1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file numbers 1-12080 and 0-28226
------------------------
POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1550675
GEORGIA 58-2053632
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4401 NORTHSIDE PARKWAY, SUITE 800, ATLANTA, GEORGIA 30327
(Address of principal executive offices -- zip code)
(404) 846-5000
(Registrant's telephone number, including area code)
3350 CUMBERLAND CIRCLE, SUITE 2200, ATLANTA, GEORGIA 30339
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Post Properties, Inc. Yes X No
Post Apartment Homes, L.P. Yes X No
------------------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
38,383,253 shares of common stock outstanding as of May 7, 1999.
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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 March 31, 1999 and December 31, 1998.............................1
Consolidated Statements of Operations for the three months ended
March 31, 1999 and 1998.........................................................................2
Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the
three months ended March 31, 1999...............................................................3
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998.........................................................................4
Notes to Consolidated Financial Statements.........................................................5
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998.............................9
Consolidated Statements of Operations for the three months ended
March 31, 1999 and 1998........................................................................10
Consolidated Statement of Partners' Equity for the three months ended
March 31, 1999.................................................................................11
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998........................................................................12
Notes to Consolidated Financial Statements .......................................................13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.....................................................................................17
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...............................................................32
SIGNATURES............................................................................................33
3
POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
ASSETS
Real estate:
Land .................................................................. $ 254,679 $ 252,922
Building and improvements ............................................. 1,392,055 1,379,847
Furniture, fixtures and equipment ..................................... 115,875 108,233
Construction in progress .............................................. 519,063 480,267
Land held for future development ...................................... 45,598 33,805
----------- -----------
2,327,270 2,255,074
Less: accumulated depreciation ........................................ (259,153) (247,148)
----------- -----------
Real estate assets .................................................... 2,068,117 2,007,926
Cash and cash equivalents ............................................... 30,975 21,154
Restricted cash ......................................................... 1,346 1,348
Deferred charges, net ................................................... 19,538 18,686
Other assets ............................................................ 21,892 17,599
----------- -----------
Total assets .......................................................... $ 2,141,868 $ 2,066,713
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable ........................................................... $ 869,881 $ 800,008
Accrued interest payable ................................................ 10,872 7,609
Dividends and distributions payable ..................................... 30,372 25,115
Accounts payable and accrued expenses ................................... 49,895 48,214
Security deposits and prepaid rents ..................................... 8,589 8,716
----------- -----------
Total liabilities ..................................................... 969,609 889,662
----------- -----------
Minority interest of unitholders in Operating Partnership ............... 123,454 125,365
----------- -----------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value, 20,000,000 authorized:
8 1/2% Series A Cumulative Redeemable Shares, liquidation
preference $50 per share, 1,000,000 shares issued and outstanding ... 10 10
7 5/8% Series B Cumulative Redeemable Shares, liquidation
preference $25 per share, 2,000,000 shares issued and
outstanding ......................................................... 20 20
7 5/8% Series C Cumulative Redeemable Shares, liquidation
preference $25 per share, 2,000,000 shares issued and
outstanding ......................................................... 20 20
Common stock, $.01 par value, 100,000,000 authorized,
38,173,715 and 38,051,734 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively .................. 382 380
Additional paid-in capital .............................................. 1,048,373 1,051,256
Accumulated earnings .................................................... -- --
----------- -----------
Total shareholders' equity ............................................ 1,048,805 1,051,686
----------- -----------
Total liabilities and shareholders' equity ............................ $ 2,141,868 $ 2,066,713
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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4
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1999 1998
------------ ------------
REVENUE:
Rental............................................................... $ 75,585 $ 64,053
Property management - third-party.................................... 871 737
Landscape services - third-party..................................... 1,727 1,326
Interest............................................................. 65 126
Other................................................................ 2,548 2,720
------------ ------------
Total revenue.................................................... 80,796 68,962
------------ ------------
EXPENSES:
Property operating and maintenance expense
(exclusive of depreciation and amortization)...................... 26,393 23,130
Depreciation (real estate assets).................................... 12,317 10,415
Depreciation (non-real estate assets)................................ 387 345
Property management expenses - third-party........................... 719 584
Landscape services expenses - third-party............................ 1,660 1,273
Interest expense..................................................... 7,217 8,349
Amortization of deferred loan costs.................................. 341 264
General and administrative........................................... 2,264 2,233
Minority interest in consolidated property partnership............... 92 59
------------ ------------
Total expense................................................... 51,390 46,652
------------ ------------
Income before net loss on sale of assets, loss on unused
treasury locks, minority interest of unitholders in
Operating Partnership and extraordinary item......................... 29,406 22,310
Net loss on sale of assets............................................. (1,567) --
Loss on unused treasury locks.......................................... -- (1,944)
Minority interest of unitholders in
Operating Partnership................................................ (2,992) (2,510)
------------ ------------
Income before extraordinary item....................................... 24,847 17,856
Extraordinary item, net of minority interest of
unitholders in Operating Partnership................................. (458) --
------------- ------------
Net income............................................................. 24,389 17,856
Dividends to preferred shareholders.................................... (2,969) (2,566)
------------ ------------
Net income available to common shareholders............................ $ 21,420 $ 15,290
============ ============
EARNINGS PER COMMON SHARE - BASIC
Income before extraordinary item (net of preferred dividend)......... $ 0.57 $ 0.48
Extraordinary item................................................... (0.01) --
------------ ------------
Net income available to common shareholders.......................... $ 0.56 $ 0.48
============ ============
Weighted average common shares outstanding........................... 38,149,210 31,762,278
============ ============
EARNINGS PER COMMON SHARE - DILUTED
Income before extraordinary item (net of preferred dividend)......... $ 0.57 $ 0.47
Extraordinary item................................................... (0.01) --
------------ ------------
Net income available to common shareholders.......................... $ 0.56 $ 0.47
============ ============
Weighted average common shares outstanding........................... 38,474,982 32,217,089
============ ============
Dividends declared................................................... $ 0.70 $ 0.65
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
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POST PROPERTIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PREFERRED COMMON PAID-IN ACCUMULATED
SHARES SHARES CAPITAL EARNINGS TOTAL
----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
DECEMBER 31, 1998 ................................. $ 50 $ 380 $ 1,051,256 $ -- $ 1,051,686
Proceeds from Dividend Reinvestment and
Employee Stock Purchase Plans .................... -- 2 1,229 -- 1,231
Adjustment for minority interest of unitholders
in Operating Partnership at dates of capital
transactions ..................................... -- -- 1,189 -- 1,189
Net income ........................................ -- -- -- 24,389 24,389
Dividends to preferred shareholders ............... -- -- -- (2,969) (2,969)
Dividends to common shareholders .................. -- -- (5,301) (21,420) (26,721)
----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
MARCH 31, 1999 .................................... $ 50 $ 382 $ 1,048,373 $ -- $ 1,048,805
=========== =========== =========== =========== ===========
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)
