1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file numbers 1-12080 and 0-28226
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POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1550675
GEORGIA 58-2053632
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4401 NORTHSIDE PARKWAY, SUITE 800, ATLANTA, GEORGIA 30327
(Address of principal executive offices -- zip code)
(404) 846-5000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days.
Post Properties, Inc. Yes X No
--- ---
Post Apartment Homes, L.P. Yes X No
--- ---
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
36,021,778 shares of common stock outstanding as of August 10, 1998.
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2
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 June 30, 1998 and December 31, 1997................................3
Consolidated Statements of Operations for the three and six months ended
June 30, 1998 and 1997............................................................................4
Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the
six months ended June 30, 1998....................................................................5
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997............................................................................6
Notes to Consolidated Financial Statements...........................................................7
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997................................9
Consolidated Statements of Operations for the three and six months ended
June 30, 1998 and 1997...........................................................................10
Consolidated Statement of Partners' Equity for the six months ended
June 30, 1998....................................................................................11
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997...........................................................................12
Notes to Consolidated Financial Statements .........................................................13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.....................................................................................15
PART II OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS............................................30
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...............................................................30
SIGNATURES..............................................................................................31
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POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
--------------- ---------------
(UNAUDITED)
ASSETS
Real estate:
Land.................................................................. $ 242,493 $ 234,011
Building and improvements............................................. 1,350,528 1,255,118
Furniture, fixtures and equipment..................................... 99,135 89,251
Construction in progress.............................................. 383,807 342,071
Land held for future development...................................... 32,083 15,560
--------------- -------------
2,108,046 1,936,011
Less: accumulated depreciation.......................................... (222,457) (201,095)
--------------- -------------
Real estate assets.................................................... 1,885,589 1,734,916
Cash and cash equivalents............................................... 3,917 10,879
Restricted cash......................................................... 1,164 1,542
Deferred charges, net................................................... 17,476 12,629
Other assets............................................................ 34,648 20,597
------------- -------------
Total assets.......................................................... $ 1,942,794 $ 1,780,563
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable........................................................... $ 731,800 $ 821,209
Accrued interest payable................................................ 7,670 7,505
Dividends and distributions payable..................................... 29,687 21,327
Accounts payable and accrued expenses................................... 63,635 53,101
Security deposits and prepaid rents..................................... 8,734 8,117
------------- -------------
Total liabilities..................................................... 841,526 911,259
------------- -------------
Minority interest of unitholders in Operating Partnership............... 121,326 112,384
------------- -------------
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 --
Common stock, $.01 par value, 100,000,000 authorized,
35,889,524 and 30,626,592 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively................... 359 306
Additional paid-in capital.............................................. 979,533 756,584
Accumulated earnings.................................................... -- --
------------- -------------
Total shareholders' equity............................................ 979,942 756,920
------------- -------------
Total liabilities and shareholders' equity............................ $ 1,942,794 $ 1,780,563
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
- 3 -
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POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
REVENUES
Rental ....................................................... $ 66,799 $ 42,550 $ 130,852 $ 84,131
Property management - third party ............................ 780 538 1,517 1,092
Landscape services - third party ............................. 1,853 1,415 3,179 2,463
Interest ..................................................... 177 8 303 15
Other ........................................................ 3,868 1,596 6,589 2,966
------------ ------------ ------------ ------------
Total revenues .............................................. 73,477 46,107 142,440 90,667
------------ ------------ ------------ ------------
EXPENSES
Property operating and maintenance (exclusive of
items shown separately below) ............................... 25,001 15,941 48,132 31,153
Depreciation (real estate assets) ............................ 11,394 6,426 21,809 12,563
Depreciation (non-real estate assets) ........................ 127 253 472 495
Property management - third party ............................ 614 394 1,198 814
Landscape services - third party ............................. 1,528 1,123 2,801 2,018
Interest ..................................................... 7,344 5,709 15,693 11,070
Amortization of deferred loan costs .......................... 293 250 558 552
General and administrative ................................... 1,600 1,563 3,833 3,398
Minority interest in consolidated property partnership ....... 139 -- 198 --
------------ ------------ ------------ ------------
Total expenses .............................................. 48,040 31,659 94,694 62,063
------------ ------------ ------------ ------------
Income before net gain on sale of assets, loss on unused
treasury locks, minority interest of unitholders in
Operating Partnership and extraordinary item ................ 25,437 14,448 47,746 28,604
Net gain on sale of assets ................................... -- 3,512 -- 3,512
Loss on unused treasury locks ................................ -- -- (1,944) --
Minority interest of unitholders in
Operating Partnership ....................................... (2,902) (3,236) (5,412) (5,751)
------------ ------------ ------------ ------------
Income before extraordinary item ............................. 22,535 14,724 40,390 26,365
Extraordinary item, net of minority interest of
unitholders in Operating Partnership ........................ -- -- -- (75)
------------ ------------ ------------ ------------
Net income .................................................. 22,535 14,724 40,390 26,290
Dividend to preferred shareholders .......................... (2,969) (1,062) (5,535) (2,125)
------------ ------------ ------------ ------------
Net income available to common shareholders ................. $ 19,566 $ 13,662 $ 34,855 $ 24,165
============ ============ ============ ============
EARNINGS PER COMMON SHARE - BASIC
Income before extraordinary item (net of preferred dividend) .. $ 0.56 $ 0.62 $ 1.04 $ 1.10
Extraordinary item ............................................ -- -- -- --
Net income available to common shareholders ................... $ 0.56 $ 0.62 $ 1.04 $ 1.10
------------ ------------ ------------ ------------
Weighted average common shares outstanding .................... 35,239,800 22,028,722 33,510,294 21,989,132
============ ============ ============ ============
EARNINGS PER COMMON SHARE - DILUTED
Income before extraordinary item (net of preferred dividend) .. $ 0.55 $ 0.62 $ 1.03 $ 1.09
Extraordinary item ............................................ -- -- -- --
============ ============ ============ ============
Net income available to common shareholders ................... $ 0.55 $ 0.62 $ 1.03 $ 1.09
============ ============ ============ ============
Weighted average common shares outstanding .................... 35,772,546 22,205,988 34,004,073 22,171,329
