-----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, LEYNdaS5nfy8di1ZO2JleJTdF+SnvSMSjYsKsi5JL6KDFuaVLXF7W5Ky0f3DSf6J R2oTWff3MRZ5nKaaiRyqGw== 0000950144-96-003492.txt : 19960619 0000950144-96-003492.hdr.sgml : 19960619 ACCESSION NUMBER: 0000950144-96-003492 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960618 SROS: NYSE SROS: PHLX 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12080 FILM NUMBER: 96582232 BUSINESS ADDRESS: STREET 1: 3350 CUMBERLAND CIRCLE STREET 2: SUITE 2200 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 7708504400 MAIL ADDRESS: STREET 1: 3530 CUMBERLAND CIRCLE STREET 2: SUITE 2200 CITY: ATLANTA STATE: GA ZIP: 30339 10-Q/A 1 POST PROPERTIES, INC., AMENDMENT TO FORM 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ________________________ FORM 10-Q/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 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 number 1-12080 ________________________ POST PROPERTIES, INC. (Exact name of registrant as specified in its charter) GEORGIA 58-1550675 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 3350 CUMBERLAND CIRCLE, SUITE 2200, ATLANTA, GEORGIA 30339 (Address of principal executive offices -- zip code) (770) 850-4400 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has 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) has been subject to such filing requirements for the past 90 days. 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. 21,717,051 shares of common stock outstanding as of April 29, 1996. ================================================================================ 2 POST PROPERTIES, INC. INDEX
Part I FINANCIAL INFORMATION PAGE ---- ITEM 1 FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 . . . . . . . . . 2 Consolidated Statements of Operations for the three months ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the three months ended March 31, 1996 . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 PART II OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . 23 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
- 1 - 3 POST PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31, 1996 1995 ----------- ------------ (UNAUDITED) ASSETS Real estate: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 134,442 $ 118,988 Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . 661,539 589,869 Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . 70,291 67,354 Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . 86,399 149,514 Land held for future development . . . . . . . . . . . . . . . . . . . . . 4,168 12,199 ---------- ----------- 956,839 937,924 Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . (161,973) (156,824) ---------- ----------- Operating real estate assets . . . . . . . . . . . . . . . . . . . . . . 794,866 781,100 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 1,383 9,008 Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,151 1,146 Deferred charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,138 7,241 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,157 14,489 ---------- ----------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 819,695 $ 812,984 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 354,431 $ 349,719 Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . 3,894 3,965 Dividend and distribution payable . . . . . . . . . . . . . . . . . . . . . . 14,469 13,091 Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . 16,496 16,023 Deferred swap income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 331 Security deposits and prepaid rents . . . . . . . . . . . . . . . . . . . . . 4,443 4,366 ---------- ----------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,022 387,495 ---------- ----------- Minority interest of unitholders in Operating Partnership . . . . . . . . . . 81,644 81,865 ---------- ----------- Commitments and contingencies Shareholders' equity Preferred stock, $.01 per value, 20,000,000 authorized, 0 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . - - Common stock, $.01 par value, 100,000,000 authorized, 21,656,115 and 21,577,636 shares issued and outstanding at March 31, 1996 and December 31, 1995, respectively . . . . . . . . . . . 217 216 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 343,812 343,408 Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . - - ---------- ----------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 344,029 343,624 ---------- ----------- Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $ 819,695 $ 812,984 ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. - 2 - 4 POST PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------------- 1996 1995 ----------- ----------- REVENUES Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,291 $ 31,082 Property management - third party . . . . . . . . . . . . . . . . . . . . . . . . . . 733 577 Landscape services - third party . . . . . . . . . . . . . . . . . . . . . . . . . . 912 809 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 39 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,140 656 ----------- ----------- Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,205 33,163 ----------- ----------- EXPENSES Property operating and maintenance (exclusive of items shown separately below) . . . 12,796 11,420 Depreciation and amortization (real estate assets) . . . . . . . . . . . . . . . . . 4,965 5,087 Depreciation and amortization (non-real estate assets) . . . . . . . . . . . . . . . 253 106 Property management - third party . . . . . . . . . . . . . . . . . . . . . . . . . . 570 566 Landscape services - third party . . . . . . . . . . . . . . . . . . . . . . . . . . 768 688 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,057 5,077 Amortization of deferred loan costs, interest rate protection agreement and swap gain, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352 483 General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,012 1,575 Minority interest in consolidated property partnership . . . . . . . . . . . . . . . - 196 ----------- ----------- Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,773 25,198 ----------- ----------- Income before minority interest of unitholders in Operating Partnership and extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,432 7,965 Minority interest of unitholders in Operating Partnership . . . . . . . . . . . . . . (2,386) (1,842) ----------- ----------- Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . 10,046 6,123 Extraordinary item, net of minority interest of unitholders in Operating Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (120) ----------- ----------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,046 $ 6,003 =========== =========== Per share data: Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . 21,646,708 17,322,233 =========== =========== Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.46 $ 0.35 =========== =========== Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.46 $ 0.35 =========== =========== Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.54 $ 0.49 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. - 3 - 5 POST PROPERTIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS (DOLLARS IN THOUSANDS) (UNAUDITED)
ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL EARNINGS TOTAL ------- --------- ----------- ---------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, DECEMBER 31, 1995 . . . . . . . . . . . . . . . $ 216 $343,408 $ - $343,624 Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans . . . . . . . . . . 1 2,220 - 2,221 Adjustment for minority interest of unitholders in Operating Partnership to proceeds from Dividend Reinvestment and Employee Stock Purchase Plans . . - (168) - (168) Net income . . . . . . . . . . . . . . . . . . . . . . . - - 10,046 10,046 Dividends paid . . . . . . . . . . . . . . . . . . . . . - - - Dividends declared . . . . . . . . . . . . . . . . . . . (1,648) (10,046) (11,694) ------- -------- --------- -------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, MARCH 31, 1996 . . . . . . . . . . . . . . . . $ 217 $343,812 $ - $344,029 ======= ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements. - 4 - 6 POST PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------------- 1996 1995 --------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,046 $ 6,003 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest of unitholders in Operating Partnership . . . . . . . . . . . . . 2,386 1,842 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,218 5,193 Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 339 Write-off of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . - 155 Amortization of interest rate protection agreement and swap gain . . . . . . . . . 143 144 Changes in assets, (increase) decrease in: Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) 7,006 Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (90) Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (751) 679 Changes in liabilities, increase (decrease) in: Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71) (762) Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 3,136 707 Security deposits and prepaid rents . . . . . . . . . . . . . . . . . . . . . . . . 77 (64) - (35) --------- --------- Minority interest of unitholders in Operating Partnership . . . . . . . . . . . . . 20,388 21,117 --------- --------- Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . CASH FLOWS FROM INVESTING ACTIVITIES Construction of real estate assets and land acquisitions, net of payables . . . . . . (19,591) (24,400) Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,115) (1,726) Recurring capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (466) (362) Corporate additions and improvements . . . . . . . . . . . . . . . . . . . . . . . . (204) (292) (136) (69) --------- --------- Non-recurring capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (21,512) (26,849) --------- --------- Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (343) (601) Debt proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,364 95,497 Debt payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,652) (87,745) Capital distributions to unitholders . . . . . . . . . . . . . . . . . . . . . . . . (2,518) (2,356) Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans . . . . . . . . 2,221 4,992 (10,573) (7,737) --------- --------- Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,501) 2,050 --------- --------- Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . Net (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (7,625) (3,682) Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . 9,008 5,292 --------- --------- Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . $ 1,383 $ 1,610 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. - 5 - 7 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. ORGANIZATION AND FORMATION OF THE COMPANY ORGANIZATION AND FORMATION OF THE COMPANY Post Properties, Inc. (the "Company"), which was incorporated on January 25, 1984, is the successor by merger to the original Post Properties, Inc., a Georgia Corporation which was formed in 1971. The Company was formed to develop, lease and manage upscale multi-family apartment communities. The Company elected to be taxed as a real estate investment trust ("REIT") for Federal income tax purposes beginning with the taxable year ended December 31, 1993. A corporate REIT is a legal entity which holds real estate interests and, through payments of dividends to shareholders, is permitted to reduce or avoid the payment of 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 in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normally recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three month period ended March 31, 1996 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, 1995. Certain items in the Consolidated Statements of Operations and of Cash Flows for the three months ended March 31, 1995 were reclassified for comparative purposes. 2. NOTES PAYABLE CONVENTIONAL MORTGAGES PAYABLE Conventional mortgages payable were comprised of four loans aggregating $33,393 at March 31, 1996, each of which is collateralized by an apartment community included in real estate assets. BOND INDEBTEDNESS Certain of the apartment communities are encumbered to secure tax-exempt housing bonds. Such bonds are generally payable in monthly or semi-annual installments of interest only and mature at various dates through 2025. Bond indebtedness totalling $149,038 was outstanding at March 31, 1996. LINE OF CREDIT At March 31, 1996, the Company's line of credit consisted of an unsecured revolving line of credit (the "Revolver") in the amount of $180,000. At March 31, 1996, the outstanding balance of the Revolver was $72,000. SENIOR UNSECURED NOTES At March 31, 1996, the Company had outstanding senior unsecured notes aggregating $100,000 with The Northwestern Mutual Life Insurance Company and Wachovia Bank of Georgia, N.A. - 6 - 8 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 3. EXTRAORDINARY ITEM The extraordinary item for the three months ended March 31, 1995 resulted from costs associated with the early extinguishment of indebtedness. The extraordinary item is net of the minority interest ($35) of the unitholders calculated on the basis of weighted average units and shares outstanding for the period. 4. EARNINGS PER SHARE Primary earnings per share for income before extraordinary item and net income has been computed by dividing income before extraordinary item and net income by the weighted average number of shares outstanding. This method derives the same per share information as the "two-class" method prescribed for REIT's. The weighted average number of shares outstanding utilized in the calculations are 21,646,708 and 17,322,233 for the three months ended March 31, 1996 and 1995, respectively. The non-recurring extraordinary items recognized had no effect on primary earnings per share in the three months ended March 31, 1995. 5. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities for the three months ended March 31, 1996 and 1995 are as follows: (a) During the three months ended March 31, 1995, holders of 81,247 units in Post Apartment Homes, L.P. (the "Operating Partnership") exercised their option to convert their units to shares of Common Stock of the Company on a one-for-one basis. The net effect of these conversions was a reclassification of minority interest to shareholders' equity in the amount of $612. (b) The Operating Partnership committed to distribute $14,469 and $11,077 for the quarters ended March 31, 1996 and 1995, respectively. As a result, the Company declared a dividend of $.54 and $.49 per common share or $11,694 and $8,551 for the quarters ended March 31, 1996 and 1995, respectively. The remaining distributions from the Operating Partnership in the amount of $2,775 and $2,526, respectively, were distributed to minority interest unitholders in the Operating Partnership. - 7 - 9 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE 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. As of March 31, 1996, there were 26,795,358 units in the Operating Partnership outstanding, of which 21,656,115, or 80.8%, were owned by the Company and 5,139,243, or 19.2% were owned by other limited partners (including certain officers and directors of the Company). RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995 The Company recorded net income of $10,046, for the three months ended March 31, 1996, an increase of $4,043 over the prior corresponding period primarily as a result of increased rental rates for fully stabilized communities and an increase in apartment units placed in service. 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. Currently, the Company's portfolio of apartment communities consisted of thirty-seven communities and the first phase of two additional communities which were completed and stabilized for all of the current and prior year, three communities and the second phase of an existing community which achieved full stabilization during the prior year, three communities which reached stabilization during 1996 and seven communities and a second phase of an existing community in the development or lease-up stage. For communities with respect to which construction is completed and the community has become fully operational, all property operating and maintenance expenses are expensed as incurred and those recurring and non-recurring expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset are capitalized. (See "Capitalization of Fixed Assets and Community Improvements"). The Company has adopted an accounting policy related to communities in the development and lease-up stage whereby substantially all operating expenses (including pre-opening marketing expenses) are expensed as incurred. The Company treats each unit in an apartment community separately for cost accumulation, capitalization and expense recognition 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. - 8 - 10 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Therefore, in order to evaluate the operating performance of its communities, the Company has presented financial information which summarizes the operating income on a comparative basis for all of its operating communities combined and for communities which have reached stabilization prior to January 1, 1995. The Company has also presented quarterly financial information reflecting the dilutive impact of lease-up deficits incurred for communities in the development and lease-up stage and not yet operating at break-even. In this presentation, only those communities which were dilutive during the period are included and, accordingly, different communities may be included in each period. ALL OPERATING COMMUNITIES The operating performance for all of the Company's apartment communities combined for the three months ended March 31, 1996 and 1995 is summarized as follows:
THREE MONTHS ENDED MARCH 31, -------------------------------------------- 1996 1995 % CHANGE -------- -------- ------------ Rental and other revenue: Fully stabilized communities (1) . . . . . . . . . . . . . . . . . $31,069 $29,334 5.9 % Communities stabilized during 1995 . . . . . . . . . . . . . . . . 2,296 761 201.7 % Development and lease-up communities (2) . . . . . . . . . . . . . 3,377 50 N/A Sold communities (3) . . . . . . . . . . . . . . . . . . . . . . . . - 1,049 (100.0)% Other revenue (4) . . . . . . . . . . . . . . . . . . . . . . . . . 689 544 26.7 % ------- ------- ------- 37,431 31,738 17.9 % ------- ------- ------- Property operating and maintenance expense (exclusive of depreciation and amortization): Fully stabilized communities . . . . . . . . . . . . . . . . . . . 9,786 9,293 5.3 % Communities stabilized during 1995 . . . . . . . . . . . . . . . . 615 397 54.9 % Development and lease-up communities . . . . . . . . . . . . . . . 1,504 323 365.6 % Sold communities . . . . . . . . . . . . . . . . . . . . . . . . . - 415 (100.0)% Other expenses (5) . . . . . . . . . . . . . . . . . . . . . . . . 891 992 (10.2)% 12,796 11,420 12.0 % ------- ------- ------- Revenue in excess of specified expense . . . . . . . . . . . . . . . $24,635 $20,318 21.2 % ======= ======= ======= Recurring capital expenditures: (6) Carpet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 174 $ 192 (9.4)% Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 170 7.2 % ------- ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 466 $ 362 28.7 % ------- ------- ------- Average apartment units in service . . . . . . . . . . . . . . . . . 16,369 15,164 7.9 % ======= ======= ======= Recurring capital expenditures per unit . . . . . . . . . . . . . . . $ 28 $ 24 16.7 % ======= ======= =======
