-----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, Wp1h1AyXfrf7fxQk55zHn7ggH6DesgEwebGBwZPBZpJGKz7Ox5VXOsSG2wyCtKab l2G/Rx6e20bf6UcWUCcpYg== 0000950144-97-008456.txt : 19970805 0000950144-97-008456.hdr.sgml : 19970805 ACCESSION NUMBER: 0000950144-97-008456 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970804 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 SEC ACT: 1934 Act SEC FILE NUMBER: 001-12080 FILM NUMBER: 97650557 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. 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 June 30, 1997 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 organization) Identification No.) 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. 22,124,410 shares of common stock outstanding as of July 25, 1997. =============================================================================== 2 POST PROPERTIES, INC. INDEX
Page ---- PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996.......................... 3 Consolidated Statements of Operations for the three and six months ended June 30, 1997 and 1996...................................................................... 4 Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the six months ended June 30, 1997..................................................... 5 Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996...................................................................... 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)
JUNE 30, DECEMBER 31, 1997 1996 --------------- --------------- (UNAUDITED) ASSETS Real estate: Land.................................................................. $ 149,071 $ 150,072 Building and improvements............................................. 736,891 730,518 Furniture, fixtures and equipment..................................... 76,835 74,120 Construction in progress.............................................. 203,477 140,437 Land held for future development...................................... 8,660 14,195 --------------- ------------- 1,174,934 1,109,342 Less: accumulated depreciation.......................................... (185,068) (177,672) --------------- ------------- Operating real estate assets.......................................... 989,866 931,670 Cash and cash equivalents............................................... 1,771 233 Restricted cash......................................................... 1,016 1,148 Deferred charges, net................................................... 9,652 9,459 Other assets............................................................ 11,468 16,165 --------------- ------------- Total assets.......................................................... $ 1,013,773 $ 958,675 =============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable........................................................... $ 473,683 $ 434,319 Accrued interest payable................................................ 4,305 4,264 Dividend and distribution payable....................................... 16,220 14,659 Accounts payable and accrued expenses................................... 30,573 17,915 Security deposits and prepaid rents..................................... 5,179 5,084 --------------- ------------- Total liabilities..................................................... 529,960 476,241 --------------- ------------- Minority interest of unitholders in Operating Partnership............... 83,297 83,441 --------------- ------------- Commitments and contingencies Shareholders' equity Preferred stock, $.01 par value, 20,000,000 authorized, 1,000,000 shares issued and outstanding............................. 10 10 Common stock, $.01 par value, 100,000,000 authorized, 22,044,296 and 21,922,393 shares issued and outstanding at June 30, 1997 and December 31, 1996, respectively................... 220 219 Additional paid-in capital.............................................. 400,286 398,764 Accumulated earnings.................................................... -- -- --------------- ------------- Total shareholders' equity............................................ 400,516 398,993 --------------- ------------- Total liabilities and shareholders' equity............................ $ 1,013,773 $ 958,675 =============== =============
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 SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- --------------------------- 1997 1996 1997 1996 -------------- ---------- --------------------------- REVENUES Rental ...................................................... $ 42,550 $ 39,513 $ 84,131 $ 76,058 Property management - third party ........................... 539 733 1,092 1,466 Landscape services - third party ............................ 1,402 1,309 2,446 2,221 Interest .................................................... 8 110 15 239 Other ....................................................... 1,615 1,164 2,996 2,288 ---------- ---------- ---------- ---------- Total revenues ............................................ 46,114 42,829 90,680 82,272 ---------- ---------- ---------- ---------- EXPENSES Property operating and maintenance (exclusive of items shown separately below) ............................. 15,931 14,624 31,132 27,658 Depreciation (real estate assets) ........................... 6,426 5,831 12,563 10,796 Depreciation (non-real estate assets) ....................... 253 260 495 513 Property management - third party ........................... 394 480 814 1,050 Landscape services - third party ............................ 1,130 1,095 2,031 1,863 Interest .................................................... 5,709 5,711 11,070 10,768 Amortization of deferred loan costs ......................... 250 380 552 732 General and administrative .................................. 1,573 2,005 3,419 4,017 ---------- ---------- ---------- ---------- Total expenses ............................................ 