-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J7z3/LTyoM3CgKrNbjrtroAURfoUXJS2uuwLikSFKZ8YG9b3WerE0XVG0RjtJWQO Mz7i0BjTq7Nay2T2cL4lFg== /in/edgar/work/0000950144-00-013867/0000950144-00-013867.txt : 20001115 0000950144-00-013867.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950144-00-013867 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POST PROPERTIES INC CENTRAL INDEX KEY: 0000903127 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 581550675 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12080 FILM NUMBER: 766973 BUSINESS ADDRESS: STREET 1: 4401 NORTHSIDE PARKWAY STREET 2: SUITE 800 CITY: ATLANTA STATE: GA ZIP: 30327 BUSINESS PHONE: 4048465000 MAIL ADDRESS: STREET 1: ONE RIVERSIDE STREET 2: SUITE 800 CITY: ATLANTA STATE: GA ZIP: 30327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POST APARTMENT HOMES LP CENTRAL INDEX KEY: 0001012271 STANDARD INDUSTRIAL CLASSIFICATION: [6513 ] IRS NUMBER: 582053632 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28226 FILM NUMBER: 766974 BUSINESS ADDRESS: STREET 1: ONE RIVERSIDE 4401 NORTHSIDE PARKWAY STREET 2: SUITE 800 CITY: ATLANTA STATE: GA ZIP: 30327 BUSINESS PHONE: 7708504400 MAIL ADDRESS: STREET 1: ONE RIVERSIDE 4401 NORTHSIDE PARKWAY STREET 2: SUITE 800 CITY: ATLANTA STATE: GA ZIP: 30327 10-Q 1 g65192e10-q.txt POST PROPERTIES, INC. / POST APARTMENT HOMES, L.P. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file numbers 1-12080 and 0-28226 ------------------------ POST PROPERTIES, INC. POST APARTMENT HOMES, L.P. (Exact name of registrant as specified in its charter) GEORGIA 58-1550675 GEORGIA 58-2053632 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4401 NORTHSIDE PARKWAY, SUITE 800, ATLANTA, GEORGIA 30327 (Address of principal executive offices -- zip code) (404) 846-5000 (Registrant's telephone number, including area code) 3350 CUMBERLAND CIRCLE, SUITE 2200, ATLANTA, GEORGIA 30339 (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Post Properties, Inc. Yes [X] No [ ] Post Apartment Homes, L.P. Yes [X] No [ ] ----------------------------------------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 39,607,407 shares of common stock outstanding as of November 10, 2000 (excluding treasury stock). ================================================================================ 2 POST PROPERTIES, INC. POST APARTMENT HOMES, L.P. INDEX
PAGE PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS POST PROPERTIES, INC. Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999...........................1 Consolidated Statements of Operations for the three and nine months ended September 30, 2000 and 1999.......................................................................2 Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the nine months ended September 30, 2000..............................................................3 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999.......................................................................4 Notes to Consolidated Financial Statements...........................................................5 POST APARTMENT HOMES, L.P. Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999..........................10 Consolidated Statements of Operations for the three and nine months ended September 30, 2000 and 1999......................................................................11 Consolidated Statement of Partners' Equity for the nine months ended September 30, 2000...............................................................................12 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999......................................................................13 Notes to Consolidated Financial Statements .........................................................14 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................................................................19 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................30 PART II OTHER INFORMATION.......................................................................................31 ITEM 1 LEGAL PROCEEDINGS ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS ITEM 3 DEFAULTS UPON SENIOR SECURITIES ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDER ITEM 5 OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K SIGNATURES..............................................................................................32
3 POST PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ (UNAUDITED) ASSETS Real estate: Land........................................................................... $ 301,217 $ 277,784 Building and improvements...................................................... 1,768,041 1,574,158 Furniture, fixtures and equipment.............................................. 185,758 137,602 Construction in progress....................................................... 479,245 576,361 Land held for future development............................................... 40,176 16,880 ------------ ------------ 2,774,437 2,582,785 Less: accumulated depreciation................................................. (341,589) (303,016) Assets held for sale........................................................... 43,181 -- ------------ ------------ Real estate assets............................................................... 2,476,029 2,279,769 Cash and cash equivalents........................................................ 17,939 5,870 Restricted cash.................................................................. 1,335 1,380 Deferred charges, net............................................................ 20,551 20,820 Other assets..................................................................... 55,053 42,334 ------------ ------------ Total assets................................................................... $ 2,570,907 $ 2,350,173 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable.................................................................... $ 1,174,339 $ 989,583 Accrued interest payable......................................................... 15,409 9,160 Dividends and distributions payable.............................................. 34,506 31,285 Accounts payable and accrued expenses............................................ 75,492 59,780 Security deposits and prepaid rents.............................................. 9,910 9,023 ------------ ------------ Total liabilities.............................................................. 1,309,656 1,098,831 ------------ ------------ Minority interest of preferred unitholders in Operating Partnership ............. 70,000 70,000 Minority interest of common unitholders in Operating Partnership................. 121,239 122,480 Shareholders' equity Preferred stock, $.01 par value, 20,000,000 authorized: 8 1/2% Series A Cumulative Redeemable Shares, liquidation preference $50 per share, 1,000,000 shares issued and outstanding............ 10 10 7 5/8% Series B Cumulative Redeemable Shares, liquidation preference $25 per share, 2,000,000 shares issued and outstanding............ 20 20 7 5/8% Series C Cumulative Redeemable Shares, liquidation preference $25 per share, 2,000,000 shares issued and outstanding............ 20 20 Common stock, $.01 par value, 100,000,000 authorized, 39,607,167 and 38,834,323 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively....................... 396 388 Additional paid-in capital..................................................... 1,071,969 1,058,424 Accumulated earnings -- -- ------------ ------------ 1,072,415 1,058,862 Less common stock in treasury at cost, 53,785 shares........................... (2,403) -- ------------ ------------ Total shareholders' equity..................................................... 1,070,012 1,058,862 ------------ ------------ Total liabilities and shareholders' equity..................................... $ 2,570,907 $ 2,350,173 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -1- 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, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ REVENUE: Rental................................................... $ 93,152 $ 81,162 $ 271,220 $ 234,845 Property management - third-party........................ 987 795 2,828 2,434 Landscape services - third-party......................... 2,743 2,244 7,843 6,482 Interest................................................. 476 194 1,463 564 Other.................................................... 3,984 3,763 12,913 10,228 ------------ ------------ ------------ ------------ Total revenue........................................ 101,342 88,158 296,267 254,553 ------------ ------------ ------------ ------------ EXPENSES: Property operating and maintenance expense (exclusive of items shown separately below)........... 34,019 29,126 96,909 83,797 Depreciation expense..................................... 17,929 15,126 51,364 42,121 Property management - third-party........................ 731 755 2,249 2,179 Landscape services - third-party......................... 2,376 1,859 6,860 5,634 Interest................................................. 12,789 8,707 35,551 24,075 Amortization of deferred loan costs...................... 414 407 1,199 1,113 General and administrative............................... 2,788 1,343 6,954 5,494 Minority interest in consolidated property partnerships............................................. (381) 209 (1,195) 485 ------------ ------------ ------------ ------------ Total expense....................................... 70,665 57,532 199,891 164,898 ------------ ------------ ------------ ------------ Income before net gain (loss) on sale of assets, minority interest of unitholders in Operating Partnership and extraordinary item....................... 30,677 30,626 96,376 89,655 Net gain (loss) on sale of assets.......................... 