1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 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 number 1-12080 ------------------------ POST PROPERTIES, INC. (Exact name of registrant as specified in its charter) GEORGIA 58-1550675 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 3350 CUMBERLAND CIRCLE, SUITE 2200, ATLANTA, GEORGIA 30339 (Address of principal executive offices -- zip code) (770) 850-4400 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- ------------------------ 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. 22,037,635 shares of common stock outstanding as of May 5, 1997. ================================================================================ 2 POST PROPERTIES, INC. INDEX PART I FINANCIAL INFORMATION PAGE ---- ITEM 1 FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996......................... 3 Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996..................................................................... 4 Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the three months ended March 31, 1997........................................................... 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996..................................................................... 6 Notes to Consolidated Financial Statements .................................................... 7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................................... 9 PART II OTHER INFORMATION ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS...................................... 25 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K........................................................ 25 SIGNATURES....................................................................................... 26 - 2 - 3 POST PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) MARCH 31, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) ASSETS Real estate: Land ....................................................... $ 154,834 $ 150,072 Building and improvements .................................. 752,969 730,518 Furniture, fixtures and equipment .......................... 77,580 74,120 Construction in progress ................................... 164,303 140,437 Land held for future development ........................... 8,373 14,195 ----------- ----------- 1,158,059 1,109,342 Less: accumulated depreciation ............................... (184,020) (177,672) ----------- ----------- Operating real estate assets ............................... 974,039 931,670 Cash and cash equivalents .................................... 3,672 233 Restricted cash .............................................. 1,111 1,148 Deferred charges, net ........................................ 9,162 9,459 Other assets ................................................. 9,576 16,165 ----------- ----------- Total assets ............................................... $ 997,560 $ 958,675 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable ................................................ $ 464,726 $ 434,319 Accrued interest payable ..................................... 7,547 4,264 Dividend and distribution payable ............................ 16,169 14,659 Accounts payable and accrued expenses ........................ 23,710 17,915 Security deposits and prepaid rents .......................... 5,157 5,084 ----------- ----------- Total liabilities .......................................... 517,309 476,241 ----------- ----------- Minority interest of unitholders in Operating Partnership .... 82,874 83,441 ----------- ----------- Commitments and contingencies Shareholders' equity Preferred stock, $.01 par value, 20,000,000 authorized, 1,000,000 shares issued and outstanding .................. 10 10 Common stock, $.01 par value, 100,000,000 authorized, 21,958,299 and 21,922,393 shares issued and outstanding at March 31, 1997 and December 31, 1996, respectively ....... 220 219 Additional paid-in capital ................................... 397,147 398,764 Accumulated earnings ......................................... -- -- ----------- ----------- Total shareholders' equity ................................. 397,377 398,993 ----------- ----------- Total liabilities and shareholders' equity ................. $ 997,560 $ 958,675 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. - 3 - 4 POST PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1996 ------------ ------------ REVENUES Rental ....................................................... $ 41,581 $ 36,545 Property management - third party ............................ 553 733 Landscape services - third party ............................. 1,044 912 Interest ..................................................... 7 129 Other ........................................................ 1,381 1,124 ------------ ------------ Total revenues ............................................. 44,566 39,443 ------------ ------------ EXPENSES Property operating and maintenance (exclusive of items shown separately below) .................................... 15,201 13,034 Depreciation (real estate assets) ............................ 6,137 4,965 Depreciation (non-real estate assets) ........................ 242 253 Property management - third party ............................ 420 570 Landscape services - third party ............................. 901 768 Interest ..................................................... 5,361 5,057 Amortization of deferred loan costs .......................... 302 352 General and administrative ................................... 1,846 2,012 ------------ ------------ Total expenses ............................................. 30,410 27,011 ------------ ------------ Income before minority interest of unitholders in Operating Partnership and extraordinary item ............... 14,156 12,432 Minority interest of unitholders in Operating Partnership .... (2,515) (2,386) ------------ ------------ Income before extraordinary item ............................. 11,641 10,046 Extraordinary item, net of minority interest of unitholders in Operating Partnership ...................................... (75) -- ------------ ------------ Net income ................................................. 