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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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
------------------------
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 [ ]
------------------------
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.
36,821,089 shares of common stock outstanding as of November 12, 2001
(excluding treasury stock).
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POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
INDEX
PART I FINANCIAL INFORMATION PAGE
ITEM 1 FINANCIAL STATEMENTS
POST PROPERTIES, INC.
Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000...........................1
Consolidated Statements of Operations for the three and nine months ended
September 30, 2001 and 2000.......................................................................2
Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the
nine months ended September 30, 2001..............................................................3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000.......................................................................4
Notes to Consolidated Financial Statements...........................................................5
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000..........................12
Consolidated Statements of Operations for the three and nine months ended
September 30, 2001 and 2000......................................................................13
Consolidated Statement of Partners' Equity for the nine months ended
September 30, 2001...............................................................................14
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000......................................................................15
Notes to Consolidated Financial Statements .........................................................16
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................................22
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................33
PART II OTHER INFORMATION.......................................................................................34
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..............................................................................................35
POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(UNAUDITED)
ASSETS
Real estate investments:
Land ................................................................... $ 271,376 $ 281,525
Building and improvements .............................................. 1,727,495 1,681,798
Furniture, fixtures and equipment ...................................... 208,221 190,968
Construction in progress ............................................... 474,354 509,702
Land held for future development ....................................... 49,081 28,995
----------- -----------
2,730,527 2,692,988
Less: accumulated depreciation ......................................... (382,284) (345,121)
Assets held for sale ................................................... 50,154 122,047
Investments in and advances to unconsolidated real estate entities ..... 36,377 --
----------- -----------
Total real estate investments ....................................... 2,434,774 2,469,914
Cash and cash equivalents ................................................. 4,926 7,459
Restricted cash ........................................................... 1,344 1,272
Deferred charges, net ..................................................... 18,701 21,700
Other assets .............................................................. 53,618 50,892
----------- -----------
Total assets ........................................................... $ 2,513,363 $ 2,551,237
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable ............................................................. $ 1,256,804 $ 1,213,309
Accrued interest payable .................................................. 15,859 10,751
Dividends and distributions payable ....................................... 33,230 33,933
Accounts payable and accrued expenses ..................................... 82,688 67,136
Security deposits and prepaid rents ....................................... 9,392 9,407
----------- -----------
Total liabilities ................................................... 1,397,973 1,334,536
----------- -----------
Minority interest of preferred unitholders in Operating Partnership........ 70,000 70,000
----------- -----------
Minority interest of common unitholders in Operating Partnership .......... 109,595 118,091
----------- -----------
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,
39,699,116 and 39,662,192 shares issued, 36,860,834 and 38,853,596
shares outstanding at September 30, 2001 and December 31, 2000,
respectively .......................................................... 396 396
Additional paid-in capital ............................................. 1,049,241 1,057,067
Accumulated earnings ................................................... -- --
Accumulated other comprehensive income, net of minority interest ....... (9,144) --
Deferred compensation .................................................. (530) --
----------- -----------
1,040,013 1,057,513
Treasury stock, at cost, 2,838,282 and 808,596
shares at September 30, 2001 and December 31, 2000, respectively ..... (104,218) (28,903)
----------- -----------
Total shareholders' equity .......................................... 935,795 1,028,610
----------- -----------
Total liabilities and shareholders' equity ............................. $ 2,513,363 $ 2,551,237
=========== ===========
The accompanying notes are an integral
part of these consolidated financial statements.
-1-
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUE:
Rental ............................................... $ 91,036 $ 93,152 $ 278,881 $ 271,220
Property management - third-party .................... 1,102 987 3,469 2,828
Landscape services - third-party ..................... 2,879 2,743 8,470 7,843
Interest ............................................. 370 476 1,358 1,463
Other ................................................ 3,732 3,872 11,686 12,762
------------ ------------ ------------ ------------
Total revenue .................................... 99,119 101,230 303,864 296,116
------------ ------------ ------------ ------------
EXPENSES:
Property operating and maintenance
(exclusive of items shown separately below) ....... 34,704 34,017 105,680 96,906
Depreciation expense ................................. 19,343 17,930 56,106 51,367
Property management - third-party .................... 924 731 2,834 2,249
Landscape services - third-party ..................... 2,777 2,376 7,795 6,860
Interest ............................................. 14,058 12,789 43,763 35,551
Amortization of deferred loan costs .................. 513 413 1,456 1,196
General and administrative ........................... 3,395 2,678 9,802 6,806
Minority interest in consolidated property
partnerships ........................................ (527) (381) (1,344) (1,195)
------------ ------------ ------------ ------------
Total expense ................................... 75,187 70,553 226,092 199,740
------------ ------------ ------------ ------------
Income before net gain on sale of assets, minority
interest of unitholders in Operating Partnership,
cumulative effect of accounting change and
extraordinary item ................................... 23,932 30,677 77,772 96,376
Net gain on sale of assets ............................. 8,179 958 23,950 1,627
Minority interest of preferred unitholders in
Operating Partnership ................................ (1,400) (1,400) (4,200) (4,200)
Minority interest of common unitholders in
Operating Partnership ................................ (3,322) (3,156) (10,495) (9,899)
------------ ------------ ------------ ------------
Income before cumulative effect of accounting change
and extraordinary item ............................... 27,389 27,079 87,027 83,904
Cumulative effect of accounting change, net
of minority interest ................................. -- -- (613) --
Extraordinary item, net of minority interest ........... -- -- (77) --
------------ ------------ ------------ ------------
Net income ............................................. 27,389 27,079 86,337 83,904
Dividends to preferred shareholders .................... (2,969) (2,969) (8,906) (8,907)
------------ ------------ ------------ ------------
Net income available to common shareholders ............ $ 24,420 $ 24,110 $ 77,431 $ 74,997
============ ============ ============ ============
EARNINGS PER COMMON SHARE - BASIC
Income before cumulative effect of accounting change
and extraordinary item (net of preferred dividend) .. $ 0.64 $ 0.61 $ 2.03 $ 1.91
Cumulative effect of accounting change, net
of minority interest ................................. -- -- (0.02) --
Extraordinary item, net of minority interest ........... -- -- -- --
------------ ------------ ------------ ------------
Net income available to common shareholders ............ $ 0.64 $ 0.61 $ 2.01 $ 1.91
============ ============ ============ ============
Weighted average common shares outstanding - basic ..... 37,899,668 39,556,981 38,463,672 39,293,302
============ ============ ============ ============
EARNINGS PER COMMON SHARE - DILUTED
Income before cumulative effect of accounting change
and extraordinary item (net of preferred dividend) ... $ 0.64 $ 0.60 $ 2.02 $ 1.88
Cumulative effect of accounting change, net of
minority interest .................................... -- -- (0.02) --
Extraordinary item, net of minority interest ........... -- -- -- --
------------ ------------ ------------ ------------
Net income available to common shareholders ............ $ 0.64 $ 0.60 $ 2.00 $ 1.88
============ ============ ============ ============
Weighted average common shares outstanding diluted ..... 38,185,054 40,422,756 38,721,056 39,980,339
============ ============ ============ ============
Dividends declared ..................................... $ 0.78 $ 0.76 $ 2.34 $ 2.28
============ ============ ============ ============
The accompanying notes are an integral
part of these consolidated financial statements.
-2-
POST PROPERTIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN ACCUMULATED COMPREHENSIVE DEFERRED TREASURY
SHARES SHARES CAPITAL EARNINGS INCOME COMPENSATION STOCK
--------- ------ ------- ----------- ------------- ------------ --------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
DECEMBER 31, 2000 ................. $ 50 $396 1,057,067 $ -- $ -- $ -- $ (28,903)
Proceeds from Dividend
Reinvestment and Employee Stock
Purchase Plans .................. -- -- (1,760) -- -- -- 10,156
Adjustment for minority interest
of unitholders in Operating
Partnership at dates of capital
transactions .................... -- -- 5,580 -- -- -- --
COMPREHENSIVE INCOME 2001:
Net income ........................ -- -- -- 86,337 -- -- --
Transition adjustment for
derivative instruments, net of
minority interest ............... -- -- -- -- (1,299) -- --
Change in derivative instrument
value, net of minority interest . -- -- -- -- (7,845) -- --
TOTAL COMPREHENSIVE INCOME ..........
