-----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, BRenydPBB3zg0HZeBFdEe6v17+Y4U4q2UmA3xXYn4VHmngRO/cenRLms8qjWYudM Lm1blCP184KK5BgMKct9ag== 0000950144-98-009669.txt : 19980814 0000950144-98-009669.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950144-98-009669 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: SEC FILE NUMBER: 001-12080 FILM NUMBER: 98685970 BUSINESS ADDRESS: STREET 1: ONE RIVERSIDE STREET 2: SUITE 800 CITY: ATLANTA STATE: GA ZIP: 30327 BUSINESS PHONE: 4048465000 MAIL ADDRESS: STREET 1: ONE RIVERSIDE STREET 2: SUITE 800 CITY: ATLANTA STATE: GA ZIP: 30327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POST APARTMENT HOMES LP CENTRAL INDEX KEY: 0001012271 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 582053632 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28226 FILM NUMBER: 98685971 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: 3350 CUMBERLAND CIRCLE STREET 2: STE 2200 CITY: ATLANTA STATE: GA ZIP: 30339 10-Q 1 POST PROPERTIES, INC. / POST APARTMENT HOMES, LP 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file numbers 1-12080 and 0-28226 ------------------------ POST PROPERTIES, INC. POST APARTMENT HOMES, L.P. (Exact name of registrant as specified in its charter) GEORGIA 58-1550675 GEORGIA 58-2053632 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4401 NORTHSIDE PARKWAY, SUITE 800, ATLANTA, GEORGIA 30327 (Address of principal executive offices -- zip code) (404) 846-5000 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Post Properties, Inc. Yes X No --- --- Post Apartment Homes, L.P. Yes X No --- --- ------------------------ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 36,021,778 shares of common stock outstanding as of August 10, 1998. ================================================================================ 2 POST PROPERTIES, INC. POST APARTMENT HOMES, L.P. INDEX
PART I FINANCIAL INFORMATION PAGE ---- ITEM 1 FINANCIAL STATEMENTS POST PROPERTIES, INC. Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997................................3 Consolidated Statements of Operations for the three and six months ended June 30, 1998 and 1997............................................................................4 Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the six months ended June 30, 1998....................................................................5 Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997............................................................................6 Notes to Consolidated Financial Statements...........................................................7 POST APARTMENT HOMES, L.P. Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997................................9 Consolidated Statements of Operations for the three and six months ended June 30, 1998 and 1997...........................................................................10 Consolidated Statement of Partners' Equity for the six months ended June 30, 1998....................................................................................11 Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997...........................................................................12 Notes to Consolidated Financial Statements .........................................................13 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................................................15 PART II OTHER INFORMATION ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS............................................30 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...............................................................30 SIGNATURES..............................................................................................31
- 2 - 3 POST PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31, 1998 1997 --------------- --------------- (UNAUDITED) ASSETS Real estate: Land.................................................................. $ 242,493 $ 234,011 Building and improvements............................................. 1,350,528 1,255,118 Furniture, fixtures and equipment..................................... 99,135 89,251 Construction in progress.............................................. 383,807 342,071 Land held for future development...................................... 32,083 15,560 --------------- ------------- 2,108,046 1,936,011 Less: accumulated depreciation.......................................... (222,457) (201,095) --------------- ------------- Real estate assets.................................................... 1,885,589 1,734,916 Cash and cash equivalents............................................... 3,917 10,879 Restricted cash......................................................... 1,164 1,542 Deferred charges, net................................................... 17,476 12,629 Other assets............................................................ 34,648 20,597 ------------- ------------- Total assets.......................................................... $ 1,942,794 $ 1,780,563 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable........................................................... $ 731,800 $ 821,209 Accrued interest payable................................................ 7,670 7,505 Dividends and distributions payable..................................... 29,687 21,327 Accounts payable and accrued expenses................................... 63,635 53,101 Security deposits and prepaid rents..................................... 8,734 8,117 ------------- ------------- Total liabilities..................................................... 841,526 911,259 ------------- ------------- Minority interest of unitholders in Operating Partnership............... 121,326 112,384 ------------- ------------- Commitments and contingencies Shareholders' equity Preferred stock, $.01 par value, 20,000,000 authorized: 8 1/2% Series A Cumulative Redeemable Shares, liquidation preference $50 per share, 1,000,000 shares issued and outstanding... 10 10 7 5/8% Series B Cumulative Redeemable Shares, liquidation preference $25 per share, 2,000,000 shares issued and outstanding......................................................... 20 20 7 5/8% Series C Cumulative Redeemable Shares, liquidation preference $25 per share, 2,000,000 shares issued and outstanding......................................................... 20 -- Common stock, $.01 par value, 100,000,000 authorized, 35,889,524 and 30,626,592 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively................... 359 306 Additional paid-in capital.............................................. 979,533 756,584 Accumulated earnings.................................................... -- -- ------------- ------------- Total shareholders' equity............................................ 979,942 756,920 ------------- ------------- Total liabilities and shareholders' equity............................ $ 1,942,794 $ 1,780,563 ============= =============
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, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ REVENUES Rental ....................................................... $ 66,799 $ 42,550 $ 130,852 $ 84,131 Property management - third party ............................ 780 538 1,517 1,092 Landscape services - third party ............................. 1,853 1,415 3,179 2,463 Interest ..................................................... 177 8 303 15 Other ........................................................ 3,868 1,596 6,589 2,966 ------------ ------------ ------------ ------------ Total revenues .............................................. 73,477 46,107 142,440 90,667 ------------ ------------ ------------ ------------ EXPENSES Property operating and maintenance (exclusive of items shown separately below) ............................... 25,001 15,941 48,132 31,153 Depreciation (real estate assets) ............................ 11,394 6,426 21,809 12,563 Depreciation (non-real estate assets) ........................ 127 253 472 495 Property management - third party ............................ 614 394 1,198 814 Landscape services - third party ............................. 1,528 1,123 2,801 2,018 Interest ..................................................... 7,344 5,709 15,693 11,070 Amortization of deferred loan costs .......................... 293 250 558 552 General and administrative ................................... 1,600 1,563 3,833 3,398 Minority interest in consolidated property partnership ....... 139 -- 198 -- ------------ ------------ ------------ ------------ Total expenses .............................................. 48,040 31,659 94,694 62,063 ------------ ------------ ------------ ------------ Income before net gain on sale of assets, loss on unused treasury locks, minority interest of unitholders in Operating Partnership and extraordinary item ................ 25,437 14,448 47,746 28,604 Net gain on sale of assets ................................... -- 3,512 -- 3,512 Loss on unused treasury locks ................................ -- -- (1,944) -- Minority interest of unitholders in Operating Partnership ....................................... (2,902) (3,236) (5,412) (5,751) ------------ ------------ ------------ ------------ Income before extraordinary item ............................. 