============ ============ ============ ============
Dividends declared ............................................ $ 0.65 $ 0.595 $ 1.30 $ 1.19
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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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, 1997 ................... $ 30 $ 306 $ 756,584 $ -- $ 756,920
Proceeds from Dividend Reinvestment and
Employee Stock Purchase Plans ................ -- 2 8,871 -- 8,873
Proceeds from sale of common shares, net
of underwriting discount and offering
costs of $11,099 ............................. -- 51 186,849 -- 186,900
Proceeds from sale of preferred shares, net
of underwriting discount and offering
costs of $1,716 .............................. 20 -- 48,264 -- 48,284
Adjustment for minority interest of unitholders
in Operating Partnership at dates of capital
transactions ................................. -- -- (10,311) -- (10,311)
Net income .................................... -- -- -- 40,390 40,390
Dividends to preferred shareholders ........... -- -- -- (5,535) (5,535)
Dividends to common shareholders .............. -- -- (10,724) (34,855) (45,579)
--------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY AND ACCUMULATED
EARNINGS, JUNE 30, 1998 ....................... $ 50 $ 359 $ 979,533 $ -- $ 979,942
========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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POST PROPERTIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................... $ 40,390 $ 26,290
Adjustments to reconcile net income to net cash
provided by operating activities:
Net gain on sale of assets .................................. -- (3,512)
Loss on unused treasury locks ............................... 1,944 --
Minority interest of unitholders in Operating Partnership ... 5,412 5,751
Extraordinary item, net of minority interest of unitholders
in Operating Partnership ................................... -- 75
Depreciation ................................................ 22,281 13,058
Amortization of deferred loan costs ......................... 558 552
Write off of deferred loan costs ............................ -- 10
Other ....................................................... 168 --
Changes in assets, (increase) decrease in:
Restricted cash ............................................. 378 132
Other assets ................................................ (14,051) 4,519
Deferred charges ............................................ (4,958) --
Changes in liabilities, increase (decrease) in:
Accrued interest payable .................................... 165 41
Accounts payable and accrued expenses ....................... 9,676 6,839
Security deposits and prepaid rents ......................... 617 95
--------- ---------
Net cash provided by operating activities .................... 62,580 53,850
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets,
net of payables ............................................. (149,184) (74,286)
Proceeds from sale of assets ................................. -- 23,111
Capitalized interest ......................................... (7,680) (3,757)
Payment for unused treasury lock ............................. (1,944) --
Recurring capital expenditures ............................... (3,041) (1,903)
Corporate additions and improvements ......................... (4,127) (772)
Non-recurring capital expenditures ........................... (889) (492)
Revenue generating capital expenditures ...................... (7,790) (3,497)
--------- ---------
Net cash (used in) investing activities ...................... (174,655) (61,596)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ................................... -- (997)
Debt proceeds ................................................ 95,680 147,940
Proceeds from sale of notes .................................. 150,000 80,000
Proceeds from issuance of preferred shares ................... 48,284 --
Proceeds from issuance of common shares ...................... 186,900 --
Debt payments ................................................ (335,090) (188,576)
Distributions to unitholders ................................. (6,496) (5,925)
Proceeds from Dividend Reinvestment and
Employee Stock Purchase Plans ............................... 8,873 3,872
Dividends paid to preferred shareholders ..................... (2,566) (2,125)
Dividends paid to common shareholders ........................ (40,472) (24,905)
--------- ---------
Net cash provided by financing activities .................... 105,113 9,284
--------- ---------
Net increase (decrease) in cash and cash equivalents ......... (6,962) 1,538
Cash and cash equivalents, beginning of period ............... 10,879 233
--------- ---------
Cash and cash equivalents, end of period ..................... $ 3,917 $ 1,771
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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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 six month period ended
June 30, 1998 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, 1997.
2. NOTES PAYABLE
Post Apartment Homes, L.P. (the "Operating Partnership") has established a
program for the sale of up to $344,000 aggregate principal amount of
Medium-Term Notes due nine months or more from date of issue (the "MTN
Program"). On March 12, 1998, the Operating Partnership issued $100,000 of
6.85% Mandatory Par Put Remarketed Securities ("MOPPRS") under the MTN
Program. The net proceeds in the amount of $99,087 from the MOPPRS were
used to repay outstanding indebtedness. In connection with the MOPPRS
transaction, Merrill Lynch & Co. purchased an option to remarket the
securities as of March 16, 2005 (the "Remarketing Date"). The Operating
Partnership will have an effective borrowing rate through the Remarketing
Date of approximately 6.59%. In anticipation of the offering, the Operating
Partnership entered into forward-treasury-lock agreements in the fall of
1997. As a result of the termination of these agreements, the effective
borrowing rate will be approximately 6.85%, the coupon rate on the MOPPRS.
On April 8, 1998, the Operating Partnership sold $50,000 of Remarketed
Reset Notes (the "Reset Notes") due April 7, 2009. The Reset Notes bear an
interest rate of LIBOR plus the applicable spread with the spread being
reset from time to time. The initial spread is equal to .40% for a period
of one year. The Company has entered into an interest rate swap for the
entire term of the Reset Notes to fix the interest rate index. Under the
terms of the swap, the Company pays a fixed rate of 6.02% and receives
LIBOR. Net proceeds from the Reset Notes in the amount of $49,825 were used
to pay down the outstanding balance on the Revolver. As of June 30, 1998,
the Operating Partnership had $281,000 aggregate principal amount of notes
outstanding under the MTN Program.
3. EXTRAORDINARY ITEM
The extraordinary item for the six months ended June 30, 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.
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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
4. EARNINGS PER SHARE
For the three and six months ended June 30, 1998 and 1997, a reconciliation
of the numerator and denominator used in the computation of basic and
diluted earnings per share is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Basic and diluted income available to common
shareholders (numerator):
Income before extraordinary item ................. $ 22,535 $ 14,724 $ 40,390 $ 26,365
Less: Preferred stock dividends ................. (2,969) (1,062) (5,535) (2,125)
------------ ------------ ------------ ------------
Income available to common shareholders
before extraordinary item ....................... $ 19,566 $ 13,662 $ 34,855 $ 24,240
============ ============ ============ ============
Common shares (denominator):
Weighted average shares outstanding - basic ..... 35,239,800 22,028,722 33,510,294 21,989,132
Incremental shares from assumed conversion
of options ..................................... 532,746 177,266 493,779 182,197
------------ ------------ ------------ ------------
Weighted average shares outstanding - diluted ... 35,772,546 22,205,988 34,004,073 22,171,329
============ ============ ============ ============
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the three and six months
ended June 30, 1998 and 1997 were as follows:
(a) During the six months ended June 30, 1998 and 1997, holders of 750 and
6,519 Units, respectively, 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 equity offerings and the Dividend
Reinvestment and Employee Stock Purchase Plans was a reclassification
increasing minority interest and decreasing shareholders' equity in
the amount of $10,311 and $331 for the six months ended June 30, 1998
and 1997, respectively.
6. NEW ACCOUNTING PRONOUNCEMENT
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June
15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. Management of the Company anticipates that, due
to its limited use of derivative instruments, the adoption of FAS 133 will
not have a significant effect on the Company's results of operations or its
financial position.