31,666 30,386 62,076 57,397 ---------- ---------- ---------- ---------- Income before net gain on sale of assets, minority interest of unitholders in Operating Partnership and extraordinary item ........................................ 14,448 12,443 28,604 24,875 Net gain on sale of assets .................................. 3,512 -- 3,512 -- Minority interest of unitholders in Operating Partnership ..................................... (3,236) (2,360) (5,751) (4,746) ---------- ---------- ---------- ---------- Income before extraordinary item ............................ 14,724 10,083 26,365 20,129 Extraordinary item, net of minority interest of unitholders in Operating Partnership ...................... -- -- (75) -- ---------- ---------- ---------- ---------- Net income ................................................ 14,724 10,083 26,290 20,129 Dividend to preferred shareholders ........................ (1,062) -- (2,125) -- ---------- ---------- ---------- ---------- Net income available to common shareholders ............... $ 13,662 $ 10,083 24,165 20,129 ========== ========== ========== ========== PER COMMON SHARE DATA: Weighted average common shares outstanding ..................... 22,028,722 21,752,876 21,989,132 21,700,779 ========== ========== ========== ========== Income before extraordinary item (net of preferred dividend) ................................................. $ 0.62 $ 0.46 $ 1.10 $ 0.93 ========== ========== ========== ========== Net income available to common shareholders .................... $ 0.62 $ 0.46 $ 1.10 $ 0.93 ========== ========== ========== ========== Dividends declared ............................................. $ 0.595 $ 0.54 $ 1.19 $ 1.08 ========== ========== ========== ==========
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 PREFERRED COMMON PAID-IN ACCUMULATED SHARES SHARES CAPITAL EARNINGS TOTAL --------- ------ ----------- ---------- ------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, DECEMBER 31, 1996.............................. $ 10 $ 219 $ 398,764 $ -- $ 398,993 Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans........................ -- 1 3,871 -- 3,872 Adjustment for minority interest of unitholders in Operating Partnership at dates of capital transactions......................................... -- -- (331) -- (331) Net income............................................. -- -- -- 26,290 26,290 Dividends to preferred shareholders.................... -- -- -- (2,125) (2,125) Dividends to common shareholders....................... -- -- (2,018) (24,165) (26,183) ----- ------- ---------- --------- --------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, JUNE 30, 1997.................................. $ 10 $ 220 $ 400,286 $ -- $ 400,516 ===== ======== ========== ========= =========
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)
SIX MONTHS ENDED JUNE 30, -------------------------- 1997 1996 ------------ --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ......................................................................... $ 26,290 $ 20,129 Adjustments to reconcile net income to net cash provided by operating activities: Net gain on sale of assets .................................................... (3,512) -- Minority interest of unitholders in Operating Partnership ..................... 5,751 4,746 Extraordinary item ............................................................ 75 -- Depreciation .................................................................. 13,058 11,309 Amortization of deferred loan costs ........................................... 552 732 Write-off of deferred loan costs .............................................. 10 -- Changes in assets, (increase) decrease in: Restricted cash ............................................................... 132 19 Other assets .................................................................. 4,519 (1,428) Changes in liabilities, increase (decrease) in: Accrued interest payable ...................................................... 41 (540) Accounts payable and accrued expenses ......................................... 6,839 7,713 Security deposits and prepaid rents ........................................... 95 728 --------- --------- Net cash provided by operating activities ....................................... 53,850 43,408 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Construction and acquisition of real estate assets, net of payables ............. (74,286) (93,755) Proceeds from sale of assets .................................................... 23,111 -- Capitalized interest ............................................................ (3,757) (1,909) Recurring capital expenditures .................................................. (1,903) (1,392) Corporate additions and improvements ............................................ (772) (339) Non-recurring capital expenditures .............................................. (492) (539) Revenue generating capital expenditures ......................................... (3,497) (236) --------- --------- Net cash (used in) investing activities ......................................... (61,596) (98,170) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs ...................................................... (997) (924) Debt proceeds ................................................................... 147,940 123,364 Proceeds from sale of notes ..................................................... 80,000 -- Debt payments ................................................................... (188,576) (51,705) Distributions to unitholders .................................................... (5,925) (5,293) Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans ........... 3,872 4,203 Dividends paid to preferred shareholders ........................................ (2,125) -- Dividends paid to common shareholders ........................................... (24,905) (22,267) --------- --------- Net cash provided by financing activities ....................................... 9,284 47,378 --------- --------- Net increase (decrease) in cash and cash equivalents ............................ 1,538 (7,384) Cash and cash equivalents, beginning of period .................................. 233 9,008 --------- --------- Cash and cash equivalents, end of period ........................................ $ 1,771 $ 1,624 ========= =========