958 (246) 1,627 (1,337) Minority interest of preferred unitholders in Operating Partnership.................................... (1,400) (435) (4,200) (435) Minority interest of common unitholders in Operating Partnership.................................... (3,156) (3,206) (9,899) (9,435) ------------ ------------ ------------ ------------ Income before extraordinary item........................... 27,079 26,739 83,904 78,448 Extraordinary item, net of minority interest of unitholders in Operating Partnership..................... -- -- -- (458) ------------ ------------ ------------ ------------ Net income................................................. 27,079 26,739 83,904 77,990 Dividends to preferred shareholders........................ (2,969) (2,969) (8,907) (8,907) ------------ ------------ ------------ ------------ Net income available to common shareholders................ $ 24,110 $ 23,770 $ 74,997 $ 69,083 ============ ============ ============ ============ EARNINGS PER COMMON SHARE - BASIC Income before extraordinary item (net of preferred dividend).............................................. $ 0.61 $ 0.62 $ 1.91 $ 1.81 Extraordinary item....................................... -- -- -- (0.01) ------------ ------------ ------------ ------------ Net income available to common shareholders.............. $ 0.61 $ 0.62 $ 1.91 $ 1.80 ============ ============ ============ ============ Weighted average common shares outstanding................. 39,556,981 38,574,434 39,293,302 38,361,877 ============ ============ ============ ============ EARNINGS PER COMMON SHARE - DILUTED Income before extraordinary item (net of preferred dividend).............................................. $ 0.60 $ 0.61 $ 1.88 $ 1.79 Extraordinary item....................................... -- -- -- (0.01) ------------ ------------ ------------ ------------ Net income available to common shareholders.............. $ 0.60 $ 0.61 $ 1.88 $ 1.78 ============ ============ ============ ============ Weighted average common shares outstanding............... 40,422,756 39,122,421 39,980,339 38,827,381 ============ ============ ============ ============ Dividends declared....................................... $ 0.76 $ 0.70 $ 2.28 $ 2.10 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -2- 5 POST PROPERTIES, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS (DOLLARS IN THOUSANDS) (UNAUDITED)
PREFERRED COMMON PAID-IN ACCUMULATED TREASURY SHARES SHARES CAPITAL EARNINGS STOCK TOTAL --------- ------ ------------ ----------- -------- ------------ SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, DECEMBER 31, 1999............................... $ 50 $ 388 $ 1,058,424 $ -- $ -- $ 1,058,862 Proceeds from Dividend Reinvestment, Employee Stock Plan and Employee Stock Purchase Plans... -- 8 29,053 -- -- 29,061 Adjustment for minority interest of common unitholders in Operating Partnership at dates of capital transactions........................ -- -- (683) -- -- (683) Net income...................................... -- -- -- 83,904 -- 83,904 Treasury stock acquisitions..................... -- -- -- -- (2,403) (2,403) Dividends to preferred shareholders............. -- -- -- (8,907) -- (8,907) Dividends to common shareholders................ -- -- (14,825) (74,997) -- (89,822) ----- ----- ------------ --------- --------- ------------ SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, SEPTEMBER 30, 2000.............................. $ 50 $ 396 $ 1,071,969 $ -- $ (2,403) $ 1,070,012 ===== ===== ============ ========= ========= ============
The accompanying notes are an integral part of these consolidated financial statements. -3- 6 POST PROPERTIES, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income......................................................................... $ 83,904 $ 77,990 Adjustments to reconcile net income to net cash provided by operating activities: Net (gain) loss on sale of assets................................................ (1,627) 1,337 Minority interest of preferred unitholders in Operating Partnership.............. 4,200 435 Minority interest of common unitholders in Operating Partnership................. 9,899 9,435 Extraordinary item, net of minority interest of unitholders in Operating Partnership........................................................ -- 458 Depreciation..................................................................... 51,364 42,121 Amortization of deferred loan costs.............................................. 1,199 1,113 Changes in assets, (increase) decrease in: Restricted cash.................................................................. 45 (427) Other assets..................................................................... (12,719) (15,909) Deferred charges................................................................. (1,263) (3,657) Changes in liabilities, increase (decrease) in: Accrued interest payable......................................................... 6,249 3,362 Accounts payable and accrued expenses............................................ 10,827 5,583 Security deposits and prepaid rents.............................................. 887 172 ------------ ------------ Net cash provided by operating activities.......................................... 152,965 122,013 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Construction and acquisition of real estate assets, net of payables................ (279,371) (194,459) Net proceeds from sale of assets................................................... 75,231 10,731 Capitalized interest............................................................... (18,992) (14,710) Recurring capital expenditures..................................................... (7,802) (7,283) Corporate additions and improvements............................................... (1,991) (6,240) Non-recurring capital expenditures................................................. (2,336) (1,553) Revenue generating capital expenditures............................................ (4,257) (4,178) ------------ ------------ Net cash used in investing activities.............................................. (239,518) (217,692) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs......................................................... (1,260) (1,495) Debt proceeds...................................................................... 241,000 169,000 Proceeds for Preferred Units....................................................... -- 68,250 Debt payments...................................................................... (56,244) (75,608) Distributions to preferred unitholders............................................. (4,200) -- Distributions to common unitholders................................................ (11,520) (10,679) Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans.................................................... 26,658 15,673 Dividends paid to preferred shareholders........................................... (8,907) (8,907) Dividends paid to common shareholders.............................................. (86,905) (75,344) ------------ ------------ Net cash provided by financing activities.......................................... 98,622 80,890 ------------ ------------ Net increase (decrease) in cash and cash equivalents............................... 12,069 (14,789) Cash and cash equivalents, beginning of period..................................... 5,870 21,154 ------------ ------------ Cash and cash equivalents, end of period........................................... $ 17,939 $ 6,365 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -4- 7 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER 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, 2000 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, 1999. Certain 1999 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 Medium-Term Notes due three months or more from date of issue (the "MTN Program"). A $30,000 Medium Term Note was repaid on March 3, 2000. On May 9, 2000, the Operating Partnership sold $25,000 aggregate principal amount of notes under the MTN Program. These notes bear interest at the London Interbank Offer Rate ("LIBOR") plus .75% and mature on February 1, 2005. Net proceeds of $24,875 were used to repay outstanding indebtedness. In October 2000, the Company entered into a swap transaction that fixed the rate on this note at 7.28% through maturity. On June 16, 2000, the Operating Partnership sold $150,000 aggregate principal amount of notes under the MTN Program. These notes bear interest at 8.12% and mature on June 15, 2005. Net proceeds of $148,865 were used to repay outstanding indebtedness. As of September 30, 2000, the Operating Partnership had $360,000 aggregate principal amount of notes outstanding under the MTN Program. On October 3, 2000, the Company issued $80,000 of debt secured by two communities. This debt bears interest at 7.69% and matures October 1, 2007. 3. SALE OF ASSETS AND ASSETS HELD FOR SALE During the first quarter of 2000, the Company authorized the sale of five communities, one community in Atlanta, Georgia, three communities in Jackson, Mississippi and one commercial property in Dallas, Texas. During the third quarter of 2000, the Company authorized the sale of two communities in Nashville, Tennessee. In February 2000, -5- 8 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- the Company sold the 213 unit community in Atlanta, Georgia for $32,350. Net proceeds of approximately $31,400 were used to pay down outstanding indebtedness. In September 2000, the Company sold the three communities in Jackson, Mississippi, containing a total of 983 units for $44,600. Net proceeds of approximately $43,218 were used to pay down outstanding indebtedness. At September 30, 2000, the remaining two communities and one commercial property consisting of land, building and improvements and furniture, fixtures and equipment were recorded at $43,181, which represented the lower of cost or fair value less costs to sell. The Company has recorded a net gain on the sale of the Atlanta and Jackson communities, reduced by its best estimate of the effect of anticipated sale of the commercial property in the statement of operations as net gain on the sale of assets of $1,627. The Company expects the sale of the remaining three properties to occur during the current fiscal year. For the three months ended September 30, 2000 and 1999, the consolidated statement of operations includes net income of $1,044 and $938, respectively, from communities held for sale at September 30, 2000. For the nine months ended September 30, 2000 and 1999, the consolidated statement of operations includes net income of $3,056 and $2,922, respectively, from communities held for sale at September 30, 2000. Through September 30, 2000, depreciation expense totaling $1,035 was recognized on these assets prior to the assets being classified as held for sale. Depreciation expense has not been recognized subsequent to the date of held for sale classification. 