-----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, SAmX8tsZkTYHLg6uZCpXoyE3tmJubSlAubzl5e7HUELtHFvp4McavirvJsGpBzK1 s12vMKJ2xDdYXRDSBQRV7A== 0000950144-01-509118.txt : 20020410 0000950144-01-509118.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950144-01-509118 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POST PROPERTIES INC CENTRAL INDEX KEY: 0000903127 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 581550675 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12080 FILM NUMBER: 1788275 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: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 582053632 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28226 FILM NUMBER: 1788276 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 g72599e10-q.txt POST PROPERTIES, INC. / POST APARTMENT HOMES, L.P. ================================================================================ 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, 2001 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. 36,821,089 shares of common stock outstanding as of November 12, 2001 (excluding treasury stock). ================================================================================ POST PROPERTIES, INC. POST APARTMENT HOMES, L.P. INDEX PART I FINANCIAL INFORMATION PAGE ITEM 1 FINANCIAL STATEMENTS POST PROPERTIES, INC. Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000...........................1 Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000.......................................................................2 Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the nine months ended September 30, 2001..............................................................3 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000.......................................................................4 Notes to Consolidated Financial Statements...........................................................5 POST APARTMENT HOMES, L.P. Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000..........................12 Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000......................................................................13 Consolidated Statement of Partners' Equity for the nine months ended September 30, 2001...............................................................................14 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000......................................................................15 Notes to Consolidated Financial Statements .........................................................16 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................................................22 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................33 PART II OTHER INFORMATION.......................................................................................34 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..............................................................................................35
POST PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ (UNAUDITED) ASSETS Real estate investments: Land ................................................................... $ 271,376 $ 281,525 Building and improvements .............................................. 1,727,495 1,681,798 Furniture, fixtures and equipment ...................................... 208,221 190,968 Construction in progress ............................................... 474,354 509,702 Land held for future development ....................................... 49,081 28,995 ----------- ----------- 2,730,527 2,692,988 Less: accumulated depreciation ......................................... (382,284) (345,121) Assets held for sale ................................................... 50,154 122,047 Investments in and advances to unconsolidated real estate entities ..... 36,377 -- ----------- ----------- Total real estate investments ....................................... 2,434,774 2,469,914 Cash and cash equivalents ................................................. 4,926 7,459 Restricted cash ........................................................... 1,344 1,272 Deferred charges, net ..................................................... 18,701 21,700 Other assets .............................................................. 53,618 50,892 ----------- ----------- Total assets ........................................................... $ 2,513,363 $ 2,551,237 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable ............................................................. $ 1,256,804 $ 1,213,309 Accrued interest payable .................................................. 15,859 10,751 Dividends and distributions payable ....................................... 33,230 33,933 Accounts payable and accrued expenses ..................................... 82,688 67,136 Security deposits and prepaid rents ....................................... 9,392 9,407 ----------- ----------- Total liabilities ................................................... 1,397,973 1,334,536 ----------- ----------- Minority interest of preferred unitholders in Operating Partnership........ 70,000 70,000 ----------- ----------- Minority interest of common unitholders in Operating Partnership .......... 109,595 118,091 ----------- ----------- Commitments and contingencies.............................................. -- -- Shareholders' equity Preferred stock, $.01 par value, 20,000,000 authorized: 8 1/2% Series A Cumulative Redeemable Shares, liquidation preference $50 per share, 1,000,000 shares issued and outstanding .......................................................... 10 10 7 5/8% Series B Cumulative Redeemable Shares, liquidation preference $25 per share, 2,000,000 shares issued and outstanding .......................................................... 20 20 7 5/8% Series C Cumulative Redeemable Shares, liquidation preference $25 per share, 2,000,000 shares issued and outstanding .......................................................... 20 20 Common stock, $.01 par value, 100,000,000 authorized, 39,699,116 and 39,662,192 shares issued, 36,860,834 and 38,853,596 shares outstanding at September 30, 2001 and December 31, 2000, respectively .......................................................... 396 396 Additional paid-in capital ............................................. 1,049,241 1,057,067 Accumulated earnings ................................................... -- -- Accumulated other comprehensive income, net of minority interest ....... (9,144) -- Deferred compensation .................................................. (530) -- ----------- ----------- 1,040,013 1,057,513 Treasury stock, at cost, 2,838,282 and 808,596 shares at September 30, 2001 and December 31, 2000, respectively ..... (104,218) (28,903) ----------- ----------- Total shareholders' equity .......................................... 935,795 1,028,610 ----------- ----------- Total liabilities and shareholders' equity ............................. $ 2,513,363 $ 2,551,237 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. -1- 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, ------------------------------- ------------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ REVENUE: Rental ............................................... $ 91,036 $ 93,152 $ 278,881 $ 271,220 Property management - third-party .................... 1,102 987 3,469 2,828 Landscape services - third-party ..................... 2,879 2,743 8,470 7,843 Interest ............................................. 370 476 1,358 1,463 Other ................................................ 3,732 3,872 11,686 12,762 ------------ ------------ ------------ ------------ Total revenue .................................... 99,119 101,230 303,864 296,116 ------------ ------------ ------------ ------------ EXPENSES: Property operating and maintenance (exclusive of items shown separately below) ....... 34,704 34,017 105,680 96,906 Depreciation expense ................................. 19,343 17,930 56,106 51,367 Property management - third-party .................... 924 731 2,834 2,249 Landscape services - third-party ..................... 2,777 2,376 7,795 6,860 Interest ............................................. 14,058 12,789 43,763 35,551 Amortization of deferred loan costs .................. 513 413 1,456 1,196 General and administrative ........................... 3,395 2,678 9,802 6,806 Minority interest in consolidated property partnerships ........................................ (527) (381) (1,344) (1,195) ------------ ------------ ------------ ------------ Total expense ................................... 75,187 70,553 226,092 199,740 ------------ ------------ ------------ ------------ Income before net gain on sale of assets, minority interest of unitholders in Operating Partnership, cumulative effect of accounting change and extraordinary item ................................... 23,932 30,677 77,772 96,376 Net gain on sale of assets ............................. 8,179 958 23,950 1,627 Minority interest of preferred unitholders in Operating Partnership ................................ (1,400) (1,400) (4,200) (4,200) Minority interest of common unitholders in Operating Partnership ................................ (3,322) (3,156) (10,495) (9,899) ------------ ------------ ------------ ------------ Income before cumulative effect of accounting change and extraordinary item ............................... 27,389 27,079 87,027 83,904 Cumulative effect of accounting change, net of minority interest ................................. -- -- (613) -- Extraordinary item, net of minority interest ........... -- -- (77) -- ------------ ------------ ------------ ------------ Net income ............................................. 27,389 27,079 86,337 83,904 Dividends to preferred shareholders .................... (2,969) (2,969) (8,906) (8,907) ------------ ------------ ------------ ------------ Net income available to common shareholders ............ $ 24,420 $ 24,110 $ 77,431 $ 74,997 ============ ============ ============ ============ EARNINGS PER COMMON SHARE - BASIC Income before cumulative effect of accounting change and extraordinary item (net of preferred dividend) .. $ 0.64 $ 0.61 $ 2.03 $ 1.91 Cumulative effect of accounting change, net of minority interest ................................. -- -- (0.02) -- Extraordinary item, net of minority interest ........... -- -- -- -- ------------ ------------ ------------ ------------ Net income available to common shareholders ............ $ 0.64 $ 0.61 $ 2.01 $ 1.91 ============ ============ ============ ============ Weighted average common shares outstanding - basic ..... 37,899,668 39,556,981 38,463,672 39,293,302 ============ ============ ============ ============ EARNINGS PER COMMON SHARE - DILUTED Income before cumulative effect of accounting change and extraordinary item (net of preferred dividend) ... $ 0.64 $ 0.60 $ 2.02 $ 1.88 Cumulative effect of accounting change, net of minority interest .................................... -- -- (0.02) -- Extraordinary item, net of minority interest ........... -- -- -- -- ------------ ------------ ------------ ------------ Net income available to common shareholders ............ $ 0.64 $ 0.60 $ 2.00 $ 1.88 ============ ============ ============ ============ Weighted average common shares outstanding diluted ..... 38,185,054 40,422,756 38,721,056 39,980,339 ============ ============ ============ ============ Dividends declared ..................................... $ 0.78 $ 0.76 $ 2.34 $ 2.28 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -2- POST PROPERTIES, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS (DOLLARS IN THOUSANDS) (UNAUDITED)
ACCUMULATED ADDITIONAL OTHER PREFERRED COMMON PAID-IN ACCUMULATED COMPREHENSIVE DEFERRED TREASURY SHARES SHARES CAPITAL EARNINGS INCOME COMPENSATION STOCK --------- ------ ------- ----------- ------------- ------------ -------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, DECEMBER 31, 2000 ................. $ 50 $396 1,057,067 $ -- $ -- $ -- $ (28,903) Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans .................. -- -- (1,760) -- -- -- 10,156 Adjustment for minority interest of unitholders in Operating Partnership at dates of capital transactions .................... -- -- 5,580 -- -- -- -- COMPREHENSIVE INCOME 2001: Net income ........................ -- -- -- 86,337 -- -- -- Transition adjustment for derivative instruments, net of minority interest ............... -- -- -- -- (1,299) -- -- Change in derivative instrument value, net of minority interest . -- -- -- -- (7,845) -- -- TOTAL COMPREHENSIVE INCOME .......... Restricted stock issuances .......... -- -- 46 -- -- (644) 598 Amortization of deferred compensation....................... -- -- -- -- -- 114 -- Treasury stock acquisitions ......... -- -- -- -- -- -- (86,069) Dividends to preferred shareholders . -- -- -- (8,906) -- -- -- Dividends to common shareholders .... -- -- (11,692) (77,431) -- -- -- ------- ---- ---------- -------- ------- ----- --------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, SEPTEMBER 30, 2001 ...... $ 50 $396 1,049,241 $ -- $(9,144) $(530) $(104,218) ======= ==== ========== ======== ======= ===== ========= TOTAL ----- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, DECEMBER 31, 2000 ................. $ 1,028,610 Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans .................. 8,396 Adjustment for minority interest of unitholders in Operating Partnership at dates of capital transactions .................... 5,580 COMPREHENSIVE INCOME 2001: Net income ........................ 86,337 Transition adjustment for derivative instruments, net of minority interest ............... (1,299) Change in derivative instrument value, net of minority interest . (7,845) ----------- TOTAL COMPREHENSIVE INCOME .......... 77,193 Restricted stock issuances .......... -- Amortization of deferred compensation ..................... 114 Treasury stock acquisitions ......... (86,069) Dividends to preferred shareholders . (8,906) Dividends to common shareholders .... (89,123) ----------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, SEPTEMBER 30, 2001 ...... $ 935,795 ===========