11,566 10,046 Dividend to preferred shareholders ......................... (1,063) -- ------------ ------------ Net income available to common shareholders ................ $ 10,503 $ 10,046 ============ ============ PER COMMON SHARE DATA: Weighted average common shares outstanding .................. 21,949,107 21,646,708 Income before extraordinary item (net of preferred dividend). $ 0.48 $ 0.46 ============ ============ Net income available to common shareholders ................. $ 0.48 $ 0.46 ============ ============ Dividends declared .......................................... $ 0.595 $ 0.540 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. - 4 - 5 POST PROPERTIES, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS (DOLLARS IN THOUSANDS) (UNAUDITED) ADDITIONAL PREFERRED COMMON PAID-IN ACCUMULATED SHARES SHARES CAPITAL EARNINGS TOTAL --------- --------- --------- --------- --------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, DECEMBER 31, 1996 ............................. $ 10 $ 219 $ 398,764 $ -- $ 398,993 Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans ....................... -- -- 986 -- 986 Conversion of Units to shares ......................... -- 1 (1) -- -- Adjustment for minority interest of unitholders in Operating Partnership at dates of capital transactions ........................................ -- -- (40) -- (40) Net income ............................................ -- -- -- 11,566 11,566 Dividends to preferred shareholders ................... -- -- -- (1,063) (1,063) Dividends to common shareholders ...................... -- -- (2,562) (10,503) (13,065) --------- --------- --------- --------- --------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, MARCH 31, 1997 ................................ $ 10 $ 220 $ 397,147 $ -- $ 397,377 ========= ========= ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements. - 5 - 6 POST PROPERTIES, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED MARCH 31, --------------------------- 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................................................. $ 11,566 $ 10,046 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest of unitholders in Operating Partnership ......................... 2,515 2,386 Extraordinary item ................................................................ 75 -- Depreciation ...................................................................... 6,379 5,218 Amortization of deferred loan costs ............................................... 302 352 Changes in assets, (increase) decrease in: Restricted cash ................................................................... 37 (5) Deferred charges .................................................................. (117) -- Other assets ...................................................................... 6,558 (751) Changes in liabilities, increase (decrease) in: Accrued interest payable .......................................................... 3,283 (71) Accounts payable and accrued expenses ............................................. 2,551 3,136 Security deposits and prepaid rents ............................................... 73 77 --------- --------- Net cash provided by operating activities ........................................... 33,222 20,388 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Construction and acquisition of real estate assets, net of payables ................. (40,960) (19,591) Capitalized interest ................................................................ (1,829) (1,115) Recurring capital expenditures ...................................................... (704) (466) Corporate additions and improvements ................................................ (444) (204) Non-recurring capital expenditures .................................................. (374) (136) Revenue generating capital expenditures ............................................. (1,050) -- --------- --------- Net cash (used in) investing activities ............................................. (45,361) (21,512) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs .......................................................... (92) (343) Debt proceeds ....................................................................... 86,440 49,364 Proceeds from sale of notes ......................................................... 80,000 -- Debt payments ....................................................................... (136,033) (44,652) Distributions to unitholders ........................................................ (2,822) (2,518) Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans ............... 986 2,221 Dividends paid to preferred shareholders ............................................ (1,063) -- Dividends paid to common shareholders ............................................... (11,838) (10,573) --------- --------- Net cash provided by (used in) financing activities ................................. 15,578 (6,501) --------- --------- Net increase(decrease) in cash and cash equivalents ................................. 3,439 (7,625) Cash and cash equivalents, beginning of period ...................................... 233 9,008 --------- --------- Cash and cash equivalents, end of period ............................................ $ 3,672 $ 1,383 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. - 6 - 7 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE 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 three month period ended March 31, 1997 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, 1996. 