22,535 14,724 40,390 26,365 Extraordinary item, net of minority interest of unitholders in Operating Partnership ........................ -- -- -- (75) ------------ ------------ ------------ ------------ Net income .................................................. 22,535 14,724 40,390 26,290 Dividend to preferred shareholders .......................... (2,969) (1,062) (5,535) (2,125) ------------ ------------ ------------ ------------ Net income available to common shareholders ................. $ 19,566 $ 13,662 $ 34,855 $ 24,165 ============ ============ ============ ============ EARNINGS PER COMMON SHARE - BASIC Income before extraordinary item (net of preferred dividend) .. $ 0.56 $ 0.62 $ 1.04 $ 1.10 Extraordinary item ............................................ -- -- -- -- Net income available to common shareholders ................... $ 0.56 $ 0.62 $ 1.04 $ 1.10 ------------ ------------ ------------ ------------ Weighted average common shares outstanding .................... 35,239,800 22,028,722 33,510,294 21,989,132 ============ ============ ============ ============ EARNINGS PER COMMON SHARE - DILUTED Income before extraordinary item (net of preferred dividend) .. $ 0.55 $ 0.62 $ 1.03 $ 1.09 Extraordinary item ............................................ -- -- -- -- ============ ============ ============ ============ Net income available to common shareholders ................... $ 0.55 $ 0.62 $ 1.03 $ 1.09 ============ ============ ============ ============ Weighted average common shares outstanding .................... 35,772,546 22,205,988 34,004,073 22,171,329 ============ ============ ============ ============ Dividends declared ............................................ $ 0.65 $ 0.595 $ 1.30 $ 1.19 ============ ============ ============ ============
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, 1997 ................... $ 30 $ 306 $ 756,584 $ -- $ 756,920 Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans ................ -- 2 8,871 -- 8,873 Proceeds from sale of common shares, net of underwriting discount and offering costs of $11,099 ............................. -- 51 186,849 -- 186,900 Proceeds from sale of preferred shares, net of underwriting discount and offering costs of $1,716 .............................. 20 -- 48,264 -- 48,284 Adjustment for minority interest of unitholders in Operating Partnership at dates of capital transactions ................................. -- -- (10,311) -- (10,311) Net income .................................... -- -- -- 40,390 40,390 Dividends to preferred shareholders ........... -- -- -- (5,535) (5,535) Dividends to common shareholders .............. -- -- (10,724) (34,855) (45,579) --------- --------- --------- --------- --------- SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS, JUNE 30, 1998 ....................... $ 50 $ 359 $ 979,533 $ -- $ 979,942 ========= ========= ========= ========= =========
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, ----------------------- 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................... $ 40,390 $ 26,290 Adjustments to reconcile net income to net cash provided by operating activities: Net gain on sale of assets .................................. -- (3,512) Loss on unused treasury locks ............................... 1,944 -- Minority interest of unitholders in Operating Partnership ... 5,412 5,751 Extraordinary item, net of minority interest of unitholders in Operating Partnership ................................... -- 75 Depreciation ................................................ 22,281 13,058 Amortization of deferred loan costs ......................... 558 552 Write off of deferred loan costs ............................ -- 10 Other ....................................................... 168 -- Changes in assets, (increase) decrease in: Restricted cash ............................................. 378 132 Other assets ................................................ (14,051) 4,519 Deferred charges ............................................ (4,958) -- Changes in liabilities, increase (decrease) in: Accrued interest payable .................................... 165 41 Accounts payable and accrued expenses ....................... 9,676 6,839 Security deposits and prepaid rents ......................... 617 95 --------- --------- Net cash provided by operating activities .................... 62,580 53,850 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Construction and acquisition of real estate assets, net of payables ............................................. (149,184) (74,286) Proceeds from sale of assets ................................. -- 23,111 Capitalized interest ......................................... (7,680) (3,757) Payment for unused treasury lock ............................. (1,944) -- Recurring capital expenditures ............................... (3,041) (1,903) Corporate additions and improvements ......................... (4,127) (772) Non-recurring capital expenditures ........................... (889) (492) Revenue generating capital expenditures ...................... (7,790) (3,497) --------- --------- Net cash (used in) investing activities ...................... (174,655) (61,596) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs ................................... -- (997) Debt proceeds ................................................ 95,680 147,940 Proceeds from sale of notes .................................. 150,000 80,000 Proceeds from issuance of preferred shares ................... 48,284 -- Proceeds from issuance of common shares ...................... 186,900 -- Debt payments ................................................ (335,090) (188,576) Distributions to unitholders ................................. (6,496) (5,925) Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans ............................... 8,873 3,872 Dividends paid to preferred shareholders ..................... (2,566) (2,125) Dividends paid to common shareholders ........................ (40,472) (24,905) --------- --------- Net cash provided by financing activities .................... 105,113 9,284 --------- --------- Net increase (decrease) in cash and cash equivalents ......... (6,962) 1,538 Cash and cash equivalents, beginning of period ............... 10,879 233 --------- --------- Cash and cash equivalents, end of period ..................... $ 3,917 $ 1,771 ========= =========
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, 1998 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, 1997. 2. NOTES PAYABLE Post Apartment Homes, L.P. (the "Operating Partnership") has established a program for the sale of up to $344,000 aggregate principal amount of Medium-Term Notes due nine months or more from date of issue (the "MTN Program"). On March 12, 1998, the Operating Partnership issued $100,000 of 6.85% Mandatory Par Put Remarketed Securities ("MOPPRS") under the MTN Program. The net proceeds in the amount of $99,087 from the MOPPRS were used to repay outstanding indebtedness. In connection with the MOPPRS transaction, Merrill Lynch & Co. purchased an option to remarket the securities as of March 16, 2005 (the "Remarketing Date"). The Operating Partnership will have an effective borrowing rate through the Remarketing Date of approximately 6.59%. In anticipation of the offering, the Operating Partnership entered into forward-treasury-lock agreements in the fall of 1997. As a result of the termination of these agreements, the effective borrowing rate will be approximately 6.85%, the coupon rate on the MOPPRS. On April 8, 1998, the Operating Partnership sold $50,000 of Remarketed Reset Notes (the "Reset Notes") due April 7, 2009. The Reset Notes bear an interest rate of LIBOR plus the applicable spread with the spread being reset from time to time. The initial spread is equal to .40% for a period of one year. The Company has entered into an interest rate swap for the entire term of the Reset Notes to fix the interest rate index. Under the terms of the swap, the Company pays a fixed rate of 6.02% and receives LIBOR. Net proceeds from the Reset Notes in the amount of $49,825 were used to pay down the outstanding balance on the Revolver. As of June 30, 1998, the Operating Partnership had $281,000 aggregate principal amount of notes outstanding under the MTN Program. 3. 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. -7- 8 POST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- 4. EARNINGS PER SHARE For the three and six months ended June 30, 1998 and 1997, a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share is as follows:
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Basic and diluted income available to common shareholders (numerator): Income before extraordinary item ................. $ 22,535 $ 14,724 $ 40,390 $ 26,365 Less: Preferred stock dividends ................. (2,969) (1,062) (5,535) (2,125) ------------ ------------ ------------ ------------ Income available to common shareholders before extraordinary item ....................... $ 19,566 $ 13,662 $ 34,855 $ 24,240 ============ ============ ============ ============ Common shares (denominator): Weighted average shares outstanding - basic ..... 35,239,800 22,028,722 33,510,294 21,989,132 Incremental shares from assumed conversion of options ..................................... 532,746 177,266 493,779 182,197 ------------ ------------ ------------ ------------ Weighted average shares outstanding - diluted ... 35,772,546 22,205,988 34,004,073 22,171,329 ============ ============ ============ ============
5. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities for the three and six months ended June 30, 1998 and 1997 were as follows: (a) During the six months ended June 30, 1998 and 1997, holders of 750 and 6,519 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 equity offerings and the Dividend Reinvestment and Employee Stock Purchase Plans was a reclassification increasing minority interest and decreasing shareholders' equity in the amount of $10,311 and $331 for the six months ended June 30, 1998 and 1997, respectively. 6. NEW ACCOUNTING PRONOUNCEMENT On June 15, 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of FAS 133 will not have a significant effect on the Company's results of operations or its financial position. -8- 9 POST APARTMENT HOMES, L.P. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31, 1998 1997 ----------- ----------- (UNAUDITED) ASSETS Real estate: Land ........................................... $ 242,493 $ 234,011 Building and improvements ...................... 1,350,528 1,255,118 Furniture, fixtures and equipment .............. 99,135 89,251 Construction in progress ....................... 383,807 342,071 Land held for future development ............... 32,083 15,560 ----------- ----------- 2,108,046 1,936,011 Less: accumulated depreciation .................. (222,457) (201,095) ----------- ----------- Operating real estate assets ................... 1,885,589 1,734,916 Cash and cash equivalents ....................... 3,917 10,879 Restricted cash ................................. 1,164 1,542 Deferred charges, net ........................... 17,476 12,629 Other assets .................................... 34,648 20,597 ----------- ----------- Total assets ................................... $ 1,942,794 $ 1,780,563 =========== =========== LIABILITIES AND PARTNERS' EQUITY Notes payable ................................... $ 731,800 $ 821,209 Accrued interest payable ........................ 7,670 7,505 Distributions payable ........................... 29,687 21,327 Accounts payable and accrued expenses ........... 63,635 53,101 Security deposits and prepaid rents ............. 8,734 8,117 ----------- ----------- Total liabilities .............................. 841,526 911,259 ----------- ----------- Commitments and contingencies Partners' equity ................................ 1,101,268 869,304 ----------- ----------- Total liabilities and partners' equity ......... $ 1,942,794 $ 1,780,563 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. -9- 10 POST APARTMENT HOMES, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ REVENUES Rental .................................................... $ 66,799 $ 42,550 $ 130,852 $ 84,131 Property management - third party ......................... 780 538 1,517 1,092 Landscape services - third party .......................... 1,853 1,415 3,179 2,463 Interest .................................................. 177 8 303 15 Other ..................................................... 3,868 1,596 6,589 2,966 ------------ ------------ ------------ ------------ Total revenues ........................................... 73,477 46,107 142,440 90,667 ------------ ------------ ------------ ------------ EXPENSES Property operating and maintenance (exclusive of items shown separately below) ............................ 25,001 15,941 48,132 31,153 Depreciation (real estate assets) ......................... 11,394 6,426 21,809 12,563 Depreciation (non-real estate assets) ..................... 127 253 472 495 Property management - third party ......................... 614 394 1,198 814 Landscape services - third party .......................... 1,528 1,123 2,801 2,018 Interest .................................................. 7,344 5,709 15,693 11,070 Amortization of deferred loan costs ....................... 293 250 558 552 General and administrative ................................ 1,600 1,563 3,833 3,398 Minority interest in consolidated property partnership .... 139 -- 198 -- ------------ ------------ ------------ ------------ Total expenses ........................................... 48,040 31,659 94,694 62,063 ------------ ------------ ------------ ------------ Income before net gain on sale of assets, loss on unused treasury locks and extraordinary item ............. 25,437 14,448 47,746 28,604 Net gain on sale of assets ................................ -- 3,512 -- 3,512 Loss on unused treasury locks ............................. -- -- (1,944) -- ------------ ------------ ------------ ------------ Income before extraordinary item .......................... 25,437 17,960 45,802 32,116 Extraordinary item ........................................ -- -- -- (93) ------------ ------------ ------------ ------------ Net income ............................................... 25,437 17,960 45,802 32,023 Distributions to preferred unitholders ................... (2,969) (1,062) (5,535) (2,125) ------------ ------------ ------------ ------------ Net income available to common unitholders ............... $ 22,468 $ 16,898 $ 40,267 $ 29,898 ============ ============ ============ ============ EARNINGS PER COMMON UNIT - BASIC Income before extraordinary item (net of preferred distributions) ........................................... $ 0.56 $ 0.62 $ 1.04 $ 1.10 Extraordinary item ........................................ -- -- -- -- ------------ ------------ ------------ ------------ Net income available to common unitholders ................ $ 0.56 $ 0.62 $ 1.04 $ 1.10 ------------ ------------ ------------ ------------ Weighted average common units outstanding ................. 40,455,524 27,245,196 38,726,080 27,206,432 ============ ============ ============ ============ EARNINGS PER COMMON UNIT - DILUTED Income before extraordinary item (net of preferred distributions) ........................................... $ 0.55 $ 0.62 $ 1.03 $ 1.09 Extraordinary item ........................................ -- -- -- -- ------------ ------------ ------------ ------------ Net income available to common unitholders ................ $ 0.55 $ 0.62 $ 1.03 $ 1.09 ============ ============ ============ ============ Weighted average common units outstanding ................. 40,988,270 27,422,462 39,219,859 27,388,629 ============ ============ ============ ============ Distributions declared .................................... $ 0.65 $ 0.595 $ 1.30 $ 1.19 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -10- 11 POST APARTMENT HOMES, L.P. CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DOLLARS IN THOUSANDS) (UNAUDITED)
General Limited Partner Partners Total ----------- ----------- ----------- PARTNERS' EQUITY, DECEMBER 31, 1997 ........................ $ 9,085 $ 860,219 $ 869,304 Contributions from the Company related to Dividend Reinvestment and Employee Stock Purchase Plans ... 89 8,784 8,873 Contributions from the Company related to the sale of common shares ......................................... 1,869 185,031 186,900 Contributions from the Company related to the sale of preferred shares ...................................... -- 48,284 48,284 Distributions to preferred unitholders .................... -- (5,535) (5,535) Distributions to common unitholders ....................... (524) (51,836) (52,360) Net income ................................................ 458 45,344 45,802 ----------- ----------- ----------- PARTNERS' EQUITY, JUNE 30, 1998 ............................ $ 10,977 $ 1,090,291 $ 1,101,268 ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. -11- 12 POST APARTMENT HOMES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income .......................................................... $ 45,802 $ 32,023 Adjustments to reconcile net income to net cash provided by operating activities: Net gain on sale of assets ......................................... -- (3,512) Loss on unused treasury locks ...................................... 1,944 -- Extraordinary item ................................................. -- 93 Depreciation ....................................................... 22,281 13,058 Amortization of deferred loan costs ................................ 558 552 Write-off of deferred loan costs ................................... 168 10 Changes in assets, (increase) decrease in: Restricted cash .................................................... 378 132 Other assets ....................................................... (14,051) 4,519 Deferred charges ................................................... (4,958) -- Changes in liabilities, increase (decrease) in: Accrued interest payable ........................................... 165 41 Accounts payable and accrued expenses .............................. 9,676 6,839 Security deposits and prepaid rents ................................ 