- 9 - 11 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) Communities which reached stabilization prior to January 1, 1995. (2) Communities in the "construction", "development" or "lease-up" stage during 1996 and, therefore, not considered fully stabilized for all of the periods presented. (3) Communities which were sold on September 13, 1995. (4) Other revenue includes revenue on furnished apartment rentals above the unfurnished rental rates and any revenue not directly related to property operations. (5) Other expenses includes certain indirect central office operating expenses related to management, grounds maintenance, and costs associated with furnished apartment rentals. (6) In addition to those expenses which relate to property operations, the Company incurs recurring and non-recurring expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset, all of which are capitalized. For the quarter ended March 31, 1996, rental and other revenue increased $5,693, or 17.9%, compared to the same period in the prior year, primarily as a result of increased rates for fully stabilized communities and an increase in units placed in service, partially offset by a decrease in rental and other revenue due to the sale of three communities during the third quarter of 1995. Rental and other revenue from communities stabilized since January 1, 1995, increased $1,735, or 5.9%, compared to the same period in the prior year, primarily as a result of higher rental rates. Rental and other revenue from communities stabilized during 1995 and development and lease-up communities increased $4,862, compared to the same period in the prior year, primarily due to additional units placed in service. The historical operating results include, for the three months ended March 31, 1995, revenues and expenses related to three communities sold on September 13, 1995, all of which had been previously included in the fully stabilized communities group. Property operating and maintenance expenses (exclusive of depreciation and amortization) increased primarily due to the increase in the units placed in service from the first quarter of 1995 to the first quarter of 1996. - 10 - 12 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FULLY STABILIZED COMMUNITIES The Company defines fully stabilized communities as those which have reached stabilization prior to the beginning of the previous calendar year. The operating performance of the 37 communities and the first phase of two additional communities containing an aggregate of 14,160 units which were fully stabilized as of January 1, 1995, are summarized as follows:
THREE MONTHS ENDED MARCH 31, --------------------------------------- 1996 1995 % Change -------- ------- -------- Rental and other revenue . . . . . . . . . . . . . . . . . . . . . . . . $ 31,069 $29,334 5.9 % Property operating and maintenance expense (exclusive of depreciation and amortization) . . . . . . . . . . . . . 9,786 9,293 5.3 % -------- ------- Revenue in excess of specified expense . . . . . . . . . . . . . . . . . $ 21,283 $20,041 6.2 % ======== ======= Recurring capital expenditures:(1) Carpet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 174 $ 171 1.8 % Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 110 160.9 % -------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 461 $ 281 64.1 % ======== ======= Recurring capital expenditures per unit (2) . . . . . . . . . . . . . . . $ 33 $ 20 65.0 % ======== ======= Average economic occupancy (3) . . . . . . . . . . . . . . . . . . . . . 95.5% 95.9% ======== ======= Average monthly rental rate per apartment unit(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 746 $ 706 5.7 % ======== ======= Apartment units in service . . . . . . . . . . . . . . . . . . . . . . . 14,160 14,160 - ======== =======
(1) 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. (2) In addition to such capitalized expenditures, the Company expensed $120 and $43, per unit, on building maintenance and landscaping (inclusive of salaries) and such amounts were included in property operating and maintenance expense. (3) Average economic occupancy is defined as gross potential rent less vacancy losses, model expenses and bad debt divided by gross potential rent for the period, expressed as a percentage. The calculation of average economic occupancy does not include a deduction for concessions and employee discounts. (Average economic occupancy, including these amounts would have been 95.1% and 95.5% for the three months ended March 31, 1996 and 1995, respectively.) Concessions were $62 and $62 and employee discounts were $71 and $59, for the quarters ended March 31, 1996 and 1995, respectively. (4) Average monthly rental rate is defined as the average of the gross actual rental rates for occupied units and the - 11 - 13 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) anticipated rental rates for unoccupied units. During the first quarter of 1996, rental and other revenue increased due to higher rental rates with occupancy remaining relatively stable. Property operating and maintenance expenses (exclusive of depreciation and amortization) increased $494, or 5.3%, compared to the same period in the prior year, primarily as a result of ad valorem real estate taxes, which were up 13.3% as a result of increased valuations in the second quarter of 1995. LEASE-UP DEFICITS As noted in the overview of Community Operations, the Company has adopted an accounting policy related to communities in the development and lease-up stage whereby substantially all operating expenses (including pre-opening marketing expenses) are expensed as incurred. The Company treats each unit in an apartment community separately for cost accumulation, capitalization and expense recognition purposes. Prior to the commencement of leasing activities, interest as well as other construction costs are capitalized and reflected on the balance sheet as construction in progress. Once a unit is placed in service, all expenses allocated to that unit, including interest, are expensed as incurred. During the lease-up phase, the sum of interest expense on completed units and other operating expenses (including pre-opening marketing expenses) will typically exceed rental revenues, resulting in a "lease-up deficit," which continues until rental revenues exceed such expenses. In this presentation, only those communities which were dilutive for the respective period are included and, accordingly, different communities may be included in different quarters. For the three months ended March 31, 1996 and 1995, the "lease-up deficit" charged to and included in results of operations are summarized as follows:
THREE MONTHS ENDED MARCH 31, ----------------------- 1996 1995 ------- -------- Rental and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 574 $ 282 Property operating and maintenance expense (exclusive of depreciation and amortization) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 450 ----- ----- Revenue in excess of specified expense . . . . . . . . . . . . . . . . . . . . . . . . . 105 (168) Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 175 ----- ----- Lease-up deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(233) $(343) ===== =====
- 12 - 14 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) THIRD PARTY MANAGEMENT SERVICES The Company provides asset management, leasing and other consulting services to non-related owners of apartment communities through two of its subsidiaries, RAM Partners, Inc. ("RAM") and Post Asset Management, Inc. ("Post Asset Management"). The operating performance of RAM and Post Asset Management for the three months ended March 31, 1996 and 1995 are summarized as follows: RAM PARTNERS, INC.