2. NOTES PAYABLE On January 29, 1997, the Company filed, with the Securities and Exchange Commission, a Prospectus Supplement relating to $175,000 aggregate principal amount of Medium-Term Notes Due Nine Months or More from Date of Issue (the "MTNs"). On March 3, 1997, the Company issued $30,000 of floating rate MTNs priced at LIBOR plus .25%, due on March 3, 2000 (the "2000 MTNs"). Proceeds from the 2000 MTNs were used to (i) pay off the mortgage on Post Renaissance which bore an interest rate of LIBOR plus .55% and matured July 1, 1999 and (ii) pay down existing indebtedness outstanding under the Company's revolving line of credit (the "Revolver"). On March 31, 1997, the Company issued $50,000 of fixed rate MTNs as follows: $37,000 due on April 2, 2001 (the "2001 MTNs") and $13,000 due on April 1, 2004 (the "2004 MTNs"). The 2001 MTNs priced at par with a coupon rate of 7.02% (.50% over the corresponding treasury rate on the date such rate was set) and an effective rate reflecting the benefit of the treasury lock of 6.57%. The 2004 MTNs priced at par with a coupon of 7.30% (.65% over the corresponding treasury rate on the date such rate was set) and an effective rate reflecting the benefit of the treasury lock of 6.86%. The proceeds from the 2001 MTNs and the 2004 MTNs were used to prepay $50,000 of fixed rate notes that bore interest at 7.15% per annum. 3. EXTRAORDINARY ITEM The extraordinary item for the three months ended March 31, 1997 resulted from costs associated with the early extinguishment of indebtedness. The extraordinary item is net of minority interest of unitholders of $18, calculated on the basis of weighted average units and shares outstanding for the period. - 7 - 8 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 4. EARNINGS PER SHARE Primary earnings per common share for income before extraordinary item, net of preferred dividends, and net income available to common shareholders has been computed by dividing income before extraordinary item, net of preferred dividends, and net income available to common shareholders by the weighted average number of common shares outstanding. This method derives the same per common share information as the "two-class" method prescribed for REITs. The weighted average number of common shares outstanding utilized in the calculations are 21,949,107 and 21,646,708 for the three months ended March 31, 1997 and 1996, respectively. 5. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities for the three months ended March 31, 1997 and 1996 are as follows: (a) During the three months ended March 31, 1997 holders of 65 Units in Post Apartment Homes, L.P. (the "Operating Partnership") exercised their option to convert their units to shares of Common Stock of the Company on a one-for-one basis. The net effect of these conversions and adjustments to minority interest for the dilutive impact of the Dividend Reinvestment and Employee Stock Purchase Plans was a reclassification increasing minority interest and decreasing shareholders' equity in the amount of $40 for the three months ended March 31, 1997. (b) The Operating Partnership committed to distribute $16,169 and $14,469 for the quarters ended March 31, 1997 and 1996, respectively. As a result, the Company declared a dividend of $.595 and $.54 per common share or $13,065 and $11,694 for the quarters ended March 31, 1997 and 1996, respectively. The remaining distributions from the Operating Partnership in the amount of $3,104 and $2,775, respectively, will be or were distributed to minority interest unitholders in the Operating Partnership. - 8 - 9 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER 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. As of March 31, 1997, there were 27,174,773 units in the Operating Partnership outstanding, of which 21,958,299, or 80.8%, were owned by the Company and 5,216,474, or 19.2% were owned by other limited partners (including certain officers and directors of the Company). As of March 31, 1997, there were 1,000,000 Perpetual Preferred Units outstanding, all of which were owned by the Company. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997, AND 1996 The Company recorded net income available to common shareholders of $10,503, for the three months ended March 31, 1997, an increase of 4.5% over the prior corresponding period primarily as a result of increased rental rates for fully stabilized communities and an increase in apartment units placed in service. COMMUNITY OPERATIONS The Company's net income is generated primarily from the operation of its apartment communities. For purposes of evaluating comparative operating performance, the Company categorizes its operating communities based on the period each community reaches stabilized occupancy. A community is generally considered by the Company to have achieved stabilized occupancy on the earlier to occur of (i) attainment of 95% physical occupancy on the first day of any month or (ii) one year after completion of construction. As of March 31, 1997, the Company's portfolio of apartment communities consisted of the following: (i) 40 communities and the first phase of an additional community which were completed and stabilized for all of the current and prior year, (ii) 8 communities and the second phase of an existing community which achieved full stabilization during the prior year and (iii) 9 communities and the second phase of two existing communities in the development or lease-up stage. 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"). The Company has adopted 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. - 9 - 10 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) Therefore, 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, 1996. The Company has also presented quarterly financial information reflecting the dilutive impact of lease-up deficits incurred for communities in the development and lease-up stage and not yet operating at break-even. In this presentation, only those communities which were dilutive during the period are included and, accordingly, different communities may be included in each period. ALL OPERATING COMMUNITIES The operating performance for all of the Company's apartment communities combined for the three months ended March 31, 1997 and 1996 is summarized as follows: THREE MONTHS ENDED MARCH 31, ------------------------------------- 1997 1996 % CHANGE ------- ------- -------- Rental and other revenue: Fully stabilized communities (1) ............................................. $33,186 $32,856 1.0 % Communities stabilized during 1996 ........................................... 8,403 3,377 148.8 % Development and lease-up communities (2) ............................................................ 