The accompanying notes are an integral part of these consolidated financial statements. -3- POST PROPERTIES, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ..................................................................... $ 86,337 $ 83,904 Adjustments to reconcile net income to net cash provided by operating activities: Net gain on sale of assets ................................................... (23,950) (1,627) Minority interest of preferred unitholders in Operating Partnership .......... 4,200 4,200 Minority interest of common unitholders in Operating Partnership ............. 10,495 9,899 Equity in loss of unconsolidated real estate entities ........................ 26 -- Cumulative accounting change, net of minority interest ....................... 613 -- Extraordinary item, net of minority interest ................................. 77 -- Depreciation ................................................................. 56,106 51,367 Amortization of deferred loan costs .......................................... 1,456 1,196 Changes in assets, (increase) decrease in: Restricted cash .............................................................. (72) 45 Other assets ................................................................. (4,607) (12,719) Deferred charges ............................................................. (292) (1,263) Changes in liabilities, increase (decrease) in: Accrued interest payable ..................................................... 5,108 6,249 Accounts payable and accrued expenses ........................................ 8,419 10,827 Security deposits and prepaid rents .......................................... (15) 887 --------- --------- Net cash provided by operating activities ...................................... 143,901 152,965 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Construction and acquisition of real estate assets, net of payables ............ (173,571) (279,371) Net proceeds from sale of assets ............................................... 215,660 75,231 Capitalized interest ........................................................... (16,803) (18,992) Recurring capital expenditures ................................................. (9,719) (7,802) Corporate additions and improvements ........................................... (1,850) (1,991) Non-recurring capital expenditures ............................................. (1,220) (2,336) Revenue generating capital expenditures ........................................ (2,620) (4,257) Investments in and advances to unconsolidated real estate entities ............. (6,820) -- --------- --------- Net cash provided by (used in) investing activities ............................ 3,057 (239,518) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs ..................................................... (300) (1,260) Debt proceeds .................................................................. 215,950 241,000 Debt payments .................................................................. (172,455) (56,244) Distributions to preferred unitholders ......................................... (4,200) (4,200) Distributions to common unitholders ............................................ (12,006) (11,520) Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans .......... 8,396 26,658 Treasury stock acquisitions .................................................... (86,069) -- Dividends paid to preferred shareholders ....................................... (8,906) (8,907) Dividends paid to common shareholders .......................................... (89,901) (86,905) --------- --------- Net cash (used in) provided by financing activities ............................ (149,491) 98,622 --------- --------- Net (decrease) increase in cash and cash equivalents ........................... (2,533) 12,069 Cash and cash equivalents, beginning of period ................................. 7,459 5,870 --------- --------- Cash and cash equivalents, end of period ....................................... $ 4,926 $ 17,939 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. -4- 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, 2001 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, 2000. Certain 2000 amounts have been reclassified to conform to the current year's financial statement presentation. 2. NOTES PAYABLE As of September 30, 2001, the Operating Partnership had $323,000 aggregate principal amount of notes outstanding under a Medium Term Note Program. Medium Term Notes of $37,000 and $30,000 were repaid on April 2, 2001 and June 7, 2001, respectively. 3. SALE OF ASSETS AND ASSETS HELD FOR SALE At December 31, 2000, the Company had four communities, two commercial properties and one tract of land held for sale. During the first three quarters of 2001, the Company authorized the sale of five communities and 11 tracts of land consisting of: three communities and six tracts of land in Dallas, Texas, two communities in Atlanta, Georgia, two tracts of land in Charlotte, North Carolina, one tract in Phoenix, Arizona, one tract in Tampa, Florida and one tract in Denver Colorado. The Company also reclassified from assets held for sale two communities located in Dallas, Texas. -5- POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- The table below summarizes the current year sale of assets through September 30, 2001:
NUMBER OF PROPERTY UNITS DATE SOLD LOCATION GROSS PROCEEDS NET PROCEEDS -------- ---------- --------- -------- -------------- ------------ Post Creek 810 April Atlanta, GA $ 67,250 $ 66,641 The Lee 80 May Nashville, TN 3,950 3,839 Post Lakeside 327 May Dallas, TX 22,470 22,124 Post Winsted 314 May Dallas, TX 20,263 19,949 Post Shores 908 June Dallas, TX 76,750 75,774 Post Pointe 360 September Atlanta, GA 22,400 22,116 Land Parcel N/A May Charlotte, NC 1,942 1,876 Land Parcel N/A March Denver, CO 1,155 1,137 Land Parcel N/A August Dallas, TX 2,320 2,204 -------- ======== $218,500 $215,660 ======== ========
As of September 30, 2001, assets held for sale included one community, two commercial properties and nine tracts of land consisting of land, buildings and improvements and furniture, fixtures and equipment and were recorded at $50,154, which represented the lower of depreciated cost or fair value less cost to sell. The Company has recorded net gains of $8,179 and $23,950 for the three and nine months ended September 30, 2001, respectively. The net gains include reserves of $1,530 and $12,795 for the three and nine months ended September 30, 2001, respectively, to write down to fair market value the real estate assets designated as held for sale. The Company expects the sale of the remaining assets to occur within the next 12 months. For the three months ended September 30, 2001 and 2000, the consolidated statement of operations includes revenue less operating and maintenance expense, exclusive of depreciation, of $918 and $1,022, respectively, from communities held for sale at September 30, 2001. For the nine months ended September 30, 2001 and 2000, the consolidated statement of operations includes revenue less operating and maintenance expense, exclusive of depreciation, of $2,863 and $2,924, respectively, from communities held for sale at September 30, 2001. Depreciation expense of $265 was recognized on these assets in 2001 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, 2001 and 2000, 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, --------------------------- --------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Basic and diluted income available to common shareholders (numerator): Income before cumulative effect of accounting change and extraordinary item ...................................... $ 27,389 $ 27,079 $ 87,027 $ 83,904 Less: Preferred stock dividends .................................... (2,969) (2,969) (8,906) (8,907) ------------ ------------ ------------ ------------ Income available to common shareholders before cumulative effect of accounting change and extraordinary item ............................................. $ 24,420 $ 24,110 $ 78,121 $ 74,997 ============ ============ ============ ============ Common shares (denominator): Weighted average shares outstanding-basic ............................ 37,899,668 39,556,981 38,463,672 39,293,302 Incremental shares from assumed conversion of options ......................................................... 285,386 865,775 257,384 687,037 ------------ ------------ ------------ ------------ Weighted average shares outstanding - diluted ........................ 38,185,054 40,422,756 38,721,056 39,980,339 ============ ============ ============ ============
-6- POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- 5. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities for the nine months ended September 30, 2001 and 2000 were as follows: (a) During the nine months ended September 30, 2001 and 2000, holders of 37,516 and 12,014 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 other capital transactions result in adjustments to minority interest. The net effect of the conversions and adjustments was a reclassification decreasing minority interest and increasing shareholder's equity in the amount of $5,580 for the nine months ended September 30, 2001 and increasing minority interest and decreasing shareholder's equity in the amount of $683 for the nine months ended September 30, 2000. (b) For cash flow purposes, investments in and advances to unconsolidated real estate entities excludes non-cash contributions of $29,583 for the nine months ended September 30, 2001. (c) See footnote 6, "New Accounting Pronouncements" for information on non-cash activity related to derivative instruments. 6. NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities." This standard establishes accounting and reporting standards for derivative and hedging activities and requires the Company to recognize all derivative instruments on its balance sheet at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income, depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. Upon adoption of SFAS No. 133, the Company recorded a derivative instrument liability of $1,299, net of minority interest, and an adjustment of $1,299, net of minority interest, to accumulated other comprehensive income, a shareholders' equity account, representing the fair value of its outstanding interest rate swap agreements. The Company also recorded a net transition adjustment loss in the statement of operations of $613, net of minority interest, relating to the write down of the book value of it's interest rate cap agreements to their fair value. In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives. The Company's outstanding derivative financial instruments represent cash flow hedges that are designated specifically to reduce exposure to interest rate risk by locking in the expected future cash payments on certain designated debt obligations. This was accomplished using interest rate swap and interest rate cap arrangements. For all outstanding derivative financial instruments and for future use of derivative financial instruments, the Company designates the specific instruments as a hedge of identified cash flow exposure. