<PAGE> 1
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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 March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12080
------------------------
POST PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1550675
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3350 CUMBERLAND CIRCLE, SUITE 2200, ATLANTA, GEORGIA
30339 (Address of principal executive offices -- zip code)
(770) 850-4400
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
------------------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
22,037,635 shares of common stock outstanding as of May 5, 1997.
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<PAGE> 2
POST PROPERTIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
<S> <C>
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996......................... 3
Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1996..................................................................... 4
Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the
three months ended March 31, 1997........................................................... 5
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996..................................................................... 6
Notes to Consolidated Financial Statements .................................................... 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................... 9
PART II OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS...................................... 25
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K........................................................ 25
SIGNATURES....................................................................................... 26
</TABLE>
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<PAGE> 3
POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate:
Land ....................................................... $ 154,834 $ 150,072
Building and improvements .................................. 752,969 730,518
Furniture, fixtures and equipment .......................... 77,580 74,120
Construction in progress ................................... 164,303 140,437
Land held for future development ........................... 8,373 14,195
----------- -----------
1,158,059 1,109,342
Less: accumulated depreciation ............................... (184,020) (177,672)
----------- -----------
Operating real estate assets ............................... 974,039 931,670
Cash and cash equivalents .................................... 3,672 233
Restricted cash .............................................. 1,111 1,148
Deferred charges, net ........................................ 9,162 9,459
Other assets ................................................. 9,576 16,165
----------- -----------
Total assets ............................................... $ 997,560 $ 958,675
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable ................................................ $ 464,726 $ 434,319
Accrued interest payable ..................................... 7,547 4,264
Dividend and distribution payable ............................ 16,169 14,659
Accounts payable and accrued expenses ........................ 23,710 17,915
Security deposits and prepaid rents .......................... 5,157 5,084
----------- -----------
Total liabilities .......................................... 517,309 476,241
----------- -----------
Minority interest of unitholders in Operating Partnership .... 82,874 83,441
----------- -----------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value, 20,000,000 authorized,
1,000,000 shares issued and outstanding .................. 10 10
Common stock, $.01 par value, 100,000,000 authorized,
21,958,299 and 21,922,393 shares issued and outstanding at
March 31, 1997 and December 31, 1996, respectively ....... 220 219
Additional paid-in capital ................................... 397,147 398,764
Accumulated earnings ......................................... -- --
----------- -----------
Total shareholders' equity ................................. 397,377 398,993
----------- -----------
Total liabilities and shareholders' equity ................. $ 997,560 $ 958,675
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 4
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Rental ....................................................... $ 41,581 $ 36,545
Property management - third party ............................ 553 733
Landscape services - third party ............................. 1,044 912
Interest ..................................................... 7 129
Other ........................................................ 1,381 1,124
------------ ------------
Total revenues ............................................. 44,566 39,443
------------ ------------
EXPENSES
Property operating and maintenance (exclusive of items
shown separately below) .................................... 15,201 13,034
Depreciation (real estate assets) ............................ 6,137 4,965
Depreciation (non-real estate assets) ........................ 242 253
Property management - third party ............................ 420 570
Landscape services - third party ............................. 901 768
Interest ..................................................... 5,361 5,057
Amortization of deferred loan costs .......................... 302 352
General and administrative ................................... 1,846 2,012
------------ ------------
Total expenses ............................................. 30,410 27,011
------------ ------------
Income before minority interest of unitholders in
Operating Partnership and extraordinary item ............... 14,156 12,432
Minority interest of unitholders in Operating Partnership .... (2,515) (2,386)
------------ ------------
Income before extraordinary item ............................. 11,641 10,046
Extraordinary item, net of minority interest of unitholders in
Operating Partnership ...................................... (75) --
------------ ------------
Net income ................................................. 11,566 10,046
Dividend to preferred shareholders ......................... (1,063) --
------------ ------------
Net income available to common shareholders ................ $ 10,503 $ 10,046
============ ============
PER COMMON SHARE DATA:
Weighted average common shares outstanding .................. 21,949,107 21,646,708
Income before extraordinary item (net of preferred dividend). $ 0.48 $ 0.46
============ ============
Net income available to common shareholders ................. $ 0.48 $ 0.46
============ ============
Dividends declared .......................................... $ 0.595 $ 0.540
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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POST PROPERTIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
SHARES SHARES CAPITAL EARNINGS TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY AND ACCUMULATED
EARNINGS, DECEMBER 31, 1996 ............................. $ 10 $ 219 $ 398,764 $ -- $ 398,993
Proceeds from Dividend Reinvestment and
Employee Stock Purchase Plans ....................... -- -- 986 -- 986
Conversion of Units to shares ......................... -- 1 (1) -- --
Adjustment for minority interest of unitholders
in Operating Partnership at dates of capital
transactions ........................................ -- -- (40) -- (40)
Net income ............................................ -- -- -- 11,566 11,566
Dividends to preferred shareholders ................... -- -- -- (1,063) (1,063)
Dividends to common shareholders ...................... -- -- (2,562) (10,503) (13,065)