663 -- 100.0 % Sold communities (3) ......................................................... -- 462 (100.0)% Other revenue (4) ............................................................ 710 974 (27.1)% ------- ------- 42,962 37,669 14.1 % ------- ------- Property operating and maintenance expense (exclusive of depreciation and amortization): Fully stabilized communities ................................................. 10,474 10,256 2.1 % Communities stabilized during 1996 ........................................... 2,520 1,521 65.7 % Development and lease-up communities ................................................................ 504 -- 100.0 % Sold communities ............................................................. -- 165 (100.0)% Other expenses (5) ........................................................... 1,703 1,092 56.0 % ------- ------- 15,201 13,034 16.6 % ------- ------- Revenue in excess of specified expense ..................................................................... $27,761 $24,635 12.7 % ======= ======= Recurring capital expenditures: (6) Carpet ....................................................................... 319 174 83.3 % Other ........................................................................ 385 292 31.8 % ------- ------- Total ........................................................................ $ 704 $ 466 51.1 % ======= ======= Average apartment units in service ............................................. 18,266 16,369 11.6 % ======= ======= Recurring capital expenditures per apartment unit .............................................................. $ 39 $ 28 39.3 % ======= ======= - 10 - 11 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) (1) Communities which reached stabilization prior to January 1, 1996. (2) Communities in the "construction", "development" or "lease-up" stage during 1996 and, therefore, not considered fully stabilized for all of the periods presented. (3) Includes one community, containing 180 units, which was sold on July 19, 1996. (4) Other revenue includes revenue on furnished apartment rentals above the unfurnished rental rates and any revenue not directly related to property operations. (5) Other expenses includes certain indirect central office operating expenses related to management, grounds maintenance, and costs associated with furnished apartment rentals. (6) 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. For the three months ended March 31, 1997, rental and other revenue and property operating and maintenance expenses increased $5,293, or 14.1%, and $2,167, or 16.6%, respectively, compared to the same period in the prior year, primarily as a result of an increase in the average number of apartment units in service and increased rental rates. For the three months ended March 31, 1997, recurring capital expenditures increased $238, or 51.1%, compared to the same period in the prior year, primarily due to the increase in the average number of apartment units in service and the timing of scheduled capital improvements. - 11 - 12 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) FULLY STABILIZED COMMUNITIES The Company defines fully stabilized communities as those which have reached stabilization prior to the beginning of the previous calendar year. The operating performance of the 40 communities and the first phase of an additional community containing an aggregate of 14,782 units which were fully stabilized as of January 1, 1996, is summarized as follows: THREE MONTHS ENDED MARCH 31, ----------------------------------- 1997 1996 % CHANGE ------- ------- -------- Rental and other revenue ..................................... $33,186 $32,856 1.0% Property operating and maintenance expense (exclusive of depreciation and amortization) ........................ 10,474 10,256 2.1% ------- ------- Revenue in excess of specified expense ....................... $22,712 $22,600 .5% ======= ======= Recurring capital expenditures: (1) Carpet .................................................... $ 295 $ 169 74.6% Other ..................................................... 363 290 25.2% ------- ------- Total ................................................... $ 658 $ 459 43.4% ======= ======= Recurring capital expenditures per apartment unit (2) ........................................ $ 44 $ 31 41.9% ======= ======= Average economic occupancy (3) ............................... 93.3% 95.2% (2.0)% ------- ------- Average monthly rental rate per apartment unit (4) ......................................... $ 776 $ 748 3.7% ======= ======= Apartment units in service ................................... 14,782 14,782 ======= ======= (1) 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. (2) In addition to such capitalized expenditures, the Company expensed $149 and $147 per unit on building maintenance (inclusive of direct salaries) and $45 and $43 per unit on landscaping (inclusive of direct salaries) for the three months ended March 31, 1997 and 1996, respectively. (3) 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 92.7% and 94.8% for the three months ended March 31, 1997 and 1996, respectively.) For the three month period ended March 31, 1997 and 1996, concessions were $153 and $61 and employee discounts were $67 and $76, respectively. (4) Average monthly rental rate is defined as the average of the gross actual rental rates for occupied units and the anticipated rental rates for unoccupied units. For the three months ended March 31, 1997, rental and other revenue increased $330, or 1.0%, compared to the same period in the prior year, due to higher rental rates. For the three months ended March 31, 1997, property operating and maintenance expenses (exclusive of depreciation and amortization) increased $218, or 2.1%, compared to the same period in the prior year, primarily as a result of increased advertising and promotion efforts and an increase in building repair and maintenance expense. - 12 - 13 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) For the three months ended March 31, 1997, recurring capital expenditures per apartment unit increased $13, or 41.9% compared to the same period in the prior