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedged transactions. In this documentation, the Company will specifically identify the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and will state how the hedged instrument is expected to hedge the risks related to the hedged item. The Company will formally measure effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company may discontinue hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; when the derivative is expired or sold, terminated or exercised; or when the derivative is re-designated to no longer be a hedged instrument. -7- POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- At September 30, 2001, the Company has outstanding interest rate swap agreements with a notional value of $129,000 and maturity dates ranging from 2005 to 2009. For the nine months ended September 30, 2001, the Company recorded the unrealized net loss of $7,845, net of minority interest, on these cash flow hedges as a liability and a reduction in accumulated other comprehensive income, a shareholders' equity account, in the accompanying consolidated balance sheet. This unrealized net loss of $7,845 was comprised of an unrealized net loss of $2,764, net of minority interest, for the three months ended March 31, 2001, an unrealized net gain of $2,314, net of minority interest, for the three months ended June 30, 2001 and an unrealized net loss of $7,395, net of minority interest, for the three months ended September 30, 2001. In addition, the Company recorded the change in fair value of the ineffective component of its outstanding interest rate cap agreements in its statement of operations for the nine months ended September 30, 2001. This charge against earnings during the period and the fair value of the interest rate cap agreements as of September 30, 2001 were not significant to the Company's financial position or results of operations. Within the next twelve months, the Company expects to reclassify out of accumulated other comprehensive income approximately $1,698. The Financial Accounting Standards Board ("FASB") has issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Statement No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The provisions of Statement No. 144 are effective for financial statements issued for fiscal year beginning after December 15, 2001. The Company believes the provisions of Statement No. 144 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 was implemented in the fourth quarter of 2000. The adoption of SAB 101 has had no 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 six segments are further described as follows: Property Rental Operations - Mature 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 2000 - 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. -8- POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- On November 7, 2001, the Company sold Post Landscape Group, Inc., a subsidiary entity that provides landscape maintenance, design and installation services to third parties. In addition, the Company has agreed to sell its apartment community management division, RAM Partners, Inc. ("RAM") by year-end. The Company intends to finance these purchases over a five to seven year period. The related purchase notes amortize on, or approximately on, a 10-year schedule with a balloon payment due at the end of year five. Two one-year renewal options are available. Under generally accepted accounting principles, any gain on sale will not be recorded until such time the conditions for gain recognition are met. Until such time, the net assets of these divisions will be carried on the Company's balance sheet at book value. SEGMENT PERFORMANCE MEASURE The Company uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of Funds From Operations ("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 ("GAAP"). 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 GAAP. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies because not all real estate companies use the same definition. The Company's FFO is comparable to the FFO of real estate companies that use the current NAREIT definition. FFO should not be considered as an alternative to net income (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 or ability to service indebtedness or pay dividends. 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. -9- 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, ----------------------- ------------------------ 2001 2000 2001 2000 -------- --------- --------- --------- REVENUES Fully stabilized communities ............................... $ 64,864 $ 64,414 $ 194,827 $ 190,572 Communities stabilized during 2000 ......................... 11,616 10,777 35,131 27,788 Development and lease-up communities ....................... 12,216 5,097 31,576 11,226 Communities held for sale .................................. 1,552 1,591 4,714 4,615 Sold communities ........................................... 735 11,558 12,538 36,389 Third party services ....................................... 3,981 3,730 11,939 10,671 Other ...................................................... 4,155 4,063 13,139 14,855 -------- --------- --------- --------- Consolidated revenues ...................................... $ 99,119 $ 101,230 $ 303,864 $ 296,116 ======== ========= ========= ========= CONTRIBUTION TO FUNDS FROM OPERATIONS Fully stabilized communities ............................... $ 43,545 $ 44,577 $ 132,614 $ 132,835 Communities stabilized during 2000 ......................... 7,494 7,210 23,186 18,137 Development and lease-up communities ....................... 7,730 2,692 18,985 5,523 Communities held for sale .................................. 918 1,022 2,863 2,924 Sold communities ........................................... 437 7,825 7,864 25,165 Third party services ....................................... 280 623 1,310 1,562 -------- --------- --------- --------- Contribution to FFO ........................................ 60,404 63,949 186,822 186,146 -------- --------- --------- --------- Other operating income, net of expense ..................... (1,849) (1,939) (5,521) (1,993) Depreciation on non-real estate assets ..................... (611) (583) (1,857) (1,794) Minority interest in consolidated property partnerships ............................................ 527 381 1,344 1,195 Interest expense ........................................... (14,058) (12,789) (43,763) (35,551) Amortization of deferred loan costs ........................ (513) (413) (1,456) (1,196) General and administrative ................................. (3,395) (2,678) (9,802) (6,806) Dividends to preferred shareholders ........................ (2,969) (2,969) (8,906) (8,907) -------- --------- --------- --------- Total FFO .................................................. 37,536 42,959 116,861 131,094 -------- --------- --------- --------- Depreciation on real estate assets ......................... (17,973) (16,651) (52,195) (47,825) Net gain on sale of assets ................................. 8,179 958 23,950 1,627 Minority interest of common unitholders in Operating Partnership ................................... (3,322) (3,156) (10,495) (9,899) Dividends to preferred shareholders ........................ 2,969 2,969 8,906 8,907 -------- --------- --------- --------- Income before cumulative effect of accounting change, extraordinary item and preferred dividends ................................................ $ 27,389 $ 27,079 $ 87,027 $ 83,904 ======== ========= ========= =========
-10- POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- 8. PROJECT ABANDONMENT, EMPLOYEE SEVERANCE AND IMPAIRMENT CHARGES In the fourth quarter of 2000, management decided to restrict its development activities to fewer markets, refine its development strategy, exit the for-sale housing business and make changes in its executive management team. Employees affected by the management changes were primarily four executives and five accounting department employees in the Dallas regional office. The following table summarizes the activity relating to the unpaid severance charges during the nine months ended September 30, 2001: Severance accrual at December 31, 2000 $ 2,250 Severance payment during first quarter 2001 1,382 Severance payment during second quarter 2001 631 Severance payment during third quarter 2001 166 -------- Severance accrual at September 30, 2001 $ 71 ========
9. INVESTMENTS IN REAL ESTATE ENTITIES In April 2001, the Company contributed two apartment communities under development in Atlanta, Georgia to joint ventures with an institutional investor, The Company holds a 35% equity interest in the joint ventures. The total estimated development cost of the joint venture properties of $67,000 is being funded through partner equity contributions proportionate to the partners' ownership interest and through construction financing provided by the Company. No gain or loss was recognized on the Company's contribution to the joint ventures. The Company provides real estate services (development, construction and property management) to the joint ventures. The Company accounts for these joint ventures using the equity method of accounting. At September 30, 2001, the Company's investment in and advances to the joint ventures accounted for using the equity method totaled $36,377. The combined total assets, liabilities and equity of the joint ventures at September 30, 2001, were $48,890, $35,876 and $13,014, respectively accounted for using the equity method. During the third quarter of 2001, one of the communities commenced its initial rental operations. The Company recorded an equity in loss from this joint venture totaling $26 during the third quarter. Such equity in loss is included in other revenue in the accompanying consolidated financial statements. In the third quarter of 2001, the Company commenced the development of a 138-unit apartment community in New York, New York, through an entity that will be approximately 64% owned by the Company. Total estimated development costs of approximately $52,000 are being funded through partner equity contributions proportionate to the partners' ownership interest and through construction financing provided by the Company. Through September 30, 2001, total development costs were approximately $11,000. The financial statements of this majority owned entity are consolidated with the accompanying consolidated financial statements of the Company. 10. STOCK BASED COMPENSATION PLAN In 2001, the Company, under its existing Employee Stock Plan, granted 17,566 shares of restricted stock to company officers. The restricted shares vest ratably over a five-year period. The total value of the restricted share grants of $644 was initially reflected in shareholders' equity as additional capital and as deferred compensation, a contra shareholders' equity account. Such deferred compensation is amortized ratably into compensation expense over the vesting period. -11- POST APARTMENT HOMES, L.P. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2001 2000 -------------- ------------ (UNAUDITED) ASSETS Real estate investments: Land ................................................................. $ 271,376 $ 281,525 Building and improvements ............................................ 1,727,495 1,681,798 Furniture, fixtures and equipment .................................... 208,221 190,968 Construction in progress ............................................. 474,354 509,702 Land held for future development ..................................... 49,081 28,995 ----------- ----------- 2,730,527 2,692,988 Less: accumulated depreciation ....................................... (382,284) (345,121) Assets held for sale ................................................. 50,154 122,047 Investments in and advances to unconsolidated real estate entities ... 36,377 -- ----------- ----------- Total real estate investments ........................................ 2,434,774 2,469,914 Cash and cash equivalents .............................................. 4,926 7,459 Restricted cash ........................................................ 1,344 1,272 Deferred charges, net .................................................. 18,701 21,700 Other assets ........................................................... 53,618 50,892 ----------- ----------- Total assets ......................................................... $ 2,513,363 $ 2,551,237 =========== =========== LIABILITIES AND PARTNERS' EQUITY Notes payable .......................................................... $ 1,256,804 $ 1,213,309 Accrued interest payable ............................................... 15,859 10,751 Distributions payable .................................................. 33,230 33,933 Accounts payable and accrued expenses .................................. 82,688 67,136 Security deposits and prepaid rents .................................... 9,392 9,407 ----------- ----------- Total liabilities .................................................... 1,397,973 1,334,536 ----------- ----------- Commitments and contingencies Partners' equity before adjustment for other comprehensive income ...... 1,125,771 1,216,701 Accumulated other comprehensive income ................................. (10,381) -- ----------- ----------- Total partners' equity................................................ 1,115,390 1,216,701 ----------- ----------- Total liabilities and partners' equity ................................ $ 2,513,363 2,551,237 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. -12- POST APARTMENT HOMES, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ REVENUES Rental ................................................. $ 91,036 $ 93,152 $ 278,881 $ 271,220 Property management - third party ...................... 1,102 987 3,469 2,828 Landscape services - third party ....................... 2,879 2,743 8,470 7,843 Interest ............................................... 370 476 1,358 1,463 Other .................................................. 3,732 3,872 11,686 12,762 ------------ ------------ ------------ ------------ Total revenue ................................... 99,119 101,230 303,864 296,116 ------------ ------------ ------------ ------------ EXPENSES Property operating and maintenance (exclusive of items shown separately below) .............................. 34,704 34,017 105,680 96,906 Depreciation expense ................................... 19,343 17,930 56,106 51,367 Property management - third party ...................... 924 731 2,834 2,249 Landscape services - third party ....................... 2,777 2,376 7,795 6,860 Interest ............................................... 14,058 12,789 43,763 35,551 Amortization of deferred loan costs .................... 513 413 1,456 1,196 General and administrative ............................. 3,395 2,678 9,802 6,806 Minority interest in consolidated property partnerships (527) (381) (1,344) (1,195) ------------ ------------ ------------ ------------ Total expenses ........................................ 75,187 70,553 226,092 199,740 ------------ ------------ ------------ ------------ Income before net gain on sale of assets, cumulative effect of accounting change and extraordinary item ................................................. 23,932 30,677 77,772 96,376 Net gain on sale of assets ............................. 8,179 958 23,950 1,627 ------------ ------------ ------------ ------------ Income before cumulative effect of accounting change and extraordinary item ........................ 32,111 31,635 101,722 98,003 Cumulative effect of accounting change.................. -- -- (695) -- Extraordinary item ..................................... -- -- (88) -- ------------ ------------ ------------ ------------ Net income ............................................. 32,111 31,635 100,939 98,003 Distributions to preferred unitholders ................. (4,369) (4,369) (13,106) (13,107) ------------ ------------ ------------ ------------ Net income available to common unitholders ............. $ 27,742 $ 27,266 $ 87,833 $ 84,896 ============ ============ ============ ============ EARNINGS PER COMMON UNIT - BASIC Income before extraordinary item (net of preferred distributions) ........................................ $ 0.64 $ 0.61 $ 2.03 $ 1.91 Cumulative effect of accounting change ................. -- -- (0.02) -- Extraordinary item ..................................... -- -- -- -- ------------ ------------ ------------ ------------ Net income available to common unitholders ............. $ 0.64 $ 0.61 $ 2.01 $ 1.91 ============ ============ ============ ============ Weighted average common units outstanding .............. 43,054,521 44,738,392 43,631,222 44,480,261 ============ ============ ============ ============ EARNINGS PER COMMON UNIT - DILUTED Income before extraordinary item (net of preferred distributions) ............................. $ 0.64 $ 0.60 $ 2.02 $ 1.88 Cumulative effect of accounting change.................. -- -- (0.02) -- Extraordinary item ..................................... -- -- -- -- ------------ ------------ ------------ ------------ Net income available to common unitholders ............. $ 0.64 $ 0.60 $ 2.00 $ 1.88 ============ ============ ============ ============ Weighted average common units outstanding .............. 43,339,907 45,604,167 43,888,606 45,167,298 ============ ============ ============ ============ Distributions declared ................................. $ 0.78 $ 0.76 $ 2.34 $ 2.28 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -13- POST APARTMENT HOMES, L.P. CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DOLLARS IN THOUSANDS) (UNAUDITED)
GENERAL LIMITED PARTNER PARTNERS TOTAL -------- ----------- ----------- PARTNERS' EQUITY, DECEMBER 31, 2000 ....................... $ 12,110 $ 1,204,591 $ 1,216,701 Contributions from the Company related to Dividend Reinvestment and Employee Stock Purchase Plans ........ 84 8,312 8,396 Purchase of units ......................................... -- (86,069) (86,069) Distributions to preferred unitholders .................... -- (13,106) (13,106) Distributions to common unitholders ....................... (1,012) (100,192) (101,204) Comprehensive Income: Net income ............................................. 1,009 99,930 100,939 Transition adjustment for derivative instruments ....... (15) (1,457) (1,472) Change in derivative instrument value .................. (89) (8,820) (8,909) -------- ----------- ----------- Total Comprehensive Income ................................ 905 89,653 90,558 Contributions from the Company related to restricted shares issued, net of amortization of deferred compensation .... 1 113 114 -------- ----------- ----------- PARTNERS' EQUITY, SEPTEMBER 30, 2001 ...................... $ 12,088 $ 1,103,302 $ 1,115,390 ======== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. -14- POST APARTMENT HOMES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ........................................................... $ 100,939 $ 98,003 Adjustments to reconcile net income to net cash provided By operating activities: Net gain on sale of assets ........................................ (23,950) (1,627) Equity in loss of unconsolidated real estate entities ............. 26 -- Extraordinary item ................................................ 88 -- Depreciation ...................................................... 56,106 51,367 Amortization of deferred loan costs ............................... 1,456 1,196 Cumulative effect of accounting change ............................ 695 -- Changes in assets, (increase) decrease in Restricted cash ................................................... (72) 45 Other assets ...................................................... (4,607) (12,719) Deferred charges .................................................. (292) (1,263) Changes in liabilities, increase (decrease) in: Accrued interest payable .......................................... 5,108 6,249 Accounts payable and accrued expenses ............................. 8,419 10,827 Security deposits and prepaid rents ............................... (15) 887 --------- --------- Net cash provided by operating activities ......................... 143,901 152,965 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Construction and acquisition of real estate assets, net of payables ................................................... (173,571) (279,371) Net proceeds from sale of assets .................................... 215,660 75,231 Capitalized interest ................................................ (16,803) (18,992) Recurring capital expenditures ...................................... (9,719) (7,802) Corporate additions and improvements ................................ (1,850) (1,991) Non-recurring capital expenditures .................................. (1,220) (2,336) Revenue generating capital expenditures ............................. (2,620) (4,257) Investments in and advances to unconsolidated real estate entities .......................................................... (6,820) -- --------- --------- Net cash provided by (used in) investing activities ................. 3,057 (239,518) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs ........................................... (300) (1,260) Debt proceeds ........................................................ 215,950 241,000 Debt payments ........................................................ (172,455) (56,244) Purchase of units .................................................... (86,069) -- Proceeds from contributions from the Company related to Dividend Reinvestment and Employee Stock Purchase Plans .................... 8,396 26,658 Distributions paid to preferred unitholders .......................... (13,106) (13,107) Distributions paid to common unitholders ............................. (101,907) (98,425) --------- --------- Net cash (used in) provided by financing activities .................. (149,491) 98,622 --------- --------- Net (decrease) increase in cash and cash equivalents ................. (2,533) 12,069 Cash and cash equivalents, beginning of period ....................... 7,459 5,870 --------- --------- Cash and cash equivalents, end of period ............................. $ 4,926 $ 17,939 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. -15- POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - ------------------------------------------------------------------------------ 1. ORGANIZATION AND FORMATION OF THE COMPANY ORGANIZATION AND FORMATION OF THE COMPANY Post Apartment Homes, L.P. (the Operating Partnership), a Georgia limited partnership, was formed on January 22, 1993, to conduct the business of developing, leasing and managing upscale multi-family apartment communities for Post Properties, Inc. (the "Company"). The Company elected to be taxed as a real estate investment trust ("REIT") for Federal income tax purposes beginning with the taxable year ended December 31, 1993. A REIT is a legal entity which holds real estate interests and, through payments of dividends to shareholders, in practical effect is not subject to Federal income taxes at the corporate level. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared by the Operating Partnership's management in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normally recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the nine-month period ended September 30, 2001 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, 2000. Certain 2000 amounts have been reclassified to conform to the current year's financial statement presentation. 2. NOTES PAYABLE As of September 30, 2001 the Operating Partnership had $323,000 aggregate principal amount of notes outstanding under a Medium Term Note Program. Medium Term Notes of $37,000 and $30,000 were repaid on April 2, 2001 and June 7, 2001, respectively. 3. SALE OF ASSETS AND ASSETS HELD FOR SALE At December 31, 2000, the Operating Partnership had four communities, two commercial properties and one tract of land held for sale. During the first three quarters of 2001, the Operating Partnership authorized the sale of five communities and 11 tracts of land consisting of: three communities and six tracts of land in Dallas, Texas, two communities in Atlanta, Georgia, two tracts of land in Charlotte, North Carolina, one tract in Phoenix, Arizona, one tract in Tampa, Florida and one tract in Denver Colorado. The Operating Partnership also reclassified from assets held for sale two communities located in Dallas, Texas. -16- POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - ------------------------------------------------------------------------------ The table below summarizes the current year sale of assets through September 30, 2001:
PROPERTY NUMBER OF UNITS DATE SOLD LOCATION GROSS PROCEEDS NET PROCEEDS -------- --------------- --------- --------- -------------- ------------ Post Creek 810 April Atlanta, GA $ 67,250 $ 66,641 The Lee 80 May Nashville, TN 3,950 3,839 Post Lakeside 327 May Dallas, TX 22,470 22,124 Post Winsted 314 May Dallas, TX 20,263 19,949 Post Shores 908 June Dallas, TX 76,750 75,774 Post Pointe 360 September Atlanta, GA 22,400 22,116 Land Parcel N/A May Charlotte, NC 1,942 1,876 Land Parcel N/A March Denver, CO 1,155 1,137 Land Parcel N/A August Dallas, TX 2,320 2,204 -------- -------- $218,500 $215,660 ======== ========