--------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY AND ACCUMULATED
EARNINGS, MARCH 31, 1997 ................................ $ 10 $ 220 $ 397,147 $ -- $ 397,377
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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POST PROPERTIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................................. $ 11,566 $ 10,046
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest of unitholders in Operating Partnership ......................... 2,515 2,386
Extraordinary item ................................................................ 75 --
Depreciation ...................................................................... 6,379 5,218
Amortization of deferred loan costs ............................................... 302 352
Changes in assets, (increase) decrease in:
Restricted cash ................................................................... 37 (5)
Deferred charges .................................................................. (117) --
Other assets ...................................................................... 6,558 (751)
Changes in liabilities, increase (decrease) in:
Accrued interest payable .......................................................... 3,283 (71)
Accounts payable and accrued expenses ............................................. 2,551 3,136
Security deposits and prepaid rents ............................................... 73 77
--------- ---------
Net cash provided by operating activities ........................................... 33,222 20,388
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets, net of payables ................. (40,960) (19,591)
Capitalized interest ................................................................ (1,829) (1,115)
Recurring capital expenditures ...................................................... (704) (466)
Corporate additions and improvements ................................................ (444) (204)
Non-recurring capital expenditures .................................................. (374) (136)
Revenue generating capital expenditures ............................................. (1,050) --
--------- ---------
Net cash (used in) investing activities ............................................. (45,361) (21,512)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs .......................................................... (92) (343)
Debt proceeds ....................................................................... 86,440 49,364
Proceeds from sale of notes ......................................................... 80,000 --
Debt payments ....................................................................... (136,033) (44,652)
Distributions to unitholders ........................................................ (2,822) (2,518)
Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans ............... 986 2,221
Dividends paid to preferred shareholders ............................................ (1,063) --
Dividends paid to common shareholders ............................................... (11,838) (10,573)
--------- ---------
Net cash provided by (used in) financing activities ................................. 15,578 (6,501)
--------- ---------
Net increase(decrease) in cash and cash equivalents ................................. 3,439 (7,625)
Cash and cash equivalents, beginning of period ...................................... 233 9,008
--------- ---------
Cash and cash equivalents, end of period ............................................ $ 3,672 $ 1,383
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 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 three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the full
year. These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto included in
the Post Properties, Inc. Annual Report on Form 10-K for the year ended
December 31, 1996.
2. NOTES PAYABLE
On January 29, 1997, the Company filed, with the Securities and
Exchange Commission, a Prospectus Supplement relating to $175,000
aggregate principal amount of Medium-Term Notes Due Nine Months or More
from Date of Issue (the "MTNs").
On March 3, 1997, the Company issued $30,000 of floating rate MTNs
priced at LIBOR plus .25%, due on March 3, 2000 (the "2000 MTNs").
Proceeds from the 2000 MTNs were used to (i) pay off the mortgage on
Post Renaissance which bore an interest rate of LIBOR plus .55% and
matured July 1, 1999 and (ii) pay down existing indebtedness
outstanding under the Company's revolving line of credit (the
"Revolver").
On March 31, 1997, the Company issued $50,000 of fixed rate MTNs as
follows: $37,000 due on April 2, 2001 (the "2001 MTNs") and $13,000 due
on April 1, 2004 (the "2004 MTNs"). The 2001 MTNs priced at par with a
coupon rate of 7.02% (.50% over the corresponding treasury rate on the
date such rate was set) and an effective rate reflecting the benefit of
the treasury lock of 6.57%. The 2004 MTNs priced at par with a coupon
of 7.30% (.65% over the corresponding treasury rate on the date such
rate was set) and an effective rate reflecting the benefit of the
treasury lock of 6.86%. The proceeds from the 2001 MTNs and the 2004
MTNs were used to prepay $50,000 of fixed rate notes that bore interest
at 7.15% per annum.
3. EXTRAORDINARY ITEM
The extraordinary item for the three months ended March 31, 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.
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<PAGE> 8
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. EARNINGS PER SHARE
Primary earnings per common share for income before extraordinary item,
net of preferred dividends, and net income available to common
shareholders has been computed by dividing income before extraordinary
item, net of preferred dividends, and net income available to common
shareholders by the weighted average number of common shares
outstanding. This method derives the same per common share information
as the "two-class" method prescribed for REITs. The weighted average
number of common shares outstanding utilized in the calculations are
21,949,107 and 21,646,708 for the three months ended March 31, 1997
and 1996, respectively.
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the three months ended
March 31, 1997 and 1996 are as follows:
(a) During the three months ended March 31, 1997 holders of 65
Units in Post Apartment Homes, L.P. (the "Operating
Partnership") exercised their option to convert their units to
shares of Common Stock of the Company on a one-for-one basis.
The net effect of these conversions and adjustments to
minority interest for the dilutive impact of the Dividend
Reinvestment and Employee Stock Purchase Plans was a
reclassification increasing minority interest and decreasing
shareholders' equity in the amount of $40 for the three
months ended March 31, 1997.
(b) The Operating Partnership committed to distribute $16,169 and
$14,469 for the quarters ended March 31, 1997 and 1996,
respectively. As a result, the Company declared a dividend of
$.595 and $.54 per common share or $13,065 and $11,694 for the
quarters ended March 31, 1997 and 1996, respectively. The
remaining distributions from the Operating Partnership in the
amount of $3,104 and $2,775, respectively, will be or were
distributed to minority interest unitholders in the Operating
Partnership.
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<PAGE> 9
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with all of the financial
statements appearing elsewhere in this report. The following discussion is based
primarily on the Consolidated Financial Statements of Post Properties, Inc.