617 95 --------- --------- Net cash provided by operating activities ........................... 62,580 53,850 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Construction and acquisition of real estate assets, net of payables .. (149,184) (74,286) Proceeds from sale of assets ........................................ -- 23,111 Capitalized interest ................................................ (7,680) (3,757) Payment for unused treasury locks ................................... (1,944) -- Recurring capital expenditures ...................................... (3,041) (1,903) Corporate additions and improvements ................................ (4,127) (772) Non-recurring capital expenditures .................................. (889) (492) Revenue generating capital expenditures ............................. (7,790) (3,497) --------- --------- Net cash (used in) investing activities ............................. (174,655) (61,596) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing costs .......................................... -- (997) Debt proceeds ....................................................... 95,680 147,940 Proceeds from sale of notes ......................................... 150,000 80,000 Proceeds from issuance of preferred units ........................... 48,284 -- Proceeds from issuance of common units .............................. 186,900 -- Debt payments ....................................................... (335,090) (188,576) Proceeds from contributions from PPI related to Dividend Reinvestment and Employee Stock Purchase Plans ..................... 8,873 3,872 Distributions paid to preferred unitholders ......................... (2,566) (2,125) Distributions paid to common unitholders ............................ (46,968) (30,830) --------- --------- Net cash provided by financing activities ........................... 105,113 9,284 --------- --------- Net increase (decrease) in cash and cash equivalents ................ (6,962) 1,538 Cash and cash equivalents, beginning of period ...................... 10,879 233 --------- --------- Cash and cash equivalents, end of period ............................ $ 3,917 $ 1,771 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. -12- 13 POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- 1. ORGANIZATION AND FORMATION OF THE COMPANY ORGANIZATION AND FORMATION OF THE COMPANY Post Apartment Homes, L.P. (the "Operating Partnership"), a Georgia limited partnership, was formed on January 22, 1993, to conduct the business of developing, leasing and managing upscale multi-family apartment communities for Post Properties, Inc. (the "Company"). The Company elected to be taxed as a real estate investment trust ("REIT") for Federal income tax purposes beginning with the taxable year ended December 31, 1993. A REIT is a legal entity which holds real estate interests and, through payments of dividends to shareholders, in practical effect is not subject to Federal income taxes at the corporate level. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared by the 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, 1998 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 Apartment Homes, L.P. Annual Report on Form 10-K for the year ended December 31, 1997. 2. NOTES PAYABLE The Operating Partnership has established a program for the sale of up to $344,000 aggregate principal amount of Medium-Term Notes due nine months or more from date of issue (the "MTN Program"). On March 12, 1998, the Operating Partnership issued $100,000 of 6.85% Mandatory Par Put Remarketed Securities ("MOPPRS") under the MTN Program. The net proceeds in the amount of $99,087 from the MOPPRS were used to repay outstanding indebtedness. In connection with the MOPPRS transaction, Merrill Lynch & Co. purchased an option to remarket the securities as of March 16, 2005 (the "Remarketing Date"). The Operating Partnership will have an effective borrowing rate through the Remarketing Date of approximately 6.59%. In anticipation of the offering, the Operating Partnership entered into forward-treasury-lock agreements in the fall of 1997. As a result of the termination of these agreements, the effective borrowing rate will be approximately 6.85%, the coupon rate on the MOPPRS. On April 8, 1998, the Operating Partnership sold $50,000 of Remarketed Reset Notes (the "Reset Notes") due April 7, 2009. The Reset Notes bear an interest rate of LIBOR plus the applicable spread with the spread being reset from time to time. The initial spread is equal to .40% for a period of one year. The Company has entered into an interest rate swap for the entire term of the Reset Notes to fix the interest rate index. Under the terms of the swap, the Company pays a fixed rate of 6.02% and receives LIBOR. Net proceeds from the Reset Notes in the amount of $49,825 were used to pay down the outstanding balance on the Revolver. As of June 30, 1998, the Operating Partnership had $281,000 aggregate principal amount of notes outstanding under the MTN Program. 3. EXTRAORDINARY ITEM The extraordinary item for the six months ended June 30, 1997 resulted from costs associated with the early extinguishment of indebtedness. -13- 14 POST APARTMENT HOMES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) - -------------------------------------------------------------------------------- 4. EARNINGS PER UNIT For the three and six months ended June 30, 1998 and 1997, a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Basic and diluted income available to common unitholders (numerator): Income before extraordinary item ............. $ 25,437 $ 17,960 $ 45,802 $ 32,116 Less: Preferred stock distributions ......... (2,969) (1,062) (5,535) (2,125) ------------ ------------ ------------ ------------ Income available to common unitholders before extraordinary item ................... $ 22,468 $ 16,898 $ 40,267 $ 29,991 ============ ============ ============ ============ Common shares (denominator): Weighted average shares outstanding - basic . 40,455,524 27,245,196 38,726,080 27,206,432 Incremental shares from assumed conversion of options ................................. 532,746 177,266 493,779 182,197 ------------ ------------ ------------ ------------ Weighted average shares outstanding - diluted 40,988,270 27,422,462 39,219,859 27,388,629 ============ ============ ============ ============
5. NEW ACCOUNTING PRONOUNCEMENT On June 15, 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of FAS 133 will not have a significant effect on the Company's results of operations or its financial position. -14- 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with all of the financial statements appearing elsewhere in this report. The following discussion is based primarily on the Consolidated Financial Statements of Post Properties, Inc. (the "Company") and Post Apartment Homes, L.P. (the "Operating Partnership"). Except for the effect of minority interest in the Operating Partnership, the following discussion with respect to the Company is the same for the Operating Partnership. As of June 30, 1998, there were 41,105,248 units in the Operating Partnership outstanding, of which 35,889,524, or 87.3%, were owned by the Company and 5,215,724, or 12.7% were owned by other limited partners (including certain officers and directors of the Company). As of June 30, 1998, there were 5,000,000 Perpetual Preferred Units outstanding, all of which were owned by the Company. On October 24, 1997 Columbus Realty Trust ("Columbus"), a Texas real estate investment trust, was merged into a wholly owned subsidiary of the Company. Pursuant to the merger agreement, each outstanding share of Columbus common stock was converted into .615 shares of common stock of the Company, which resulted in the issuance of approximately 8,400,000 shares of common stock of the Company. RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 The Company recorded net income available to common shareholders of $19,566 and $34,855 for the three and six months ended June 30, 1998, respectively, an increase of 43.2% and 44.2% over the corresponding periods in 1997 primarily as a result of the merger with Columbus and additional units placed in service through the development of new communities. 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, 1998, the Company's portfolio of apartment communities consisted of the following: (i) 64 communities which were completed and stabilized for all of the current and prior year, (ii) seven communities which achieved full stabilization during the prior year and (iii) 14 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 -15- 16 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- 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. 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, 1997. 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. -16- 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- ALL OPERATING COMMUNITIES The operating performance for all of the Company's apartment communities combined for the three and six months ended June 30, 1998 and 1997 is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------------ ------------------------------------ 1998 1997 % CHANGE 1998 1997 % CHANGE --------- --------- -------- --------- --------- --------- Rental and other revenue: Mature communities (1) ........................... $ 52,617 $ 50,486 4.2% $ 104,233 $ 100,378 3.8% Adjustment for acquired mature communities (2) ... -- (10,950) n/m -- (21,764) n/m Communities stabilized during 1997 ............... 