As of September 30, 2001, assets held for sale included one community, two commercial properties and nine tracts of land consisting of land, buildings and improvements and furniture, fixtures and equipment and were recorded at $50,154, which represented the lower of depreciated cost or fair value less cost to sell. The Operating Partnership has recorded net gains of $8,179 and $23,950 for the three and nine months ended September 30, 2001, respectively. The net gains include reserves of $1,530 and $12,795 for the three and nine months ended September 30, 2001, respectively, to write down to fair market value the real estate assets designated as held for sale. The Operating Partnership expects the sale of the remaining assets to occur within the next 12 months. For the three months ended September 30, 2001 and 2000, the consolidated statement of operations includes revenue less operating and maintenance expense, exclusive of depreciation, of $918 and $1,022, respectively, from communities held for sale at September 30, 2001. For the nine months ended September 30, 2001 and 2000, the consolidated statement of operations includes revenue less operating and maintenance expense, exclusive of depreciation, of $2,863 and $2,924, respectively, from communities held for sale at September 30, 2001. Depreciation expense of $265 was recognized on these assets in 2001 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, 2001 and 2000, a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per unit is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Basic and diluted income available to common Unitholders (numerator): Income before cumulative effect of accounting change and extraordinary item ............ $ 32,111 $ 31,635 $ 101,722 $ 98,003 Less: Preferred unit distributions .................... (4,369) (4,369) (13,106) (13,107) ------------ ------------ ------------ ------------ Income available to common unitholders before cumulative effect of accounting change and extraordinary item .................................. $ 27,742 $ 27,266 $ 88,616 $ 84,896 ============ ============ ============ ============ Common units (denominator): Weighted average units outstanding - basic ............ 43,054,521 44,738,392 43,631,222 44,480,261 Incremental units from assumed conversion of options .......................................... 285,386 865,775 257,384 687,037 ------------ ------------ ------------ ------------ Weighted average units outstanding - diluted .......... 43,339,907 45,604,167 43,888,606 45,167,298 ============ ============ ============ ============
-17- POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - ------------------------------------------------------------------------------ 5. NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2001, the Operating Partnership adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities." This standard establishes accounting and reporting standards for derivative and hedging activities and requires the Operating Partnership to recognize all derivative instruments on its balance sheet at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income, depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. Upon adoption of SFAS No. 133, the Operating Partnership recorded a derivative instrument liability of $1,472, and an adjustment of $1,472, to accumulated other comprehensive income, a partners' equity account, representing the fair value of its outstanding interest rate swap agreements. The Operating Partnership also recorded a net transition adjustment loss in the statement of operations of $695, relating to the write down of the book value of it's interest rate cap agreements to their fair value. In the normal course of business, the Operating Partnership is exposed to the effect of interest rate changes. The Operating Partnership limits these risks by following established risk management policies and procedures including the use of derivatives. The Operating Partnership's outstanding derivative financial instruments represent cash flow hedges that are designated specifically to reduce exposure to interest rate risk by locking in the expected future cash payments on certain designated debt obligations. This was accomplished using interest rate swap and interest rate cap arrangements. For all outstanding derivative financial instruments and for future use of derivative financial instruments, the Operating Partnership designates the specific instruments as a hedge of identified cash flow exposure. The Operating Partnership formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedged transactions. In this documentation, the Operating Partnership will specifically identify the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and will state how the hedged instrument is expected to hedge the risks related to the hedged item. The Operating Partnership will formally measure effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Operating Partnership may discontinue hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; when the derivative is expired or sold, terminated or exercised; or when the derivative is re-designated to no longer be a hedged instrument. At September 30, 2001 the Operating Partnership has outstanding interest rate swap agreements with a notional value of $129,000 and maturity dates ranging from 2005 to 2009. For the nine months ended September 30, 2001, the Operating Partnership recorded the unrealized net loss of $8,909 on these cash flow hedges as a liability and a reduction in accumulated other comprehensive income, a partners' equity account, in the accompanying consolidated balance sheet. This unrealized net loss of $8,909 was comprised of an unrealized net loss of $3,134 for the three months ended March 31, 2001, an unrealized net gain of $2,622 for the three months ended June 30, 2001 and an unrealized net loss of $8,397 for the three months ended September 30, 2001. In addition, the Operating Partnership recorded the change in fair value of the ineffective component of its outstanding interest rate cap agreements in its statement of operations for the nine months ended September 30, 2001. This charge against earnings during the period and the fair value of the interest rate cap agreements as of September 30, 2001 were not significant to the Operating Partnership's financial position or results of operations. Within the next twelve months, the Operating Partnership expects to reclassify out of accumulated other comprehensive income approximately $1,698. The Financial Accounting Standards Board ("FASB") has issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Statement No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The provisions of Statement No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Operating Partnership believes the provisions of Statement No. 144 will not have a significant effect on the Operating Partnership'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 was implemented in the fourth quarter of 2000. The adoption of SAB 101 has had no significant effect on the Operating Partnership's results of operations or its financial position. -18- POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - ------------------------------------------------------------------------------ 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 six segments are further described as follows: Property Rental Operations - Mature 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 2000 - 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. On November 7, 2001, the Operating Partnership sold Post Landscape Group, Inc., a subsidiary entity that provides landscape maintenance, design and installation services to third parties. In addition, the Operating Partnership has agreed to sell its apartment community management division, RAM Partners Inc. ("RAM") by year-end. The Operating Partnership intends to finance these purchases over a five to seven year period. The related purchase notes amortize on, or approximately on, a 10-year schedule with a balloon payment due at the end of year five. Two one-year renewal options are available. Under generally accepted accounting principles, any gain on sale will not be recorded until such time the conditions for gain recognition are met. Until such time, the net assets of these divisions will be carried on the Operating Partnership balance sheet at book value. SEGMENT PERFORMANCE MEASURE The Operating Partnership uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of Funds From Operations ("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 ("GAAP"). The Operating Partnership adopted this new definition effective January 1, 2000. FFO for any period means the consolidated net income of the Operating Partnership 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 GAAP. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies because not all real estate companies use the same definition. The Operating Partnership's FFO is comparable to the FFO of real estate companies that use the current NAREIT definition. FFO should not be considered as an alternative to net income (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 or ability to service indebtedness or make distributions. -19- POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER 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. 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, ------------------------ ------------------------- 2001 2000 2001 2000 -------- --------- --------- --------- REVENUES Fully stabilized communities .......................... $ 64,864 $ 64,414 $ 194,827 $ 190,572 Communities stabilized during 2000 .................... 11,616 10,777 35,131 27,788 Development and lease-up communities .................. 12,216 5,097 31,576 11,226 Communities held for sale ............................. 1,552 1,591 4,714 4,615 Sold communities ...................................... 735 11,558 12,538 36,389 Third party services .................................. 3,981 3,730 11,939 10,671 Other ................................................. 4,155 4,063 13,139 14,855 -------- --------- --------- --------- Consolidated revenues ................................. $ 99,119 $ 101,230 $ 303,864 $ 296,116 ======== ========= ========= ========= CONTRIBUTION TO FUNDS FROM OPERATIONS Fully stabilized communities .......................... $ 43,545 $ 44,577 $ 132,614 $ 132,835 Communities stabilized during 2000 .................... 7,494 7,210 23,186 18,137 Development and lease-up communities .................. 7,730 2,692 18,985 5,523 Communities held for sale ............................. 918 1,022 2,863 2,924 Sold communities ...................................... 437 7,825 7,864 25,165 Third party services .................................. 280 623 1,310 1,562 -------- --------- --------- --------- Contribution to FFO ................................... 60,404 63,949 186,822 186,146 -------- --------- --------- --------- Other operating income, net of expense ................ (449) (539) (1,321) 2,207 Depreciation on non-real estate assets ................ (611) (583) (1,857) (1,794) Minority interest in consolidated property partnerships .......................................... 527 381 1,344 1,195 Interest expense ...................................... (14,058) (12,789) (43,763) (35,551) Amortization of deferred loan costs ................... (513) (413) (1,456) (1,196) General and administrative ............................ (3,395) (2,678) (9,802) (6,806) Distributions to preferred unitholders ................ (4,369) (4,369) (13,106) (13,107) -------- --------- --------- --------- Total FFO ............................................. 37,536 42,959 116,861 131,094 -------- --------- --------- --------- Depreciation on real estate assets .................... (17,973) (16,651) (52,195) (47,825) Net gain on sale of assets ............................ 8,179 958 23,950 1,627 Distributions to preferred unitholders ................ 4,369 4,369 13,106 13,107 -------- --------- --------- --------- Income before cumulative effect of accounting change, extraordinary item and preferred distributions ......................................... $ 32,111 $ 31,635 $ 101,722 $ 98,003 ======== ========= ========= =========
-20- POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - ------------------------------------------------------------------------------ 7. PROJECT ABANDONMENT, EMPLOYEE SEVERANCE AND IMPAIRMENT CHARGES In the fourth quarter of 2000, management decided to restrict its development activities to fewer markets, refine its development strategy, exit the for-sale housing business and make changes in its executive management team. Employees affected by the management changes were primarily four executives and five accounting department employees in the Dallas regional office. The following table summarizes the activity relating to the unpaid severance charges during the three months ended September 30, 2001: Severance accrual at December 31, 2000 $ 2,250 Severance payment during first quarter 2001 1,382 Severance payment during second quarter 2001 631 Severance payment during third quarter 2001 166 -------- Severance accrual at September 30, 2001 $ 71 ========
