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EXHIBIT 99.1
RISK FACTORS
UNFAVORABLE CHANGES IN APARTMENT MARKET AND ECONOMIC CONDITIONS COULD ADVERSELY
AFFECT OCCUPANCY LEVELS AND RENTAL RATES.
Market and economic conditions in the various metropolitan areas of the
United States in which we operate may significantly affect our occupancy levels
and rental rates and therefore our profitability. Factors that may adversely
affect these conditions include the following:
- the economic climate, which may be adversely impacted by a
reduction in jobs, industry slowdowns and other factors;
- local conditions, such as oversupply of, or reduced demand
for, apartment homes;
- a future economic downturn that simultaneously affects one or
more of our geographic markets;
- declines in household formation;
- rent control or stabilization laws, or other laws regulating
rental housing, which could prevent us from raising rents to
offset increases in operating costs; and
- competition from other available apartments and changes in
market rental rates.
Any of these factors could adversely affect our ability to achieve desired
operating results from our communities.
DEVELOPMENT AND CONSTRUCTION RISKS COULD IMPACT OUR PROFITABILITY.
We intend to continue to develop and construct apartment communities.
Development activities may be conducted through wholly-owned affiliated
companies or through joint ventures with unaffiliated parties. Our development
and construction activities may be exposed to the following risks:
- we may be unable to obtain, or face delays in obtaining,
necessary zoning, land-use, building, occupancy, and other
required governmental permits and authorizations, which could
result in increased development costs;
- we may incur construction costs for a property that exceed our
original estimates due to increased materials, labor or other
costs, which could make completion of the property
uneconomical, and we may not be able to increase rents to
compensate for the increase in construction costs;
- we intend to concentrate our attention on fewer markets and
reduce our annual development expenditures, and we may
abandon development opportunities that we have already begun
to explore, and we may fail to recover expenses already
incurred in connection with exploring those opportunities;
- we expect to record charges in the fourth quarter of 2000
in the range of $6 million to $7.5 million for write-offs
relating to pre-development expenses incurred with respect to
opportunities we no longer intend to pursue and associated
severance costs;
- we have been and may continue to be unable to complete
construction and lease-up of a community on schedule and meet
our financial goals for development projects;
- we may not be able to obtain financing with favorable terms
for the development of a community, which may make us unable
to proceed with its development;
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- because occupancy rates and rents at a newly developed
community may fluctuate depending on a number of factors,
including market and economic conditions, we may be unable to
meet our profitability goals for that community; and
- construction costs have been increasing in our existing
markets, and may continue to increase in the future and, in
some cases, the costs of upgrading acquired communities have,
and may continue to, exceed our original estimates and we may
be unable to charge rents that would compensate for these
increases in costs.
FAILURE TO SUCCEED IN NEW MARKETS MAY LIMIT OUR GROWTH.
We may from time to time commence development activity or make
acquisitions outside of our existing market areas if appropriate opportunities
arise. Our historical experience in our existing markets does not ensure that we
will be able to operate successfully in new markets. We may be exposed to a
variety of risks if we choose to enter new markets. These risks include, among
others:
- an inability to evaluate accurately local apartment market
conditions and local economies;
- an inability to obtain land for development or to identify
appropriate acquisition opportunities;
- an inability to hire and retain key personnel; and
- lack of familiarity with local governmental and permitting
procedures.
POSSIBLE DIFFICULTY OF SELLING APARTMENT COMMUNITIES COULD LIMIT OUR OPERATIONAL
AND FINANCIAL FLEXIBILITY.
Although we have experienced success in disposing of apartment
communities that no longer meet our strategic objectives, market conditions
could change and purchasers may not be willing to pay prices acceptable to us. A
weak market may limit our ability to change our portfolio promptly in response
to changing economic conditions. Also, if we are unable to sell apartment
communities or if we can only sell apartment communities at prices lower than
are generally acceptable to us, then we may not have adequate capital to execute
our development and construction strategy. Furthermore, a significant portion of
the proceeds from our overall property sales may be held in escrow accounts in
order for some sales to qualify as like-kind exchanges under Section 1031 of the
Internal Revenue Code so that any related capital gain can be deferred for
federal income tax purposes. As a result, we may not have immediate access to
all of the cash flow generated from our property sales.
CHANGING INTEREST RATES COULD INCREASE INTEREST COSTS AND COULD AFFECT THE
MARKET PRICE OF OUR SECURITIES.