4. EARNINGS PER SHARE For the three and nine months ended September 30, 2000 and 1999, 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, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Basic and diluted income available to common shareholders (numerator): Income before extraordinary item .................... $ 27,079 $ 26,739 $ 83,904 $ 78,448 Less: Preferred stock dividends ................... (2,969) (2,969) (8,907) (8,907) ------------ ------------ ------------ ------------ Income available to common shareholders before extraordinary item ......................... $ 24,110 23,770 $ 74,997 $ 69,541 ============ ============ ============ ============ Common shares (denominator): Weighted average shares outstanding-basic ........... 39,556,981 38,574,434 39,293,302 38,361,877 Incremental shares from assumed conversion of options ........................................ 865,775 547,987 687,037 465,504 ------------ ------------ ------------ ------------ Weighted average shares outstanding - diluted ....... 40,422,756 39,122,421 39,980,339 38,827,381 ============ ============ ============ ============
5. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities for the nine months ended September 30, 2000 and 1999 were as follows: During the nine months ended September 30, 2000 and 1999, holders of 12,014 and 17,299 units, respectively, in the Operating Partnership exercised their option to convert their units to shares of Common Stock of the Company on a one-for-one basis. These conversions and adjustments for the dilutive impact of the Dividend Reinvestment and Employee Stock Purchase and Option Plans and capital transactions result in adjustments to minority interest. The net effect of the conversions and adjustments was a reclassification increasing minority interest and decreasing shareholder's equity in the amount of $683 for the nine months ended September 30, 2000 and decreasing minority interest and increasing shareholder's equity in the amount of $1,023 for the nine months ended September 30, 1999. 6. NEW ACCOUNTING PRONOUNCEMENTS -6- 9 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- 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 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. The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101 is required to be implemented in the fourth fiscal quarter of 2000. Management of the Company anticipates that the adoption of SAB 101 will not have a significant effect on the Company's results of operations or its financial position. 7. SEGMENT INFORMATION SEGMENT DESCRIPTION SFAS No. 131, "Disclosure About the Segments of an Enterprise and Related Information" requires companies to present segment information based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. The segment information is prepared on substantially the same basis as the internally reported information used by the Company's chief operating decision makers to manage the business. The Company's chief operating decision makers focus on the Company's primary sources of income, which are property rental operations and third party services. Property rental operations are broken down into five segments based on the various stages in the property ownership lifecycle. Third party services are designated as one segment. The Company's five segments are further described as follows: Property Rental Operations - Fully stabilized communities - those communities which have been stabilized (the point at which a property reaches 95% occupancy or one year after completion of construction) for both the current and prior year. - Communities stabilized during 1999 - communities which reached stabilized occupancy in the prior year. - Development and lease up communities - those communities which are in lease-up but were not stabilized by the beginning of the current year, including communities which stabilized during the current year. - Communities held for sale - those communities that are currently being actively marketed for sale. - Sold communities - communities which were sold in the current or prior year. Third Party Services - fee income and related expenses from the Company's apartment community management, landscaping and corporate apartment rental services. SEGMENT PERFORMANCE MEASURE Management uses contribution to funds from operations ("FFO") as the performance measure for its segments. Effective January 1, 2000, FFO is defined by the National Association of Real Estate Investment Trusts as net -7- 10 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- 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. -8- 11 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, --------------------------- --------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- REVENUES Fully stabilized communities .......................... $ 64,562 $ 61,784 $ 190,720 $ 182,622 Communities stabilized during 1999 .................... 10,745 10,012 31,839 27,766 Development and lease-up communities .................. 15,019 5,015 36,482 10,419 Communities held for sale ............................. 1,548 1,467 4,537 4,375 Sold communities ...................................... 1,326 3,475 6,316 10,622 Third party services .................................. 3,730 3,039 10,671 8,916 Other ................................................. 4,412 3,366 15,702 9,833 ---------- ---------- ---------- ---------- Consolidated revenues ................................. $ 101,342 $ 88,158 $ 296,267 $ 254,553 ========== ========== ========== ========== CONTRIBUTION TO FUNDS FROM OPERATIONS Fully stabilized communities .......................... $ 44,632 $ 42,483 $ 132,760 $ 126,120 Communities stabilized during 1999 .................... 7,438 7,006 21,849 18,750 Development and lease-up communities .................. 9,219 2,908 21,500 5,726 Communities held for sale ............................. 1,044 938 3,056 2,922 Sold communities ...................................... 846 2,739 4,821 8,069 Third party services .................................. 623 425 1,562 1,103 ---------- ---------- ---------- ---------- Contribution to FFO ................................... 63,802 56,499 185,548 162,690 ---------- ---------- ---------- ---------- Other operating income, net of expense ................ (1,682) (913) (1,246) (579) Depreciation on non-real estate assets ................ (582) (511) (1,792) (1,409) Minority interest in consolidated property partnerships ....................................... 381 (209) 1,195 (485) Interest expense ...................................... (12,789) (8,707) (35,551) (24,075) Amortization of deferred loan costs ................... (414) (407) (1,199) (1,113) General and administrative ............................ (2,788) (1,343) (6,954) (5,494) Dividends to preferred shareholders ................... (2,969) (2,969) (8,907) (8,907) ---------- ---------- ---------- ---------- Total FFO ............................................. 42,959 41,440 131,094 120,628 ---------- ---------- ---------- ---------- Depreciation on real estate assets .................... (16,651) (14,218) (47,825) (40,315) Net gain (loss) on sale of assets ..................... 958 (246) 1,627 (1,337) Minority interest of common unitholders in Operating Partnership .............................. (3,156) (3,206) (9,899) (9,435) Dividends to preferred shareholders ................... 2,969 2,969 8,907 8,907 ---------- ---------- ---------- ---------- Income before extraordinary item and preferred dividends ............................ $ 27,079 $ 26,739 $ 83,904 $ 78,448 ========== ========== ========== ==========