8. INVESTMENTS IN REAL ESTATE ENTITIES: In April 2001, the Operating Partnership contributed two apartment communities under development in Atlanta, Georgia to joint ventures with an institutional investor. The Operating Partnership holds a 35% equity interest in the joint ventures. The total estimated development cost of the joint venture properties of $67,000 is being funded through partner equity contributions proportionate to the partners' ownership interest and through construction financing provided by the Operating Partnership. No gain or loss was recognized on the Operating Partnership's contribution to the joint ventures. The Operating Partnership provides real estate services (development, construction and property management) to the joint ventures. The Operating Partnership accounts for these joint ventures using the equity method of accounting. At September 30, 2001, the Operating Partnership's investment in and advances to the joint ventures accounted for using the equity method totaled $36,377. The combined total assets, liabilities and equity of the joint ventures accounted for using the equity method at September 30, 2001, were $48,890, $35,876 and $13,014, respectively. During the third quarter of 2001, one of the communities commenced its initial rental operations. The Operating Partnership recorded equity in loss from this joint venture totaling $26 during the third quarter. Such equity in loss is included in other revenue in the accompanying consolidated financial statements. In the third quarter of 2001, the Operating Partnership commenced the development of a 138-unit apartment community in New York, New York, through an entity that will be approximately 64% owned by the Operating Partnership. Total estimated development costs of approximately $52,000 are being funded through partner equity contributions proportionate to the partners' ownership interest and through construction financing provided by the Operating Partnership. Through September 30, 2001, total development costs were approximately $11,000. The financial statements of this majority owned entity are consolidated with the accompanying consolidated financial statements of the Operating Partnership. For cash flow purposes, investments in and advances to unconsolidated entities excludes non-cash contributions of $29,583 for the nine months ended September 30, 2001. 9. STOCK BASED COMPENSATION PLAN In 2001, the Company, under its existing Employee Stock Plan, granted 17,566 shares of restricted stock to Operating Partnership officers. The restricted shares vest ratably over a five-year period. The total value of the restricted share grants of $644 was initially reflected in partners' equity offset by the amount of the unamortized deferred compensation expense. Such deferred compensation is amortized ratably into compensation expense over the vesting period. -21- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (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, 2001, there were 42,004,729 units in the Operating Partnership outstanding, of which 36,860,834 or 87.8%, were owned by the Company and 5,143,895, or 12.2%, were owned by other limited partners (including certain officers and directors of the Company). As of September 30, 2001, 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, 2001 AND 2000 The Company recorded net income available to common shareholders of $24,420 and $77,431 for the three and nine months ended September 30, 2001, respectively, which represent increases of 1.3% and 3.2%, respectively, over the corresponding periods in 2000 primarily as a result of net gains from the sale of assets. 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, 2001, the Company's portfolio of apartment communities consisted of the following: (i) 66 communities which were completed and stabilized for all of the current and prior year, (ii) ten communities which achieved full stabilization during the prior year, (iii) 18 communities either stabilized in the current year or presently in the development or lease-up stages and (iv) one community that is currently held 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) 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, 2001 were $488 and $2,256, respectively. Lease up deficits for the three and nine months ended September 30, 2000 were $521 and $2,138, respectively. -22- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- 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, 2000. ALL OPERATING COMMUNITIES The operating performance for all of the Company's apartment communities combined for the three and nine months ended September 30, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ----------------------------------- 2001 2000 %CHANGE 2001 2000 %CHANGE -------- -------- -------- -------- -------- -------- Rental and other revenue: Mature communities (1) ........................... $64,864 $ 64,414 0.7% $194,827 $190,572 2.2% Communities stabilized during 2000 ............... 11,616 10,777 7.8% 35,131 27,788 26.4% Development and lease-up communities (2) ......... 12,216 5,097 139.7% 31,576 11,226 181.3% Communities held for sale (3) .................... 1,552 1,591 (2.5)% 4,714 4,615 2.1% Sold communities (4) ............................. 735 11,558 (93.3)% 12,538 36,389 (65.5)% Other revenue (5) ................................ 3,785 3,587 5.5% 11,781 13,392 (12.0)% ------- -------- -------- -------- 94,768 97,024 (2.3)% 290,567 283,982 2.3% ------- -------- -------- -------- Property operating and maintenance expense (exclusive of depreciation and amortization): Mature communities (1) ........................... 21,319 19,837 7.5% 62,213 57,737 7.8% Communities stabilized during 2000 ............... 4,122 3,567 15.6% 11,945 9,651 23.8% Development and lease-up communities (2) ......... 4,486 2,405 86.5% 12,591 5,703 120.8% Communities held for sale (3) .................... 634 569 11.4% 1,851 1,691 9.5% Sold communities (4) ............................. 298 3,733 (92.0)% 4,674 11,224 (58.4)% Other expenses (6) ............................... 3,845 3,906 (1.5)% 12,406 10,900 13.8% ------- -------- -------- -------- 34,704 34,017 2.0% 105,680 96,906 9.1% ------- -------- -------- -------- Revenue in excess of specified expense ........... $60,064 $ 63,007 (4.7)% $184,887 $187,076 (1.2)% ======= ======== ======== ======== Recurring capital expenditures: (7) Carpet ......................................... $ 793 $ 777 2.1% $ 2,192 $ 2,187 0.2% Other .......................................... 1,987 2,563 (22.5)% 7,527 5,615 34.1% ------- -------- -------- -------- Total .......................................... $ 2,780 $ 3,340 (16.8)% $ 9,719 $ 7,802 24.6% ======= ======== ======== ======== Average apartment units in service ............... 31,318 31,763 (1.4)% 31,777 31,254 1.7% ======= ======== ======== ======== Recurring capital expenditures per apartment unit ................................. $ 89 $ 105 (15.2)% $ 306 $ 250 22.4% ======= ======== ======== ========
(1) Communities which reached stabilization prior to January 1, 2000. (2) Communities in the "construction", "development" or "lease-up" stage during 2000 and, therefore, not considered fully stabilized for all of the periods presented. (3) Includes one community and two commercial properties in Texas. (4) Includes one community containing 213 units which was sold February 4, 2000, three communities containing 983 units which were sold on September 6, 2000, two communities containing 367 units which were sold November 9, 2000, one community containing 296 units which was sold December 21, 2000, one community containing 125 units which was sold December 28, 2000, one community containing 810 units which was sold April 10, 2001, one community containing 80 units which was sold May 1, 2001, one community containing 327 units which was sold May 10, 2001, one community containing 314 units which was sold May 23, 2001, one community containing 908 units which was sold June 21, 2001, and one community containing 360 units which was sold on September 25, 2001. (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, ground maintenance, costs associated with furnished apartment rentals and operating expenses from commercial properties. (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. -23- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) For the three months ended September 30, 2001, rental and other revenue decreased $2,256, or 2.3%, compared to the same period in the prior year primarily as a result of asset sales partially offset by the completion and lease-up of new communities. For the nine months ended September 30, 2001, rental and other revenue increased $6,585, or 2.3% compared to the same period in the prior year primarily as a result of the completion and lease-up of new communities and increased rental rates for existing communities partially offset by asset sales. For the three and nine months ended September 30, 2001, property operating and maintenance expenses increased $687, or 2.0%, and $8,774, or 9.1%, respectively, compared to the same periods in the prior year, primarily due to the completion of new communities and increases in personnel costs, real estate taxes and insurance in the mature communities. For the three months ended September 30, 2001, recurring capital expenditures decreased $560, or 16.8% ($16, or 15.2% on a per unit apartment basis), compared to the same period in the prior year, primarily due to the timing of capital expenditures. For the nine months ended September 30, 2001, recurring capital expenditures increased $1,917, or 24.6% ($56, or 22.4% on a per unit apartment basis) compared to the same period in the prior year, primarily due to additional units placed in service and the extent of scheduled capital improvements. 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 66 communities containing an aggregate of 22,612 units, which were fully stabilized as of January 1, 2000, is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------------- ------------------------------------ % % 2001 2000 CHANGE 2001 2000 CHANGE ------- ------- ------ -------- -------- ------ Rental and other revenue (1) ................ $64,864 $64,414 0.7% $194,827 $190,572 2.2% Property operating and maintenance expense (exclusive of depreciation and amortization) (1) ......................... 21,319 19,837 7.5% 62,213 57,737 7.8% ------- ------- -------- -------- Revenue in excess of specified expense ...... $43,545 $44,577 (2.3)% $132,614 $132,835 (0.2)% ------- ------- -------- -------- Recurring capital expenditures: (2) Carpet .................................... $ 745 $ 653 14.1% $ 1,887 $ 1,776 6.3% Other ..................................... 1,810 2,211 (18.1)% 6,357 4,824 31.8% ------- ------- -------- -------- Total ..................................... $ 2,555 $ 2,864 (10.8)% $ 8,244 $ 6,600 24.9% ======= ======= ======== ======== Recurring capital expenditures per apartment unit (3) ........................ $ 113 $ 127 (11.0)% $ 365 $ 292 25.0% ======= ======= ======== ======== Average economic occupancy (4) .............. 95.1% 97.1% (2.1)% 95.4% 96.8% (1.4)% ======= ======= ======== ======== Average monthly rental rate per apartment unit (5) ........................ $ 957 $ 940 1.8% $ 954 $ 932 2.3% ======= ======= ======== ======== Apartment units in service .................. 22,612 22,612 22,612 22,612 ======= ======= ======== ========
(1) Communities which reached stabilization prior to January 1, 2000. (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 $205 and $176 per unit on building maintenance (inclusive of direct salaries) and $59 and $58 per unit on landscaping (inclusive of direct salaries) for the three months ended September 30, 2001 and 2000, respectively. -24- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) (4) Average economic occupancy is defined as gross potential rent less vacancy losses, model expenses and bad debt divided by gross potential rent for the period, expressed as a percentage. The calculation of average economic occupancy does not include a deduction for concessions and employee discounts. Average economic occupancy, including these amounts would have been 94.1% and 95.2% for the three months ended September 30, 2001 and 2000, respectively. For the three months ended September 30, 2001 and 2000, concessions were $401 and $1,020, respectively, and employee discounts were $212 and $229, 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, 2001, rental and other revenue increased $450, or 0.7%, and $4,255, or 2.2%, respectively, compared to the same periods in the prior year, primarily due to increased rental rates partially offset by the impact of lower average occupancy between periods. For the three and nine months ended September 30, 2001, property operating and maintenance expenses (exclusive of depreciation and amortization) increased $1,482, or 7.5%, and $4,476, or 7.8%, respectively, compared to the same periods in the prior year, primarily as a result of increased personnel expense, real estate taxes and insurance. For the three months ended September 30, 2001, recurring capital expenditures per unit decreased $14, or 11.0%, compared to the same period in the prior year, as a result of the timing of expenditures. For the nine months ended September 30, 2001, recurring capital expenditures increased $73, or 25%, compared to the same period in the prior year as a result of the extent of scheduled capital improvements. 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, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------- ----------------------------- 2001 2000 %CHANGE 2001 2000 %CHANGE -------- --------- ------- -------- --------- ------- Property management and other revenue.. $ 1,102 $ 987 11.7% $ 3,469 $ 2,828 22.7% Property management expense............ 924 731 26.4% 2,834 2,249 26.0% Depreciation expense................... 8 7 14.3% 23 21 9.5% -------- --------- -------- --------- Revenue in excess of specified expense. $ 170 $ 249 (31.7)% $ 612 $ 558 9.7% ======== ========= ======== ========= Average apartment units managed........ 17,171 14,613 17.5% 16,558 14,114 17.3% ======== ========= ======== =========