As of March 31, 1997, there were 27,174,773 units in the Operating Partnership
outstanding, of which 21,958,299, or 80.8%, were owned by the Company and
5,216,474, or 19.2% were owned by other limited partners (including certain
officers and directors of the Company). As of March 31, 1997, there were
1,000,000 Perpetual Preferred Units outstanding, all of which were owned by the
Company.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997, AND 1996
The Company recorded net income available to common shareholders of $10,503, for
the three months ended March 31, 1997, an increase of 4.5% over the prior
corresponding period primarily as a result of increased rental rates for fully
stabilized communities and an increase in apartment units placed in service.
COMMUNITY OPERATIONS
The Company's net income is generated primarily from the operation of its
apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. A community is generally
considered by the Company to have achieved stabilized occupancy on the earlier
to occur of (i) attainment of 95% physical occupancy on the first day of any
month or (ii) one year after completion of construction.
As of March 31, 1997, the Company's portfolio of apartment communities consisted
of the following: (i) 40 communities and the first phase of an additional
community which were completed and stabilized for all of the current and prior
year, (ii) 8 communities and the second phase of an existing community which
achieved full stabilization during the prior year and (iii) 9 communities and
the second phase of two existing communities in the development or lease-up
stage.
For communities with respect to which construction is completed and the
community has become fully operational, all property operating and maintenance
expenses are expensed as incurred and those recurring and non-recurring
expenditures relating to acquiring new assets, materially enhancing the value of
an existing asset, or substantially extending the useful life of an existing
asset are capitalized. (See "Capitalization of Fixed Assets and Community
Improvements").
The Company has adopted an accounting policy related to communities in the
development and lease-up stage whereby substantially all operating expenses
(including pre-opening marketing expenses) are expensed as incurred. The Company
treats each unit in an apartment community separately for cost accumulation,
capitalization and expense recognition purposes. Prior to the commencement of
leasing activities, interest and other construction costs are capitalized and
reflected on the balance sheet as construction in progress. Once a unit is
placed in service, all operating expenses allocated to that unit, including
interest, are expensed as incurred. During the lease-up phase, the sum of
interest expense on completed units and other operating expenses (including
pre-opening marketing expenses) will typically exceed rental revenues, resulting
in a "lease-up deficit," which continues until such time as rental revenues
exceed such expenses.
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<PAGE> 10
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
Therefore, in order to evaluate the operating performance of its communities,
the Company has presented financial information which summarizes the operating
income on a comparative basis for all of its operating communities combined and
for communities which have reached stabilization prior to January 1, 1996. The
Company has also presented quarterly financial information reflecting the
dilutive impact of lease-up deficits incurred for communities in the development
and lease-up stage and not yet operating at break-even. In this presentation,
only those communities which were dilutive during the period are included and,
accordingly, different communities may be included in each period.
ALL OPERATING COMMUNITIES
The operating performance for all of the Company's apartment communities
combined for the three months ended March 31, 1997 and 1996 is summarized as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
1997 1996 % CHANGE
------- ------- --------
<S> <C> <C> <C>
Rental and other revenue:
Fully stabilized communities (1) ............................................. $33,186 $32,856 1.0 %
Communities stabilized during 1996 ........................................... 8,403 3,377 148.8 %
Development and lease-up
communities (2) ............................................................ 663 -- 100.0 %
Sold communities (3) ......................................................... -- 462 (100.0)%
Other revenue (4) ............................................................ 710 974 (27.1)%
------- -------
42,962 37,669 14.1 %
------- -------
Property operating and maintenance expense (exclusive of depreciation and
amortization):
Fully stabilized communities ................................................. 10,474 10,256 2.1 %
Communities stabilized during 1996 ........................................... 2,520 1,521 65.7 %
Development and lease-up
communities ................................................................ 504 -- 100.0 %
Sold communities ............................................................. -- 165 (100.0)%
Other expenses (5) ........................................................... 1,703 1,092 56.0 %
------- -------
15,201 13,034 16.6 %
------- -------
Revenue in excess of specified
expense ..................................................................... $27,761 $24,635 12.7 %
======= =======
Recurring capital expenditures: (6)
Carpet ....................................................................... 319 174 83.3 %
Other ........................................................................ 385 292 31.8 %
------- -------
Total ........................................................................ $ 704 $ 466 51.1 %
======= =======
Average apartment units in service ............................................. 18,266 16,369 11.6 %
======= =======
Recurring capital expenditures per
apartment unit .............................................................. $ 39 $ 28 39.3 %
======= =======
</TABLE>
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<PAGE> 11
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
(1) Communities which reached stabilization prior to January 1, 1996.
(2) Communities in the "construction", "development" or "lease-up" stage
during 1996 and, therefore, not considered fully stabilized for all of
the periods presented.
(3) Includes one community, containing 180 units, which was sold on July
19, 1996.
(4) Other revenue includes revenue on furnished apartment rentals above the
unfurnished rental rates and any revenue not directly related to
property operations.
(5) Other expenses includes certain indirect central office operating
expenses related to management, grounds maintenance, and costs
associated with furnished apartment rentals.
(6) In addition to those expenses which relate to property operations, the
Company incurs recurring and non-recurring expenditures relating to
acquiring new assets, materially enhancing the value of an existing
asset, or substantially extending the useful life of an existing asset,
all of which are capitalized.
For the three months ended March 31, 1997, rental and other revenue and property
operating and maintenance expenses increased $5,293, or 14.1%, and $2,167, or
16.6%, respectively, compared to the same period in the prior year, primarily as
a result of an increase in the average number of apartment units in service and
increased rental rates.
For the three months ended March 31, 1997, recurring capital expenditures
increased $238, or 51.1%, compared to the same period in the prior year,
primarily due to the increase in the average number of apartment units in
service and the timing of scheduled capital improvements.