-9- 12 POST APARTMENT HOMES, L.P. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ (UNAUDITED) ASSETS Real estate: Land ............................................. $ 301,217 $ 277,784 Building and improvements ........................ 1,768,041 1,574,158 Furniture, fixtures and equipment ................ 185,758 137,602 Construction in progress ......................... 479,245 576,361 Land held for future development ................. 40,176 16,880 ------------ ------------ 2,774,437 2,582,785 Less: accumulated depreciation ................... (341,589) (303,016) Assets held for sale ............................. 43,181 -- ------------ ------------ Real estate assets ................................. 2,476,029 2,279,769 Cash and cash equivalents .......................... 17,939 5,870 Restricted cash .................................... 1,335 1,380 Deferred charges, net .............................. 20,551 20,820 Other assets ....................................... 55,053 42,334 ------------ ------------ Total assets ..................................... $ 2,570,907 $ 2,350,173 ============ ============ LIABILITIES AND PARTNERS' EQUITY Notes payable ...................................... $ 1,174,339 $ 989,583 Accrued interest payable ........................... 15,409 9,160 Distributions payable .............................. 34,506 31,285 Accounts payable and accrued expenses .............. 75,492 59,780 Security deposits and prepaid rents ................ 9,910 9,023 ------------ ------------ Total liabilities ................................ 1,309,656 1,098,831 ------------ ------------ Partners' equity ................................... 1,261,251 1,251,342 ------------ ------------ Total liabilities and partners' equity ........... $ 2,570,907 $ 2,350,173 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -10- 13 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, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ REVENUES Rental ................................................... $ 93,152 $ 81,162 $ 271,220 $ 234,845 Property management - third party ........................ 987 795 2,828 2,434 Landscape services - third party ......................... 2,743 2,244 7,843 6,482 Interest ................................................. 476 194 1,463 564 Other .................................................... 3,984 3,763 12,913 10,228 ------------ ------------ ------------ ------------ Total revenue ..................................... 101,342 88,158 296,267 254,553 ------------ ------------ ------------ ------------ EXPENSES Property operating and maintenance (exclusive of items shown separately below) ................................. 34,019 29,126 96,909 83,797 Depreciation expense ..................................... 17,929 15,126 51,364 42,121 Property management - third party ........................ 731 755 2,249 2,179 Landscape services - third party ......................... 2,376 1,859 6,860 5,634 Interest ................................................. 12,789 8,707 35,551 24,075 Amortization of deferred loan costs ...................... 414 407 1,199 1,113 General and administrative ............................... 2,788 1,343 6,954 5,494 Minority interest in consolidated property partnerships .. (381) 209 (1,195) 485 ------------ ------------ ------------ ------------ Total expenses .......................................... 70,665 57,532 199,891 164,898 ------------ ------------ ------------ ------------ Income before net gain (loss) on sale of assets and extraordinary item .................................. 30,677 30,626 96,376 89,655 Net gain (loss) on sale of assets ........................ 958 (246) 1,627 (1,337) ------------ ------------ ------------ ------------ Income before extraordinary item ......................... 31,635 30,380 98,003 88,318 Extraordinary item ....................................... -- -- -- (521) ------------ ------------ ------------ ------------ Net income ............................................... 31,635 30,380 98,003 87,797 Distributions to preferred unitholders ................... (4,369) (3,404) (13,107) (9,342) ------------ ------------ ------------ ------------ Net income available to common unitholders ............... $ 27,266 $ 26,976 $ 84,896 $ 78,455 ============ ============ ============ ============ EARNINGS PER COMMON UNIT - BASIC Income before extraordinary item (net of preferred distributions) .......................................... $ 0.61 $ 0.62 $ 1.91 $ 1.81 Extraordinary item ....................................... -- -- -- (0.01) ------------ ------------ ------------ ------------ Net income available to common unitholders ............... $ 0.61 $ 0.62 $ 1.91 $ 1.80 ============ ============ ------------ ------------ Weighted average common units outstanding ................ 44,738,392 43,772,859 44,480,261 43,567,297 ============ ============ ============ ============ EARNINGS PER COMMON UNIT- DILUTED Income before extraordinary item (net of preferred distributions) .......................................... $ 0.60 $ 0.61 $ 1.88 $ 1.79 Extraordinary item ....................................... -- -- -- (0.01) ------------ ------------ ------------ ------------ Net income available to common unitholders ............... $ 0.60 $ 0.61 $ 1.88 $ 1.78 ============ ============ ------------ ============ Weighted average common units outstanding ................ 45,604,167 44,320,846 45,167,298 44,032,801 ============ ============ ============ ============ Distributions declared .................................. $ 0.76 $ 0.70 $ 2.28 $ 2.10 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -11- 14 POST APARTMENT HOMES, L.P. CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DOLLARS IN THOUSANDS) (UNAUDITED)
GENERAL LIMITED PARTNER PARTNERS TOTAL -------- ----------- ----------- PARTNERS' EQUITY, DECEMBER 31, 1999 ................... $ 11,993 $ 1,239,349 $ 1,251,342 Contributions from the Company related to Dividend Reinvestment and Employee Stock Purchase Plans ..... 267 26,391 26,658 Distributions to preferred unitholders ................ -- (13,107) (13,107) Distributions to common unitholders ................... (1,016) (100,629) (101,645) Net income ............................................ 980 97,023 98,003 -------- ----------- ----------- PARTNERS' EQUITY, SEPTEMBER 30, 2000 .................. $ 12,224 $ 1,249,027 $ 1,261,251 ======== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. -12- 15 POST APARTMENT HOMES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2000 1999 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................. $ 98,003 $ 87,797 Adjustments to reconcile net income to net cash provided by operating activities: Net (gain) loss on sale of assets ....................... (1,627) 1,337 Extraordinary item ...................................... -- 521 Depreciation ............................................ 51,364 42,121 Amortization of deferred loan costs ..................... 1,199 1,113 Changes in assets, (increase) decrease in: Restricted cash ......................................... 45 (427) Other assets ............................................ (12,719) (15,909) Deferred charges ........................................ (1,263) (3,657) Changes in liabilities, increase (decrease) in: Accrued interest payable ................................ 6,249 3,362 Accounts payable and accrued expenses ................... 10,827 5,583 Security deposits and prepaid rents ..................... 887 172 ---------- ---------- Net cash provided by operating activities ............... 152,965 122,013 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Construction and acquisition of real estate assets, net of payables ......................................... (279,371) (194,459) Proceeds from sale of assets .............................. 75,231 10,731 Capitalized interest ...................................... (18,992) (14,710) Recurring capital expenditures ............................ (7,802) (7,283) Corporate additions and improvements ...................... (1,991) (6,240) Non-recurring capital expenditures ........................ (2,336) (1,553) Revenue generating capital expenditures ................... (4,257) (4,178) ---------- ---------- Net cash (used in) investing activities ................... (239,518) (217,692) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs ................................. (1,260) (1,495) Debt proceeds .............................................. 241,000 169,000 Proceeds from issuance of preferred units .................. -- 68,250 Debt payments .............................................. (56,244) (75,608) Proceeds from contributions from PPI related to Dividend Reinvestment and Employee Stock Purchase Plans .......... 26,658 15,673 Distributions paid to preferred unitholders ................ (13,107) (8,907) Distributions paid to common unitholders ................... (98,425) (86,023) ---------- ---------- Net cash provided by financing activities .................. 98,622 80,890 ---------- ---------- Net increase (decrease) in cash and cash equivalents ....... 12,069 (14,789) Cash and cash equivalents, beginning of period ............. 5,870 21,154 ---------- ---------- Cash and cash equivalents, end of period ................... $ 17,939 $ 6,365 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. -13- 16 POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT 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, 2000 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, 1999. Certain 1999 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 Medium-Term Notes due three months or more from date of issue (the "MTN Program"). A $30,000 Medium Term Note was repaid on March 3, 2000. On May 9, 2000, the Operating Partnership sold $25,000 aggregate principal amount of notes under the MTN Program. These notes bear interest at the London Interbank Offer Rate ("LIBOR") plus .75% and mature on February 1, 2005. Net proceeds of $24,875 were used to repay outstanding indebtedness. In October 2000, the Operating Partnership entered into a swap transaction that fixed the rate on this note at 7.28% through maturity. On June 16, 2000, the Operating Partnership sold $150,000 aggregate principal amount of notes under the MTN Program. These notes bear interest at 8.12% and mature on June 15, 2005. Net proceeds of $148,865 were used to repay outstanding indebtedness. As of September 30, 2000, the Operating Partnership had $360,000 aggregate principal amount of notes outstanding under the MTN Program. On October 3, 2000, the Operating Partnership issued $80,000 of debt secured by two communities. This debt bears interest at 7.69% and matures on October 1, 2007. 