Restricted stock issuances .......... -- -- 46 -- -- (644) 598
Amortization of deferred
compensation....................... -- -- -- -- -- 114 --
Treasury stock acquisitions ......... -- -- -- -- -- -- (86,069)
Dividends to preferred shareholders . -- -- -- (8,906) -- -- --
Dividends to common shareholders .... -- -- (11,692) (77,431) -- -- --
------- ---- ---------- -------- ------- ----- ---------
SHAREHOLDERS' EQUITY AND ACCUMULATED
EARNINGS, SEPTEMBER 30, 2001 ...... $ 50 $396 1,049,241 $ -- $(9,144) $(530) $(104,218)
======= ==== ========== ======== ======= ===== =========
TOTAL
-----
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
DECEMBER 31, 2000 ................. $ 1,028,610
Proceeds from Dividend
Reinvestment and Employee Stock
Purchase Plans .................. 8,396
Adjustment for minority interest
of unitholders in Operating
Partnership at dates of capital
transactions .................... 5,580
COMPREHENSIVE INCOME 2001:
Net income ........................ 86,337
Transition adjustment for
derivative instruments, net of
minority interest ............... (1,299)
Change in derivative instrument
value, net of minority interest . (7,845)
-----------
TOTAL COMPREHENSIVE INCOME .......... 77,193
Restricted stock issuances .......... --
Amortization of deferred
compensation ..................... 114
Treasury stock acquisitions ......... (86,069)
Dividends to preferred shareholders . (8,906)
Dividends to common shareholders .... (89,123)
-----------
SHAREHOLDERS' EQUITY AND ACCUMULATED
EARNINGS, SEPTEMBER 30, 2001 ...... $ 935,795
===========
The accompanying notes are an integral
part of these consolidated financial statements.
-3-
POST PROPERTIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 86,337 $ 83,904
Adjustments to reconcile net income to net cash provided by operating
activities:
Net gain on sale of assets ................................................... (23,950) (1,627)
Minority interest of preferred unitholders in Operating Partnership .......... 4,200 4,200
Minority interest of common unitholders in Operating Partnership ............. 10,495 9,899
Equity in loss of unconsolidated real estate entities ........................ 26 --
Cumulative accounting change, net of minority interest ....................... 613 --
Extraordinary item, net of minority interest ................................. 77 --
Depreciation ................................................................. 56,106 51,367
Amortization of deferred loan costs .......................................... 1,456 1,196
Changes in assets, (increase) decrease in:
Restricted cash .............................................................. (72) 45
Other assets ................................................................. (4,607) (12,719)
Deferred charges ............................................................. (292) (1,263)
Changes in liabilities, increase (decrease) in:
Accrued interest payable ..................................................... 5,108 6,249
Accounts payable and accrued expenses ........................................ 8,419 10,827
Security deposits and prepaid rents .......................................... (15) 887
--------- ---------
Net cash provided by operating activities ...................................... 143,901 152,965
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets, net of payables ............ (173,571) (279,371)
Net proceeds from sale of assets ............................................... 215,660 75,231
Capitalized interest ........................................................... (16,803) (18,992)
Recurring capital expenditures ................................................. (9,719) (7,802)
Corporate additions and improvements ........................................... (1,850) (1,991)
Non-recurring capital expenditures ............................................. (1,220) (2,336)
Revenue generating capital expenditures ........................................ (2,620) (4,257)
Investments in and advances to unconsolidated real estate entities ............. (6,820) --
--------- ---------
Net cash provided by (used in) investing activities ............................ 3,057 (239,518)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ..................................................... (300) (1,260)
Debt proceeds .................................................................. 215,950 241,000
Debt payments .................................................................. (172,455) (56,244)
Distributions to preferred unitholders ......................................... (4,200) (4,200)
Distributions to common unitholders ............................................ (12,006) (11,520)
Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans .......... 8,396 26,658
Treasury stock acquisitions .................................................... (86,069) --
Dividends paid to preferred shareholders ....................................... (8,906) (8,907)
Dividends paid to common shareholders .......................................... (89,901) (86,905)
--------- ---------
Net cash (used in) provided by financing activities ............................ (149,491) 98,622
--------- ---------
Net (decrease) increase in cash and cash equivalents ........................... (2,533) 12,069
Cash and cash equivalents, beginning of period ................................. 7,459 5,870
--------- ---------
Cash and cash equivalents, end of period ....................................... $ 4,926 $ 17,939
========= =========
The accompanying notes are an integral
part of these consolidated financial statements.
-4-
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 nine-month period ended September 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 September 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 three
quarters of 2001, the Company authorized the sale of five communities
and 11 tracts of land consisting of: three communities and six tracts
of land in Dallas, Texas, two communities in Atlanta, Georgia, two
tracts 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 communities
located in Dallas, Texas.
-5-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
The table below summarizes the current year sale of assets through
September 30, 2001:
NUMBER OF
PROPERTY UNITS DATE SOLD LOCATION GROSS PROCEEDS NET PROCEEDS
-------- ---------- --------- -------- -------------- ------------
Post Creek 810 April Atlanta, GA $ 67,250 $ 66,641
The Lee 80 May Nashville, TN 3,950 3,839
Post Lakeside 327 May Dallas, TX 22,470 22,124
Post Winsted 314 May Dallas, TX 20,263 19,949
Post Shores 908 June Dallas, TX 76,750 75,774
Post Pointe 360 September Atlanta, GA 22,400 22,116
Land Parcel N/A May Charlotte, NC 1,942 1,876
Land Parcel N/A March Denver, CO 1,155 1,137
Land Parcel N/A August Dallas, TX 2,320 2,204
-------- ========
$218,500 $215,660
======== ========
As of September 30, 2001, assets held for sale included one community,
two commercial properties and nine tracts of land consisting of land,
buildings and improvements and furniture, fixtures and equipment and
were recorded at $50,154, which represented the lower of depreciated
cost or fair value less cost to sell. The Company has recorded net
gains of $8,179 and $23,950 for the three and nine months ended
September 30, 2001, respectively. The net gains include reserves of
$1,530 and $12,795 for the three and nine months ended September 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 within the next 12 months.
For the three months ended September 30, 2001 and 2000, the
consolidated statement of operations includes revenue less operating
and maintenance expense, exclusive of depreciation, of $918 and $1,022,
respectively, from communities held for sale at September 30, 2001. For
the nine months ended September 30, 2001 and 2000, the consolidated
statement of operations includes revenue less operating and maintenance
expense, exclusive of depreciation, of $2,863 and $2,924, respectively,
from communities held for sale at September 30, 2001. Depreciation
expense of $265 was recognized on these assets in 2001 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 nine months ended September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Basic and diluted income available to common shareholders (numerator):
Income before cumulative effect of accounting
change and extraordinary item ...................................... $ 27,389 $ 27,079 $ 87,027 $ 83,904
Less: Preferred stock dividends .................................... (2,969) (2,969) (8,906) (8,907)
------------ ------------ ------------ ------------
Income available to common shareholders
before cumulative effect of accounting change
and extraordinary item ............................................. $ 24,420 $ 24,110 $ 78,121 $ 74,997
============ ============ ============ ============
Common shares (denominator):
Weighted average shares outstanding-basic ............................ 37,899,668 39,556,981 38,463,672 39,293,302
Incremental shares from assumed conversion
of options ......................................................... 285,386 865,775 257,384 687,037
------------ ------------ ------------ ------------
Weighted average shares outstanding - diluted ........................ 38,185,054 40,422,756 38,721,056 39,980,339
============ ============ ============ ============
-6-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the nine months ended
September 30, 2001 and 2000 were as follows:
(a) During the nine months ended September 30, 2001 and 2000,
holders of 37,516 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 $5,580 for the nine months ended
September 30, 2001 and increasing minority interest and
decreasing shareholder's equity in the amount of $683 for the
nine months ended September 30, 2000.