6,246 1,140 447.9% 12,409 1,548 701.6% Development and lease-up communities (3) ................................. 9,078 2,061 340.5% 15,939 3,863 312.6% Sold communities (4) ............................. -- 517 n/m -- 1,482 n/m Other revenue (5) ................................ 2,726 892 205.6% 4,860 1,590 205.7% --------- -------- --------- --------- 70,667 44,146 60.1% 137,441 87,097 57.8% --------- --------- --------- --------- Property operating and maintenance expense (exclusive of depreciation and amortization): Mature communities (1) ........................... 17,190 16,497 4.2% 33,234 32,205 3.2% Adjustment for acquired mature communities (2) ... -- (3,630) n/m -- (7,294) n/m Communities stabilized during 1997 ............... 1,893 546 246.7% 3,880 892 335.0% Development and lease-up communities (3) ................................. 3,527 808 336.5% 6,610 1,490 343.6% Sold communities(4) .............................. -- 290 n/m -- 650 n/m Other expenses (6) ............................... 2,391 1,430 67.2% 4,408 3,210 37.3% --------- --------- --------- --------- 25,001 15,941 56.8% 48,132 31,153 54.5% --------- --------- --------- --------- Revenue in excess of specified expense ......................................... $ 45,666 $ 28,205 61.9% $ 89,309 $ 55,944 59.6% ========= ========= ========= ========= Recurring capital expenditures: (7) Carpet .......................................... $ 621 $ 337 84.3% $ 1,203 $ 656 83.4% Other ........................................... 1,267 862 47.0% 1,838 1,247 47.4% --------- --------- --------- --------- Total ........................................... $ 1,888 $ 1,199 57.5% $ 3,041 $ 1,903 59.8% ========= ========= ========= ========= Average apartment units in service ............... 27,114 18,420 47.2% 26,816 18,262 46.8% ========= ========= ========= ========= Recurring capital expenditures per apartment unit .................................. $ 70 $ 65 7.7% $ 113 $ 104 8.7% ========= ========= ========== =========
(1) Communities which reached stabilization prior to January 1, 1997. Includes mature communities acquired through the merger with Columbus. (2) The adjustment for acquired mature communities represents the operating results of the mature communities owned by Columbus prior to the merger. (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 one community, containing 416 units, which was sold on May 22, 1997. (5) Other revenue includes revenue from furnished apartment rentals above the unfurnished rental rates, revenue from commercial properties and other revenue not directly related to property operations. (6) Other expenses includes certain indirect central office operating expenses related to management, grounds maintenance, costs associated with furnished apartment rentals and operating expenses from commercial properties. (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. n/m - Not meaningful. For the three and six months ended June 30, 1998, rental and other revenue increased $26,521, or 60.1% and $50,344, or 57.8%, respectively, compared to the same periods in the prior year primarily as a result of an increase in units placed in -17- 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- service through the merger with Columbus ($20,041 and $38,778) and the completion of new communities. For the three and six months ended June 30, 1998, property operating and maintenance expenses increased $9,060, or 56.8% and $16,979, or 54.5%, respectively, compared to the same period in the prior year, primarily as a result of an increase in the number of units placed in service through the merger with Columbus ($6,679 and $12,975) and the completion of new communities. For the three and six months ended June 30, 1998, recurring capital expenditures increased $689, or 57.5% ($5, or 7.7% on a per apartment unit basis) and $1,138, or 59.8% ($9, or 8.7% on a per apartment unit basis), respectively, compared to the same period in the prior year, primarily due to the increase in the average number of apartment units in service as a result of the merger with Columbus, the completion of new communities and the timing of capital expenditures. -18- 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- MATURE COMMUNITIES The Company defines mature communities as those which have reached stabilization prior to the beginning of the previous calendar year. The operating performance of the 64 communities containing an aggregate of 21,819 units which were fully stabilized as of January 1, 1997, is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------------- -------------------------------------- 1998 1997 % CHANGE 1998 1997 % CHANGE --------- --------- --------- --------- --------- ---------- Rental and other revenue (1) ................ $ 52,617 $ 50,486 4.2% $ 104,233 $ 100,378 3.8% Adjustment for acquired mature communities (2) ............................. -- (10,950) n/m -- (21,764) n/m --------- --------- --------- -------- Rental and other revenue (3) ................ 52,617 39,536 33.1% 104,233 78,614 32.6% --------- --------- --------- -------- Property operating and maintenance expense (exclusive of depreciation and amortization)(1) ........................... 17,190 16,497 4.2% 33,234 32,205 3.2% Adjustment for acquired mature communities(2) ............................. -- (3,630) n/m -- (7,294) n/m --------- --------- --------- -------- Property operating and maintenance expense (exclusive of depreciation and amortization) - historical(3) .............. 17,190 12,867 33.6% 33,234 24,911 33.4% --------- --------- --------- -------- Revenue in excess of specified expense ...... $ 35,427 $ 26,669 32.8% $ 70,999 $ 53,703 32.2% ========= ========= ========= ======== Recurring capital expenditures: (4) Carpet ..................................... $ 579 $ 319 81.5% $ 1,117 $ 627 78.1% Other ...................................... 1,149 807 42.4% 1,657 1,131 46.5% --------- --------- --------- -------- Total ..................................... $ 1,728 $ 1,126 53.5% $ 2,774 $ 1,758 57.8% ========= ========= ========= ======== Recurring capital expenditures per apartment unit(5) .......................... $ 79 $ 66 19.7% $ 127 $ 104 22.1% ========= ========== ========= ======== Average economic occupancy(6) ............... 96.9% 94.8% 2.1% 96.6% 94.2% 2.4% ========= ========= ========= ======== Average monthly rental rate per apartment unit(7) .......................... $ 813 $ 796 2.1% $ 809 $ 796 1.6% ========= ========= ========= ======== Apartment units in service .................. 21,819 16,937 28.8% 21,819 16,937 28.8% ========= ========= ========= =========
(1) Communities which reached stabilization prior to January 1, 1997. Includes mature communities acquired through the merger with Columbus. (2) The adjustment for acquired mature communities represents the operations results of the mature communities owned by Columbus prior to the merger. This adjustment was included to reduce the rental and other revenue of mature communities to the historical results in order to provide a more meaningful analysis of the mature communities results. (3) Represents the Company's historical results of operations for mature communities. (4) 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. (5) In addition to such capitalized expenditures, the Company expensed $184 and $154 per unit on building maintenance (inclusive of direct salaries) and $65 and $78 per unit on landscaping (inclusive of direct salaries) for the three months ended June 30, 1998 and 1997, respectively. (6) 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 95.0% and 94.0% -19- 20 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- for the three months ended June 30, 1998 and 1997, respectively. For the three months ended June 30, 1998 and 1997, concessions were $878 and $213, respectively, and employee discounts were $117 and $92, respectively. For the three months ended June 30, 1997, average economic occupancy for all mature communities, including mature communities acquired through the merger with Columbus, was 95.3%. (7) 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. n/m - Not meaningful. For the three and six months ended June 30, 1998, rental and other revenue increased $13,081, or 33.1%, and $25,619, or 32.6%, respectively, compared to the same period in the prior year, due to increase in units in service as a result of the merger with Columbus and increased rental rates and occupancy for mature communities owned prior to the merger with Columbus. For the three and six months ended June 30, 1998, property operating and maintenance expenses (exclusive of depreciation and amortization) increased $4,323, or 33.6%, and $8,323 or 33.4%, respectively, compared to the same period in the prior year, primarily as a result of an increase in units in service as a result of the merger with Columbus. 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, 1998 and 1997, 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, ------------------- ------------------ 1998 1997 1998 1997 ------- ------- ------- ------- Rental and other revenue ........... $ 1,569 $ 574 $ 2,692 $ 691 Property operating and maintenance expense (exclusive of depreciation and amortization) .... 1,355 371 2,670 578 ------- ------- ------- ------- Revenue (expense) in excess of specified expense/revenue ......... 214 203 22 113 Interest expense ................... 763 271 1,392 360 ------- ------- ------- ------- Lease-up deficit ................... $ (549) $ (68) $(1,370) $ (247) ======= ======= ======= =======
