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 September 30, 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)
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.
38,775,629 shares of common stock outstanding as of November 10, 1999.
43,969,054 common units outstanding as of November 10, 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 September 30, 1999 and December 31, 1998....................1
Consolidated Statements of Operations for the three and nine months ended
September 30, 1999 and 1998................................................................2
Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the
nine months ended September 30, 1999.......................................................3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998................................................................4
Notes to Consolidated Financial Statements....................................................5
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998....................9
Consolidated Statements of Operations for the three and nine months ended
September 30, 1999 and 1998...............................................................10
Consolidated Statement of Partners' Equity for the nine months ended
September 30, 1999........................................................................11
Consolidated Statements of Cash Flows for the nine months ended
September 30, 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
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................31
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS......................................................................32
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDER
ITEM 5 OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.......................................................33
SIGNATURES.......................................................................................34
3
POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
ASSETS
Real estate:
Land .................................................................. $ 278,035 $ 252,922
Building and improvements ............................................. 1,573,988 1,379,847
Furniture, fixtures and equipment ..................................... 135,568 108,233
Construction in progress .............................................. 477,872 480,267
Land held for future development ...................................... 16,780 33,805
----------- -----------
2,482,243 2,255,074
Less: accumulated depreciation ........................................ (287,841) (247,148)
----------- -----------
Real estate assets .................................................... 2,194,402 2,007,926
Cash and cash equivalents ............................................... 6,365 21,154
Restricted cash ......................................................... 1,775 1,348
Deferred charges, net ................................................... 21,348 18,686
Other assets ............................................................ 33,508 17,599
----------- -----------
Total assets .......................................................... $ 2,257,398 $ 2,066,713
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable ........................................................... $ 893,400 $ 800,008
Accrued interest payable ................................................ 10,971 7,609
Dividends and distributions payable ..................................... 31,097 25,115
Accounts payable and accrued expenses ................................... 65,183 48,214
Security deposits and prepaid rents ..................................... 8,888 8,716
----------- -----------
Total liabilities ..................................................... 1,009,539 889,662
----------- -----------
Minority interest of preferred unitholders in Operating Partnership ..... 70,000 --
Minority interest of common unitholders in Operating Partnership ........ 122,786 125,365
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,
38,604,557 and 38,051,734 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively .............. 386 380
Additional paid-in capital .............................................. 1,054,637 1,051,256
Accumulated earnings .................................................... -- --
----------- -----------
Total shareholders' equity ............................................ 1,055,073 1,051,686
----------- -----------
Total liabilities and shareholders' equity ............................ $ 2,257,398 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1999 1998 1999 1998
REVENUE:
Rental ................................................... $ 81,162 $ 71,310 $ 234,845 $ 202,162
Property management - third-party ........................ 795 792 2,434 2,309
Landscape services - third-party ......................... 2,244 1,765 6,479 4,945
Interest ................................................. 194 83 564 387
Other .................................................... 3,763 3,019 10,120 9,606
------------ ------------ ------------ ------------
Total revenue ........................................ 88,158 76,969 254,442 219,409
------------ ------------ ------------ ------------
EXPENSES:
Property operating and maintenance expense
(exclusive of depreciation and amortization) ......... 29,126 25,814 83,949 73,946
Depreciation expense ..................................... 15,126 11,965 42,121 34,246
Property management expenses - third-party ............... 755 659 2,179 1,857
Landscape services expenses - third-party ................ 1,859 1,571 5,614 4,372
Interest expense ......................................... 8,707 7,795 24,075 23,488
Amortization of deferred loan costs ...................... 407 318 1,113 876
General and administrative ............................... 1,343 1,869 5,251 5,701
Minority interest in consolidated property partnerships .. 209 153 485 351
------------ ------------ ------------ ------------
Total expense ....................................... 57,532 50,144 164,787 144,837
------------ ------------ ------------ ------------
Income before net loss on sale of assets, loss on unused
treasury locks, minority interest of unitholders in
Operating Partnership and extraordinary item ............. 30,626 26,825 89,655 74,572
Net loss on sale of assets ................................. (246) -- (1,337) --
Loss on unused treasury locks .............................. -- -- -- (1,944)
Minority interest of preferred unitholders in
Operating Partnership .................................... (435) -- (435) --
Minority interest of common unitholders in
Operating Partnership .................................... (3,206) (3,022) (9,435) (8,434)
------------ ------------ ------------ ------------
Income before extraordinary item ........................... 26,739 23,803 78,448 64,194
Extraordinary item, net of minority interest of
unitholders in Operating Partnership ..................... -- -- (458) --
------------ ------------ ------------ ------------
Net income ................................................. 26,739 23,803 77,990 64,194
Dividends to preferred shareholders ........................ (2,969) (2,969) (8,907) (8,504)
------------ ------------ ------------ ------------
Net income available to common shareholders ................ $ 23,770 $ 20,834 $ 69,083 $ 55,690
============ ============ ============ ============
EARNINGS PER COMMON SHARE - BASIC
Income before extraordinary item (net of preferred
dividend) .............................................. $ 0.62 $ 0.58 $ 1.81 $ 1.62
Extraordinary item ....................................... -- -- (0.01) --
------------ ------------ ------------ ------------
Net income available to common shareholders .............. $ 0.62 $ 0.58 $ 1.80 $ 1.62
============ ============ ============ ============
Weighted average common shares outstanding ................. 38,574,434 36,007,167 38,361,877 34,351,747
============ ============ ============ ============
EARNINGS PER COMMON SHARE - DILUTED
Income before extraordinary item (net of preferred
dividend) .............................................. $ 0.61 $ 0.57 $ 1.79 $ 1.60
Extraordinary item ....................................... -- -- (0.01) --
------------ ------------ ------------ ------------
Net income available to common shareholders .............. 0.61 0.57 $ 1.78 $ 1.60
============ ============ ============ ============
Weighted average common shares outstanding ............... 39,122,421 36,433,862 38,827,381 34,823,164
============ ============ ============ ============
Dividends declared ....................................... $ 0.70 $ 0.65 $ 2.10 $ 1.95
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
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POST PROPERTIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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............... -- 6 15,667 -- 15,673
Selling costs of redeemable preferred units.. -- -- (1,750) -- (1,750)
Adjustment for minority interest of common
unitholders in Operating Partnership at
dates of capital transactions............... -- -- 1,023 -- 1,023
Net income................................... -- -- -- 77,990 77,990
Dividends to preferred shareholders.......... -- -- -- (8,907) (8,907)
Dividends to common shareholders............. -- -- (11,559) (69,083) (80,642)
-------- ---------- ---------- ---------- ---------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
SEPTEMBER 30, 1999........................... $ 50 $ 386 $1,054,637 $ -- $1,055,073