year, primarily due to the timing of carpet replacements and other recurring capital expenditures of communities. LEASE-UP DEFICITS As noted in the overview of Community Operations, the Company has adopted 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 as well as other construction costs are capitalized and reflected on the balance sheet as construction in progress. Once a unit is placed in service, all 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 rental revenues exceed such expenses. In this presentation, only those communities which were dilutive for the respective period are included and, accordingly, different communities may be included in different quarters. For the three months ended March 31, 1997 and 1996, respectively, the "lease-up deficit" charged to and included in results of operations is summarized as follows: THREE MONTHS ENDED MARCH 31, ------------------- 1997 1996 ------ ----- Rental and other revenue ............................................. $ 117 $ 574 Property operating and maintenance expense (exclusive of depreciation and amortization) ..................................... 207 469 ----- ----- Revenue (expense) in excess of specified expense/revenue ............. (90) 105 Interest expense ..................................................... 89 338 ----- ----- Lease-up deficit ..................................................... $(179) $(233) ===== ===== - 13 - 14 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) THIRD PARTY MANAGEMENT SERVICES The Company provides asset management, leasing and other consulting services to non-related owners of apartment communities through two of its subsidiaries, RAM Partners, Inc. ("RAM") and Post Asset Management, Inc. ("Post Asset Management"). The operating performance of RAM and Post Asset Management for the three months ended March 31, 1997 and 1996 is summarized as follows: RAM PARTNERS, INC. THREE MONTHS ENDED MARCH 31, ------------------------------- 1997 1996 % CHANGE ------ ------ -------- Property management and other revenue .................................. $ 554 $ 660 (16.1)% Property management expense ................ 295 356 (17.1)% General and administrative expense ......... 103 118 (12.7)% ------ ------ Revenue in excess of specified expense .................................. $ 156 $ 186 (16.1)% ====== ====== Average apartment units managed ............ 7,775 9,906 (21.5)% ====== ====== The decrease in property management revenues in excess of specified expense for the three months ended March 31, 1997 compared to the same period in the prior year is primarily attributable to the decrease in the average number of units managed. POST ASSET MANAGEMENT THREE MONTHS ENDED MARCH 31, ------------------------------ 1997 1996 % CHANGE ----- ----- -------- Property management and other revenue .................................. $ 24 $ 81 (70.4)% Property management expense ................ 8 82 (90.2)% General and administrative expense ......... 14 14 -- ----- ----- Revenue in excess of specified expense ................................. $ 2 $ (15) (113.3)% ===== ===== Average apartment units managed ............ 260 866 (70.0)% ===== ===== Property management revenues and the related expenses decreased for the three months ended March 31, 1997, compared to the same periods in 1996, primarily due to the reduction in the average number of apartment units managed. This reduction was primarily due to four management contracts which were terminated; two effective January 1996, one effective July 1996 and one effective September 1996. As of March 31, 1997, Post Asset Management provided management services to one Post(R) community, containing 260 apartment units. The Company anticipates that the remaining contract will be terminated during 1997. - 14 - 15 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER 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 Services, Inc. ("Post Landscape Services"). The operating performance of Post Landscape Services for the three months ended March 31, 1997 and 1996 is summarized as follows: THREE MONTHS ENDED MARCH 31, ------------------------------ 1997 1996 % CHANGE ------ ------ -------- Landscape services and other revenue ........ $1,055 $ 912 15.7% Landscape services expense .................. 756 667 13.3% General and administrative expense .......... 145 101 43.6% ------ ------ Revenue in excess of specified expense ...... $ 154 $ 144 6.9% ====== ====== The increase in landscape services revenue and landscape service expense for the three months ended March 31, 1997, compared to the same period in 1996, is primarily due to increases in landscape contracts. OTHER REVENUES AND EXPENSES Depreciation of real estate assets increased $1,172, or 23.6%, for the three months ended March 31, 1997, compared to the same periods in the prior year, due to the addition of depreciable real estate assets. The extraordinary item of $75 for the three months ended March 31, 1997, net of minority interest portion, resulted from the costs associated with the early retirement of debt. LIQUIDITY AND CAPITAL RESOURCES Liquidity The Company's net cash provided by operating activities increased from $20,388 for the three months ended March 31, 1996 to $33,222 for the three months ended March 31, 1997, principally due to increases in the Company's working capital. Net cash used in investing activities increased from $21,512 in the three months ended March 31, 1996 to $45,361 in the three months ended March 31, 1997, principally due to the increase in construction activities relating to new development. The Company's net cash provided by (used in) financing activities increased from $(6,501) in the three months ended March 31, 1996 to $15,578 in the three months ended March 31, 1997 primarily due to an increase in net borrowing activity to fund development. 