3. SALE OF ASSETS AND ASSETS HELD FOR SALE During the first quarter of 2000, the Operating Partnership authorized the sale of five communities, one community in Atlanta, Georgia, three communities in Jackson, Mississippi and one commercial property in Dallas, Texas. -14- 17 POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- During the third quarter of 2000, the Operating Partnership authorized the sale of two communities in Nashville, Tennessee. In February 2000, the Operating Partnership sold the 213 unit community in Atlanta, Georgia for $32,350. Net proceeds of approximately $31,400 were used to pay down outstanding indebtedness. In September 2000, the Operating Partnership sold the three communities in Jackson, Mississippi, containing a total of 983 units, for $44,600. Net proceeds of approximately $43,218 were used to repay outstanding indebtedness. At September 30, 2000, the remaining two communities and one commercial property consisting of land, building and improvements and furniture, fixtures and equipment were recorded at $43,181, which represented the lower of cost or fair value less costs to sell. The Operating Partnership has recorded a net gain on the sale of the Atlanta and Jackson communities, reduced by its best estimate of the effect of anticipated sale of the commercial property in the statement of operations as net gain on the sale of assets of $1,627. The Operating Partnership expects the sale of the remaining three properties to occur during the current fiscal year. For the three months ended September 30, 2000 and 1999, the consolidated statement of operations includes net income of $1,044 and $938, respectively, from communities held for sale at September 30, 2000. For the nine months ended September 30, 2000 and 1999, the consolidated statement of operations includes net income of $3,056 and $2,922, respectively, from communities held for sale at September 30, 2000. Through September 30, 2000, depreciation expense totaling $1,035 was recognized on these assets prior to the assets being classified as held for sale. Depreciation expense has not been recognized subsequent to the date of held for sale classification. 4. EARNINGS PER UNIT For the three and nine months ended September 30, 2000 and 1999, a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per unit is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ------------------------------ 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Basic and diluted income available to common unitholders (numerator): Income before extraordinary item $ 31,635 $ 30,380 $ 98,003 $ 88,318 Less: Preferred unit distributions (4,369) (3,404) (13,107) (9,342) ----------- ----------- ----------- ----------- Income available to common unitholders before extraordinary item $ 27,266 $ 26,976 $ 84,896 $ 78,976 =========== =========== =========== =========== Common units (denominator): Weighted average units outstanding - basic 44,738,392 43,772,859 44,480,261 43,567,297 Incremental units from assumed conversion of options 865,775 547,987 687,037 465,504 ----------- ----------- ----------- ----------- Weighted average units outstanding - diluted 45,604,167 44,320,846 45,167,298 44,032,801 =========== =========== =========== ===========
5. 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 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. -15- 18 POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101 is required to be implemented in the fourth fiscal quarter of 2000. Management of the Operating Partnership anticipates that the adoption of SAB 101 will not have a significant effect on the Operating Partnership's results of operations or its financial position. 6. SEGMENT INFORMATION SEGMENT DESCRIPTION SFAS No. 131, "Disclosure About the Segments of an Enterprise and Related Information" requires companies to present segment information based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. The segment information is prepared on substantially the same basis as the internally reported information used by the Operating Partnership's chief operating decision makers to manage the business. The Operating Partnership's chief operating decision makers focus on the Operating Partnership's primary sources of income, which are property rental operations and third party services. Property rental operations are broken down into five segments based on the various stages in the property ownership lifecycle. Third party services are designated as one segment. The Operating Partnership's five segments are further described as follows: Property Rental Operations - Fully stabilized communities - those communities which have been stabilized (the point in time which a property reached 95% occupancy or one year after completion of construction) for both the current and prior year. - Communities stabilized during 1999 - communities which reached stabilized occupancy in the prior year. - Development and Lease up Communities - those communities which are in lease-up but were not stabilized by the beginning of the current year including communities which stabilized during the current year. - Communities held for sale - those communities that are currently being actively marketed for sale. - Sold communities - communities which were sold in the current or prior year. Third Party Services - fee income and related expenses from the Operating Partnership's apartment community management, landscaping and corporate apartment rental services. SEGMENT PERFORMANCE MEASURE Management uses contribution to funds from operations ("FFO") as the performance measure for its segments. Effective January 1, 2000, 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 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. -16- 19 POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- SEGMENT INFORMATION The following table reflects each segment's contribution to FFO together with a reconciliation of segment contribution to FFO, total FFO and income before extraordinary item. Additionally, substantially all of the Operating Partnership's assets relate to the Operating Partnership's property rental operations. Asset cost, depreciation and amortization by segment are not presented because such information is not reported internally at the segment level. -17- 20 POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT 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, ------------------------ ------------------------- 2000 1999 2000 1999 --------- -------- --------- --------- REVENUES Fully stabilized communities ................ $ 64,562 $ 61,784 $ 190,720 $ 182,622 Communities stabilized during 1999 .......... 10,745 10,012 31,839 27,766 Development and lease-up communities ........ 15,019 5,015 36,482 10,419 Communities held for sale ................... 1,548 1,467 4,537 4,375 Sold communities ............................ 1,326 3,475 6,316 10,622 Third party services ........................ 3,730 3,039 10,671 8,916 Other ....................................... 4,412 3,366 15,702 9,833 --------- -------- --------- --------- Consolidated revenues ....................... $ 101,342 $ 88,158 $ 296,267 $ 254,553 ========= ======== ========= ========= CONTRIBUTION TO FUNDS FROM OPERATIONS Fully stabilized communities ................ $ 44,632 $ 42,483 $ 132,760 $ 126,120 Communities stabilized during 1999 .......... 7,438 7,006 21,849 18,750 Development and lease-up communities ........ 9,219 2,908 21,500 5,726 Communities held for sale ................... 1,044 938 3,056 2,922 Sold communities ............................ 846 2,739 4,821 8,069 Third party services ........................ 623 425 1,562 1,103 --------- -------- --------- --------- Contribution to FFO ......................... 63,802 56,499 185,548 162,690 --------- -------- --------- --------- Other operating income, net of expense ...... (282) (478) 2,954 (144) Depreciation on non-real estate assets ...... (582) (511) (1,792) (1,409) Minority interest in consolidated property partnership ................................. 381 (209) 1,195 (485) Interest expense ............................ (12,789) (8,707) (35,551) (24,075) Amortization of deferred loan costs ......... (414) (407) (1,199) (1,113) General and administrative .................. (2,788) (1,343) (6,954) (5,494) Distributions to preferred unitholders ...... (4,369) (3,404) (13,107) (9,342) --------- -------- --------- --------- Total FFO ................................... 42,959 41,440 131,094 120,628 --------- -------- --------- --------- Depreciation on real estate assets .......... (16,651) (14,218) (47,825) (40,315) Net gain (loss) on sale of assets ........... 958 (246) 1,627 (1,337) Distributions to preferred unitholders ...... 4,369 3,404 13,107 9,342 --------- -------- --------- --------- Income before extraordinary item and preferred distributions ..................... $ 31,635 $ 30,380 $ 98,003 $ 88,318 ========= ======== ========= =========
-18- 21 MANAGEMENT'S DISCUSSION AND ANALYSIS 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, 2000, there were 44,788,578 units in the Operating Partnership outstanding, of which 39,607,167 or 88.4%, were owned by the Company and 5,181,411, or 11.6%, were owned by other limited partners (including certain officers and directors of the Company). As of September 30, 2000, 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, 2000 AND 1999 The Company recorded net income available to common shareholders of $24,110 and $74,997 for the three and nine months ended September 30, 2000, respectively, which represent increases of 1.4% and 8.6%, respectively, over the corresponding periods in 1999 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, 2000, the Company's portfolio of apartment communities consisted of the following: (i) 69 communities which were completed and stabilized for all of the current and prior year, (ii) eight communities which achieved full stabilization during the prior year (iii) 25 communities either stabilized in the current year or presently in the development or lease-up stages and (iv) two communities that are currently under contract for sale. For communities with respect to which construction is completed and the community has become fully operational, all property operating and maintenance expenses are expensed as incurred and those recurring and non-recurring expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset are capitalized. (See "Capitalization