======== ========== ========== ========== ==========
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)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................................... $ 77,990 $ 64,194
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss on sale of assets ............................................................. 1,337 --
Loss on unused treasury locks .......................................................... -- 1,944
Minority interest of preferred unitholders in Operating Partnership .................... 435 --
Minority interest of common unitholders in Operating Partnership ....................... 9,435 8,434
Extraordinary item, net of minority interest of unitholders in Operating Partnership ... 458 --
Depreciation ........................................................................... 42,121 34,246
Amortization of deferred loan costs .................................................... 1,113 876
Other .................................................................................. -- 168
Changes in assets, (increase) decrease in:
Restricted cash ........................................................................ (427) 453
Other assets ........................................................................... (15,909) 1,830
Deferred charges ....................................................................... (3,657) (5,325)
Changes in liabilities, increase (decrease) in:
Accrued interest payable ............................................................... 3,362 3,430
Accounts payable and accrued expenses .................................................. 5,583 (9,271)
Security deposits and prepaid rents .................................................... 172 722
--------- ---------
Net cash provided by operating activities ................................................ 122,013 101,701
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets, net of payables ...................... (194,459) (193,062)
Net proceeds from sale of assets ......................................................... 10,731 --
Capitalized interest ..................................................................... (14,710) (11,123)
Payment for unused treasury locks ........................................................ -- (1,944)
Recurring capital expenditures ........................................................... (7,283) (4,952)
Corporate additions and improvements ..................................................... (6,240) (7,772)
Non-recurring capital expenditures ....................................................... (1,553) (1,098)
Revenue generating capital expenditures .................................................. (4,178) (11,842)
--------- ---------
Net cash used in investing activities .................................................... (217,692) (231,793)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ............................................................... (1,495) --
Debt proceeds ............................................................................ 169,000 111,227
Proceeds from sale of notes .............................................................. -- 150,000
Proceeds from issuance of preferred units ................................................ 68,250 --
Proceeds from issuance of preferred shares ............................................... -- 48,284
Proceeds from issuance of common shares .................................................. -- 186,893
Debt payments ............................................................................ (75,608) (295,108)
Distributions to common unitholders ...................................................... (10,679) (9,886)
Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans .................... 15,673 14,341
Dividends paid to preferred shareholders ................................................. (8,907) (8,504)
Dividends paid to common shareholders .................................................... (75,344) (63,801)
--------- ---------
Net cash provided by financing activities ................................................ 80,890 133,446
--------- ---------
Net (decrease) increase in cash and cash equivalents ..................................... (14,789) 3,354
Cash and cash equivalents, beginning of period ........................................... 21,154 10,879
--------- ---------
Cash and cash equivalents, end of period ................................................. $ 6,365 $ 14,233
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND FORMATION OF THE COMPANY
ORGANIZATION AND FORMATION OF THE COMPANY
Post Properties, Inc. (the "Company"), which was incorporated on January 25,
1984, is the successor by merger to the original Post Properties, Inc., a
Georgia corporation which was formed in 1971. The Company was formed to
develop, lease and manage upscale multi-family apartment communities.
The Company elected to be taxed as a real estate investment trust ("REIT")
for Federal income tax purposes beginning with the taxable year ended
December 31, 1993. A REIT is a legal entity which holds real estate
interests and, through payments of dividends to shareholders, in practical
effect is not subject to Federal income taxes at the corporate level.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company's management in accordance with generally accepted accounting
principles for interim financial information and applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally
recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the nine-month period ended
September 30, 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 September 30, 1999, the Operating Partnership had $231,000
aggregate principal amount of notes outstanding under the MTN Program.
On July 23, 1999, the Operating Partnership issued $104 million of secured
notes to the Federal National Mortgage Association ("FNMA"). These notes
bear interest at 30-day LIBOR (capped at 7% for one year) plus credit
enhancement, liquidity and service fees of .935%, mature on July 23, 2029
and are secured by five apartment communities. The Operating Partnership has
an option to call these notes after 10 years from the issuance date. Net
proceeds of $101,998 were used to repay outstanding indebtedness.
On May 7, 1999, the Operating Partnership amended its syndicated unsecured
line of credit (the "Revolver") to increase its maximum capacity to $350
million. Currently, $340 million of the Revolver is subscribed and available
to the Operating Partnership. Borrowing under the Revolver bears interest at
LIBOR plus .825% or prime minus .25%. The Revolver matures on April 30,
2002.
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.
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8
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
3. PREFERRED UNITS
On September 3, 1999, the Operating Partnership issued $70 million of Series
D Cumulative Redeemable Preferred Units of limited partnership interest (the
"Series D Preferred Units") to an institutional investor in a private
placement meeting the requirements of Regulation D promulgated under the
Securities Act of 1933, as amended. Net proceeds to the Operating
Partnership of approximately $68 million were used to repay outstanding
indebtedness.
4. EARNINGS PER SHARE
For the three and nine months ended September 30, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Basic and diluted income available to common
Shareholders (numerator):
Income before extraordinary item ............... $ 26,739 $ 23,803 $ 78,448 $ 64,194
Less: Preferred stock dividends .............. (2,969) (2,969) (8,907) (8,504)
------------ ------------ ------------ ------------
Income available to common shareholders
Before extraordinary item .................... $ 23,770 $ 20,834 $ 69,541 $ 55,690
============ ============ ============ ============
Common shares (denominator):
Weighted average shares outstanding - basic ...... 38,574,434 36,007,167 38,361,877 34,351,747
Incremental shares from assumed conversion
of options ................................... 547,987 426,695 465,504 471,417
------------ ------------ ------------ ------------
Weighted average shares outstanding - diluted .. 39,122,421 36,433,862 38,827,381 34,823,164
============ ============ ============ ============
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the nine months ended
September 30, 1999 and 1998 were as follows:
During the nine months ended September 30, 1999 and 1998, holders of 17,299
and 750 units, respectively, in the Operating Partnership exercised their
option to convert their units to shares of Common Stock of the Company on a
one-for-one basis. These conversions resulted in adjustments to minority
interest for the dilutive impact of the Dividend Reinvestment and Employee
Stock Purchase Plans and capital transactions. The net effect of the
conversions and adjustments was a reclassification decreasing minority
interest and increasing shareholder's equity in the amount of $1,023 for the
nine months ended September 30, 1999 and increasing minority interest and
decreasing shareholders' equity in the amount of $10,518 for the nine months
ended September 30, 1998.
6. NEW ACCOUNTING PRONOUNCEMENT
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133, as
amended by FAS 137, "Deferral of the Effective Date of FAS 133," is
effective for all fiscal quarters of all fiscal years beginning after June
15, 2000 (January 1, 2001 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
-6-
9
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
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.