-20- 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- THIRD PARTY SERVICES THIRD PARTY MANAGEMENT SERVICES The Company provides asset management, leasing and other consulting services to non-related owners of apartment communities through its subsidiary, RAM Partners, Inc. ("RAM"). The operating performance of RAM for the three and six months ended June 30, 1998 and 1997 is summarized as follows:
Three Months Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------- 1998 1997 %Change 1998 1997 %Change ------- ------- ------- -------- ------- ------- Property management and other revenue ............................. $ 780 $ 519 50.3% $ 1,517 $ 1,073 41.4% Property management expense .......... 423 283 49.5% 831 578 43.8% General and administrative expense ... 191 96 99.0% 367 199 84.4% Depreciation expense ................. 9 11 (18.2%) 18 25 (28.0%) ------- ------- ------- ------- Revenue in excess of specified expense .............................. $ 157 $ 129 21.7% $ 301 $ 271 11.1% ======= ======= ======= ======= Average apartment units managed ...... 11,278 7,804 44.5% 10,965 7,814 40.3% ======= ======= ======= =======
The increase in property management revenues and expenses and general and administrative expense for the three and six months ended June 30, 1998 compared to the same periods in the prior year is primarily attributable to an increase in the average number of units managed. THIRD PARTY LANDSCAPE SERVICES The Company provides landscape maintenance, design and installation services to non-related parties through a subsidiary, Post Landscape Services, Inc. ("Post Landscape Services"). The operating performance of Post Landscape Services for the three and six months ended June 30, 1998 and 1997 is summarized as follows:
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1998 1997 %Change 1998 1997 %Change ------ ------ ------- ------ ------ ------- Landscape services and other revenue .......................... $1,853 $1,415 31.0% $3,179 $2,463 29.1% Landscape services expense ......... 1,312 988 32.8% 2,371 1,741 36.2% General and administrative expense.. 216 135 60.0% 430 277 55.2% Depreciation expense ............... 41 30 36.7% 66 56 17.9% ------ ------ ------ ------ Revenue in excess of specified expense .......................... $ 284 $ 262 8.4% $ 312 $ 389 (19.8%) ====== ====== ====== ======
The increase in landscape services revenue and expenses for the three and six months ended June 30, 1998, compared to the same periods in 1997 is primarily due to increases in landscape contracts. General and administrative expense increased due to costs incurred in preparation for future growth plans. -21- 22 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- OTHER REVENUES AND EXPENSES Depreciation expense increased $4,842, or 72.5% and $9,223, or 70.6%, respectively, and interest expense increased $1,635, or 28.6% and $4,623, or 41.8%, respectively, from the three and six months ended June 30, 1998, compared to the same period in the prior year, primarily as a result of an increase in units in service as a result of the merger with Columbus. General and administrative expense increased only $37 and $435, respectively, from the three and six months ended June 30, 1998, compared to the same period in the prior year, primarily due to the merger with Columbus. As a result, general and administrative expense as a percent of total revenues decreased from 3.4% and 3.8% for the three and six months ended June 30, 1997 to 2.2% and 2.7% for the three and six months ended June 30, 1998 due to economies of scale gained as a result of the merger with Columbus. The loss on unused treasury locks for the six months ended June 30, 1998 of $1,944 resulted from the termination of treasury locks intended for debt securities that were not issued by the Operating Partnership. 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 $53,850 for the six months ended June 30, 1997 to $62,580 for the six months ended June 30, 1998, principally due to the increase in net income (primarily as a result of the merger with Columbus). Net cash used in investing activities increased from $61,596 in the six months ended June 30, 1997 to $174,655 in the six months ended June 30, 1998, principally due to an increase in construction spending. The Company's net cash provided by financing activities increased from $9,284 in the six months ended June 30, 1997 to $105,113 in the six months ended June 30, 1998, primarily due to proceeds from the sale of preferred stock and common stock and increased debt proceeds. 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 June 30, 1998, the Company had total indebtedness of $731,800, a decrease of $89,409 from its total indebtedness at December 31, 1997, and cash and cash equivalents of $3,917. At June 30, 1998, the Company's indebtedness included approximately $39,920 in conventional mortgages payable secured by individual communities, tax-exempt bond indebtedness of $235,880, senior unsecured notes of $456,000 and borrowings under unsecured lines of credit of $0. 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. -22- 23 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- Lines Of Credit The Company has two unsecured lines of credit totaling $220,000. At June 30, 1998, there were no outstanding borrowings under these lines of credit. Medium Term Notes The Operating Partnership has established a program for the sale of up to $344,000 aggregate principal amount of Medium-Term Notes due nine months or more from date of issue (the "MTN Program"). On March 12, 1998, the Operating Partnership issued $100,000 of 6.85% Mandatory Par Put Remarketed Securities ("MOPPRS") under the MTN Program. The net proceeds in the amount of $99,087 from the MOPPRS were used to repay outstanding indebtedness. In connection with MOPPRS transaction, Merrill Lynch & Co. purchased an option to remarket the securities as of March 16, 2005 (the "Remarketing Date"). The Operating Partnership will have an effective borrowing rate through the Remarketing Rate of approximately 6.59%. In anticipation of the offering, the Operating Partnership entered into forward-treasury-lock agreements in the fall of 1997. As a result of the termination of these agreements, the effective borrowing rate will be approximately 6.85%, the coupon rate on the MOPPRS. On April 8, 1998, the Operating Partnership sold $50,000 of Remarketed Reset Notes due April 7, 2009. The notes bear an interest rate of LIBOR plus the applicable spread with the spread being reset from time to time. The initial spread is equal to .40% for a period of one year. The Company has entered into an interest rate swap for the entire term of the notes to fix the interest rate index. Under the terms of the swap, the Company pays a fixed rate of 6.02% and receives LIBOR. Net proceeds in the amount of $49,825 were used to pay down the outstanding balance on the Revolver. As of June 30, 1998, the Operating Partnership had $281,000 aggregate principle amount of notes outstanding under the MTN Program. Tax Exempt Bonds On June 29, 1995, the Company replaced the bank letters of credit providing credit enhancement for its outstanding tax-exempt bonds. Under an agreement with the Fannie Mae ("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 the bond issues, aggregating $235,880, which were reissued. The agreement with FNMA contains representations, covenants, and events of default customary to such secured loans. On June 1, the Operating Partnership refunded its last single property tax-exempt bond issuance on Post Court(R) in Atlanta. Of the Company's $731,800 in outstanding debt, $235,880 is tax-exempt, AAA Fannie Mae credit enhanced low interest rate debt maturing in 2025. -23- 24 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- Schedule of Indebtedness The following table reflects the Company's indebtedness at June 30, 1998:
Maturity Principal Description Location Interest Rate Date(1) Balance ================================== ============ ============================ ======== ========= CONVENTIONAL FIXED RATE (SECURED) Post Hillsboro Village...................Nashville, TN 9.20% 10/01/01 2,988 Parkwood Townhomes(TM)................... Dallas, TX 7.375% 04/01/14 879 ------- 3,867 ------- CONVENTIONAL FLOATING RATE Addison Circle Apartment Homes by Post(TM) - Phase I................... Dallas, TX LIBOR + .75% 06/01/99 22,192 The Rice................................. Houston, TX LIBOR + 1.90% 08/01/99 13,861 ------- 36,053 ------- TAX EXEMPT FLOATING RATE (SECURED) Post Ashford(R) Series 1995.............. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 9,895 Post Valley(R) Series 1995............... Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 18,600 Post Brook(R) Series 1995................ Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 4,300 Post Village(R) (Atlanta) Hills Series 1995............................. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 7,000 Post Mill(R) Series 1995................. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 12,880 Post Canyon(R) Series 1996............... Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 16,845 Post Corners(R) Series 1996.............. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 14,760 Post Bridge(R)........................... Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 12,450 Post Village(R) (Atlanta) Gardens........ Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 14,500 Post Chase(R)............................ Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 15,000 Post Walk(R)............................. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 15,000 Post Lake(R)............................. Orlando, FL "AAA" NON-AMT + .575% (2)(3) 06/01/25 28,500 Post Fountains at Lee Vista(R)........... Orlando, FL "AAA" NON-AMT + .575% (2)(3) 06/01/25 21,500 Post Village(R) (Atlanta) Fountains and Meadows............................. Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 26,000 Post Court(R)............................ Atlanta, GA "AAA" NON-AMT + .575% (2)(3) 06/01/25 18,650 ------- 235,880 ------- SENIOR NOTES (UNSECURED) Medium Term Notes........................ N/A 6.22% 12/31/99 16,000 Medium Term Notes........................ N/A LIBOR + .25% 03/03/00 30,000 Northwestern Mutual Life................. N/A 8.21% 06/07/00 30,000 Medium Tern Notes........................ N/A 7.02% 04/02/01 37,000 Northwestern Mutual Life................. N/A 8.37% 06/07/02 20,000 Senior Notes............................. N/A 7.25% 10/01/03 100,000 Medium Term Notes........................ N/A 7.30% 04/01/04 13,000 Medium Term Notes........................ N/A 6.69% 09/22/04 10,000 Medium Term Notes........................ N/A 6.78% 09/22/05 25,000 Senior Notes............................. N/A 7.50% 10/01/06 25,000 Mandatory Par Put Remarketed Securities.. N/A 6.85% (5) 03/16/15 100,000 Remarketed Reset Notes................... N/A LIBOR + .40% (6) 02/07/09 50,000 ------- 456,000 -------
-24- 25 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- LINES OF CREDIT (UNSECURED) Revolver....................... N/A LIBOR + .675% or prime minus .25% (7) 04/30/01 -- Cash Management Line........... N/A LIBOR + .675% or prime minus .25% 03/31/99 -- --------- TOTAL.......................... $ 731,800
(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 cross collateralized. The Company has purchased an interest rate cap that limits the Company's exposure to increases in the base rate to 5%. (4) Subject to certain conditions at re-issuance, the credit enhancement runs to June 1, 2025. (5) The annual interest rate on these securities to March 16, 2005 (the "Remarketing Date") is 6.85%. On the Remarketing Date, they are subject to mandatory tender for remarketing. (6) Represents rate through April 7, 1999. After this date, the spread will be reset quarterly. (7) Represents stated rate. The Company may also make "money market" loans of up to $100,000 at rates below the stated rate. Preferred Stock Offering On February 9, 1998, the Company issued two million non-convertible 7 5/8% Series C Cumulative Redeemable Shares (the "Series C Perpetual Preferred Shares") at a price of $25 per share. Net proceeds of $48,284 from the sale of Series C Perpetual Preferred Shares were contributed to the Operating Partnership in exchange for two million Series C Perpetual Preferred Units and used by the Operating Partnership to repay outstanding indebtedness. Common Stock Offering On March 4, 1998, the Company issued 3.5 million shares of common stock at a price of $39 per share. The net proceeds from this offering of $129,179 were contributed to the Operating Partnership in exchange for 3.5 million common units and used by the Operating Partnership to repay outstanding indebtedness under the Revolver. On April 29, 1998, the Company issued approximately 1.1 million shares of its common stock at a price of $40.5625 per share. The shares were deposited into a registered unit investment trust ("UIT"), the Equity Investor Fund Cohen & Steers Realty Majors Portfolio. Net proceeds in the amount of $44,059 were contributed to the Operating Partnership and used to pay down the outstanding balance on the Company's Revolver. On May 28, 1998, the Company issued 373,250 shares of its common stock at a price of $40.1875 per share. The shares were deposited into a registered UIT, the Paine Webber Equity Trust Reit Series 1. Net proceeds of $13,662 from this offering were contributed to the Operating Partnership and were used to fund development and other operating cash flow needs. 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. For the six months ended June 30, 1998, contributions from the DRIP were $8,873. -25- 26 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT 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 AUGUST 3, METROPOLITAN AREA UNITS COMMENCEMENT AVAILABLE OCCUPANCY 1998 - ----------------- ----- ------------ --------- --------- ---- Atlanta, GA - ----------- Post Lindbergh(TM) 395 3Q'96 4Q'97 1Q'99 275 Post Gardens(R) 397 3Q'96 4Q'97 1Q'99 309 Riverside by Post(TM) 536 3Q'96 2Q'98 1Q'00 105 Post River(R) - Phase II 88 1Q'97 2Q'98 3Q'98 87 Post Ridge(TM) 232 1Q'97 1Q'98 4Q'98 218 Post Ridge II 202 2Q'98 4Q'98 2Q'99 16 Post Briarcliff(TM) - Phase I 388 2Q'97 2Q'98 3Q'99 166 Post Briarcliff(TM) - Phase II 300 2Q'98 4Q'98 2Q'00 n/a ----- ----- 2,538 1,176 ----- ----- Tampa, FL - --------- Post Rocky Point(R) - Phase III 290 2Q'97 2Q'98 1Q'99 106 Post Hyde Park III 119 2Q'99 1Q'99 3Q'99 n/a Post Harbour Island(TM) 206 3Q'97 3Q'98 2Q'99 n/a ----- --- 615 106 ----- --- Dallas, TX - ---------- Addison Circle - Phase II 473 1Q'98 1Q'99 1Q'00 n/a American Beauty Mill 80 2Q'97 2Q'98 3Q'98 68 Block 580 204 4Q'97 4Q'98 2Q'99 n/a Wilson Building 135 2Q'98 2Q'99 4Q'00 n/a ----- --- 892 68 ----- --- Houston, TX - ----------- The Rice 312 1Q'97 2Q'98 4Q'98 262 Midtown - Phase I 479 2Q'98 2Q'99 2Q'00 n/a ----- --- 791 262 ----- --- Denver, CO - ---------- Denver Uptown 467 1Q'98 2Q'99 2Q'00 n/a ----- --- Phoenix, AZ - ----------- Deck Park 438 4Q'98 3Q'99 3Q'00 n/a ----- --- Nashville, TN - ------------- Bennie Dillon 86 2Q'98 1Q'99 3Q'99 n/a ----- ----- 5,827 1,612 ===== =====
The Company is also currently conducting feasibility and other pre-development studies for possible new Post(R) communities in its primary market areas. -26- 27 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- Capitalization of Fixed Assets and Community Improvements The Company has established a policy of capitalizing those expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. All expenditures necessary to maintain a community in ordinary operating condition are expensed as incurred. During the first five years of a community (which corresponds to the estimated depreciable life), carpet replacements are expensed as incurred. Thereafter, carpet replacements are capitalized. Acquisition of assets and community improvement expenditures for the three and six months ended June 30, 1998 and 1997 are summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- New community development and acquisition activity .... $ 89,540 $ 35,255 $156,864 $ 78,043 Non-recurring capital expenditures: Revenue generating additions and improvements ........ 4,501 2,447 7,790 3,497 Other community additions and improvements ........... 636 117 889 492 Recurring capital expenditures: Carpet replacements .................................. 621 337 1,203 656 Community additions and improvements ................. 1,267 862 1,838 1,247 Corporate additions and improvements ................. 3,247 327 4,127 772 -------- -------- -------- -------- $ 99,812 $ 39,345 $172,711 $ 84,707 ======== ======== ======== ========
