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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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 June 30, 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
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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.
38,546,778 shares of common stock outstanding as of August 8, 2001
(excluding treasury stock).
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2
POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
INDEX
PAGE
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PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
POST PROPERTIES, INC.
Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000........................... 1
Consolidated Statements of Operations for the three and six months ended
June 30, 2001 and 2000....................................................................... 2
Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the
six months ended June 30, 2001............................................................... 3
Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and 2000....................................................................... 4
Notes to Consolidated Financial Statements...................................................... 5
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000........................... 11
Consolidated Statements of Operations for the three and six months ended
June 30, 2001 and 2000....................................................................... 12
Consolidated Statement of Partners' Equity for the six months ended
June 30, 2001................................................................................ 13
Consolidated Statements of Cash Flows for the six months ended
June 30, 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)
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
(UNAUDITED)
ASSETS
Real estate investments:
Land ........................................................................ $ 268,366 $ 281,525
Building and improvements ................................................... 1,681,798 1,686,773
Furniture, fixtures and equipment ........................................... 200,807 190,968
Construction in progress .................................................... 463,151 509,702
Investments in and advances to unconsolidated entities ...................... 25,497 --
Land held for future development ............................................ 44,291 28,995
------------ ------------
2,688,885 2,692,988
Less: accumulated depreciation .............................................. (363,377) (345,121)
Assets held for sale ........................................................ 65,480 122,047
------------ ------------
Real estate investments ........................................................ 2,390,988 2,469,914
Cash and cash equivalents ...................................................... 14,269 7,459
Restricted cash ................................................................ 1,316 1,272
Deferred charges, net .......................................................... 20,918 21,700
Other assets ................................................................... 52,323 50,892
------------ ------------
Total assets ................................................................ $ 2,479,814 $ 2,551,237
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable ............................................................... $ 1,172,355 $ 1,213,309
Accrued interest payable .................................................... 8,285 10,751
Dividends and distributions payable ......................................... 34,555 33,933
Accounts payable and accrued expenses ....................................... 63,189 67,136
Security deposits and prepaid rents ......................................... 9,261 9,407
------------ ------------
Total liabilities ........................................................ 1,287,645 1,334,536
------------ ------------
Minority interest of preferred unitholders in Operating Partnership ............ 70,000 70,000
------------ ------------
Minority interest of common unitholders in Operating Partnership ............... 115,693 118,091
------------ ------------
Commitments and contingencies ..................................................
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, 38,535,781
and 38,853,596 shares outstanding at June 30, 2001
and December 31, 2000, respectively....................................... 396 396
Additional paid-in capital .................................................. 1,049,477 1,057,067
Accumulated earnings ........................................................ -- --
Accumulated other comprehensive income, net of minority interest ............ (1,749) --
Deferred compensation ....................................................... (530) --
------------ ------------
1,047,644 1,057,513
Less common stock in treasury at cost, 1,140,423 and 808,596 shares
at June 30, 2001 and December 31, 2000, respectively ..................... (41,168) (28,903)
------------ ------------
Total shareholders' equity .................................................. 1,006,476 1,028,610
------------ ------------
Total liabilities and shareholders' equity .................................. $ 2,479,814 $ 2,551,237
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUE:
Rental ..................................................... $ 92,994 $ 90,243 $ 187,845 $ 178,067
Property management - third-party .......................... 1,192 933 2,368 1,841
Landscape services - third-party ........................... 3,161 2,999 5,591 5,101
Interest ................................................... 503 448 987 987
Other ...................................................... 4,312 4,823 7,954 8,890
----------- ----------- ----------- -----------
Total revenue .......................................... 102,162 99,446 204,745 194,886
----------- ----------- ----------- -----------
EXPENSES:
Property operating and maintenance
(exclusive of items shown separately below) ............. 35,183 32,238 70,977 62,890
Depreciation expense ....................................... 18,872 16,430 36,763 33,436
Property management - third-party .......................... 973 730 1,910 1,518
Landscape services - third-party ........................... 2,756 2,479 5,018 4,484
Interest ................................................... 14,720 12,062 29,705 22,763
Amortization of deferred loan costs ........................ 490 400 942 784
General and administrative ................................. 3,331 1,633 6,406 4,127
Minority interest in consolidated property partnerships .... (537) (260) (817) (815)
----------- ----------- ----------- -----------
Total expense ......................................... 75,788 65,712 150,904 129,187
----------- ----------- ----------- -----------
Income before net gain (loss) on sale of assets,
minority interest of unitholders in Operating
Partnership, cumulative effect of accounting change
and extraordinary item ..................................... 26,374 33,734 53,841 65,699
Net gain (loss) on sale of assets ............................ 15,660 (18) 15,771 669
Minority interest of preferred unitholders in
Operating Partnership ...................................... (1,400) (1,400) (2,800) (2,800)
Minority interest of common unitholders in
Operating Partnership ...................................... (4,443) (3,423) (7,173) (6,743)
----------- ----------- ----------- -----------
Income before cumulative effect of accounting change
and extraordinary item ..................................... 36,191 28,893 59,639 56,825
Cumulative effect of accounting change, net
of minority interest ....................................... -- -- (613) --
Extraordinary item, net of minority interest ................. (77) -- (77) --
----------- ----------- ----------- -----------
Net income ................................................... 36,114 28,893 58,949 56,825
Dividends to preferred shareholders .......................... (2,969) (2,969) (5,938) (5,938)
----------- ----------- ----------- -----------
Net income available to common shareholders .................. $ 33,145 $ 25,924 $ 53,011 $ 50,887
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE - BASIC
Income before cumulative effect of accounting change
and extraordinary item (net of preferred dividend) ......... $ 0.86 $ 0.66 1.39 $ 1.30
Cumulative effect of accounting change, net
of minority interest ....................................... -- -- (0.02) --
Extraordinary item, net of minority interest ................. -- -- -- --
----------- ----------- ----------- -----------
Net income available to common shareholders .................. $ 0.86 $ 0.66 $ 1.37 $ 1.30
=========== =========== =========== ===========
Weighted average common shares outstanding - basic ........... 38,653,625 39,294,234 38,750,350 39,160,002
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE - DILUTED
Income before cumulative effect of accounting change
and extraordinary item (net of preferred dividend) ......... $ 0.85 $ 0.65 $ 1.38 $ 1.28
Cumulative effect of accounting change, net of minority
interest ................................................... -- -- (0.02) --
Extraordinary item, net of minority interest ................. -- -- -- --
----------- ----------- ----------- -----------
Net income available to common shareholders .................. $ 0.85 $ 0.65 $ 1.36 $ 1.28
=========== =========== =========== ===========
Weighted average common shares outstanding diluted ........... 38,884,223 40,130,580 38,995,749 39,753,796
=========== =========== =========== ===========
Dividends declared ........................................... $ 0.78 $ 0.76 $ 1.56 $ 1.52
=========== =========== =========== ===========
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 Dividend
Reinvestment and Employee
Stock Purchase Plans ................ -- -- (1,442) -- --
Adjustment for minority interest
of unitholders in Operating
Partnership at dates of capital
transactions ........................ -- -- 1,174 -- --
COMPREHENSIVE INCOME 2001:
Net income ........................ -- -- -- 58,949 --
Transition adjustment for
derivative instruments, net
of minority interest .............. -- -- -- -- (1,299)
Change in derivative
instrument value, net of
minority interest ................. -- -- -- -- (450)
TOTAL COMPREHENSIVE INCOME
Restricted stock issuances ............. -- -- 46 -- --