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POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
ASSETS
Real estate:
Land ........................................... $ 242,493 $ 234,011
Building and improvements ...................... 1,350,528 1,255,118
Furniture, fixtures and equipment .............. 99,135 89,251
Construction in progress ....................... 383,807 342,071
Land held for future development ............... 32,083 15,560
----------- -----------
2,108,046 1,936,011
Less: accumulated depreciation .................. (222,457) (201,095)
----------- -----------
Operating real estate assets ................... 1,885,589 1,734,916
Cash and cash equivalents ....................... 3,917 10,879
Restricted cash ................................. 1,164 1,542
Deferred charges, net ........................... 17,476 12,629
Other assets .................................... 34,648 20,597
----------- -----------
Total assets ................................... $ 1,942,794 $ 1,780,563
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Notes payable ................................... $ 731,800 $ 821,209
Accrued interest payable ........................ 7,670 7,505
Distributions payable ........................... 29,687 21,327
Accounts payable and accrued expenses ........... 63,635 53,101
Security deposits and prepaid rents ............. 8,734 8,117
----------- -----------
Total liabilities .............................. 841,526 911,259
----------- -----------
Commitments and contingencies
Partners' equity ................................ 1,101,268 869,304
----------- -----------
Total liabilities and partners' equity ......... $ 1,942,794 $ 1,780,563
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
REVENUES
Rental .................................................... $ 66,799 $ 42,550 $ 130,852 $ 84,131
Property management - third party ......................... 780 538 1,517 1,092
Landscape services - third party .......................... 1,853 1,415 3,179 2,463
Interest .................................................. 177 8 303 15
Other ..................................................... 3,868 1,596 6,589 2,966
------------ ------------ ------------ ------------
Total revenues ........................................... 73,477 46,107 142,440 90,667
------------ ------------ ------------ ------------
EXPENSES
Property operating and maintenance (exclusive of
items shown separately below) ............................ 25,001 15,941 48,132 31,153
Depreciation (real estate assets) ......................... 11,394 6,426 21,809 12,563
Depreciation (non-real estate assets) ..................... 127 253 472 495
Property management - third party ......................... 614 394 1,198 814
Landscape services - third party .......................... 1,528 1,123 2,801 2,018
Interest .................................................. 7,344 5,709 15,693 11,070
Amortization of deferred loan costs ....................... 293 250 558 552
General and administrative ................................ 1,600 1,563 3,833 3,398
Minority interest in consolidated property partnership .... 139 -- 198 --
------------ ------------ ------------ ------------
Total expenses ........................................... 48,040 31,659 94,694 62,063
------------ ------------ ------------ ------------
Income before net gain on sale of assets, loss on
unused treasury locks and extraordinary item ............. 25,437 14,448 47,746 28,604
Net gain on sale of assets ................................ -- 3,512 -- 3,512
Loss on unused treasury locks ............................. -- -- (1,944) --
------------ ------------ ------------ ------------
Income before extraordinary item .......................... 25,437 17,960 45,802 32,116
Extraordinary item ........................................ -- -- -- (93)
------------ ------------ ------------ ------------
Net income ............................................... 25,437 17,960 45,802 32,023
Distributions to preferred unitholders ................... (2,969) (1,062) (5,535) (2,125)
------------ ------------ ------------ ------------
Net income available to common unitholders ............... $ 22,468 $ 16,898 $ 40,267 $ 29,898
============ ============ ============ ============
EARNINGS PER COMMON UNIT - BASIC
Income before extraordinary item (net of preferred
distributions) ........................................... $ 0.56 $ 0.62 $ 1.04 $ 1.10
Extraordinary item ........................................ -- -- -- --
------------ ------------ ------------ ------------
Net income available to common unitholders ................ $ 0.56 $ 0.62 $ 1.04 $ 1.10
------------ ------------ ------------ ------------
Weighted average common units outstanding ................. 40,455,524 27,245,196 38,726,080 27,206,432
============ ============ ============ ============
EARNINGS PER COMMON UNIT - DILUTED
Income before extraordinary item (net of preferred
distributions) ........................................... $ 0.55 $ 0.62 $ 1.03 $ 1.09
Extraordinary item ........................................ -- -- -- --
------------ ------------ ------------ ------------
Net income available to common unitholders ................ $ 0.55 $ 0.62 $ 1.03 $ 1.09
============ ============ ============ ============
Weighted average common units outstanding ................. 40,988,270 27,422,462 39,219,859 27,388,629
============ ============ ============ ============
Distributions declared .................................... $ 0.65 $ 0.595 $ 1.30 $ 1.19
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-10-
11
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
General Limited
Partner Partners Total
----------- ----------- -----------
PARTNERS' EQUITY, DECEMBER 31, 1997 ........................ $ 9,085 $ 860,219 $ 869,304
Contributions from the Company related to
Dividend Reinvestment and Employee Stock Purchase Plans ... 89 8,784 8,873
Contributions from the Company related to the sale
of common shares ......................................... 1,869 185,031 186,900
Contributions from the Company related to the sale
of preferred shares ...................................... -- 48,284 48,284
Distributions to preferred unitholders .................... -- (5,535) (5,535)
Distributions to common unitholders ....................... (524) (51,836) (52,360)
Net income ................................................ 458 45,344 45,802
----------- ----------- -----------
PARTNERS' EQUITY, JUNE 30, 1998 ............................ $ 10,977 $ 1,090,291 $ 1,101,268
----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
-11-
12
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................................... $ 45,802 $ 32,023
Adjustments to reconcile net income to net cash provided by
operating activities:
Net gain on sale of assets ......................................... -- (3,512)
Loss on unused treasury locks ...................................... 1,944 --
Extraordinary item ................................................. -- 93
Depreciation ....................................................... 22,281 13,058
Amortization of deferred loan costs ................................ 558 552
Write-off of deferred loan costs ................................... 168 10
Changes in assets, (increase) decrease in:
Restricted cash .................................................... 378 132
Other assets ....................................................... (14,051) 4,519
Deferred charges ................................................... (4,958) --
Changes in liabilities, increase (decrease) in:
Accrued interest payable ........................................... 165 41
Accounts payable and accrued expenses .............................. 9,676 6,839
Security deposits and prepaid rents ................................ 617 95
--------- ---------
Net cash provided by operating activities ........................... 62,580 53,850
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets, net of payables .. (149,184) (74,286)
Proceeds from sale of assets ........................................ -- 23,111
Capitalized interest ................................................ (7,680) (3,757)
Payment for unused treasury locks ................................... (1,944) --
Recurring capital expenditures ...................................... (3,041) (1,903)
Corporate additions and improvements ................................ (4,127) (772)
Non-recurring capital expenditures .................................. (889) (492)
Revenue generating capital expenditures ............................. (7,790) (3,497)
--------- ---------
Net cash (used in) investing activities ............................. (174,655) (61,596)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs .......................................... -- (997)
Debt proceeds ....................................................... 95,680 147,940
Proceeds from sale of notes ......................................... 150,000 80,000
Proceeds from issuance of preferred units ........................... 48,284 --
Proceeds from issuance of common units .............................. 186,900 --
Debt payments ....................................................... (335,090) (188,576)
Proceeds from contributions from PPI related to Dividend
Reinvestment and Employee Stock Purchase Plans ..................... 8,873 3,872
Distributions paid to preferred unitholders ......................... (2,566) (2,125)
Distributions paid to common unitholders ............................ (46,968) (30,830)
--------- ---------
Net cash provided by financing activities ........................... 105,113 9,284
--------- ---------
Net increase (decrease) in cash and cash equivalents ................ (6,962) 1,538
Cash and cash equivalents, beginning of period ...................... 10,879 233
--------- ---------
Cash and cash equivalents, end of period ............................ $ 3,917 $ 1,771
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-12-
13
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
Company's management in accordance with generally accepted accounting
principles for interim financial information and applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally
recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the six month period ended
June 30, 1998 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 Apartment Homes, L.P. Annual Report on Form
10-K for the year ended December 31, 1997.