(b) For cash flow purposes, investments in and advances to
unconsolidated real estate entities excludes non-cash
contributions of $29,583 for the nine months ended September
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 specifically
to reduce exposure to interest rate risk by locking in the expected
future cash payments on certain designated debt obligations. This was
accomplished using interest rate swap and interest rate cap
arrangements.
For all outstanding derivative financial instruments and for future use
of derivative financial instruments, the Company designates the
specific instruments as a hedge of identified cash flow exposure. The
Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective
and strategy for undertaking various hedged transactions. In this
documentation, the Company will specifically identify the asset,
liability, firm commitment, or forecasted transaction that has been
designated as a hedged item and will state how the hedged instrument is
expected to hedge the risks related to the hedged item.
The Company will formally measure effectiveness of its hedging
relationships both at the hedge inception and on an ongoing basis in
accordance with its risk management policy. The Company may discontinue
hedge accounting prospectively when it is determined that the
derivative is no longer effective in offsetting changes in the fair
value or cash flows of a hedged item; when the derivative is expired or
sold, terminated or exercised; or when the derivative is re-designated
to no longer be a hedged instrument.
-7-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
At September 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 nine months ended September 30, 2001, the
Company recorded the unrealized net loss of $7,845, 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 $7,845 was comprised of an unrealized net loss of $2,764, net
of minority interest, for the three months ended March 31, 2001, an
unrealized net gain of $2,314, net of minority interest, for the three
months ended June 30, 2001 and an unrealized net loss of $7,395, net of
minority interest, for the three months ended September 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 nine months ended September 30,
2001. This charge against earnings during the period and the fair value
of the interest rate cap agreements as of September 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
$1,698.
The Financial Accounting Standards Board ("FASB") has issued Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," that replaces FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Statement No. 144 requires that long-lived assets be
measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued
operations. The provisions of Statement No. 144 are effective for
financial statements issued for fiscal year beginning after December
15, 2001. The Company believes the provisions of Statement No. 144 will
not have a significant effect on the Company's results of operations or
its financial position.
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition, which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements. SAB 101 was implemented in the fourth quarter of
2000. The adoption of SAB 101 has had no significant effect on the
Company's results of operations or its financial position.
7. SEGMENT INFORMATION
SEGMENT DESCRIPTION
SFAS No. 131, "Disclosure About the Segments of an Enterprise and
Related Information" requires companies to present segment information
based on the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance.
The segment information is prepared on substantially the same basis as
the internally reported information used by the Company's chief
operating decision makers to manage the business.
The Company's chief operating decision-makers focus on the Company's
primary sources of income, which are property rental operations and
third party services. Property rental operations are broken down into
five segments based on the various stages in the property ownership
lifecycle. Third party services are designated as one segment. The
Company's 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.
-8-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
On November 7, 2001, the Company sold Post Landscape Group, Inc., a
subsidiary entity that provides landscape maintenance, design and
installation services to third parties. In addition, the Company has
agreed to sell its apartment community management division, RAM
Partners, Inc. ("RAM") by year-end. The Company intends to finance
these purchases over a five to seven year period. The related purchase
notes amortize on, or approximately on, a 10-year schedule with a
balloon payment due at the end of year five. Two one-year renewal
options are available. Under generally accepted accounting principles,
any gain on sale will not be recorded until such time the conditions
for gain recognition are met. Until such time, the net assets of
these divisions will be carried on the Company's balance sheet at book
value.
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 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 level.
-9-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
Summarized financial information concerning the Company's reportable
segments is shown in the following tables:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
2001 2000 2001 2000
-------- --------- --------- ---------
REVENUES
Fully stabilized communities ............................... $ 64,864 $ 64,414 $ 194,827 $ 190,572
Communities stabilized during 2000 ......................... 11,616 10,777 35,131 27,788
Development and lease-up communities ....................... 12,216 5,097 31,576 11,226
Communities held for sale .................................. 1,552 1,591 4,714 4,615
Sold communities ........................................... 735 11,558 12,538 36,389
Third party services ....................................... 3,981 3,730 11,939 10,671
Other ...................................................... 4,155 4,063 13,139 14,855
-------- --------- --------- ---------
Consolidated revenues ...................................... $ 99,119 $ 101,230 $ 303,864 $ 296,116
======== ========= ========= =========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities ............................... $ 43,545 $ 44,577 $ 132,614 $ 132,835
Communities stabilized during 2000 ......................... 7,494 7,210 23,186 18,137
Development and lease-up communities ....................... 7,730 2,692 18,985 5,523
Communities held for sale .................................. 918 1,022 2,863 2,924
Sold communities ........................................... 437 7,825 7,864 25,165
Third party services ....................................... 280 623 1,310 1,562
-------- --------- --------- ---------
Contribution to FFO ........................................ 60,404 63,949 186,822 186,146
-------- --------- --------- ---------
Other operating income, net of expense ..................... (1,849) (1,939) (5,521) (1,993)
Depreciation on non-real estate assets ..................... (611) (583) (1,857) (1,794)
Minority interest in consolidated property
partnerships ............................................ 527 381 1,344 1,195
Interest expense ........................................... (14,058) (12,789) (43,763) (35,551)
Amortization of deferred loan costs ........................ (513) (413) (1,456) (1,196)
General and administrative ................................. (3,395) (2,678) (9,802) (6,806)
Dividends to preferred shareholders ........................ (2,969) (2,969) (8,906) (8,907)
-------- --------- --------- ---------
Total FFO .................................................. 37,536 42,959 116,861 131,094
-------- --------- --------- ---------
Depreciation on real estate assets ......................... (17,973) (16,651) (52,195) (47,825)
Net gain on sale of assets ................................. 8,179 958 23,950 1,627
Minority interest of common unitholders in
Operating Partnership ................................... (3,322) (3,156) (10,495) (9,899)
Dividends to preferred shareholders ........................ 2,969 2,969 8,906 8,907
-------- --------- --------- ---------
Income before cumulative effect of accounting
change, extraordinary item and preferred
dividends ................................................ $ 27,389 $ 27,079 $ 87,027 $ 83,904
======== ========= ========= =========
-10-
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 nine months ended September 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 payment during third quarter 2001 166
--------
Severance accrual at September 30, 2001 $ 71
========
9. INVESTMENTS IN REAL ESTATE ENTITIES
In April 2001, the Company contributed two apartment communities under
development in Atlanta, Georgia to joint ventures with an institutional
investor, The Company holds a 35% equity interest in the joint
ventures. 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. The Company accounts for
these joint ventures using the equity method of accounting.
At September 30, 2001, the Company's investment in and advances to the
joint ventures accounted for using the equity method totaled $36,377.
The combined total assets, liabilities and equity of the joint ventures
at September 30, 2001, were $48,890, $35,876 and $13,014, respectively
accounted for using the equity method. During the third quarter of
2001, one of the communities commenced its initial rental operations.
The Company recorded an equity in loss from this joint venture totaling
$26 during the third quarter. Such equity in loss is included in other
revenue in the accompanying consolidated financial statements.
In the third quarter of 2001, the Company commenced the development of
a 138-unit apartment community in New York, New York, through an entity
that will be approximately 64% owned by the Company. Total estimated
development costs of approximately $52,000 are being funded through
partner equity contributions proportionate to the partners' ownership
interest and through construction financing provided by the Company.
Through September 30, 2001, total development costs were approximately
$11,000. The financial statements of this majority owned entity are
consolidated with the accompanying consolidated financial statements of
the Company.
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.