Deferred Compensation .................. -- -- -- -- --
Treasury stock acquisitions ............ -- -- -- -- --
Dividends to preferred shareholders .... -- -- -- (5,938) --
Dividends to common shareholders ....... -- -- (7,368) (53,011) --
---------- ---------- ---------- ---------- ----------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
JUNE 30, 2001 ....................... $ 50 $ 396 $1,049,477 $ -- $ (1,749)
========== ========== ========== ========== ==========
DEFERRED TREASURY
COMPENSATION STOCK TOTAL
------------ ----------- -----------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
DECEMBER 31, 2000 .................... $ -- $ (28,903) $ 1,028,610
Proceeds from Dividend
Reinvestment and Employee
Stock Purchase Plans ................ -- 8,523 7,081
Adjustment for minority interest
of unitholders in Operating
Partnership at dates of capital
transactions ........................ -- -- 1,174
COMPREHENSIVE INCOME 2001:
Net income ........................ -- -- 58,949
Transition adjustment for
derivative instruments, net
of minority interest .............. -- -- (1,299)
Change in derivative
instrument value net of
minority interest ................. -- -- (450)
-----------
TOTAL COMPREHENSIVE INCOME ............ 57,200
Restricted stock issuances ............. (644) 598 --
Deferred compensation .................. 114 114
Treasury stock acquisitions ............ (21,386) (21,386)
Dividends to preferred shareholders .... (5,938)
Dividends to common shareholders ....... -- -- (60,379)
----------- ----------- -----------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
JUNE 30, 2001 ....................... (530) $ (41,168) $ 1,006,476
=========== =========== ===========
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)
SIX MONTHS ENDED
JUNE 30,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 58,949 $ 56,825
Adjustments to reconcile net income to net cash provided by operating
activities:
Net gain on sale of assets .............................................. (15,771) (669)
Minority interest of preferred unitholders in Operating Partnership ..... 2,800 2,800
Minority interest of common unitholders in Operating Partnership ........ 7,173 6,743
Cumulative accounting change, net of minority interest .................. 613 --
Extraordinary item, net of minority interest ........................... 77 --
Depreciation ............................................................ 36,763 33,436
Amortization of deferred loan costs ..................................... 942 784
Changes in assets, (increase) decrease in:
Restricted cash ......................................................... (44) (122)
Other assets ............................................................ (3,157) (16,676)
Deferred charges ........................................................ (1,370) (2,039)
Changes in liabilities, increase (decrease) in:
Accrued interest payable ................................................ (2,466) (106)
Accounts payable and accrued expenses ................................... 579 7,005
Security deposits and prepaid rents ..................................... (146) 1,043
--------- ---------
Net cash provided by operating activities ................................. 84,942 89,024
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets, net of payables ....... (118,676) (174,263)
Net proceeds from sale of assets .......................................... 191,340 31,415
Capitalized interest ...................................................... (11,753) (11,867)
Recurring capital expenditures ............................................ (6,939) (4,462)
Corporate additions and improvements ...................................... (1,240) (1,326)
Non-recurring capital expenditures ........................................ (819) (1,438)
Revenue generating capital expenditures ................................... (2,008) (2,189)
Distributions from unconsolidated entities ................................ 4,086 --
--------- ---------
Net cash provided by (used in) investing activities ....................... 53,991 (164,130)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ................................................ (300) --
Debt proceeds ............................................................. 130,000 200,000
Debt payments ............................................................. (170,954) (64,555)
Distributions to preferred unitholders .................................... (2,800) (2,800)
Distributions to common unitholders ....................................... (7,976) (7,582)
Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans ..... 7,081 19,268
Treasury stock acquisitions ............................................... (21,386) --
Dividends paid to preferred shareholders .................................. (5,938) (2,969)
Dividends paid to common shareholders ..................................... (59,850) (56,912)
--------- ---------
Net cash (used in) provided by financing activities ....................... (132,123) 84,450
--------- ---------
Net increase in cash and cash equivalents ................................. 6,810 9,344
Cash and cash equivalents, beginning of period ............................ 7,459 5,870
--------- ---------
Cash and cash equivalents, end of period .................................. $ 14,269 $ 15,214
========= =========
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
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 six-month period ended June 30, 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
As of June 30, 2001, the Operating Partnership had $323,000 aggregate
principal amount of notes outstanding under a Medium Term Note Program.
Medium Term Notes of $37,000 and $30,000 were repaid on April 2, 2001
and June 7, 2001, respectively.
3. SALE OF ASSETS AND 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 two
quarters of 2001, the Company authorized the sale of five communities
and ten tracts of land consisting of: three communities and six tracts
of land in Dallas, Texas, two communities in Atlanta, Georgia, one
tract of land in Charlotte, North Carolina, one tract in Phoenix,
Arizona, one tract in Tampa, Florida and one tract in Denver, Colorado.
The Company also reclassified from assets held for sale two properties
located in Dallas, Texas. In April 2001, the Company sold an 810-unit
community located in Atlanta, Georgia, for $67,250. Net proceeds on the
sale were approximately $66,641. In May 2001, the Company sold three
communities: one community containing 80 units located in Nashville,
Tennessee for $3,950 with net proceeds of approximately $3,839 and two
communities containing a total of 641 units located in Dallas, Texas
for $42,733 with net proceeds of approximately $42,073. In June 2001,
the Company sold a 908-unit community located in Dallas, Texas for
$76,750. Net proceeds were approximately $75,774. In addition to these
communities, the Company has sold two tracts of land: one tract in
Charlotte, North Carolina for $1,942 with net proceeds of approximately
$1,876 and one tract in Denver, Colorado for $1,155 with net proceeds
of approximately $1,137. The proceeds from these sales were used to
repay outstanding indebtedness and fund additional development
projects.
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8
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
At June 30, 2001, the remaining two communities, two commercial
properties and nine tracts of land consisting of land, buildings and
improvements and furniture, fixture and equipment were recorded at
$65,480, which represented the lower of depreciated cost or fair value
less cost to sell. The Company has recorded net gains of $15,660 and
$15,771 for the three and six months ended June 30, 2001, respectively.
The net gains included reserves of $3,822 and $15,608 for the three and
six months ended June 30, 2001, respectively, to write down to fair
market value the real estate assets designated as held for sale. The
Company expects the sale of the remaining assets to occur in 2001.
For the three months ended June 30, 2001 and 2000, the consolidated
statement of operations includes revenue less operating and maintenance
expense, exclusive of depreciation, of $1,513 and $1,490, respectively,
from communities held for sale at June 30, 2001. For the six months
ended June 30, 2001 and 2000, the consolidated statement of operations
included revenue less operating and maintenance expense, exclusive of
depreciation, of $3,013 and $2,957, respectively, from communities held
for sale at June 30, 2001. Depreciation expense totaling $388 was
recognized on these assets prior to the assets being classified as held
for sale. Depreciation expense has not been recognized subsequent to
the date of held for sale classification.
4. EARNINGS PER SHARE
For the three and six months ended June 30, 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Basic and diluted income available to common
Shareholders (numerator):
Income before cumulative effect of accounting
change and extraordinary item .................... $ 36,191 $ 28,893 $ 59,639 $ 56,825
Less: Preferred stock dividends .................. (2,969) (2,969) (5,938) (5,938)
----------- ----------- ----------- -----------
Income available to common shareholders
before cumulative effect of accounting change
and extraordinary item ........................... $ 33,222 $ 25,924 $ 53,701 $ 50,887
=========== =========== =========== ===========
Common shares (denominator):
Weighted average shares outstanding-basic .......... 38,653,625 39,294,234 38,750,350 39,160,002
Incremental shares from assumed conversion
of options ....................................... 230,598 836,346 245,399 593,794
----------- ----------- ----------- -----------
Weighted average shares outstanding - diluted ...... 38,884,223 40,130,580 38,995,749 39,753,796
=========== =========== =========== ===========
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the six months ended
June 30, 2001 and 2000 were as follows:
(a) During the six months ended June 30, 2001 and 2000, holders of
14,604 and 12,014 units, respectively, 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 other capital transactions result in
adjustments to minority interest. The net effect of the
conversions and adjustments was a reclassification decreasing
minority interest and increasing shareholder's equity in the
amount of $1,174 for the six months ended June 30, 2001 and
increasing minority interest and decreasing shareholder's
equity in the amount of $315 for the six months ended June 30,
2000.