2. NOTES PAYABLE
The Operating Partnership has established a program for the sale of up to
$344,000 aggregate principal amount of Medium-Term Notes due nine months or
more from date of issue (the "MTN Program"). On March 12, 1998, the
Operating Partnership issued $100,000 of 6.85% Mandatory Par Put Remarketed
Securities ("MOPPRS") under the MTN Program. The net proceeds in the amount
of $99,087 from the MOPPRS were used to repay outstanding indebtedness. In
connection with the MOPPRS transaction, Merrill Lynch & Co. purchased an
option to remarket the securities as of March 16, 2005 (the "Remarketing
Date"). The Operating Partnership will have an effective borrowing rate
through the Remarketing Date of approximately 6.59%. In anticipation of the
offering, the Operating Partnership entered into forward-treasury-lock
agreements in the fall of 1997. As a result of the termination of these
agreements, the effective borrowing rate will be approximately 6.85%, the
coupon rate on the MOPPRS.
On April 8, 1998, the Operating Partnership sold $50,000 of Remarketed
Reset Notes (the "Reset Notes") due April 7, 2009. The Reset Notes bear an
interest rate of LIBOR plus the applicable spread with the spread being
reset from time to time. The initial spread is equal to .40% for a period
of one year. The Company has entered into an interest rate swap for the
entire term of the Reset Notes to fix the interest rate index. Under the
terms of the swap, the Company pays a fixed rate of 6.02% and receives
LIBOR. Net proceeds from the Reset Notes in the amount of $49,825 were used
to pay down the outstanding balance on the Revolver. As of June 30, 1998,
the Operating Partnership had $281,000 aggregate principal amount of notes
outstanding under the MTN Program.
3. EXTRAORDINARY ITEM
The extraordinary item for the six months ended June 30, 1997 resulted from
costs associated with the early extinguishment of indebtedness.
-13-
14
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
4. EARNINGS PER UNIT
For the three and six months ended June 30, 1998 and 1997, a reconciliation
of the numerator and denominator used in the computation of basic and
diluted earnings per share is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Basic and diluted income available to common
unitholders (numerator):
Income before extraordinary item ............. $ 25,437 $ 17,960 $ 45,802 $ 32,116
Less: Preferred stock distributions ......... (2,969) (1,062) (5,535) (2,125)
------------ ------------ ------------ ------------
Income available to common unitholders
before extraordinary item ................... $ 22,468 $ 16,898 $ 40,267 $ 29,991
============ ============ ============ ============
Common shares (denominator):
Weighted average shares outstanding - basic . 40,455,524 27,245,196 38,726,080 27,206,432
Incremental shares from assumed conversion
of options ................................. 532,746 177,266 493,779 182,197
------------ ------------ ------------ ------------
Weighted average shares outstanding - diluted 40,988,270 27,422,462 39,219,859 27,388,629
============ ============ ============ ============
5. NEW ACCOUNTING PRONOUNCEMENT
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June
15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. Management of the Company anticipates that, due
to its limited use of derivative instruments, the adoption of FAS 133 will
not have a significant effect on the Company's results of operations or its
financial position.
-14-
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with all of the
financial statements appearing elsewhere in this report. The following
discussion is based primarily on the Consolidated Financial Statements of Post
Properties, Inc. (the "Company") and Post Apartment Homes, L.P. (the "Operating
Partnership"). Except for the effect of minority interest in the Operating
Partnership, the following discussion with respect to the Company is the same
for the Operating Partnership.
As of June 30, 1998, there were 41,105,248 units in the Operating Partnership
outstanding, of which 35,889,524, or 87.3%, were owned by the Company and
5,215,724, or 12.7% were owned by other limited partners (including certain
officers and directors of the Company). As of June 30, 1998, there were
5,000,000 Perpetual Preferred Units outstanding, all of which were owned by the
Company.
On October 24, 1997 Columbus Realty Trust ("Columbus"), a Texas real estate
investment trust, was merged into a wholly owned subsidiary of the Company.
Pursuant to the merger agreement, each outstanding share of Columbus common
stock was converted into .615 shares of common stock of the Company, which
resulted in the issuance of approximately 8,400,000 shares of common stock of
the Company.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The Company recorded net income available to common shareholders of $19,566 and
$34,855 for the three and six months ended June 30, 1998, respectively, an
increase of 43.2% and 44.2% over the corresponding periods in 1997 primarily as
a result of the merger with Columbus and additional units placed in service
through the development of new communities.
COMMUNITY OPERATIONS
The Company's net income is generated primarily from the operation of its
apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. A community is generally
considered by the Company to have achieved stabilized occupancy on the earlier
to occur of (i) attainment of 95% physical occupancy on the first day of any
month or (ii) one year after completion of construction.
As of June 30, 1998, the Company's portfolio of apartment communities consisted
of the following: (i) 64 communities which were completed and stabilized for
all of the current and prior year, (ii) seven communities which achieved full
stabilization during the prior year and (iii) 14 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
-15-
16
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
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.
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, 1997. 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.
-16-
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
ALL OPERATING COMMUNITIES
The operating performance for all of the Company's apartment communities
combined for the three and six months ended June 30, 1998 and 1997 is summarized
as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ ------------------------------------
1998 1997 % CHANGE 1998 1997 % CHANGE
--------- --------- -------- --------- --------- ---------
Rental and other revenue:
Mature communities (1) ........................... $ 52,617 $ 50,486 4.2% $ 104,233 $ 100,378 3.8%
Adjustment for acquired mature communities (2) ... -- (10,950) n/m -- (21,764) n/m
Communities stabilized during 1997 ............... 6,246 1,140 447.9% 12,409 1,548 701.6%
Development and lease-up
communities (3) ................................. 9,078 2,061 340.5% 15,939 3,863 312.6%
Sold communities (4) ............................. -- 517 n/m -- 1,482 n/m
Other revenue (5) ................................ 2,726 892 205.6% 4,860 1,590 205.7%
--------- -------- --------- ---------
70,667 44,146 60.1% 137,441 87,097 57.8%
--------- --------- --------- ---------
Property operating and maintenance expense
(exclusive of depreciation and amortization):
Mature communities (1) ........................... 17,190 16,497 4.2% 33,234 32,205 3.2%
Adjustment for acquired mature communities (2) ... -- (3,630) n/m -- (7,294) n/m
Communities stabilized during 1997 ............... 1,893 546 246.7% 3,880 892 335.0%
Development and lease-up
communities (3) ................................. 3,527 808 336.5% 6,610 1,490 343.6%
Sold communities(4) .............................. -- 290 n/m -- 650 n/m
Other expenses (6) ............................... 2,391 1,430 67.2% 4,408 3,210 37.3%
--------- --------- --------- ---------
25,001 15,941 56.8% 48,132 31,153 54.5%
--------- --------- --------- ---------
Revenue in excess of specified
expense ......................................... $ 45,666 $ 28,205 61.9% $ 89,309 $ 55,944 59.6%
========= ========= ========= =========
Recurring capital expenditures: (7)
Carpet .......................................... $ 621 $ 337 84.3% $ 1,203 $ 656 83.4%
Other ........................................... 1,267 862 47.0% 1,838 1,247 47.4%
--------- --------- --------- ---------
Total ........................................... $ 1,888 $ 1,199 57.5% $ 3,041 $ 1,903 59.8%
========= ========= ========= =========
Average apartment units in service ............... 27,114 18,420 47.2% 26,816 18,262 46.8%
========= ========= ========= =========
Recurring capital expenditures per
apartment unit .................................. $ 70 $ 65 7.7% $ 113 $ 104 8.7%
========= ========= ========== =========
(1) Communities which reached stabilization prior to January 1, 1997.
