-----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, OTIU0v6EsQpusfeaBu+GGxFOJz99+rt8Y1d9C52ysRkjRjE1eRUNtis/IwGHutpi gUx+BgZRtIMujjZ8Tg3dtQ== 0000950144-96-007771.txt : 19961111 0000950144-96-007771.hdr.sgml : 19961111 ACCESSION NUMBER: 0000950144-96-007771 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961108 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: 582053632 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: 96657260 BUSINESS ADDRESS: STREET 1: 3350 CUMBERLAND CIRCLE NW STREET 2: STE 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 1 POST PROPERTIES, INC. FORM 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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. 21,911,409 shares of common stock outstanding as of November 1, 1996. ================================================================================ 2 POST PROPERTIES, INC. INDEX Page
Page ---- Part I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 . . . . . . . 3 Consolidated Statements of Operations for the three months and the nine months ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the nine months ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 PART II OTHER INFORMATION ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS . . . . . . . . . . . . . . . . 24 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 24 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
- 2 - 3 POST PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, ------------ ----------- 1996 1995 (UNAUDITED) ASSETS Real estate: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 145,912 $ 118,988 Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . 711,860 589,869 Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . 72,669 67,354 Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . 134,760 149,514 Land held for future development . . . . . . . . . . . . . . . . . . . . 4,170 12,199 ------------ ----------- 1,069,371 937,924 Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . (171,479) (156,824) ------------ ----------- Operating real estate assets . . . . . . . . . . . . . . . . . . . . . 897,892 781,100 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . 5,977 9,008 Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,134 1,146 Deferred charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,087 7,241 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,686 14,489 ------------ ----------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 927,776 $ 812,984 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 452,384 $ 349,719 Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . 3,562 3,965 Dividend and distribution payable . . . . . . . . . . . . . . . . . . . . . 14,550 13,091 Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . 24,867 16,023 Deferred swap income . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 331 Security deposits and prepaid rents . . . . . . . . . . . . . . . . . . . . 4,652 4,366 ------------ ----------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,222 387,495 ------------ ----------- Minority interest of unitholders in Operating Partnership . . . . . . . . . 80,680 81,865 ------------ ----------- Commitments and contingencies Shareholders' equity Preferred stock, $.01 par value, 20,000,000 authorized, 0 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . - - Common stock, $.01 par value, 100,000,000 authorized, 21,859,066 and 21,577,636 shares issued and outstanding at September 30, 1996 and December 31, 1995, respectively . . . . . . . . 219 216 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 346,655 343,408 Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . - - ------------ ----------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 346,874 343,624 ------------ ----------- Total liabilities and shareholders' equity . . . . . . . . . . . . . . $ 927,776 $ 812,984 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. - 3 - 4 POST PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ============================ ============================ 1996 1995 1996 1995 ============ =========== ============ ============ REVENUES Rental . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,067 $ 34,748 $ 116,636 $ 98,625 Property management - third party. . . . . . . . . . . . 722 737 2,188 1,953 Landscape services - third party . . . . . . . . . . . . 1,199 1,050 3,420 3,199 Interest . . . . . . . . . . . . . . . . . . . . . . . . 50 195 289 320 Other. . . . . . . . . . . . . . . . . . . . . . . . . . 1,661 750 3,949 2,196 ------------ ----------- ------------ ------------ Total revenues . . . . . . . . . . . . . . . . . . . . 44,699 37,480 126,482 106,293 ------------ ----------- ------------ ------------ EXPENSES Property operating and maintenance (exclusive of items shown separately below) . . . . . . . . . . . . . . . 15,599 13,209 42,768 37,421 Depreciation (real estate assets) . . . . . . . . . . . 5,877 4,975 16,673 15,103 Depreciation (non-real estate assets) . . . . . . . . . 197 158 710 379 Property management - third party . . . . . . . . . . . 558 579 1,608 1,612 Landscape services - third party . . . . . . . . . . . . 1,013 859 2,876 2,613 Interest . . . . . . . . . . . . . . . . . . . . . . . . 5,970 6,503 16,738 17,339 Amortization of deferred loan costs, interest rate protection agreement and swap gain, net. . . . . . . . . . . . . 293 518 1,025 1,514 General and administrative . . . . . . . . . . . . . . . 1,769 1,611 5,786 4,371 Minority interest in consolidated property partnership . - 69 - 451 ------------ ----------- ------------ ------------ Total expenses . . . . . . . . . . . . . . . . . . . 31,276 28,481 88,184 80,803 ------------ ----------- ------------ ------------ Income before net gain on sale of assets, minority interest of unitholders in Operating Partnership and 13,423 8,999 38,298 25,490 extraordinary item . . . . . . . . . . . . . . . . . Net gain on sale of assets . . . . . . . . . . . . . . . 854 1,746 854 1,746 Minority interest of unitholders in Operating Partnership (2,696) (2,410) (7,442) (6,175) ------------ ----------- ------------ ------------ Income before extraordinary item . . . . . . . . . . . . 