-11-
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2001 2000
-------------- ------------
(UNAUDITED)
ASSETS
Real estate investments:
Land ................................................................. $ 271,376 $ 281,525
Building and improvements ............................................ 1,727,495 1,681,798
Furniture, fixtures and equipment .................................... 208,221 190,968
Construction in progress ............................................. 474,354 509,702
Land held for future development ..................................... 49,081 28,995
----------- -----------
2,730,527 2,692,988
Less: accumulated depreciation ....................................... (382,284) (345,121)
Assets held for sale ................................................. 50,154 122,047
Investments in and advances to unconsolidated real estate entities ... 36,377 --
----------- -----------
Total real estate investments ........................................ 2,434,774 2,469,914
Cash and cash equivalents .............................................. 4,926 7,459
Restricted cash ........................................................ 1,344 1,272
Deferred charges, net .................................................. 18,701 21,700
Other assets ........................................................... 53,618 50,892
----------- -----------
Total assets ......................................................... $ 2,513,363 $ 2,551,237
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Notes payable .......................................................... $ 1,256,804 $ 1,213,309
Accrued interest payable ............................................... 15,859 10,751
Distributions payable .................................................. 33,230 33,933
Accounts payable and accrued expenses .................................. 82,688 67,136
Security deposits and prepaid rents .................................... 9,392 9,407
----------- -----------
Total liabilities .................................................... 1,397,973 1,334,536
----------- -----------
Commitments and contingencies
Partners' equity before adjustment for other comprehensive income ...... 1,125,771 1,216,701
Accumulated other comprehensive income ................................. (10,381) --
----------- -----------
Total partners' equity................................................ 1,115,390 1,216,701
----------- -----------
Total liabilities and partners' equity ................................ $ 2,513,363 2,551,237
=========== ===========
The accompanying notes are an integral
part of these consolidated financial statements.
-12-
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUES
Rental ................................................. $ 91,036 $ 93,152 $ 278,881 $ 271,220
Property management - third party ...................... 1,102 987 3,469 2,828
Landscape services - third party ....................... 2,879 2,743 8,470 7,843
Interest ............................................... 370 476 1,358 1,463
Other .................................................. 3,732 3,872 11,686 12,762
------------ ------------ ------------ ------------
Total revenue ................................... 99,119 101,230 303,864 296,116
------------ ------------ ------------ ------------
EXPENSES
Property operating and maintenance (exclusive of items
shown separately below) .............................. 34,704 34,017 105,680 96,906
Depreciation expense ................................... 19,343 17,930 56,106 51,367
Property management - third party ...................... 924 731 2,834 2,249
Landscape services - third party ....................... 2,777 2,376 7,795 6,860
Interest ............................................... 14,058 12,789 43,763 35,551
Amortization of deferred loan costs .................... 513 413 1,456 1,196
General and administrative ............................. 3,395 2,678 9,802 6,806
Minority interest in consolidated property partnerships (527) (381) (1,344) (1,195)
------------ ------------ ------------ ------------
Total expenses ........................................ 75,187 70,553 226,092 199,740
------------ ------------ ------------ ------------
Income before net gain on sale of assets, cumulative
effect of accounting change and extraordinary
item ................................................. 23,932 30,677 77,772 96,376
Net gain on sale of assets ............................. 8,179 958 23,950 1,627
------------ ------------ ------------ ------------
Income before cumulative effect of accounting
change and extraordinary item ........................ 32,111 31,635 101,722 98,003
Cumulative effect of accounting change.................. -- -- (695) --
Extraordinary item ..................................... -- -- (88) --
------------ ------------ ------------ ------------
Net income ............................................. 32,111 31,635 100,939 98,003
Distributions to preferred unitholders ................. (4,369) (4,369) (13,106) (13,107)
------------ ------------ ------------ ------------
Net income available to common unitholders ............. $ 27,742 $ 27,266 $ 87,833 $ 84,896
============ ============ ============ ============
EARNINGS PER COMMON UNIT - BASIC
Income before extraordinary item (net of preferred
distributions) ........................................ $ 0.64 $ 0.61 $ 2.03 $ 1.91
Cumulative effect of accounting change ................. -- -- (0.02) --
Extraordinary item ..................................... -- -- -- --
------------ ------------ ------------ ------------
Net income available to common unitholders ............. $ 0.64 $ 0.61 $ 2.01 $ 1.91
============ ============ ============ ============
Weighted average common units outstanding .............. 43,054,521 44,738,392 43,631,222 44,480,261
============ ============ ============ ============
EARNINGS PER COMMON UNIT - DILUTED
Income before extraordinary item (net of
preferred distributions) ............................. $ 0.64 $ 0.60 $ 2.02 $ 1.88
Cumulative effect of accounting change.................. -- -- (0.02) --
Extraordinary item ..................................... -- -- -- --
------------ ------------ ------------ ------------
Net income available to common unitholders ............. $ 0.64 $ 0.60 $ 2.00 $ 1.88
============ ============ ============ ============
Weighted average common units outstanding .............. 43,339,907 45,604,167 43,888,606 45,167,298
============ ============ ============ ============
Distributions declared ................................. $ 0.78 $ 0.76 $ 2.34 $ 2.28
============ ============ ============ ============
The accompanying notes are an integral
part of these consolidated financial statements.
-13-
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 ........ 84 8,312 8,396
Purchase of units ......................................... -- (86,069) (86,069)
Distributions to preferred unitholders .................... -- (13,106) (13,106)
Distributions to common unitholders ....................... (1,012) (100,192) (101,204)
Comprehensive Income:
Net income ............................................. 1,009 99,930 100,939
Transition adjustment for derivative instruments ....... (15) (1,457) (1,472)
Change in derivative instrument value .................. (89) (8,820) (8,909)
-------- ----------- -----------
Total Comprehensive Income ................................ 905 89,653 90,558
Contributions from the Company related to restricted shares
issued, net of amortization of deferred compensation .... 1 113 114
-------- ----------- -----------
PARTNERS' EQUITY, SEPTEMBER 30, 2001 ...................... $ 12,088 $ 1,103,302 $ 1,115,390
======== =========== ===========
The accompanying notes are an integral
part of these consolidated financial statements.
-14-
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................... $ 100,939 $ 98,003
Adjustments to reconcile net income to net cash provided
By operating activities:
Net gain on sale of assets ........................................ (23,950) (1,627)
Equity in loss of unconsolidated real estate entities ............. 26 --
Extraordinary item ................................................ 88 --
Depreciation ...................................................... 56,106 51,367
Amortization of deferred loan costs ............................... 1,456 1,196
Cumulative effect of accounting change ............................ 695 --
Changes in assets, (increase) decrease in
Restricted cash ................................................... (72) 45
Other assets ...................................................... (4,607) (12,719)
Deferred charges .................................................. (292) (1,263)
Changes in liabilities, increase (decrease) in:
Accrued interest payable .......................................... 5,108 6,249
Accounts payable and accrued expenses ............................. 8,419 10,827
Security deposits and prepaid rents ............................... (15) 887
--------- ---------
Net cash provided by operating activities ......................... 143,901 152,965
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets,
net of payables ................................................... (173,571) (279,371)
Net proceeds from sale of assets .................................... 215,660 75,231
Capitalized interest ................................................ (16,803) (18,992)
Recurring capital expenditures ...................................... (9,719) (7,802)
Corporate additions and improvements ................................ (1,850) (1,991)
Non-recurring capital expenditures .................................. (1,220) (2,336)
Revenue generating capital expenditures ............................. (2,620) (4,257)
Investments in and advances to unconsolidated real estate
entities .......................................................... (6,820) --
--------- ---------
Net cash provided by (used in) investing activities ................. 3,057 (239,518)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ........................................... (300) (1,260)
Debt proceeds ........................................................ 215,950 241,000
Debt payments ........................................................ (172,455) (56,244)
Purchase of units .................................................... (86,069) --
Proceeds from contributions from the Company related to Dividend
Reinvestment and Employee Stock Purchase Plans .................... 8,396 26,658
Distributions paid to preferred unitholders .......................... (13,106) (13,107)
Distributions paid to common unitholders ............................. (101,907) (98,425)
--------- ---------
Net cash (used in) provided by financing activities .................. (149,491) 98,622
--------- ---------
Net (decrease) increase in cash and cash equivalents ................. (2,533) 12,069
Cash and cash equivalents, beginning of period ....................... 7,459 5,870
--------- ---------
Cash and cash equivalents, end of period ............................. $ 4,926 $ 17,939
========= =========
The accompanying notes are an integral
part of these consolidated financial statements.
