerning the Company's reportable segments is
shown in the following tables:
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2000
---------- ----------
REVENUES
Fully stabilized communities ................................. $ 65,750 $ 63,543
Communities stabilized during 2000 ........................... 11,794 7,615
Development and lease-up communities ......................... 7,987 1,742
Communities held for sale .................................... 9,095 8,720
Sold communities ............................................. -- 5,527
Third party services ......................................... 3,606 3,010
Other ........................................................ 4,351 5,283
---------- ----------
Consolidated revenues ........................................ $ 102,583 $ 95,440
========== ==========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities ................................. $ 45,400 $ 44,830
Communities stabilized during 2000 ........................... 7,972 4,692
Development and lease-up communities ......................... 4,243 481
Communities held for sale .................................... 5,882 5,749
Sold communities ............................................. -- 4,379
Third party services ......................................... 406 217
---------- ----------
Contribution to FFO .......................................... 63,903 60,348
---------- ----------
Other operating income, net of expense ....................... (2,329) (288)
Depreciation on non-real estate assets ....................... (651) (576)
Minority interest in consolidated property partnerships ...... 281 555
Interest expense ............................................. (14,985) (10,701)
Amortization of deferred loan costs .......................... (455) (385)
General and administrative ................................... (3,076) (2,494)
Dividends to preferred shareholders .......................... (2,969) (2,969)
---------- ----------
Total FFO .................................................... 39,719 43,490
---------- ----------
Depreciation on real estate assets ........................... (16,622) (15,893)
Net gain on sale of assets ................................... 111 687
Minority interest of common unitholders in
Operating Partnership ..................................... (2,729) (3,320)
Dividends to preferred shareholders .......................... 2,969 2,969
---------- ----------
Income before cumulative effect of accounting change and
preferred dividends .......................................... $ 23,448 $ 27,933
========== ==========
- 9 -
12
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
8. SUBSEQUENT EVENTS
In April 2001, the Company sold an 810 unit property located in Atlanta
for $67,250. Net proceeds on the sale were approximately $65,721.
In May 2001, the Company sold an 80 unit property located in Nashville,
Tennessee for $3,950. Net proceeds were approximately $3,814. Also in
May 2001, the Company sold a 327 unit property located in Dallas, Texas
for $22,470. Net proceeds were approximately $21,694. The net proceeds
from these sales were used to repay indebtedness and fund additional
development projects.
In April 2001, the Company contributed two apartment communities under
development in Atlanta, Georgia to a joint venture with an
institutional investor, of which the Company will have a 35% equity
interest. The joint venture will develop, own and operate the completed
projects which have an estimated development cost of approximately
$67,000. The development costs will be funded through borrowings and
equity contributions from the partners proportionate to their ownership
interest.
9. PROJECT ABANDONMENT, EMPLOYEE SEVERANCE AND IMPAIRMENT CHARGES
In the fourth quarter of 2000, management decided to restrict its
development activities to fewer markets, refine its development
strategy, exit the for-sale housing business and make changes in its
executive management team. Employees affected by the management changes
were primarily four executives and five accounting department employees
in the Dallas regional office.
The following table summarizes the activity relating to the unpaid
severance charges during the three months ended March 31, 2001:
Severance accrual at December 31, 2000 $2,250
Severance payments 1,382
------
Severance accrual at March 31, 2001 $ 868
======
Management expects the severance accrual to be substantially paid by
December 31, 2001.
- 10 -
13
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
March 31, December 31,
2001 2000
---------- ------------
(Unaudited)
ASSETS
Real estate:
Land ............................................................... $ 264,293 $ 281,525
Building and improvements .......................................... 1,631,019 1,681,798
Furniture, fixtures and equipment .................................. 193,387 190,968
Construction in progress ........................................... 517,910 509,702
Land held for future development ................................... 35,873 28,995
----------- -----------
2,642,482 2,692,988
Less: accumulated depreciation ..................................... (349,608) (345,121)
Assets held for sale ............................................... 240,719 122,047
----------- -----------
Real estate assets ................................................... 2,533,593 2,469,914
Cash and cash equivalents ............................................ 3,026 7,459
Restricted cash ...................................................... 1,276 1,272
Deferred charges, net ................................................ 21,805 21,700
Other assets ......................................................... 55,378 50,892
----------- -----------
Total assets ....................................................... $ 2,615,078 $ 2,551,237
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Notes payable ........................................................ $ 1,289,954 $ 1,213,309
Accrued interest payable ............................................. 18,605 10,751
Dividends and Distributions payable .................................. 34,756 33,933
Accounts payable and accrued expenses ................................ 65,764 67,136
Security deposits and prepaid rents .................................. 9,880 9,407
----------- -----------
Total liabilities .................................................. 1,418,959 1,334,536
----------- -----------
Commitments and contingencies......................................... -- --
Partners' equity before accumulated other comprehensive income ....... 1,200,725 1,216,701
Accumulated other comprehensive income ............................... (4,606) --
----------- -----------
Total partner's equity ............................................... 1,196,119 1,216,701
----------- -----------
Total liabilities and partners' equity ............................. $ 2,615,078 $ 2,551,237
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
- 11 -
14
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
----------- -----------
REVENUES
Rental ..................................................................... $ 94,851 $ 87,825
Property management - third party .......................................... 1,176 908
Landscape services - third party ........................................... 2,430 2,102
Interest ................................................................... 484 539
Other ...................................................................... 3,642 4,066
----------- -----------
Total revenue ....................................................... 102,583 95,440
----------- -----------
EXPENSES
Property operating and maintenance (exclusive of items shown separately
below) ................................................................. 35,794 30,651
Depreciation expense ....................................................... 17,888 17,005
Property management - third party .......................................... 937 788
Landscape services - third party ........................................... 2,263 2,005
Interest ................................................................... 14,985 10,701
Amortization of deferred loan costs ........................................ 455 385
General and administrative ................................................. 3,076 2,494
Minority interest in consolidated property partnerships .................... (281) (555)
----------- -----------
Total expenses ............................................................ 75,117 63,474
----------- -----------
Income before net gain on sale of assets and cumulative effect of
accounting change .......................................................... 27,466 31,966
Net gain on sale of assets ................................................. 111 687
----------- -----------
Income before cumulative effect of accounting change ....................... 27,577 32,653
Cumulative effect of accounting change ..................................... (695) --
----------- -----------
Net income ................................................................. 26,882 32,653
Distributions to preferred unitholders ..................................... (4,369) (4,369)
----------- -----------
Net income available to common unitholders ................................. $ 22,513 $ 28,284
=========== ===========
Earnings per common unit - basic
Income before cumulative effect of accounting change (net of preferred
distributions) ............................................................. $ 0.53 $ 0.64
Cumulative effect of accounting change ..................................... (0.02) --
----------- -----------
Net income available to common unitholders ................................. $ 0.51 $ 0.64
=========== ===========
Weighted average common units outstanding .................................. 44,028,028 44,219,200
=========== ===========
Earnings per common unit- diluted
Income before cumulative effect of accounting change (net of preferred