Includes mature communities acquired through the merger with Columbus.
(2) The adjustment for acquired mature communities represents the operating
results of the mature communities owned by Columbus prior to the merger.
(3) Communities in the "construction", "development" or "lease-up" stage
during 1996 and, therefore, not considered fully stabilized for all of the
periods presented.
(4) Includes one community, containing 416 units, which was sold on May 22,
1997.
(5) Other revenue 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) Other expenses includes certain indirect central office operating
expenses related to management, grounds maintenance, costs associated with
furnished apartment rentals and operating expenses from commercial
properties.
(7) In addition to 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.
n/m - Not meaningful.
For the three and six months ended June 30, 1998, rental and other revenue
increased $26,521, or 60.1% and $50,344, or 57.8%, respectively, compared to
the same periods in the prior year primarily as a result of an increase in
units placed in
-17-
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
service through the merger with Columbus ($20,041 and $38,778) and the
completion of new communities. For the three and six months ended June 30, 1998,
property operating and maintenance expenses increased $9,060, or 56.8% and
$16,979, or 54.5%, respectively, compared to the same period in the prior year,
primarily as a result of an increase in the number of units placed in service
through the merger with Columbus ($6,679 and $12,975) and the completion of new
communities.
For the three and six months ended June 30, 1998, recurring capital
expenditures increased $689, or 57.5% ($5, or 7.7% on a per apartment unit
basis) and $1,138, or 59.8% ($9, or 8.7% on a per apartment unit basis),
respectively, compared to the same period in the prior year, primarily due to
the increase in the average number of apartment units in service as a result of
the merger with Columbus, the completion of new communities and the timing of
capital expenditures.
-18-
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
MATURE COMMUNITIES
The Company defines mature communities as those which have reached
stabilization prior to the beginning of the previous calendar year.
The operating performance of the 64 communities containing an aggregate of
21,819 units which were fully stabilized as of January 1, 1997, is summarized
as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- --------------------------------------
1998 1997 % CHANGE 1998 1997 % CHANGE
--------- --------- --------- --------- --------- ----------
Rental and other revenue (1) ................ $ 52,617 $ 50,486 4.2% $ 104,233 $ 100,378 3.8%
Adjustment for acquired mature
communities (2) ............................. -- (10,950) n/m -- (21,764) n/m
--------- --------- --------- --------
Rental and other revenue (3) ................ 52,617 39,536 33.1% 104,233 78,614 32.6%
--------- --------- --------- --------
Property operating and maintenance
expense (exclusive of depreciation and
amortization)(1) ........................... 17,190 16,497 4.2% 33,234 32,205 3.2%
Adjustment for acquired mature
communities(2) ............................. -- (3,630) n/m -- (7,294) n/m
--------- --------- --------- --------
Property operating and maintenance expense
(exclusive of depreciation and
amortization) - historical(3) .............. 17,190 12,867 33.6% 33,234 24,911 33.4%
--------- --------- --------- --------
Revenue in excess of specified expense ...... $ 35,427 $ 26,669 32.8% $ 70,999 $ 53,703 32.2%
========= ========= ========= ========
Recurring capital expenditures: (4)
Carpet ..................................... $ 579 $ 319 81.5% $ 1,117 $ 627 78.1%
Other ...................................... 1,149 807 42.4% 1,657 1,131 46.5%
--------- --------- --------- --------
Total ..................................... $ 1,728 $ 1,126 53.5% $ 2,774 $ 1,758 57.8%
========= ========= ========= ========
Recurring capital expenditures per
apartment unit(5) .......................... $ 79 $ 66 19.7% $ 127 $ 104 22.1%
========= ========== ========= ========
Average economic occupancy(6) ............... 96.9% 94.8% 2.1% 96.6% 94.2% 2.4%
========= ========= ========= ========
Average monthly rental rate per
apartment unit(7) .......................... $ 813 $ 796 2.1% $ 809 $ 796 1.6%
========= ========= ========= ========
Apartment units in service .................. 21,819 16,937 28.8% 21,819 16,937 28.8%
========= ========= ========= =========
(1) Communities which reached stabilization prior to January 1, 1997.
Includes mature communities acquired through the merger with Columbus.
(2) The adjustment for acquired mature communities represents the operations
results of the mature communities owned by Columbus prior to the merger.
This adjustment was included to reduce the rental and other revenue of
mature communities to the historical results in order to provide a more
meaningful analysis of the mature communities results.
(3) Represents the Company's historical results of operations for mature
communities.
(4) 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.
(5) In addition to such capitalized expenditures, the Company expensed $184
and $154 per unit on building maintenance (inclusive of direct salaries)
and $65 and $78 per unit on landscaping (inclusive of direct salaries) for
the three months ended June 30, 1998 and 1997, respectively.
(6) Average economic occupancy is defined as gross potential rent less
vacancy losses, model expenses and bad debt divided by gross potential
rent for the period, expressed as a percentage. The calculation of
average economic occupancy does not include a deduction for concessions
and employee discounts. Average economic occupancy, including these
amounts would have been 95.0% and 94.0%
-19-
20
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
for the three months ended June 30, 1998 and 1997, respectively. For the
three months ended June 30, 1998 and 1997, concessions were $878 and $213,
respectively, and employee discounts were $117 and $92, respectively. For
the three months ended June 30, 1997, average economic occupancy for all
mature communities, including mature communities acquired through the
merger with Columbus, was 95.3%.
(7) 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.
n/m - Not meaningful.
For the three and six months ended June 30, 1998, rental and other revenue
increased $13,081, or 33.1%, and $25,619, or 32.6%, respectively, compared to
the same period in the prior year, due to increase in units in service as a
result of the merger with Columbus and increased rental rates and occupancy for
mature communities owned prior to the merger with Columbus. For the three and
six months ended June 30, 1998, property operating and maintenance expenses
(exclusive of depreciation and amortization) increased $4,323, or 33.6%, and
$8,323 or 33.4%, respectively, compared to the same period in the prior year,
primarily as a result of an increase in units in service as a result of the
merger with Columbus.
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 and six months ended June 30, 1998 and 1997, respectively, the
"lease-up deficit" charged to and included in results of operations is
summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1998 1997 1998 1997
------- ------- ------- -------
Rental and other revenue ........... $ 1,569 $ 574 $ 2,692 $ 691
Property operating and maintenance
expense (exclusive of
depreciation and amortization) .... 1,355 371 2,670 578
------- ------- ------- -------
Revenue (expense) in excess of
specified expense/revenue ......... 214 203 22 113
Interest expense ................... 763 271 1,392 360
------- ------- ------- -------
Lease-up deficit ................... $ (549) $ (68) $(1,370) $ (247)
======= ======= ======= =======
-20-
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
THIRD PARTY SERVICES
THIRD PARTY MANAGEMENT SERVICES
The Company provides asset management, leasing and other consulting services to
non-related owners of apartment communities through its subsidiary, RAM
Partners, Inc. ("RAM"). The operating performance of RAM for the three and six
months ended June 30, 1998 and 1997 is summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
1998 1997 %Change 1998 1997 %Change
------- ------- ------- -------- ------- -------
Property management and other
revenue ............................. $ 780 $ 519 50.3% $ 1,517 $ 1,073 41.4%
Property management expense .......... 423 283 49.5% 831 578 43.8%
General and administrative expense ... 191 96 99.0% 367 199 84.4%
Depreciation expense ................. 9 11 (18.2%) 18 25 (28.0%)
------- ------- ------- -------
Revenue in excess of specified
expense .............................. $ 157 $ 129 21.7% $ 301 $ 271 11.1%
======= ======= ======= =======
Average apartment units managed ...... 11,278 7,804 44.5% 10,965 7,814 40.3%
======= ======= ======= =======
The increase in property management revenues and expenses and general and
administrative expense for the three and six months ended June 30, 1998
compared to the same periods in the prior year is primarily attributable to an
increase in the average number of units managed.