We have incurred, and expect to continue to incur, debt bearing
interest at rates that vary with market interest rates. Therefore, if interest
rates increase, our interest costs will rise to the extent our variable rate
debt is not hedged effectively. In addition, an increase in market interest
rates may lead purchasers of our securities to demand a higher annual yield,
which could adversely affect the market price of our common and preferred stock
and debt securities. As of September 30, 2000, approximately $25 million of
our total outstanding senior unsecured debt was floating rate debt.
FAILURE TO GENERATE SUFFICIENT CASH FLOWS COULD AFFECT OUR DEBT FINANCING AND
CREATE REFINANCING RISK.
We are subject to the risks normally associated with debt financing,
including the risk that our cash flow will be insufficient to make required
payments of principal and interest. Although we may be able to use cash flow to
make future principal payments, we cannot assure investors that sufficient cash
flow will be available to make all required principal payments and still satisfy
the distribution requirements that Post must satisfy in order to maintain its
status as a real estate investment trust or "REIT" for federal income tax
purposes. The following factors, among others, may affect the cash flows
generated by our apartment communities:
- the national and local economies;
- local real estate market conditions, such as an oversupply of
apartment homes;
- the perceptions by prospective residents of the safety,
convenience and attractiveness of our communities and the
neighborhoods in which they are located;
- our ability to provide adequate management, maintenance and
insurance; and
- rental expenses, including real estate taxes and utilities.
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Expenses associated with our investment in a community, such as debt
service, real estate taxes, insurance and maintenance costs, are generally not
reduced when circumstances cause a reduction in cash flows from operations from
that community. If a community is mortgaged to secure payment of debt and we are
unable to make the mortgage payments, we could sustain a loss as a result of
foreclosure on the community or the exercise of other remedies by the mortgagee.
We are likely to need to refinance at least a portion of our outstanding debt as
it matures. There is a risk that we may not be able to refinance existing debt
or that the terms of any refinancing will not be as favorable as the terms of
the existing debt. As of September 30, 2000, we had outstanding mortgage
indebtedness of approximately $392 million and senior unsecured debt of
approximately $535 million and outstanding indebtedness under our lines of
credit aggregating $247 million.
DEBT LEVEL MAY BE INCREASED.
Post's board of directors has adopted a policy of limiting indebtedness
to approximately 60% of the undepreciated book value of our assets, but our
organizational documents do not contain any limitation on the amount or
percentage of indebtedness, funded or otherwise, we might incur. If this policy
were changed, we could become more highly leveraged, resulting in an increase in
debt service that could adversely affect our funds from operations and our
ability to make expected distributions to Post's shareholders and Post Apartment
Homes' limited partners and in an increased risk of default on our obligations.
In addition, our ability to incur debt is limited by covenants in our bank and
other credit agreements. We manage our debt to be in compliance with our policy
and with these debt covenants, but subject to compliance with these covenants,
we may increase the amount of our debt at any time without a concurrent
improvement in our ability to service the additional debt. Accordingly, we could
become more leveraged, resulting in increased risk of default on our obligations
and in an increase in our debt service requirements, both of which could
adversely affect our financial condition and our ability to access debt and
equity capital markets in the future.
DEBT FINANCING MAY NOT BE AVAILABLE AND EQUITY ISSUANCES COULD BE DILUTIVE TO
OUR SHAREHOLDERS.
Our ability to execute our business strategy depends on our access to
an appropriate blend of debt financing, including unsecured lines of credit and
other forms of secured and unsecured debt, and equity financing, including
common and preferred equity. Debt financing may not be available in sufficient
amounts, or on favorable terms or at all. If Post issues additional equity
securities to finance developments and acquisitions instead of incurring debt,
the interests of our existing shareholders could be diluted.
ACQUIRED COMMUNITIES MAY NOT ACHIEVE ANTICIPATED RESULTS.
We intend to continue to selectively acquire apartment communities that
meet our investment criteria. Our acquisition activities and their success may
be exposed to the following risks:
- an acquired community may fail to achieve expected occupancy
and rental rates and may fail to perform as we expected;
- we may not be able to successfully integrate acquired
properties and operations; and
- our estimate of the costs of repositioning or redeveloping the
acquired property may prove inaccurate, causing us to fail to
meet our profitability goals.
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INCREASED COMPETITION COULD LIMIT OUR ABILITY TO LEASE APARTMENT HOMES OR
INCREASE OR MAINTAIN RENTS.