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................................ $ 24,389 $ 17,856
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss on sale of assets ...................................................... 1,567 --
Loss on unused treasury locks ................................................... -- 1,944
Minority interest of unitholders in Operating Partnership ....................... 2,992 2,510
Extraordinary item, net of minority interest of unitholders
in Operating Partnership ....................................................... 458 --
Depreciation .................................................................... 12,704 10,760
Amortization of deferred loan costs ............................................. 341 264
Other ........................................................................... -- (53)
Changes in assets, (increase) decrease in:
Restricted cash ................................................................. 2 591
Other assets .................................................................... (4,293) 4,008
Deferred charges ................................................................ (295) (2,520)
Changes in liabilities, increase (decrease) in:
Accrued interest payable ........................................................ 3,263 2,959
Accounts payable and accrued expenses ........................................... 1,681 (4,677)
Security deposits and prepaid rents ............................................. (127) 255
--------- ---------
Net cash provided by operating activities ......................................... 42,682 33,897
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets,
net of payables ................................................................ (74,751) (65,513)
Net proceeds from sale of assets .................................................. 9,364 --
Capitalized interest .............................................................. (4,599) (3,756)
Recurring capital expenditures .................................................... (1,873) (1,152)
Corporate additions and improvements .............................................. (955) (880)
Non-recurring capital expenditures ................................................ (554) (253)
Revenue generating capital expenditures ........................................... (1,018) (3,289)
--------- ---------
Net cash used in investing activities ............................................. (74,386) (74,843)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ........................................................ (1,495) (1,944)
Debt proceeds ..................................................................... 70,000 241,332
Proceeds from sale of notes ....................................................... -- 100,000
Proceeds from issuance of preferred shares ........................................ -- 48,284
Proceeds from issuance of common shares ........................................... -- 129,179
Debt payments ..................................................................... (127) (453,106)
Distributions to unitholders ...................................................... (3,390) (3,104)
Proceeds from Dividend Reinvestment and
Employee Stock Purchase Plans ................................................... 1,231 3,796
Dividends paid to preferred shareholders .......................................... (2,969) (1,719)
Dividends paid to common shareholders ............................................. (21,725) (18,221)
--------- ---------
Net cash provided by financing activities ......................................... 41,525 44,497
--------- ---------
Net increase in cash and cash equivalents ......................................... 9,821 3,551
Cash and cash equivalents, beginning of period .................................... 21,154 10,879
--------- ---------
Cash and cash equivalents, end of period .......................................... $ 30,975 $ 14,430
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
7
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
1. ORGANIZATION AND FORMATION OF THE COMPANY
ORGANIZATION AND FORMATION OF THE COMPANY
Post Properties, Inc. (the "Company"), which was incorporated on January
25, 1984, is the successor by merger to the original Post Properties, Inc.,
a Georgia corporation which was formed in 1971. The Company was formed to
develop, lease and manage upscale multi-family apartment communities.
The Company elected to be taxed as a real estate investment trust ("REIT")
for Federal income tax purposes beginning with the taxable year ended
December 31, 1993. A REIT is a legal entity which holds real estate
interests and, through payments of dividends to shareholders, in practical
effect is not subject to Federal income taxes at the corporate level.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company's management in accordance with generally accepted accounting
principles for interim financial information and applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally
recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the three month period ended
March 31, 1999 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, 1998. Certain 1998 amounts have been
reclassified to conform to the current year's financial statement
presentation.
2. NOTES PAYABLE
Post Apartment Homes, L.P. (the "Operating Partnership") has established a
program for the sale of up to $344,000 aggregate principal amount of
Medium-Term Notes due three months or more from date of issue (the "MTN
Program"). As of March 31, 1999, the Operating Partnership had $281,000
aggregate principal amount of notes outstanding under the MTN Program.
On March 30, 1999, the Operating Partnership issued $50 million of secured
notes to an insurance company. These notes bear interest at 6.5% (with an
effective rate of 7.3% after consideration of a terminated swap agreement),
mature on March 1, 2009 and are secured by two apartment communities. Net
proceeds of $49,933 were used to repay outstanding indebtedness.
-5-
8
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
3. EARNINGS PER SHARE
For the three months ended March 31, 1999 and 1998, a reconciliation of the
numerator and denominator used in the computation of basic and diluted
earnings per share is as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- -----------
Basic and diluted income available to common
shareholders (numerator):
Income before extraordinary item........................................ $ 24,847 $ 17,856
Less: Preferred stock dividends....................................... (2,969) (2,566)
----------- -----------
Income available to common shareholders
before extraordinary item ............................................ $ 21,878 $ 15,290
=========== ===========
Common shares (denominator):
Weighted average shares outstanding-basic............................... 38,149,210 31,762,278
Incremental shares from assumed conversion
of options............................................................ 325,772 454,811
----------- -----------
Weighted average shares outstanding - diluted........................... 38,474,982 32,217,089
=========== ===========
4. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the three months ended
March 31, 1999 and 1998 were as follows:
During the three months ended March 31, 1999, holders of 750 units in the
Operating Partnership exercised their option to convert their units to
shares of Common Stock of the Company on a one-for-one basis. 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 decreasing minority
interest and increasing shareholder's equity in the amount of $1,189 and
increasing minority interest and decreasing shareholders' equity in the
amount of $7,151 for the three months ended March 31,1999 and 1998,
respectively.
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.
6. SEGMENT INFORMATION
SEGMENT DESCRIPTION
The Company adopted SFAS No. 131, "Disclosure About the Segments of an
Enterprise and Related Information" in the fourth quarter of 1998. SFAS No.
131 requires companies to present segment information based on the way that
management organizes the segments within the enterprise for making
operating decisions and assessing
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9
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
performance. The segment information is prepared on substantially the same
basis as the internally reported information used by the Company's chief
operating decision makers to manage the business.
The Company's chief operating decision makers focus on the Company's
primary sources of income, which are property rental operations and third
party services. Property rental operations are broken down into four
segments based on the various stages in the property ownership lifecycle.
Third party services are designated as one segment. The Company's five
segments are further described as follows:
Property Rental Operations
- Fully stabilized communities - those apartment communities which have
been stabilized (the point at which a property reaches 95% occupancy)
for both the current and prior year.
- Communities stabilized during 1998 - communities which reached
stabilized occupancy in the prior year.
- Development and lease up communities - those communities which are in
lease-up but were not stabilized by the beginning of the current year,
including communities which stabilized during the current year.
- Sold communities - communities which were sold in the current or prior
year.
Third Party Services - fee income and related expenses from the Company's
apartment community management, landscaping and corporate apartment rental
services.
SEGMENT PERFORMANCE MEASURE
Management uses contribution to funds from operations ("FFO") as the
performance measure for its segments. FFO is defined by the National
Association of Real Estate Investment Trusts as net income 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.
SEGMENT INFORMATION
The following table reflects each segment's contribution to FFO together
with a reconciliation of segment contribution to FFO, total FFO and income
before extraordinary item and preferred dividends. Additionally,
substantially all of the Company's assets relate to the Company's property
rental operations. Asset cost, depreciation and amortization by segment are
not presented because such information is not reported internally at the
segment level.