7. 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 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 or
one year after completion of construction) 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 generally accepted
accounting principles ("GAAP"), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation of real estate
assets, and after adjustment for unconsolidated partnerships and joint
ventures. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indicator of the Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
necessarily indicative of sufficient cash flow to fund all of the Company's
needs.
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 UNIT DATA)
- --------------------------------------------------------------------------------
Summarized financial information concerning the Company's reportable segments is
shown in the following tables:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- -------------
REVENUES
Fully stabilized communities............... $ 59,945 $ 58,081 $ 177,231 $ 171,488
Communities stabilized during 1998......... 5,601 5,166 16,620 13,709
Development and lease-up communities....... 15,704 6,851 40,077 14,114
Sold communities........................... -- 877 318 3,493
Third party services....................... 3,039 2,557 8,913 7,254
Other...................................... 3,869 3,437 11,283 9,351
-------------- -------------- -------------- ------------
Consolidated revenues...................... $ 88,158 $ 76,969 $ 254,442 $ 219,409
============== ============== ============== ============
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities............... $ 41,225 $ 39,559 $ 122,298 $ 116,942
Communities stabilized during 1998......... 3,753 3,590 11,297 9,295
Development and lease-up communities....... 9,915 3,503 24,474 6,526
Sold communities........................... -- 720 190 3,024
Third party services....................... 425 327 1,120 1,025
-------------- -------------- -------------- ------------
Contribution to FFO........................ 55,318 47,699 159,379 136,812
-------------- -------------- -------------- ------------
Other operating income, net of expense..... 268 1,226 2,489 2,422
Depreciation on non-real estate assets..... (511) (467) (1,409) (939)
Minority interest in consolidated property
Partnerships............................ (209) (153) (485) (351)
Interest expense........................... (8,707) (7,795) (24,075) (23,488)
Amortization of deferred loan costs........ (407) (318) (1,113) (876)
General and administrative................. (1,343) (1,869) (5,251) (5,701)
Dividends to preferred shareholders........ (2,969) (2,969) (8,907) (8,504)
-------------- -------------- -------------- ------------
Total FFO.................................. 41,440 35,354 120,628 99,375
-------------- -------------- -------------- ------------
Depreciation on real estate assets......... (14,218) (11,498) (40,315) (33,307)
Net loss on sale of assets................. (246) -- (1,337) --
Loss on unused treasury locks.............. -- -- -- (1,944)
Minority interest of unitholders in
Operating Partnership................... (3,206) (3,022) (9,435) (8,434)
Dividends to preferred shareholders........ 2,969 2,969 8,907 8,504
-------------- -------------- ----------- ------------
Income before extraordinary item
and preferred dividends................. $ 26,739 $ 23,803 $ 78,448 $ 64,194
============== ============== ============== ============
-8-
11
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
ASSETS
Real estate:
Land ...................................... $ 278,035 $ 252,922
Building and improvements ................. 1,573,988 1,379,847
Furniture, fixtures and equipment ......... 135,568 108,233
Construction in progress .................. 477,872 480,267
Land held for future development .......... 16,780 33,805
----------- -----------
2,482,243 2,255,074
Less: accumulated depreciation ............ (287,841) (247,148)
----------- -----------
Operating real estate assets .............. 2,194,402 2,007,926
Cash and cash equivalents ................... 6,365 21,154
Restricted cash ............................. 1,775 1,348
Deferred charges, net ....................... 21,348 18,686
Other assets ................................ 33,508 17,599
----------- -----------
Total assets ................................... $ 2,257,398 $ 2,066,713
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Notes payable ............................... $ 893,400 $ 800,008
Accrued interest payable .................... 10,971 7,609
Distributions payable ....................... 31,097 25,115
Accounts payable and accrued expenses ....... 65,183 48,214
Security deposits and prepaid rents ......... 8,888 8,716
----------- -----------
Total liabilities ......................... 1,009,539 889,662
----------- -----------
Commitments and contingencies
Partners' equity ............................ 1,247,859 1,177,051
----------- -----------
Total liabilities and partners' equity .... $ 2,257,398 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES
Rental ..................................................... $ 81,162 $ 71,310 $ 234,845 $ 202,162
Property management - third party .......................... 795 792 2,434 2,309
Landscape services - third party ........................... 2,244 1,765 6,479 4,945
Interest ................................................... 194 83 564 387
Other ...................................................... 3,763 3,019 10,120 9,606
------------ ------------ ------------ ------------
Total revenue .......................................... 88,158 76,969 254,442 219,409
------------ ------------ ------------ ------------
EXPENSES
Property operating and maintenance expense (exclusive
of items shown separately below) ......................... 29,126 25,814 83,949 73,946
Depreciation expense ....................................... 15,126 11,965 42,121 34,246
Property management - third party .......................... 755 659 2,179 1,857
Landscape services expense - third party ................... 1,859 1,571 5,614 4,372
Interest expense ........................................... 8,707 7,795 24,075 23,488
Amortization of deferred loan costs ........................ 407 318 1,113 876
General and administrative ................................. 1,343 1,869 5,251 5,701
Minority interest in consolidated property partnerships .... 209 153 485 351
------------ ------------ ------------ ------------
Total expenses ............................................ 57,532 50,144 164,787 144,837
------------ ------------ ------------ ------------
Income before net loss on sale of assets, loss on
unused treasury locks and extraordinary item .............. 30,626 26,825 89,655 74,572
Net loss on sale of assets ................................. (246) -- (1,337) --
Loss on unused treasury locks .............................. -- -- -- (1,944)
------------ ------------ ------------ ------------
Income before extraordinary item ........................... 30,380 26,825 88,318 72,628
Extraordinary item ......................................... -- -- (521) --
------------ ------------ ------------ ------------
Net income ................................................. 30,380 26,825 87,797 72,628
Distributions to preferred unitholders ..................... (3,404) (2,969) (9,342) (8,504)
------------ ------------ ------------ ------------
Net income available to common unitholders ................. $ 26,976 $ 23,856 $ 78,455 $ 64,124
============ ============ ============ ============
EARNINGS PER COMMON UNIT - BASIC
Income before extraordinary item (net of preferred
distributions) ............................................ $ 0.62 $ 0.58 $ 1.81 $ 1.62
Extraordinary item ......................................... -- -- (0.01) --
------------ ------------ ------------ ------------
Net income available to common unitholders ................. $ 0.62 $ 0.58 1.80 $ 1.62
============ ============ ============ ============
Weighted average common units outstanding .................. 43,772,859 41,222,891 43,567,297 39,567,512
============ ============ ============ ============
EARNINGS PER COMMON UNIT- DILUTED
Income before extraordinary item (net of preferred