distributions).............................................................. $ 0.53 $ 0.63
Cumulative effect of accounting change ..................................... (0.02) --
----------- -----------
Net income available to common unitholders ................................. $ 0.51 $ 0.63
=========== ===========
Weighted average common units outstanding .................................. 44,288,356 44,601,092
=========== ===========
Distributions declared .................................................... $ 0.78 $ 0.76
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
- 12 -
15
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
PARTNERS' EQUITY, DECEMBER 31, 2000 ............................. 12,110 $ 1,204,591 $ 1,216,701
Contributions from the Company related to Employee Stock
Purchase Plans ............................................... 75 7,480 7,555
Purchase of units............................................. -- (11,755) (11,755)
Distributions to preferred unitholders........................ -- (4,369) (4,369)
Distributions to common unitholders .......................... (343) (33,946) (34,289)
Comprehensive Income
Net income ................................................... 269 26,613 26,882
Net transition adjustment .................................... (15) (1,457) (1,472)
Net change in hedge value .................................... (31) (3,103) (3,134)
-------- ----------- -----------
Total Comprehensive Income: .............................. 223 22,053 22,276
-------- ----------- -----------
PARTNERS' EQUITY, MARCH 31, 2001 ................................ $ 12,065 $ 1,184,054 $ 1,196,119
======== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-13-
16
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................... $ 26,882 $ 32,653
Adjustments to reconcile net income to net cash provided
by operating activities:
Net gain on sale of assets ................................... (111) (687)
Depreciation ................................................. 17,888 17,005
Amortization of deferred loan costs .......................... 455 385
Changes in assets, (increase) decrease in:
Restricted cash .............................................. (4) (626)
Other assets ................................................. (6,169) (8,439)
Deferred charges ............................................. (814) 122
Changes in liabilities, increase (decrease) in:
Accrued interest payable ..................................... 7,854 2,251
Accounts payable and accrued expenses ........................ (9,523) (574)
Security deposits and prepaid rents .......................... 473 270
---------- ----------
Net cash provided by operating activities .................... 36,931 42,360
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets,
net of payables .............................................. (65,165) (81,996)
Proceeds from sale of assets ................................... -- 31,432
Capitalized interest ........................................... (5,948) (5,567)
Recurring capital expenditures ................................. (2,626) (1,938)
Corporate additions and improvements ........................... (511) (912)
Non-recurring capital expenditures ............................. (322) (830)
Revenue generating capital expenditures ........................ (1,102) (576)
---------- ----------
Net cash (used in) investing activities ........................ (75,674) (60,387)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ...................................... (300) --
Debt proceeds ................................................... 130,000 105,000
Debt payments ................................................... (53,355) (47,736)
Proceeds from contributions from the Company related to Dividend
Reinvestment and Employee Stock Purchase Plans ............... 7,555 9,424
Purchase of units ............................................... (11,755) --
Distributions paid to preferred unitholders ..................... (4,369) (4,369)
Distributions paid to common unitholders ........................ (33,466) (30,819)
---------- ----------
Net cash provided by financing activities ....................... 34,310 31,500
---------- ----------
Net (decrease) increase in cash and cash equivalents ............ (4,433) 13,473
Cash and cash equivalents, beginning of period .................. 7,459 5,870
---------- ----------
Cash and cash equivalents, end of period ........................ $ 3,026 $ 19,343
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
-14-
17
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND FORMATION OF THE COMPANY
ORGANIZATION AND FORMATION OF THE COMPANY
Post Apartment Homes, L.P. (the "Operating Partnership"), a Georgia
limited partnership, was formed on January 22, 1993, to conduct the
business of developing, leasing and managing upscale multi-family
apartment communities for Post Properties, Inc. (the "Company").
The Company elected to be taxed as a real estate investment trust
("REIT") for Federal income tax purposes beginning with the taxable
year ended December 31, 1993. A REIT is a legal entity which holds real
estate interests and, through payments of dividends to shareholders, in
practical effect is not subject to Federal income taxes at the
corporate level.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
the Operating Partnership's management in accordance with generally
accepted accounting principles for interim financial information and
applicable rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting only of normally recurring adjustments)
considered necessary for a fair presentation have been included. The
results of operations for the three month period ended March 31, 2001
are not necessarily indicative of the results that may be expected for
the full year. These financial statements should be read in conjunction
with the Operating Partnership's audited financial statements and notes
thereto included in the Post Apartment Homes, L.P. Annual Report on
Form 10-K for the year ended December 31, 2000. Certain 2000 amounts
have been reclassified to conform to the current year's financial
statement presentation.
2. NOTES PAYABLE
Post Apartment Homes, L.P. (the "Operating Partnership") has
established a program for the sale of Medium-Term Notes due three
months or more from date of issue (the "MTN Program"). As Of March 31,
2001, the Operating Partnership had $360,000 aggregate principal amount
of notes outstanding under the MTN program. A $37,000 Medium Term Note
was repaid April 2, 2001.
On March 12, 2001 the Operating Partnership issued $50,000 of senior
unsecured notes. These notes bear interest at 6.71% and mature on March
13, 2006. Net proceeds of $49,700 were used to repay outstanding
indebtedness.
3. ASSETS HELD FOR SALE
At December 31, 2000 the Operating Partnership had four communities,
two commercial properties and one tract of land held for sale. During
the first quarter of 2001, the Operating Partnership authorized the
sale of an additional four communities and seven tracts of land: three
communities and five tracts of land in Dallas, Texas, one community in
Atlanta, Georgia, on tract in Charlotte, North Carolina, and one tract
in Phoenix, Arizona. At March 31, 2001, the eight communities, eight
tracts of land, and two commercial properties consisting of land,
buildings and improvements and furniture, fixture, and equipment were
recorded at $240,719, which represented the lower of depreciated cost
or fair value less cost to sell. The Operating Partnership recorded a
net gain of $111 in the statement of operations based on revised
estimated proceeds on certain assets held for sale at December 31, 2000
and management's best estimate of the effect of the sale of the
remaining assets. The Operating Partnership expects the sale of these
assets to occur in 2001.
-15-
18
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
For the quarters ended March 31, 2001 and 2000, the consolidated
statements of operations include revenue less property operating and
maintenance expense, exclusive of depreciation expense, of $5,882 and
$5,749, respectively, from communities held for sale at March 31,2001.
No current year depreciation expense has been recognized on these
assets.
4. EARNINGS PER UNIT
For the three months ended March 31, 2001 and 2000, a reconciliation of
the numerator and denominator used in the computation of basic and
diluted earnings per unit is as follows:
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2001 2000
------------ ------------
Basic and diluted income available to common
unitholders (numerator):
Income before cumulative effect of accounting change .......... $ 27,577 $ 32,653
Less: Preferred unit distributions .......................... (4,369) (4,369)
------------ ------------
Income available to common unitholders before cumulative
effect of accounting change ..................................... $ 23,208 $ 28,284
============ ============
Common units (denominator):
Weighted average units outstanding - basic .................... 44,028,028 44,219,200
Incremental units from assumed conversion of options .......... 260,328 381,892
------------ ------------
Weighted average units outstanding - diluted .................. 44,288,356 44,601,092
============ ============
5. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, the Operating Partnership adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 138, "Accounting for Certain Derivative Instruments
and Hedging Activities." This standard establishes accounting and
reporting standards for derivative and hedging activities and requires
the Operating Partnership to recognize all derivative instruments on
its balance sheet at fair value. Additionally, the fair value
adjustments will affect either partners' equity or net income,
depending on whether the derivative instrument qualifies as a hedge for
accounting purposes and, if so, the nature of hedging activity.