-6-
9
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(b) For cash flow purposes, investment in and advances to
unconsolidated entities excludes non-cash contributions of
$29,583 for the six months ended June 30, 2001.
(c) See footnote 6, "New Accounting Pronouncements, for
information on non-cash activity related to derivative
instruments.
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 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 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 June 30, 2001, the Company has outstanding interest rate swap
agreements with a notional value of $129,000 and maturity dates ranging
from 2005 to 2009. For the six months ended June 30, 2001, the Company
recorded the unrealized loss of $450, 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. This unrealized net loss of
$450 was comprised of an unrealized net loss of $2,764, net of minority
interest, for the three months ended March 31, 2001 and an unrealized
net gain of $2,314, net of minority interest, for the three months
ended June 30, 2001. 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 six months
ended June 30, 2001. This charge against earnings during the period and
the fair value of the interest rate cap agreements as of June 30, 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
$450.
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-
10
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
7. SEGMENT DESCRIPTION
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 six segments are further described as follows:
Property Rental Operations
- Mature 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.
- 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 Funds From Operations ("FFO").
Effective January 1, 2000, NAREIT amended its 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 fund all of the Company's needs or ability to service
indebtedness or make pay dividends.
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 extraordinary item 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
-8-
11
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
level. Summarized financial information concerning the Company's
reportable segments is shown in the following tables:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
REVENUES
Fully stabilized communities ......................... $ 65,105 $ 63,488 $ 129,964 $ 126,159
Communities stabilized during 2000 ................... 11,720 9,396 23,515 17,011
Development and lease-up communities ................. 10,496 3,549 19,359 6,128
Communities held for sale ............................ 2,396 2,318 4,746 4,573
Sold communities ..................................... 3,457 11,257 10,219 23,282
Third party services ................................. 4,353 3,932 7,959 6,942
Other ................................................ 4,635 5,506 8,983 10,791
---------- ---------- ---------- ----------
Consolidated revenues ................................ $ 102,162 $ 99,446 $ 204,745 $ 194,886
========== ========== ========== ==========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities ......................... $ 44,416 $ 44,125 $ 89,070 $ 88,258
Communities stabilized during 2000 ................... 7,719 6,142 15,692 10,928
Development and lease-up communities ................. 6,311 1,684 11,254 2,830
Communities held for sale ............................ 1,513 1,490 3,012 2,957
Sold communities ..................................... 1,919 7,588 6,359 16,286
Third party services ................................. 624 723 1,031 940
---------- ---------- ---------- ----------
Contribution to FFO .................................. 62,502 61,752 126,418 122,199
---------- ---------- ---------- ----------
Other operating income, net of expense ............... (1,332) 331 (3,673) (57)
Depreciation on non-real estate assets ............... (592) (634) (1,246) (1,210)
Minority interest in consolidated property
partnerships ...................................... 537 260 817 815
Interest expense ..................................... (14,720) (12,062) (29,705) (22,763)
Amortization of deferred loan costs .................. (490) (400) (942) (784)
General and administrative ........................... (3,331) (1,633) (6,406) (4,127)
Dividends to preferred shareholders .................. (2,969) (2,969) (5,938) (5,938)
---------- ---------- ---------- ----------
Total FFO ............................................ 39,605 44,645 79,325 88,135
---------- ---------- ---------- ----------
Depreciation on real estate assets ................... (17,600) (15,280) (34,222) (31,174)
Net gain (loss) on sale of assets .................... 15,660 (18) 15,771 669
Minority interest of common unitholders in
Operating Partnership ............................. (4,443) (3,423) (7,173) (6,743)
Dividends to preferred shareholders .................. 2,969 2,969 5,938 5,938
---------- ---------- ---------- ----------
Income before cumulative effect of accounting
change, extraordinary item and preferred
dividends ............................................ $ 36,191 $ 28,893 $ 59,639 $ 56,825
========== ========== ========== ==========
-9-
12
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
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 during the six months ended June 30, 2001:
Severance accrual at December 31, 2000 $2,250
Severance payment during first quarter 2001 1,382
Severance payment during second quarter 2001 631
--------
Severance accrual at June 30, 2001 $ 237
========
9. INVESTMENTS IN UNCONSOLIDATED ENTITIES
In April 2001, the Company contributed two apartment communities under
development in Atlanta, Georgia to joint ventures with an institutional
investor. The Company has a 35% equity interest in the joint venture.
The total estimated development cost of the joint venture properties of
$67,000 is being funded through partner equity contributions
proportionate to the partners' ownership interest and through
construction financing provided by the Company. No gain or loss was
recognized on the Company's contribution to the joint ventures. The
Company provides real estate services (development, construction and
property management) to the joint ventures.
At June 30, 2001, the Company's investment in and advances to the joint
ventures totaled $25,497. The combined total assets, liabilities and
equity of the joint ventures at June 30, 2001, were $38,273, $25,183
and $13,090, respectively. The joint venture properties had not
commenced operations as of June 30, 2001.
10. STOCK BASED COMPENSATION PLAN
In 2001, the Company, under its existing Employee Stock Plan, granted
17,566 shares of restricted stock to company officers. The restricted
shares vest ratably over a five-year period. The total value of the
restricted share grants of $644 was initially reflected in
shareholders' equity as additional capital and as deferred
compensation, a contra shareholders' equity account. Such deferred
compensation is amortized ratably into compensation expense over the
vesting period.
-10-
13
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)
ASSETS
Real estate investments:
Land ................................................................. $ 268,366 $ 281,525
Building and improvements ............................................ 1,686,773 1,681,798
Furniture, fixtures and equipment .................................... 200,807 190,968
Construction in progress ............................................. 463,151 509,702
Investments in and advances to unconsolidated entities
25,497 --
Land held for future development ..................................... 44,291 28,995
---------- ----------
2,688,885 2,692,988
Less: accumulated depreciation ....................................... (363,377) (345,121)
Assets held for sale ................................................. 65,480 122,047
---------- ----------
Real estate investments ................................................ 2,390,988 2,469,914
Cash and cash equivalents .............................................. 14,269 7,459
Restricted cash ........................................................ 1,316 1,272
Deferred charges, net .................................................. 20,918 21,700
Other assets ........................................................... 52,323 50,892
---------- ----------
Total assets ......................................................... $2,479,814 $2,551,237
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Notes payable .......................................................... $1,172,355 $1,213,309
Accrued interest payable ............................................... 8,285 10,751
Distributions payable .................................................. 34,555 33,933
Accounts payable and accrued expenses .................................. 63,189 67,136
Security deposits and prepaid rents .................................... 9,261 9,407
---------- ----------
Total liabilities .................................................... 1,287,645 1,334,536
---------- ----------
Commitments and contingencies ..........................................