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 95% of their ordinary taxable income. The Company generally will not be subject to Federal income tax on net income. - 15 - 16 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) At March 31, 1997, the Company had total indebtedness of $464,726 and cash and cash equivalents of $3,672. The Company's indebtedness includes approximately $14,198 in conventional mortgages payable secured by individual communities, tax-exempt bond indebtedness of $151,528, senior unsecured notes of $255,000 and borrowings under unsecured lines of credit of approximately $44,000. The Company expects to meet its short-term liquidity requirements generally through its net cash provided by operations and borrowings under credit arrangements and expects to meet certain of its long-term liquidity requirements, such as scheduled debt maturities, repayment of financing of construction and development activities and possible property acquisitions, through long-term secured and unsecured borrowings and the issuance of debt securities or additional equity securities of the Company, sales of communities, or, possibly in connection with acquisitions of land or improved properties, units of the Operating Partnership. The Company believes that its net cash provided by operations will be adequate and anticipates that it will continue to be adequate to meet both operating requirements and payment of dividends by the Company in accordance with REIT requirements in both the short and the long term. The budgeted expenditures for improvements and renovations to certain of the communities are expected to be funded from property operations. Lines Of Credit The Company has a syndicated line of credit (the "Revolver") in the amount of $180,000 to provide funding for future construction, acquisitions and general business obligations. The Revolver matures on April 30, 2000 and borrowings currently bear interest at LIBOR plus .675% or prime minus .25%. The Revolver provides for the rate to be adjusted up or down based on changes in the credit ratings on the Company's senior unsecured debt. The Revolver also includes a money market competitive bid option for short-term funds for up to $90,000 at rates below the contract line rate. The credit agreement for the Revolver contains customary representations, covenants and events of default, including covenants which restrict the ability of the Operating Partnership to make distributions in excess of stated amounts, which in turn restricts the discretion of the Company to declare and pay dividends. In general, during any fiscal year the Operating Partnership may only distribute up to 100% of the Operating Partnership's consolidated income available for distribution (as defined in the credit agreement) exclusive of distributions of up to $30,000 of capital gains for such year. The credit agreement contains exceptions to these limitations to allow the Operating Partnership to make distributions necessary to allow the Company to maintain its status as a REIT. The Company does not anticipate that this covenant will adversely affect the ability of the Operating Partnership to make distributions, or the Company to declare dividends, under the Company's current dividend policy. On July 26, 1996, the Company closed a $20,000 unsecured line of credit with Wachovia Bank of Georgia, N.A. (The "Cash Management Line"), which was fully funded and used to pay down the outstanding balance on the Revolver. The Cash Management Line bears interest at LIBOR plus .75% or prime minus .25% and has a maturity date of April 13, 1998. The Company chose this arrangement because the Revolver requires three days advance notice to repay borrowings whereas this facility provides the Company with an automatic daily sweep, which applies all available cash to reduce the outstanding balance. In addition, the Company has a $3,000 facility to provide letters of credit for general business purposes. Tax Exempt Bonds On June 29, 1995, the Company replaced the bank letters of credit providing credit enhancement for twelve of its outstanding tax-exempt bonds and three of its economically defeased tax-exempt bonds. Under an agreement with the Federal National Mortgage Association ("FNMA"), FNMA now provides, directly or indirectly through other bank letters of credit, credit enhancement with respect to such bonds. Under the terms of such agreement, FNMA has provided replacement credit enhancement through 2025 for nine bond issues, aggregating $111,230, which were reissued, and has agreed, subject to certain conditions, to provide credit enhancement through June 1, 2025 for up to an additional $43,298 with respect to eight - 16 - 17 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) other bond issues which mature and may be refunded in 1997 and 1998. The agreement with FNMA contains representations, covenants, and events of default customary to such secured loans. Refundable Tax Exempt Bonds The Company has previously issued tax-exempt bonds, secured by certain communities, totaling $235,880 of which $84,352 has been economically defeased, leaving $151,528 of principal amount of tax-exempt bonds outstanding at March 31, 1997 of which $111,230 of the bonds outstanding has been reissued with a maturity of June 1, 2025. The remaining outstanding bonds, together with the economically defeased bonds, mature and may be reissued, during the years 1997 and 1998. The Company has chosen economic defeasance of the bond obligations rather than a legal defeasance in order to preserve the legal right to refund such obligations on a tax-exempt basis at the stated maturity if the Company then determines that such refunding is beneficial to the Company. The following table shows the amount of bonds (both defeased and outstanding) at March 31, 1997, which the Company may reissue during the years 1997 through 2025: DEFEASED OUTSTANDING TOTAL REISSUE PORTION PORTION CAPACITY -------- ----------- ------------- 1997 $ 3,000 $ 27,000 $ 30,000 1998 81,352 13,298 94,650 Thereafter -- 111,230 111,230 ------- -------- -------- $84,352 $151,528 $235,880 ======= ======== ======== Senior Unsecured Debt Offering On September 30, 1996, the Company completed a $125,000 senior unsecured debt offering comprised of two tranches. The first tranche, $100,000 of 7.25% Notes due on October 1, 2003 (the "2003 Notes"), was priced at 99.642% to yield 7.316%, or 71 basis points over the rate on U.S. Treasury securities with a comparable maturity. The second tranche, $25,000 of 7.50% Notes due on October 