-7-
10
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
Summarized financial information concerning the Company's reportable segments
is shown in the following tables:
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1999 1998
-------------- ---------------
REVENUES
Fully stabilized communities........................... $ 58,127 $ 56,175
Communities stabilized during 1998..................... 5,496 3,898
Development and lease-up communities................... 11,075 3,015
Sold communities....................................... 318 385
Third party services................................... 2,598 2,063
Other.................................................. 3,182 3,426
--------------- ---------------
Consolidated revenues $ 80,796 $ 68,962
=============== ===============
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities........................... $ 40,719 $ 38,660
Communities stabilized during 1998..................... 3,850 2,430
Development and lease-up communities................... 6,612 1,221
Sold communities....................................... 206 250
Third party services................................... 219 206
--------------- ---------------
Contribution to FFO.................................... 51,606 42,767
--------------- ---------------
Other operating income, net of expense................. 418 1,208
Depreciation on non-real estate assets................. (387) (345)
Minority interest in consolidated property
Partnership......................................... (92) (59)
Interest expense....................................... (7,217) (8,349)
Amortization of deferred loan costs.................... (341) (264)
General and administrative............................. (2,264) (2,233)
Dividends to preferred shareholders.................... (2,969) (2,566)
--------------- ---------------
Total FFO.............................................. 38,754 30,159
--------------- ---------------
Depreciation on real estate assets..................... (12,317) (10,415)
Net loss on sale of assets............................. (1,567) --
Loss on unused treasury locks.......................... -- (1,944)
Minority interest of unitholders in
Operating Partnership............................... (2,992) (2,510)
Dividends to preferred shareholders.................... 2,969 2,566
------------ ---------------
Income before extraordinary item
and preferred dividends............................. $ 24,847 $ 17,856
=============== ===============
-8-
11
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1999 1998
--------------- ---------------
(UNAUDITED)
ASSETS
Real estate:
Land............................................. $ 254,679 $ 252,922
Building and improvements........................ 1,392,055 1,379,847
Furniture, fixtures and equipment................ 115,875 108,233
Construction in progress......................... 519,063 480,267
Land held for future development................. 45,598 33,805
--------------- ---------------
2,327,270 2,255,074
Less: accumulated depreciation................... (259,153) (247,148)
--------------- ---------------
Operating real estate assets..................... 2,068,117 2,007,926
Cash and cash equivalents.......................... 30,975 21,154
Restricted cash.................................... 1,346 1,348
Deferred charges, net.............................. 19,538 18,686
Other assets....................................... 21,892 17,599
--------------- ---------------
Total assets..................................... $ 2,141,868 $ 2,066,713
============= =============
LIABILITIES AND PARTNERS' EQUITY
Notes payable...................................... $ 869,881 $ 800,008
Accrued interest payable........................... 10,872 7,609
Distributions payable.............................. 30,372 25,115
Accounts payable and accrued expenses.............. 49,895 48,214
Security deposits and prepaid rents................ 8,589 8,716
--------------- ---------------
Total liabilities................................ 969,609 889,662
--------------- ---------------
Commitments and contingencies
Partners' equity................................... 1,172,259 1,177,051
--------------- ---------------
Total liabilities and partners' equity........... $ 2,141,868 $ 2,066,713
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
-9-
12
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1999 1998
-------------- -----------
REVENUES
Rental............................................................................ $ 75,585 $ 64,053
Property management - third party................................................. 871 737
Landscape services - third party.................................................. 1,727 1,326
Interest.......................................................................... 65 126
Other............................................................................. 2,548 2,720
----------- -----------
Total revenue.............................................................. 80,796 68,962
----------- -----------
EXPENSES
Property operating and maintenance (exclusive of items
shown separately below)......................................................... 26,393 23,130
Depreciation (real estate assets)................................................. 12,317 10,415
Depreciation (non-real estate assets)............................................. 387 345
Property management - third party................................................. 719 584
Landscape services - third party.................................................. 1,660 1,273
Interest.......................................................................... 7,217 8,349
Amortization of deferred loan costs............................................... 341 264
General and administrative........................................................ 2,264 2,233
Minority interest in consolidated property partnerships........................... 92 59
----------- -----------
Total expenses................................................................ 51,390 46,652
----------- -----------
Income before net loss on sale of assets, loss on
unused treasury locks and extraordinary item.................................... 29,406 22,310
Net loss on sale of assets........................................................ (1,567) --
Loss on unused treasury locks..................................................... -- (1,944)
----------- -----------
Income before extraordinary item.................................................. 27,839 20,366
Extraordinary item................................................................ (521) --
----------- -----------
Net income........................................................................ 27,318 20,366
Distributions to preferred unitholders............................................ (2,969) (2,566)
----------- -----------
Net income available to common unitholders........................................ $ 24,349 $ 17,800
=========== ===========
EARNINGS PER COMMON UNIT - BASIC
Income before extraordinary item (net of preferred distributions)................. $ 0.57 $ 0.48
Extraordinary item................................................................ (0.01) --
----------- -----------
Net income available to common unitholders........................................ $ 0.56 $ 0.48
=========== ===========
Weighted average common units outstanding......................................... 43,364,934 36,977,423
=========== ===========
EARNINGS PER COMMON UNIT- DILUTED
Income before extraordinary item (net of preferred distributions)................. $ 0.57 $ 0.47
Extraordinary item................................................................ (0.01) --
----------- -----------
Net income available to common unitholders........................................ $ 0.56 $ 0.47
=========== ===========
Weighted average common units outstanding......................................... 43,690,706 37,432,234
=========== ===========
Distributions declared............................................................ $ 0.70 $ 0.65
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-10-
13
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
GENERAL LIMITED
PARTNER PARTNER TOTAL
----------- ----------- -----------
PARTNERS' EQUITY, DECEMBER 31, 1998 ................... $ 11,795 $ 1,165,256 $ 1,177,051
Contributions from the Company related to Dividend
Reinvestment and Employee Stock Purchase Plans ...... 12 1,219 1,231
Contribution from the Company related to the sale
of common shares .................................... -- -- --
Contributions from the Company related to the sale
of preferred shares ................................. -- -- --
Distributions to preferred Unitholders ................ -- (2,969) (2,969)
Distributions to common Unitholders ................... (304) (30,068) (30,372)
Distributions declared to common Unitholders .......... -- -- --
Net income ............................................ 273 27,045 27,318
----------- ----------- -----------
PARTNERS' EQUITY, MARCH 31, 1999 $ 11,776 $ 1,160,483 $ 1,172,259
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-11-
14
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1999 1998
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................ $ 27,318 $ 20,366
Adjustments to reconcile net income to net cash provided
by operating activities:
Net loss on sale of assets.............................................. 1,567 --
Loss on unused treasury locks........................................... -- 1,944
Extraordinary item...................................................... 521 --
Depreciation............................................................ 12,704 10,760
Amortization of deferred loan costs..................................... 341 264
Other................................................................... -- (53)
Changes in assets, (increase) decrease in:
Restricted cash......................................................... 2 591
Other assets............................................................ (4,293) 4,008
Deferred charges........................................................ (295) (2,520)
Changes in liabilities, increase (decrease) in:
Accrued interest payable................................................ 3,263 2,959
Accounts payable and accrued expenses................................... 1,681 (4,677)
Security deposits and prepaid rents..................................... (127) 255
-------------- --------------
Net cash provided by operating activities................................. 42,682 33,897
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets,
net of payables......................................................... (74,751) (65,513)
Net proceeds from sale of assets.......................................... 9,364 --
Capitalized interest...................................................... (4,599) (3,756)
Payment for unused treasury locks......................................... -- --
Recurring capital expenditures............................................ (1,873) (1,152)
Corporate additions and improvements...................................... (955) (880)
Non-recurring capital expenditures........................................ (554) (253)
Revenue generating capital expenditures................................... (1,018) (3,289)
-------------- --------------
Net cash used in investing activities..................................... (74,386) (74,843)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs................................................ (1,495) (1,944)
Debt proceeds............................................................. 70,000 241,332
Proceeds from the sale of notes........................................... -- 100,000
Proceeds from issuance of preferred units................................. -- 48,284
Proceeds from issuance of common units.................................... -- 129,179
Debt payments............................................................. (127) (453,106)
Proceeds from contributions from PPI related to Dividend
Reinvestment and Employee Stock Purchase Plans.......................... 1,231 3,796
Dividends paid to preferred unitholders................................... (2,969) (1,719)
Dividends paid to common unitholders...................................... (25,115) (21,325)
-------------- --------------
Net cash provided by financing activities................................. 41,525 44,497
-------------- --------------
Net increase in cash and cash equivalents................................. 9,821 3,551
Cash and cash equivalents, beginning of period............................ 21,154 10,879
-------------- --------------
Cash and cash equivalents, end of period.................................. $ 30,975 $ 14,430
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
-12-
15
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- -------------------------------------------------------------------------------
1. ORGANIZATION AND FORMATION OF THE COMPANY
ORGANIZATION AND FORMATION OF THE COMPANY
Post Apartment Homes, L.P. (the "Operating Partnership"), a Georgia
limited partnership, was formed on January 22, 1993, to conduct the
business of developing, leasing and managing upscale multi-family
apartment communities for Post Properties, Inc.