THIRD PARTY LANDSCAPE SERVICES
The Company provides landscape maintenance, design and installation services to
non-related parties through a subsidiary, Post Landscape Services, Inc. ("Post
Landscape Services").
The operating performance of Post Landscape Services for the three and six
months ended June 30, 1998 and 1997 is summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 %Change 1998 1997 %Change
------ ------ ------- ------ ------ -------
Landscape services and other
revenue .......................... $1,853 $1,415 31.0% $3,179 $2,463 29.1%
Landscape services expense ......... 1,312 988 32.8% 2,371 1,741 36.2%
General and administrative expense.. 216 135 60.0% 430 277 55.2%
Depreciation expense ............... 41 30 36.7% 66 56 17.9%
------ ------ ------ ------
Revenue in excess of specified
expense .......................... $ 284 $ 262 8.4% $ 312 $ 389 (19.8%)
====== ====== ====== ======
The increase in landscape services revenue and expenses for the three and six
months ended June 30, 1998, compared to the same periods in 1997 is primarily
due to increases in landscape contracts. General and administrative expense
increased due to costs incurred in preparation for future growth plans.
-21-
22
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
OTHER REVENUES AND EXPENSES
Depreciation expense increased $4,842, or 72.5% and $9,223, or 70.6%,
respectively, and interest expense increased $1,635, or 28.6% and $4,623, or
41.8%, respectively, from the three and six months ended June 30, 1998,
compared to the same period in the prior year, primarily as a result of an
increase in units in service as a result of the merger with Columbus.
General and administrative expense increased only $37 and $435, respectively,
from the three and six months ended June 30, 1998, compared to the same period
in the prior year, primarily due to the merger with Columbus. As a result,
general and administrative expense as a percent of total revenues decreased
from 3.4% and 3.8% for the three and six months ended June 30, 1997 to 2.2% and
2.7% for the three and six months ended June 30, 1998 due to economies of scale
gained as a result of the merger with Columbus.
The loss on unused treasury locks for the six months ended June 30, 1998 of
$1,944 resulted from the termination of treasury locks intended for debt
securities that were not issued by the Operating Partnership.
The extraordinary item of $75 for the six months ended June 30, 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 $53,850
for the six months ended June 30, 1997 to $62,580 for the six months ended June
30, 1998, principally due to the increase in net income (primarily as a result
of the merger with Columbus). Net cash used in investing activities increased
from $61,596 in the six months ended June 30, 1997 to $174,655 in the six
months ended June 30, 1998, principally due to an increase in construction
spending. The Company's net cash provided by financing activities increased
from $9,284 in the six months ended June 30, 1997 to $105,113 in the six months
ended June 30, 1998, primarily due to proceeds from the sale of preferred stock
and common stock and increased debt proceeds.
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.
At June 30, 1998, the Company had total indebtedness of $731,800, a decrease of
$89,409 from its total indebtedness at December 31, 1997, and cash and cash
equivalents of $3,917. At June 30, 1998, the Company's indebtedness included
approximately $39,920 in conventional mortgages payable secured by individual
communities, tax-exempt bond indebtedness of $235,880, senior unsecured notes
of $456,000 and borrowings under unsecured lines of credit of $0.
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.
-22-
23
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
Lines Of Credit
The Company has two unsecured lines of credit totaling $220,000. At June 30,
1998, there were no outstanding borrowings under these lines of credit.
Medium Term Notes
The Operating Partnership has established a program for the sale of up to
$344,000 aggregate principal amount of Medium-Term Notes due nine months or
more from date of issue (the "MTN Program"). On March 12, 1998, the Operating
Partnership issued $100,000 of 6.85% Mandatory Par Put Remarketed Securities
("MOPPRS") under the MTN Program. The net proceeds in the amount of $99,087
from the MOPPRS were used to repay outstanding indebtedness. In connection with
MOPPRS transaction, Merrill Lynch & Co. purchased an option to remarket the
securities as of March 16, 2005 (the "Remarketing Date"). The Operating
Partnership will have an effective borrowing rate through the Remarketing Rate
of approximately 6.59%. In anticipation of the offering, the Operating
Partnership entered into forward-treasury-lock agreements in the fall of 1997.
As a result of the termination of these agreements, the effective borrowing
rate will be approximately 6.85%, the coupon rate on the MOPPRS.
On April 8, 1998, the Operating Partnership sold $50,000 of Remarketed Reset
Notes due April 7, 2009. The notes bear an interest rate of LIBOR plus the
applicable spread with the spread being reset from time to time. The initial
spread is equal to .40% for a period of one year. The Company has entered into
an interest rate swap for the entire term of the notes to fix the interest rate
index. Under the terms of the swap, the Company pays a fixed rate of 6.02% and
receives LIBOR. Net proceeds in the amount of $49,825 were used to pay down the
outstanding balance on the Revolver. As of June 30, 1998, the Operating
Partnership had $281,000 aggregate principle amount of notes outstanding under
the MTN Program.
Tax Exempt Bonds
On June 29, 1995, the Company replaced the bank letters of credit providing
credit enhancement for its outstanding tax-exempt bonds. Under an agreement
with the Fannie Mae ("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 the bond issues, aggregating $235,880, which were
reissued. The agreement with FNMA contains representations, covenants, and
events of default customary to such secured loans.
On June 1, the Operating Partnership refunded its last single property
tax-exempt bond issuance on Post Court(R) in Atlanta. Of the Company's $731,800
in outstanding debt, $235,880 is tax-exempt, AAA Fannie Mae credit enhanced low
interest rate debt maturing in 2025.