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 six month period ended June 30, 1997 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, 1996. 2. NOTES PAYABLE On January 29, 1997, the Company filed, with the Securities and Exchange Commission, a Prospectus Supplement relating to $175,000 aggregate principal amount of Medium-Term Notes Due Nine Months or More from Date of Issue (the "MTNs"). On March 3, 1997, the Company issued $30,000 of floating rate MTNs priced at LIBOR plus .25%, due on March 3, 2000 (the "2000 MTNs"). Proceeds from the 2000 MTNs were used to (i) prepay the mortgage on Post Renaissance which bore interest at LIBOR plus .55% and matured July 1, 1999 and (ii) pay down existing indebtedness outstanding under the Company's revolving line of credit (the "Revolver"). On March 31, 1997, the Company issued $50,000 of fixed rate MTNs as follows: $37,000 due on April 2, 2001 (the "2001 MTNs") and $13,000 due on April 1, 2004 (the "2004 MTNs"). The 2001 MTNs priced at par with a coupon rate of 7.02% (.50% over the corresponding treasury rate on the date such rate was set) and an effective rate reflecting the benefit of a treasury lock of 6.57%. The 2004 MTNs priced at par with a coupon of 7.30% (.65% over the corresponding treasury rate on the date such rate was set) and an effective rate reflecting the benefit of a treasury lock of 6.86%. The proceeds from the 2001 MTNs and the 2004 MTNs were used to prepay $50,000 of fixed rate notes that bore interest at 7.15% per annum. 3. SALE OF ASSETS On May 22, 1997, the Company sold a community, located in Pompano Beach, Florida that contained 416 units. The sale of this community 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. Net proceeds of $23,111 were used to pay down existing indebtedness outstanding under the Revolver. - 7 - 8 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------- 4. EXTRAORDINARY ITEM The extraordinary item for the six months ended June 30, 1997 resulted from costs associated with the early extinguishment of indebtedness. The extraordinary item is net of minority interest of unitholders of $18, calculated on the basis of weighted average units and shares outstanding for the period. 5. EARNINGS PER SHARE Primary earnings per common share for income before extraordinary item, net of preferred dividends, and net income available to common shareholders has been computed by dividing income before extraordinary item, net of preferred dividends, and net income available to common shareholders by the weighted average number of common shares outstanding. This method derives the same per common share information as the "two-class" method prescribed for REITs. The weighted average number of common shares outstanding utilized in the calculations are 22,028,722 and 21,752,876 for the three months ended June 30, 1997 and 1996, respectively and 21,989,132 and 21,700,779 for the six months ended June 30, 1997 and 1996, respectively. 6. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities for the three and six months ended June 30, 1997 and 1996 are as follows: (a) During the six months ended June 30, 1997, holders of 65 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 and adjustments to minority interest for the dilutive impact of the Dividend Reinvestment and Employee Stock Purchase Plans was a reclassification increasing minority interest and decreasing shareholders' equity in the amount of $331 for the six months ended June 30, 1997. (b) The Operating Partnership committed to distribute $16,220 and $14,504 for the quarters ended June 30, 1997 and 1996, respectively. As a result, the Company declared a dividend of $.595 and $.54 per common share or $13,116 and $11,758 for the quarters ended June 30, 1997 and 1996, respectively. The remaining distributions from the Operating Partnership in the amount of $3,104 and $2,746, respectively, were distributed to minority interest unitholders in the Operating Partnership. 7. SUBSEQUENT EVENTS On August 4, 1997, the Company announced that it has entered into a definitive agreement and plan of merger with Columbus Realty Trust ("Columbus"), a Texas real estate investment trust, pursuant to which Columbus would be merged into the Company. Columbus currently operates 24 completed communities containing 6,045 apartment units and has an additional 6 communities under development that will contain 1,481 apartment units upon completion located in Dallas and Houston, Texas and Jackson, Mississippi. Pursuant to the merger agreement, each outstanding share of Columbus common stock will be converted into .615 shares of common stock of the Company, which will result in the issuance of approximately 8.4 million shares of common stock of the Company. The merger, which will be accounted for as a purchase, is expected to be completed by November 1997, subject to the approval of the shareholders of the Company and Columbus and other customary conditions. - 8 - 9 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 June 30, 1997, there were 27,260,770 units in the Operating Partnership outstanding, of which 22,044,296, or 80.9%, were owned by the Company and 5,216,474, or 19.1% were owned by other limited partners (including certain officers and directors of the Company). As of June 30, 1997, there were 1,000,000 Perpetual Preferred Units outstanding, all of which were owned by the Company. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND 1996 The Company recorded net income available to common shareholders of $24,165, for the six months ended June 30, 1997, an increase of 20.1% over the prior corresponding period primarily as a result of the the gain recognized from the sale of a community, 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. As of June 30, 1997, the Company's portfolio of apartment communities consisted of the following: (i) 39 communities which were completed and stabilized for all of the current and prior year, (ii) eight communities which achieved full stabilization during the prior year and (iii) 15 communities 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. - 9 - 10 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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, 1996. 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 six months ended June 30, 1997 and 1996 is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------------------- ------------------------------------- 1997 1996 % CHANGE 1997 1996 % CHANGE --------- ---------- -------- --------- --------- -------- Rental and other revenue: Fully stabilized communities (1)...... $ 32,161 $ 31,973 0.6% $ 63,927 $ 63,441 0.8 % Communities stabilized during 8,940 6,368 40.4% 17,798 10,192 74.6 % 1996................................. Development and lease-up communities (2)..................... 1,636 -- 100.0% 2,299 -- 100.0 % Sold communities (3).................. 516 1,416 (63.6)% 1,482 2,820 (47.4)% Other revenue (4)..................... 912 920 (0.9)% 1,621 1,893 (14.4)% --------- --------- --------- -------- 44,165 40,677 8.6% 87,127 78,346 11.2 % --------- --------- --------- -------- Property operating and maintenance expense (exclusive of depreciation and amortization): Fully stabilized communities.......... 10,761 10,785 (0.2)% 20,750 20,540 1.0 % Communities stabilized during 1996................................. 2,756 2,165 27.3% 5,402 3,806 41.9 % Development and lease-up communities ........................ 766 -- 100.0% 1,270 -- 100.0 % Sold communities ..................... 650 923 (29.6)% 650 1,088 (40.3)% Other expenses (5).................... 998 751 32.9% 3,060 2,224 37.6 % --------- --------- --------- -------- 15,931 14,624 8.9% 31,132 27,658 12.6 % --------- --------- --------- -------- Revenue in excess of specified expense.............................. $ 28,234 $ 26,053 8.4% $ 55,995 50,688 10.5 % ========= ========= ========= ======== Recurring capital expenditures: (6) Carpet................................ $ 337 $ 236 42.8% $ 656 410 60.0 % Other................................. 862 690 24.9% 1,247 982 27.0 % --------- --------- --------- -------- Total................................. $ 1,199 926 29.5% $ 1,903 1,392 36.7 % ========= ========= ========= ======== Average apartment units in service...... 18,420 17,155 7.4% 18,262 16,856 8.3 % ========= ========= ========= ======== Recurring capital expenditures per apartment unit....................... $ 65 $ 54 20.4% $ 104 $ 83 25.3 % ========= ========= ========= ========
10 11 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- (1) Communities which reached stabilization prior to January 1, 1996. (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) Includes one community, containing 180 units, which was sold on July 19, 1996 and one community, containing 416 units, which was sold on May 22, 1997. (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 three and six months ended June 30, 1997, rental and other revenue increased $3,488, or 8.6%, and $8,781, or 11.2%, respectively, compared to the same period in the prior year, primarily as a result of an increase in the average number of apartment units in service and increased rental rates partially offset by the sale of two communities. For the three and six months ended June 30, 1997, property operating and maintenance expenses increased $1,307, or 8.9%, and $3,474. pr 12.6%, respectively, compared to the same period in the prior year, due to an increase in the average number of apartment units in service partially offset by the sale of two communities. For the three and six months ended June 30, 1997, recurring capital expenditures increased $273, and or 29.5%, and $511, or 36.7%, respectively, compared to the same period in the prior year, primarily due to the increase in the average number of apartment units in service and the timing of scheduled capital improvements. - 11 - 12 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 39 communities containing an aggregate of 14,164 units which were fully stabilized as of January 1, 1996, is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------------------------- ------------------------------------------ 1997 1996 % CHANGE 1997 1996 % CHANGE --------- ---------- ------------ --------- --------- ----------- Rental and other revenue................ $ 32,161 $ 31,973 0.6% $ 63,927 $ 63,441 0.8% Property operating and maintenance expense (exclusiveof depreciation and amortization)..................... 10,761 10,785 (0.2)% 20,750 20,540 1.0% -------- --------- ----------- ---------- Revenue in excess of specified expense $ 21,400 $ 21,188 1.0% $ 43,177 $ 42,901 0.6% ======== ========= =========== ========== Recurring capital expenditures: (1) Carpet................................ $ 296 $ 213 39.0% $ 579 $ 372 55.6% Other................................. 801 673 19.0% 1,114 933 19.4% -------- --------- ----------- ---------- Total............................... $ 1,097 $ 886 23.8% $ 1,693 $ 1,305 29.7% ======== ========= ----------- ========== Recurring capital expenditures per apartment unit (2)................... $ 77 $ 63 22.2% $ 120 $ 92 30.4% ======== ========= =========== ========== Average economic occupancy (3).......... 94.7% 95.8% (1.1)% 94.0% 95.6% (1.7)% -------- --------- ----------- ---------- Average monthly rental rate per apartment unit (4).................... $ 773 $ 763 1.3% $ 775 $ 759 2.1% ======== --------- =========== ========== Apartment units in service.............. 14,164 14,164 14,164 14,164 ======== ========= =========== ==========