Upon adoption of SFAS No. 133, the Operating Partnership recorded a
derivative instrument liability of $1,472 and an adjustment of $1,472
to accumulated other comprehensive income, a partners' equity account,
representing the fair value of its outstanding interest rate swap
agreements. The Operating Partnership also recorded a net transition
adjustment loss in the statement of operations of $695 relating to the
write down of the book value of its interest rate cap agreements to
their fair value.
In the normal course of business, the Operating Partnership is exposed
to the effect of interest rate changes. The Operating Partnership
limits these risks by following established risk management policies
and procedures including the use of derivatives. The Operating
Partnership's outstanding derivative financial instruments represent
cash flow hedges that are designated specifically to reduce exposure to
interest rate risk by locking in the expected future cash payments on
certain designated debt obligations. This was accomplished using
interest rate swap and interest rate cap arrangements.
For all outstanding derivative financial instruments and for future use
of derivative financial instruments, the Operating Partnership
designates the specific instruments as a hedge of identified cash flow
exposure. The Operating Partnership formally documents all
relationships between hedging instruments and hedged items, as well as
its risk-management objective and strategy for undertaking various
hedged transactions. In this documentation, the Operating Partnership
will specifically identify the assets, liability, firm commitment, or
forecasted transaction that has been designated as a hedged item and
will state how the hedged instrument is expected to hedge the risks
related to the hedged item.
The Operating Partnership will formally measure effectiveness of its
hedging relationships both at the hedge inception and on an ongoing
basis in accordance with its risk management policy. The Operating
Partnership may discontinue hedge accounting prospectively when it is
determined that the derivative is no longer effective in offsetting
changes in the fair value or cash flows of a hedged item; when the
derivative is expired or sold, terminated or exercised; or when the
derivative is re-designated to no longer be a hedged instrument.
At March 31, 2001, the Operating Partnership has outstanding interest
rate swap agreements with a notional value of $129,000 and maturity
dates ranging from 2005 to 2009. The Operating Partnership recorded the
unrealized loss of $4,606 on these cash flow hedges as a liability and
reduction in accumulated other comprehensive income, partners' equity
account, in the accompanying consolidated balance sheet. In addition,
the Operating Partnership recorded the change in fair value of the
ineffective component of its outstanding interest rate cap agreements
in its statement of operations for the three months ended March 31,
2001. This charge against earnings during the period and the fair value
of the interest rate cap agreements as March 31, 2001 were not
significant to the Operating Partnership's financial position or
results of operations. Within the next twelve months, the Operating
Partnership expects to reclassify out of accumulated other
comprehensive income approximately $734.
-16-
19
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition, which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements. SAB 101 was implemented in the fourth quarter of
2000. The adoption of SAB 101 has had no significant effect on the
Operating Partnership's results of operations or its financial
position.
6. SEGMENT INFORMATION
SEGMENT DESCRIPTION
SFAS No. 131, "Disclosure About the Segments of an Enterprise and
Related Information" requires companies to present segment information
based on the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance.
The segment information is prepared on substantially the same basis as
the internally reported information used by the Operating Partnership's
chief operating decision makers to manage the business.
The Operating Partnership's chief operating decision makers focus on
the Operating Partnership's primary sources of income, which are
property rental operations and third party services. Property rental
operations are broken down into five segments based on the various
stages in the property ownership lifecycle. Third party services are
designated as one segment. The Operating Partnership's five segments
are further described as follows:
Property Rental Operations
- Fully stabilized communities - those communities which have
been stabilized (the point in time which a property reached
95% occupancy or one year after completion of construction)
for both the current and prior year.
- Communities stabilized during 2000 - communities which reached
stabilized occupancy in the prior year.
- Development and Lease up Communities - those communities which
are in lease-up but were not stabilized by the beginning of
the current year including communities which stabilized during
the current year.
- Communities held for sale - those communities that are
currently being actively marketed for sale.
-17-
20
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
- Sold communities - communities which were sold in the current
or prior year.
Third Party Services - fee income and related expenses from the
Operating Partnership's apartment community management, landscaping and
corporate apartment rental services.
SEGMENT PERFORMANCE MEASURE
The Operating Partnership uses the National Association of Real Estate
Investment Trusts ("NAREIT") definition of FFO to include in FFO all
non-recurring transactions, except those that are defined as
extraordinary under generally accepted accounting principles ("GAAP").
The Operating Partnership adopted this new definition effective January
1, 2000. FFO for any period means the Consolidated Net Income of the
Operating Partnership and its subsidiaries for such period excluding
gains or losses from debt restructuring and sales of property plus
depreciation of real estate assets, and after adjustment for
unconsolidated partnerships and joint ventures, all determined on a
consistent basis in accordance with GAAP. FFO presented herein is not
necessarily comparable to FFO presented by other real estate companies
because not all real estate companies use the same definition. The
Operating Partnership's FFO is comparable to the FFO of real estate
companies that use the current NAREIT definition. FFO should not be
considered as an alternative to net income (determined in accordance
with GAAP) as a measure of the Operating Partnership's liquidity, nor
is it necessarily indicative of sufficient cash flow to found all of
the Operating Partnership's needs or ability to service indebtedness or
make distributions.
SEGMENT INFORMATION
The following table reflects each segment's contribution to FFO
together with a reconciliation of segment contribution to FFO, total
FFO and income before cumulative effect of accounting change and
preferred distributions. Additionally, substantially all of the
Operating Partnership's assets relate to the Operating Partnership's
property rental operations. Asset cost, depreciation and amortization
by segment are not presented because such information is not reported
internally at the segment level.
-18-
21
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
Summarized financial information concerning the Operating Partnership's
reportable segments is shown in the following tables.
THREE MONTHS ENDED
MARCH 31,
----------------------------
2001 2000
--------- --------
REVENUES
Fully stabilized communities .............................................. $ 65,750 $ 63,543
Communities stabilized during 2000 ........................................ 11,794 7,615
Development and lease-up communities ...................................... 7,987 1,742
Communities held for sale ................................................. 9,095 8,720
Sold communities .......................................................... -- 5,527
Third party services ...................................................... 3,606 3,010
Other ..................................................................... 4,351 5,283
--------- --------
Consolidated revenues ..................................................... $ 102,583 $ 95,440
========= ========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities .............................................. $ 45,400 $ 44,830
Communities stabilized during 2000 ........................................ 7,972 4,692
Development and lease-up communities ...................................... 4,243 481
Communities held for sale ................................................. 5,882 5,749
Sold communities .......................................................... -- 4,379
Third party services ...................................................... 406 217
--------- --------
Contribution to FFO ....................................................... 63,903 60,348
--------- --------
Other operating income, net of expense .................................... (929) 1,112
Depreciation on non-real estate assets .................................... (651) (576)
Minority interest in consolidated property partnership .................... 281 555
Interest expense .......................................................... (14,985) (10,701)
Amortization of deferred loan costs ....................................... (455) (385)
General and administrative ................................................ (3,076) (2,494)
Distributions to preferred unitholders .................................... (4,369) (4,369)
--------- --------
Total FFO ................................................................. 39,719 43,490
--------- --------
Depreciation on real estate assets ........................................ (16,622) (15,893)
Net gain on sale of assets ................................................ 111 687
Distributions to preferred unitholders .................................... 4,369 4,369
--------- --------
Income before cumulative effect of accounting change and preferred
distributions ............................................................. $ 27,577 $ 32,653
========= ========
-19-
22
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
7. SUBSEQUENT EVENTS
In April 2001, the Operating Partnership sold an 810 unit property
located in Atlanta for $67,250. Net proceeds on the sale were
approximately $65,721.