---------- ----------
Partners' equity before adjustment for other comprehensive income ...... 1,194,153 1,216,701
Accumulated other comprehensive income ................................. (1,984) --
---------- ----------
Total partners' equity ............................................... 1,192,169 1,216,701
---------- ----------
Total liabilities and partners' equity ................................ $2,479,814 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUES
Rental ..................................................... $ 92,994 $ 90,243 $ 187,845 $ 178,067
Property management - third party .......................... 1,192 933 2,368 1,841
Landscape services - third party ........................... 3,161 2,999 5,591 5,101
Interest ................................................... 503 448 987 987
Other ...................................................... 4,312 4,823 7,954 8,890
----------- ----------- ----------- -----------
Total revenue ....................................... 102,162 99,446 204,745 194,886
----------- ----------- ----------- -----------
EXPENSES
Property operating and maintenance (exclusive of items
shown separately below) .................................. 35,183 32,238 70,977 62,890
Depreciation expense ....................................... 18,872 16,430 36,763 33,436
Property management - third party .......................... 973 730 1,910 1,518
Landscape services - third party ........................... 2,756 2,479 5,018 4,484
Interest ................................................... 14,720 12,062 29,705 22,763
Amortization of deferred loan costs ........................ 490 400 942 784
General and administrative ................................. 3,331 1,633 6,406 4,127
Minority interest in consolidated property partnerships .... (537) (260) (817) (815)
----------- ----------- ----------- -----------
Total expenses ............................................ 75,788 65,712 150,904 129,187
----------- ----------- ----------- -----------
Income before net gain (loss) on sale of assets,
cumulative effect of accounting change
and extraordinary item ................................... 26,374 33,734 53,841 65,699
Net gain (loss) on sale of assets .......................... 15,660 (18) 15,771 669
----------- ----------- ----------- -----------
Income before cumulative effect of accounting
change and extraordinary item ............................. 42,034 33,716 69,612 66,368
Cumulative effect of accounting change ..................... -- -- (695) --
Extraordinary item ......................................... (88) -- (88) --
----------- ----------- ----------- -----------
Net income ................................................. 41,946 33,716 68,829 66,368
Distributions to preferred unitholders ..................... (4,369) (4,369) (8,738) (8,738)
----------- ----------- ----------- -----------
Net income available to common unitholders ................. $ 37,577 $ 29,347 $ 60,091 $ 57,630
=========== =========== =========== ===========
EARNINGS PER COMMON UNIT - BASIC
Income before extraordinary item (net of preferred
distributions) ............................................ $ 0.86 $ 0.66 $ 1.39 $ 1.30
Cumulative effect of accounting change ..................... -- -- (0.02) --
Extraordinary item ......................................... -- -- -- --
---------- ----------- ----------- -----------
Net income available to common unitholders ................. $ 0.86 $ 0.66 $ 1.37 $ 1.30
=========== =========== =========== -----------
Weighted average common units outstanding .................. 43,821,817 44,480,337 43,924,352 44,349,766
=========== =========== =========== ===========
EARNINGS PER COMMON UNIT - DILUTED
Income before extraordinary item (net of
preferred distributions) .................................. $ 0.85 $ 0.65 $ 1.38 $ 1.28
Cumulative effect of accounting change ..................... -- -- (0.02) --
Extraordinary item ......................................... -- -- -- --
---------- ----------- ----------- -----------
Net income available to common unitholders ................. $ 0.85 $ 0.65 $ 1.36 $ 1.28
=========== =========== ----------- ===========
Weighted average common units outstanding .................. 44,052,415 45,316,683 44,169,751 44,943,560
=========== =========== =========== ===========
Distributions declared ..................................... $ 0.78 $ 0.76 $ 1.56 $ 1.52
=========== =========== =========== ===========
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 Dividend
Reinvestment and Employee Stock Purchase Plans ............ 71 7,010 7,081
Purchase of units ............................................. -- (21,386) (21,386)
Distributions to preferred unitholders ........................ -- (8,738) (8,738)
Distributions to common unitholders ........................... (684) (67,764) (68,448)
Comprehensive Income:
Net income ................................................. 688 68,141 68,829
Transition adjustment for derivative instruments ........... (15) (1,457) (1,472)
Change in derivative instrument value ...................... (5) (507) (512)
---------- ---------- ----------
Total Comprehensive Income .................................... 668 66,177 66,845
Contributions from the Company related to restricted shares
issued, net of deferred compensation ....................... 1 113 114
---------- ---------- ----------
PARTNERS' EQUITY, JUNE 30, 2001 ............................... $ 12,166 $1,180,003 $1,192,169
========== ========== ==========
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)
SIX MONTHS ENDED
JUNE 30,
-------------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................. $ 68,829 $ 66,368
Adjustments to reconcile net income to net cash provided
by operating activities:
Net gain on sale of assets .............................. (15,771) (669)
Extraordinary item ...................................... 88 --
Depreciation ............................................ 36,763 33,436
Amortization of deferred loan costs ..................... 942 784
Cumulative effect of accounting change .................. 695 --
Changes in assets, (increase) decrease in
Restricted cash ......................................... (44) (122)
Other assets ............................................ (3,157) (16,676)
Deferred charges ........................................ (1,370) (2,039)
Changes in liabilities, increase (decrease) in:
Accrued interest payable ................................ (2,466) (106)
Accounts payable and accrued expenses ................... 579 7,005
Security deposits and prepaid rents ..................... (146) 1,043
--------- ---------
Net cash provided by operating activities ............... 84,942 89,024
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets,
net of payables ......................................... (118,676) (174,263)
Proceeds from sale of assets .............................. 191,340 31,415
Capitalized interest ...................................... (11,753) (11,867)
Recurring capital expenditures ............................ (6,939) (4,462)
Corporate additions and improvements ...................... (1,240) (1,326)
Non-recurring capital expenditures ........................ (819) (1,438)
Revenue generating capital expenditures ................... (2,008) (2,189)
Distributions from unconsolidated entities ................ 4,086
--------- ---------
Net cash provided by (used in) investing activities ....... 53,991 (164,130)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ................................. (300) --
Debt proceeds .............................................. 130,000 200,000
Debt payments .............................................. (170,954) (64,555)
Purchase of units .......................................... (21,386) --
Proceeds from contributions from the Company related to
Dividend Reinvestment and Employee Stock Purchase Plans.. 7,081 19,268
Distributions paid to preferred unitholders ................ (8,738) (5,769)
Distributions paid to common unitholders ................... (67,826) (64,494)
--------- ---------
Net cash (used in) provided by financing activities ........ (132,123) 84,450
--------- ---------
Net increase in cash and cash equivalents .................. 6,810 9,344
Cash and cash equivalents, beginning of period ............. 7,459 5,870
--------- ---------
Cash and cash equivalents, end of period ................... $ 14,269 $ 15,214
========= =========
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 PER 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 six-month period ended June 30, 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
As of June 30, 2001 the Operating Partnership had $323,000 aggregate
principal amount of notes outstanding under a Medium Term Note Program.
Medium Term Notes of $37,000 and $30,000 were repaid on April 2, 2001
and June 7, 2001, respectively.
3. SALE OF ASSETS AND 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 two quarters of 2001, the Operating Partnership authorized
the sale of five communities and ten tracts of land consisting of:
three communities and six tracts of land in Dallas, Texas, two
communities in Atlanta, Georgia, one tract of land in Charlotte, North
Carolina, one tract in Phoenix, Arizona, one tract in Tampa, Florida
and one tract in Denver, Colorado. The Operating Partnership also
reclassified from assets held for sale two properties located in
Dallas, Texas. In April 2001, the Operating Partnership sold an
810-unit community located in Atlanta, Georgia, for $67,250. Net
proceeds on the sale were approximately $66,641. In May 2001, the
Operating Partnership sold three communities: one community containing
80 units located in Nashville, Tennessee for $3,950 with net proceeds
of approximately $3,839 and two communities containing a total of 641
units located in Dallas, Texas for $42,733 with net proceeds of
approximately $42,073. In June 2001, the Operating Partnership sold a
908-unit community located in Dallas, Texas for $76,750. Net proceeds
were approximately $75,774. In addition to these communities, the
Operating Partnership has sold two tracts of land: one tract in
Charlotte, North Carolina for $1,942 with net proceeds of approximately
$1,876 and one tract in Denver, Colorado for $1,155 with net proceeds
of approximately $1,137. The proceeds from these sales were used to
repay outstanding indebtedness and fund additional development
projects.