(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 $227 per unit on building maintenance (inclusive of direct salaries) and $76 and $73 per unit on landscaping (inclusive of direct salaries) for the three months ended June 30, 1997 and 1996, respectively and $329 and $374 per unit on building maintenance (inclusive of direct salaries) and $119 and $115 per unit on landscaping (inclusive of direct salaries) for the six months ended June 30, 1997 and 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 94.0% and 95.4% for the three months ended June 30, 1997 and 1996, respectively and 93.4% and 95.2% for the six months ended June 30, 1997 and 1996, respectively.) For the three months ended June 30, 1997 and 1996, concessions were $166 and $82 and employee discounts were $70 and $65, respectively, and for the six months ended June 30, 1997 and 1996, concessions were $313 and $140 and employee discounts were $135 and $137, respectively. (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. - 12 - 13 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER SHARE AND PER APARTMENT UIT DATA RENT - ------------------------------------------------------------------------------ For the three and six months ended June 30, 1997, rental and other revenue increased $188, or 0.6%, and $486, or 0.8%, respectively, compared to the same period in the prior year, due to higher rental rates partially offset by lower occupancy. For the three months ended June 30, 1997, property operating and maintenance expenses (exclusive of depreciation and amortization) decreased $24, or 0.2%, compared to the same period in the prior year, primarily as a result of decreases in expensed property improvements and real estate taxes. For the six months ended June 30, 1997, property operating and maintenance expenses (exclusive of depreciation and amortization) increased $210, or 1.0%, compared to the same period in the prior year, primarily due to increased advertising and promotion efforts and an increase in building repair and maintenance expense partially offset by the decreases in expensed property improvements and real estate taxes during the second quarter. For the three and six months ended June 30, 1997, recurring capital expenditures per apartment unit increased $14, or 22.2% and $28, or 30.4% compared to the same periods in the prior year, primarily due to the timing of carpet replacements and other recurring capital expenditures for 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 three and six months ended June 30, 1997 and 1996, respectively, the "lease-up deficit" charged to and included in results of operations is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ------------------------------ 1997 1996 1997 1996 ------------- ------------- ----------- ----------- Rental and other revenue..................................... $ 574 $ 294 $ 691 $ 868 Property operating and maintenance expense (exclusive of depreciation and amortization)............................ 371 189 578 658 ------------- ----------- ----------- ----------- Revenue (expense) in excess of specified expense/revenue............................................ 230 105 113 210 Interest expense............................................. 271 196 360 534 ------------- ----------- ----------- ----------- Lease-up deficit............................................. $ (68) $ (91) $ (247) $ (324) ============= =========== =========== ===========
- 13 - 14 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 six months ended June 30, 1997 and 1996 is summarized as follows:
RAM PARTNERS, INC. THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ------------------------------ 1997 1996 % CHANGE 1997 1996 % CHANGE ------ ------ -------- ---- ----- -------- Property management and other revenue ........................ $ 519 $ 649 (20.0)% $1,073 $1,309 (18.0)% Property management expense ...... 283 297 (4.7)% 578 653 (11.5)% General and administrative expense 96 113 (15.0)% 199 231 (13.9)% ------ ----- ------ ------ Revenue in excess of specified expense ........................ $ 140 $ 239 (41.4)% $ 296 $ 425 (30.4)% ====== ====== ====== ====== Average apartment units managed .. 7,804 9,814 (20.5)% 7,814 9,829 (20.5)% ====== ====== ====== ======
The decrease in property management revenues in excess of specified expense for the three and six months ended June 30, 1997 compared to the same periods in the prior year is primarily attributable to the decrease in the average number of units managed.
POST ASSET MANAGEMENT THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ------------------------------- 1997 1996 % CHANGE 1997 1996 % CHANGE ----- ------ -------- ----- ----- -------- Property management and other revenue ........................ $ 24 $ 88 (72.7)% $ 48 $ 169 (71.6)% Property management expense ...... 11 60 (81.7)% 19 142 (86.6)% General and administrative expense 4 11 (63.6)% 18 25 (28.0)% ------ ------ ------ ------ Revenue in excess of specified expense ....................... $ 9 $ 17 (47.1)% $ 11 $ 2 450.0% ====== ====== ====== ====== Average apartment units managed .. 260 866 (70.0)% 260 866 (70.0)% ====== ====== ====== ======
Property management revenues and the related expenses decreased for the three and six months ended June 30, 1997, compared to the same periods in 1996, primarily due to the reduction in the average number of apartment units managed. This reduction was primarily due to four management contracts which were terminated; two effective January 1996, one effective July 1996 and one effective September 1996. As of June 30, 1997, Post Asset Management provided management services to one Post(R) community, containing 260 apartment units. The Company anticipates that the remaining contract will be terminated during 1997. - 14 - 15 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 six months ended June 30, 1997 and 1996 is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------- -------------------------------- 1997 1996 % CHANGE 1997 1996 % CHANGE -------- ----- -------- ------ ------- -------- Landscape services and other revenue ........................ $1,421 $ 1,356 4.8% $2,476 $ 2,268 9.2% Landscape services expense ....... 993 991 0.2% 1,749 1,658 5.5% General and administrative expense ........................ 137 104 31.7% 282 205 37.6% ------ ------- ------ ------- Revenue in excess of specified expense ........................ $ 291 $ 261 11.5% $ 445 $ 405 9.9% ====== ======= ====== =======