of Fixed Assets and Community Improvements"). Since its inception, the Company has applied an accounting policy related to communities in the development and lease-up stage whereby substantially all operating expenses (including pre-opening marketing expenses) are expensed as incurred. The Company treats each unit in an apartment community separately for cost accumulation, capitalization and expense recognition purposes. Prior to the commencement of leasing activities, interest and other construction costs are capitalized and reflected on the balance sheet as construction in progress. Once a unit is placed in service, all operating expenses allocated to that unit, including interest, are expensed as incurred. During the lease-up phase, the sum of interest expense on completed units and other operating expenses (including pre-opening marketing expenses) -19- 22 MANAGEMENT'S DISCUSSION AND ANALYSIS 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, 2000 were $521 and $2,138, respectively. Lease up deficits for the three and nine months ended September 30, 1999 were $805 and $1,901, 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, 1999. ALL OPERATING COMMUNITIES The operating performance for all of the Company's apartment communities combined for the three and nine months ended September 30, 2000 and 1999 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------------- ----------------------------------- 2000 1999 %CHANGE 2000 1999 %CHANGE ------- ------- ------- -------- -------- ------- Rental and other revenue: Mature communities(1) .......................... $64,562 $61,784 4.5% $190,720 $182,622 4.4% Communities stabilized during 1999 ............. 10,745 10,012 7.3% 31,839 27,766 14.7% Development and lease-up communities(2) ........ 15,019 5,015 199.5% 36,482 10,419 250.1% Communities held for sale(3) ................... 1,548 1,467 5.5% 4,537 4,375 3.7% Sold communities(4) ............................ 1,326 3,475 (61.8)% 6,316 10,622 (40.5)% Other revenue(5) ............................... 3,936 3,172 24.1% 14,239 9,269 53.6% ------- ------- -------- -------- 97,136 84,925 14.4% 284,133 245,073 15.9% ------- ------- -------- -------- Property operating and maintenance expense (exclusive of depreciation and amortization): Mature communities(1) .......................... 19,930 19,301 3.3% 57,960 56,502 2.6% Communities stabilized during 1999 ............. 3,307 3,006 10.0% 9,990 9,016 10.8% Development and lease-up communities(2) ........ 5,800 2,107 175.3% 14,982 4,693 219.2% Communities held for sale(3) ................... 504 529 (4.7)% 1,481 1,453 1.9% Sold communities(4) ............................ 480 736 (34.8)% 1,495 2,553 (41.4)% Other expenses(6) .............................. 3,998 3,447 16.0% 11,001 9,580 14.8% ------- ------- -------- -------- 34,019 29,126 16.8% 96,909 83,797 15.6% ------- ------- -------- -------- Revenue in excess of specified expense ......... $63,117 $55,799 13.1% $187,224 $161,276 16.1% ======= ======= ======== ======== Recurring capital expenditures:(7) Carpet ....................................... $ 777 $ 763 1.8% $ 2,187 $ 2,170 0.8% Other ........................................ 2,563 1,841 39.2% 5,615 5,113 9.8% ------- ------- -------- -------- Total ........................................ $ 3,340 $ 2,604 28.3% $ 7,802 $ 7,283 7.1% ======= ======= ======== ======== Average apartment units in service ............. 31,763 29,763 6.7% 31,254 29,291 6.7% ======= ======= ======== ======== Recurring capital expenditures per apartment unit ............................... $ 105 $ 87 20.7% $ 250 $ 249 0.4% ======= ======= ======== ========
(1) Communities which reached stabilization prior to January 1, 1999. (2) Communities in the "construction", "development" or "lease-up" stage during 1999 and, therefore, not considered fully stabilized for all of the periods presented. (3) Includes two communities in Tennessee and one commercial property in Texas. (4) Includes one community, containing 213 units, which was sold on February 4, 2000, and three communities containing 983 units which were sold on September 6, 2000. (5) Includes revenue from furnished apartment rentals above the unfurnished rental rates, revenue from commercial properties and other revenue not directly related to property operations. (6) Includes certain indirect central office operating expenses related to management, grounds maintenance, costs associated with furnished apartment rentals and operating expenses from commercial properties. -20- 23 MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- (7) In addition to these expenses which relate to property operations, the Company incurs recurring and non-recurring expenditures relating to acquiring new assets, materially enhancing the value of an existing asset or substantially extending the useful life of an existing asset, all of which are capitalized. For the three and nine months ended September 30, 2000, rental and other revenue increased $12,211, or 14.4%, and $39,060, or 15.9%, respectively, compared to the same periods in the prior year primarily as a result of the completion of new communities, increased rental rates for existing communities, increased revenue from commercial properties and other ancillary income. For the three and nine months ended September 30, 2000, property operating and maintenance expenses increased $4,893, or 16.8%, and $13,112, or 15.6%, 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, 2000, recurring capital expenditures increased $736, or 28.3% ($18, or 20.7% on a per unit apartment basis), and $519, or 7.1% ($1, or .4% on a per unit apartment basis), respectively, compared to the same periods in the prior year, primarily due to the timing of capital expenditures. -21- 24 MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- MATURE COMMUNITIES The Company defines mature communities as those which have reached stabilization prior to the beginning of the previous calendar year. The operating performance of the 69 communities containing an aggregate of 23,641 units which were fully stabilized as of January 1, 1999, is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------------- ------------------------------------ % % 2000 1999 Change 2000 1999 Change -------- -------- ------ -------- -------- ------ Rental and other revenue(1) ............... $ 64,562 $ 61,784 4.5% $190,720 $182,622 4.4% Property operating and maintenance expense (exclusive of depreciation and amortization)(1) .......................... 19,930 19,301 3.3% 57,960 56,502 2.6% -------- -------- -------- -------- Revenue in excess of specified expense .... $ 44,632 $ 42,483 5.1% $132,760 $126,120 5.3% ======== ======== ======== ======== Recurring capital expenditures:(2) Carpet ................................... $ 751 $ 734 2.3% $ 2,107 $ 2,070 1.8% Other .................................... 2,092 1,667 25.5% 4,920 4,688 4.9% -------- -------- -------- -------- Total .................................... $ 2,843 $ 2,401 18.4% $ 7,027 $ 6,758 4.0% ======== ======== ======== ======== Recurring capital expenditures per apartment unit(3) ........................ $ 120 $ 102 17.6% $ 297 $ 286 3.8% ======== ======== ======== ======== Average economic occupancy(4) ............. 97.2% 96.7% 0.5% 96.9% 96.5% 0.4% ======== ======== ======== ======== Average monthly rental rate per apartment unit(5) ........................ $ 904 $ 870 3.9% $ 895 $ 859 4.2% ======== ======== ======== ======== Apartment units in service ................ 23,641 23,641 23,641 23,641 ======== ======== ======== ========
(1) Communities which reached stabilization prior to January 1, 1999. (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 $176 and $170 per unit on building maintenance (inclusive of direct salaries) and $55 and $48 per unit on landscaping (inclusive of direct salaries) for the three months ended September 30, 2000 and 1999, 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 95.3% for the three months ended September 30, 2000 and 1999, respectively. For the three months ended September 30, 2000 and 1999, concessions were $931 and $705, respectively, and employee discounts were $228 and $163, 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, 2000, rental and other revenue increased $2,778, or 4.5%, and $8,098, or 4.4%, 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, 2000, property operating and maintenance expenses (exclusive of depreciation and amortization) increased $629, or 3.3%, and $1,458, or 2.6%, respectively, compared to the same periods in the prior year, primarily as a result of increased personnel expense, real estate taxes and insurance, partially offset by a decline in advertising and promotion expense. For the three and nine months ended September 30, 2000, recurring capital expenditures per unit increased $18, or 17.6%, and $11, or 3.8%, respectively, compared to the same periods in the prior year, as a result of the timing of expenditures. -22- 25 MANAGEMENT'S DISCUSSION AND ANALYSIS 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, 2000 and 1999 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------- ---------------------------------- 2000 1999 %CHANGE 2000 1999 %CHANGE -------- -------- ------- -------- -------- ------- Property management and other revenue ..... $ 987 $ 795 24.2% $ 2,828 $ 2,434 16.2% Property management expense ............... 731 755 (3.2)% 2,249 2,179 3.2% Depreciation expense ...................... 7 7 0.0% 21 20 5.0% -------- -------- -------- -------- Revenue in excess of specified expense .... $ 249 $ 33 654.5% $ 558 $ 235 137.4% ======== ======== ======== ======== Average apartment units managed ........... 14,613 12,169 20.1% 14,114 12,327 14.5% ======== ======== ======== ========