At June 30, 2001, the remaining two communities, two commercial
properties and nine tracts of land consisting of land, buildings and
improvements and furniture, fixture and equipment were recorded at
$65,480, which represented the lower of depreciated cost or fair value
less cost to sell. The Operating Partnership has recorded net
-15-
18
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
gains of $15,660 and $15,771 for the three and six months ended June
30, 2001, respectively. The net gains included reserves of $3,822 and
$15,608 for the three and six months ended June 30, 2001, respectively,
to write down to fair market value the real estate assets designated as
held for sale. The Operating Partnership expects the sale of the
remaining assets to occur in 2001.
For the three months ended June 30, 2001 and 2000, the consolidated
statement of operations includes revenue less operating and maintenance
expense, exclusive of depreciation of $1,513 and $1,490, respectively,
from communities held for sale at June 30, 2001. For the six months
ended June 30, 2001 and 2000, the consolidated statement of operations
included revenue less operating and maintenance expense, exclusive of
depreciation of $3,013 and $2,957, respectively, from communities held
for sale at June 30, 2001. Depreciation expense totaling $388 was
recognized on these assets prior to the assets being classified as held
for sale. Depreciation expense has not been recognized subsequent to
the date of held for sale classification.
4. EARNINGS PER UNIT
For the three and six months ended June 30, 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Basic and diluted income available to common
Unitholders (numerator):
Income before cumulative effect of
accounting change and extraordinary item ........... $ 42,034 $ 33,716 $ 69,612 $ 66,368
Less: Preferred unit distributions .................... (4,369) (4,369) (8,738) (8,738)
------------ ------------ ------------ ------------
Income available to common unitholders
Before cumulative effect of accounting change
extraordinary item .................................. $ 37,665 $ 29,347 $ 60,874 $ 57,630
============ ============ ============ ============
Common units (denominator):
Weighted average units outstanding - basic ............ 43,821,817 44,480,337 43,924,352 44,349,766
Incremental units from assumed conversion
of options .......................................... 230,598 836,346 245,399 593,794
------------ ------------ ------------ ------------
Weighted average units outstanding - diluted .......... 44,052,415 45,316,683 44,169,751 44,943,560
============ ============ ============ ============
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 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 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 it's 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 outstanding derivative financial instruments represent cash
flow hedges that are designated debt obligations. This was accomplished
using interest rate swap and interest rate cap arrangements.
-16-
19
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
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 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 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 June 30, 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. For the six months ended June 30,
2001, the Operating Partnership recorded the unrealized loss of $512 on
these cash flow hedges as a liability and a reduction in accumulated
other comprehensive income, a partner's equity account, in the
accompanying consolidated balance sheet. This unrealized net loss of
$512 was comprised of an unrealized net loss of $3,134 for the three
months ended March 31, 2001 and an unrealized net gain of $2,622 for
the three months ended June 30, 2001. 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 six months ended June 30, 2001. This
charge against earnings during the period and the fair value of the
interest rate cap agreements as of June 30, 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 $450.
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 six segments are
further described as follows: Property Rental Operations
- Mature 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 PER 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 Funds From Operations
("FFO"). Effective January 1, 2000, NAREIT amended its 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 fund 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 extraordinary item. 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
Summarized financial information concerning the Operating Partnership's
reportable segments is shown in the following tables.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2001 2000 2001 2000
--------- -------- --------- ---------
REVENUES
Fully stabilized communities ..................... $ 65,105 $ 63,488 $ 129,964 $ 126,159
Communities stabilized during 2000 ............... 11,720 9,396 23,515 17,011
Development and lease-up communities ............. 10,496 3,549 19,359 6,128
Communities held for sale ........................ 2,396 2,318 4,746 4,573
Sold communities ................................. 3,457 11,257 10,219 23,282
Third party services ............................. 4,353 3,932 7,959 6,942
Other ............................................ 4,635 5,506 8,983 10,791
--------- -------- --------- ---------
Consolidated revenues ............................ $ 102,162 $ 99,446 $ 204,745 $ 194,886
========= ======== ========= =========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities ..................... $ 44,416 $ 44,125 $ 89,070 $ 88,258
Communities stabilized during 2000 ............... 7,719 6,142 15,692 10,928
Development and lease-up communities ............. 6,311 1,684 11,254 2,830
Communities held for sale ........................ 1,513 1,490 3,012 2,957
Sold communities ................................. 1,919 7,588 6,359 16,286
Third party services ............................. 624 723 1,031 940
--------- -------- --------- ---------
Contribution to FFO .............................. 62,502 61,752 126,418 122,199
--------- -------- --------- ---------
Other operating income, net of expense ........... 68 1,731 (873) 2,743
Depreciation on non-real estate assets ........... (592) (634) (1,246) (1,210)
Minority interest in consolidated property
partnership ...................................... 537 260 817 815
Interest expense ................................. (14,720) (12,062) (29,705) (22,763)
Amortization of deferred loan costs .............. (490) (400) (942) (784)
General and administrative ....................... (3,331) (1,633) (6,406) (4,127)
Distributions to preferred unitholders ........... (4,369) (4,369) (8,738) (8,738)
--------- -------- --------- ---------
Total FFO ........................................ 39,605 44,645 79,325 88,135
--------- -------- --------- ---------
Depreciation on real estate assets ............... (17,600) (15,280) (34,222) (31,174)
Net gain (loss) on sale of assets ................ 15,660 (18) 15,771 669
Distributions to preferred unitholders ........... 4,369 4,369 8,738 8,738
--------- -------- --------- ---------
Income before cumulative effect of accounting
change, extraordinary item and preferred
distributions .................................. $ 42,034 $ 33,716 $ 69,612 $ 66,368
========= ======== ========= =========
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22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
7. 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 June 30, 2001:
Severance accrual at December 31, 2000 $2,250
Severance payment during first quarter 2001 1,382
Severance payment during second quarter 2001 631
------
Severance accrual at June 30, 2001 $ 237
======
8. INVESTMENTS IN UNCONSOLIDATED ENTITIES:
In April 2001, the Operating Partnership contributed two apartment
communities under development in Atlanta, Georgia to joint ventures
with an institutional investor. The Operating Partnership has a 35%
equity interest in the joint venture. The total estimated development
cost of the joint venture properties of $67,000 is being through funded
partner equity contributions proportionate to the partners' ownership
interest and through construction financing provided by the Operating
Partnership. No gain or loss was recognized on the Operating
Partnership's contribution to the joint ventures. The Operating
Partnership provides real estate services (development, construction
and property management) to the joint ventures.
At June 30, 2001, the Operating Partnership's investment in and
advances to the joint ventures totaled $25,497. The combined total
assets, liabilities and equity of the joint ventures at June 30, 2001,
were $38,273, $25,183 and $13,090, respectively. The joint venture
properties had not commenced operations as of June 30, 2001.
9. STOCK BASED COMPENSATION PLAN
In 2001, the Company, under its existing Employee Stock Plan, granted
17,566 shares of restricted stock to Operating Partnership officers.
The restricted shares vest ratably over a five-year period. The total
value of the restricted share grants of $644 was initially reflected in
partners' equity offset by the amount of the unamortized deferred
compensation expense. Such deferred compensation is amortized ratably
into compensation expense over the vesting period.
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23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per 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 June 30, 2001, there were 43,702,588 units in the Operating Partnership
outstanding, of which 38,535,781 or 88.2%, were owned by the Company and
5,166,807, or 11.8%, were owned by other limited partners (including certain
officers and directors of the Company). As of June 30, 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 AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
The Company recorded net income available to common shareholders of $33,145 and
$53,011 for the three and six months ended June 30, 2001, respectively, which
represent increases of 27.9% and 4.2%, respectively, over the corresponding
periods in 2000 primarily as a result of net gains from the sale of assets.