The increase in landscape services revenue and landscape service expense for the three and six months ended June 30, 1997, compared to the same periods in 1996, is primarily due to increases in landscape contracts. OTHER REVENUES AND EXPENSES Depreciation of real estate assets increased $595, or 10.2%, and $1,767, or 16.4%, for the three and six months ended June 30, 1997, compared to the same periods in the prior year, due to the addition of depreciable real estate assets. The extraordinary item of $75 for the six months ended June 30, 1997, 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 $43,408 for the six months ended June 30, 1996 to $53,850 for the six months ended June 30, 1997, principally due to increases in the Company's income before depreciation. Net cash used in investing activities decreased from $98,170 in the six months ended June 30, 1996 to $61,596 in the six months ended June 30, 1997, principally due to the proceeds provided by the sale of assets. The Company's net cash provided by financing activities decreased from $47,378 in the six months ended June 30, 1996 to $9,284 in the six months ended June 30, 1997, primarily due to increased debt payments. The Company has elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1993. REITs are subject to a number of organizational and operational requirements, including a requirement that they currently distribute 95% of their ordinary taxable income. The Company generally will not be subject to Federal income tax on net income. - 15 - 16 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) - ------------------------------------------------------------------------------- At June 30, 1997, the Company had total indebtedness of $473,683 and cash and cash equivalents of $1,771. The Company's indebtedness includes approximately $14,155 in conventional mortgages payable secured by individual communities, tax-exempt bond indebtedness of $151,528, senior unsecured notes of $255,000 and borrowings under unsecured lines of credit of approximately $53,000. 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. Lines Of Credit The Company has a syndicated line of credit (the "Revolver") in the amount of $180,000 to provide funding for future construction, acquisitions and general business obligations. The Revolver matures on May 1, 2000 and borrowings currently bear interest at LIBOR plus .675% 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 Revolver also includes a money market competitive bid option for short-term funds for up to $90,000 at rates below the stated line rate. 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 .675% or prime minus .25% and has a maturity date of June 26, 1998. The Company chose this arrangement because the Revolver requires three days advance notice to repay borrowings whereas this facility provides the Company with an automatic daily sweep, which applies all available cash to reduce the outstanding balance. In addition, the Company has a $3,000 facility to provide letters of credit for general business purposes. 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 nine bond issues, aggregating $111,230, which were reissued, and has agreed, subject to certain conditions, to provide credit enhancement through June 1, 2025 for up to an additional $43,298 with respect to six - 16 - 17 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) - ------------------------------------------------------------------------------- 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. Refundable Tax Exempt Bonds The Company has previously issued tax-exempt bonds, secured by certain communities, totaling $235,880 of which $84,352 has been economically defeased, leaving $151,528 of principal amount of tax-exempt bonds outstanding at June 30, 1997 of which $111,230 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 June 30, 1997, which the Company may reissue during the years 1997 through 2025: DEFEASED OUTSTANDING TOTAL REISSUE PORTION PORTION CAPACITY -------- ----------- ------------- 1997(1) $ 3,000 $ 27,000 $ 30,000 1998 81,352 13,298 94,650 Thereafter -- 111,230 111,230 -------- -------- -------- $ 84,352 $151,528 $235,880 ======== ======== ======== (1) 1997 amounts consist of Post Chase and Post Walk bonds which matured and were reissued on July 1, 1997 and now have --- a maturity of June 1, 2025. - 17 - 18 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 June 30, 1997:
Maturity Principal Description Location Interest Rate Date(1) Balance - ---------------------------------- ---------------- ----------------------------- ------------------- ----------- TAX EXEMPT FIXED RATE (SECURED) 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 (5) 13,298 -------- 40,298 -------- CONVENTIONAL FIXED RATE (SECURED) Post Summit(R) ................... Atlanta, GA 7.72% 02/01/98 5,284 Post River(R) .................... Atlanta, GA 7.72% 03/01/98 5,840 Post Hillsboro Village ........... Nashville, TN 9.20% 10/01/2001 3,031 -------- 14,155 -------- 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 Post Bridge(R) ................... Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 12,450 Post Village(R) (Atlanta) Gardens Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/2025 14,500 ------- 111,230 ------- SENIOR NOTES (UNSECURED) Medium Term Notes ................ N/A LIBOR + .25% 03/03/2000 30,000 Northwestern Mutual Life ......... N/A 8.21% 06/07/2000 30,000 Medium Tern Notes ................ N/A 7.02% 04/02/2001 37,000 Northwestern Mutual Life ......... N/A 8.37% 06/07/2002 20,000 Senior Notes ..................... N/A 7.25% 10/01/2003 100,000 Medium Term Notes ................ N/A 7.30% 04/01/2004 13,000 Senior Notes ..................... N/A 7.50% 10/01/2006 25,000 -------- 255,000 -------- LINES OF CREDIT (UNSECURED) Revolver ......................... N/A LIBOR + .675% or prime minus .25% (6) 5/01/2000 33,000 Cash Management Line ............. N/A LIBOR + .675% or prime minus .25% 6/26/98 20,000 -------- 53,000 -------- TOTAL ............................ $473,683 --------