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<PAGE> 12
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
FULLY STABILIZED COMMUNITIES
The Company defines fully stabilized communities as those which have reached
stabilization prior to the beginning of the previous calendar year.
The operating performance of the 40 communities and the first phase of an
additional community containing an aggregate of 14,782 units which were fully
stabilized as of January 1, 1996, is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1997 1996 % CHANGE
------- ------- --------
<S> <C> <C> <C>
Rental and other revenue ..................................... $33,186 $32,856 1.0%
Property operating and maintenance expense (exclusive
of depreciation and amortization) ........................ 10,474 10,256 2.1%
------- -------
Revenue in excess of specified expense ....................... $22,712 $22,600 .5%
======= =======
Recurring capital expenditures: (1)
Carpet .................................................... $ 295 $ 169 74.6%
Other ..................................................... 363 290 25.2%
------- -------
Total ................................................... $ 658 $ 459 43.4%
======= =======
Recurring capital expenditures per
apartment unit (2) ........................................ $ 44 $ 31 41.9%
======= =======
Average economic occupancy (3) ............................... 93.3% 95.2% (2.0)%
------- -------
Average monthly rental rate per
apartment unit (4) ......................................... $ 776 $ 748 3.7%
======= =======
Apartment units in service ................................... 14,782 14,782
======= =======
</TABLE>
(1) In addition to those expenses which relate to property operations, the
Company incurs recurring and non-recurring expenditures relating to
acquiring new assets, materially enhancing the value of an existing
asset, or substantially extending the useful life of an existing asset,
all of which are capitalized.
(2) In addition to such capitalized expenditures, the Company expensed $149
and $147 per unit on building maintenance (inclusive of direct
salaries) and $45 and $43 per unit on landscaping (inclusive of direct
salaries) for the three months ended March 31, 1997 and 1996,
respectively.
(3) Average economic occupancy is defined as gross potential rent less
vacancy losses, model expenses and bad debt divided by gross potential
rent for the period, expressed as a percentage. The calculation of
average economic occupancy does not include a deduction for concessions
and employee discounts. (Average economic occupancy, including these
amounts would have been 92.7% and 94.8% for the three months ended
March 31, 1997 and 1996, respectively.) For the three month period
ended March 31, 1997 and 1996, concessions were $153 and $61 and
employee discounts were $67 and $76, respectively.
(4) Average monthly rental rate is defined as the average of the gross
actual rental rates for occupied units and the anticipated rental rates
for unoccupied units.
For the three months ended March 31, 1997, rental and other revenue increased
$330, or 1.0%, compared to the same period in the prior year, due to higher
rental rates. For the three months ended March 31, 1997, property operating and
maintenance expenses (exclusive of depreciation and amortization) increased
$218, or 2.1%, compared to the same period in the prior year, primarily as a
result of increased advertising and promotion efforts and an increase in
building repair and maintenance expense.
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<PAGE> 13
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
For the three months ended March 31, 1997, recurring capital expenditures per
apartment unit increased $13, or 41.9% compared to the same period in the prior
year, primarily due to the timing of carpet replacements and other recurring
capital expenditures of communities.
LEASE-UP DEFICITS
As noted in the overview of Community Operations, the Company has adopted an
accounting policy related to communities in the development and lease-up stage
whereby substantially all operating expenses (including pre-opening marketing
expenses) are expensed as incurred. The Company treats each unit in an apartment
community separately for cost accumulation, capitalization and expense
recognition purposes. Prior to the commencement of leasing activities, interest
as well as other construction costs are capitalized and reflected on the balance
sheet as construction in progress. Once a unit is placed in service, all
expenses allocated to that unit, including interest, are expensed as incurred.
During the lease-up phase, the sum of interest expense on completed units and
other operating expenses (including pre-opening marketing expenses) will
typically exceed rental revenues, resulting in a "lease-up deficit," which
continues until rental revenues exceed such expenses.
In this presentation, only those communities which were dilutive for the
respective period are included and, accordingly, different communities may be
included in different quarters.
For the three months ended March 31, 1997 and 1996, respectively, the "lease-up
deficit" charged to and included in results of operations is summarized as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
------ -----
<S> <C> <C>
Rental and other revenue ............................................. $ 117 $ 574
Property operating and maintenance expense (exclusive of
depreciation and amortization) ..................................... 207 469
----- -----
Revenue (expense) in excess of specified expense/revenue ............. (90) 105
Interest expense ..................................................... 89 338
----- -----
Lease-up deficit ..................................................... $(179) $(233)
===== =====
</TABLE>
- 13 -
<PAGE> 14
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
THIRD PARTY MANAGEMENT SERVICES
The Company provides asset management, leasing and other consulting services to
non-related owners of apartment communities through two of its subsidiaries, RAM
Partners, Inc. ("RAM") and Post Asset Management, Inc. ("Post Asset
Management").
The operating performance of RAM and Post Asset Management for the three months
ended March 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
RAM PARTNERS, INC. THREE MONTHS ENDED
MARCH 31,
-------------------------------
1997 1996 % CHANGE
------ ------ --------
<S> <C> <C> <C>
Property management and other
revenue .................................. $ 554 $ 660 (16.1)%
Property management expense ................ 295 356 (17.1)%
General and administrative expense ......... 103 118 (12.7)%
------ ------
Revenue in excess of specified
expense .................................. $ 156 $ 186 (16.1)%
====== ======
Average apartment units managed ............ 7,775 9,906 (21.5)%
====== ======
</TABLE>
The decrease in property management revenues in excess of specified expense for
the three months ended March 31, 1997 compared to the same period in the prior
year is primarily attributable to the decrease in the average number of units
managed.