The increase in revenue in excess of specified expense for the three and nine months ended September 30, 2000 compared to the same periods in the prior year is primarily attributable to an increase in the average number of units managed. THIRD PARTY LANDSCAPE SERVICES The Company provides landscape maintenance, design and installation services to non-related parties through a subsidiary, Post Landscape 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, 2000 and 1999 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------------- ----------------------------------- 2000 1999 %CHANGE 2000 1999 %CHANGE -------- -------- ------- -------- -------- ------- Landscape services and other revenue ...... $ 2,743 $ 2,244 22.2% $ 7,843 $ 6,482 21.0% Landscape services expense ................ 2,376 1,859 27.8% 6,860 5,634 21.8% Depreciation expense ...................... 96 78 23.1% 273 212 28.8% -------- -------- -------- -------- Revenue in excess of specified expense .... $ 271 $ 307 (11.7)% $ 710 $ 636 11.6% ======== ======== ======== ========
The increase in landscape services and other revenue, landscape services expense and general and administrative expense for the three and nine months ended September 30, 2000 compared to the same periods in 1999 is primarily due to increases in landscape contracts. The increase in depreciation expense is primarily due to the additions of vehicles and equipment. -23- 26 MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- OTHER EXPENSES Depreciation expense increased $2,803, or 18.5%, and $9,243, or 21.9%, respectively, for the three and nine months ended September 30, 2000 compared to the same periods in the prior year, primarily as a result of an increase in units in service, additional leasehold improvements and technology expenditures. General and administrative expense increased $1,445, or 107.6%, and $1,460, or 26.6%, respectively, for the three and nine months ended September 30, 2000, compared to the same period in the prior year, primarily as a result of reduced capitalization of overhead to communities under development, movement of an executive from property management to corporate operations and increased travel and vehicle expense. 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 $122,013 for the nine months ended September 30, 1999 to $152,965 for the nine months ended September 30, 2000, principally due to an increase in net income and changes in working capital. Net cash used in investing activities increased from $217,692 in the nine months ended September 30, 1999 to $239,518 in the nine months ended September 30, 2000 principally due to increased construction spending partially offset by proceeds from the sale of four communities. The Company's net cash provided by financing activities increased from $80,890 for the nine months ended September 30, 1999 to $98,622 for the nine months ended September 30, 2000, primarily due to proceeds from the sale of notes and reduced debt payments partially offset by proceeds from the sale of Preferred Units in the third quarter of 1999. 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, 2000, the Company had total indebtedness of $1,174,339, an increase of $184,756 from its total indebtedness at December 31, 1999, and cash and cash equivalents of $17,939. At September 30, 2000, the Company's indebtedness included approximately $155,708 in conventional mortgages payable secured by individual communities, tax-exempt bond indebtedness of $235,880, senior unsecured notes of $535,000, borrowings under the Revolver of $231,000 and other unsecured lines of credit and unsecured debt of $16,751. The Company expects to meet its short-term liquidity requirements generally through its net cash provided by operations and borrowings under credit arrangements and expects to meet certain of its long-term liquidity requirements, such as scheduled debt maturities, repayment of financing of construction and development activities, and possible property acquisitions, through long-term secured and unsecured borrowings and the issuance of debt securities or additional equity securities of the Company, sales of communities, joint ventures, or, possibly in connection with acquisitions of land or improved properties, units of the Operating Partnership. The Company believes that its net cash provided by operations 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. -24- 27 MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- Lines Of Credit During the first quarter, the Operating Partnership extended the maturity date on its syndicated unsecured lines of credit (the "Revolver") by one year to April 30, 2003. Borrowing under the Revolver bears interest at LIBOR plus .825% or prime minus .25%. Also during the first quarter, the Company reached an agreement with a syndicated group of banks for an incremental $200,000, 364 day facility at terms equal to the Revolver. At September 30, 2000, there was $231,000 outstanding under the Revolver and $16,751 outstanding under other lines of credit. Medium Term Notes The Operating Partnership has established a program for the sale of Medium Term Notes due three months or more from date of issue (the "MTN Program"). A $30,000 Medium Term Note was repaid on March 3, 2000. On May 9, 2000, the Operating Partnership sold $25,000 aggregate principal amount of notes under the MTN Program. These notes bear interest at the London Interbank Offer Rate ("LIBOR") plus .75% and mature on February 1, 2005. Net proceeds of $24,875 were used to repay outstanding indebtedness. In October 2000, the Operating Partnership entered into a swap transaction that fixed the rate on the note at 7.28% through maturity. On June 16, 2000, the Operating Partnership sold $150,000 aggregate principal amount of notes under the MTN Program. These notes bear interest at 8.12% and mature on June 15, 2005. Net proceeds of $148,865 were used to repay outstanding indebtedness. As of September 30, 2000, the Operating Partnership had $360,000 aggregate principal amount of notes outstanding under the MTN Program. Fixed Rate Notes On October 3, 2000, the Company issued $80,000 of debt secured by the communities. This debt bears interest at 7.69% and matures October 1, 2007. In early October, the Company announced that it had conducted a reassessment of its markets, its development pipeline and capital funding plans and concluded that it would reduce future development activities and related expenditures. The reduction in development activities will result in the abandonment of certain projects in the predevelopment stage (and write-off of associated deferred predevelopment costs) as well as termination of certain employees involved in development activities. The Company has not yet finalized its decisions regarding the specific projects to be abandoned but expects that decisions regarding such projects will be completed during the fourth quarter of 2000. Nonetheless, the Company expects that the amount of deferred costs to be written-off and severance costs to be accrued in the fourth quarter could range between $6,000 and $7,500. The abandonment will not result in additional cash outlay by the Company. As of November 9, 2000, management believes the amount of identified severance costs are immaterial to its cash flows and future operating costs. -25- 28 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, 2000:
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 $ 2,874 Parkwood Townhomes(TM) ........................ Dallas, TX 7.375% 04/01/14 808 Northwestern Mutual Life ...................... Atlanta, GA 6.50% 03/01/09 48,826 ---------- 52,508 ---------- CONVENTIONAL FLOATING RATE (SECURED) FNMA .......................................... Atlanta, GA LIBOR + .935% 07/23/29 103,200 ---------- 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) Northwestern Mutual Life ...................... N/A 8.21% 06/07/01 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 Medium Term Notes ............................. N/A LIBOR + .75% (4) 02/01/05 25,000 Medium Term Notes ............................. N/A 8.12% 06/15/05 150,000 Senior Notes .................................. N/A 7.50% 10/01/06 25,000 Mandatory Par Put Remarketed Securities .................................... N/A 6.85% 03/16/15 100,000 ---------- 535,000 ---------- LINES OF CREDIT & OTHER UNSECURED DEBT City of Phoenix ............................... N/A 5.00% 03/01/21 2,000 Revolver - Syndicated ......................... N/A LIBOR + .825% or prime minus .25%(7) 04/30/03 231,000 Cash Management Line .......................... N/A LIBOR + .675% or prime minus .25% 03/31/01 14,751 ---------- 247,751 ---------- TOTAL ......................................... $1,174,339 ==========
(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) In October 2000, the Company entered into a swap transaction that fixed the rate on this note at 7.28% through maturity. (5) The annual interest rate on these securities to March 16, 2005 (the "Remarketing Date") is 6.85%. On the Remarketing Date, they are subject to mandatory tender for remarketing. (6) 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. -26- 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- (7) 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, 2000, the outstanding balance of the Revolver consisted of "money market" loans with an average interest rate of 7.13%. 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. Effective third quarter of 2000, the Company suspended its dividend reinvestment plan. 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 Stratford(TM) .............. 250 2Q'99 1Q'00 4Q'00 Post Spring(TM) ................. 452 3Q'99 2Q'00 3Q'01 Post Peachtree(TM) .............. 121 2Q'00 4Q'01 2Q'02 Post Biltmore ................... 271 3Q'00 4Q'01 3Q'02 ----- 1,094 Charlotte, NC Post Uptown Place(TM) ........... 226 3Q'98 1Q'00 1Q'01 Post Gateway Place(TM) .......... 232 3Q'99 3Q'00 3Q'01 Post Gateway Place II ........... 204 3Q'00 3Q'01 1Q'02 ----- 662 Tampa, FL Post Harbour Place(TM) .......... 319 4Q'98 2Q'00 1Q'01 Dallas, TX Post Legacy ..................... 384 3Q'99 3Q'00 4Q'01 Post Addison Circle(TM)III ...... 264 3Q'99 3Q'00 2Q'01 Post Uptown Village(TM)II ....... 196 3Q'99 2Q'00 4Q'00 ----- 844 Houston, TX Post Midtown Square(TM)(II) ..... 193 1Q'00 4Q'00 4Q'01 Denver, CO Post Uptown Square(TM)I ......... 449 1Q'98 3Q'99 2Q'01 Post Uptown Square(TM)(II) ...... 247 1Q'00 2Q'01 1Q'02 ----- 696 Phoenix, AZ Post Roosevelt Square(TM) ....... 403 4Q'98 1Q'00 4Q'01 Washington, D.C Post Pentagon Row ............... 504 2Q'99 1Q'01 1Q'02 Austin, TX Post West Avenue Lofts(TM) ...... 239 3Q'99 3Q'00 2Q'01 Pasadena, CA Post Paseo ...................... 387 2Q'00 2Q'02 2Q'03 ----- 5,341 =====