The decrease in revenue in excess of specified expense for the three months ended September 30, 2001 compared to the same period in the prior year is primarily attributable to increased expenses associated with the procurement of new management contracts during the period. The increase in revenue in excess of specified expense for the nine months ended September 30, 2001 compared to the same period in the prior year is primarily attributable to an increase in the average number of units managed. The Company has entered into an agreement to sell RAM to a group of its management. This transaction is expected to close by year-end (See footnote 7 to the accompanying consolidated financial statements). -25- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) THIRD PARTY LANDSCAPE SERVICES The Company provides landscape maintenance, design and installation services to non-related parties through a subsidiary, Post Landscape 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, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------------- --------------------------------- 2001 2000 % CHANGE 2001 2000 % CHANGE --------- --------- --------- --------- --------- --------- Landscape services and other revenue...... $ 2,879 $ 2,743 5.0% $ 8,470 $ 7,843 8.0% Landscape services expense................ 2,777 2,376 16.9% 7,795 6,860 13.6% Depreciation expense...................... 120 96 25.0% 339 273 24.2% --------- --------- --------- --------- Revenue in excess of specified expense.... $ (18) $ 271 (106.6)% $ 336 $ 710 (52.7)% ========= ========= ========= =========
The decrease in revenue in excess of specified expense for the three and nine months ended September 30, 2001 compared to the same periods in the prior year is primarily attributable to a reduction in landscape installation volume resulting from a slow down in commercial construction in Post Landscape Group's markets. On November 7, 2001, the Company sold Post Landscape Group to a group of its management (See footnote 7 to the accompanying consolidated financial statements). OTHER EXPENSES Depreciation expense increased $1,413, or 7.9%, and $4,739, or 9.2%, respectively, for the three and nine months ended September 30, 2001 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 $717, or 26.8%, and $2,996, or 44.0%, respectively, for the three and nine months ended September 30, 2001, compared to the same period in the prior year, primarily as a result of reduced capitalization of overhead to a declining investment in communities under development, increased salary expense, insurance costs and internet infrastructure maintenance costs. Interest expense increased $1,269, or 9.9%, and $8,212, or 23.1%, respectively, for the three and nine months ended September 30, 2001 compared to the same period in the prior year primarily due to an increase in debt used to fund the development and lease-up of new communities and the repurchase of the Company's common stock. LIQUIDITY AND CAPITAL RESOURCES Liquidity The Company's net cash provided by operating activities decreased from $152,965 for the nine months ended September 30, 2000 to $143,901 for the nine months ended September 30, 2001, principally due to reduced operating income as a result of property sales and changes in working capital. Net cash provided by (used in) investing activities increased from ($239,518) in the nine months ended September 30, 2000 to $3,057 in the nine months ended September 30, 2001 principally due to decreased construction spending and greater proceeds from the sale of communities in 2001. The Company's net cash provided by (used in) financing activities decreased from $98,622 for the nine months ended September 30, 2000 to ($149,491) for the nine months ended September 30, 2001 primarily due to increased debt payments and treasury stock purchases. -26- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) 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 90% of their ordinary taxable income. The Company generally will not be subject to Federal income tax on net income. At September 30, 2001, the Company had total indebtedness of $1,256,804, an increase of $43,495 from its total indebtedness at December 31, 2000, and cash and cash equivalents of $4,926. At September 30, 2001, the Company's indebtedness included approximately $229,974 in conventional mortgages payable secured by individual communities, tax-exempt bond indebtedness of $235,880 senior unsecured notes of $703,000, borrowings under it's revolving credit facility ("the Revolver") of $83,000 and other unsecured lines of credit and unsecured debt of $4,950. 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, as supplemented by borrowings under its existing credit arrangements, will be adequate and anticipates that it will continue to be adequate to meet both operating requirements and payment of dividends by the Company in accordance with REIT requirements in both the short and the long term. The budgeted expenditures for improvements and renovations to certain of the communities are expected to be funded from property operations. Lines Of Credit The Company has three unsecured lines of credit with total availability of $525,000. As of September 30, 2001, there was $85,950 outstanding on these lines. Medium Term Notes As of September 30, 2001, the Operating Partnership had $323,000 aggregate principal amount of notes outstanding under a Medium Term Note Program. Medium Term Notes in the amounts of $37,000 and $30,000 were repaid on April 2, 2001 and June 7, 2001, respectively. Fixed Rate Notes On March 12, 2001, the Operating Partnership issued $50,000 of unsecured notes. These notes bear interest at 6.71% and mature March 13, 2006. Net proceeds of $49,700 were used to repay outstanding indebtedness and repurchase the Company's common stock. Sale of Assets During the first three-quarters of 2001, the Company sold six communities and three tracts of land for gross proceeds of $218,500. Net proceeds of approximately $215,660 were used to repay outstanding indebtedness and fund additional development projects. Stock Repurchase Program The Company's Board of Directors has approved the purchase of up to $200,000 of the Company's common stock and an additional $50,000 of preferred stock. Purchases will be made from time to time in the open market and it is expected that funding of the program will come from operating cash flow, existing bank facilities and proceeds from asset sales. Through September 30, 2001, the Company has repurchased 3,087,600 shares of its common stock at a total cost of $112,689. -27- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) Schedule of Indebtedness The following table reflects the Company's indebtedness at September 30, 2001:
DESCRIPTION LOCATION INTEREST RATE DATE (1) BALANCE ----------- -------- ------------- -------- ------- CONVENTIONAL FIXED RATE (SECURED) Northwestern Mutual Life................. Dallas, TX 7.69% 10/01/07 28,372 Northwestern Mutual Life................. Dallas, TX 7.69% 10/01/07 50,712 Northwestern Mutual Life................. Atlanta, GA 6.50% (2) 03/01/09 47,918 Parkwood Townhomes(TM).................... Dallas, TX 7.375% 04/01/14 772 FNMA..................................... Atlanta, GA 6.975% (3) 07/23/29 102,200 ---------- 229,974 TAX EXEMPT FLOATING RATE (SECURED) Post Ashford(R)Series 1995............... Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 9,895 Post Valley(R)Series 1995................ Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 18,600 Post Brook(R)Series 1995................. Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 4,300 Post Village(R)(Atlanta) Hills Series 1995 Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 7,000 Post Mill(R)Series 1995.................. Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 12,880 Post Canyon(R)Series 1996................ Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 16,845 Post Corners(R)Series 1996............... Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 14,760 Post Bridge(R)........................... Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 12,450 Post Village(R)(Atlanta) Gardens......... Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 14,500 Post Chase(R)............................ Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 15,000 Post Walk(R)............................. Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 15,000 Post Lake(R)............................. Orlando, FL "AAA" NON-AMT + .515% (4)(5) 06/01/25 28,500 Post Fountains at Lee Vista(R)........... Orlando, FL "AAA" NON-AMT + .515% (4)(5) 06/01/25 21,500 Post Village(R)(Atlanta) Fountains And Meadows........................... Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 26,000 Post Court(R)............................ Atlanta, GA "AAA" NON-AMT + .515% (4)(5) 06/01/25 18,650 ---------- 235,880 SENIOR NOTES (UNSECURED) 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 7.28% (6) 02/01/05 25,000 Medium Term Notes........................ N/A 8.12% 06/15/05 150,000 Medium Term Notes........................ N/A 6.78% 09/22/05 25,000 Senior Notes............................. N/A 6.71% 03/13/06 50,000 Senior Notes............................. N/A 7.50% 10/01/06 25,000 Senior Notes............................. N/A 7.70% 12/20/10 185,000 Mandatory Par Put Remarketed Securities............................... N/A 6.85% (7) 03/16/15 100,000 ---------- 703,000 LINES OF CREDIT AND OTHER UNSECURED DEBT Cash Management Line..................... N/A LIBOR + .675% or prime minus .25% 02/13/02 2,950 LIBOR + .750% or prime minus Revolver - Syndicated ................... N/A .25%(8) 04/30/04 83,000 City of Phoenix.......................... N/A 5.00% (9) 03/01/21 2,000 ---------- 87,950 TOTAL.................................... $1,256,804 ==========
(1) All of the mortgages can be prepaid at any time, subject to certain prepayment penalties. (2) This note bears interest at 6.50% with an effective rate of 7.30% after consideration of a terminated swap agreement. (3) In December 2000, the Company entered into a swap transaction that fixed the rate of interest on this note at 6.975%, inclusive of credit enhancement and other fees, from January 1, 2001 through July 31, 2009. (4) Bond financed (interest rate on bonds + credit enhancement fees effective October 1, 1998). (5) These bonds are cross-collateralized. The Company purchased an interest rate cap that limits exposure to increases in the base rate to 5%. (6) The Company entered into a swap transaction that fixed the rate on the note of 7.28%, inclusive of credit enhancement and other fees, through maturity. (7) The annual interest rate on these securities to March 16, 2005 is 6.85%. On this date, they are subject to mandatory tender for remarketing. (8) Represents stated rate. The Company may also make "money market" loans of up to $160,000 at rates below the stated rate. At September 30, 2001, the outstanding balance of the Revolver consisted of "money market" loans with an average interest rate of 3.84%. (9) This loan is interest-free for the first three years, with interest at 5.00% thereafter. Repayment commenced on March 1, 2001 subject to the conditions set forth in the Agreement. -28- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) Dividend Reinvestment Plan During the third quarter, the Company announced the adoption of a dividend reinvestment and stock purchase plan. The plan is available to all shareholders of the Company and allows shareholders to acquire additional shares of the Company's common stock through the reinvestment of regular quarterly dividends and optional cash payments. The Company currently plans to purchase the required additional shares on the open market as allowed under this plan. Current Development Activity The Company's apartment communities under development or in initial lease-up are summarized in the following table:
ESTIMATED ESTIMATED ESTIMATED # OF QUARTER OF QUARTER OF QUARTER OF METROPOLITAN AREA UNITS CONSTRUCTION START FIRST UNITS AVAILABLE STABILIZED OCCUPANCY ----------------- ----- ------------------ --------------------- -------------------- WHOLLY OWNED CONSTRUCTION/LEASE-UP COMMUNITIES: CHARLOTTE, NC Post Gateway Place II............... 204 3Q'00 4Q'01 4Q'02 SUBTOTAL TAMPA, FL Post Harbour Place III.............. 259 2Q'01 2Q'02 2Q'03 HOUSTON, TX Post Midtown Square(TM)(II)........... 193 1Q'00 4Q'00 4Q'01 DENVER, CO Post Uptown Square(TM)(II)............ 247 1Q'00 4Q'01 4Q'02 SUBTOTAL WASHINGTON, D.C. Post Pentagon Row................... 504 2Q'99 2Q'01 3Q'02 Post Massachusetts Avenue........... 269 2Q'01 1Q'03 4Q'03 ----- SUBTOTAL 773 ----- PASADENA, CA Post Paseo Colorado................. 387 2Q'00 2Q'02 2Q'03 Subtotal Wholly-Owned ----- Construction/Lease-up Communities 2,063 ===== CO-INVESTMENT CONSTRUCTION/LEASE-UP COMMUNITIES ATLANTA, GA Post Peachtree(TM)(1)................. 121 2Q'00 3Q'01 2Q'02 Post Biltmore (1)................... 276 3Q'00 4Q'01 4Q'02 ----- SUBTOTAL 397 ----- NEW YORK, NY Post Luminaria (2) 3Q'01 3Q'02 2Q'03 138 ----- Subtotal Co-Investment Construction/Lease-up Communities 535 TOTAL ----- 2,598 =====