11,581 8,335 31,710 21,061 Extraordinary item, net of minority interest of unitholders in Operating Partnership . . . . . . . . . . . . . . . - (189) - (811) ------------ ----------- ------------ ------------ Net income . . . . . . . . . . . . . . . $ 11,581 $ 8,146 $ 31,710 $ 20,250 ============ =========== ============ ============ PER SHARE DATA: Weighted average common shares outstanding . . . . . . . . 21,844,053 17,793,802 21,748,882 17,602,197 ============ =========== ============ ============ Income before extraordinary item . . . . . . . . . . . . . $0.53 $0.47 $1.46 $1.20 ============ =========== ============ ============ Net income . . . . . . . . . . . . . . . . . . . . . . . . $0.53 $0.46 $1.46 $1.15 ============ =========== ============ ============ Dividends declared . . . . . . . . . . . . . . . . . . . . $0.54 $0.49 $1.62 $1.47 ============ =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. - 4 - 5 POST PROPERTIES, INC. CONSOLIDATED STATEMENT 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 . . . . . . . . . . . . . 2 6,434 - 6,436 Conversion of units to shares . . . . . . . . . . . . . . 1 (1) - - Adjustment to capital contributions for minority interest - 360 - 360 of unitholders in Operating Partnership . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . - - 31,710 31,710 Dividends paid. . . . . . . . . . . . . . . . . . . . . . - (3,323) (20,129) (23,452) Dividends declared . . . . . . . . . . . . . . . . . . . - (223) (11,581) (11,804) -------- --------- ---------- --------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, SEPTEMBER 30, 1996 . . . . . . . . . . . . . . $ 219 $ 346,655 $ - $ 346,874 ======== ========= ========== =========
The accompanying notes are an integral part of these consolidated financial statements. - 5 - 6 POST PROPERTIES, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ========================= 1996 1995 ========== ========== CASH FLOWS FROM OPERATING ACTIVITIES Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,710 $ 20,250 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest of unitholders in Operating Partnership . . . . . . . . . . . . . 7,442 6,175 Net gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (854) (1,746) Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,383 15,482 Write-off of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . - 1,047 Amortization of deferred loan costs, interest rate protection agreement and swap gain, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,025 1,514 Changes in assets, (increase) decrease in: Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 7,254 Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,652 (90) Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,775) (8,137) Changes in liabilities, increase (decrease) in: Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (403) (97) Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 11,210 6,545 Security deposits and prepaid rents . . . . . . . . . . . . . . . . . . . . . . . . 286 336 Minority interest of unitholders in Operating Partnership . . . . . . . . . . . . . - (238) ---------- ---------- Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . 67,688 48,295 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Construction and acquisition of real estate assets, net of payables . . . . . . . . (139,152) (98,507) Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,000) (4,387) Proceeds from sale of real estate assets, net of selling costs . . . . . . . . . . . 12,196 22,645 Escrowed sales proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (20,418) Recurring capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,084) (1,294) Corporate additions and improvements . . . . . . . . . . . . . . . . . . . . . . . . (491) (759) Non-recurring capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (1,462) (1,104) ---------- ---------- Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . (133,993) (103,824) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,201) (4,785) Debt proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,833 322,396 Proceeds from sale of notes, net of underwriters discount and offering costs . . . . 123,438 - Debt payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,168) (245,611) Distributions to unitholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,039) (7,401) Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans . . . . . . . 6,436 14,371 Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,025) (24,981) ---------- ---------- Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . 63,274 53,989 ---------- ---------- Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . (3,031) (1,540) Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . 9,008 5,292 ---------- ---------- Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . $ 5,977 $ 3,752 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. - 6 - 7 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. ORGANIZATION AND FORMATION OF THE COMPANY ORGANIZATION AND FORMATION OF THE COMPANY Post Properties, Inc. (the "Company"), which was incorporated on January 25, 1984, is the successor by merger to the original Post Properties, Inc., a Georgia Corporation which was formed in 1971. The Company was formed to develop, lease and manage upscale multi-family apartment communities. The Company elected to be taxed as a real estate investment trust ("REIT") for Federal income tax purposes beginning with the taxable year ended December 31, 1993. A REIT is a legal entity which holds real estate interests and, through payments of dividends to shareholders, in practical effect is not subject to Federal income taxes at the corporate level. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared by the Company's management in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normally recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the nine month period ended September 30, 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/A for the year ended December 31, 1995. 