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 June 30, 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) 17 communities either stabilized in
the current year or presently in the development or lease-up stages and (iv) two
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 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 and six months ended June
30, 2001 were $605 and $1,768, respectively. Lease up deficits for the three and
six months ended June 30, 2000 were $765 and $1,617, respectively.
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24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
In order to evaluate the operating performance of its communities, the Company
has presented financial information which 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 and six months ended June 30, 2001 and 2000 is summarized
as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- ------------------------------------
2001 2000 %CHANGE 2001 2000 %CHANGE
------- ------- ------- -------- -------- --------
Rental and other revenue:
Mature communities (1) ........................... $65,105 $63,488 2.5% $129,964 $126,159 3.0%
Communities stabilized during 2000 ............... 11,720 9,396 24.7% 23,515 17,011 38.2%
Development and lease-up communities (2) ......... 10,496 3,549 195.7% 19,359 6,128 215.9%
Communities held for sale (3) .................... 2,396 2,318 3.4% 4,746 4,573 3.8%
Sold communities (4) ............................. 3,457 11,257 (69.3)% 10,219 23,282 (56.1)%
Other revenue (5) ................................ 4,132 5,058 (18.3)% 7,996 9,804 (18.4)%
------- ------- -------- --------
97,306 95,066 2.4% 195,799 186,957 4.7%
------- ------- -------- --------
Property operating and maintenance expense
(exclusive of depreciation and amortization):
Mature communities (1) ........................... 20,689 19,363 6.8% 40,894 37,901 7.9%
Communities stabilized during 2000 ............... 4,001 3,254 23.0% 7,823 6,083 28.6%
Development and lease-up communities (2) ......... 4,185 1,865 124.4% 8,105 3,298 145.8%
Communities held for sale (3) .................... 883 828 6.6% 1,734 1,616 7.3%
Sold communities (4) ............................. 1,538 3,669 (58.1)% 3,860 6,996 (44.8)%
Other expenses (6) ............................... 3,887 3,259 19.3% 8,561 6,996 22.4%
------- ------- -------- --------
35,183 32,238 9.1% 70,977 62,890 12.9%
------- ------- -------- --------
Revenue in excess of specified expense ........... $62,123 $62,828 (1.1)% $124,822 $124,067 0.6%
======= ======= ======== ========
Recurring capital expenditures: (7)
Carpet ......................................... $ 725 $ 619 17.1% $ 1,399 $ 1,410 (0.8)%
Other .......................................... 3,588 1,905 88.3% 5,540 3,052 81.5%
======= ======= ======== ========
Total .......................................... $ 4,313 $ 2,524 70.9% $ 6,939 $ 4,462 55.5%
======= ======= ======== ========
Average apartment units in service ............... 32,153 31,418 2.3% 32,234 31,182 3.4%
======= ======= ======== ========
Recurring capital expenditures per
Apartment unit ................................. $ 134 $ 80 67.5% $ 215 $ 143 50.3%
======= ======= ======== ========
(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 one community in Georgia and one community and two commercial
properties in Texas.
(4) Includes one community, containing 213 units, which was sold 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 containing 296 units which was
sold December 21, 2000, one community containing 125 units which was
sold December 28, 2000, one community containing 810 units, which was
sold April 10, 2001, one community containing 80 units, which was sold
May 1, 2001, one community containing 327 units, which was sold May 10,
2001, one community containing 314 units, which was sold May 23, 2001
and one community containing 908 units which was sold June 21, 2001.
(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.
(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.
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25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
For the three and six months ended June 30, 2001, rental and other revenue
increased $2,240, or 2.4%, and $8,842, or 4.7%, respectively, compared to the
same periods 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 and six months
ended June 30, 2001, property operating and maintenance expenses increased
$2,945, or 9.1%, and $8,087, or 12.9%, respectively, compared to the same
periods in the prior year, primarily due to the completion of new communities
and increases in personnel costs, real estate taxes and insurance in the mature
communities.
For the three and six months ended June 30, 2001, recurring capital expenditures
increased $1,789, or 70.9% ($54, or 67.5% on a per unit apartment basis), and
$2,477, or 55.5% ($72, or 50.3% on a per unit apartment basis), respectively,
compared to the same periods in the prior year, primarily due to the timing of
capital expenditures.
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
22,612 units which were fully stabilized as of January 1, 2000, is summarized as
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------------
% %
2001 2000 CHANGE 2001 2000 CHANGE
------- ------- ------- -------- ------- ------
Rental and other revenue (1) ..................... $65,105 $63,488 2.5% $129,964 $126,159 3.0%
Property operating and maintenance
Expense (exclusive of depreciation and
amortization) (1) ............................. 20,689 19,363 6.8% 40,894 37,901 7.9%
------- ------- -------- --------
Revenue in excess of specified expense ........... $44,416 $44,125 0.7% $ 89,070 $ 88,258 0.9%
------- ------- -------- --------
Recurring capital expenditures: (2)
Carpet ........................................ $ 591 $ 530 11.5% $ 1,142 $ 1,123 1.7%
Other ......................................... 2,885 1,661 73.7% 4,546 2,613 74.0%
------- ------- -------- --------
Total ......................................... 3,476 $ 2,191 58.6% $ 5,688 $ 3,736 52.2%
======= ======= ======== ========
Recurring capital expenditures per
Apartment unit (3) ............................ $ 154 $ 97 58.8% $ 252 $ 165 52.7%
======= ======= ======== ========
Average economic occupancy (4) ................... 95.3% 96.6% (1.3)% 95.6% 96.6% (1.0)%
======= ======= ======== ========
Average monthly rental rate per
Apartment unit (5) ............................ $ 954 $ 932 2.4% $ 952 $ 928 2.5%
======= ======= ======== ========
Apartment units in service ....................... 22,612 22,612 22,612 22,612
======= ======= ======== ========
(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 $178
and $160 per unit on building maintenance (inclusive of direct
salaries) and $59 and $59 per unit on landscaping (inclusive of direct
salaries) for the three months ended June 30, 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 94.5% and 94.4% for the three months ended June
30, 2001 and 2000, respectively. For the three months ended June 30,
2001 and 2000, concessions were $260 and $1,215, respectively, and
employee discounts were $251 and $221, 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 and six months ended June 30, 2001, rental and other revenue
increased $1,617, or 2.5%, and $3,805, or 3.0%, respectively, compared to the
same periods in the prior year, primarily due to increased rental rates. For the
three and six months ended June 30, 2001, property operating and maintenance
expenses (exclusive of depreciation and amortization) increased $1,326, or 6.8%,
and $2,993, or 7.9%, respectively, compared to the same periods in the prior
year, primarily as a result of increased personnel expense, real estate taxes
and insurance.
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26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
For the three and six months ended June 30, 2001, recurring capital expenditures
per unit increased $57, or 58.8%, and $87, or 52.7%, respectively, compared to
the same periods in the prior year, as a result of the timing of expenditures.
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 and six
months ended June 30, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -------------------------------
2001 2000 %CHANGE 2001 2000 %CHANGE
------- ------- ------- ------- ------- -------
Property management and other revenue ............ $ 1,192 $ 933 27.8% $ 2,368 $ 1,841 28.6%
Property management expense ...................... 973 730 33.3% 1,910 1,518 25.8%
Depreciation expense ............................. 8 7 14.3% 15 14 7.1%
------- ------- ------- -------
Revenue in excess of specified expense ........... $ 211 $ 196 7.7% $ 443 $ 309 43.4%
======= ======= ======= =======
Average apartment units managed .................. 15,899 14,098 12.8% 15,816 13,916 13.7%
======= ======= ======= =======
The increase in revenue in excess of specified expense for the three and six
months ended June 30, 2001 compared to the same periods 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 and six months
ended June 30, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
2001 2000 % CHANGE 2001 2000 % CHANGE
------ ------ -------- ------ ------ --------
Landscape services and other revenue ............. $3,161 $2,999 5.4% $5,591 $5,101 9.6%
Landscape services expense ....................... 2,756 2,479 11.2% 5,018 4,484 11.9%
Depreciation expense ............................. 111 90 23.3% 219 177 23.7%
------ ------ ------ ------
Revenue in excess of specified expense ........... $ 294 $ 430 (31.6)% $ 354 $ 440 (19.5)%
====== ====== ====== ======
The decrease in revenue in excess of specified expense for the three and six
months ended June 30, 2001 compared to the same periods in the prior year is
primarily attributable to a reduction in landscape installation volume resulting
from a slow down in commercial construction in PLG's markets.