The Company is also currently conducting feasibility and other pre-development studies for possible new Post(R) communities in some of its primary market areas. (1) Effective April 2001, these communities are being developed as a joint venture (the Company's equity ownership is 35%). (2) This development is structured through joint ventures, with the Company and an outside developer contributing approximately 70% of the equity and a landowner contributing the balance. -29- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (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, 2001 and 2000 are summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 2001 2000 2001 2000 -------- -------- -------- -------- New community development and acquisition activity $ 63,207 $112,384 $186,545 $303,038 Non-recurring capital expenditures: Revenue generating additions and improvements 612 2,068 2,620 4,257 Other community additions and improvements 401 898 1,220 2,336 Recurring capital expenditures: Carpet replacements 793 777 2,192 2,187 Community additions and improvements 1,987 2,563 7,527 5,615 Corporate additions and improvements 610 665 1,850 1,991 -------- -------- -------- -------- $ 67,610 $119,355 $201,954 $319,424 ======== ======== ======== ========
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 January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities." This standard establishes accounting and reporting standards for derivative and hedging activities and requires the Company to recognize all derivative instruments on its balance sheet at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income, depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. Upon adoption of SFAS No. 133, the Company recorded a derivative instrument liability of $1,299, net of minority interest, and an adjustment of $1,299, net of minority interest, to accumulated other comprehensive income, a shareholders' equity account, representing the fair value of its outstanding interest rate swap agreements. The Company also recorded a net transition adjustment loss in the statement of operations of $613, net of minority interest, relating to the write down of the book value of it's interest rate cap agreements to their fair value. In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives. The Company's -30- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) outstanding derivative financial instruments represent cash flow hedges that are designated debt obligations. This was accomplished using interest rate swap and interest rate cap arrangements. For all outstanding derivative financial instruments and for future use of derivative financial instruments, the Company designates the specific instruments as a hedge of identified cash flow exposure. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedged transactions. In this documentation, the Company will specifically identify the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and will state how the hedged instrument is expected to hedge the risks related to the hedged item. The Company will formally measure effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company may discontinue hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; when the derivative is expired or sold, terminated or exercised; or when the derivative is re-designated to no longer be a hedged instrument. At September 30, 2001, the Company has outstanding interest rate swap agreements with a notional value of $129,000 and maturity dates ranging from 2005 to 2009. For the nine months ended September 30, 2001, the Company recorded the unrealized net loss of $7,845, net of minority interest, on these cash flow hedges as a liability and a reduction in accumulated other comprehensive income, a shareholders' equity account, in the accompanying consolidated balance sheet. This unrealized net loss of $7,845 was comprised of an unrealized net loss of $2,764, net of minority interest, for the three months ended March 31, 2001, an unrealized net gain of $2,314, net of minority interest, for the three months ended June 30, 2001 and an unrealized net loss of $7,395, net of minority interest, for the three months ended September 30, 2001. In addition, the Company recorded the change in fair value of the ineffective component of its outstanding interest rate cap agreements in its statement of operations for the nine months ended September 30, 2001. This charge against earnings during the period and the fair value of the interest rate cap agreements as of September 30, 2001 were not significant to the Company's financial position or results of operations. Within the next twelve months, the Company expects to reclassify out of accumulated other comprehensive income approximately $1,698. The Financial Accounting Standards Board ("FASB") has issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Statement No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The provisions of Statement No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company believes the provisions of Statement No. 144 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 was implemented in the fourth quarter of 2000. The adoption of SAB 101 has had no significant effect on the Company's results of operations or its financial position. 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 -31- the three and nine months ended September 30, 2001 and 2000 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, ----------------------------- ------------------------------ 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net income available to common shareholders ............ $ 24,420 $ 24,110 $ 77,431 $ 74,997 Cumulative effect of accounting change, net of minority interest ................................... -- -- 613 -- Extraordinary item, net of minority interest ........ -- -- 77 -- Net gain on sale of assets (1) ...................... (8,179) (958) (23,950) (1,627) Minority interest of common unitholders in Operating Partnership .............................. 3,322 3,156 10,495 9,899 ------------ ------------ ------------ ------------ Adjusted net income .................................... 19,563 26,308 64,666 83,269 Depreciation of real estate assets (2) .............. 17,973 16,651 52,195 47,825 ------------ ------------ ------------ ------------ Funds from Operations (3) .............................. 37,536 42,959 116,861 131,094 Recurring capital expenditures (4) ..................... (2,780) (3,340) (9,719) (7,802) Non-recurring capital expenditures (5) ................. (401) (898) (1,220) (2,336) Loan amortization payments ............................. (772) (1,027) (2,320) (1,626) ------------ ------------ ------------ ------------ Cash Available for Distribution ........................ $ 33,583 $ 37,694 $ 103,602 $ 119,330 ============ ============ ============ ============ Revenue generating capital expenditures (6) ............ $ 612 $ 2,068 $ 2,620 $ 4,257 ============ ============ ============ ============ Cash Flow Provided By (Used In): Operating activities ................................... $ 58,959 $ 63,941 $ 143,901 $ 152,965 Investing activities ................................... $ (50,934) $ (75,388) $ 3,057 $ (239,518) Financing activities ................................... $ (17,368) $ 14,172 $ (149,491) $ 98,622 Weighted average common shares outstanding - basic ..... 37,899,668 39,556,981 38,463,672 39,293,302 ============ ============ ============ ============ Weighted average common shares and units outstanding - basic .................................... 43,054,521 44,738,392 43,631,222 44,480,261 ============ ============ ============ ============ Weighted average common shares outstanding - diluted ... 38,185,054 40,422,756 38,721,056 39,980,339 ============ ============ ============ ============ Weighted average common shares and units outstanding - diluted .................................. 43,339,907 45,604,167 43,888,606 45,167,298 ============ ============ ============ ============
(1) Net gain on sale of assets includes reserves of $1,530 and $12,795 for the three and nine months ended September 30, 2001, respectively, to write down to fair market value real estate assets designated as held for sale. (2) Depreciation on real estate assets is net of the minority interest portion of depreciation in consolidated partnerships and depreciation on non-real estate assets. (3) 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. (4) Recurring capital expenditures consisted primarily of $793 and $777 of carpet replacement and $1,987 and $2,563 of other additions and improvements to existing communities for the three months ended September 30, 2001 and 2000, respectively and $2,192 and $2,187 of carpet replacement and $7,527 and $5,615 of other additions and improvements to existing communities for the nine months ended September 30, 2001 and 2000, respectively. Since the Company does not add back the depreciation of non-real estate assets in its calculation of FFO, capital expenditures of -32- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) $610 and $665 for the three months ended September 30, 2001 and 2000, respectively, and $1,850 and $1,991 for the nine months ended September 30, 2001 and 2000, respectively, are excluded from the calculation of CAD. (5) Non-recurring capital expenditures consisted of community additions and improvements of $401 and $898 for the three months ended September 30, 2001 and 2000, respectively, and $1,220 and $2,336 for the nine months ended September 30, 2001 and 2000, respectively. (6) Revenue generating capital expenditures are primarily comprised of major renovations of communities. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is interest rate risk. At September 30, 2001, the Company had $235,880 in variable tax-exempt debt tied to "AAA" NON-AMT. In addition, the Company has interest rate risk associated with fixed rate debt at maturity. At September 30, 2001, the Company had $934,974 of fixed rate debt outstanding. The value of the fixed rate debt has not changed significantly since December 31, 2000. The discussion in this section is the same for the Company and the Operating Partnership, except that all indebtedness described herein has been incurred by the Operating Partnership. Management has and will continue to manage interest rate risk as follows: - - Maintain a conservative ratio of fixed rate, long-term debt to total debt such that variable rate exposure is kept to an acceptable level; - - Fix certain long-term variable rate debt through the use of interest rate swaps or interest rate caps with appropriately matching maturities; - - Use treasury locks where appropriate to fix rates on anticipated debt transactions, and - - Take advantage of favorable market conditions for issuance of long-term debt and/or equity. Management uses various financial models and advisors to achieve these objectives. The following table summarizes the notional values and fair values of the Company's derivative financial instruments of September 30, 2001. The notional value provides an indication of the extent of the Company's involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks.
Average Pay Rate/ Expected Fair Interest Rate Derivatives Notional Amount Cap Rate Settlement Date Value - ------------------------- --------------- -------- --------------- ----- Interest Rate Swaps Variable to fixed $104,000 amortizing to $90,270 6.04% 07/31/09 $ (8,220) Variable to fixed 25,000 6.53% 02/01/05 (2,162) Interest rate cap 76,000 5.00% 02/01/03 3 Interest rate cap 141,230 5.00% 02/01/03 5 Interest rate cap $18,650 5.00% 02/01/03 1
At September 30, 2001, the derivative instrument assets and liabilities were reported at their fair value in the Company's balance sheet. -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 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, 2001. -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, 2001 /s/ R. Gregory Fox - ------------------------ ---------------------------- (Date) R. Gregory Fox Executive Vice President, Chief Financial Officer (Principal Financial Officer) November 14, 2001 /s/ Arthur J. Quirk - ------------------------ ---------------------------- (Date) Arthur J. Quirk Vice President and Controller, Chief Accounting Officer -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, 2001 /s/ R. Gregory Fox - ------------------------ --------------------------------- (Date) R. Gregory Fox Executive Vice President, Chief Financial Officer (Principal Financial Officer) November 14, 2001 /s/ Arthur J. Quirk - ------------------------ ---------------------------- (Date) Arthur J. Quirk Vice President and Controller, Chief Accounting Officer -36- -----END PRIVACY-ENHANCED MESSAGE-----