In May 2001, the Operating Partnership sold an 80 unit property located
in Nashville, Tennessee for $3,950. Net proceeds were approximately
$3,814. Also in May 2001, the Operating Partnership sold a 327 unit
property located in Dallas, Texas for $22,470. Net proceeds were
approximately $21,694. The net proceeds from these sales were used to
repay outstanding indebtedness and fund additional development
projects.
In April 2001, the Operating Partnership contributed two apartment
communities under development in Atlanta, Georgia to a joint venture
with an institutional investor, of which the Operating Partnership will
have a 35% equity interest. The joint venture will develop, own and
operate the completed projects which have an estimated development cost
of approximately $67,000. The development costs will be funded through
borrowings and equity contributions from the partners proportionate to
their ownership interests.
8. PROJECT ABANDONMENT, EMPLOYEE SEVERANCE AND IMPAIRMENT CHARGES
In the fourth quarter of 2000, management decided to restrict its
development activities to fewer markets, refine its development
strategy, exit the for-sale housing business and make changes in its
executive management team. Employees affected by the management changes
were primarily four executives and five accounting department employees
in the Dallas regional office.
The following table summarizes the activity relating to the unpaid
severance charges:
Severance at December 31, 2000 $2,250
Severance payments 1,382
------
Severance accrual at March 31, 2001 $ 868
======
Management expects the severance accrual to be substantially paid by
December 31, 2001.
-20-
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with all of the financial
statements appearing elsewhere in this report. The following discussion is based
primarily on the Consolidated Financial Statements of Post Properties, Inc. (the
"Company") and Post Apartment Homes, L.P. (the "Operating Partnership"). Except
for the effect of minority interest in the Operating Partnership, the following
discussion with respect to the Company is the same for the Operating
Partnership.
As of March 31, 2001, there were 43,961,043 common units in the Operating
Partnership outstanding, of which 38,782,232 or 88.2%, were owned by the Company
and 5,178,811, or 11.8%, were owned by other limited partners (including certain
officers and directors of the Company). As of March 31, 2001, there were
7,800,000 preferred units outstanding, of which 5,000,000 were owned by the
Company.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
The Company recorded net income available to common shareholders of $19,866 for
the three months ended March 31, 2001. This represents a decrease of 20.4% over
the corresponding period in 2000 primarily as a result of a reduction in revenue
growth due to asset sales and an increase in interest expense due to stock
repurchases and units placed in service.
COMMUNITY OPERATIONS
The Company's net income is generated primarily from the operation of its
apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. A community is generally
considered by the Company to have achieved stabilized occupancy on the earlier
to occur of (i) attainment of 95% physical occupancy on the first day of any
month or (ii) one year after completion of construction.
As of March 31, 2001, the Company's portfolio of apartment communities consisted
of the following: (i) 66 communities which were completed and stabilized for all
of the current and prior year, (ii) ten communities which achieved full
stabilization during the prior year, (iii) 16 communities either stabilized in
the current year or presently in the development or lease-up stages and (iv)
eight communities that are currently held for sale.
For communities with respect to which construction is completed and the
community has become fully operational, all property operating and maintenance
expenses are expensed as incurred and those recurring and non-recurring
expenditures relating to acquiring new assets, materially enhancing the value of
an existing asset, or substantially extending the useful life of an existing
asset are capitalized. (See "Capitalization of Fixed Assets and Community
Improvements").
Since its inception, the Company has applied an accounting policy related to
communities in the development and lease-up stage whereby substantially all
operating expenses (including pre-opening marketing expenses) are expensed as
incurred. The Company treats each unit in an apartment community separately for
cost accumulation, capitalization and expense recognition purposes. Prior to the
commencement of leasing activities, interest and other construction costs are
capitalized and reflected on the balance sheet as construction in progress. Once
a unit is placed in service, all operating expenses allocated to that unit,
including interest, are expensed as incurred. During the lease-up phase, the
-21-
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
sum of interest expense on completed units and other operating expenses
(including pre-opening marketing expenses) will typically exceed rental
revenues, resulting in a "lease-up deficit," which continues until such time as
rental revenues exceed such expenses. Lease up deficits for the three months
ended March 31, 2001 and 2000 were $1,163 and $852, respectively.
In order to evaluate the operating performance of its communities, the Company
has presented financial information that summarizes the operating income on a
comparative basis for all of its operating communities combined and for
communities which have reached stabilization prior to January 1, 2000.
ALL OPERATING COMMUNITIES
The operating performance for all of the Company's apartment communities
combined for the three months ended March 31, 2001 and 2000 is summarized as
follows:
THREE MONTHS ENDED
MARCH 31,
------------------------------------------
2001 2000 %CHANGE
------- -------- ---------
Rental and other revenue:
Mature communities (1) .............................................................. $65,750 $ 63,543 3.5%
Communities stabilized during 2000 .................................................. 11,794 7,615 54.9%
Development and lease-up communities (2) ............................................ 7,987 1,742 358.5%
Communities held for sale (3) ....................................................... 9,095 8,720 4.3%
Sold communities (4)
-- 5,527 (100.0)%
Other revenue (5) ................................................................... 3,867 4,744 (18.5)%
------- --------
98,493 91,891 7.2%
------- --------
Property operating and maintenance expense (exclusive of depreciation and
amortization):
Mature communities (1) .............................................................. 20,350 18,713 8.7%
Communities stabilized during 2000 .................................................. 3,822 2,923 30.8%
Development and lease-up communities (2) ............................................ 3,744 1,261 196.9%
Communities held for sale (3) ....................................................... 3,213 2,971 8.1%
Sold communities (4) ................................................................ -- 1,148 (100.0)%
Other expenses (6) .................................................................. 4,665 3,635 28.3%
------- --------
35,794 30,651 16.8%
------- --------
Revenue in excess of specified expense .............................................. $62,699 $ 61,240 2.4%
======= ========
Recurring capital expenditures: (7)
Carpet ............................................................................ $ 674 $ 792 (14.9)%
Other ............................................................................. 1,952 1,146 70.4%
------- --------
Total ............................................................................. $ 2,626 $ 1,938 35.5%
======= ========
Average apartment units in service .................................................. 32,237 30,852 4.5%
======= ========
Recurring capital expenditures per
apartment unit .................................................................... $ 81 $ 63 28.6%
======= ========
(1) Communities which reached stabilization prior to January 1, 2000.
(2) Communities in the "construction", "development" or "lease-up" stage
during 2000 and, therefore, not considered fully stabilized for all of
the periods presented.
(3) Includes six communities and two commercial properties in Texas, one
community in Tennessee and one community in Georgia.