OTHER EXPENSES
Depreciation expense increased $2,442, or 14.9%, and $3,327, or 10.0%,
respectively, for the three and six months ended June 30, 2001 compared to the
same periods 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 $1,698, or 104.0%, and $2,279, or
55.2%, respectively, for the three and six months ended June 30, 2001, compared
to the same period in the prior year, primarily as a result of reduced
capitalization
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27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
of overhead to communities under development, increased salary expense,
insurance costs and relocation expense due to management changes.
Interest expense increased $2,658, or 22.0%, and $6,942, or 30.5%, respectively,
for the three and six months ended June 30, 2001 compared to the same period in
the prior year primarily due to an increase in debt used to fund the development
and lease-up of new communities and the repurchase of the Company's common
stock.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's net cash provided by operating activities decreased from $89,024
for the six months ended June 30, 2000 to $84,942 for the six months ended June
30, 2001, principally due to reduced operating income as a result of property
sales and changes in working capital. Net cash provided by (used in) investing
activities increased from ($164,130) in the six months ended June 30, 2000 to
$53,991 in the six months ended June 30, 2001 principally due to decreased
construction spending and proceeds from the sale of five communities in the
second quarter of 2001. The Company's net cash provided by (used in) financing
activities increased from $84,450 for the six months ended June 30, 2000 to
($132,123) for the six months ended June 30, 2001 primarily due to increased
debt payments and 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 ordinary taxable income. The Company
generally will not be subject to Federal income tax on net income.
At June 30, 2001, the Company had total indebtedness of $1,172,355, a decrease
of $40,954 from its total indebtedness at December 31, 2000, and cash and cash
equivalents of $14,269. At June 30, 2001, the Company's indebtedness included
approximately $233,475 in conventional mortgages payable secured by individual
communities, tax-exempt bond indebtedness of $235,880 and senior unsecured notes
of $703,000.
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.
Lines Of Credit
The Company has three unsecured lines of credit with total availability of
$525,000. As of June 30, 2001, there were no outstanding balances on these
lines.
Medium Term Notes
As of June 30, 2001, the Operating Partnership had $323,000 aggregate principal
amount of notes outstanding under a Medium Term Note Program. Medium Term Notes
in the amounts of $37,000 and $30,000 were repaid on April 2, 2001 and June 7,
2001, respectively.
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28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
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.
Sale of Assets
During the first two quarters of 2001, the Company sold five communities and two
tracts of land for $193,762. Net proceeds of approximately $191,340 were used to
repay outstanding indebtedness and fund additional development projects.
Stock Repurchase Program
The Company's Board of Directors has approved the purchase of up to $100,000 of
the Company's common stock. Purchases will be made from time to time in the open
market and it is expected that funding of the program will come from operating
cash flow, existing bank facilities and proceeds from asset sales. Through June
30, 2001, the Company has repurchased 1,345,200 shares of its common stock at a
total cost of $48,007.
-26-
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
Schedule of Indebtedness
The following table reflects the Company's indebtedness at June 30, 2001:
MATURITY PRINCIPAL
DESCRIPTION LOCATION INTEREST RATE DATE (1) BALANCE
----------- -------- ------------- -------- ----------
CONVENTIONAL FIXED RATE (SECURED)
Parkwood Townhomes(TM) ...................... Dallas, TX 7.375% 04/01/14 781
Northwestern Mutual Life .................... N/A 6.50%(2) 03/01/09 48,144
Northwestern Mutual Life .................... Dallas, TX 7.69% 10/01/07 28,467
Northwestern Mutual Life .................... Dallas, TX 7.69% 10/01/07 50,883
FNMA ........................................ Atlanta, GA 6.975%(3) 07/23/29 103,200
----------
231,475
TAX EXEMPT FLOATING RATE (SECURED)
Post Ashford(R) Series 1995 ................. Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 9,895
Post Valley(R) Series 1995 .................. Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 18,600
Post Brook(R) Series 1995 ................... Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 4,300
Post Village(R) (Atlanta) Hills
Series 1995 ............................... Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 7,000
Post Mill(R) Series 1995 .................... Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 12,880
Post Canyon(R) Series 1996 .................. Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 16,845
Post Corners(R) Series 1996 ................. Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 14,760
Post Bridge(R) .............................. Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 12,450
Post Village(R) (Atlanta) Gardens ........... Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 14,500
Post Chase(R) ............................... Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 15,000
Post Walk(R) ................................ Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 15,000
Post Lake(R) ................................ Orlando, FL "AAA" NON-AMT + .515%(4)(5) 06/01/25 28,500
Post Fountains at Lee Vista(R) .............. Orlando, FL "AAA" NON-AMT + .515%(4)(5) 06/01/25 21,500
Post Village(R) (Atlanta) Fountains
and Meadows ............................... Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 26,000
Post Court(R) ............................... Atlanta, GA "AAA" NON-AMT + .515%(4)(5) 06/01/25 18,650
----------
235,880
SENIOR NOTES (UNSECURED)
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%(6) 03/16/15 100,000
Medium Term Notes ........................... N/A 7.28%(7) 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
----------
703,000
LINES OF CREDIT AND OTHER UNSECURED DEBT
Revolver - Syndicated ........................ N/A LIBOR + .750% or prime minus
.25%(8) 04/30/04 --
Cash Management Line.......................... N/A LIBOR + .675% or prime minus
.25% 02/13/02 --
City of Phoenix............................... N/A 5.00% (9) 03/01/21 2,000
----------
TOTAL......................................... $1,172,355
==========
(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) Bond financed (interest rate on bonds + credit enhancement fees
effective October 1, 1998).
(5) 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%.
(6) 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.
(7) In October 2000, the Company entered into a swap transaction that fixed
the rate on the note of 7.28%, inclusive of credit enhancement and
other fees, through maturity.
(8) Represents stated rate. The Company may also make "money market" loans
of up to $160,000 at rates below the stated rate.
(9) 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.
-27-
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
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
----------------- ----- ------------------ --------------------- --------------------
WHOLLY-OWNED CONSTRUCTION/LEASE-UP
COMMUNITIES
CHARLOTTE, NC
Post Gateway Place(TM) ................. 232 3Q'99 3Q'00 4Q'01
Post Gateway Place II .................. 204 3Q'00 3Q'01 3Q'02
------
SUBTOTAL ............................... 436
------
TAMPA, FL
Post Harbour Place III ................. 259 2Q'01 2Q'02 2Q'03
DALLAS, TX
Post Legacy ............................ 384 3Q'99 3Q'00 4Q'01
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 4Q'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
------
Subtotal Wholly-Owned
Construction/Lease-up Communities ...... 3,531
======
CO-INVESTMENT CONSTRUCTION/LEASE-UP
COMMUNITIES
ATLANTA, GA
Post Peachtree(TM)(1) .................. 121 2Q'00 3Q'01 2Q'02
Post Biltmore (1) ...................... 276 3Q'00 4Q'01 4Q'02
------
SUBTOTAL ............................... 397
------
NEW YORK, NY
Post Luminaria (2)...................... 138 3Q'01 3Q'02 2Q'03
------
Subtotal Co-Investment
Construction/Lease-up Communities ...... 535
------
TOTAL .................................. 4,066
======
The Company is also currently conducting feasibility and other pre-development
studies for possible new Post(R) communities in its primary market areas.