2. NOTES PAYABLE On September 30, 1996, the Company completed a $125,000 senior unsecured debt offering comprised of two tranches. The first tranche, $100,000 of 7.25% Notes due on October 1, 2003 (the "2003 Notes"), was priced at 99.642% to yield 7.316%, or 71 basis points over the rate on U.S. Treasury securities with a comparable maturity. The second tranche, $25,000 of 7.50% Notes due on October 1, 2006 (the "2006 Notes", and together with the 2003 Notes, the "Notes"), was priced at 99.694% to yield 7.544%, or 83 basis points over the rate on U.S. Treasury securities with a comparable maturity. Proceeds from the Notes were used to pay down existing indebtedness outstanding on the Revolver. 3. EXTRAORDINARY ITEM The extraordinary item for the three and nine months ended September 30, 1995 resulted from costs associated with the early extinguishment of indebtedness. The extraordinary item is net of minority interest of unitholders of $57 and $238, respectively, 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 REITs. The weighted average numbers of shares outstanding utilized in the calculations are 21,844,053 and 17,793,802 for the three months ended September 30, 1996 and 1995, respectively and 21,748,882 and 17,602,197 for the nine months ended September 30, 1996 and 1995, respectively. - 7 - 8 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 4. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities for the nine months ended September 30, 1996 and 1995 are as follows: (a) During the nine months ended September 30, 1996 and 1995, holders of 54,400 and 97,201 units, respectively, 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 and adjustments to minority interest for the dilutive impact of the Dividend Reinvestment and Employee Stock Purchase Plans was a reclassification decreasing minority interest and increasing shareholders' equity in the amount of $360 for the nine months ended September 30, 1996 and a reclassification increasing minority interest and decreasing shareholders' equity in the amount of $223 for the nine months ended September 30, 1995. (b) The Operating Partnership committed to distribute $14,550 and $11,242 for the quarters ended September 30, 1996 and 1995, respectively. As a result, the Company declared a dividend of $.54 and $.49 per common share or $11,804 and $8,724 for the quarters ended September 30, 1996 and 1995, respectively. The remaining distributions from the Operating Partnership in the amount of $2,746 and $2,518, respectively, will be or were distributed to minority interest unitholders in the Operating Partnership. 5. SUBSEQUENT EVENTS On October 1, 1996, the Company sold one million shares of non-convertible 8.5% Series A Cumulative Redeemable Preferred Stock (the "Perpetual Preferred Shares"), raising $50 million. Net proceeds of $48,700 from the sale of the Perpetual Preferred Shares were used to repay outstanding indebtedness. - 8 - 9 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER 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. As of September 30, 1996, there were 26,943,909 units in the Operating Partnership outstanding, of which 21,859,066, or 81.1%, were owned by the Company and 5,084,843, or 18.9% were owned by other limited partners ( including certain officers and directors of the Company). RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 The Company recorded net income of $31,710, for the nine months ended September 30, 1996, an increase of 56.6% 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 consists of the following: (i) 36 communities and the first phase of 2 additional communities which were completed and stabilized for all of the current and prior year, (ii) 3 communities and the second phase of an existing community which achieved full stabilization during the prior year, (iii) 5 communities and the second phase of an existing community which reached stabilization during 1996, (iv) 2 communities which were acquired during 1996 and (v) 8 communities in the development or lease-up stage, for a total of 56 communities. 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. - 9 - 10 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT 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 and nine months ended September 30, 1996 and 1995 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, =============================== ================================ 1996 1995 %CHANGE 1996 1995 %CHANGE ====== ====== ======= ====== ====== ======= Rental and other revenue: Fully stabilized communities (1) . . . . . . . . . $31,414 $30,143 4.2% $ 93,065 $ 88,497 5.2% Communities stabilized during 1995 . . . . . . . . 2,376 2,158 10.1% 7,023 4,437 58.3% Acquired communities (2) . . . . . . . . . . . . . 1,948 - N/A 3,063 - N/A Development and lease-up communities (3) . . . . . . . . . . . . . . . . . 5,717 1,293 N/A 13,896 1,833 N/A Sold communities (4) . . . . . . . . . . . . . . . 84 1,265 N/A 1,001 4,207 N/A Other revenue (5) . . . . . . . . . . . . . . . . 1,189 639 86.1% 2,537 1,847 37.4% ------- ------- -------- -------- 42,728 35,498 20.4% 120,585 100,821 19.6% ------- ------- -------- -------- Property operating and maintenance expense (exclusive of depreciation and amortization): Fully stabilized communities . . . . . . . . . . . 10,741 10,451 2.8% 30,982 29,937 3.5% Communities stabilized during 1995 . . . . . . . . 682 542 25.8% 1,971 1,444 36.5% Acquired communities . . . . . . . . . . . . . . 798 - N/A 1,140 - N/A Development and lease-up communities . . . . . . . . . . . . . . . . . . 1,861 731 N/A 5,064 1,575 N/A Sold communities . . . . . . . . . . . . . . . . 28 538 N/A 355 1,729 N/A Other expenses (6) . . . . . . . . . . . . . . . . 1,489 947 57.2% 3,256 2,736 19.0% ------- ------- -------- -------- 15,599 13,209 18.1% 42,768 37,421 14.3% ------- ------- -------- -------- Revenue in excess of specified expense . . . . . . . . . . . . . . . . . . . . . $27,129 $22,289 21.7% $ 77,817 $ 63,400 22.7% ======= ======= ======== ======== Recurring capital expenditures: (7) Carpet . . . . . . . . . . . . . . . . . . . . . . $ 333 $ 267 24.7% $ 743 $ 700 6.1% Other . . . . . . . . . . . . . . . . . . . . . . 359 261 37.5% 1,341 594 125.8% ------- ------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . $ 692 $ 528 31.1% $ 2,084 $ 1,294 61.1% ======= ======= ======== ======== Average apartment units in service . . . . . . . . 17,751 15,889 11.7% 16,965 15,388 10.2% ======= ======= ======== ======== Recurring capital expenditures per apartment unit . . . . . . . . . . . . . . . . . $ 39 $ 33 17.3% $ 123 $ 84 46.1% ======= ======= ======== ========