distributions) ............................................ $ 0.61 $ 0.57 $ 1.79 $ 1.60
Extraordinary item ......................................... -- -- (0.01) --
------------ ------------ ------------ ------------
Net income available to common unitholders ................. $ 0.61 $ 0.57 $ 1.78 $ 1.60
============ ============ ============ ============
Weighted average common units outstanding .................. 44,320,846 41,649,586 44,032,801 40,038,929
============ ============ ============ ============
Distributions declared .................................... $ 0.70 $ 0.65 $ 2.10 $ 1.95
============ ============ ============ ============
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 PARTNERS 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 ........ 157 15,516 15,673
Proceeds from the sale of preferred units ............. -- 68,250 68,250
Distributions to preferred unitholders ................ -- (9,342) (9,342)
Distributions to common unitholders ................... (916) (90,654) (91,570)
Net income ............................................ 878 86,919 87,797
--------- ----------- -----------
PARTNERS' EQUITY, SEPTEMBER 30, 1999 .................. $ 11,914 $ 1,235,945 $ 1,247,859
========= =========== ===========
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)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................. $ 87,797 $ 72,628
Adjustments to reconcile net income to net cash provided
by operating activities:
Net loss on sale of assets .............................................. 1,337 --
Loss on unused treasury locks ........................................... -- 1,944
Extraordinary item ..................................................... 521 --
Depreciation ........................................................... 42,121 34,246
Amortization of deferred loan costs .................................... 1,113 876
Other .................................................................. -- 168
Changes in assets, (increase) decrease in:
Restricted cash ...................................................... (427) 453
Other assets ......................................................... (15,909) 1,830
Deferred charges ..................................................... (3,657) (5,325)
Changes in liabilities, increase (decrease) in:
Accrued interest payable ............................................. 3,362 3,430
Accounts payable and accrued expenses ................................ 5,583 (9,271)
Security deposits and prepaid rents .................................. 172 722
--------- ---------
Net cash provided by operating activities .............................. 122,013 101,701
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets,
net of payables ...................................................... (194,459) (193,062)
Net proceeds from sale of assets ....................................... 10,731 --
Capitalized interest ................................................... (14,710) (11,123)
Payment for unused treasury locks ...................................... -- (1,944)
Recurring capital expenditures ......................................... (7,283) (4,952)
Corporate additions and improvements ................................... (6,240) (7,772)
Non-recurring capital expenditures ..................................... (1,553) (1,098)
Revenue generating capital expenditures ................................ (4,178) (11,842)
--------- ---------
Net cash used in investing activities .................................. (217,692) (231,793)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ............................................. (1,495) --
Debt proceeds .......................................................... 169,000 111,227
Proceeds from the sale of notes ........................................ -- 150,000
Proceeds from issuance of preferred units .............................. 68,250 48,284
Proceeds from issuance of common units ................................. -- 186,893
Debt payments .......................................................... (75,608) (295,108)
Proceeds from contributions from the Company related to Dividend
Reinvestment and Employee Stock Purchase Plans .......................... 15,673 14,341
Dividends paid to preferred unitholders ................................ (8,907) (8,504)
Dividends paid to common unitholders ................................... (86,023) (73,687)
--------- ---------
Net cash provided by financing activities .............................. 80,890 133,446
--------- ---------
Net (decrease) increase in cash and cash equivalents ................... (14,789) 3,354
Cash and cash equivalents, beginning of period ......................... 21,154 10,879
--------- ---------
Cash and cash equivalents, end of period ............................... $ 6,365 $ 14,233
========= =========
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
nine-month period ended September 30, 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 September 30, 1999,
the Operating Partnership had $231,000 aggregate principal amount of notes
outstanding under the MTN Program.
On July 23, 1999, the Operating Partnership issued $104 million of secured
notes to FNMA. These notes bear interest at 30-day LIBOR (capped at 7% for
one year) plus credit enhancement, liquidity and service fees of .935%,
mature on July 23, 2029 and are secured by five apartment communities. The
Operating Partnership has an option to call these notes after 10 years from
the issuance date. Net proceeds of $101,998 were used to repay outstanding
indebtedness.
On May 7, 1999, the Operating Partnership amended its syndicated unsecured
line of credit (the "Revolver") to increase its maximum capacity to $350
million. Currently, $340 million of the Revolver is subscribed and
available to the Operating Partnership. Borrowing under the Revolver bears
interest at LIBOR plus .825% or prime minus .25%. The Revolver matures on
April 30, 2002.
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. PREFERRED UNITS
On September 3, 1999, the Operating Partnership issued $70 million of
Series D Preferred Units to an institutional investor in a private
placement meeting the requirements of Regulation D promulgated under the
Securities Act of 1933, as amended. Net proceeds to the Operating
Partnership of approximately $68 million were used to repay outstanding
indebtedness.
4. EARNINGS PER UNIT
For the three and nine months ended September 30, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------ ----------- ------------
Basic and diluted income available to common
Unitholders (numerator):
Income before extraordinary item ............... $ 30,380 $ 26,825 $ 88,318 $ 72,628
Less: Preferred unit distributions ........... (3,404) (2,969) (9,342) (8,504)
------------ ------------ ------------ ------------
Income available to common unitholders
Before extraordinary item .................... $ 26,976 $ 23,856 $ 78,976 $ 64,124
============ ============ ============ ============
Common units (denominator):
Weighted average units outstanding - basic ..... 43,772,859 41,222,891 43,567,297 39,567,512
Incremental units from assumed conversion
of options ................................... 547,987 426,695 465,504 471,417
------------ ------------ ------------ ------------
Weighted average units outstanding - diluted ... 44,320,846 41,649,586 44,032,801 40,038,929
============ ============ ============ ============
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, as
amended by FAS 137, "Deferral of the Effective Date of FAS 133," is
effective for all fiscal quarters of all fiscal years beginning after June
15, 2000 (January 1, 2001 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.
6. 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
-14-
17
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
- --------------------------------------------------------------------------------
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:
Property Rental Operations
- Fully stabilized communities - those apartment communities which have
been stabilized (the point in time which a property reached 95%
occupancy or one year after completion of construction) for both the
current and prior year.