-15-
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 nine-month period ended September 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 September 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 three quarters of 2001, the Operating Partnership authorized
the sale of five communities and 11 tracts of land consisting of: three
communities and six tracts of land in Dallas, Texas, two communities in
Atlanta, Georgia, two tracts 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 communities located in Dallas, Texas.
-16-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- ------------------------------------------------------------------------------
The table below summarizes the current year sale of assets through September
30, 2001:
PROPERTY NUMBER OF UNITS DATE SOLD LOCATION GROSS PROCEEDS NET PROCEEDS
-------- --------------- --------- --------- -------------- ------------
Post Creek 810 April Atlanta, GA $ 67,250 $ 66,641
The Lee 80 May Nashville, TN 3,950 3,839
Post Lakeside 327 May Dallas, TX 22,470 22,124
Post Winsted 314 May Dallas, TX 20,263 19,949
Post Shores 908 June Dallas, TX 76,750 75,774
Post Pointe 360 September Atlanta, GA 22,400 22,116
Land Parcel N/A May Charlotte, NC 1,942 1,876
Land Parcel N/A March Denver, CO 1,155 1,137
Land Parcel N/A August Dallas, TX 2,320 2,204
-------- --------
$218,500 $215,660
======== ========
As of September 30, 2001, assets held for sale included one community,
two commercial properties and nine tracts of land consisting of land,
buildings and improvements and furniture, fixtures and equipment and
were recorded at $50,154, which represented the lower of depreciated
cost or fair value less cost to sell. The Operating Partnership has
recorded net gains of $8,179 and $23,950 for the three and nine months
ended September 30, 2001, respectively. The net gains include reserves
of $1,530 and $12,795 for the three and nine months ended September 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 within the next 12 months.
For the three months ended September 30, 2001 and 2000, the
consolidated statement of operations includes revenue less operating
and maintenance expense, exclusive of depreciation, of $918 and $1,022,
respectively, from communities held for sale at September 30, 2001. For
the nine months ended September 30, 2001 and 2000, the consolidated
statement of operations includes revenue less operating and maintenance
expense, exclusive of depreciation, of $2,863 and $2,924, respectively,
from communities held for sale at September 30, 2001. Depreciation
expense of $265 was recognized on these assets in 2001 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 nine months ended September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Basic and diluted income available to common
Unitholders (numerator):
Income before cumulative effect of
accounting change and extraordinary item ............ $ 32,111 $ 31,635 $ 101,722 $ 98,003
Less: Preferred unit distributions .................... (4,369) (4,369) (13,106) (13,107)
------------ ------------ ------------ ------------
Income available to common unitholders
before cumulative effect of accounting change and
extraordinary item .................................. $ 27,742 $ 27,266 $ 88,616 $ 84,896
============ ============ ============ ============
Common units (denominator):
Weighted average units outstanding - basic ............ 43,054,521 44,738,392 43,631,222 44,480,261
Incremental units from assumed conversion
of options .......................................... 285,386 865,775 257,384 687,037
------------ ------------ ------------ ------------
Weighted average units outstanding - diluted .......... 43,339,907 45,604,167 43,888,606 45,167,298
============ ============ ============ ============
-17-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- ------------------------------------------------------------------------------
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's outstanding derivative financial instruments represent
cash flow hedges that are designated specifically to reduce exposure to
interest rate risk by locking in the expected future cash payments on
certain designated debt obligations. This was accomplished using
interest rate swap and interest rate cap arrangements. For all
outstanding derivative financial instruments and for future use of
derivative financial instruments, the Operating Partnership designates
the specific instruments as a hedge of identified cash flow exposure.
The Operating Partnership formally documents all relationships between
hedging instruments and hedged items, as well as its risk-management
objective and strategy for undertaking various hedged transactions. In
this documentation, the Operating Partnership will specifically
identify the 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 September 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 nine months ended
September 30, 2001, the Operating Partnership recorded the unrealized
net loss of $8,909 on these cash flow hedges as a liability and a
reduction in accumulated other comprehensive income, a partners' equity
account, in the accompanying consolidated balance sheet. This
unrealized net loss of $8,909 was comprised of an unrealized net loss
of $3,134 for the three months ended March 31, 2001, an unrealized net
gain of $2,622 for the three months ended June 30, 2001 and an
unrealized net loss of $8,397 for the three months ended September 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 nine months
ended September 30, 2001. This charge against earnings during the
period and the fair value of the interest rate cap agreements as of
September 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 $1,698.
The Financial Accounting Standards Board ("FASB") has issued Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," that replaces FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Statement No. 144 requires that long-lived assets be
measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued
operations. The provisions of Statement No. 144 are effective for
financial statements issued for fiscal years beginning after December
15, 2001. The Operating Partnership believes the provisions of
Statement No. 144 will not have a significant effect on the Operating
Partnership's results of operations or its financial position.
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.
-18-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- ------------------------------------------------------------------------------
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.
- 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.
On November 7, 2001, the Operating Partnership sold Post Landscape
Group, Inc., a subsidiary entity that provides landscape maintenance,
design and installation services to third parties. In addition, the
Operating Partnership has agreed to sell its apartment community
management division, RAM Partners Inc. ("RAM") by year-end. The
Operating Partnership intends to finance these purchases over a five
to seven year period. The related purchase notes amortize on, or
approximately on, a 10-year schedule with a balloon payment due at the
end of year five. Two one-year renewal options are available. Under
generally accepted accounting principles, any gain on sale will not be
recorded until such time the conditions for gain recognition are met.
Until such time, the net assets of these divisions will be carried on
the Operating Partnership balance sheet at book value.
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.
-19-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- ------------------------------------------------------------------------------
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.
Summarized financial information concerning the Operating Partnership's
reportable segments is shown in the following tables.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
2001 2000 2001 2000
-------- --------- --------- ---------
REVENUES
Fully stabilized communities .......................... $ 64,864 $ 64,414 $ 194,827 $ 190,572
Communities stabilized during 2000 .................... 11,616 10,777 35,131 27,788
Development and lease-up communities .................. 12,216 5,097 31,576 11,226
Communities held for sale ............................. 1,552 1,591 4,714 4,615
Sold communities ...................................... 735 11,558 12,538 36,389
Third party services .................................. 3,981 3,730 11,939 10,671
Other ................................................. 4,155 4,063 13,139 14,855
-------- --------- --------- ---------
Consolidated revenues ................................. $ 99,119 $ 101,230 $ 303,864 $ 296,116
======== ========= ========= =========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities .......................... $ 43,545 $ 44,577 $ 132,614 $ 132,835
Communities stabilized during 2000 .................... 7,494 7,210 23,186 18,137
Development and lease-up communities .................. 7,730 2,692 18,985 5,523
Communities held for sale ............................. 918 1,022 2,863 2,924
Sold communities ...................................... 437 7,825 7,864 25,165
Third party services .................................. 280 623 1,310 1,562
-------- --------- --------- ---------
Contribution to FFO ................................... 60,404 63,949 186,822 186,146
-------- --------- --------- ---------
Other operating income, net of expense ................ (449) (539) (1,321) 2,207
Depreciation on non-real estate assets ................ (611) (583) (1,857) (1,794)
Minority interest in consolidated property
partnerships .......................................... 527 381 1,344 1,195
Interest expense ...................................... (14,058) (12,789) (43,763) (35,551)
Amortization of deferred loan costs ................... (513) (413) (1,456) (1,196)
General and administrative ............................ (3,395) (2,678) (9,802) (6,806)
Distributions to preferred unitholders ................ (4,369) (4,369) (13,106) (13,107)
-------- --------- --------- ---------
Total FFO ............................................. 37,536 42,959 116,861 131,094
-------- --------- --------- ---------
Depreciation on real estate assets .................... (17,973) (16,651) (52,195) (47,825)
Net gain on sale of assets ............................ 8,179 958 23,950 1,627
Distributions to preferred unitholders ................ 4,369 4,369 13,106 13,107
-------- --------- --------- ---------
Income before cumulative effect of accounting
change, extraordinary item and preferred
distributions ......................................... $ 32,111 $ 31,635 $ 101,722 $ 98,003
======== ========= ========= =========
-20-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 September 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 payment during third quarter 2001 166
--------
Severance accrual at September 30, 2001 $ 71
========
8. INVESTMENTS IN REAL ESTATE 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 holds a 35%
equity interest in the joint ventures. 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 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. The Operating
Partnership accounts for these joint ventures using the equity method
of accounting.