- 10 - 11 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) (1) Communities which reached stabilization prior to January 1, 1995. (2) On May 7, 1996, the Company reacquired three contiguous Atlanta apartment communities containing a total of 810 units which the Company now operates as a single community. On August 26, 1996, the Company acquired an apartment community containing 80 units in Nashville, Tennessee. See "Current Development Activity." (3) Communities in the "construction", "development" or "lease-up" stage during 1996 and, therefore, not considered fully stabilized for all of the periods presented. (4) Includes three communities, containing 568 units, which were sold on September 13, 1995 and one community, containing 180 units, which was sold on July 19, 1996. (5) Other revenue includes revenue on furnished apartment rentals above the unfurnished rental rates and any revenue not directly related to property operations. Other revenue also includes, for the three and nine months ended September 30, 1996, approximately $527 which resulted from the Company's Olympic-related housing initiatives. (6) Other expenses includes certain indirect central office operating expenses related to management, grounds maintenance, and costs associated with furnished apartment rentals. (7) In addition to those expenses which relate to property operations, the Company incurs recurring and non-recurring expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset, all of which are capitalized. For the three and nine months ended September 30, 1996, rental and other revenue increased $7,230, or 20.4% and $19,764, or 19.6%, respectively, compared to the same period in the prior year, primarily as a result of increased rates for fully stabilized communities, an increase in units placed in service, the acquisition of communities and the Company's Olympic-related housing initiatives, partially offset by a decrease in rental and other revenue due to the sale of three communities during the third quarter of 1995 and the sale of one community during the third quarter of 1996. For the three and nine months ended September 30, 1996, rental and other revenue from communities stabilized prior to January 1, 1995, increased $1,271, or 4.2% and $4,568, or 5.2%, respectively, compared to the same periods in the prior year, primarily as a result of higher rental rates. For the three and nine months ended September 30, 1996, rental and other revenue from communities stabilized during 1995, development and lease-up communities and acquired communities increased, in the aggregate, $6,590 and $17,712, respectively, compared to the same periods in the prior year, primarily due to additional units placed in service through the development and acquisition of communities. The operating results for the three and nine months ended September 30, 1995, include revenue and expenses through September 13, 1995 for three communities, containing 568 units, which were sold on such date and revenue and expenses for the entire period for a community which was sold during 1996. For the three and nine months ended September 30, 1996, the operating results include revenue and expenses through July 19, 1996 for a community which was sold on such date. The revenue and expenses for the sold communities had previously been included in the fully stabilized communities group. For the three and nine months ended September 30, 1996, property operating and maintenance expenses (exclusive of depreciation and amortization) increased, compared to the same period in the prior year, primarily due to the increase in the units placed in service through the development and acquisition of communities. - 11 - 12 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT 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 36 communities and the first phase of two additional communities containing an aggregate of 13,980 units which were fully stabilized as of January 1, 1995, is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ============================== =============================== 1996 1995 %CHANGE 1996 1995 %CHANGE ========= ======== ======= ======== ========= ======= Rental and other revenue . . . . . . . . $31,414 $30,143 4.2% $93,065 $88,497 5.2% Property operating and maintenance expense (exclusive of depreciation and amortization) . . . . . . . . . . . . . 10,741 10,451 2.8% 30,982 29,937 3.5% ------- ------- ------- ------- Revenue in excess of specified expense $20,673 $19,692 5.0% $62,083 $58,560 6.0% ======= ======= ======= ======= Recurring capital expenditures: (1) Carpet . . . . . . . . . . . . . . . . $ 295 $ 240 22.9% $ 700 $ 631 10.9% Other . . . . . . . . . . . . . . . . . 318 230 38.3% 1,256 489 156.9% ------- ------- ------- ------- Total . . . . . . . . . . . . . . . . $ 613 $ 470 30.4% $ 1,956 $ 1,120 74.6% ======= ======= ======= ======= Recurring capital expenditures per apartment unit (2) . . . . . . . . . . $ 44 $ 34 30.4% $ 140 $ 80 74.6% ======= ======= ======= ======= Average economic occupancy (3) . . . . . 96.1% 96.7% 95.7% 96.3% ======= ======= ======= ======= Average monthly rental rate per apartment unit (4) . . . . . . . . . . . $ 758 $ 728 4.1% $ 751 $ 716 4.9% ======= ======= ======= ======= Apartment units in service . . . . . . . 13,980 13,980 13,980 13,980 ======= ======= ======= =======