- 18 - 19 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 prepayment 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 Lake(R) (Orlando) and the Fountains and Meadows of Post Village(R) for which the Company has economically defeased their respective bond indebtedness. (4) On July 1, 1997, this bond was refunded with an issue having a maturity of June 1, 2025 and an interest rate of SunTrust Bank, Atlanta Non-AMT "AAA" tax free rate plus a credit enhancement fee of .575%. (5) Subject to certain conditions at re-issuance, the credit enhancement runs to June 1, 2025. (6) Represents stated rate. The Company may also make "money market" loans of up to $90,000 at rates below the stated rate. Other Activities On May 22, 1997, the Company sold a community, located in Pompano Beach, Florida that contained 416 units. The sale of this community 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. Net proceeds of $23,111 were used to pay down existing indebtedness outstanding under the Revolver. 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 CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) - ------------------------------------------------------------------------------ Current Development Activity The Company's apartment communities under development or in initial lease-up are summarized in the following table:
ACTUAL OR ACTUAL OR UNITS ESTIMATED ESTIMATED LEASED QUARTER OF QUARTER QUARTER AS OF # OF CONSTRUCTION FIRST UNITS OF STABILIZED JULY 28, METROPOLITAN AREA UNITS COMMENCEMENT AVAILABLE OCCUPANCY 1997 - ----------------- ------- ------------ --------- --------- ---- Atlanta, GA Post Collier Hills(TM) 396 4Q'95 4Q'96 4Q'97 328 Post Glen(R) 314 1Q'96 1Q'97 1Q'98 213 Post Lindbergh(TM) 396 3Q'96 3Q'97 1Q'99 n/a Post Gardens(R) 397 3Q'96 4Q'97 1Q'99 n/a Riverside by Post(TM) Phase I 205 3Q'96 2Q'98 1Q'00 n/a Post River(R)II 88 1Q'97 4Q'97 2Q'98 n/a Post Ridge(TM) 232 1Q'97 4Q'97 4Q'98 n/a Post Briarcliff(TM) Phase I 388 2Q'97 1Q'98 2Q'99 n/a ------- ------ 2,416 541 ------- ------ Tampa, FL Post Rocky Point(R) Phase II 174 4Q'96 2Q'97 4Q'97 74 Post Rocky Point(R) Phase III 290 2Q'97 1Q'98 1Q'99 n/a Post Harbour Island(TM) 210 3Q'97 3Q'98 2Q'99 n/a ----- ------ 674 74 ----- ------ Charlotte, NC Post Park at Phillips Place(TM) 402 4Q'95 4Q'96 1Q'982 315 ----- Nashville, TN Post Hillsboro Village(TM) 201 1Q'97 3Q'97 2Q'981 n/a ----- ----- 3,693 930 ===== ======
The Company has also acquired a parcel of land in Atlanta on which it plans to build a new community. Adjacent to the parcel, the Home Depot, Inc. is constructing its corporate headquarters campus and extensive infrastructure improvements are being made by the county. In addition, the Company holds land for a fourth phase of Rocky Point(R) in Tampa, Florida. In connection with the Riverside development, the Company is also constructing an office building, and associated retail space, which it intends to occupy a portion of in the second quarter of 1998. The Company is making improvements to a leased facility for Post Landscape Services. The Company is also currently conducting feasibility and other pre-development studies for possible new Post(R) communities in its primary market areas. Capitalization of Fixed Assets and Community Improvements The Company has established a policy of capitalizing those expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. All expenditures necessary to maintain a community in ordinary operating condition are expensed as incurred. During the first five years of a community (which corresponds to the estimated depreciable life), carpet replacements are expensed as incurred. Thereafter, carpet replacements are capitalized. - 20 - 21 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- Acquisition of assets and community improvement expenditures for the six months ended June 30, 1997 and 1996 are summarized as follows:
SIX MONTHS ENDED JUNE 30, ----------------------------- 1997 1996 ------------ ----------- New community development and acquisition activity............................................. $ 78,043 $ 95,664 Non-recurring capital expenditures: Revenue generating additions and improvements............................................ 3,497 236 Other community additions and improvements............................................... 492 539 Recurring capital expenditures: Carpet replacements...................................................................... 656 410 Community additions and improvements..................................................... 1,247 982 Corporate additions and improvements..................................................... 772 339 --------- ----------- $ 84,707 $ 98,170 ========= ===========