<TABLE>
<CAPTION>
POST ASSET MANAGEMENT THREE MONTHS ENDED
MARCH 31,
------------------------------
1997 1996 % CHANGE
----- ----- --------
<S> <C> <C> <C>
Property management and other
revenue .................................. $ 24 $ 81 (70.4)%
Property management expense ................ 8 82 (90.2)%
General and administrative expense ......... 14 14 --
----- -----
Revenue in excess of specified
expense ................................. $ 2 $ (15) (113.3)%
===== =====
Average apartment units managed ............ 260 866 (70.0)%
===== =====
</TABLE>
Property management revenues and the related expenses decreased for the three
months ended March 31, 1997, compared to the same periods in 1996, primarily due
to the reduction in the average number of apartment units managed. This
reduction was primarily due to four management contracts which were terminated;
two effective January 1996, one effective July 1996 and one effective September
1996. As of March 31, 1997, Post Asset Management provided management services
to one Post(R) community, containing 260 apartment units. The Company
anticipates that the remaining contract will be terminated during 1997.
- 14 -
<PAGE> 15
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
THIRD PARTY LANDSCAPE SERVICES
The Company provides landscape maintenance, design and installation services to
non-related parties through a subsidiary, Post Landscape Services, Inc. ("Post
Landscape Services").
The operating performance of Post Landscape Services for the three months ended
March 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1997 1996 % CHANGE
------ ------ --------
<S> <C> <C> <C>
Landscape services and other revenue ........ $1,055 $ 912 15.7%
Landscape services expense .................. 756 667 13.3%
General and administrative expense .......... 145 101 43.6%
------ ------
Revenue in excess of specified expense ...... $ 154 $ 144 6.9%
====== ======
</TABLE>
The increase in landscape services revenue and landscape service expense for the
three months ended March 31, 1997, compared to the same period in 1996, is
primarily due to increases in landscape contracts.
OTHER REVENUES AND EXPENSES
Depreciation of real estate assets increased $1,172, or 23.6%, for the three
months ended March 31, 1997, compared to the same periods in the prior year, due
to the addition of depreciable real estate assets.
The extraordinary item of $75 for the three months ended March 31, 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 $20,388
for the three months ended March 31, 1996 to $33,222 for the three months ended
March 31, 1997, principally due to increases in the Company's working capital.
Net cash used in investing activities increased from $21,512 in the three months
ended March 31, 1996 to $45,361 in the three months ended March 31, 1997,
principally due to the increase in construction activities relating to new
development. The Company's net cash provided by (used in) financing activities
increased from $(6,501) in the three months ended March 31, 1996 to $15,578 in
the three months ended March 31, 1997 primarily due to an increase in net
borrowing activity to fund development.
The Company has elected to be taxed as a Real Estate Investment Trust ("REIT")
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended,
commencing with its taxable year ended December 31, 1993. REITs are subject to a
number of organizational and operational requirements, including a requirement
that they currently distribute 95% of their ordinary taxable income. The Company
generally will not be subject to Federal income tax on net income.
- 15 -
<PAGE> 16
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
At March 31, 1997, the Company had total indebtedness of $464,726 and cash and
cash equivalents of $3,672. The Company's indebtedness includes approximately
$14,198 in conventional mortgages payable secured by individual communities,
tax-exempt bond indebtedness of $151,528, senior unsecured notes of $255,000 and
borrowings under unsecured lines of credit of approximately $44,000.
The Company expects to meet its short-term liquidity requirements generally
through its net cash provided by operations and borrowings under credit
arrangements and expects to meet certain of its long-term liquidity
requirements, such as scheduled debt maturities, repayment of financing of
construction and development activities and possible property acquisitions,
through long-term secured and unsecured borrowings and the issuance of debt
securities or additional equity securities of the Company, sales of communities,
or, possibly in connection with acquisitions of land or improved properties,
units of the Operating Partnership. The Company believes that its net cash
provided by operations will be adequate and anticipates that it will continue to
be adequate to meet both operating requirements and payment of dividends by the
Company in accordance with REIT requirements in both the short and the long
term. The budgeted expenditures for improvements and renovations to certain of
the communities are expected to be funded from property operations.
Lines Of Credit
The Company has a syndicated line of credit (the "Revolver") in the amount of
$180,000 to provide funding for future construction, acquisitions and general
business obligations. The Revolver matures on April 30, 2000 and borrowings
currently bear interest at LIBOR plus .675% or prime minus .25%. The Revolver
provides for the rate to be adjusted up or down based on changes in the credit
ratings on the Company's senior unsecured debt. The Revolver also includes a
money market competitive bid option for short-term funds for up to $90,000 at
rates below the contract line rate. The credit agreement for the Revolver
contains customary representations, covenants and events of default, including
covenants which restrict the ability of the Operating Partnership to make
distributions in excess of stated amounts, which in turn restricts the
discretion of the Company to declare and pay dividends. In general, during any
fiscal year the Operating Partnership may only distribute up to 100% of the
Operating Partnership's consolidated income available for distribution (as
defined in the credit agreement) exclusive of distributions of up to $30,000 of
capital gains for such year. The credit agreement contains exceptions to these
limitations to allow the Operating Partnership to make distributions necessary
to allow the Company to maintain its status as a REIT. The Company does not
anticipate that this covenant will adversely affect the ability of the Operating
Partnership to make distributions, or the Company to declare dividends, under
the Company's current dividend policy.