(the "Company").
The Company elected to be taxed as a real estate investment trust ("REIT")
for Federal income tax purposes beginning with the taxable year ended
December 31, 1993. A REIT is a legal entity which holds real estate
interests and, through payments of dividends to shareholders, in practical
effect is not subject to Federal income taxes at the corporate level.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Operating Partnership's management in accordance with generally accepted
accounting principles for interim financial information and applicable
rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normally recurring adjustments) considered necessary
for a fair presentation have been included. The results of operations for
the three month period ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the full year. These financial
statements should be read in conjunction with the Operating Partnership's
audited financial statements and notes thereto included in the Post
Apartment Homes, L.P. Annual Report on Form 10-K for the year ended
December 31, 1998. Certain 1998 amounts have been reclassified to conform
to the current year's financial statement presentation.
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 three months
or more from date of issue (the "MTN Program"). As of March 31, 1999, the
Operating Partnership had $281,000 aggregate principal amount of notes
outstanding under the MTN Program.
On March 30, 1999, the Operating Partnership issued $50 million of secured
notes to an insurance company. These notes bear interest at 6.5% with an
effective rate of 7.3% after consideration of a terminated interest rate
swap agreement, mature on March 1, 2009 and are secured by two apartment
communities. Net proceeds of $49,933 were used to repay outstanding
indebtedness.
-13-
16
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- -------------------------------------------------------------------------------
3. EARNINGS PER UNIT
For the three months ended March 31, 1999 and 1998, a reconciliation of
the numerator and denominator used in the computation of basic and diluted
earnings per unit is as follows:
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------ -----------
Basic and diluted income available to common
unitholders (numerator):
Income before extraordinary item.............................. $ 27,839 $ 20,366
Less: Preferred unit distributions.......................... (2,969) (2,566)
------------ -----------
Income available to common unitholders
before extraordinary item................................... $ 24,870 $ 17,800
============ ===========
Common units (denominator):
Weighted average units outstanding - basic.................... 43,364,934 36,977,423
Incremental units from assumed conversion
of options.................................................. 325,772 454,811
------------ -----------
Weighted average units outstanding - diluted.................. 43,690,706 37,432,234
============ ===========
4. NEW ACCOUNTING PRONOUNCEMENT
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 Operating Partnership). 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 Operating
Partnership anticipates that, due to its limited use of derivative
instruments, the adoption of FAS 133 will not have a significant effect on
the Operating Partnership's results of operations or its financial
position.
5. SEGMENT INFORMATION
SEGMENT DESCRIPTION
The Operating Partnership adopted SFAS No. 131, "Disclosure About the
Segments of an Enterprise and Related Information" in the fourth quarter
of 1998. SFAS No. 131 requires companies to present segment information
based on the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance. The
segment information is prepared on substantially the same basis as the
internally reported information used by the Operating Partnership's chief
operating decision makers to manage the business.
The Operating Partnership's chief operating decision makers focus on the
Operating Partnership's primary sources of income, which are property
rental operations and third party services. Property rental operations are
broken down into four segments based on the various stages in the property
ownership lifecycle. Third party services are designated as one segment.
The Operating Partnership's five segments are further described as
follows:
-14-
17
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- -------------------------------------------------------------------------------
Property Rental Operations
- Fully stabilized communities - those apartment communities which have
been stabilized (the point in time which a property reached 95%
occupancy) for both the current and prior year.
- Communities stabilized during 1998 - communities which reached
stabilized occupancy in the prior year.
- Development and Lease up Communities - those communities which are in
lease-up but were not stabilized by the beginning of the current year
including communities which stabilized during the current year.
- Sold communities - communities which were sold in the current or
prior year.
Third Party Services - fee income and related expenses from the Operating
Partnership's apartment community management, landscaping and corporate
apartment rental services.
SEGMENT PERFORMANCE MEASURE
Management uses contribution to funds from operations ("FFO") as the
performance measure for its segments. FFO is defined by the National
Association of Real Estate Investment Trusts as net income available to
common unitholders 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 Operating Partnership's financial performance or to cash
flow from operating activities (determined in accordance with GAAP) as a
measure of the Operating Partnership's liquidity, nor is it necessarily
indicative of sufficient cash flow to fund all of the Operating
Partnership's needs.
SEGMENT INFORMATION
The following table reflects each segment's contribution to FFO together
with a reconciliation of segment contribution to FFO, total FFO and income
before extraordinary item. Additionally, substantially all of the
Operating Partnership's assets relate to the Operating Partnership's
property rental operations. Asset cost, depreciation and amortization by
segment are not presented because such information is not reported
internally at the segment level.
-15-
18
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- -------------------------------------------------------------------------------
Summarized financial information concerning the Operating Partnership's
reportable segments is shown in the following tables.