-23-
24
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
Schedule of Indebtedness
The following table reflects the Company's indebtedness at June 30, 1998:
Maturity Principal
Description Location Interest Rate Date(1) Balance
================================== ============ ============================ ======== =========
CONVENTIONAL FIXED RATE (SECURED)
Post Hillsboro Village...................Nashville, TN 9.20% 10/01/01 2,988
Parkwood Townhomes(TM)................... Dallas, TX 7.375% 04/01/14 879
-------
3,867
-------
CONVENTIONAL FLOATING RATE
Addison Circle Apartment Homes
by Post(TM) - Phase I................... Dallas, TX LIBOR + .75% 06/01/99 22,192
The Rice................................. Houston, TX LIBOR + 1.90% 08/01/99 13,861
-------
36,053
-------
TAX EXEMPT FLOATING RATE (SECURED)
Post Ashford(R) Series 1995.............. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 9,895
Post Valley(R) Series 1995............... Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 18,600
Post Brook(R) Series 1995................ Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 4,300
Post Village(R) (Atlanta) Hills
Series 1995............................. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 7,000
Post Mill(R) Series 1995................. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 12,880
Post Canyon(R) Series 1996............... Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 16,845
Post Corners(R) Series 1996.............. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 14,760
Post Bridge(R)........................... Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 12,450
Post Village(R) (Atlanta) Gardens........ Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 14,500
Post Chase(R)............................ Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 15,000
Post Walk(R)............................. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 15,000
Post Lake(R)............................. Orlando, FL "AAA" NON-AMT + .575% (2)(3) 06/01/25 28,500
Post Fountains at Lee Vista(R)........... Orlando, FL "AAA" NON-AMT + .575% (2)(3) 06/01/25 21,500
Post Village(R) (Atlanta) Fountains
and Meadows............................. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 26,000
Post Court(R)............................ Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 18,650
-------
235,880
-------
SENIOR NOTES (UNSECURED)
Medium Term Notes........................ N/A 6.22% 12/31/99 16,000
Medium Term Notes........................ N/A LIBOR + .25% 03/03/00 30,000
Northwestern Mutual Life................. N/A 8.21% 06/07/00 30,000
Medium Tern Notes........................ N/A 7.02% 04/02/01 37,000
Northwestern Mutual Life................. N/A 8.37% 06/07/02 20,000
Senior Notes............................. N/A 7.25% 10/01/03 100,000
Medium Term Notes........................ N/A 7.30% 04/01/04 13,000
Medium Term Notes........................ N/A 6.69% 09/22/04 10,000
Medium Term Notes........................ N/A 6.78% 09/22/05 25,000
Senior Notes............................. N/A 7.50% 10/01/06 25,000
Mandatory Par Put Remarketed Securities.. N/A 6.85% (5) 03/16/15 100,000
Remarketed Reset Notes................... N/A LIBOR + .40% (6) 02/07/09 50,000
-------
456,000
-------
-24-
25
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
LINES OF CREDIT (UNSECURED)
Revolver....................... N/A LIBOR + .675% or prime minus .25% (7) 04/30/01 --
Cash Management Line........... N/A LIBOR + .675% or prime minus .25% 03/31/99 --
---------
TOTAL.......................... $ 731,800
(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 cross collateralized. The Company has purchased an
interest rate cap that limits the Company's exposure to increases in the
base rate to 5%.
(4) Subject to certain conditions at re-issuance, the credit enhancement runs
to June 1, 2025.
(5) The annual interest rate on these securities to March 16, 2005 (the
"Remarketing Date") is 6.85%. On the Remarketing Date, they are subject to
mandatory tender for remarketing.
(6) Represents rate through April 7, 1999. After this date, the spread will
be reset quarterly.
(7) Represents stated rate. The Company may also make "money market" loans of
up to $100,000 at rates below the stated rate.
Preferred Stock Offering
On February 9, 1998, the Company issued two million non-convertible 7 5/8%
Series C Cumulative Redeemable Shares (the "Series C Perpetual Preferred
Shares") at a price of $25 per share. Net proceeds of $48,284 from the sale of
Series C Perpetual Preferred Shares were contributed to the Operating
Partnership in exchange for two million Series C Perpetual Preferred Units and
used by the Operating Partnership to repay outstanding indebtedness.
Common Stock Offering
On March 4, 1998, the Company issued 3.5 million shares of common stock at a
price of $39 per share. The net proceeds from this offering of $129,179 were
contributed to the Operating Partnership in exchange for 3.5 million common
units and used by the Operating Partnership to repay outstanding indebtedness
under the Revolver.
On April 29, 1998, the Company issued approximately 1.1 million shares of its
common stock at a price of $40.5625 per share. The shares were deposited into a
registered unit investment trust ("UIT"), the Equity Investor Fund Cohen &
Steers Realty Majors Portfolio. Net proceeds in the amount of $44,059 were
contributed to the Operating Partnership and used to pay down the outstanding
balance on the Company's Revolver.
On May 28, 1998, the Company issued 373,250 shares of its common stock at a
price of $40.1875 per share. The shares were deposited into a registered UIT,
the Paine Webber Equity Trust Reit Series 1. Net proceeds of $13,662 from this
offering were contributed to the Operating Partnership and were used to fund
development and other operating cash flow needs.
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. For the six months
ended June 30, 1998, contributions from the DRIP were $8,873.
-25-
26
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
Current Development Activity
The Company's apartment 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 AUGUST 3,
METROPOLITAN AREA UNITS COMMENCEMENT AVAILABLE OCCUPANCY 1998
- ----------------- ----- ------------ --------- --------- ----
Atlanta, GA
- -----------
Post Lindbergh(TM) 395 3Q'96 4Q'97 1Q'99 275
Post Gardens(R) 397 3Q'96 4Q'97 1Q'99 309
Riverside by Post(TM) 536 3Q'96 2Q'98 1Q'00 105
Post River(R) - Phase II 88 1Q'97 2Q'98 3Q'98 87
Post Ridge(TM) 232 1Q'97 1Q'98 4Q'98 218
Post Ridge II 202 2Q'98 4Q'98 2Q'99 16
Post Briarcliff(TM) - Phase I 388 2Q'97 2Q'98 3Q'99 166
Post Briarcliff(TM) - Phase II 300 2Q'98 4Q'98 2Q'00 n/a
----- -----
2,538 1,176
----- -----
Tampa, FL
- ---------
Post Rocky Point(R) - Phase III 290 2Q'97 2Q'98 1Q'99 106
Post Hyde Park III 119 2Q'99 1Q'99 3Q'99 n/a
Post Harbour Island(TM) 206 3Q'97 3Q'98 2Q'99 n/a
----- ---
615 106
----- ---
Dallas, TX
- ----------
Addison Circle - Phase II 473 1Q'98 1Q'99 1Q'00 n/a
American Beauty Mill 80 2Q'97 2Q'98 3Q'98 68
Block 580 204 4Q'97 4Q'98 2Q'99 n/a
Wilson Building 135 2Q'98 2Q'99 4Q'00 n/a
----- ---
892 68
----- ---
Houston, TX
- -----------
The Rice 312 1Q'97 2Q'98 4Q'98 262
Midtown - Phase I 479 2Q'98 2Q'99 2Q'00 n/a
----- ---
791 262
----- ---
Denver, CO
- ----------
Denver Uptown 467 1Q'98 2Q'99 2Q'00 n/a
----- ---
Phoenix, AZ
- -----------
Deck Park 438 4Q'98 3Q'99 3Q'00 n/a
----- ---
Nashville, TN
- -------------
Bennie Dillon 86 2Q'98 1Q'99 3Q'99 n/a
----- -----
5,827 1,612
===== =====
The Company is also currently conducting feasibility and other pre-development
studies for possible new Post(R) communities in its primary market areas.
-26-
27
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
Capitalization of Fixed Assets and Community Improvements
The Company has established a policy of capitalizing those expenditures
relating to acquiring new assets, materially enhancing the value of an existing
asset, or substantially extending the useful life of an existing asset. All
expenditures necessary to maintain a community in ordinary operating condition
are expensed as incurred. During the first five years of a community (which
corresponds to the estimated depreciable life), carpet replacements are
expensed as incurred. Thereafter, carpet replacements are capitalized.