- Communities stabilized during 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 generally accepted
accounting principles ("GAAP"), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation of real estate
assets, and after adjustment for unconsolidated partnerships and joint
ventures. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indicator of the 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
1999 1998 1999 1998
-------- -------- --------- ---------
REVENUES
Fully stabilized communities ................. $ 59,945 $ 58,081 $ 177,231 $ 171,488
Communities stabilized during 1998 ........... 5,601 5,166 16,620 13,709
Development and lease-up communities ......... 15,704 6,851 40,077 14,114
Sold communities ............................. -- 877 318 3,493
Third party services ......................... 3,039 2,557 8,913 7,254
Other ........................................ 3,869 3,437 11,283 9,351
-------- -------- --------- ---------
Consolidated revenues ........................ $ 88,158 $ 76,969 $ 254,442 $ 219,409
======== ======== ========= =========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities ................. $ 41,225 $ 39,559 $ 122,298 $ 116,942
Communities stabilized during 1998 ........... 3,753 3,590 11,297 9,295
Development and lease-up communities ......... 9,915 3,503 24,474 6,526
Sold communities ............................. -- 720 190 3,024
Third party services ......................... 425 327 1,120 1,025
-------- -------- --------- ---------
Contribution to FFO .......................... 55,318 47,699 159,379 136,812
-------- -------- --------- ---------
Other operating income, net of expense ....... 703 1,226 2,924 2,422
Depreciation on non-real estate assets ....... (511) (467) (1,409) (939)
Minority interest in consolidated property
partnership .................................. (209) (153) (485) (351)
Interest expense ............................. (8,707) (7,795) (24,075) (23,488)
Amortization of deferred loan costs .......... (407) (318) (1,113) (876)
General and administrative ................... (1,343) (1,869) (5,251) (5,701)
Distributions to preferred unitholders ....... (3,404) (2,969) (9,342) (8,504)
-------- -------- --------- ---------
Total FFO .................................... 41,440 35,354 120,628 99,375
-------- -------- --------- ---------
Depreciation on real estate assets ........... (14,218) (11,498) (40,315) (33,307)
Net loss on sale of assets ................... (246) -- (1,337) --
Loss on unused treasury locks ................ -- -- -- (1,944)
Distributions to preferred unitholders ....... 3,404 2,969 9,342 8,504
-------- -------- --------- ---------
Income before extraordinary item and
preferred distributions ...................... $ 30,380 $ 26,825 $ 88,318 $ 72,628
======== ======== ========= =========
-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 September 30, 1999, there were 43,802,982 common units in the Operating
Partnership outstanding, of which 38,604,557, or 88.1%, were owned by the
Company and 5,198,425, or 11.9%, were owned by other limited partners (including
certain officers and directors of the Company). As of September 30, 1999, there
were 7,800,000 preferred units outstanding, of which 5,000,000 were owned by the
Company.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
1998
The Company recorded net income available to common shareholders of $23,770 and
$69,083 for the three and nine months ended September 30, 1999, respectively.
These earnings represent increases of 14.1% and 24.0% over the corresponding
periods in 1998 primarily as a result of additional units placed in service
through the development of new communities and increases in rental rates on
existing units.
COMMUNITY OPERATIONS
The Company's net income is generated primarily from the operation of its
apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. A community is generally
considered by the Company to have achieved stabilized occupancy on the earlier
to occur of (i) attainment of 95% physical occupancy on the first day of any
month or (ii) one year after completion of construction.
As of September 30, 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) 29 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 three and nine months ended September 30, 1999 were $805 and
$1,901, respectively. Lease up deficits for the three and nine months ended
September 30, 1998 were $127 and $1,497, respectively.
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 and nine months ended September 30, 1999 and 1998 is
summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1999 1998 %CHANGE 1999 1998 %CHANGE
--------- ---------- --------- -------- --------- --------
Rental and other revenue:
Mature communities (1)...................... $ 59,945 $ 58,081 3.2% $177,231 $ 171,488 3.3%
Communities stabilized during 1998.......... 5,601 5,166 8.4% 16,620 13,709 21.2%
Development and lease-up communities (2).... 15,704 6,851 129.2% 40,077 14,114 184.0%
Sold communities (3)........................ -- 877 (100.0)% 318 3,493 (90.9)%
Other revenue (4)........................... 3,675 3,354 9.6% 10,719 8,964 19.6%
-------- --------- -------- ---------
84,925 74,329 14.3% 244,965 211,768 15.7%
-------- --------- -------- ---------
Property operating and maintenance expense
(exclusive of depreciation and amortization):
Mature communities (1)...................... 18,720 18,522 1.1% 54,933 54,546 0.7%
Communities stabilized during 1998.......... 1,848 1,576 17.3% 5,323 4,414 20.6%
Development and lease-up communities (2).... 5,789 3,348 72.9% 15,603 7,588 105.6%
Sold communities (3) ....................... -- 157 (100.0)% 128 469 (72.7)%
Other expenses (5).......................... 2,769 2,211 25.2% 7,962 6,929 14.9%
-------- --------- -------- ---------
29,126 25,814 12.8% 83,949 73,946 13.5%
-------- --------- -------- ---------
Revenue in excess of specified expense...... $ 55,799 $ 48,515 15.0% $161,016 $ 137,822 16.8%
======== ========= ======== =========
Recurring capital expenditures: (6)
Carpet.................................... $ 763 $ 645 18.3% $ 2,170 $ 1,849 17.4%
Other..................................... 1,841 1,266 45.4% 5,113 3,103 64.7%
-------- --------- ------- ---------
Total..................................... $ 2,604 $ 1,911 36.3% $ 7,283 $ 4,952 47.1%
======== ========= ======= =========
Average apartment units in service.......... 29,763 27,779 7.1% 29,291 27,127 8.0%
======== ========= ======= =========
Recurring capital expenditures per
apartment unit............................ $ 87 $ 69 26.1% $ 249 $ 183 36.1%
======== ========= ======= =========
(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) Includes revenue from furnished apartment rentals above the unfurnished
rental rates, revenue from commercial properties and other revenue not
directly related to property operations.
-18-
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
(5) Includes certain indirect central office operating expenses related to
management, grounds maintenance, costs associated with furnished apartment
rentals and operating expenses from commercial properties.
(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 and nine months ended September 30, 1999, rental and other revenue
increased $10,596, or 14.3%, and $33,197, or 15.7%, respectively, compared to
the same periods in the prior year primarily as a result of the completion of
new communities and increased rental rates for existing communities. For the
three and nine months ended September 30, 1999, property operating and
maintenance expenses increased $3,312, or 12.8%, and $10,003, or 13.5%,
respectively, compared to the same periods in the prior year, primarily as a
result of the completion of new communities.
For the three and nine months ended September 30, 1999, recurring capital
expenditures increased $693, or 36.3% ($18, or 26.1%, on a per unit apartment
basis), and $2,331, or 47.1% ($66, or 36.1%, on a per unit apartment basis),
respectively, compared to the same periods 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 that have reached stabilization
prior to the beginning of the previous calendar year.