(4) Includes one community, containing 213 units, which was sold on
February 4, 2000, three communities containing 983 units which were
sold on September 6, 2000, two communities containing 367 units which
were sold November 9, 2000, one community contains 296 units which was
sold on December 21, 2000 and one community containing 125 units which
was sold on December 28, 2000.
(5) Includes revenue from furnished apartment rentals above the unfurnished
rental rates, revenue from commercial properties and other revenue not
directly related to property operations.
(6) Includes certain indirect central office operating expenses related to
management, grounds maintenance, costs associated with furnished
apartment rentals and operating expenses from commercial properties.
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25
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
(7) In addition to these expenses which relate to property operations, the
Company incurs recurring and non-recurring expenditures relating to
acquiring new assets, materially enhancing the value of an existing
asset or substantially extending the useful life of an existing asset,
all of which are capitalized.
For the three months ended March 31, 2001, rental and other revenue increased
$6,602, or 7.2% compared to the same period in the prior year primarily as a
result of the completion of new communities and increased rental rates for
existing communities partially offset by asset sales and a reduction in other
revenue. For the three months ended March 31, 2001, property operating and
maintenance expenses (exclusive of depreciation and amortization) increased
$5,143, or 16.8% compared to the same period in the prior year, primarily due to
increases in personnel costs, real estate taxes and insurance.
For the three months ended March 31, 2001, recurring capital expenditures
increased $688, or 35.5% ($18 or 28.6% on a per unit apartment basis) compared
to the same period in the prior year, primarily due to the timing of capital
expenditures and an increase in the average number of units in service.
-23-
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
MATURE COMMUNITIES
The Company defines mature communities as those which have reached stabilization
prior to the beginning of the previous calendar year.
The operating performance of the 66 communities containing an aggregate of
23,198 units that were fully stabilized as of January 1, 2000, is summarized as
follows:
THREE MONTHS ENDED
MARCH 31,
----------------------------------------------
%
2001 2000 CHANGE
--------- --------- ------
Rental and other revenue (1) ...................................... $ 65,750 $ 63,543 3.5%
Property operating and maintenance
expense (exclusive of depreciation and
amortization) (1) .............................................. 20,350 18,713 8.7%
--------- ---------
Revenue in excess of specified expense ............................ 45,400 44,830 1.3%
Recurring capital expenditures: (2)
Carpet ......................................................... $ 568 $ 608 (6.6)%
Other .......................................................... 1,708 969 76.3%
--------- ---------
Total .......................................................... $ 2,276 $ 1,577 44.3%
========= =========
Recurring capital expenditures per
apartment unit (3) ............................................. $ 98 $ 68 44.1%
========= =========
Average economic occupancy (4) .................................... 95.8% 96.5% (0.7)%
========= =========
Average monthly rental rate per
apartment unit (5) ............................................. $ 939 $ 914 2.7%
========= =========
Apartment units in service ........................................ 23,198 23,198
========= =========
(1) Communities which reached stabilization prior to January 1, 2000.
(2) In addition to those expenses which relate to property operations, the
Company incurs recurring and non-recurring expenditures relating to
acquiring new assets, materially enhancing the value of an existing
asset, or substantially extending the useful life of an existing asset,
all of which are capitalized.
(3) In addition to such capitalized expenditures, the Company expensed $166
and $153 per unit on building maintenance (inclusive of direct
salaries) and $59 and $52 per unit on landscaping (inclusive of direct
salaries) for the three months ended March 31, 2001 and 2000,
respectively.
(4) Average economic occupancy is defined as gross potential rent less
vacancy losses, model expenses and bad debt divided by gross potential
rent for the period, expressed as a percentage. The calculation of
average economic occupancy does not include a deduction for concessions
and employee discounts. Average economic occupancy, including these
amounts would have been 95.0% and 94.4% for the three months ended
March 31, 2001 and 2000, respectively. For the three months ended March
31, 2001 and 2000, concessions were $234 and $1,142, respectively, and
employee discounts were $306 and $236, respectively.
(5) Average monthly rental rate is defined as the average of the gross
actual rates for occupied units and the anticipated rental rates for
unoccupied units.
For the three months ended March 31, 2001, rental and other revenue increased
$2,207, or 3.5% compared to the same period in the prior year, primarily due to
increased rental rates. For the three months ended March 31, 2001, property
operating and maintenance expenses (exclusive of depreciation and amortization)
increased $1,637, or 8.7% compared to the same periods in the prior year,
primarily as a result of increased personnel expense, real estate taxes and
insurance.
For the three months ended March 31, 2001, recurring capital expenditures per
unit increased $30, or 44.1% compared to the same period in the prior year, as a
result of the timing of expenditures.
-24-
27
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
THIRD PARTY SERVICES
THIRD PARTY MANAGEMENT SERVICES
The Company provides asset management, leasing and other consulting services to
non-related owners of apartment communities through its subsidiary, RAM
Partners, Inc. ("RAM"). The operating performance of RAM for the three months
ended March 31, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED
MARCH 31,
--------------------------------------------
2001 2000 % CHANGE
--------- --------- --------
Property management and other revenue ............................. $ 1,176 $ 908 29.5%
Property management expense ....................................... 937 788 18.9%
Depreciation expense .............................................. 7 7 0.0%
--------- ---------
Revenue in excess of specified expense ............................ $ 232 $ 113 105.3%
========= =========
Average apartment units managed ................................... 15,992 13,616 17.5%
========= =========
The increase in revenue in excess of specified expense for the three months
ended March 31, 2001 compared to the same period in the prior year is primarily
attributable to an increase in the average number of units managed.
THIRD PARTY LANDSCAPE SERVICES
The Company provides landscape maintenance, design and installation services to
non-related parties through a subsidiary, Post Landscape Group, Inc. ("Post
Landscape Group"), formerly called Post Landscape Services, Inc.
The operating performance of Post Landscape Group for the three months ended
March 31, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED
MARCH 31,
--------------------------------------------
2001 2000 % CHANGE
--------- --------- --------
Landscape services and other revenue .............................. $ 2,430 $ 2,102 15.6%
Landscape services expense ........................................ 2,263 2,005 12.9%
Depreciation expense .............................................. 108 87 24.1%
-------- --------
Revenue in excess of specified expense ............................ $ 59 $ 10 490.0%
======== ========
The increase in landscape services and other revenue and landscape services
expense for the three months ended March 31, 2001 compared to the same period in
2000 is primarily due to increases in landscape contracts. The increase in
depreciation expense is primarily due to the additions of new vehicles and
equipment.
-25-
28
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
OTHER EXPENSES
Depreciation expense increased $883, or 5.2% for the three months ended March
31, 2001 compared to the same period in the prior year, primarily as a result of
an increase in units in service, additional leasehold improvements and
technology expenditures.
General and administrative expense increased $582, or 23.3% for the three months
ended March 31, 2001, compared to the same period in the prior year due to
annual salary increases, relocation expenses as a result of management changes
and reduced capitalization of overhead on communities under construction.
Interest expense increased $4,284, or 40.0% for the three months ended March 31,
2001 compared to the same period in the prior year primarily due to an increase
in debt used to fund the development of new communities and the repurchase of
the Company's common stock.