INFLATION Substantially all of the leases at the communities allow, at the time of renewal, for adjustments in the rent payable thereunder, and thus may enable the Company to seek increases in rents. The substantial majority of these leases are for one year or less and the remaining leases are for up to two years. At the expiration of a lease term, the Company's lease agreements provide that the term will be extended unless either the Company or the lessee gives at least sixty (60) days written notice of termination; in addition, the Company's policy permits the earlier termination of a lease by a lessee upon thirty (30) days written notice to the Company and the payment of one month's additional rent as compensation for early termination. The short-term nature of these leases generally serves to reduce the risk to the Company of the adverse effect of inflation. NEW ACCOUNTING PRONOUNCEMENTS On June 15, 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for all fascal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of FAS 133 will not have a significant effect on the Company's results of operations or its financial position. -27- 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA) - -------------------------------------------------------------------------------- FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION Historical Funds from Operations The Company considers funds from operations ("FFO") an appropriate measure of performance of an equity REIT. 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, 1998 and 1997 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, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net income available to common shareholders .............. $ 19,566 $ 13,662 $ 34,855 $ 24,165 Extraordinary item, net of minority interest ............ -- -- -- 75 Net gain on sale of assets .............................. -- (3,512) -- (3,512) Minority interest ....................................... 2,902 3,236 5,412 5,751 Loss on unused treasury locks ........................... -- -- 1,944 -- ------------ ------------ ------------ ------------ Adjusted net income ...................................... 22,468 13,386 42,211 26,479 Depreciation of real estate assets ...................... 11,394 6,426 21,809 12,563 ------------ ------------ ------------ ------------ Funds from Operations (1) ................................ 33,862 19,812 64,020 39,042 Recurring capital expenditures (2) ...................... (1,888) (1,199) (3,041) (1,903) Non-recurring capital expenditures (3) .................. (636) (117) (889) (492) Loan amortization payments .............................. (18) (43) (36) (102) ------------ ------------ ------------ ------------ Cash Available for Distribution .......................... $ 31,320 $ 18,453 $ 60,054 $ 36,545 ============ ============ ============ ============ Revenue generating capital expenditures (4) .............. $ 4,501 $ 2,447 $ 7,790 $ 3,497 ============ ============ ============ ============ Cash Flow Provided By (Used In): Operating activities ..................................... $ 28,683 $ 20,628 $ 62,580 $ 53,850 Investing activities ..................................... $ (99,812) $ (16,235) $ (174,655) $ (61,596) Financing activities ..................................... $ 60,616 $ (6,294) $ 105,113 $ 9,284 Weighted average common shares outstanding - basic ....... 35,239,800 22,028,722 33,510,294 21,989,132 ============ ============ ============ ============ Weighted average common shares and units outstanding - basic ...................................... 40,455,524 27,245,196 38,726,080 27,206,432 ============ ============ ============ ============ Weighted average common shares outstanding - diluted ..... 35,772,546 22,205,988 34,004,073 22,171,329 ============ ============ ============ ============ Weighted average common shares and units outstanding - diluted ............................................... 40,988,270 27,422,462 39,219,859 27,388,629 ============ ============ ============ ============
-28- 29 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT 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 $621 and $337 of carpet replacement and $1,267 and $862 of other additions and improvements to existing communities for the three months ended June 30, 1998 and 1997, respectively and $1,203 and $656 of carpet replacement and $1,838 and $1,247 of other additions and improvements to existing communities for the six months ended June 30, 1998 and 1997, respectively. Since the Company does not add back the depreciation of non-real estate assets in its calculation of FFO, capital expenditures of $3,247 and $327 for the three months ended June 30, 1998 and 1997, respectively, and $4,127 and $772 for the six months ended June 30, 1998 and 1997, respectively, are excluded from the calculation of CAD. (3) Non-recurring capital expenditures consisted of community additions and improvements of $636 and $117 for the three months ended June 30, 1998 and 1997, respectively, and $889 and $492 for the six months ended June 30, 1998 and 1997, respectively. (4) Revenue generating capital expenditures included a major renovation of communities in the amount of $4,384 and $1,620, for the three months ended June 30, 1998, respectively, and $7,245 and $2,581 for the six months ended June 30, 1998 and 1997, respectively, and submetering of water service to communities in the amount of $117 and $827 for the three months ended June 30, 1998 and 1997, respectively, and $545 and $916 for the six months ended June 30, 1998 and 1997, respectively. -29- 30 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS The Company's annual meeting of shareholders was held May 8, 1998. The matters voted upon and the results of voting were as follows: (i) To elect one director to serve until the 1999 Annual Meeting of Shareholders, one director to serve until the 2000 Annual Meeting of Shareholders and two directors to serve until the 2001 Annual Meeting of Shareholders; Voting results for this matter were as follows:
Directors: For Withheld ---------- -------- Messr. Charles E. Rice 27,701,110 815,404 Messr. Robert L. Shaw 27,677,209 839,305 Messr. Arthur M. Blank 27,702,371 814,143 Messr. John T. Glover 27,676,773 839,741
(ii) To amend and restate the Company's Employee Stock Plan to (A) increase the number of shares of Common Stock reserved for issuance thereunder from 3,500,000 to 6,000,000 shares, (B) increase the limit on the number of options to purchase Common Stock that can be granted to an officer of key employee of the Company in any calendar year from 50,000 shares of Common Stock to 100,000 shares of Common Stock (500,000 shares of Common Stock if such officer or key employee is a member of the Company's Executive Committee), (C) permit the grant of options in 1998 (in addition to the options described above) to purchase up to 50,000 shares of Common Stock to an officer or key employee if the Compensation Committee makes a related reduction in such person's regular cash compensation for 1998 and (D) increase the number of shares subject to options granted to non-employee directors as of each December 31 from 1,000 to 3,000. Voting results for this matter were as follows: For: 21,901,311 Against: 1,538,573 Abstain: 122,095
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 Financial Data Schedule for the Company - Second Quarter 1998 (for SEC filing purposes only) 27.2 Restated Financial Data Schedule for the Company - Second Quarter 1997 (for SEC filing purposes only) 27.3 Financial Data Schedule for the Operating Partnership - Second Quarter 1998 (for SEC filing purposes only) 27.4 Restated Financial Data Schedule for the Operating Partnership - Second Quarter 1997 (for SEC filing purposes only)
The registrants agree to furnish a copy of all agreements relating to long-term debt upon request of the Commission. (b) Reports on Form 8-K Reports on Form 8-K filed by each registrant on April 8, 1998, April 24, 1998, and May 29, 1998. -30- 31 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 12, 1998 /s/ John T. Glover - --------------- ----------------------------- (Date) John T. Glover, President (Principal Financial Officer) August 12, 1998 /s/ R. Gregory Fox - --------------- ----------------------------- (Date) R. Gregory Fox Senior Vice President, Chief Accounting Officer -31- 32 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. By: Post GP Holdings, Inc., as General Partner August 12, 1998 /s/ John T. Glover - --------------- ----------------------------- (Date) John T. Glover, President (Principal Financial Officer) August 12, 1998 /s/ R. Gregory Fox - --------------- ----------------------------- (Date) R. Gregory Fox Senior Vice President, Chief Accounting Officer -32- EX-27.1 2 FINANCIAL DATA SCHEDULE/POST PROPERTIES
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF POST PROPERTIES, INC. FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000903127 POST PROPERTIES, INC. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 5,081,000 0 0 0 0 0 2,108,046,000 222,457,000 1,942,794,000 0 731,800,000 0 50,000 359,000 979,533,000 1,942,794,000 0 142,440,000 0 73,940,000 0 0 15,693,000 47,746,000 0 34,855,000 0 0 0 34,855,000 1.04 1.03
EX-27.2 3 RESTATED FINANCIAL DATA SCHEDULE/POST PROPERTIES
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF POST PROPERTIES, INC. FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000903127 POST PROPERTIES, INC. 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 1.09
EX-27.3 4 FINANCIAL DATA SCHEDULE/POST APARTMENT
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF POST APARTMENT HOMES, L.P. FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001012271 POST APARTMENT HOMES, L.P. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 5,081,000 0 0 0 0 0 2,108,046,000 222,457,000 1,942,794,000 0 731,800,000 0 0 0 1,101,268,000 1,942,794,000 0 142,440,000 0 73,940,000 0 0 15,693,000 47,746,000 0 40,267,000 0 0 0 40,267,000 1.04 1.03
EX-27.4 5 RESTATED FINANCIAL DATA SCHEDULE/POST APARTMENT
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF POST APARTMENT HOMES, L.P. FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001012271 POST APARTMENT HOMES, L.P. 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 0 0 483,813,000 1,013,773,000 0 90,680,000 0 46,540,000 0 0 11,070,000 28,604,000 0 29,991,000 0 93,000 0 29,898,000 1.10 1.09
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