The operating performance of the 68 communities containing an aggregate of
23,462 units that were fully stabilized as of January 1, 1998, is summarized as
follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ----------------------------------
% %
1999 1998 CHANGE 1999 1998 CHANGE
------- ------- ------- -------- ------- -------
Rental and other revenue (1) ................. $59,945 $58,081 3.2% $177,231 $171,488 3.3%
Property operating and maintenance
expense (exclusive of depreciation and
amortization) (1) ......................... 18,720 18,522 1.1% 54,933 54,546 0.7%
------- ------- -------- --------
Revenue in excess of specified expense ....... $41,225 $39,559 4.2% $122,298 $116,942 4.6%
------- ------- -------- --------
Recurring capital expenditures: (2)
Carpet .................................... $ 763 $ 634 20.3% $ 2,159 $ 1,786 20.9%
Other ..................................... 1,758 1,593 10.4% 4,831 3,371 43.3%
------- ------- -------- --------
Total ..................................... $ 2,521 $ 2,227 13.2% $ 6,990 $ 5,157 35.5%
======= ======= -------- --------
Recurring capital expenditures per
apartment unit (3) ........................ $ 107 $ 95 12.6% $ 298 $ 220 35.5%
======= ======= ======== ========
Average economic occupancy (4) ............... 96.8% 97.2% (0.4)% 96.5% 96.8% (0.3)%
======= ======= ======== ========
Average monthly rental rate per
apartment unit (5) ........................ $ 856 $ 830 3.1% $ 846 $ 823 2.8%
======= ======= ======== ========
Apartment units in service ................... 23,462 23,462 $ 23,462 $ 23,462
======= ======= ======== ========
(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 $170 and
$180 per unit on building maintenance (inclusive of direct salaries) and
$49 and $52 per unit on landscaping (inclusive of direct salaries) for the
three months ended September 30, 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 95.4% and 95.7% for the three months ended September 30, 1999 and
1998, respectively. For the three months ended September 30, 1999 and 1998,
concessions were $667 and $729, respectively, and employee discounts were
$150 and $130, respectively.
(5) Average monthly rental rate is defined as the average of the gross actual
rates for occupied units and the anticipated rental rates for unoccupied
units.
For the three and nine months ended September 30, 1999, rental and other revenue
increased $1,864, or 3.2%, and $5,743, or 3.3%, respectively, compared to the
same periods in the prior year, primarily due to increased rental rates. For the
three and nine months ended September 30, 1999, property operating and
maintenance expenses (exclusive of depreciation and amortization) increased
$198, or 1.1%, and $387, or 0.7%, respectively, compared to the same periods in
the prior year, primarily as a result of increased personnel and property tax
expenses partially offset by a decline in utilities expense as a result of water
submetering.
For the three and nine months ended September 30, 1999, recurring capital
expenditures per unit increased $12, or 12.6%, and $78, or 35.5%, respectively,
as a result of the timing of expenditures.
-20-
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
THIRD PARTY SERVICES
THIRD PARTY MANAGEMENT SERVICES
The Company provides asset management, leasing and other consulting services to
non-related owners of apartment communities through its subsidiary, RAM
Partners, Inc. ("RAM"). The operating performance of RAM for the three and nine
months ended September 30, 1999 and 1998 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ----------------------------------
1999 1998 %CHANGE 1999 1998 %CHANGE
------- ------- ------- ------- ------- -------
Property management and other revenue .... $ 795 $ 792 0.4% $ 2,434 $ 2,309 5.4%
Property management expense .............. 755 659 14.6% 2,179 1,857 17.3%
Depreciation expense ..................... 7 9 (22.2)% 20 27 (25.9)%
------- ------- ------- -------
Revenue in excess of specified expense ... $ 33 $ 124 (73.4)% $ 235 $ 425 (44.7)%
======= ======= ======= =======
Average apartment units managed .......... 12,169 11,621 4.7% 12,327 11,107 11.0%
======= ======= ======= =======
The decrease in revenue in excess of specified expense for the three and nine
months ended September 30, 1999 compared to the same period in the prior year is
primarily attributable to the management of more communities in lease-up phases
as a result of turnover in management contracts.
THIRD PARTY LANDSCAPE SERVICES
The Company provides landscape maintenance, design and installation services to
non-related parties through a subsidiary, Post Landscape Group, Inc. ("Post
Landscape Group"), formerly called Post Landscape Services, Inc.
The operating performance of Post Landscape Group for the three and nine months
ended September 30, 1999 and 1998 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- --------------------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
------ ------ -------- ------ ------ --------
Landscape services and other revenue ..... $2,244 $1,765 27.1% $6,479 $4,945 31.0%
Landscape services expense ............... 1,859 1,571 18.3% 5,614 4,372 28.4%
Depreciation expense ..................... 78 53 47.2% 212 118 79.7%
------ ------ ------ ------
Revenue in excess of specified expense ... $ 307 $ 141 117.7% $ 653 $ 455 43.5%
====== ====== ====== ======
The increase in landscape services and other revenue and landscape services
expense for the three and nine months ended September 30, 1999 compared to the
same periods in 1998 is primarily due to increases in landscape contracts. The
increase in depreciation expense is primarily due to leasehold improvements
acquired in 1998.
-21-
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- --------------------------------------------------------------------------------
OTHER EXPENSES
Depreciation expense increased $3,161, or 26.4%, and $7,875, or 23.0%,
respectively, for the three and nine months ended September 30, 1999 compared to
the same period in the prior year, primarily as a result of an increase in units
in service, additional leasehold improvements and technology expenditures.
General and administrative expense decreased $526, or 28.1%, and $450, or 7.9%,
respectively, for the three and nine months ended September 30, 1999 compared to
the same period in the prior year, primarily as a result of timing differences
in certain expense accruals and allocations.
The loss on unused treasury locks of $1,944 for the nine months ended September
30, 1998 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 nine months ended September 30, 1999, net
of minority interest portion, was due to the write off of loan costs resulting
from the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's net cash provided by operating activities increased from $101,701
for the nine months ended September 30, 1998 to $122,013 for the nine months
ended September 30, 1999, principally due to increases in net income and changes
in working capital. Net cash used in investing activities decreased from
$231,793 in the nine months ended September 30, 1998 to $217,692 for the nine
months ended September 30, 1999, principally due to proceeds from the sale of
one community in March 1999 and reduced capital expenditures. The Company's net
cash provided by financing activities decreased from $133,446 for the nine
months ended September 30, 1998 to $80,890 for the nine months ended September
30, 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 September 30, 1999, the Company had total indebtedness of $893,400, an
increase of $93,392 from its total indebtedness at December 31, 1998, and cash
and cash equivalents of $6,365. At September 30, 1999, the Company's
indebtedness included approximately $179,582 in conventional mortgages payable
secured by individual communities, tax-exempt bond indebtedness of $235,880,
senior unsecured notes of $406,000, borrowings under the Revolver of $50,000 and
other unsecured lines of credit and unsecured debt of $21,938.