On July 26, 1996, the Company closed a $20,000 unsecured line of credit with
Wachovia Bank of Georgia, N.A. (The "Cash Management Line"), which was fully
funded and used to pay down the outstanding balance on the Revolver. The Cash
Management Line bears interest at LIBOR plus .75% or prime minus .25% and has a
maturity date of April 13, 1998. The Company chose this arrangement because
the Revolver requires three days advance notice to repay borrowings whereas this
facility provides the Company with an automatic daily sweep, which applies all
available cash to reduce the outstanding balance.
In addition, the Company has a $3,000 facility to provide letters of credit for
general business purposes.
Tax Exempt Bonds
On June 29, 1995, the Company replaced the bank letters of credit providing
credit enhancement for twelve of its outstanding tax-exempt bonds and three of
its economically defeased tax-exempt bonds. Under an agreement with the Federal
National Mortgage Association ("FNMA"), FNMA now provides, directly or
indirectly through other bank letters of credit, credit enhancement with respect
to such bonds. Under the terms of such agreement, FNMA has provided replacement
credit enhancement through 2025 for nine bond issues, aggregating $111,230,
which were reissued, and has agreed, subject to certain conditions, to provide
credit enhancement through June 1, 2025 for up to an additional $43,298 with
respect to eight
- 16 -
<PAGE> 17
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
other bond issues which mature and may be refunded in 1997 and 1998. The
agreement with FNMA contains representations, covenants, and events of default
customary to such secured loans.
Refundable Tax Exempt Bonds
The Company has previously issued tax-exempt bonds, secured by certain
communities, totaling $235,880 of which $84,352 has been economically defeased,
leaving $151,528 of principal amount of tax-exempt bonds outstanding at March
31, 1997 of which $111,230 of the bonds outstanding has been reissued with a
maturity of June 1, 2025. The remaining outstanding bonds, together with the
economically defeased bonds, mature and may be reissued, during the years 1997
and 1998. The Company has chosen economic defeasance of the bond obligations
rather than a legal defeasance in order to preserve the legal right to refund
such obligations on a tax-exempt basis at the stated maturity if the Company
then determines that such refunding is beneficial to the Company.
The following table shows the amount of bonds (both defeased and outstanding) at
March 31, 1997, which the Company may reissue during the years 1997 through
2025:
<TABLE>
<CAPTION>
DEFEASED OUTSTANDING TOTAL REISSUE
PORTION PORTION CAPACITY
-------- ----------- -------------
<S> <C> <C> <C>
1997 $ 3,000 $ 27,000 $ 30,000
1998 81,352 13,298 94,650
Thereafter -- 111,230 111,230
------- -------- --------
$84,352 $151,528 $235,880
======= ======== ========
</TABLE>
Senior Unsecured Debt Offering
On September 30, 1996, the Company completed a $125,000 senior unsecured debt
offering comprised of two tranches. The first tranche, $100,000 of 7.25% Notes
due on October 1, 2003 (the "2003 Notes"), was priced at 99.642% to yield
7.316%, or 71 basis points over the rate on U.S. Treasury securities with a
comparable maturity. The second tranche, $25,000 of 7.50% Notes due on October
1, 2006 (the "2006 Notes", and together with the 2003 Notes, the "Notes"), was
priced at 99.694% to yield 7.544%, or 83 basis points over the rate on U.S.
Treasury securities with a comparable maturity. Proceeds from the Notes were
used to pay down existing indebtedness outstanding under the Revolver.
Medium-Term Notes
On January 29, 1997, the Company filed, with the Securities and Exchange
Commission, a Prospectus Supplement relating to $175,000 aggregate principal
amount of Medium-Term Notes Due Nine Months or More from Date of Issue (the
"MTNs").
On March 3, 1997, the Company issued $30,000 of floating rate MTNs priced at
LIBOR plus .25%, due on March 3, 2000 (the "2000 MTNs"). Proceeds from the 2000
MTNs were used to (i) pay off the mortgage on Post Renaissance which bore an
interest rate of LIBOR plus .55% and matured July 1, 1999 and (ii) pay down
existing indebtedness outstanding under the Revolver.
- 17 -
<PAGE> 18
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
On March 31, 1997, the Company issued $50,000 of fixed rate MTNs as follows:
$37,000 due on April 2, 2001 (the "2001 MTNs") and $13,000 due on April 1, 2004
(the "2004 MTNs"). The 2001 MTNs priced at par with a coupon rate of 7.02% (.50%
over the corresponding treasury rate on the date such rate was set) and an
effective rate reflecting the benefit of the treasury lock of 6.57%. The 2004
MTNs priced at par with a coupon of 7.30% (.65% over the corresponding treasury
rate on the date such rate was set) and an effective rate reflecting the benefit
of a treasury lock of 6.86%. The proceeds from the 2001 MTNs and the 2004 MTNs
were used to prepay $50,000 of fixed rate notes that bore interest at 7.15% per
annum.
Perpetual Preferred Stock Offering
On October 1, 1996, the Company sold one million non-convertible 8.5% Series A
Cumulative Redeemable Shares (the "Perpetual Preferred Shares"), raising $50
million. Net proceeds of $48,700 from the sale of the Perpetual Preferred Shares
were used to repay outstanding indebtedness.