At September 30, 2001, the Operating Partnership's investment in and
advances to the joint ventures accounted for using the equity method
totaled $36,377. The combined total assets, liabilities and equity of
the joint ventures accounted for using the equity method at September
30, 2001, were $48,890, $35,876 and $13,014, respectively. During the
third quarter of 2001, one of the communities commenced its initial
rental operations. The Operating Partnership recorded equity in loss
from this joint venture totaling $26 during the third quarter. Such
equity in loss is included in other revenue in the accompanying
consolidated financial statements.
In the third quarter of 2001, the Operating Partnership commenced the
development of a 138-unit apartment community in New York, New York,
through an entity that will be approximately 64% owned by the
Operating Partnership. Total estimated development costs of
approximately $52,000 are being funded through partner equity
contributions proportionate to the partners' ownership interest and
through construction financing provided by the Operating Partnership.
Through September 30, 2001, total development costs were approximately
$11,000. The financial statements of this majority owned entity are
consolidated with the accompanying consolidated financial statements
of the Operating Partnership. For cash flow purposes, investments in
and advances to unconsolidated entities excludes non-cash
contributions of $29,583 for the nine months ended September 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.
-21-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with all of the financial
statements appearing elsewhere in this report. The following discussion is based
primarily on the Consolidated Financial Statements of Post Properties, Inc. (the
"Company") and Post Apartment Homes, L.P. (the Operating Partnership). Except
for the effect of minority interest in the Operating Partnership, the following
discussion with respect to the Company is the same for the Operating
Partnership.
As of September 30, 2001, there were 42,004,729 units in the Operating
Partnership outstanding, of which 36,860,834 or 87.8%, were owned by the Company
and 5,143,895, or 12.2%, were owned by other limited partners (including certain
officers and directors of the Company). As of September 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 NINE MONTHS ENDED SEPTEMBER 30, 2001 AND
2000
The Company recorded net income available to common shareholders of $24,420 and
$77,431 for the three and nine months ended September 30, 2001, respectively,
which represent increases of 1.3% and 3.2%, 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 September 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) 18 communities either
stabilized in the current year or presently in the development or lease-up
stages and (iv) one community that is 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 nine months ended
September 30, 2001 were $488 and $2,256, respectively. Lease up deficits for the
three and nine months ended September 30, 2000 were $521 and $2,138,
respectively.
-22-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT 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 nine months ended September 30, 2001 and 2000 is
summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -----------------------------------
2001 2000 %CHANGE 2001 2000 %CHANGE
-------- -------- -------- -------- -------- --------
Rental and other revenue:
Mature communities (1) ........................... $64,864 $ 64,414 0.7% $194,827 $190,572 2.2%
Communities stabilized during 2000 ............... 11,616 10,777 7.8% 35,131 27,788 26.4%
Development and lease-up communities (2) ......... 12,216 5,097 139.7% 31,576 11,226 181.3%
Communities held for sale (3) .................... 1,552 1,591 (2.5)% 4,714 4,615 2.1%
Sold communities (4) ............................. 735 11,558 (93.3)% 12,538 36,389 (65.5)%
Other revenue (5) ................................ 3,785 3,587 5.5% 11,781 13,392 (12.0)%
------- -------- -------- --------
94,768 97,024 (2.3)% 290,567 283,982 2.3%
------- -------- -------- --------
Property operating and maintenance expense
(exclusive of depreciation and
amortization):
Mature communities (1) ........................... 21,319 19,837 7.5% 62,213 57,737 7.8%
Communities stabilized during 2000 ............... 4,122 3,567 15.6% 11,945 9,651 23.8%
Development and lease-up communities (2) ......... 4,486 2,405 86.5% 12,591 5,703 120.8%
Communities held for sale (3) .................... 634 569 11.4% 1,851 1,691 9.5%
Sold communities (4) ............................. 298 3,733 (92.0)% 4,674 11,224 (58.4)%
Other expenses (6) ............................... 3,845 3,906 (1.5)% 12,406 10,900 13.8%
------- -------- -------- --------
34,704 34,017 2.0% 105,680 96,906 9.1%
------- -------- -------- --------
Revenue in excess of specified expense ........... $60,064 $ 63,007 (4.7)% $184,887 $187,076 (1.2)%
======= ======== ======== ========
Recurring capital expenditures: (7)
Carpet ......................................... $ 793 $ 777 2.1% $ 2,192 $ 2,187 0.2%
Other .......................................... 1,987 2,563 (22.5)% 7,527 5,615 34.1%
------- -------- -------- --------
Total .......................................... $ 2,780 $ 3,340 (16.8)% $ 9,719 $ 7,802 24.6%
======= ======== ======== ========
Average apartment units in service ............... 31,318 31,763 (1.4)% 31,777 31,254 1.7%
======= ======== ======== ========
Recurring capital expenditures per
apartment unit ................................. $ 89 $ 105 (15.2)% $ 306 $ 250 22.4%
======= ======== ======== ========
(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 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, one community containing 908 units
which was sold June 21, 2001, and one community containing 360 units which
was sold on September 25, 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, ground 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.
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
For the three months ended September 30, 2001, rental and other revenue
decreased $2,256, or 2.3%, compared to the same period in the prior year
primarily as a result of asset sales partially offset by the completion and
lease-up of new communities. For the nine months ended September 30, 2001,
rental and other revenue increased $6,585, or 2.3% compared to the same period
in the prior year primarily as a result of the completion and lease-up of new
communities and increased rental rates for existing communities partially offset
by asset sales. For the three and nine months ended September 30, 2001, property
operating and maintenance expenses increased $687, or 2.0%, and $8,774, or 9.1%,
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 months ended September 30, 2001, recurring capital expenditures
decreased $560, or 16.8% ($16, or 15.2% on a per unit apartment basis), compared
to the same period in the prior year, primarily due to the timing of capital
expenditures. For the nine months ended September 30, 2001, recurring capital
expenditures increased $1,917, or 24.6% ($56, or 22.4% on a per unit apartment
basis) compared to the same period in the prior year, primarily due to
additional units placed in service and the extent of scheduled capital
improvements.
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ------------------------------------
% %
2001 2000 CHANGE 2001 2000 CHANGE
------- ------- ------ -------- -------- ------
Rental and other revenue (1) ................ $64,864 $64,414 0.7% $194,827 $190,572 2.2%
Property operating and maintenance
expense (exclusive of depreciation and
amortization) (1) ......................... 21,319 19,837 7.5% 62,213 57,737 7.8%
------- ------- -------- --------
Revenue in excess of specified expense ...... $43,545 $44,577 (2.3)% $132,614 $132,835 (0.2)%
------- ------- -------- --------
Recurring capital expenditures: (2)
Carpet .................................... $ 745 $ 653 14.1% $ 1,887 $ 1,776 6.3%
Other ..................................... 1,810 2,211 (18.1)% 6,357 4,824 31.8%
------- ------- -------- --------
Total ..................................... $ 2,555 $ 2,864 (10.8)% $ 8,244 $ 6,600 24.9%
======= ======= ======== ========
Recurring capital expenditures per
apartment unit (3) ........................ $ 113 $ 127 (11.0)% $ 365 $ 292 25.0%
======= ======= ======== ========
Average economic occupancy (4) .............. 95.1% 97.1% (2.1)% 95.4% 96.8% (1.4)%
======= ======= ======== ========
Average monthly rental rate per
apartment unit (5) ........................ $ 957 $ 940 1.8% $ 954 $ 932 2.3%
======= ======= ======== ========
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 $205
and $176 per unit on building maintenance (inclusive of direct
salaries) and $59 and $58 per unit on landscaping (inclusive of direct
salaries) for the three months ended September 30, 2001 and 2000,
respectively.