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
On May 7, 1999, the Operating Partnership amended its syndicated unsecured line
of credit (the "Revolver") increasing its maximum capacity to $350 million. At
September 30, 1999, $340 million of the Revolver was subscribed and available to
the Operating Partnership. Borrowing under the Revolver bears interest at LIBOR
plus .825% or prime minus .25%. The Revolver matures on April 30, 2002. At
September 30, 1999, there was $50,000 outstanding under its Revolver and $19,938
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 September 30, 1999, the
Operating Partnership had $231,000 aggregate principle amount of notes
outstanding under the MTN Program. The Remarketed Reset Notes under this program
were repaid 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
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.
On July 23, 1999, the Operating Partnership issued $104 million of secured notes
to FNMA. These notes bear interest at 30-day LIBOR (capped at 7% for one year)
plus credit enhancement, liquidity and service fees of .935%, mature on July 23,
2029 and are secured by five apartment communities. The Operating Partnership
has an option to call these notes after 10 years from the issuance date. Net
proceeds of $101,998 were used to repay outstanding indebtedness.
Conventional Floating Rate Debt
The indebtedness of $20 million relating to The Rice was repaid on August 26,
1999 using proceeds from the Revolver.
-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 September 30, 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 $ 2,928
Parkwood Townhomes(TM) ....................... Dallas, TX 7.375% 04/01/14 841
Northwestern Mutual Life ..................... Atlanta, GA 6.50% 03/01/09 49,671
--------
53,440
--------
CONVENTIONAL FLOATING RATE (SECURED)
Addison Circle Apartment Homes
by Post(TM)- Phase I ...................... Dallas, TX LIBOR + .75% 06/15/00 22,142
FNMA ......................................... Atlanta, GA LIBOR + .935% 07/23/29 104,000
--------
126,142
--------
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 Securities ...... N/A 6.85% (4) 03/16/15 100,000
--------
406,000
--------
LINES OF CREDIT & OTHER UNSECURED DEBT
City of Phoenix .............................. N/A 5.00% (6) 03/01/21 2,000
Revolver - Syndicated ........................ N/A LIBOR + .825% or prime minus .25% (5) 04/30/02 50,000
- 24 -
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
Revolver - Swing ............................... N/A LIBOR + .825% or prime minus .25% 04/21/01 5,000
Cash Management Line ........................... N/A LIBOR + .675% or prime minus .25% 03/31/00 14,938
----------
71,938
----------
TOTAL........................................... $ 893,400
==========
(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) Represents stated rate. The Company may also make "money market" loans
of up to $175,000 at rates below the stated rate. At September 30,
1999, the outstanding balance of the Revolver consisted of "money
market" loans with an average interest rate of 5.95%.
(6) 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:
QUARTER OF ACTUAL OR ESTIMATED ACTUAL OR ESTIMATED
# OF CONSTRUCTION QUARTER FIRST UNITS QUARTER OF STABILIZED
METROPOLITAN AREA UNITS COMMENCEMENT AVAILABLE OCCUPANCY
- ----------------- --------- ------------ -------------------- ---------------------
Atlanta, GA
Post Spring(TM)........................................ 452 3Q'99 2Q'00 2Q'01
Riverside by Post(TM)- Phase II ....................... 328 3Q'96 1Q'99 1Q'00
Parkside by Post(TM)................................... 188 1Q'99 4Q'99 2Q'00
Post Stratford(TM)..................................... 250 2Q'99 2Q'00 1Q'01
--------
1,218
--------
Charlotte, NC
Post Uptown Place(TM).................................. 227 3Q'98 4Q'99 3Q'00
Post Gateway Place(TM)................................. 232 3Q'99 3Q'00 2Q'01
--------
459
Tampa, FL
Post Harbour Place (TM)................................ 319 4Q'98 1Q'00 1Q'01
Dallas, TX
Post Addison Circle(TM) (II) .......................... 610 1Q'98 1Q'99 2Q'00
Post Block 588(TM) .................................... 127 4Q'98 4Q'99 2Q'00
Post Addison Circle(TM)(III) .......................... 264 3Q'99 3Q'00 2Q'01
Legacy Town Center City Apartment Homes by Post ....... 384 3Q'99 4Q'00 3Q'01
Post Uptown Village(TM)(II) ........................... 196 3Q'99 2Q'00 4Q'00
--------
1,581
--------
Houston, TX
Post Midtown Square(TM) ............................... 479 1Q'98 2Q'99 4Q'00
Denver, CO
Post Uptown Square(TM) ................................ 449 1Q'98 3Q'99 4Q'00
Phoenix, AZ
Post Roosevelt Square(TM) ............................. 410 4Q'98 1Q'00 1Q'01
Nashville, TN
The 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
Washington, D.C.
Pentagon Row by Post .................................. 504 2Q'99 4Q'00 1Q'02
Austin, TX
Post West Avenue Lofts(TM) ............................ 243 3Q'99 4Q'00 3Q'01
--------
5,992
========
- 26 -
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
The Company is also currently conducting feasibility and other pre-development
studies for possible new Post(R) communities in its primary market areas.
Capitalization of Fixed Assets and Community Improvements
The Company has established a policy of capitalizing those expenditures
relating to acquiring new assets, materially enhancing the value of an existing
asset, or substantially extending the useful life of an existing asset. All
expenditures necessary to maintain a community in ordinary operating condition
are expensed as incurred. During the first five years of a community (which
corresponds to the estimated depreciable life), carpet replacements are
expensed as incurred. Thereafter, carpet replacements are capitalized.
Acquisition of assets and community improvement expenditures for the three and
nine months ended September 30, 1999 and 1998 are summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------- --------- --------- ---------
New community development and acquisition activity ............. $ 66,266 $ 49,096 $ 220,555 $ 205,960
Non-recurring capital expenditures:
Revenue generating additions and improvements ................ 2,064 4,052 4,178 11,842
Other community additions and improvements ................... 540 210 1,553 1,098
Recurring capital expenditures:
Carpet replacements .......................................... 763 645 2,170 1,849
Community additions and improvements ......................... 1,841 1,266 5,113 3,103
Corporate additions and improvements ......................... 3,880 3,645 6,240 7,772
--------- --------- --------- ---------
$ 75,354 $ 58,914 $ 239,809 $ 231,624
========= ========= ========= =========
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, as amended by FAS 137,
"Deferral of the Effective Date of FAS 133," is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 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 embedded 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. In addition, the Company
engaged an independent expert to review its project plan. 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, the Company has replaced or
modified, or is in the process of doing so, certain computer equipment and
software it currently uses. 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 has completed its
Year 2000 identification, assessment, and testing efforts and anticipates that
its remediation efforts will be completed by November 30, 1999, prior to any
currently anticipated impact on its computer equipment and software. The
Company estimates that as of September 30, 1999, it had completed approximately
95% 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 5% of the initiatives are in process and are
expected to be completed on or about November 30, 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. Substantially all of the
responses received indicate Year 2000 compliance plans are being implemented by
these companies.