- 18 -
<PAGE> 19
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
Schedule of Indebtedness
The following table reflects the Company's indebtedness at March 31, 1997:
<TABLE>
<CAPTION>
Maturity Principal
Description Location Interest Rate Date(1) Balance
======================================== ============ ============================= ============ =========
<S> <C> <C> <C> <C>
TAX EXEMPT FIXED RATE (SECURED)
Post Chase(R)........................... Atlanta, GA 7.5% + .575%(2)(3) 07/01/97(4) $ 12,000
Post Walk(R)............................ Atlanta, GA 7.5% + .575%(2)(3) 07/01/97(4) 15,000
Post Court(R)........................... Atlanta, GA 7.5% + .575%(2)(3) 06/01/98(4) 13,298
--------
40,298
--------
CONVENTIONAL FIXED RATE (SECURED)
Post Summit(R).......................... Atlanta, GA 7.72% 02/01/98 5,300
Post River(R)........................... Atlanta, GA 7.72% 03/01/98 5,857
Post Hillsboro Village.................. Nashville, TN 9.20% 10/01/2001 3,041
--------
14,198
--------
TAX EXEMPT FLOATING RATE (SECURED)
Post Ashford(R)Series 1995.............. Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 9,895
Post Valley(R)Series 1995............... Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 18,600
Post Brook(R)Series 1995................ Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 4,300
Post Village(R)(Atlanta) Hills
Series 1995........................... Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 7,000
Post Mill(R)Series 1995................. Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 12,880
Post Canyon(R)Series 1996............... Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 16,845
Post Corners(R)Series 1996.............. Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 14,760
Post Bridge(R).......................... Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 12,450
Post Village(R)(Atlanta) Gardens........ Atlanta, GA "AAA" NON-AMT + .575%(2)(3) 06/01/2025 14,500
--------
111,230
--------
SENIOR NOTES (UNSECURED)
Medium Term Notes....................... N/A LIBOR + .25% 03/03/2000 30,000
Northwestern Mutual Life................ N/A 8.21% 06/07/2000 30,000
Medium Tern Notes....................... N/A 7.02% 04/02/2001 37,000
Northwestern Mutual Life................ N/A 8.37% 06/07/2002 20,000
Senior Notes............................ N/A 7.25% 10/01/2003 100,000
Medium Term Notes....................... N/A 7.30% 04/01/2004 13,000
Senior Notes............................ N/A 7.50% 10/01/2006 25,000
--------
255,000
--------
LINES OF CREDIT (UNSECURED)
Revolver ............................... N/A LIBOR + .80% or prime minus .25%(5) 05/01/99(5) 24,000
Cash Management Line.................... N/A LIBOR + .75% or prime minus .25% 4/13/98 20,000
--------
44,000
--------
TOTAL................................... $464,726
========
</TABLE>
- 19 -
<PAGE> 20
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
(1) All of the mortgages can be prepaid at any time, subject to certain
prepayment penalties.
(2) Bond financed (interest rate on bonds + credit enhancement fees).
(3) These bonds are also secured by Post Fountains at Lee Vista(R), Post
Lake(R) (Orlando) and the Fountains and Meadows of Post Village(R) for
which the Company has economically defeased their respective bond
indebtedness.
(4) Subject to certain conditions at re-issuance, the credit enhancement
runs to June 1, 2025.
(5) On April 10, 1997, the terms of the Revolver were amended to reduce the
interest rate to LIBOR + .675% or prime minus .25% and extend the
maturity to April 30, 2000.
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.
- 20 -
<PAGE> 21
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
Current Development Activity
The Company's communities under development or in initial lease-up are
summarized in the following table:
<TABLE>
<CAPTION>
ACTUAL OR ACTUAL OR UNITS
ESTIMATED ESTIMATED LEASED
QUARTER OF QUARTER QUARTER AS OF
# OF CONSTRUCTION FIRST UNITS OF STABILIZED MAY 5,
METROPOLITAN AREA UNITS COMMENCEMENT AVAILABLE OCCUPANCY 1997
- ----------------- ----- ------------ --------- --------- ----
<S> <C> <C> <C> <C> <C>
Atlanta, GA
- -----------
Post Collier Hills(TM) 396 4Q'95 4Q'96 1Q'98 242
Post Glen(R) 314 1Q'96 1Q'97 1Q'98 110
Post Lindbergh(TM) 396 3Q'96 3Q'97 4Q'98 n/a
Post Gardens(R) 397 3Q'96 4Q'97 1Q'99 n/a
Riverside by Post(TM) 537 3Q'96 1Q'98 4Q'99 n/a
Post Ridge(TM) 232 1Q'97 4Q'97 3Q'98 n/a
Post River(R)II 88 1Q'97 4Q'97 2Q'98 n/a
----- ---
2,360 352
----- ---
Tampa, FL
- ---------
Post Walk at Hyde Park(TM) 134 1Q'96 1Q'97 3Q'97 110
Post Rocky Point(R)II 174 4Q'96 2Q'97 4Q'97 n/a
----- ---
308 110
----- ---
Charlotte, NC
- -------------
Post Park at Phillips Place(TM) 402 4Q'95 4Q'96 1Q'98 204
----- ---
Nashville, TN
- -------------
Post Hillsboro Village(TM) 201 1Q'97 3Q'97 1Q'98 n/a
----- ---
3,271 666
===== ===
</TABLE>
Land
The Company has also acquired a parcel of land in Atlanta on which it plans to
build a new community. Adjacent to the parcel, the Home Depot, Inc. is
constructing its corporate headquarters campus and extensive infrastructure
improvements are being made by the county. In addition, the Company holds land
for a third and fourth phase of Rocky Point(R) in Tampa, Florida. The Company is
also currently conducting feasibility and other pre-development studies for
possible new Post(R) communities in its primary market areas.