1, 2006 (the "2006 Notes", and together with the 2003 Notes, the "Notes"), was priced at 99.694% to yield 7.544%, or 83 basis points over the rate on U.S. Treasury securities with a comparable maturity. Proceeds from the Notes were used to pay down existing indebtedness outstanding under the Revolver. Medium-Term Notes On January 29, 1997, the Company filed, with the Securities and Exchange Commission, a Prospectus Supplement relating to $175,000 aggregate principal amount of Medium-Term Notes Due Nine Months or More from Date of Issue (the "MTNs"). On March 3, 1997, the Company issued $30,000 of floating rate MTNs priced at LIBOR plus .25%, due on March 3, 2000 (the "2000 MTNs"). Proceeds from the 2000 MTNs were used to (i) pay off the mortgage on Post Renaissance which bore an interest rate of LIBOR plus .55% and matured July 1, 1999 and (ii) pay down existing indebtedness outstanding under the Revolver. - 17 - 18 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) On March 31, 1997, the Company issued $50,000 of fixed rate MTNs as follows: $37,000 due on April 2, 2001 (the "2001 MTNs") and $13,000 due on April 1, 2004 (the "2004 MTNs"). The 2001 MTNs priced at par with a coupon rate of 7.02% (.50% over the corresponding treasury rate on the date such rate was set) and an effective rate reflecting the benefit of the treasury lock of 6.57%. The 2004 MTNs priced at par with a coupon of 7.30% (.65% over the corresponding treasury rate on the date such rate was set) and an effective rate reflecting the benefit of a treasury lock of 6.86%. The proceeds from the 2001 MTNs and the 2004 MTNs were used to prepay $50,000 of fixed rate notes that bore interest at 7.15% per annum. Perpetual Preferred Stock Offering On October 1, 1996, the Company sold one million non-convertible 8.5% Series A Cumulative Redeemable Shares (the "Perpetual Preferred Shares"), raising $50 million. Net proceeds of $48,700 from the sale of the Perpetual Preferred Shares were used to repay outstanding indebtedness. - 18 - 19 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) Schedule of Indebtedness The following table reflects the Company's indebtedness at March 31, 1997: Maturity Principal Description Location Interest Rate Date(1) Balance ======================================== ============ ============================= ============ ========= TAX EXEMPT FIXED RATE (SECURED) Post Chase(R)........................... Atlanta, GA 7.5% + .575%(2)(3) 07/01/97(4) $ 12,000 Post Walk(R)............................ Atlanta, GA 7.5% + .575%(2)(3) 07/01/97(4) 15,000 Post Court(R)........................... Atlanta, GA 7.5% + .575%(2)(3) 06/01/98(4) 13,298 -------- 40,298 -------- CONVENTIONAL FIXED RATE (SECURED) Post Summit(R).......................... Atlanta, GA 7.72% 02/01/98 5,300 Post River(R)........................... Atlanta, GA 7.72% 03/01/98 5,857 Post Hillsboro Village.................. Nashville, TN 9.20% 10/01/2001 3,041 -------- 14,198 -------- TAX EXEMPT FLOATING RATE (SECURED) Post Ashford(R)Series 1995.............. Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 9,895 Post Valley(R)Series 1995............... Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 18,600 Post Brook(R)Series 1995................ Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 4,300 Post Village(R)(Atlanta) Hills Series 1995........................... Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 7,000 Post Mill(R)Series 1995................. Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 12,880 Post Canyon(R)Series 1996............... Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 16,845 Post Corners(R)Series 1996.............. Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 14,760 Post Bridge(R).......................... Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 12,450 Post Village(R)(Atlanta) Gardens........ Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 14,500 -------- 111,230 -------- SENIOR NOTES (UNSECURED) Medium Term Notes....................... N/A LIBOR + .25% 03/03/2000 30,000 Northwestern Mutual Life................ N/A 8.21% 06/07/2000 30,000 Medium Tern Notes....................... N/A 7.02% 04/02/2001 37,000 Northwestern Mutual Life................ N/A 8.37% 06/07/2002 20,000 Senior Notes............................ N/A 7.25% 10/01/2003 100,000 Medium Term Notes....................... N/A 7.30% 04/01/2004 13,000 Senior Notes............................ N/A 7.50% 10/01/2006 25,000 -------- 255,000 -------- LINES OF CREDIT (UNSECURED) Revolver ............................... N/A LIBOR + .80% or prime minus .25%(5) 05/01/99(5) 24,000 Cash Management Line.................... N/A LIBOR + .75% or prime minus .25% 4/13/98 20,000 -------- 44,000 -------- TOTAL................................... $464,726 ======== - 19 - 20 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) (1) All of the mortgages can be prepaid at any time, subject to certain prepayment penalties. (2) Bond financed (interest rate on bonds + credit enhancement fees). (3) These bonds are also secured by Post Fountains at Lee Vista(R), Post Lake(R) (Orlando) and the Fountains and Meadows of Post Village(R) for which the Company has economically defeased their respective bond indebtedness. (4) Subject to certain conditions at re-issuance, the credit enhancement runs to June 1, 2025. (5) On April 10, 1997, the terms of the Revolver were amended to reduce the interest rate to LIBOR + .675% or prime minus .25% and extend the maturity to April 30, 2000. Dividend Reinvestment Plan The Dividend Reinvestment Plan ("DRIP") is available to all shareholders of the Company. Under the DRIP, shareholders may elect for their dividends to be used to acquire additional shares of the Company's Common Stock directly from the Company for 95% of the market price on the date of purchase. - 20 - 21 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) Current Development Activity The Company's communities under development or in initial lease-up are summarized in the following table: ACTUAL OR ACTUAL OR UNITS ESTIMATED ESTIMATED LEASED QUARTER OF QUARTER QUARTER AS OF # OF CONSTRUCTION FIRST UNITS OF STABILIZED MAY 5, METROPOLITAN AREA UNITS COMMENCEMENT