(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 $180 and $459 per unit on building maintenance (inclusive of direct salaries) and $57 and $172 per unit on landscaping (inclusive of direct salaries) for the three and nine months ended September 30, 1996, respectively. (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 95.6% and 96.3% for the three months ended September 30, 1996 and 1995, respectively and 95.2% and 95.8% for the nine months ended September 30, 1996 and 1995, respectively.) For the three month period ended September 30, 1996 and 1995, concessions were $119 and $80 and employee discounts were $61 and $59, respectively. Concessions were $258 and $220 and employee discounts were $195 and $177, for the nine months ended September 30, 1996 and 1995, respectively. - 12 - 13 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) (4) Average monthly rental rate is defined as the average of the gross actual rental rates for occupied units and the anticipated rental rates for unoccupied units. For the three and nine months ended September 30, 1996, rental and other revenue increased, compared to the same periods in the prior year, due to higher rental rates. For the three and nine months ended September 30, 1996, property operating and maintenance expenses (exclusive of depreciation and amortization) increased $290, or 2.8%, and $1,045, or 3.5%, respectively, compared to the same period in the prior year, primarily as a result of an increase in ad valorem real estate taxes and building repair and maintenance expense. The increase in recurring capital expenditures per apartment unit for the three and nine months ended September 30, 1996, compared to the same period in the prior year, is primarily due to the refurbishment of leasing offices and other common areas within the communities. 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 quarters ended March 31, June 30 and September 30, 1996, the "lease-up deficit" charged to and included in results of operations is summarized as follows:
NINE MONTHS ENDED SEPTEMBER 30, 1996 =================================== QTR 1 QTR 2 QTR 3 ===== ===== ===== Rental and other revenue . . . . . . . . . . . . . . . . . . . . . . . . $ 574 $294 $ 0 Property operating and maintenance expense (exclusive of depreciation and amortization) . . . . . . . . . . . . . . . . . . . . 469 189 31 ----- ---- ----- Revenue (expense) in excess of specified expense/revenue . . . . . . . . 105 105 (31) Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 196 53 ----- ---- ----- Lease-up deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(233) $(91) $ (84) ===== ==== =====
- 13 - 14 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT 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 and nine months ended September 30, 1996 and 1995 is summarized as follows:
RAM PARTNERS, INC. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ================================== ================================== 1996 1995 %CHANGE 1996 1995 %CHANGE ======== ======== ======= ======== ======== ======= Property management and other revenue . . . . . . . . . . . . . . . $ 650 $ 612 6.2% $1,959 $1,671 17.2% Property management expense . . . . . . 345 358 (3.6)% 998 940 6.2% General and administrative expense . . 135 113 19.5% 365 336 8.6% ------- ------- ------ ------ Revenue in excess of specified expense . . . . . . . . . . . . . . . $ 170 $ 141 20.6% $ 596 $ 395 50.9% ======= ======= ====== ====== Average apartment units managed . . . . 9,523 9,672 (1.5)% 9,614 8,659 11.0% ======= ======= ====== ======
The increase in property management revenues and expenses for the nine months ended September 30, 1996 compared to the same period in the prior year is primarily attributable to the increase in the average number and the average gross revenues of units managed.
POST ASSET MANAGEMENT THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ================================== ================================ 1996 1995 %CHANGE 1996 1995 %CHANGE ====== ====== ======= ====== ====== ======= Property management and other revenue . . . . . . . . . . . . . . . $ 74 $ 135 (45.2)% $ 243 $ 391 (37.9)% Property management expense . . . . . . 59 87 (32.2)% 201 281 (28.5)% General and administrative expense . . 19 21 (9.5)% 44 55 (20.0)% ----- ------- ------ ------ Revenue in excess of specified expense . . . . . . . . . . . . . . . $ (4) $ 27 (114.8)% $ (2) $ 55 (103.6)% ===== ======= ====== ====== Average apartment units managed . . . . 563 1,256 (55.2)% 563 1,256 (55.2)% ===== ======= ====== ======
Property management revenues and the related expenses decreased for each of the periods in 1996, compared to the same periods in 1995, primarily due to the reduction in the average number of apartment units managed. This reduction was primarily due to four management contracts which were canceled; two effective January 1996, one effective July 1996 and one effective September 1996. The Company expects income from Post Asset Management to continue to decline as contracts are canceled and not replaced. - 14 - 15 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER 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 Services, Inc. ("Post Landscape Services"). The operating performance of Post Landscape Services for the three and nine months ended September 30, 1996 and 1995 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ================================= ================================= 1996 1995 %CHANGE 1996 1995 %CHANGE ======= ======= ======= ====== ======= ======= Landscape services and other revenue . . . . . . . . . . . . . . . $1,199 $1,054 13.8% $3,467 $3,210 8.0% Landscape services expense . . . . . . 900 756 19.0% 2,558 2,232 14.6% General and administrative expense . . 113 103 9.7% 318 381 (16.5)% ------ ------ ------ ------ Revenue in excess of specified expense . . . . . . . . . . . . . . . $ 186 $ 195 (4.6)% $ 591 $ 597 (1.0)% ====== ====== ====== ======
The increase in landscape services revenue and landscape service expense for each of the periods ended September 30, 1996, compared to the same period in 1995, is primarily due to increases in landscape contracts. OTHER REVENUES AND EXPENSES Other revenue increased for the three and nine months ended September 30, 1996, compared to the same periods in 1995, primarily due to the Company's Olympic-related housing initiatives which resulted in approximately $527 of incremental income during the third quarter of 1996. General and administrative expense increased for the three and nine months ended September 30, 1996, compared to the same periods in the prior year, primarily as a result of increased travel expenses and personnel costs. The extraordinary item of $189 and $811 for the three and nine months ended September 30, 1995, respectively, 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 increased from $48,295 for the nine months ended September 30, 1995 to $67,688 for the nine months ended September 30, 1996, principally