RECENT DEVELOPMENTS On August 4, 1997, the Company announced that it has entered into a definitive agreement and plan of merger with Columbus Realty Trust ("Columbus"), a Texas real estate investment trust, pursuant to which Columbus would be merged into the Company. Columbus currently operates 24 completed communities containing 6,045 apartment units and has an additional 6 communities under development that will contain 1,481 apartment units upon completion located in Dallas and Houston, Texas and Jackson, Mississippi. Pursuant to the merger agreement, each outstanding share of Columbus common stock will be converted into .615 shares of common stock of the Company, which will result in the issuance of approximatley 8.4 million shares of common stock of the Company. The merger, which will be accounted for as a purchase, is expected to be completed by November 1997, subject to the approval of the shareholders of the Company and Columbus and other customary conditions. 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 CONDITION 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) available to common shareholders determined in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs. Cash available for distribution ("CAD") is defined as FFO less capital expenditures funded by operations and loan amortization payments. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO and CAD should be examined in conjunction with net income as presented in the consolidated financial statements and data included elsewhere in this report. FFO and CAD for the three and six months ended June 30, 1997 and 1996 presented on a historical basis are summarized in the following table: Calculations of Funds from Operations and Cash Available for Distribution
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- -------------------------------- 1997 1996 1997 1996 -------------- ----------- ------------ ------------ Net income available to common shareholders........ $ 13,662 $ 10,083 $ 24,165 $ 20,129 Extraordinary item, net of minority interest..... -- -- 75 -- Minority interest................................ 3,236 2,360 5,751 4,746 Net gain on sale of assets.................... (3,512) -- (3,512) -- ----------- ---------- ----------- ----------- Adjusted net income........................... 13,386 12,443 26,479 24,875 Depreciation of real estate assets............... 6,426 5,831 12,563 10,796 ----------- ---------- ---------- ---------- Funds from Operations (1).......................... 19,812 18,274 39,042 35,671 Recurring capital expenditures (2)............... (1,199) (926) (1,903) (1,392) Non-recurring capital expenditures (3)........... (117) (439) (492) (539) Loan amortization payments....................... (43) (53) (102) (105) ----------- ---------- ---------- ---------- Cash Available for Distribution.................... $ 18,453 $ 16,856 $ 36,545 $ 33,635 =========== ========== ========== ========== Revenue generating capital expenditures (4)........ $ 2,447 $ 200 $ 3,497 $ 236 =========== ========== ========== ========== Cash Flow Provided By (Used In): Operating activities............................... $ 20,628 $ 23,020 $ 53,850 $ 43,408 Investing activties ............................... $ (16,235) $ (76,658) $ (61,596) $ (98,170) Financing activities............................... $ (6,294) $ 53,879 $ 9,284 $ 47,378 Weighted average common shares outstanding......... 22,028,722 21,752,876 21,989,132 21,700,779 ============ ========== ========== ========== Weighted average common shares and units outstanding........................................ 27,245,196 26,850,337 27,206,432 26,818,135 =========== ========== ========== ==========
- 22 - 23 POST PROPERTIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 $337 and $236 of carpet replacement and $862 and $690 of other additions and improvements to existing communities for the three months ended June 30, 1997 and 1996, respectively, and $656 and $410 of carpet replacement and $1,247 and $982 of other additions and improvements to existing communities for the six months ended June 30, 1997 and 1996, respectively. Since the Company does not add back the depreciation of non-real estate assets in its calculation of FFO, capital expenditures of $327 and $135 for the three months ended June 30, 1997 and 1996, respectively, and $772 and $339 for the six months ended June 30, 1997 and 1996, respectively, are excluded from the calculation of CAD. (3) Non-recurring capital expenditures consisted of community additions and improvements of $117 and $439 for the three months ended June 30, 1997 and 1996, respectively, and $492 and $539 for the six months ended June 30, 1997 and 1996, respectively. (4) Revenue generating capital expenditures included a major renovation of a community in the amount of $1,620 and $200, for the three months ended June 30, 1997 and 1996, respectively, and $2,581 and $236 for the six months ended June 30, 1997 and 1996, respectively, and submetering of water service to communities in the amount of $827 and $916 for the three and six months ended June 30, 1997, respectively. - 23 - 24 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's annual meeting of shareholders was held on May 22, 1997. The matters voted upon and the results of voting were as follows: To elect two directors to serve until the 2000 annual meeting of shareholders or until their successors are duly elected and qualified. The nominees, Messrs. Bloom and Shaw were elected to the Company's board of directors to serve until the 2000 meeting of shareholders. There were 17,556,119 votes for and 737,631 votes withheld for Messr. Bloom and 17,558,304 votes for and 735,446 votes withheld for Messr. Shaw. 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 None. - 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. August 4, 1997 /s/ John T. Glover - ------------------------ ------------------------------- (Date) John T. Glover, President (Principal Financial Officer) Augus 4, 1997 /s/ R. Gregory Fox - ------------------------ ---------------------------- (Date) R. Gregory Fox Senior Vice President, Chief 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 JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 2,787,000 0 0 0 0 0 1,174,934,000 185,068,000 1,013,773,000 0 473,683,000 0 10,000 220,000 400,286,000 1,013,773,000 0 90,680,000 0 46,540,000 0 0 11,070,000 28,604,000 0 24,240,000 0 75,000 0 24,165,000 1.10 0
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