-24-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
(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 94.1% and 95.2% for the three months ended
September 30, 2001 and 2000, respectively. For the three months ended
September 30, 2001 and 2000, concessions were $401 and $1,020,
respectively, and employee discounts were $212 and $229, 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 nine months ended September 30, 2001, rental and other revenue
increased $450, or 0.7%, and $4,255, or 2.2%, respectively, compared to the same
periods in the prior year, primarily due to increased rental rates partially
offset by the impact of lower average occupancy between periods. For the three
and nine months ended September 30, 2001, property operating and maintenance
expenses (exclusive of depreciation and amortization) increased $1,482, or 7.5%,
and $4,476, or 7.8%, respectively, compared to the same periods in the prior
year, primarily as a result of increased personnel expense, real estate taxes
and insurance.
For the three months ended September 30, 2001, recurring capital expenditures
per unit decreased $14, or 11.0%, compared to the same period in the prior year,
as a result of the timing of expenditures. For the nine months ended September
30, 2001, recurring capital expenditures increased $73, or 25%, compared to the
same period in the prior year as a result of the extent of scheduled capital
improvements.
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 nine
months ended September 30, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -----------------------------
2001 2000 %CHANGE 2001 2000 %CHANGE
-------- --------- ------- -------- --------- -------
Property management and other revenue.. $ 1,102 $ 987 11.7% $ 3,469 $ 2,828 22.7%
Property management expense............ 924 731 26.4% 2,834 2,249 26.0%
Depreciation expense................... 8 7 14.3% 23 21 9.5%
-------- --------- -------- ---------
Revenue in excess of specified expense. $ 170 $ 249 (31.7)% $ 612 $ 558 9.7%
======== ========= ======== =========
Average apartment units managed........ 17,171 14,613 17.5% 16,558 14,114 17.3%
======== ========= ======== =========
The decrease in revenue in excess of specified expense for the three months
ended September 30, 2001 compared to the same period in the prior year is
primarily attributable to increased expenses associated with the procurement of
new management contracts during the period. The increase in revenue in excess of
specified expense for the nine months ended September 30, 2001 compared to the
same period in the prior year is primarily attributable to an increase in the
average number of units managed.
The Company has entered into an agreement to sell RAM to a group of its
management. This transaction is expected to close by year-end (See footnote 7
to the accompanying consolidated financial statements).
-25-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
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 nine months
ended September 30, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- ---------------------------------
2001 2000 % CHANGE 2001 2000 % CHANGE
--------- --------- --------- --------- --------- ---------
Landscape services and other revenue...... $ 2,879 $ 2,743 5.0% $ 8,470 $ 7,843 8.0%
Landscape services expense................ 2,777 2,376 16.9% 7,795 6,860 13.6%
Depreciation expense...................... 120 96 25.0% 339 273 24.2%
--------- --------- --------- ---------
Revenue in excess of specified expense.... $ (18) $ 271 (106.6)% $ 336 $ 710 (52.7)%
========= ========= ========= =========
The decrease in revenue in excess of specified expense for the three and nine
months ended September 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 Post Landscape Group's
markets.
On November 7, 2001, the Company sold Post Landscape Group to a group of its
management (See footnote 7 to the accompanying consolidated financial
statements).
OTHER EXPENSES
Depreciation expense increased $1,413, or 7.9%, and $4,739, or 9.2%,
respectively, for the three and nine months ended September 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 $717, or 26.8%, and $2,996, or
44.0%, respectively, for the three and nine months ended September 30, 2001,
compared to the same period in the prior year, primarily as a result of reduced
capitalization of overhead to a declining investment in communities under
development, increased salary expense, insurance costs and internet
infrastructure maintenance costs.
Interest expense increased $1,269, or 9.9%, and $8,212, or 23.1%, respectively,
for the three and nine months ended September 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 $152,965
for the nine months ended September 30, 2000 to $143,901 for the nine months
ended September 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 ($239,518) in the nine months
ended September 30, 2000 to $3,057 in the nine months ended September 30, 2001
principally due to decreased construction spending and greater proceeds from the
sale of communities in 2001. The Company's net cash provided by (used in)
financing activities decreased from $98,622 for the nine months ended September
30, 2000 to ($149,491) for the nine months ended September 30, 2001 primarily
due to increased debt payments and treasury stock purchases.
-26-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
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 September 30, 2001, the Company had total indebtedness of $1,256,804, an
increase of $43,495 from its total indebtedness at December 31, 2000, and cash
and cash equivalents of $4,926. At September 30, 2001, the Company's
indebtedness included approximately $229,974 in conventional mortgages payable
secured by individual communities, tax-exempt bond indebtedness of $235,880
senior unsecured notes of $703,000, borrowings under it's revolving credit
facility ("the Revolver") of $83,000 and other unsecured lines of credit and
unsecured debt of $4,950.
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, as supplemented by borrowings under its
existing credit arrangements, 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 September 30, 2001, there was $85,950 outstanding on these
lines.
Medium Term Notes
As of September 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.
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 three-quarters of 2001, the Company sold six communities and
three tracts of land for gross proceeds of $218,500. Net proceeds of
approximately $215,660 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 $200,000 of
the Company's common stock and an additional $50,000 of preferred 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 September 30, 2001, the
Company has repurchased 3,087,600 shares of its common stock at a total cost of
$112,689.
-27-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
Schedule of Indebtedness
The following table reflects the Company's indebtedness at September 30, 2001:
DESCRIPTION LOCATION INTEREST RATE DATE (1) BALANCE
----------- -------- ------------- -------- -------
CONVENTIONAL FIXED RATE (SECURED)
Northwestern Mutual Life................. Dallas, TX 7.69% 10/01/07 28,372
Northwestern Mutual Life................. Dallas, TX 7.69% 10/01/07 50,712
Northwestern Mutual Life................. Atlanta, GA 6.50% (2) 03/01/09 47,918
Parkwood Townhomes(TM).................... Dallas, TX 7.375% 04/01/14 772
FNMA..................................... Atlanta, GA 6.975% (3) 07/23/29 102,200
----------
229,974
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 7.28% (6) 02/01/05 25,000
Medium Term Notes........................ N/A 8.12% 06/15/05 150,000
Medium Term Notes........................ N/A 6.78% 09/22/05 25,000
Senior Notes............................. N/A 6.71% 03/13/06 50,000
Senior Notes............................. N/A 7.50% 10/01/06 25,000
Senior Notes............................. N/A 7.70% 12/20/10 185,000
Mandatory Par Put Remarketed
Securities............................... N/A 6.85% (7) 03/16/15 100,000
----------
703,000
LINES OF CREDIT AND OTHER
UNSECURED DEBT
Cash Management Line..................... N/A LIBOR + .675% or prime minus .25% 02/13/02 2,950
LIBOR + .750% or prime minus
Revolver - Syndicated ................... N/A .25%(8) 04/30/04 83,000
City of Phoenix.......................... N/A 5.00% (9) 03/01/21 2,000
----------
87,950
TOTAL.................................... $1,256,804
==========
(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 purchased an interest
rate cap that limits exposure to increases in the base rate to 5%.
(6) 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.
(7) The annual interest rate on these securities to March 16, 2005 is
6.85%. On this date, they are subject to mandatory tender for
remarketing.
(8) Represents stated rate. The Company may also make "money market" loans
of up to $160,000 at rates below the stated rate. At September 30,
2001, the outstanding balance of the Revolver consisted of "money
market" loans with an average interest rate of 3.84%.