due to an increase in the Company's net income. Net cash used in investing activities increased from $103,824 in the nine months ended September 30, 1995 to $133,993 in the nine months ended September 30, 1996, principally due to the increase in construction activities relating to new development and the acquisition of new communities. The Company's net cash provided by financing activities increased from $53,989 in the nine months ended September 30, 1995 to $63,274 in the nine months ended September 30, 1996 primarily due to an increase in net borrowing activity to fund development activity. - 15 - 16 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER 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 95% of their ordinary taxable income. The Company generally will not be subject to Federal income tax on net income. At September 30, 1996, the Company had total indebtedness of $452,384 and cash and cash equivalents of $5,977. The Company's indebtedness includes approximately $36,346 in conventional mortgages payable secured by individual communities, tax-exempt bond indebtedness of $149,038, senior unsecured notes of $225,000 and borrowings under unsecured lines of credit of approximately $42,000. On October 1, 1996 the Company repaid all borrowings on its unsecured lines of credit out of proceeds from the Preferred Shares reducing total indebtedness to $410,384. 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. Lines Of Credit The Company has a syndicated line of credit (the "Revolver") in the amount of $180,000 to provide the funding for future construction, acquisition and general business obligations. The Revolver matures on May 1, 1999 and borrowings currently bear interest at LIBOR plus .80% or prime minus .25%. The Revolver provides for the rate to be adjusted up or down based on changes in the credit ratings on the Company's senior unsecured debt. 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 July 26, 1996, the Company closed a $20,000 unsecured line of credit with Wachovia Bank of Georgia, N.A. (The "Cash Management Line"), which was fully funded and used to pay down the outstanding balance on the Revolver. The Cash Management Line bears interest at LIBOR plus .75% or prime minus .25% and has a maturity date of July 25, 1997. The Company chose this arrangement because the Revolver requires a three day notice to repay borrowings where as this facility provides the Company with an automatic daily sweep which applies all available cash to reduce the outstanding balance. On October 1, 1996, the outstanding balances on the Revolver and the Cash Management Line were paid off with proceeds from the Preferred Shares. In addition, the Company has a $3,000 facility to provide letters of credit for general business purposes. - 16 - 17 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) Northwestern Mutual Unsecured Loans On June 7, 1995, the Company issued $50,000 of unsecured senior notes with The Northwestern Mutual Life Insurance Company (the "NML Notes"). The NML Notes are 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 similar to those contained in the note agreement for the Revolver. Wachovia Unsecured Loans On September 29, 1995, the Company issued $50,000 of unsecured senior notes with Wachovia Bank of Georgia, N.A. (the "Wachovia Notes"). The Wachovia Notes are 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 seven bond issues, aggregating $84,280, which were reissued, and has agreed, subject to certain conditions, to provide credit enhancement through June 1, 2025 for up to an additional $70,248 with respect to eight other bond issues which mature and may be refunded in 1997 and 1998. The agreement with FNMA contains representations, covenants, and events of default customary to such secured loans. Senior Unsecured Debt Offering On September 30, 1996, the Company completed a $125,000 senior unsecured debt offering comprised of two tranches. The first tranche, $100,000 of 7.25% Notes due on October 1, 2003 (the "2003 Notes"), was priced at 99.642% to yield 7.316%, or 71 basis points over the rate on U.S. Treasury securities with a comparable maturity. The second tranche, $25,000 of 7.50% Notes due on October 1, 2006 (the "2006 Notes", and together with the 2003 Notes, the "Notes"), was priced at 99.694% to yield 7.544%, or 83 basis points over the rate on U.S. Treasury securities with a comparable maturity. Proceeds from the Notes were used to pay down existing indebtedness outstanding on the Revolver. Perpetual Preferred Stock Offering On October 1, 1996, the Company sold one million shares of non-convertible 8.5% Series A Cumulative Redeemable Stock (the "Perpetual Preferred Shares"), raising $50 million. Net proceeds of $48,700 from the sale of the Perpetual Preferred Shares were used to repay outstanding indebtedness. - 17 - 18 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) Schedule of Indebtedness The following table reflects the Company's indebtedness at September 30, 1996:
Maturity Principal Description Location Interest Rate Date(1) Balance ===================================== ============ ============================= =========================== ============ TAX EXEMPT FIXED RATE (SECURED) Post Bridge(R) . . . . . . . . . . . Atlanta, GA 7.5% + .575% (2)(3) 01/01/97 (4) $ 9,960 Post Village(R) (Atlanta) Gardens . . Atlanta, GA 7.5% + .575% (2)(3) 01/01/97 (4) 14,500 Post Chase(R) . . . . . . . . . . . . Atlanta, GA 7.5% + .575% (2)(3) 07/01/97 (4) 12,000 Post Walk(R) . . . . . . . . . . . . Atlanta, GA 7.5% + .575% (2)(3) 07/01/97 (4) 15,000 Post Court(R) . . . . . . . . . . . . Atlanta, GA 7.5% + .575% (2)(3) 06/01/98 (4) 13,298 -------- 64,758 -------- CONVENTIONAL FIXED RATE (SECURED) Post Village(R) (Atlanta) Arbors . . Atlanta, GA 8.16% 02/10/97 7,662 Post Summit(R) . . . . . . . . . . . Atlanta, GA 7.72% 02/01/98 5,331 Post River(R) . . . . . . . . . . . . Atlanta, GA 7.72% 03/01/98 5,892 Post Hillsboro Village . . . . . . . Nashville, TN 9.20% 10/01/2001 3,061 -------- 21,946 -------- TAX EXEMPT FLOATING RATE (SECURED) Post Ashford(R) Series 1995 . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 9,895 Post Valley(R) Series 1995 . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 18,600 Post Brook(R) Series 1995 . . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 4,300 Post Village(R) (Atlanta) Hills Series 1995 . . . . . . . . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 7,000 Post Mill(R) Series 1995 . . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 12,880 Post Canyon(R) Series 1996 . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 16,845 Post Corners(R) Series 1996 . . . . . Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 14,760 -------- 84,280 -------- CONVENTIONAL FLOATING RATE (SECURED) Post Renaissance(R) (Phase I and II) Atlanta, GA LIBOR + .55% 07/01/99 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 Senior Notes . . . . . . . . . . . . N/A 7.25% 10/01/2003 100,000 Senior Notes . . . . . . . . . . . . N/A 7.50% 10/01/2006 25,000 -------- 225,000 -------- LINES OF CREDIT (UNSECURED) Revolver . . . . . . . . . . . . . . N/A LIBOR + .80% or prime minus .25% 05/01/99 22,000(5) Cash Management Line . . . . . . . . N/A LIBOR + .75% or prime minus .25% 07/25/97 20,000(5) -------- 42,000 -------- TOTAL . . . . . . . . . . . . . . . . $452,384(5) ========
18 19 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) (1) All of the mortgages can be prepaid at any time, subject to certain repayment penalties. (2) Bond financed (interest rate on bonds + credit enhancement fees). (3) These bonds are also secured by Post Fountains at Lee Vista(R), Post ake(R) (Orlando) and the Fountains and Meadows of Post Village(R) for hich 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 October 1, 1996, proceeds from the Preferred Shares were used to pay off the unsecured lines of credit reducing the Company's total outstanding indebtedness to $410,384. Refundable Tax Exempt Bonds The Company has previously issued tax-exempt bonds, secured by certain communities, totaling $235,880 of which $86,842 has been economically defeased, leaving $149,038 of principal amount of tax-exempt bonds outstanding at September 30, 1996 of which $84,280 of the bonds outstanding has 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 1997 and 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 September 30, 1996, which the Company may reissue during the years 1997 through 2025:
DEFEASED OUTSTANDING TOTAL REISSUE PORTION PORTION CAPACITY ======== =========== ============ 1997 $ 5,490 $ 51,460 $ 56,950 1998 81,352 13,298 94,650 Thereafter - 84,280 84,280 ------- -------- -------- $86,842 $149,038 $235,880 ======= ======== ========
Other Activities On May 7, 1996, the Company reacquired 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, after capital improvements, will be approximately $48 million, or $59,000 per apartment unit. The Company is operating these communities as one under the name Post Creek(TM) . In April 1996, the Company listed two communities in Florida, containing a total of 596 units, for sale. On July 19, 1996, one of the communities, containing 180 units, was sold. The sale of the communities is consistent with the Company's strategy of selling communities when the market demographics for a community are no longer consistent with the Company's existing ownership strategy. 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. 19 20 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) Current Development Activity The Company's communities under development or in initial lease-up are summarized in the following table:
CONSTRUCTION ACTUAL OR ACTUAL OR UNITS ESTIMATED COST ESTIMATED ESTIMATED LEASED CONSTRUCTION EXPENDED QUARTER OF QUARTER QUARTER AS OF # OF COST (1) TO DATE (2) CONSTRUCTION FIRST UNITS OF STABILIZED NOVEMBER 2, METROPOLITAN AREA UNITS (MILLIONS) (MILLIONS) COMMENCEMENT AVAILABLE OCCUPANCY 1996 - ----------------- ----- ------------ ------------- ------------ ----------- ------------- ----------- Atlanta, GA Post Crest(R) 410 $ 31 $ 28 1Q'95 1Q'96 1Q'97 369 Post Collier Hills(TM) 396 31 15 4Q'95 4Q'96 1Q'98 44 Post Glen(R) 312 29 10 1Q'96 1Q'97 1Q'98 n/a Post Lindbergh(TM) 396 34 7 3Q'96 3Q'97 4Q'98 n/a Post Gardens(R) 397 39 7 3Q'96 4Q'97 1Q'99 n/a Riverside by Post(TM) 537 55 14 3Q'96 1Q'98 4Q'99 n/a ----- ------ ----- ---- 2,448 219 81 413 ----- ------ ----- ---- Tampa, FL Post Walk at Hyde Park(TM) 134 13 6 1Q'96 1Q'97 3Q'97 n/a ----- ------ ----- ---- Charlotte, NC Post Park at Phillips Place(TM) 402 31 13 4Q'95 4Q'96 1Q'98 32 ----- ------ ----- ---- 2,984 $ 263 $ 100 445 ====== ====== ===== ====
(1) Represents estimated total development costs, including capitalized construction costs, lease-up deficits, and construction period interest. (2) Construction cost expended 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 $498 at September 30, 1996. The Company has also acquired two parcels, one in Tampa and one in Atlanta, on which it plans to build new communities. Construction is expected to begin on the Tampa parcel in the fourth quarter of 1996. The Home Depot, Inc. is constructing its corporate headquarters campus and extensive infrastructure improvements are being made by the county adjacent to the Atlanta 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. In addition, the Company continually reviews acquisition opportunities in its primary market areas. On August 26, 1996, the Company acquired, in a single transaction, a 3.2 acre tract of land in Nashville, Tennessee, with two existing apartment buildings containing 101 units (the "Vanderbilt Washington Apartments") and a 1.1 acre tract of land in Nashville, Tennessee, with one existing apartment building containing 80 units (the "Lee Apartments"). The Company also has two tracts of land adjacent to the Vanderbilt Washington Apartments under contract and expects to close on the purchase of those two tracts in early November. In early 1997, the Vanderbilt Washington Apartments will be completely renovated and additional apartment buildings will be built on the two tracts under contract, with the entire development being operated by the Company as one apartment community, Post Hillsboro Village. The Company is currently evaluating whether to hold, renovate or sell the Lee Apartments. 20 21 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER 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 nine months ended September 30, 1996 and 1995 are summarized as follows:
NINE MONTHS ENDED SEPTEMBER 30, ======================= 1996 1995 ======= ======== New community development and acquisition activity . . . . . . . . . . . . . . . . . . . $142,152 $102,894 Non-recurring capital expenditures: Vehicle access control gates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 361 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,404 743 Recurring capital expenditures: Carpet replacements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 743 700 Community additions and improvements . . . . . . . . . . . . . . . . . . . . . . . . . 1,341 594 Corporate additions and improvements . . . . . . . . . . . . . . . . . . . . . . . . . 491 759 -------- -------- $146,189 $106,051 ======== ========
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. 21 22 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION Historical Funds from Operations The Company considers funds from operations ("FFO") an appropriate measure of performance of an equity REIT. Funds from operations is defined to mean net income (loss) determined in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs. Cash available for distribution ("CAD") is defined as FFO less capital expenditures funded by operations and loan amortization payments. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO and CAD should be examined in conjunction with net income as presented in the consolidated financial statements and data included elsewhere in this report. FFO and CAD for the three and nine months ended September 30, 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ============================ ========================= 1996 1995 1996 1995 Net Income . . . . . . . . . . . . . . . . . . . . . $ 11,581 $ 8,146 $ 31,710 $ 20,250 Extraordinary item, net of minority interest . . . - 189 - 811 Minority interest . . . . . . . . . . . . . . . . . 2,696 2,410 7,442 6,175 Net gain on sale of assets . . . . . . . . . . . . . (854) (1,746) (854) (1,746) ----------- ----------- ---------- ----------- Adjusted net income . . . . . . . . . . . . . . . 13,423 8,999 38,298 25,490 Depreciation (real estate assets) . . . . . . . . . 5,877 4,975 16,673 15,103 ----------- ----------- ---------- ----------- Funds from Operations (1) . . . . . . . . . . . . . . 19,300 13,974 54,971 40,593 Recurring capital expenditures (2) . . . . . . . . (692) (528) (2,084) (1,294) Non-recurring capital expenditures (3) . . . . . . (687) (419) (1,462) (1,104) Loan amortization payments . . . . . . . . . . . . (55) (50) (160) (148) ----------- ----------- ---------- ----------- Cash Available for Distribution . . . . . . . . . . . $ 17,866 $ 12,977 $ 51,265 $ 38,047 =========== =========== ========= =========== Cash Flow Provided By (Used In): Operating activities . . . . . . . . . . . . . . . . $ 24,280 $ 14,439 $67,688 $ 48,295 Investing activities . . . . . . . . . . . . . . . $ (35,823) $ (36,218) $ (133,993) $ (103,824) Financing activities . . . . . . . . . . . . . . . $ 15,896 $ 4,727 $ 63,274 $ 53,989 Weighted average shares outstanding . . . . . . . . . 21,844,053 17,793,802 21,748,882 17,602,197 =========== =========== ========= =========== Weighted average shares and units outstanding . . . . 26,928,896 22,933,222 26,855,322 22,768,310 =========== =========== ========= ===========
22 23 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) (1) The Company uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO which was adopted for periods beginning after January 1, 1996. FFO for any period means the Consolidated Net Income of the Company and its subsidiaries for such period excluding gains or losses from debt restructuring and sales of property plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures, all determined on a consistent basis in accordance with generally accepted accounting principles. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. However, the Company's FFO is comparable to the FFO of real estate companies that use the current NAREIT definition. (2) Recurring capital expenditures consisted primarily of $332 and $267 of carpet replacement and $360 and $261 of other additions and improvements to existing communities for the three months ended September 30, 1996 and 1995, respectively, and $743 and $700 of carpet replacement and $1,341 and 594 of other additions and improvements to existing communities for the nine months ended September 30, 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 $152 and $352 for the three months ended September 30, 1996 and 1995, respectively, and $491 and $759 for the nine months ended September 30, 1996 and 1995, respectively, are excluded from the calculation of CAD. (3) Non-recurring capital expenditures consisted of community additions and improvements of $661 and $381 for the three months ended September 30, 1996 and 1995, respectively, and $1,404 and $743, for the nine months ended September 30, 1996 and 1995, respectively, and the addition of vehicle access control gates to communities of $26 and $38 for the three months ended September 30, 1995 and 1996, respectively, and $58 and $361 for the nine months ended September 30, 1996 and 1995, respectively. 23 24 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) 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 27. Financial Data Schedule (for SEC filing purposes only) 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 Report on Form 8-K filed on September 27, 1996. 24 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. /s/ John T. Glover ----------------------------- November 8, 1996 John T. Glover, President - ------------------------ (Principal Financial Officer) (Date) /s/ R. Gregory Fox ----------------------------- November 8, 1996 R. Gregory Fox - ------------------------ Senior Vice President, Chief (Date) Accounting Officer 25 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF POST PROPERTIES, INC. FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 5,977,000 0 0 0 0 0 1,069,371,000 171,479,000 927,776,000 0 452,384,000 0 0 219,000 346,655,000 927,776,000 0 126,482,000 0 63,925,000 0 0 16,738,000 38,298,000 0 31,710,000 0 0 0 31,710,000 1.46 0
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