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
REVENUES
Fully stabilized communities ................................... $ 58,127 $ 56,175
Communities stabilized during 1998 ............................. 5,496 3,898
Development and lease-up communities ........................... 11,075 3,015
Sold communities ............................................... 318 385
Third party services ........................................... 2,598 2,063
Other .......................................................... 3,182 3,426
-------- --------
Consolidated revenues .......................................... $ 80,796 $ 68,962
======== ========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities ................................... $ 40,719 $ 38,660
Communities stabilized during 1998 ............................. 3,850 2,430
Development and lease-up communities ........................... 6,612 1,221
Sold communities ............................................... 206 250
Third party services ........................................... 219 206
-------- --------
Contribution to FFO ............................................ 51,606 42,767
-------- --------
Other operating income, net of expense ......................... 418 1,208
Depreciation on non-real estate assets ......................... (387) (345)
Minority interest in consolidated property partnership ......... (92) (59)
Interest expense ............................................... (7,217) (8,349)
Amortization of deferred loan costs ............................ (341) (264)
General and administrative ..................................... (2,264) (2,233)
Distributions to preferred unitholders ......................... (2,969) (2,566)
-------- --------
Total FFO ...................................................... 38,754 30,159
-------- --------
Depreciation on real estate assets ............................. (12,317) (10,415)
Net loss on sale of assets ..................................... (1,567) --
Loss on unused treasury locks .................................. -- (1,944)
Distributions to preferred unitholders ......................... 2,969 2,566
-------- --------
Income before extraordinary item and preferred distributions ... $ 27,839 $ 20,366
======== ========
-16-
19
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 March 31, 1999, there were 43,389,439 units in the Operating Partnership
outstanding, of which 38,173,715, or 88.0%, were owned by the Company and
5,215,724, or 12.0%, were owned by other limited partners (including certain
officers and directors of the Company). As of March 31, 1999, there were
5,000,000 Perpetual Preferred Units outstanding, all of which were owned by the
Company.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
The Company recorded net income available to common shareholders of $21,420 for
the three months ended March 31, 1999, an increase of 40.1% over the
corresponding period in 1998 primarily as a result of 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 March 31, 1999, the Company's portfolio of apartment communities
consisted of the following: (i) 68 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) 20 communities
either stabilized in the current year or presently in the development or
lease-up stages.
For communities with respect to which construction is completed and the
community has become fully operational, all property operating and maintenance
expenses are expensed as incurred and those recurring and non-recurring
expenditures relating to acquiring new assets, materially enhancing the value
of an existing asset, or substantially extending the useful life of an existing
asset are capitalized. (See "Capitalization of Fixed Assets and Community
Improvements").
Since its inception, the Company has applied an accounting policy related to
communities in the development and lease-up stage whereby substantially all
operating expenses (including pre-opening marketing expenses) are expensed as
incurred. The Company treats each unit in an apartment community separately for
cost accumulation, capitalization and expense recognition purposes. Prior to
the commencement of leasing activities, interest and other construction costs
are capitalized and reflected on the balance sheet as construction in progress.
Once a unit is placed in service, all operating expenses allocated to that
unit, including interest, are expensed as incurred. During the lease-up phase,
the sum of interest expense on completed units and other operating expenses
(including pre-opening marketing expenses)
-17-
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
will typically exceed rental revenues, resulting in a "lease-up deficit," which
continues until such time as rental revenues exceed such expenses. Lease up
deficits for the first quarter of 1999 were $409.
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, 1998.
ALL OPERATING COMMUNITIES
The operating performance for all of the Company's apartment communities
combined for the three months ended March 31, 1999 and 1998 is summarized as
follows:
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1999 1998 % CHANGE
--------- ---------- --------
Rental and other revenue:
Mature communities(1) ................................. $58,127 $56,175 3.5%
Communities stabilized during 1998 .................... 5,496 3,898 37.5%
Development and lease-up communities(2) ............... 11,075 3,015 268.9%
Sold communities(3) ................................... 318 385 (17.4)%
Other revenue(4) ...................................... 3,117 3,300 (2.8)%
------- -------
78,133 66,773 17.0%
------- -------
Property operating and maintenance expense (exclusive
of depreciation and amortization):
Mature communities(1) ................................. 17,408 17,515 (0.6)%
Communities stabilized during 1998 .................... 1,646 1,468 11.6%
Development and lease-up communities(2) ............... 4,463 1,794 148.2%
Sold communities(3) ................................... 112 135 (17.0)%
Other expenses(5) ..................................... 2,764 2,218 25.5%
------- -------
26,393 23,130 14.1%
------- -------
Revenue in excess of specified expense .............. $51,740 $43,643 18.6%
======= =======
Recurring capital expenditures:(6)
Carpet .............................................. $ 707 $ 582 21.5%
Other ............................................... 1,166 570 104.6%
------- -------
Total ............................................... $ 1,873 $ 1,152 62.6%
======= =======
Average apartment units in service .................... 28,666 26,362 8.7%
======= =======
Recurring capital expenditures per
apartment unit ...................................... $ 65 $ 44 47.7%
======= =======
(1) Communities which reached stabilization prior to January 1, 1998
(2) Communities in the "construction", "development" or "lease-up" stage
during 1998 and, therefore, not considered fully stabilized for all of the
periods presented.
(3) Includes one community, containing 198 units, which was sold on March 19,
1999.
(4) 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.
(5) 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.
-18-
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
(6) In addition to those expenses which relate to property operations, the
Company incurs recurring and non-recurring expenditures relating to
acquiring new assets, materially enhancing the value of an existing asset,
or substantially extending the useful life of an existing asset, all of
which are capitalized.
For the three months ended March 31, 1999, rental and other revenue increased
$11,360, or 17.0%, compared to the same period in the prior year primarily as a
result of the completion of new communities. For the three months ended March
31, 1999, property operating and maintenance expenses increased $3,263, or
14.1%, compared to the same period in the prior year, primarily as a result of
the completion of new communities.
For the three months ended March 31, 1999, recurring capital expenditures
increased $721, or 62.6% ($21, or 47.7% on a per apartment unit basis),
compared to the same period in the prior year, primarily due to the completion
of new communities and the timing of capital expenditures.
-19-
22
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 68 communities containing an aggregate of
23,461 units which were fully stabilized as of January 1, 1998, is summarized
as follows:
THREE MONTHS ENDED
MARCH 31,
----------------------------------
%
1999 1998 CHANGE
------- ------- ------
Rental and other revenue(1) ............................ $58,127 $56,175 3.5%
Property operating and maintenance expense (exclusive
of depreciation and amortization)(1) ................ 17,408 17,515 (0.6)%
------- -------
Revenue in excess of specified expense ................. $40,719 $38,660 5.3%
------- -------
Recurring capital expenditures:(2)
Carpet ............................................. $ 697 $ 558 24.9%
Other .............................................. 1,082 552 96.0%
------- -------
Total .............................................. $ 1,779 $ 1,110 60.3%
======= =======
Recurring capital expenditures per
apartment unit(3) ................................... $ 76 $ 47 61.7%
======= =======
Average economic occupancy(4) .......................... 96.1% 96.4%
======= =======
Average monthly rental rate per apartment unit(5) ...... $ 839 $ 816 2.8%
======= =======
Apartment units in service ............................. 23,461 23,461
======= =======
(1) Communities which reached stabilization prior to January 1, 1998.
(2) In addition to those expenses which relate to property operations, the
Company incurs recurring and non-recurring expenditures relating to
acquiring new assets, materially enhancing the value of an existing asset,
or substantially extending the useful life of an existing asset, all of
which are capitalized.