AVAILABLE OCCUPANCY 1997 - ----------------- ----- ------------ --------- --------- ---- Atlanta, GA - ----------- Post Collier Hills(TM) 396 4Q'95 4Q'96 1Q'98 242 Post Glen(R) 314 1Q'96 1Q'97 1Q'98 110 Post Lindbergh(TM) 396 3Q'96 3Q'97 4Q'98 n/a Post Gardens(R) 397 3Q'96 4Q'97 1Q'99 n/a Riverside by Post(TM) 537 3Q'96 1Q'98 4Q'99 n/a Post Ridge(TM) 232 1Q'97 4Q'97 3Q'98 n/a Post River(R)II 88 1Q'97 4Q'97 2Q'98 n/a ----- --- 2,360 352 ----- --- Tampa, FL - --------- Post Walk at Hyde Park(TM) 134 1Q'96 1Q'97 3Q'97 110 Post Rocky Point(R)II 174 4Q'96 2Q'97 4Q'97 n/a ----- --- 308 110 ----- --- Charlotte, NC - ------------- Post Park at Phillips Place(TM) 402 4Q'95 4Q'96 1Q'98 204 ----- --- Nashville, TN - ------------- Post Hillsboro Village(TM) 201 1Q'97 3Q'97 1Q'98 n/a ----- --- 3,271 666 ===== === Land The Company has also acquired a parcel of land in Atlanta on which it plans to build a new community. Adjacent to the parcel, the Home Depot, Inc. is constructing its corporate headquarters campus and extensive infrastructure improvements are being made by the county. In addition, the Company holds land for a third and fourth phase of Rocky Point(R) in Tampa, Florida. The Company is also currently conducting feasibility and other pre-development studies for possible new Post(R) communities in its primary market areas. 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. - 21 - 22 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) Acquisition of assets and community improvement expenditures for the three months ended March 31, 1997 and 1996 are summarized as follows: THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 ------- ------- New community development and acquisition activity........... $42,789 $20,706 Non-recurring capital expenditures: Revenue generating additions and improvements.......... 1,050 -- Other community additions and improvements............. 374 136 Recurring capital expenditures: Carpet replacements.................................... 319 174 Community additions and improvements................... 385 292 Corporate additions and improvements................... 444 204 ------- ------- $45,361 $21,512 ======= ======= 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. - 22 - 23 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) 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. Funds from operations is defined to mean net income (loss) available to common shareholders determined in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs. Cash available for distribution ("CAD") is defined as FFO less capital expenditures funded by operations and loan amortization payments. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO and CAD should be examined in conjunction with net income as presented in the consolidated financial statements and data included elsewhere in this report. FFO and CAD for the three months ended March 31, 1997 and 1996 presented on a historical basis are summarized in the following table: Calculations of Funds from Operations and Cash Available for Distribution THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1996 ------------ ------------ Net income available to common shareholders .... $ 10,503 $ 10,046 Extraordinary item, net of minority interest 75 -- Minority interest ........................... 2,515 2,386 ------------ ------------ Adjusted net income ....................... 13,093 12,432 Depreciation of real estate assets ........... 6,137 4,965 ------------ ------------ Funds from Operations (1) ...................... 19,230 17,397 Recurring capital expenditures (2) .......... (704) (466) Non-recurring capital expenditures (3) ...... (374) (136) Loan amortization payments .................. (59) (52) ------------ ------------ Cash Available for Distribution ................ $ 18,093 $ 16,743 ============ ============ Revenue generating capital expenditures (4) .... $ 1,050 $ -- ============ ============ Cash Flow Provided By (Used In): Operating activities ........................... $ 33,222 $ 20,388 Investing activities ........................... $ (45,361) $ (21,512) Financing activities ........................... $ 15,578 $ (6,501) Weighted average common shares outstanding ..... 21,949,107 21,646,708 ============ ============ Weighted average common shares and units outstanding .................................. 27,167,244 26,785,951 ============ ============ - 23 - 24 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) (1) The Company uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO which was adopted for periods beginning after January 1, 1996. 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. (2) Recurring capital expenditures consisted primarily of $319 and $174 of carpet replacement and $385 and $292 of other additions and improvements to existing communities for the three months ended March 31, 1997 and 1996, respectively. Since the Company does not add back the depreciation of non-real estate assets in its calculation of FFO, capital expenditures of $444 and $204 for the three months ended March 31, 1997 and 1996, respectively, are excluded from the calculation of CAD. (3) Non-recurring capital expenditures consisted of community additions and improvements of $374 and $136 for the three months ended March 31, 1997 and 1996, respectively. (4) Revenue generating capital expenditures included a major renovation of a community and submetering of communities in the amount of $961 and $89, respectively, for the three months ended March 31, 1997. - 24 - 25 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (for SEC filing purposes only) The registrant agrees to furnish a copy of all agreements relating to long-term debt upon request of the Commission. (b) Reports on Form 8-K Report on Form 8-K filed on February 27, 1997. - 25 - 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. POST PROPERTIES, INC. May 14, 1997 /s/ John T. Glover - -------------------- ----------------------------------- (Date) John T. Glover, President (Principal Financial Officer) May 14, 1997 /s/ R. Gregory Fox - -------------------- ----------------------------------- (Date) R. Gregory Fox Senior Vice President, Chief Accounting Officer - 26 -