Acquisition of assets and community improvement expenditures for the three and
six months ended June 30, 1998 and 1997 are summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
New community development and acquisition activity .... $ 89,540 $ 35,255 $156,864 $ 78,043
Non-recurring capital expenditures:
Revenue generating additions and improvements ........ 4,501 2,447 7,790 3,497
Other community additions and improvements ........... 636 117 889 492
Recurring capital expenditures:
Carpet replacements .................................. 621 337 1,203 656
Community additions and improvements ................. 1,267 862 1,838 1,247
Corporate additions and improvements ................. 3,247 327 4,127 772
-------- -------- -------- --------
$ 99,812 $ 39,345 $172,711 $ 84,707
======== ======== ======== ========
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 June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for all
fascal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Company). FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments, the
adoption of FAS 133 will not have a significant effect on the Company's results
of operations or its financial position.
-27-
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT 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 and six months ended June 30, 1998 and 1997 presented
on a historical basis are summarized in the following table:
Calculations of Funds from Operations and Cash Available for Distribution
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Net income available to common shareholders .............. $ 19,566 $ 13,662 $ 34,855 $ 24,165
Extraordinary item, net of minority interest ............ -- -- -- 75
Net gain on sale of assets .............................. -- (3,512) -- (3,512)
Minority interest ....................................... 2,902 3,236 5,412 5,751
Loss on unused treasury locks ........................... -- -- 1,944 --
------------ ------------ ------------ ------------
Adjusted net income ...................................... 22,468 13,386 42,211 26,479
Depreciation of real estate assets ...................... 11,394 6,426 21,809 12,563
------------ ------------ ------------ ------------
Funds from Operations (1) ................................ 33,862 19,812 64,020 39,042
Recurring capital expenditures (2) ...................... (1,888) (1,199) (3,041) (1,903)
Non-recurring capital expenditures (3) .................. (636) (117) (889) (492)
Loan amortization payments .............................. (18) (43) (36) (102)
------------ ------------ ------------ ------------
Cash Available for Distribution .......................... $ 31,320 $ 18,453 $ 60,054 $ 36,545
============ ============ ============ ============
Revenue generating capital expenditures (4) .............. $ 4,501 $ 2,447 $ 7,790 $ 3,497
============ ============ ============ ============
Cash Flow Provided By (Used In):
Operating activities ..................................... $ 28,683 $ 20,628 $ 62,580 $ 53,850
Investing activities ..................................... $ (99,812) $ (16,235) $ (174,655) $ (61,596)
Financing activities ..................................... $ 60,616 $ (6,294) $ 105,113 $ 9,284
Weighted average common shares outstanding - basic ....... 35,239,800 22,028,722 33,510,294 21,989,132
============ ============ ============ ============
Weighted average common shares and units
outstanding - basic ...................................... 40,455,524 27,245,196 38,726,080 27,206,432
============ ============ ============ ============
Weighted average common shares outstanding - diluted ..... 35,772,546 22,205,988 34,004,073 22,171,329
============ ============ ============ ============
Weighted average common shares and units outstanding
- diluted ............................................... 40,988,270 27,422,462 39,219,859 27,388,629
============ ============ ============ ============
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29
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT 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 $621 and $337 of
carpet replacement and $1,267 and $862 of other additions and improvements
to existing communities for the three months ended June 30, 1998 and 1997,
respectively and $1,203 and $656 of carpet replacement and $1,838 and
$1,247 of other additions and improvements to existing communities for the
six months ended June 30, 1998 and 1997, respectively. Since the Company
does not add back the depreciation of non-real estate assets in its
calculation of FFO, capital expenditures of $3,247 and $327 for the three
months ended June 30, 1998 and 1997, respectively, and $4,127 and $772 for
the six months ended June 30, 1998 and 1997, respectively, are excluded
from the calculation of CAD.
(3) Non-recurring capital expenditures consisted of community additions and
improvements of $636 and $117 for the three months ended June 30, 1998 and
1997, respectively, and $889 and $492 for the six months ended June 30,
1998 and 1997, respectively.
(4) Revenue generating capital expenditures included a major renovation of
communities in the amount of $4,384 and $1,620, for the three months ended
June 30, 1998, respectively, and $7,245 and $2,581 for the six months
ended June 30, 1998 and 1997, respectively, and submetering of water
service to communities in the amount of $117 and $827 for the three months
ended June 30, 1998 and 1997, respectively, and $545 and $916 for the six
months ended June 30, 1998 and 1997, respectively.
-29-
30
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's annual meeting of shareholders was held May 8, 1998. The matters
voted upon and the results of voting were as follows:
(i) To elect one director to serve until the 1999 Annual Meeting of
Shareholders, one director to serve until the 2000 Annual Meeting of
Shareholders and two directors to serve until the 2001 Annual Meeting of
Shareholders;
Voting results for this matter were as follows:
Directors: For Withheld
---------- --------
Messr. Charles E. Rice 27,701,110 815,404
Messr. Robert L. Shaw 27,677,209 839,305
Messr. Arthur M. Blank 27,702,371 814,143
Messr. John T. Glover 27,676,773 839,741
(ii) To amend and restate the Company's Employee Stock Plan to (A)
increase the number of shares of Common Stock reserved for issuance
thereunder from 3,500,000 to 6,000,000 shares, (B) increase the limit on
the number of options to purchase Common Stock that can be granted to an
officer of key employee of the Company in any calendar year from 50,000
shares of Common Stock to 100,000 shares of Common Stock (500,000 shares
of Common Stock if such officer or key employee is a member of the
Company's Executive Committee), (C) permit the grant of options in 1998
(in addition to the options described above) to purchase up to 50,000
shares of Common Stock to an officer or key employee if the Compensation
Committee makes a related reduction in such person's regular cash
compensation for 1998 and (D) increase the number of shares subject to
options granted to non-employee directors as of each December 31 from
1,000 to 3,000.
Voting results for this matter were as follows:
For: 21,901,311
Against: 1,538,573
Abstain: 122,095
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the Company - Second Quarter 1998 (for SEC
filing purposes only)
27.2 Restated Financial Data Schedule for the Company - Second Quarter 1997 (for
SEC filing purposes only)
27.3 Financial Data Schedule for the Operating Partnership - Second Quarter 1998
(for SEC filing purposes only)
27.4 Restated Financial Data Schedule for the Operating Partnership - Second
Quarter 1997 (for SEC filing purposes only)
The registrants agree to furnish a copy of all agreements relating to
long-term debt upon request of the Commission.
(b) Reports on Form 8-K
Reports on Form 8-K filed by each registrant on April 8, 1998,
April 24, 1998, and May 29, 1998.
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31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POST PROPERTIES, INC.
August 12, 1998 /s/ John T. Glover
- --------------- -----------------------------
(Date) John T. Glover, President
(Principal Financial Officer)
August 12, 1998 /s/ R. Gregory Fox
- --------------- -----------------------------
(Date) R. Gregory Fox
Senior Vice President, Chief
Accounting Officer
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32
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.
By: Post GP Holdings, Inc., as
General Partner
August 12, 1998 /s/ John T. Glover
- --------------- -----------------------------
(Date) John T. Glover, President
(Principal Financial Officer)
August 12, 1998 /s/ R. Gregory Fox
- --------------- -----------------------------
(Date) R. Gregory Fox
Senior Vice President, Chief
Accounting Officer
-32-