(3) In addition to such capitalized expenditures, the Company expensed $152
and $143 per unit on building maintenance (inclusive of direct salaries)
and $46 and $41 per unit on landscaping (inclusive of direct salaries) for
the three months ended March 31, 1999 and 1998, respectively.
(4) Average economic occupancy is defined as gross potential rent less vacancy
losses, model expenses and bad debt divided by gross potential rent for
the period, expressed as a percentage. The calculation of average economic
occupancy does not include a deduction for concessions and employee
discounts. Average economic occupancy, including these amounts would have
been 94.8% and 94.8% for the three months ended March 31, 1999 and 1998,
respectively. For the three months ended March 31, 1999 and 1998,
concessions were $618 and $836, respectively, and employee discounts were
$136 and $123, respectively.
(5) Average monthly rental rate is defined as the average of the gross actual
rates for occupied units and the anticipated rental rates for unoccupied
units.
-20-
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
For the three months ended March 31, 1999, rental and other revenue increased
$1,952 or 3.5%, compared to the same period in the prior year, primarily due to
increased rental rates. For the three months ended March 31, 1999, property
operating and maintenance expenses (exclusive of depreciation and amortization)
decreased $107, or 0.6%, compared to the same period in the prior year,
primarily as a result of a decline in utilities expense as a result of water
submetering.
Recurring capital expenditures per unit increased $29 or 61.7% as a result of
the timing of expenditures.
THIRD PARTY SERVICES
THIRD PARTY MANAGEMENT SERVICES
The Company provides asset management, leasing and other consulting services to
non-related owners of apartment communities through its subsidiary, RAM
Partners, Inc. ("RAM"). The operating performance of RAM for the three months
ended March 31, 1999 and 1998 is summarized as follows:
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1999 1998 %CHANGE
-------- --------- -------
Property management and other revenue........... $ 871 $ 737 18.2%
Property management expense..................... 535 408 31.1%
General and administrative expense.............. 184 176 4.5%
Depreciation expense............................ 6 10 (40.0)%
-------- ---------
Revenue in excess of specified expense.......... $ 146 $ 143 2.1%
======== =========
Average apartment units managed................. 12,485 10,764 16.0%
======== =========
The increase in property management and other revenue, property management
expense and general and administrative expense for the three months ended March
31, 1999 compared to the same period in the prior year is primarily
attributable to an increase in the average number of units managed.
THIRD PARTY LANDSCAPE SERVICES
The Company provides landscape maintenance, design and installation services to
non-related parties through a subsidiary, Post Landscape Group, Inc. ("Post
Landscape Group"), formerly Post Landscape Services, Inc.
The operating performance of Post Landscape Group for the three months ended
March 31, 1999 and 1998 is summarized as follows:
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1999 1998 % CHANGE
--------- --------- --------
Landscape services and other revenue.............. $ 1,727 $ 1,326 30.2%
Landscape services expense........................ 1,408 1,060 32.8%
General and administrative expense................ 252 213 18.3%
Depreciation expense.............................. 61 25 144.0%
--------- ---------
Revenue in excess of specified expense............ $ 6 $ 28 (78.6)%
========= =========
-21-
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
The increase in landscape services and other revenue, landscape services
expense and general and administrative expense for the three months ended March
31, 1999 compared to the same period in 1998 is primarily due to increases in
landscape contracts. The increase in depreciation expense primarily due to
leasehold improvements acquired in 1998.
OTHER EXPENSES
Depreciation expense increased $1,944, or 18.1% as a result of an increase in
units in service. Interest expense decreased $1,132 or 13.6% for the months
ended March 31, 1999 compared to the same period in the prior year, primarily
as a result of lower interest rates on the Company's revolving credit facility
(the "Revolver") and tax-exempt debt.
General and administrative expense remained relatively consistent for the three
months ended March 31, 1999 compared to the same period in the prior year.
The loss on unused treasury locks for the three months ended March 31, 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 $458 for the three months ended March 31, 1999, net
of minority interest portion, resulted from the write off of loan costs.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's net cash provided by operating activities increased from $33,897
for the three months ended March 31, 1998 to $42,682 for the three months ended
March 31, 1999, principally due to the increase in net income. Net cash used in
investing activities decreased from $74,843 in the three months ended March 31,
1998 to $74,386 in the three months ended March 31, 1999, principally due to
proceeds from the sale of one community and reduced capital expenditures
partially offset by an increase in construction spending. The Company's net
cash provided by financing activities decreased from $44,497 in the three
months ended March 31, 1998 to $41,525 in the three months ended March 31,
1999, primarily due to reduced proceeds from debt and equity offerings
partially offset by reduced debt payments.
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 March 31, 1999, the Company had total indebtedness of $869,881, an increase
of $69,873 from its total indebtedness at December 31, 1998, and cash and cash
equivalents of $30,975. At March 31, 1999, the Company's indebtedness included
approximately $96,001 in conventional mortgages payable secured by individual
communities, tax-exempt bond indebtedness of $235,880, senior unsecured notes
of $456,000 and borrowings under the Revolver of $60,000 and other unsecured
lines of credit of $22,000.
The Company expects to meet its short-term liquidity requirements generally
through its net cash provided by operations and borrowings under credit
arrangements and expects to meet certain of its long-term liquidity
requirements, such as scheduled debt maturities, repayment of financing of
construction and development activities, and possible property acquisitions,
through long-term secured and unsecured borrowings and the issuance of debt
securities or additional equity securities of the Company, sales of
communities, or, possibly in connection with acquisitions of land or improved
properties, units of the Operating Partnership. The Company believes that its
net cash provided by operations will be adequate and anticipates that it will
continue to be adequate to meet both operating requirements and payment of
dividends by the Company in accordance with REIT requirements in both the short
and the long term. The budgeted expenditures for improvements and renovations
to certain of the communities are expected to be funded from property
operations.
-22-
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
Lines Of Credit
The Company has three unsecured lines of credit with a total availability of
$275,000. At March 31, 1999, there was $60,000 outstanding under its Revolver
and $22,000 under its other 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 three months or
more from date of issue (the "MTN Program"). As of March 31, 1999, the
Operating Partnership had $281,000 aggregate principle amount of notes
outstanding under the MTN Program. The Remarketed Reset Notes under this
program were paid off on April 7, 1999.
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.
Secured Debt
On March 30, 1999, the Operating Partnership issued $50 million of secured
notes to an insurance company. These notes bear interest at 6.5% with an
effective rate of 7.3% after consideration of a terminated swap agreement,
mature on March 1, 2009 and are secured by two apartment communities. Net
proceeds of $49,933 were used to repay outstanding indebtedness.