PROJECT ABANDONMENT, EMPLOYEE SEVERANCE AND IMPAIRMENT CHARGES
In the fourth quarter of 2000, management decided to restrict its development
activities to fewer markets, refine its development strategy, exit the for-sale
housing business and make changes in its executive management team. Employees
affected by the management changes were primarily four executives and five
accounting department employees in the Dallas regional office.
The following table summarizes the activity relating to the unpaid severance
charges during the three months ended March 31, 2001:
Severance accrual at December 31, 2000 $2,250
Severance payments 1,382
------
Severance accrual at March 31, 2001 $ 868
======
Management expects the severance accrual to be substantially paid by December
31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's net cash provided by operating activities decreased from $42,360
for the three months ended March 31, 2000 to $36,931 for the three months ended
March 31, 2001, principally due to a decrease in net income and changes in
working capital. Net cash used in investing activities increased from $60,387 in
the three months ended March 31, 2000 to $75,674 in the three months ended March
31, 2001 principally due to proceeds from the sale of assets in first quarter
2000, partially offset by reduced construction spending in first quarter 2001.
The Company's net cash provided by financing activities increased from $31,500
for the three months ended March 31, 2000 to $34,310 for the three months ended
March 31, 2001, primarily due increased debt proceeds partially offset by
treasury stock purchases.
The Company has elected to be taxed as a Real Estate Investment Trust ("REIT")
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended,
commencing with its taxable year ended December 31, 1993. REITs are subject to a
number of organizational and operational requirements, including a requirement
that they currently distribute 90% of their taxable income. The Company
generally will not be subject to Federal income tax on net income.
At March 31, 2001, the Operating Partnership had total indebtedness of
$1,289,954, an increase of $76,645 from its total indebtedness at December 31,
2000, and cash and cash equivalents of $3,026. At March 31, 2001, the Company's
indebtedness included approximately $233,968 in conventional mortgages payable
secured by individual communities, tax-exempt bond indebtedness of $235,880,
senior unsecured notes of $770,000, borrowings under its revolving credit
facility ("the Revolver") of $50,000 and other unsecured lines of credit of
$106.
The Company expects to meet its short-term liquidity requirements generally
through its net cash provided by operations and borrowings under credit
arrangements and expects to meet certain of its long-term liquidity
requirements, such as scheduled debt maturities, repayment of financing of
construction and development activities, and possible property acquisitions,
through long-term secured and unsecured borrowings and the issuance of debt
securities or additional equity securities of the Company, sales of communities,
joint ventures, or, possibly in connection with acquisitions of land or improved
properties, units of the Operating Partnership. The Company believes that its
net cash provided by operations will be adequate and anticipates that it will
continue to be adequate to meet both operating requirements and payment of
dividends by the Company in accordance with REIT requirements in both the short
and the long term. The budgeted expenditures for improvements and renovations to
certain of the communities are expected to be funded from property operations.
-26-
29
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
Lines Of Credit
The Company has three unsecured lines of credit with total availability of
$525,000. As of March 31, 2001, there was $50,000 outstanding under the Revolver
and $106 outstanding under other lines of credit.
Medium Term Notes
The Operating Partnership has established a program for the sale of Medium Term
Notes due three months or more from date of issue (the "MTN Program"). As of
March 31, 2001, the Operating Partnership had $360,000 aggregate principal
amount of notes outstanding under the MTN Program. A $37,000 Medium Term Note
was repaid on April 2, 2001.
Fixed Rate Notes
On March 12, 2001, the Operating Partnership issued $50,000 of unsecured notes.
These notes bear interest at 6.71% and mature March 13, 2006. Net proceeds of
$49,700 were used to repay outstanding indebtedness and repurchase the Company's
common stock.
-27-
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
Schedule of Indebtedness
The following table reflects the Company's indebtedness at March 31, 2001:
MATURITY PRINCIPAL
DESCRIPTION LOCATION INTEREST RATE DATE (1) BALANCE
----------- ----------- ------------------------------------ -------- -----------
CONVENTIONAL FIXED RATE (SECURED)
Parkwood Townhomes(TM) ........................... Dallas, TX 7.375% 04/01/14 790
Northwestern Mutual Life ......................... N/A 6.50% (2) 03/01/09 48,365
Northwestern Mutual Life ......................... Dallas, TX 7.69% 10/01/07 28,562
Northwestern Mutual Life ......................... Dallas, TX 7.69% 10/01/07 51,051
FNMA ............................................. Atlanta, GA 6.975% (3) 07/23/29 103,200
City of Phoenix .................................. N/A 5.00% (4) 03/01/21 2,000
-----------
233,968
TAX EXEMPT FLOATING RATE (SECURED)
Post Ashford(R) Series 1995 ...................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 9,895
Post Valley(R) Series 1995 ....................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 18,600
Post Brook(R) Series 1995 ........................ Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 4,300
Post Village(R) (Atlanta) Hills Series 1995 ...... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 7,000
Post Mill(R) Series 1995 ......................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 12,880
Post Canyon(R) Series 1996 ....................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 16,845
Post Corners(R) Series 1996 ...................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 14,760
Post Bridge(R) ................................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 12,450
Post Village(R) (Atlanta) Gardens ................ Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 14,500
Post Chase(R) .................................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 15,000
Post Walk(R) ..................................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 15,000
Post Lake(R) ..................................... Orlando, FL "AAA" NON-AMT + .515% (5)(6) 06/01/25 28,500
Post Fountains at Lee Vista(R) ................... Orlando, FL "AAA" NON-AMT + .515% (5)(6) 06/01/25 21,500
Post Village(R) (Atlanta) Fountains
and Meadows ................................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 26,000
Post Court(R) .................................... Atlanta, GA "AAA" NON-AMT + .515% (5)(6) 06/01/25 18,650
-----------
235,880
SENIOR NOTES (UNSECURED)
Northwestern Mutual Life ......................... N/A 8.21% 06/07/01 30,000
Medium Term Notes ................................ N/A 7.02% 04/02/01 37,000
Northwestern Mutual Life ......................... N/A 8.37% 06/07/02 20,000
Senior Notes ..................................... N/A 7.25% 10/01/03 100,000
Medium Term Notes ................................ N/A 7.30% 04/01/04 13,000
Medium Term Notes ................................ N/A 6.69% 09/22/04 10,000
Medium Term Notes ................................ N/A 6.78% 09/22/05 25,000
Senior Notes ..................................... N/A 7.50% 10/01/06 25,000
Mandatory Par Put Remarketed Securities .......... N/A 6.85% (7) 03/16/15 100,000
Medium Term Notes ................................ N/A 7.28% 02/01/05 25,000
Medium Term Notes ................................ N/A 8.12% 06/15/05 150,000
Senior Notes ..................................... N/A 7.70% 12/20/10 185,000
Senior Notes ..................................... N/A 6.71% 03/13/06 50,000
-----------
770,000
LINES OF CREDIT
Revolver - Syndicated ............................ N/A LIBOR + .750% or prime minus .25%(8) 04/30/04 50,000
Cash Management Line ............................. N/A LIBOR + .675% or prime minus .25% 02/13/02 106
-----------
50,106
TOTAL................................ $ 1,289,954
===========
(1) All of the mortgages can be prepaid at any time, subject to certain
prepayment penalties.
(2) This note bears interest at 6.50% with an effective rate of 7.30% after
consideration of a terminated swap agreement.