The Company is also currently conducting feasibility and other pre-development studies for possible new Post(R) communities in its primary market areas. -27- 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- Capitalization of Fixed Assets and Community Improvements The Company has established a policy of capitalizing those expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. All expenditures necessary to maintain a community in ordinary operating condition are expensed as incurred. During the first five years of a community (which corresponds to the estimated depreciable life), carpet replacements are expensed as incurred. Thereafter, carpet replacements are capitalized. Acquisition of assets and community improvement expenditures for the three and nine months ended September 30, 2000 and 1999 are summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ------------------------ 2000 1999 2000 1999 -------- -------- -------- -------- New community development and acquisition activity .... $112,384 $ 66,266 $303,038 $220,555 Non-recurring capital expenditures: Revenue generating additions and improvements ...... 2,068 2,064 4,257 4,178 Other community additions and improvements ......... 898 540 2,336 1,553 Recurring capital expenditures: Carpet replacements ................................ 777 763 2,187 2,170 Community additions and improvements ............... 2,563 1,841 5,615 5,113 Corporate additions and improvements ............... 665 3,880 1,991 6,240 -------- -------- -------- -------- $119,355 $ 75,354 $319,424 $239,809 ======== ======== ======== ========
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 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 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. The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101 is required to be implemented in the fourth fiscal quarter of 2000. Management of the Company anticipates that the adoption of SAB 101 will not have a significant effect on the Company's results of operations or its financial position. -28- 31 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. Effective January 1, 2000, FFO is defined by the National Association of Real Estate Trusts as net income available to common shareholders determined in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs. Cash available for distribution ("CAD") is defined as FFO less capital expenditures funded by operations and loan amortization payments. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO and CAD should be examined in conjunction with net income as presented in the consolidated financial statements and data included elsewhere in this report. FFO and CAD for the three and nine months ended September 30, 2000 and 1999 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, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net income available to common shareholders ............ $ 24,110 $ 23,770 $ 74,997 $ 69,083 Extraordinary item, net of minority interest ........... -- -- -- 458 Net (gain) loss on sale of assets ...................... (958) 246 (1,627) 1,337 Minority interest ...................................... 3,156 3,206 9,899 9,435 ------------ ------------ ------------ ------------ Adjusted net income .................................... 26,308 27,222 83,269 80,313 Depreciation of real estate assets(1) .................. 16,651 14,218 47,825 40,315 ------------ ------------ ------------ ------------ Funds from Operations(2) ............................... 42,959 41,440 131,094 120,628 Recurring capital expenditures(3) ...................... (3,340) (2,604) (7,802) (7,283) Non-recurring capital expenditures(4) .................. (898) (540) (2,336) (1,553) Loan amortization payments ............................. (1,027) (20) (1,626) (60) ------------ ------------ ------------ ------------ Cash Available for Distribution ........................ $ 37,694 $ 38,276 $ 119,330 $ 111,732 ============ ============ ============ ============ Revenue generating capital expenditures(5) ............. $ 2,068 $ 2,064 $ 4,257 $ 4,178 ============ ============ ============ ============ Cash Flow Provided By (Used In): Operating activities ................................... $ 63,941 $ 43,299 $ 152,965 $ 122,013 Investing activities ................................... (75,388) $ (73,110) $ (239,518) $ (217,692) Financing activities ................................... $ 14,172 $ 33,251 $ 98,622 $ 80,890 Weighted average common shares outstanding - basic ..... 39,556,981 38,574,434 39,293,302 38,361,877 ============ ============ ============ ============ Weighted average common shares and units outstanding - basic .................................... 44,738,392 43,772,859 44,480,261 43,567,297 ============ ============ ============ ============ Weighted average common shares outstanding - diluted ... 40,422,756 39,122,421 39,980,339 38,827,381 ============ ============ ============ ============ Weighted average common shares and units outstanding - diluted .................................. 45,604,167 44,320,846 45,167,298 44,032,801 ============ ============ ============ ============
(1) Depreciation on real estate assets is net of the minority interest portion of depreciation in consolidated partnerships and depreciation on non-real estate assets. -29- 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- (2) The Company uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO. Effective January 1, 2000, NAREIT amended its definition of FFO to include in FFO all non-recurring transactions, except those that are defined as extraordinary under generally accepted accounting principles. The Company adopted this new definition effective January 1, 2000. FFO for any period means the Consolidated Net Income of the Company and its subsidiaries for such period excluding gains or losses from debt restructuring and sales of property plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures, all determined on a consistent basis in accordance with generally accepted accounting principles. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. However, the Company's FFO is comparable to the FFO of real estate companies that use the current NAREIT definition. (3) Recurring capital expenditures consisted primarily of $777 and $763 of carpet replacement and $2,563 and $1,841 of other additions and improvements to existing communities for the three months ended September 30, 2000 and 1999, respectively and $2,187 and $2,170 of carpet replacement and $5,615 and $5,113 of other additions and improvements to existing communities for the nine months ended September 30, 2000 and 1999, respectively. Since the Company does not add back the depreciation of non-real estate assets in its calculation of FFO, capital expenditures of $665 and $3,880 for the three months ended September 30, 2000 and 1999, respectively, and $1,991 and $6,240 for the nine months ended September 30, 2000 and 1999, respectively, are excluded from the calculation of CAD. (4) Non-recurring capital expenditures consisted of community additions and improvements of $898 and $540 for the three months ended September 30, 2000 and 1999, respectively, and $2,336 and $1,553 for the nine months ended September 30, 2000 and 1999, respectively. (5) Revenue generating capital expenditures are 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, 1999. -30- 33 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 Financial Data Schedule for the Company - Third Quarter 2000 (for SEC filing purposes only) 27.2 Financial Data Schedule for the Operating Partnership - Third Quarter 2000 (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, 2000.
-31- 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. POST PROPERTIES, INC. November 14, 2000 /s/ R. Gregory Fox ----------------- ------------------------------ (Date) R. Gregory Fox Executive Vice President, Chief Financial Officer (Principal Financial Officer)
-32- 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. POST APARTMENT HOMES, L.P. By: Post GP Holdings, Inc., as General Partner November 14, 2000 /s/ R. Gregory Fox ----------------- --------------------------------------------- (Date) R. Gregory Fox Executive Vice President, Chief Financial Officer (Principal Financial Officer)
-33- EX-27.1 2 g65192ex27-1.txt FINANCIAL DATA SCHEDULE - POST PROPERTIES
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF POST PROPERTIES, INC. FOR THE PERIOD ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000903127 Post Properties Inc 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 19,274,000 0 0 0 0 0 2,774,437,000 341,589,000 2,570,907,000 0 1,174,339,000 0 50,000 396,000 1,071,969,000 2,570,907,000 0 296,267,000 0 153,843,000 0 0 35,551,000 96,376,000 0 74,997,000 0 0 0 74,997,000 1.91 1.88
EX-27.2 3 g65192ex27-2.txt FINANCIAL DATA SCHEDULE - POST APARTMENT HOMES
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF POST APARTMENT HOMES, L.P. FOR THE PERIOD ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001012271 Post Apartment Homes LP 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 19,274,000 0 0 0 0 0 2,774,437,000 341,589,000 2,570,907,000 0 1,174,339,000 0 0 0 1,261,251,000 2,570,907,000 0 296,267,000 0 153,843,000 0 0 35,551,000 96,376,000 0 84,896,000 0 0 0 84,896,000 1.91 1.88
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