-23-
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
Schedule of Indebtedness
The following table reflects the Company's indebtedness at March 31, 1999:
MATURITY PRINCIPAL
DESCRIPTION LOCATION INTEREST RATE DATE (1) BALANCE
----------- -------- ------------- -------- -------
CONVENTIONAL FIXED RATE (SECURED)
Post Hillsboro Village & The Lee
Apartments........................... Nashville, TN 9.20% 10/01/01 $ 2,952
Parkwood Townhomes(TM)................ Dallas, TX 7.375% 04/01/14 857
Northwestern Mutual Life............. Atlanta, GA 6.50% 03/01/09 50,000
----------
53,809
----------
CONVENTIONAL FLOATING RATE (SECURED)
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% 08/26/99 20,000
----------
42,192
----------
TAX EXEMPT FLOATING RATE (SECURED)
Post Ashford(R) Series 1995.......... Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 9,895
Post Valley(R) Series 1995........... Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 18,600
Post Brook(R) Series 1995............ Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 4,300
Post Village(R) (Atlanta) Hills
Series 1995....................... Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 7,000
Post Mill(R) Series 1995............. Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 12,880
Post Canyon(R) Series 1996........... Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 16,845
Post Corners(R) Series 1996.......... Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 14,760
Post Bridge(R)....................... Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 12,450
Post Village(R) (Atlanta) Gardens.... Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 14,500
Post Chase(R)........................ Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 15,000
Post Walk(R)......................... Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 15,000
Post Lake(R)......................... Orlando, FL "AAA" NON-AMT + .515% (2)(3) 06/01/25 28,500
Post Fountains at Lee Vista(R)....... Orlando, FL "AAA" NON-AMT + .515% (2)(3) 06/01/25 21,500
Post Village(R) (Atlanta) Fountains
and Meadows....................... Atlanta, GA "AAA" NON-AMT + .515% (2)(3) 06/01/25 26,000
Post Court(R)........................ Atlanta, GA "AAA" NON-AMT + .515% (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 Term Notes.................... N/A 7.02% 04/02/01 37,000
Northwestern Mutual Life............. N/A 8.37% 06/07/02 20,000
Senior Notes......................... N/A 7.25% 10/01/03 100,000
Medium Term Notes.................... N/A 7.30% 04/01/04 13,000
Medium Term Notes.................... N/A 6.69% 09/22/04 10,000
Medium Term Notes.................... N/A 6.78% 09/22/05 25,000
Senior Notes......................... N/A 7.50% 10/01/06 25,000
Mandatory Par Put Remarketed N/A 6.85% (4) 03/16/15
Securities........................... 100,000
Remarketed Reset Notes............... N/A LIBOR + .40% (5) 04/07/09 50,000
----------
456,000
----------
LINES OF CREDIT & OTHER UNSECURED
DEBT
City of Phoenix...................... N/A 5.00% (7) 03/01/21 2,000
Revolver ............................ N/A LIBOR + .675% or prime minus .25% (6) 04/30/01 60,000
Cash Management Line................. N/A LIBOR + .675% or prime minus .25% 03/31/99 20,000
----------
82,000
----------
TOTAL................................ $ 869,881
==========
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27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
(1) All of the mortgages can be prepaid at any time, subject to certain
prepayment penalties.
(2) Bond financed (interest rate on bonds + credit enhancement fees effective
October 1, 1998).
(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) 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.
(5) On April 7, 1999, this note was paid off.
(6) Represents stated rate. The Company may also make "money market" loans of
up to $137,500 at rates below the stated rate. At March 31, 1999, the
outstanding balance of the Revolver consisted of "money market" loans with
an average interest rate of 5.55%.
(7) This loan is interest-free for the first three years, with interest at
5.00% thereafter. Repayment is to commence on March 1, 2001 subject to the
conditions set forth in the Agreement.
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.
-25-
28
MANAGEMENT'S 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
ESTIMATED
QUARTER OF ACTUAL OR ESTIMATED QUARTER OF
# OF CONSTRUCTION QUARTER FIRST UNITS STABILIZED
METROPOLITAN AREA UNITS COMMENCEMENT AVAILABLE OCCUPANCY
----------------- ------ ------------ ------------------- -----------
Atlanta, GA
-----------
Post Briarcliff(TM) - I & II........ 688 2Q'97 2Q'98 1Q'00
Riverside by Post(TM) - Phase II.... 328 3Q'96 1Q'99 1Q'00
Parkside by Post(TM)................ 188 1Q'99 4Q'99 2Q'00
3400 Stratford by Post(TM).......... 250 2Q'99 2Q'00 1Q'01
-------
1,454
-------
Charlotte, NC
-------------
Uptown Place by Post(TM)............ 227 3Q'98 4Q'99 3Q'00
-------
Tampa, FL
---------
Post Hyde Park(R) III............... 119 2Q'98 1Q'99 3Q'99
Harbour Island City Apartment
Homes by Post(TM).................. 206 3Q'97 3Q'98 2Q'99
-------
325
-------
Dallas, TX
----------
Addison Circle(TM) - Phase II....... 610 1Q'98 1Q'99 2Q'00
Block 580/Heights II................ 204 4Q'97 4Q'98 3Q'99
Block 588........................... 127 4Q'98 3Q'99 2Q'00
Wilson Building..................... 135 2Q'98 2Q'99 4Q'99
-------
1,076
-------
Houston, TX
-----------
Midtown Square by Post(TM).......... 479 1Q'98 2Q'99 4Q'00
-------
Denver, CO
----------
Uptown Square by Post(TM)........... 454 1Q'98 2Q'99 4Q'00
-------
Phoenix, AZ
-----------
Roosevelt Square by Post(TM)........ 415 4Q'98 4Q'99 4Q'00
-------
Nashville, TN
-------------
Bennie Dillon by Post(TM)........... 86 2Q'98 2Q'99 4Q'99
--------
Orlando, FL
-----------
Parkside by Post(TM)................ 244 1Q'99 2Q'99 3Q'00
-------
4,760
=======
The Company is also currently conducting feasibility and other pre-development
studies for possible new Post(R) communities in its primary market areas.
-26-
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
Capitalization of Fixed Assets and Community Improvements
The Company has established a policy of capitalizing those expenditures relating
to acquiring new assets, materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset. All expenditures
necessary to maintain a community in ordinary operating condition are expensed
as incurred. During the first five years of a community (which corresponds to
the estimated depreciable life), carpet replacements are expensed as incurred.
Thereafter, carpet replacements are capitalized.
Acquisition of assets and community improvement expenditures for the three
months ended March 31, 1999 and 1998 are summarized as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- ------------
New community development and acquisition activity......... $ 79,350 $ 69,269
Non-recurring capital expenditures:
Revenue generating additions and improvements........... 1,018 3,289
Other community additions and improvements.............. 554 253
Recurring capital expenditures:
Carpet replacements..................................... 707 582
Community additions and improvements.................... 1,166 570
Corporate additions and improvements.................... 955 880
----------- -----------
$ 83,750 $ 74,843
=========== ===========
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
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
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-
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Company's
computer equipment and software and devices with imbedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to engage in normal business activities.