Capitalization of Fixed Assets and Community Improvements
The Company has established a policy of capitalizing those expenditures relating
to acquiring new assets, materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset. All expenditures
necessary to maintain a community in ordinary operating condition are expensed
as incurred. During the first five years of a community (which corresponds to
the estimated depreciable life), carpet replacements are expensed as incurred.
Thereafter, carpet replacements are capitalized.
- 21 -
<PAGE> 22
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
Acquisition of assets and community improvement expenditures for the three
months ended March 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
------- -------
<S> <C> <C>
New community development and acquisition activity........... $42,789 $20,706
Non-recurring capital expenditures:
Revenue generating additions and improvements.......... 1,050 --
Other community additions and improvements............. 374 136
Recurring capital expenditures:
Carpet replacements.................................... 319 174
Community additions and improvements................... 385 292
Corporate additions and improvements................... 444 204
------- -------
$45,361 $21,512
======= =======
</TABLE>
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.
- 22 -
<PAGE> 23
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
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 months ended March 31, 1997 and 1996 presented on a
historical basis are summarized in the following table:
Calculations of Funds from Operations and Cash Available for Distribution
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net income available to common shareholders .... $ 10,503 $ 10,046
Extraordinary item, net of minority interest 75 --
Minority interest ........................... 2,515 2,386
------------ ------------
Adjusted net income ....................... 13,093 12,432
Depreciation of real estate assets ........... 6,137 4,965
------------ ------------
Funds from Operations (1) ...................... 19,230 17,397
Recurring capital expenditures (2) .......... (704) (466)
Non-recurring capital expenditures (3) ...... (374) (136)
Loan amortization payments .................. (59) (52)
------------ ------------
Cash Available for Distribution ................ $ 18,093 $ 16,743
============ ============
Revenue generating capital expenditures (4) .... $ 1,050 $ --
============ ============
Cash Flow Provided By (Used In):
Operating activities ........................... $ 33,222 $ 20,388
Investing activities ........................... $ (45,361) $ (21,512)
Financing activities ........................... $ 15,578 $ (6,501)
Weighted average common shares outstanding ..... 21,949,107 21,646,708
============ ============
Weighted average common shares and units
outstanding .................................. 27,167,244 26,785,951
============ ============
</TABLE>
- 23 -
<PAGE> 24
POST PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER APARTMENT UNIT DATA)
(1) The Company uses the National Association of Real Estate Investment
Trusts ("NAREIT") definition of FFO which was adopted for periods
beginning after January 1, 1996. FFO for any period means the
Consolidated Net Income of the Company and its subsidiaries for such
period excluding gains or losses from debt restructuring and sales of
property plus depreciation of real estate assets, and after adjustment
for unconsolidated partnerships and joint ventures, all determined on a
consistent basis in accordance with generally accepted accounting
principles. FFO presented herein is not necessarily comparable to FFO
presented by other real estate companies due to the fact that not all
real estate companies use the same definition. However, the Company's
FFO is comparable to the FFO of real estate companies that use the
current NAREIT definition.
(2) Recurring capital expenditures consisted primarily of $319 and $174 of
carpet replacement and $385 and $292 of other additions and
improvements to existing communities for the three months ended March
31, 1997 and 1996, respectively. Since the Company does not add back
the depreciation of non-real estate assets in its calculation of FFO,
capital expenditures of $444 and $204 for the three months ended March
31, 1997 and 1996, respectively, are excluded from the calculation of
CAD.
(3) Non-recurring capital expenditures consisted of community additions and
improvements of $374 and $136 for the three months ended March 31, 1997
and 1996, respectively.
(4) Revenue generating capital expenditures included a major renovation of
a community and submetering of communities in the amount of $961 and
$89, respectively, for the three months ended March 31, 1997.
- 24 -
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC filing purposes only)
The registrant agrees to furnish a copy of all agreements relating to
long-term debt upon request of the Commission.
(b) Reports on Form 8-K
Report on Form 8-K filed on February 27, 1997.
- 25 -
<PAGE> 26
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.
May 14, 1997 /s/ John T. Glover
- -------------------- -----------------------------------
(Date) John T. Glover, President
(Principal Financial Officer)
May 14, 1997 /s/ R. Gregory Fox
- -------------------- -----------------------------------
(Date) R. Gregory Fox
Senior Vice President, Chief
Accounting Officer
- 26 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF POST PROPERTIES, INC. FOR THE PERIOD ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,783,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,158,059,000
<DEPRECIATION> 184,020,000
<TOTAL-ASSETS> 997,560,000
<CURRENT-LIABILITIES> 0
<BONDS> 464,726,000
10,000
0
<COMMON> 220,000
<OTHER-SE> 397,147,000
<TOTAL-LIABILITY-AND-EQUITY> 997,560,000
<SALES> 0
<TOTAL-REVENUES> 44,566,000
<CGS> 0
<TOTAL-COSTS> 22,659,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,361,000
<INCOME-PRETAX> 14,156,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,578,000
<DISCONTINUED> 0
<EXTRAORDINARY> 75,000
<CHANGES> 0
<NET-INCOME> 10,503,000
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0
</TABLE>