(3) In December 2000, the Company entered into a swap transaction that
fixed the rate of interest on this note at 6.975%, inclusive of credit
enhancement and other fees, from January 1, 2001 through July 31, 2009.
(4) This loan is interest-free for the first three years, with interest at
5.00% thereafter. Repayment is to commence on March 1, 2001 subject to
the conditions set forth in the Agreement.
(5) Bond financed (interest rate on bonds + credit enhancement fees
effective October 1, 1998).
-28-
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
(6) These bonds are cross-collateralized. The Company has purchased an
interest rate cap that limits the Company's exposure to increases in
the base rate to 5%.
(7) The annual interest rate on these securities to March 16, 2005 (the
"Remarketing Date") is 6.85%. On the Remarketing Date, they are subject
to mandatory tender for remarketing.
(8) Represents stated rate. The Company may also make "money market" loans
of up to $160,000 at rates below the stated rate. At March 31, 2001,
the outstanding balance of the Revolver consisted of "money market"
loans with an average interest rate of 6.00%.
Current Development Activity
The Company's apartment communities under development or in initial lease-up are
summarized in the following table:
ESTIMATED ESTIMATED ESTIMATED
# OF QUARTER OF QUARTER OF QUARTER OF
METROPOLITAN AREA UNITS CONSTRUCTION START FIRST UNITS AVAILABLE STABILIZED OCCUPANCY
----- ------------------ --------------------- --------------------
Atlanta, GA
Post Spring(TM) ......................................... 452 3Q'99 2Q'00 3Q'01
Post Peachtree(TM)(1) ................................... 121 2Q'00 4Q'01 2Q'02
Post Biltmore (1) ....................................... 276 3Q'00 4Q'01 3Q'02
-----
SUBTOTAL 849
-----
Charlotte, NC
Post Gateway Place(TM) .................................. 232 3Q'99 3Q'00 4Q'01
Post Gateway Place II ................................... 204 3Q'00 3Q'01 2Q'02
-----
SUBTOTAL 436
-----
Dallas, TX
Post Legacy ............................................. 384 3Q'99 3Q'00 4Q'01
Post Addison Circle(TM) III ............................. 264 3Q'99 3Q'00 2Q'01
-----
SUBTOTAL 648
-----
Houston, TX
Post Midtown Square(TM) (II) ............................ 193 1Q'00 4Q'00 4Q'01
Denver, CO
Post Uptown Square(TM) I ................................ 449 1Q'98 3Q'99 3Q'01
Post Uptown Square(TM) (II) ............................. 247 1Q'00 4Q'01 3Q'02
-----
SUBTOTAL 696
-----
Phoenix, AZ
Post Roosevelt Square(TM) ............................... 403 4Q'98 1Q'00 4Q'01
Washington, D.C
Post Pentagon Row ....................................... 504 2Q'99 2Q'01 3Q'02
Post Massachusetts Avenue ............................... 269 2Q'01 1Q'03 4Q'03
-----
SUBTOTAL 773
-----
Pasadena, CA
Post Paseo Colorado ..................................... 387 2Q'00 2Q'02 2Q'03
-----
TOTAL 4,385
=====
(1) Effective April 2001, these communities are being developed as part of
a joint venture (Post equity ownership is 35%)
The Company is also currently conducting feasibility and other pre-development
studies for possible new Post(R) communities in its primary market areas.
-29-
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
Capitalization of Fixed Assets and Community Improvements
The Company has established a policy of capitalizing those expenditures relating
to acquiring new assets, materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset. All expenditures
necessary to maintain a community in ordinary operating condition are expensed
as incurred. During the first five years of a community (which corresponds to
the estimated depreciable life), carpet replacements are expensed as incurred.
Thereafter, carpet replacements are capitalized.
Acquisition of assets and community improvement expenditures for the three
months ended March 31, 2001 and 2000 are summarized as follows:
THREE MONTHS ENDED
MARCH 31,
----------------------------
2001 2000
--------- ---------
New community development and acquisition activity ................ $ 74,466 $ 91,011
Non-recurring capital expenditures:
Revenue generating additions and improvements .................. 1,102 576
Other community additions and improvements ..................... 322 830
Recurring capital expenditures:
Carpet replacements ............................................ 674 792
Community additions and improvements ........................... 1,952 1,146
Corporate additions and improvements ........................... 511 912
--------- ---------
$ 79,027 $ 95,267
========= =========
INFLATION
Substantially all of the 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 increases in rents. The substantial majority of these leases are
for one year or less and the remaining leases are for up to two years. At the
expiration of a lease term, the Company's lease agreements provide that the term
will be extended unless either the Company or the lessee gives at least sixty
(60) days written notice of termination; in addition, the Company's policy
permits the earlier termination of a lease by a lessee upon thirty (30) days
written notice to the Company and the payment of one month's additional rent as
compensation for early termination. The short-term nature of these leases
generally serves to reduce the risk to the Company of the adverse effect of
inflation.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Hedging Activities." This
standard establishes accounting and reporting standards for derivative and
hedging activities and requires the Company to recognize all derivative
instruments on its balance sheet 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.
Upon adoption of SFAS No. 133, the Company recorded a derivative instrument
liability of $1,299, net of minority interest, and an adjustment of $1,299, net
of minority interest, to accumulated other comprehensive income, a shareholders'
equity account, representing the fair value of its outstanding interest rate
swap agreements. The Company also recorded a net transition adjustment loss in
the statement of operations of $613, net of minority interest, relating to the
write down of the book value of it's interest rate cap agreements to their fair
value.
In the normal course of business, the Company is exposed to the effect of
interest rate changes. The Company limits these risks by following established
risk management policies and procedures including the use of derivatives. The
Company's outstanding derivative financial instruments represent cash flow
hedges that are designated specifically to reduce exposure to interest rate
risk by locking in the expected future cash payments on certain designated debt
obligations. This was accomplished using interest rate swap and interest rate
cap arrangements.
For all outstanding derivative financial instruments and for future use of
derivative financial instruments, the Company designates the specific
instruments as a hedge of identified cash flow exposure. The Company formally
documents all relationships between hedging instruments and hedged items, as
well as its risk-management objective and strategy for undertaking various
hedged transactions. In this documentation, the Company will specifically
identify the asset, liability, firm commitment, or forecasted transaction that
has been designated as a hedged item and will state how the hedged instrument
is expected to hedge the risks related to the hedged item.
The Company will formally measure effectiveness of its hedging relationships
both at the hedge inception and on an ongoing basis in accordance with its risk
management policy. The Company may discontinue hedge accounting prospectively
when it is determined that the derivative is no longer effective in offsetting
changes in the fair value or cash flows of a hedged item; when the derivative
is expired or sold, terminated or exercised; or when the derivative is
re-designated to no longer be a hedged instrument.
At March 31, 2001, the Company has outstanding interest rate swap agreements
with a notional value of $129,000 and maturity dates ranging from 2005 to 2009.
The Company recorded the unrealized loss of $4,063, net of minority interest, on
these cash flow hedges as a liability and a reduction in accumulated other
comprehensive income, a shareholders' equity account, in the accompanying
consolidated balance sheet. In addition, the Company recorded the change in fair
value of the ineffective component of its outstanding interest rate cap
agreements in its statement of operations for the three months ended March 31,
2001. This charge against earnings during the period and the fair value of the
interest rate cap agreements as March 31, 2001 were not significant to the
Company's financial position or results of operations. Within the next twelve
months, the Company expects to reclassify out of accumulated other comprehensive
income approximately $734.