The Company has created a specially formed Year 2000 project team to evaluate
and coordinate the Company's Year 2000 initiatives, which are intended to
ensure that its computer equipment and software will function properly with
respect to dates in the Year 2000 and thereafter. For this purpose, the term
"computer equipment and software" includes systems that are commonly thought of
as IT systems, including property management and accounting software, data
processing, and telephone/PBX systems and other miscellaneous systems, as well
as systems that are not commonly thought of as IT systems, such as elevators,
alarm systems, or other miscellaneous systems. Both IT and non-IT systems may
contain embedded technology, which complicates the Company's Year 2000
identification, assessment, remediation, and testing efforts. Based upon its
identification and assessment efforts to date, the Company believes that
certain of the computer equipment and software it currently uses will require
replacement or modification. In addition, in the ordinary course of replacing
computer equipment and software, the Company attempts to obtain replacements
that are Year 2000 compliant. Utilizing both internal and external resources to
identify and assess needed Year 2000 remediation, the Company currently
anticipates that its Year 2000 identification, assessment, remediation and
testing efforts will be completed by August 31, 1999, and that such efforts
will be completed prior to any currently anticipated impact on its computer
equipment and software. The Company estimates that as of March 31, 1999, it had
completed approximately 75% of the initiatives that it believes will be
necessary to fully address potential Year 2000 issues relating to its computer
equipment and software. The projects comprising the remaining 25% of the
initiatives are in process and are expected to be completed on or about August
31, 1999.
The Company has mailed letters to, or in some instances, made direct contact
with, its significant suppliers, contractors and third party service providers
to determine the extent to which interfaces with such entities are vulnerable
to Year 2000 issues and whether the products and services purchased from or by
such entities are Year 2000 compliant. The Company has also established
procurement policies requiring representation from significant vendors as to
whether products and services are Year 2000 compliant.
At this time, the Company estimates the aggregate cost of its Year 2000
identification, assessment, remediation and testing efforts, or costs expected
to be incurred by the Company with respect to Year 2000 issues of third parties
to be approximately $3.2 million. Expenditures related to the Company's Year
2000 initiatives will be funded from operating cash flows. As of March 31,
1999, the Company had incurred costs of approximately $2.1 million related to
its Year 2000 identification, assessment, remediation and testing efforts, all
of which relates to analysis, repair or replacement of existing software,
upgrades of existing software, or evaluation of information received from
significant suppliers, contractors and other third party service providers.
Other non-Year 2000 IT efforts have not been materially delayed or impacted by
Year 2000 initiatives. The Company presently believes that the Year 2000 issue
will not pose significant operational problems for the Company. However, if all
Year 2000 issues are not properly identified, or assessment, remediation and
testing are not effected timely with respect to Year 2000 problems that are
identified, there can be no assurance that the Year 2000 issue will not
materially adversely impact the Company's results of operations or adversely
affect the Company's relationships with suppliers, contractors or others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities will not have a material adverse impact on the Company's business or
results of operations.
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. The Company currently plans to complete
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31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
such analysis and contingency planning, if necessary, by August 31, 1999. Risks
involved with not solving the Year 2000 issue include, but are not limited to,
the following: loss of local or regional electric power, loss of
telecommunications services, delays or cancellations of shipping or
transportation to major building suppliers, general deterioration of economic
conditions resulting from Year 2000 issues, and inability of banks, vendors and
other third parties with whom the Company does business to resolve Year 2000
problems.
The Company has engaged an independent expert to provide an ongoing evaluation
of its Year 2000 identification, assessment, remediation and testing efforts.
The costs of the Company's Year 2000 identification, assessment, remediation
and testing efforts and the dates on which the Company believes it will
complete such efforts are based upon management's best estimates, which were
derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of relevant computer
codes and embedded technology, and similar uncertainties. In addition,
variability of definitions of "compliance with Year 2000" and the myriad of
different products and services, and combinations thereof, sold by the Company
may lead to claims whose impact on the Company is not currently estimable.
There can be no assurance that the aggregate cost of defending and resolving
such claims, if any, will not materially adversely affect the Company's results
of operations. Although some of the Company's agreements with suppliers and
contractors contain provisions requiring such parties to indemnify the Company
under some circumstances, there can be no assurance that such indemnification
arrangements will cover all of the Company's liabilities and costs related to
claims by third parties related to the Year 2000 issue.
-29-
32
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 months ended March 31, 1999 and 1998 presented on a
historical basis are summarized in the following table:
Calculations of Funds from Operations and Cash Available for Distribution
THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 1998
------------ ------------
Net income available to common shareholders ..................... $ 21,420 $ 15,290
Extraordinary item, net of minority interest ................. 458 --
Net loss on sale of assets ................................... 1,567 --
Minority interest ............................................ 2,992 2,510
Loss on unused treasury locks ................................ -- 1,944
------------ ------------
Adjusted net income ............................................. 26,437 19,744
Depreciation of real estate assets ........................... 12,317 10,415
------------ ------------
Funds from Operations (1) ....................................... 38,754 30,159
Recurring capital expenditures (2) ........................... (1,873) (1,152)
Non-recurring capital expenditures (3) ....................... (554) (253)
Loan amortization payments ................................... (20) (18)
------------ ------------
Cash Available for Distribution ................................. $ 36,307 $ 28,736
============ ============
Revenue generating capital expenditures (4) ..................... $ 1,018 $ 3,289
============ ============
Cash Flow Provided By (Used In):
Operating activities ............................................ $ 42,682 $ 33,897
Investing activities ............................................ $ (74,386) $ 74,843
Financing activities ............................................ $ 41,525 $ 44,497
Weighted average common shares outstanding - basic .............. 38,149,210 31,762,278
============ ============
Weighted average common shares and units outstanding - basic .... 43,364,934 36,977,423
============ ============
Weighted average common shares outstanding - diluted ............ 38,474,982 32,217,089
============ ============
Weighted average common shares and units outstanding - diluted .. 43,690,706 37,432,234
============ ============
-30-
33
MANAGEMENT'S 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. 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 $707 and $582 of
carpet replacement and $1,166 and $570 of other additions and improvements
to existing communities for the three months ended March 31, 1999 and
1998, respectively. Since the Company does not add back the depreciation
of non-real estate assets in its calculation of FFO, capital expenditures
of $955 and $880 for the three months ended March 31, 1999 and 1998,
respectively, are excluded from the calculation of CAD.
(3) Non-recurring capital expenditures consisted of community additions and
improvements of $554 and $253 for the three months ended March 31, 1999
and 1998, respectively.
(4) Revenue generating capital expenditures included major renovations of
communities in the amount of $893 and $2,861, for the three months ended
March 31, 1999 and 1998, respectively, and submetering of water service to
communities in the amount of $125 and $428 for the three months ended
March 31, 1999 and 1998, respectively.
-31-
34
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the Company - First Quarter 1999
(for SEC filing purposes only)
27.2 Financial Data Schedule for the Operating Partnership - First
Quarter 1999 (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
There were no reports on Form 8-K filed by either registrant during
the three month period ended March 31, 1999.
-32-
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POST PROPERTIES, INC.
May 11, 1999 /s/ John T. Glover
- ------------------ ------------------------------------
(Date) John T. Glover, President
(Principal Financial Officer)
May 11, 1999 /s/ R. Gregory Fox
- ------------------ ------------------------------------
(Date) R. Gregory Fox
Executive Vice President, Chief
Accounting Officer
-33-
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POST APARTMENT HOMES, L.P.
By: Post GP Holdings, Inc., as General Partner
May 11, 1999 /s/ John T. Glover
- ------------------- -----------------------------
(Date) John T. Glover, President
(Principal Financial Officer)
May 11, 1999 /s/ R. Gregory Fox
- ------------------- -----------------------------
(Date) R. Gregory Fox
Executive Vice President, Chief
Accounting Officer
-34-