(1) Effective April 2001, these communities are being developed as a joint
venture (the Company equity ownership is 35%).
(2) This development is structured as a joint venture, with the Company and
an outside developer contributing approximately 70% of the equity and a
landowner contributing the balance.
-28-
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per 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 and
six months ended June 30, 2001 and 2000 are summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2001 2000 2001 2000
-------- -------- -------- --------
New community development and acquisition activity ......... $ 48,872 $ 99,643 $123,338 $190,654
Non-recurring capital expenditures:
Revenue generating additions and improvements ........... 906 1,457 2,008 2,189
Other community additions and improvements .............. 497 764 819 1,438
Recurring capital expenditures:
Carpet replacements ..................................... 725 619 1,399 1,410
Community additions and improvements .................... 3,586 1,905 5,540 3,052
Corporate additions and improvements .................... 729 413 1,240 1,326
-------- -------- -------- --------
$ 55,315 $104,801 $134,344 $200,069
======== ======== ======== ========
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 debt obligations. This was accomplished using
interest rate swap and interest rate cap arrangements.
-29-
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
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 June 30, 2001, the Company has outstanding interest rate swap agreements with
a notional value of $129,000 and maturity dates ranging from 2005 to 2009. For
the six months ended June 30, 2001, the Company recorded the unrealized loss of
$450, 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. This unrealized net
loss of $450 was comprised of an unrealized net loss of $2,764, net of minority
interest, for the three months ended March 31, 2001 and an unrealized net gain
of $2,314, net of minority interest, for the three months ended June 30, 2001.
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 six months ended June 30, 2001. This charge against earnings
during the period and the fair value of the interest rate cap agreements as of
June 30, 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 $450.
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. Effective January 1, 2000, 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.
-30-
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
FFO and CAD for the three and six months ended June 30, 2001 and 2000 presented
on a historical basis are summarized in the following table:
Calculations of Funds from Operations and Cash Available for Distribution
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net income available to common shareholders ...................... $ 33,145 $ 25,924 $ 53,011 $ 50,887
Cumulative effect of accounting change, net of minority
interest ..................................................... -- -- 613 --
Extraordinary item, net of minority interest .................. 77 -- 77 --
Net (gain) loss on sale of assets (1) ......................... (15,660) 18 (15,771) (669)
Minority interest of common unitholders in Operating
Partnership .................................................. 4,443 3,423 7,173 6,743
------------ ------------ ------------ ------------
Adjusted net income .............................................. 22,005 29,365 45,103 56,961
Depreciation of real estate assets (2) ........................ 17,600 15,280 34,222 31,174
------------ ------------ ------------ ------------
Funds from Operations (3) ........................................ 39,605 44,645 79,325 88,135
Recurring capital expenditures (4) ............................... (4,313) (2,524) (6,939) (4,462)
Non-recurring capital expenditures (5) ........................... (497) (764) (819) (1,438)
Loan amortization payments ....................................... (758) (289) (1,548) (599)
------------ ------------ ------------ ------------
Cash Available for Distribution .................................. $ 34,037 $ 41,068 $ 70,019 $ 81,636
============ ============ ============ ============
Revenue generating capital expenditures (6) ...................... $ 906 $ 1,457 $ 2,008 $ 2,189
============ ============ ============ ============
Cash Flow Provided By (Used In):
Operating activities ............................................. $ 48,011 $ 46,664 $ 84,942 $ 89,024
Investing activities ............................................. $ 129,665 $ (103,743) $ 53,991 $ (164,130)
Financing activities ............................................. $ (166,433) $ 52,950 $ (132,123) $ 84,450
Weighted average common shares outstanding - basic ............... 38,653,625 39,294,234 38,750,350 39,160,002
============ ============ ============ ============
Weighted average common shares and units
outstanding - basic .............................................. 43,821,817 44,480,337 43,924,352 44,349,766
============ ============ ============ ============
Weighted average common shares outstanding - diluted ............. 38,884,223 40,130,580 38,995,749 39,753,796
============ ============ ============ ============
Weighted average common shares and units
outstanding - diluted ............................................ 44,052,415 45,316,683 44,169,751 44,943,560
============ ============ ============ ============
(1) Net gain (loss) on sale of assets includes reserves of $3,822 and
$15,608 for the three and six months ended June 30, 2001, respectively,
to write down to fair market value real estate assets designated as
held for sale.
(2) Depreciation on real estate assets is net of the minority interest
portion of depreciation in consolidated partnerships and depreciation
on non-real estate assets.
(3) The Company uses the National Association of Real Estate Investment
Trusts ("NAREIT") definition of FFO. Effective January 1, 2000, NAREIT
amended its definition of FFO to include in FFO all non-recurring
transactions, except those that are defined as extraordinary under
generally accepted accounting principles. 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 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.
(4) Recurring capital expenditures consisted primarily of $725 and $619 of
carpet replacement and $3,588 and $1,905 of other additions and
improvements to existing communities for the three months ended June
30, 2001 and 2000, respectively and $1,399 and $1,410 of carpet
replacement and $5,540 and $3,052 of other additions and improvements
to existing communities for the six months ended June 30, 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 $729 and $413 for the three months ended June
30, 2001 and 2000, respectively, and $1,240 and $1,326 for the six
months ended June 30, 2001 and 2000, respectively, are excluded from
the calculation of CAD.
(5) Non-recurring capital expenditures consisted of community additions and
improvements of $497 and $764 for the three months ended June 30, 2001
and 2000, respectively, and $819 and $1,438 for the three months ended
June 30, 2001 and 2000, respectively.
(6) Revenue generating capital expenditures are primarily comprised of
major renovations of communities.
-31-
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Dollars in thousands, except per unit data)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. At June 30,
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 Derivatives Notional Amount Cap Rate Settlement Date Value
- ------------------------- --------------- --------- --------------- -----
Interest Rate Swaps
Variable to fixed $104,000 amortizing
to $90,270 6.04% 07/31/09 $ (911)
Variable to fixed 25,000 6.53% 02/01/05 (1,073)
Interest rate cap 76,000 5.00% 02/01/03 1
Interest rate cap 141,230 5.00% 02/01/03 3
Interest rate cap $18,650 5.00% 02/01/03 -
At June 30, 2001, the derivative instrument, assets and liabilities were
reported at their fair value in the Company's balance sheet.
-32-
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
The Company's Annual Meeting of Shareholders was held May 22,
2001. The matter subject to a vote of shareholders was the
election of one director to serve until the 2003 Annual
Meeting of Shareholders and three directors to serve until
the 2004 Annual Meeting of Shareholders. The voting results
were as follows:
<Table>
<Caption>
For Withheld
---------- --------
Term Expires 2003
-----------------
Ronald de Waal 29,188,339 226,595
Term Expires 2004
-----------------
Robert L. Anderson 29,186,655 228,279
Arthur M. Blank 29,188,339 226,595
John T. Glover 29,188,165 226,769
</Table>
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
There were no reports on Form 8-K filed by either registrant
during the three month period ended June 30, 2001.
-33-
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.
August 14, 2001 /s/ R. Gregory Fox
- ------------------------ ----------------------------------
(Date) R. Gregory Fox
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
August 14, 2001 /s/ Arthur J. Quirk
- ------------------------ ----------------------------------
(Date) Arthur J. Quirk
Vice President and Controller,
Chief Accounting Officer
-34-
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
August 14, 2001 /s/ R. Gregory Fox
- ------------------------ ---------------------------------
(Date) R. Gregory Fox
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
August 14, 2001 /s/ Arthur J. Quirk
- ------------------------ ----------------------------------
(Date) Arthur J. Quirk
Vice President and Controller,
Chief Accounting Officer
-35-