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33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
No. 101 (SAB 101), Revenue Recognition, which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements.
SAB 101 was implemented in the fourth quarter of 2000. The adoption of SAB 101
has had no significant effect on the Company's results of operations or its
financial position.
FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION
Historical Funds from Operations
The Company considers funds from operations ("FFO") an appropriate measure of
performance of an equity REIT. FFO is defined by the National Association of
Real Estate Trusts as net income available to common shareholders determined in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation of real estate assets, and after adjustment for unconsolidated
partnerships and joint ventures. FFO should not be considered as an alternative
to net income (determined in accordance with GAAP) as an indicator of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it necessarily indicative of sufficient cash flow to fund all of the
Company's needs. Cash available for distribution ("CAD") is defined as FFO less
capital expenditures funded by operations and loan amortization payments. The
Company believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, FFO and CAD should be
examined in conjunction with net income as presented in the consolidated
financial statements and data included elsewhere in this report.
FFO and CAD for the three months ended March 31, 2001 and 2000 presented on a
historical basis are summarized in the following table:
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
Calculations of Funds from Operations and Cash Available for Distribution
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
----------- ------------
Net income available to common shareholders ....................... $ 19,866 $ 24,964
Cumulative effect of accounting change,
net of minority interest .......................................... 613 --
Net (gain) on sale of assets ...................................... (111) (687)
Minority interest of common unitholders in Operating
Partnership ....................................................... 2,729 3,320
----------- ------------
Adjusted net income ............................................... 23,097 27,597
Depreciation of real estate assets (1) ............................ 16,622 15,893
----------- ------------
Funds from Operations (2) ......................................... 39,719 43,490
Recurring capital expenditures (3) ................................ (2,626) (1,938)
Non-recurring capital expenditures (4) ............................ (322) (830)
Loan amortization payments ........................................ (791) (310)
----------- ------------
Cash Available for Distribution ................................... $ 35,980 $ 40,412
=========== ============
Revenue generating capital expenditures (5) ....................... $ 1,102 $ 576
=========== ============
Cash Flow Provided By (Used In):
Operating activities .............................................. $ 36,931 $ 42,360
Investing activities .............................................. $ (75,674) $ (60,387)
Financing activities .............................................. $ 34,310 $ 31,500
Weighted average common shares outstanding - basic ................ 38,848,148 39,025,775
=========== ============
Weighted average common shares and units
outstanding - basic ............................................... 44,028,028 44,219,200
=========== ============
Weighted average common shares outstanding - diluted .............. 39,108,476 39,407,667
=========== ============
Weighted average common shares and units
outstanding - diluted ............................................. 44,288,356 44,601,092
=========== ============
(1) Depreciation on real estate assets is net of the minority interest
portion of depreciation in consolidated partnerships and depreciation
on non-real estate assets.
(2) The Company uses the National Association of Real Estate Investment
Trusts ("NAREIT") definition of FFO. FFO for any period means the
Consolidated Net Income of the Company and its subsidiaries for such
period excluding gains or losses from debt restructuring and sales of
property plus depreciation of real estate assets, and after adjustment
for unconsolidated partnerships and joint ventures, all determined on a
consistent basis in accordance with generally accepted accounting
principles. FFO presented herein is not necessarily comparable to FFO
presented by other real estate companies due to the fact that not all
real estate companies use the same definition. However, the Company's
FFO is comparable to the FFO of real estate companies that use the
current NAREIT definition.
(3) Recurring capital expenditures consisted primarily of $674 and $792 of
carpet replacement and $1,952 and $1,146 of other additions and
improvements to existing communities for the three months ended March
31, 2001 and 2000 respectively. Since the Company does not add back the
depreciation of non-real estate assets in its calculation of FFO,
capital expenditures of $511 and $912 for the three months ended March
31, 2001 and 2000, respectively, are excluded from the calculation of
CAD.
(4) Non-recurring capital expenditures consisted of community additions and
improvements of $322 and $830 for the three months ended March 31, 2001
and 2000, respectively.
(5) Revenue generating capital expenditures are primarily comprised of
major renovations of communities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. At March 31,
2001, the Company had $235,880 in variable tax-exempt debt tied to "AAA"
NON-AMT. In addition, the Company has interest rate risk associated with fixed
rate debt at maturity. The discussion in this section is the same for the
Company and the Operating Partnership, except that all indebtedness described
herein has been incurred by the Operating Partnership.
Management has and will continue to manage interest rate risk as follows:
- - Maintain a conservative ratio of fixed rate, long-term debt to total debt
such that variable rate exposure is kept to an acceptable level;
- - Fix certain long-term variable rate debt through the use of interest rate
swaps or interest rate caps with appropriately matching maturities;
- - Use treasury lock where appropriate to fix rates on anticipated debt
transactions, and
- - Take advantage of favorable mark conditions for long-term debt and/or
equity.
Management uses various financial models and advisors to achieve these
objectives.
The following table summarizes the notional values and fair values of the
Company's derivative financial instruments. The notional value provides an
indication of the extent of the Company's involvement in these instruments at
that time, but does not represent exposure to credit, interest rate or market
risks.
AVERAGE
PAY RATE/ EXPECTED FAIR
INTEREST RATE DERIVATIVE NOTIONAL AMOUNT CAP RATE SETTLEMENT DATE VALUE
- ------------------------ --------------- --------- --------------- -------
Interest Rate Swaps
Variable to fixed $ 104,000
amortizing to
$90,270 6.04% 07/31/09 $(3,304)
Variable to fixed 25,000 6.53% 02/01/05 (1,302)
Interest rate cap 76,000 5.00% 02/01/03 6
Interest rate cap 141,230 5.00% 02/01/03 11
Interest rate cap $ 18,650 5.00% 02/01/03 1
At March 31, 2001, the derivative instrument asset and liabilities were
reported at their fair values in the Company's balance sheet.
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35
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The registrants agree to furnish a copy of all agreements relating to
long-term debt upon request of the Commission.
(b) Reports on Form 8-K
Reports on Form 8-K were filed by each registrant on March 7, 2001 and
March 12, 2001.
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36
SIGNATURES
Pursuant to the requirements 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.
POST PROPERTIES, INC.
May 15, 2001 /s/ R. Gregory Fox
- ------------------------ ----------------------------------------
(Date) R. Gregory Fox
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
May 15, 2001 /s/ Arthur J. Quirk
- ------------------------ ----------------------------------------
(Date) Vice President and Controller,
Chief Accounting Officer
(Principal Accounting Officer)
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37
SIGNATURES
Pursuant to the requirements 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.
POST APARTMENT HOMES, L.P.
By: Post GP Holdings, Inc., as General
Partner
May 15,2001 /s/ R. Gregory Fox
- ------------------------ ----------------------------------------
(Date) R. Gregory Fox
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
May 15, 2001 /s/ Arthur J. Quirk
- ------------------------ ----------------------------------------
(Date) Vice President and Controller
Chief Accounting Officer
(Principal Accounting Officer)
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