THREE MONTHS ENDED MARCH 31, ------------------------------------- 1996 1995 % Change Property management and other revenue . . . . . . . . . . . . . . . . . . $ 660 $ 528 25.0% Property management expense . . . . . . . . . . . . . . . . . . . . . . . 356 318 11.9% General and administrative expense . . . . . . . . . . . . . . . . . . . 118 118 - ------ ------ ------ Revenue in excess of specified expense . . . . . . . . . . . . . . . . . $ 186 $ 92 102.2% ====== ====== ====== Average apartment units in service . . . . . . . . . . . . . . . . . . . 9,906 8,321 19.0% ====== ====== ======
The increase in property management revenues and expenses from 1995 to 1996 is primarily attributable to the increase in the average number and the average gross revenues of units managed. POST ASSET MANAGEMENT
THREE MONTHS ENDED MARCH 31, ---------------------------------------- 1996 1995 % Change -------- -------- --------- Property management and other revenue . . . . . . . . . . . . . . . . . . $ 81 $ 127 (36.2)% Property management expense . . . . . . . . . . . . . . . . . . . . . . . 82 100 (18.0)% General and administrative expense . . . . . . . . . . . . . . . . . . . 14 20 (30.0)% ------- ------ ------ (Expense)\revenue in excess of specified revenue\expense . . . . . . . . $ (15) $ 7 (314.3)% ======= ====== ====== Average apartment units in service . . . . . . . . . . . . . . . . . . . 866 1,256 (31.1)% ======= ====== ======
Property management revenues and the related expenses decreased for the three months ended March 31, 1996, compared to the same period in 1995 primarily due to the reduction in the average number of apartment units managed. This reduction was primarily due to two management contracts which were cancelled effective January 1996. - 13 - 15 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) THIRD PARTY LANDSCAPE SERVICES The Company provides landscape maintenance, design and installation services to non-related parties through a subsidiary, Post Landscape Services, Inc. ("Post Landscape Services"). The operating performance of Post Landscape Services for the three months ended March 31, 1996 and 1995 are summarized as follows:
THREE MONTHS ENDED MARCH 31, ------------------------------------ 1996 1995 % Change ------- --------- -------- Landscape services and other revenue . . . . . . . . . . . . . . . . . . $912 $814 12.0% Landscape services expense . . . . . . . . . . . . . . . . . . . . . . . 667 592 12.7% General and administrative expense . . . . . . . . . . . . . . . . . . . 101 96 5.2% ---- ---- ---- Revenue in excess of specified expense . . . . . . . . . . . . . . . . . $144 $126 14.3% ==== ==== ====
The increase in landscape services revenue, landscape service expense and general and administrative expense for the three months ended March 31, 1996, compared to the same period in 1995, is primarily due to increases in landscape contracts. OTHER INCOME AND EXPENSES General and administrative expense increased for the three months ended March 31, 1996, compared to the same period in the prior year, primarily as a result of increased travel expenses and personnel costs. The extraordinary item of $120 for the three months ended March 31, 1995, net of minority interest portion, resulted from the costs associated with the early retirement of debt. LIQUIDITY AND CAPITAL RESOURCES Liquidity The Company's net cash provided by operating activities decreased from $21,117 in the three months ended March 31, 1995 to $20,388 in the three months ended March 31, 1996, principally due to changes in the Company's working capital. Net cash used in investing activities decreased from $26,849 in the three months ended March 31, 1995, to $21,512 in the three months ended March 31, 1996, principally due to the decrease in construction activities relating to new development. The Company's net cash provided by (used in) financing activities decreased from $2,050 in the three months ended March 31, 1995 to $(6,501) in the three months ended March 31, 1996 due to a decrease in borrowing activity to fund development and an increase in dividends paid for the three months ended March 31, 1996. The Company has elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1993. REITs are subject to a number of organizational and operational requirements, including a requirement that they currently distribute 95% of their ordinary taxable income. The Company generally will not be subject to Federal income tax on net income. - 14 - 16 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) At March 31, 1996, the Company had total indebtedness of $354,431 and cash and cash equivalents of $1,383. The Company's indebtedness includes approximately $33,393 in conventional mortgages payable secured by individual communities, tax-exempt bond indebtedness of $149,038, senior unsecured notes of $100,000 and borrowings under an unsecured line of credit of approximately $72,000. The Company expects to meet its short-term liquidity requirements generally through its net cash provided by operations and borrowings under credit arrangements and expects to meet certain of its long-term liquidity requirements, such as scheduled debt maturities, repayment of financing of construction and development activities and possible property acquisitions, through long-term secured and unsecured borrowings and the issuance of debt securities or additional equity securities of the Company, sales of communities, or, possibly in connection with acquisitions of land or improved properties, Units of the Operating Partnership. The Company believes that its net cash provided by operations will be adequate and anticipates that it will continue to be adequate to meet both operating requirements and payment of dividends by the Company in accordance with REIT requirements in both the short and the long term. The budgeted expenditures for improvements and renovations to certain of the communities are expected to be funded from property operations. Line Of Credit On February 1, 1995, the Company closed a 39-month unsecured revolving line of credit (the "Revolver") in the amount of $180,000 with a bank syndicate to provide funding for future construction, acquisitions and general business obligations. Borrowings under the Revolver initially bore interest at LIBOR plus 1.50% or prime minus .25% and had a maturity date of May 1, 1998. The credit agreement for the Revolver contains customary representations, covenants and events of default, including covenants which restrict the ability of the Operating Partnership to make distributions, in excess of stated amounts, which in turn restricts the discretion of the Company to declare and pay dividends. In general, during any fiscal year the Operating Partnership may only distribute up to 100% of the Operating Partnership's consolidated income available for distribution (as defined in the credit agreement) exclusive of distributions of up to $30,000 of capital gains for such year. The credit agreement contains exceptions to these limitations to allow the Operating Partnership to make distributions necessary to allow the Company to maintain its status as a REIT. The Company does not anticipate that this covenant will adversely affect the ability of the Operating Partnership to make distributions, or the Company to declare dividends, under the Company's current dividend policy. On March 1, 1996 the Revolver was amended to reduce the interest rate to LIBOR plus 0.95% or prime minus .25% and to extend the maturity to May 1, 1999. The amendment also provides for the rate to be adjusted up or down based on changes in the Company's rating on senior unsecured debt. At March 31, 1996, the Company had $108,000 available under the Revolver to fund future development and general corporate obligations. In addition, the Company has a $3,000 facility to provide letters of credit for general business purposes. Northwestern Mutual Unsecured Loans On June 7, 1995, the Company privately placed $50,000 of unsecured senior notes with The Northwestern Mutual Life Insurance Company (the "NML Notes"). The NML Notes were in two tranches: the first, aggregating $30,000, carries an interest rate of 8.21% per annum (1.25% over the corresponding treasury rate on the date such rate was set) and matures on June 7, 2000; and the second, aggregating $20,000 carries an interest rate of 8.37% per annum (1.35% over the corresponding treasury rate on the date such rate was set) and matures on June 7, 2002. Proceeds from the issuance of the NML Notes were used to reduce secured indebtedness and to pay down the Revolver. The note agreements pursuant to which the NML Notes were purchased contain representations, covenants and events of default - 15 - 17 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) similar to those contained in the note agreement for the Revolver. Wachovia Unsecured Loans On September 29, 1995, the Company privately placed $50,000 of unsecured senior notes with Wachovia Bank of Georgia, N.A. (the "Wachovia Notes"). The Wachovia Notes were in two tranches: the first tranche, aggregating $25,000, will mature on September 29, 1999; the second tranche, aggregating $25,000 will mature on September 29, 2001. Both tranches bear interest at 7.15% per annum (1.10% over the corresponding treasury rate on the date such rate was set). Proceeds from the issuance of the Wachovia Notes were used to reduce indebtedness outstanding on the Revolver. The credit agreement for the notes contain representations, covenants and events of default similar to those contained in the note agreement for the Revolver. Tax Exempt Bonds On June 29, 1995, the Company replaced the bank letters of credit providing credit enhancement for twelve of its outstanding tax-exempt bonds and three of its economically defeased tax-exempt bonds. Under an agreement with the Federal National Mortgage Association ("FNMA"), FNMA now provides, directly or indirectly through other bank letters of credit, credit enhancement with respect to such bonds. Under the terms of such agreement, FNMA has provided replacement credit enhancement through 2025 for five bond issues, aggregating $52,675, which were reissued, and has agreed, subject to certain conditions, to provide credit enhancement through June 1, 2025 for up to an additional $101,853 with respect to ten other bond issues which mature and may be refunded in 1996 through 1998. The agreement with FNMA contains representations, covenants, and events of default customary to such secured loans. Other Activities During the first quarter of 1996, the Company contracted to reacquire three contiguous Atlanta apartment communities, containing 810 units, which the Company developed in the early 1980's and managed under the Post(R) brand name through mid-1993. The Company's capital investment will be approximately $48 million, or $59,000 per unit, and the transaction is expected to close during the second quarter of 1996. Following the Company's purchase, the Company intends once again to operate these three communities under the Post(R) brand name. In addition, the Company listed in April 1996 two communities in Florida, containing a total of 596 units, for sale. Dividend Reinvestment Plan The Dividend Reinvestment Plan ("DRIP") is available to all shareholders of the Company under the DRIP, shareholders may elect for their dividends to be used to acquire additional shares of the Company's Common Stock directly from the Company, for 95% of the market price on the date of purchase. - 16 - 18 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Schedule of Indebtedness The following table reflects the Company's indebtedness at March 31, 1996:
Maturity Principal Community Location Interest Rate Date(1) Balance - ------------------------------- -------- ------------- ------------- --------- Tax Exempt Fixed Rate (Secured) Post Canyon . . . . . . . . . . . . . . Atlanta, GA 7.4% + .575% (2)(3) 07/01/96(4) $ 16,845 Post Corners . . . . . . . . . . . . . Atlanta, GA 7.4% + .575% (2)(3) 08/01/96(4) 14,760 Post Bridge . . . . . . . . . . . . . . Atlanta, GA 7.5% + .575% (2)(3) 01/01/97(4) 9,960 Post Village (Atlanta) Gardens . . . . Atlanta, GA 7.5% + .575% (2)(3) 01/01/97(4) 14,500 Post Chase . . . . . . . . . . . . . . Atlanta, GA 7.5% + .575% (2)(3) 07/01/97(4) 12,000 Post Walk . . . . . . . . . . . . . . . Atlanta, GA 7.5% + .575% (2)(3) 07/01/97(4) 15,000 Post Court . . . . . . . . . . . . . . Atlanta, GA 7.5% + .575% (2)(3) 06/01/98(4) 13,298 -------- 96,363 -------- CONVENTIONAL FIXED RATE (SECURED) Post Village (Atlanta) Arbors . . . . . Atlanta, GA 8.16% 02/10/97 7,706 Post Summit . . . . . . . . . . . . . . Atlanta, GA 7.72% 02/01/98 5,362 Post River . . . . . . . . . . . . . . Atlanta, GA 7.72% 03/01/98 5,925 -------- 18,993 -------- TAX EXEMPT FLOATING RATE (SECURED) Post Ashford Series 1995 . . . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 9,895 Post Valley Series 1995 . . . . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 18,600 Post Brook Series 1995 . . . . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 4,300 Post Village (Atlanta) Hills . . . . . Series 1995 . . . . . . . . . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 7,000 Post Mill . . . . . . . . . . . . . . . Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 12,880 -------- 52,675 -------- CONVENTIONAL FLOATING RATE (SECURED) Post Renaissance (Phase I and II) . . . Atlanta, GA LIBOR + .85% 07/01/98 14,400 -------- 14,400 -------- SENIOR NOTES (UNSECURED) Wachovia Bank of Georgia . . . . . . . N/A 7.15% 09/29/99 25,000 Northwestern Mutual Life . . . . . . . N/A 8.21% 06/07/2000 30,000 Wachovia Bank of Georgia . . . . . . . N/A 7.15% 09/29/2001 25,000 Northwestern Mutual Life . . . . . . . N/A 8.37% 06/07/2002 20,000 -------- 100,000 -------- LINE OF CREDIT (UNSECURED) Revolver . . . . . . . . . . . . . . . N/A LIBOR + .95% or prime minus .25%(5) 05/01/99 72,000 -------- 72,000 -------- TOTAL . . . . . . . . . . . . . . . . . $354,431 ========
- 17 - 19 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------- (1) All of the mortgages can be prepaid at any time, subject to certain prepayment penalties. All dates listed are final maturity dates assuming the exercise of any available extension option by the Company. (2) Bond financed (interest rate on bonds + credit enhancement fees). (3) These bonds are also secured by Post Fountains at Lee Vista, Post Lake (Orlando) and the Fountains and Meadows of Post Village for which the Company has economically defeased their respective bond indebtedness. (4) Subject to certain conditions at re-issuance, the credit enhancement runs to June 1, 2025. (5) On June 4, 1996, the Company received a credit rating upgrade which further reduced the interest rate on the Revolver to LIBOR + 0.8%. Refundable Tax Exempt Bonds The Company has previously issued tax-exempt bonds, secured by certain communities, totalling $235,880, of which $86,842 has been economically defeased, leaving $149,038 of principal amount of tax-exempt bonds outstanding at March 31, 1996. As of March 31, 1996, $52,675 of the bonds outstanding have been reissued with a maturity of June 1, 2025. The remaining outstanding bonds, together with the economically defeased bonds, mature and may be reissued, during the years 1996 through 1998. The Company has chosen economic defeasance of the bond obligations rather than a legal defeasance in order to preserve the legal right to refund such obligations on a tax-exempt basis at the stated maturity if the Company then determines that such refunding is beneficial to the Company. The following table shows the amount of bonds (both defeased and outstanding) at March 31, 1996, which the Company may reissue during the years 1996 through 2025:
DEFEASED OUTSTANDING TOTAL REISSUE PORTION PORTION CAPACITY ---------- ----------- ------------- 1996 $ $ 31,605 $ 31,605 - 1997 5,490 51,460 56,950 1998 81,352 13,298 94,650 Thereafter - 52,675 52,675 --------- -------- -------- $ 86,842 $149,038 $235,880 ========= ======== ========
- 18 - 20 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Current Development Activity The Company's communities under development or in initial lease-up are summarized in the following table:
ACTUAL OR ACTUAL OR UNITS ESTIMATED CONSTRUCTION ESTIMATED ESTIMATED LEASED CONSTRUCTION COST QUARTER OF QUARTER QUARTER AS OF # OF COST EXPENDED TO DATE CONSTRUCTION FIRST UNITS OF STABILIZED APRIL 13, METROPOLITAN AREA UNITS (MILLIONS)(1) (MILLIONS)(2) COMMENCEMENT AVAILABLE OCCUPANCY 1996 - ----------------- ----- ------------- --------------- ------------ ----------- ------------- --------- Atlanta, GA - ----------- Post Dunwoody - phase II 328 $ 23 $ 21 4Q'94 3Q'95 3Q'96 292 Post Terrace 296 25 16 2Q'95 1Q'96 4Q'96 154 Post Crest 410 31 20 1Q'95 1Q'96 1Q'97 217 Post Collier Hills 392 31 9 4Q'95 3Q'96 4Q'97 N/A Post Glen 312 29 6 1Q'96 1Q'97 1Q'98 N/A ------ ------ ------ ------ ------ ------ ---- 1,738 139 72 663 ------ ------ ------ ------ ------ ------ ---- Tampa, FL - --------- Post Walk at Hyde Park 134 13 3 1Q'96 4Q'96 3Q'97 N/A ------ ------ ------ ------ ------ ------ ---- Charlotte, NC - ------------- Post South Park 402 31 6 4Q'95 3Q'96 3Q'97 N/A ------ ------ ------ ------ ------ ------ ---- 2,274 $ 183 $ 81 663 ====== ====== ===== ----
(1) Represents estimated total development costs, including capitalized construction costs, lease-up deficits, and all construction period interest. (2) Construction cost incurred to date includes all costs associated with the development and lease-up of the community, including interest and other start-up costs which are expensed in the Company's consolidated financial statements. These costs which were expensed amounted to approximately $329 at March 31, 1996. The Company has also acquired a parcel in Atlanta on which it plans to build a new community. The Home Depot, Inc. is constructing its corporate headquarters campus and extensive infrastructure improvements are being made by the county adjacent to the parcel. The Company will review its development plan for this parcel closer to completion of these improvements. The Company is also currently conducting feasibility and other pre-development studies for possible new Post(R) communities in its primary market areas. - 19 - 21 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Capitalization of Fixed Assets and Community Improvements The Company has established a policy of capitalizing those expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. All expenditures necessary to maintain a community in ordinary operating condition are expensed as incurred. During the first five years of a community (which corresponds to the estimated depreciable life), carpet replacements are expensed as incurred. Thereafter, carpet replacements are capitalized. Acquisition of assets and community improvement expenditures for the three months ended March 31, 1996 and 1995 are summarized as follows:
THREE MONTHS ENDED MARCH 31, ---------------------- 1996 1995 ------- ------- New community development and acquisition activity . . . . . . . . . . . . . . . . . . . $20,706 $26,126 Non-recurring capital expenditures: Vehicle access control gates . . . . . . . . . . . . . . . . . . . . . . . . . . . - 69 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 - Recurring capital expenditures: Carpet replacements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 192 Community additions and improvements . . . . . . . . . . . . . . . . . . . . . . . 292 170 Corporate additions and improvements . . . . . . . . . . . . . . . . . . . . . . . 204 292 ------- ------- $21,512 $26,849 ======= =======
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. - 20 - 22 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION Historical Funds from Operations The Company considers funds from operations ("FFO") an appropriate measure of performance of an equity REIT. Funds from operations is defined to mean net income (loss) determined in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs. Cash available for distribution ("CAD") is defined as FFO less capital expenditures funded by operations and loan amortization payments. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO and CAD should be examined in conjunction with net income as presented in the consolidated financial statements and data included elsewhere in this report. FFO and CAD for the three months ended March 31, 1996 and 1995 presented on a historical basis are summarized in the following table: Calculations of Funds from Operations and Cash Available for Distribution
THREE MONTHS ENDED MARCH 31, ---------------------------- 1996 1995 ----------- ------------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,046 $ 6,003 Extraordinary item, net of minority interest . . . . . . . . . . . . . . . . . . . . . - 120 Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,386 1,842 ----------- ----------- Adjusted net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,432 7,965 Depreciation and amortization (real estate assets) . . . . . . . . . . . . . . . . . . 4,965 5,087 ----------- ----------- Funds from Operations (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,397 13,052 Recurring capital expenditures (2) . . . . . . . . . . . . . . . . . . . . . . . . . . (466) (362) Non-recurring capital expenditures (3) . . . . . . . . . . . . . . . . . . . . . . . . (136) (69) Loan amortization payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52) (48) ----------- ----------- Cash Available for Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,743 $ 12,573 =========== =========== Cash Flow Provided From (Used In): Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,388 $ 21,117 Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (21,512) (26,849) Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,501) 2,050 Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,646,708 17,322,233 =========== =========== Weighted average shares and units outstanding . . . . . . . . . . . . . . . . . . . . . . 26,785,951 22,535,331 =========== ===========
- 21 - 23 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) In March 1995, the National Association of Real Estate Investment Trusts ("NAREIT") modified the definition of FFO, among other things, to eliminate amortization of deferred financing costs and depreciation of non-real estate assets as items added back to net income when computing FFO. The modified definition of FFO became effective as of January 1, 1996. Under the previous definition, FFO for the three months ended March 31, 1996 and 1995 would have been $18,002 and $13,641, respectively. Since all companies do not calculate FFO in accordance with NAREIT'S modified definition, the Company's FFO is only comparable to those companies using NAREIT'S modified definition. (2) Recurring capital expenditures consisted primarily of $174 and $192 of carpet replacement and $292 and $170 of other additions and improvements to existing communities for the three months ended March 31, 1996 and 1995, respectively. Since the Company does not add back the depreciation of non-real estate assets in its calculation of FFO, capital expenditures of $204 and $292 are excluded from the calculation of CAD for the three months ended March 31, 1996 and 1995, respectively. (3) Non-recurring capital expenditures consisted of community additions and improvements of $136 and the addition of vehicle access control gates to communities of $69 for the three months ended March 31, 1996 and 1995, respectively. - 22 - 24 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. The registrant agrees to furnish a copy of all agreements relating to long-term debt upon request of the Commission. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1996. - 23 - 25 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. June , 1996 /s/ John T. Glover - ------------------------------- -------------------------------------- (Date) John T. Glover, President, Chief Operating Officer, Treasurer and a Director (Principal Financial Officer) June , 1996 /s/ R. Gregory Fox - ------------------------------- -------------------------------------- (Date) R. Gregory Fox Senior Vice President, Chief Accounting Officer - 24 - -----END PRIVACY-ENHANCED MESSAGE-----