(9) This loan is interest-free for the first three years, with interest at
5.00% thereafter. Repayment commenced on March 1, 2001 subject to the
conditions set forth in the Agreement.
-28-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
Dividend Reinvestment Plan
During the third quarter, the Company announced the adoption of a dividend
reinvestment and stock purchase plan. The plan is available to all shareholders
of the Company and allows shareholders to acquire additional shares of the
Company's common stock through the reinvestment of regular quarterly dividends
and optional cash payments. The Company currently plans to purchase the required
additional shares on the open market as allowed under this plan.
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 II............... 204 3Q'00 4Q'01 4Q'02
SUBTOTAL
TAMPA, FL
Post Harbour Place III.............. 259 2Q'01 2Q'02 2Q'03
HOUSTON, TX
Post Midtown Square(TM)(II)........... 193 1Q'00 4Q'00 4Q'01
DENVER, CO
Post Uptown Square(TM)(II)............ 247 1Q'00 4Q'01 4Q'02
SUBTOTAL
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 2,063
=====
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) 3Q'01 3Q'02 2Q'03
138
-----
Subtotal Co-Investment
Construction/Lease-up Communities
535
TOTAL -----
2,598
=====
The Company is also currently conducting feasibility and other pre-development
studies for possible new Post(R) communities in some of its primary market
areas.
(1) Effective April 2001, these communities are being developed as a joint
venture (the Company's equity ownership is 35%).
(2) This development is structured through joint ventures, with the Company
and an outside developer contributing approximately 70% of the equity
and a landowner contributing the balance.
-29-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
Capitalization of Fixed Assets and Community Improvements
The Company has established a policy of capitalizing those expenditures relating
to acquiring new assets, materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset. All expenditures
necessary to maintain a community in ordinary operating condition are expensed
as incurred. During the first five years of a community (which corresponds to
the estimated depreciable life), carpet replacements are expensed as incurred.
Thereafter, carpet replacements are capitalized.
Acquisition of assets and community improvement expenditures for the three and
nine months ended September 30, 2001 and 2000 are summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------
New community development and acquisition activity $ 63,207 $112,384 $186,545 $303,038
Non-recurring capital expenditures:
Revenue generating additions and improvements 612 2,068 2,620 4,257
Other community additions and improvements 401 898 1,220 2,336
Recurring capital expenditures:
Carpet replacements 793 777 2,192 2,187
Community additions and improvements 1,987 2,563 7,527 5,615
Corporate additions and improvements 610 665 1,850 1,991
-------- -------- -------- --------
$ 67,610 $119,355 $201,954 $319,424
======== ======== ======== ========
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
-30-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
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 September 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 nine months ended September 30, 2001, the Company recorded the
unrealized net loss of $7,845, 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 $7,845 was comprised of an unrealized net loss of
$2,764, net of minority interest, for the three months ended March 31, 2001, an
unrealized net gain of $2,314, net of minority interest, for the three months
ended June 30, 2001 and an unrealized net loss of $7,395, net of minority
interest, for the three months ended September 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
nine months ended September 30, 2001. This charge against earnings during the
period and the fair value of the interest rate cap agreements as of September
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 $1,698.
The Financial Accounting Standards Board ("FASB") has issued Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." Statement No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. The provisions of Statement No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company believes the provisions of Statement No. 144 will not have a
significant effect on the Company's results of operations or its financial
position.
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.
FFO and CAD for
-31-
the three and nine months ended September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net income available to common shareholders ............ $ 24,420 $ 24,110 $ 77,431 $ 74,997
Cumulative effect of accounting change, net of
minority interest ................................... -- -- 613 --
Extraordinary item, net of minority interest ........ -- -- 77 --
Net gain on sale of assets (1) ...................... (8,179) (958) (23,950) (1,627)
Minority interest of common unitholders in
Operating Partnership .............................. 3,322 3,156 10,495 9,899
------------ ------------ ------------ ------------
Adjusted net income .................................... 19,563 26,308 64,666 83,269
Depreciation of real estate assets (2) .............. 17,973 16,651 52,195 47,825
------------ ------------ ------------ ------------
Funds from Operations (3) .............................. 37,536 42,959 116,861 131,094
Recurring capital expenditures (4) ..................... (2,780) (3,340) (9,719) (7,802)
Non-recurring capital expenditures (5) ................. (401) (898) (1,220) (2,336)
Loan amortization payments ............................. (772) (1,027) (2,320) (1,626)
------------ ------------ ------------ ------------
Cash Available for Distribution ........................ $ 33,583 $ 37,694 $ 103,602 $ 119,330
============ ============ ============ ============
Revenue generating capital expenditures (6) ............ $ 612 $ 2,068 $ 2,620 $ 4,257
============ ============ ============ ============
Cash Flow Provided By (Used In):
Operating activities ................................... $ 58,959 $ 63,941 $ 143,901 $ 152,965
Investing activities ................................... $ (50,934) $ (75,388) $ 3,057 $ (239,518)
Financing activities ................................... $ (17,368) $ 14,172 $ (149,491) $ 98,622
Weighted average common shares outstanding - basic ..... 37,899,668 39,556,981 38,463,672 39,293,302
============ ============ ============ ============
Weighted average common shares and units
outstanding - basic .................................... 43,054,521 44,738,392 43,631,222 44,480,261
============ ============ ============ ============
Weighted average common shares outstanding - diluted ... 38,185,054 40,422,756 38,721,056 39,980,339
============ ============ ============ ============
Weighted average common shares and units
outstanding - diluted .................................. 43,339,907 45,604,167 43,888,606 45,167,298
============ ============ ============ ============
(1) Net gain on sale of assets includes reserves of $1,530 and $12,795 for
the three and nine months ended September 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 $793 and $777 of
carpet replacement and $1,987 and $2,563 of other additions and
improvements to existing communities for the three months ended
September 30, 2001 and 2000, respectively and $2,192 and $2,187 of
carpet replacement and $7,527 and $5,615 of other additions and
improvements to existing communities for the nine months ended
September 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
-32-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
$610 and $665 for the three months ended September 30, 2001 and 2000,
respectively, and $1,850 and $1,991 for the nine months ended September
30, 2001 and 2000, respectively, are excluded from the calculation of
CAD.
(5) Non-recurring capital expenditures consisted of community additions and
improvements of $401 and $898 for the three months ended September 30,
2001 and 2000, respectively, and $1,220 and $2,336 for the nine months
ended September 30, 2001 and 2000, respectively.
(6) Revenue generating capital expenditures are primarily comprised of
major renovations of communities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. At September
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. At September 30, 2001, the Company had $934,974 of fixed
rate debt outstanding. The value of the fixed rate debt has not changed
significantly since December 31, 2000. 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 locks where appropriate to fix rates on anticipated debt
transactions, and
- - Take advantage of favorable market conditions for issuance of 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 of September 30, 2001. 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 $ (8,220)
Variable to fixed 25,000 6.53% 02/01/05 (2,162)
Interest rate cap 76,000 5.00% 02/01/03 3
Interest rate cap 141,230 5.00% 02/01/03 5
Interest rate cap $18,650 5.00% 02/01/03 1
At September 30, 2001, the derivative instrument assets and liabilities were
reported at their fair value in the Company's balance sheet.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The registrants agree to furnish a copy of all agreements relating to
long-term debt upon request of the Commission.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by either registrant during the
three month period ended September 30, 2001.
-34-
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.
November 14, 2001 /s/ R. Gregory Fox
- ------------------------ ----------------------------
(Date) R. Gregory Fox
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
November 14, 2001 /s/ Arthur J. Quirk
- ------------------------ ----------------------------
(Date) Arthur J. Quirk
Vice President and Controller,
Chief Accounting Officer
-35-
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
November 14, 2001 /s/ R. Gregory Fox
- ------------------------ ---------------------------------
(Date) R. Gregory Fox
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
November 14, 2001 /s/ Arthur J. Quirk
- ------------------------ ----------------------------
(Date) Arthur J. Quirk
Vice President and Controller,
Chief Accounting Officer
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