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 September 30,
1999, the Company had incurred costs of approximately $2.7 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.
- 28 -
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
The Company has 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 has prioritized its efforts on its IT and non-IT systems and the
readiness of third parties with which the Company transacts business
electronically. Based on this analysis, the Company has not identified any
material operational problems or costs that it believes it is reasonably likely
to incur with respect to its IT or non-IT Systems or as a result of the failure
of third parties to complete efforts to achieve Year 2000 readiness. Although
the Company does not currently anticipate the failure of such systems, the
Company has established contingency plans which it will implement in the event
of the failure of certain of its IT and non-IT systems. The Company expects to
address other unforeseen operational problems associated with the Year 2000
issue on an as needed basis. The risks involved with not solving the Year 2000
issue and which are beyond the Company's ability to control 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 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.
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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 and nine months ended September 30, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net income available to common shareholders .............. $ 23,770 $ 20,834 $ 69,083 $ 55,690
Extraordinary item, net of minority interest .......... -- -- 458 --
Net loss on sale of assets ............................ 246 -- 1,337 --
Minority interest of common unitholders in the
Operating Partnership ............................... 3,206 3,022 9,435 8,434
Loss on unused treasury locks ......................... -- -- -- 1,944
---------- ---------- ---------- ----------
Adjusted net income ...................................... 27,222 23,856 80,313 66,068
Depreciation of real estate assets (1)................. 14,218 11,498 40,315 33,307
---------- ---------- ---------- ----------
Funds from Operations (2) ................................ 41,440 35,354 120,628 99,375
Recurring capital expenditures (3) .................... (2,604) (1,911) (7,283) (4,952)
Non-recurring capital expenditures (4) ................ (540) (210) (1,553) (1,098)
Loan amortization payments ............................ (20) (19) (60) (55)
---------- ---------- ---------- ----------
Cash Available for Distribution .......................... $ 38,276 $ 33,214 $ 111,732 $ 93,270
========== ========== ========== ==========
Revenue generating capital expenditures (5) .............. $ 2,064 $ 4,052 $ 4,178 $ 11,842
========== ========== ========== ==========
Cash Flow Provided By (Used In):
Operating activities ..................................... $ 43,299 $ 56,062 $ 122,013 $ 101,701
Investing activities ..................................... $ (73,110) $ (74,079) $ (217,692) $ (231,793)
Financing activities ..................................... $ 33,251 $ 28,333 $ 80,890 $ 133,446
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33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
- -------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Weighted average common shares outstanding - basic.... 38,574,434 36,007,167 38,361,877 34,351,747
============ ============ ============ ============
Weighted average common shares and units
outstanding - basic................................ 43,772,859 41,222,891 43,567,297 39,567,512
============ ============ ============ ============
Weighted average common shares outstanding - diluted.. 39,122,421 36,433,862 38,827,381 34,823,164
============ ============ ============ ============
Weighted average common shares and units
outstanding - diluted.............................. 44,320,846 41,649,586 44,032,801 40,038,929
============ ============ ============ ============
(1) Depreciation on real estate assets is net of the minority interest portion
of depreciation in consolidated partnerships.
(2) 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.
(3) Recurring capital expenditures consisted primarily of $763 and $645 of
carpet replacement and $1,841 and $1,266 of other additions and
improvements to existing communities for the three months ended September
30, 1999 and 1998, respectively and $2,170 and $1,849 of carpet
replacement and $5,113 and $3,103 of other additions and improvements to
existing communities for the nine months ended September 30, 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 $3,880 and $3,645 for the three months ended September 30, 1999 and
1998, respectively, and $6,240 and $7,772 for the nine months ended
September 30, 1999 and 1998, respectively, are excluded from the
calculation of CAD.
(4) Non-recurring capital expenditures consisted of community additions and
improvements of $540 and $210 for the three months ended September 30,
1999 and 1998, respectively, and $1,553 and $1,098 for the nine months
ended September 30, 1999 and 1998, respectively.
(5) Revenue generating capital expenditures is primarily comprised of major
renovations of communities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since December 31, 1998.
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34
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 3, 1999, the Operating Partnership issued $70
million of Series D Cumulative Redeemable Preferred Units of
limited partnership interest (the "Series D Preferred Units")
to an institutional investor in a private placement meeting the
requirements of Regulation D promulgated under the Securities
Act of 1933, as amended. Net proceeds to the Operating
Partnership of approximately $68 million were used to repay
outstanding indebtedness.
The Series D Preferred Units are exchangeable under certain
circumstances, in whole but not in part, at the option of
holders of 50% or more of the Series D Preferred Units, for 8%
Series D Cumulative Redeemable Preferred Shares of the Company
(the "Series D Preferred Shares), at an exchange ratio of one
Series D Preferred Share for each Series D Preferred Unit.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None
ITEM 5. OTHER INFORMATION
None
- 32 -
35
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Amendment to the Company's Restated Articles of Incorporation
10.1 Fifth Amendment to Second Amended and Restated Partnership Agreement
of Post Apartment Homes, L.P.
10.2 Registration Rights Agreement, dated September 3,
1999, between the Company, the Operating Partnership
and TMCT II, LLC
27.1 Financial Data Schedule for the Company - Third Quarter 1999
(for SEC filing purposes only)
27.2 Financial Data Schedule for the Operating Partnership - Third 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 September 30, 1999.
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36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POST PROPERTIES, INC.
November 11, 1999 /s/ John T. Glover
----------------------- --------------------------------
(Date) John T. Glover, President
(Principal Financial Officer)
November 11, 1999 /s/ R. Gregory Fox
----------------------- --------------------------------
(Date) R. Gregory Fox
Executive Vice President, Chief
Accounting Officer
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37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POST APARTMENT HOMES, L.P.
By: Post GP Holdings, Inc.,
as General Partner
November 11, 1999 /s/ John T. Glover
----------------------- --------------------------------
(Date) John T. Glover, President
(Principal Financial Officer)
November 11, 1999 /s/ R. Gregory Fox
----------------------- --------------------------------
(Date) R. Gregory Fox
Executive Vice President, Chief
Accounting Officer
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