Our apartment communities compete with numerous housing alternatives in
attracting residents, including other apartment communities and single-family
rental homes, as well as owner occupied single- and multi-family homes.
Competitive housing in a particular area could adversely affect our ability to
lease apartment homes and increase or maintain rents.
LIMITED INVESTMENT OPPORTUNITIES COULD ADVERSELY AFFECT OUR GROWTH.
We expect that other real estate investors will compete with us to
acquire existing properties and to develop new properties. These competitors
include insurance companies, pension and investment funds, developer
partnerships, investment companies and other apartment REITs. This competition
could increase prices for properties of the type that we would likely pursue,
and our competitors may have greater resources than we do. As a result, we may
not be able to make attractive investments on favorable terms, which could
adversely affect our growth.
INTEREST RATE HEDGING CONTRACTS MAY BE INEFFECTIVE AND MAY RESULT IN MATERIAL
CHARGES.
From time to time when we anticipate issuing debt securities, we may
seek to limit our exposure to fluctuations in interest rates during the period
prior to the pricing of the securities by entering into interest rate hedging
contracts. We may do this to increase the predictability of our financing costs.
Also, from time to time we may rely on interest rate hedging contracts to limit
our exposure under variable rate debt to unfavorable changes in market interest
rates. If the pricing of new debt securities is not within the parameters of, or
market interest rates produce a lower interest cost than that we incur under, a
particular interest rate hedging contract, the contract is ineffective.
Furthermore, the settlement of interest rate hedging contracts has involved and
may in the future involve material charges. These charges are typically related
to the extent and timing of fluctuations in interest rates. Despite our efforts
to minimize our exposure to interest rate fluctuations, we cannot guarantee that
we will maintain coverage for all of our outstanding indebtedness at any
particular time. If we do not effectively protect ourselves from this risk, we
may be subject to increased interest costs resulting from interest rate
fluctuations.
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LOSSES FROM NATURAL CATASTROPHES MAY EXCEED OUR INSURANCE COVERAGE.
We carry comprehensive liability, fire, flood, extended coverage and
rental loss insurance on our properties, which we believe is of the type and
amount customarily obtained on real property assets. We intend to obtain similar
coverage for properties we acquire in the future. However, some losses,
generally of a catastrophic nature, such as losses from floods or earthquakes,
may be subject to limitations. We exercise our discretion in determining
amounts, coverage limits and deductibility provisions of insurance, with a view
to maintaining appropriate insurance on our investments at a reasonable cost and
on suitable terms. If we suffer a substantial loss, our insurance coverage may
not be sufficient to pay the full current market value or current replacement
value of our lost investment. Inflation, changes in building codes and
ordinances, environmental considerations and other factors also might make it
infeasible to use insurance proceeds to replace a property after it has been
damaged or destroyed.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION COULD RESULT IN SUBSTANTIAL
COSTS.
We are in the business of acquiring, developing, owning, operating and
from time to time selling real estate. Under various federal, state and local
environmental laws, as a current or former owner or operator, we could be
required to investigate and remediate the effects of contamination of currently
or formerly owned real estate by hazardous or toxic substances, often regardless
of our knowledge of or responsibility for the contamination and solely by virtue
of our current or former ownership or operation of the real estate. In addition,
we could be held liable to a governmental authority or to third parties for
property damage and for investigation and clean-up costs incurred in connection
with the contamination. These costs could be substantial, and in many cases
environmental laws create liens in favor of governmental authorities to secure
their payment. The presence of such substances or a failure to properly
remediate any resulting contamination could materially and adversely affect our
ability to borrow against, sell or rent an affected property.
COMPLIANCE OR FAILURE TO COMPLY WITH LAWS REQUIRING ACCESS TO OUR PROPERTIES BY
DISABLED PERSONS COULD RESULT IN SUBSTANTIAL COST.
The Americans with Disabilities Act, the Fair Housing Act of 1988 and
other federal, state and local laws generally require that public accommodations
be made accessible to disabled persons. Noncompliance could result in the
imposition of fines by the government or the award of damages to private
litigants. These laws may require us to modify our existing properties. These
laws may also restrict renovations by requiring improved access to such
buildings by disabled persons or may require us to add other structural features
that increase our construction costs. Legislation or regulations adopted in the
future may impose further burdens or restrictions on us with respect to improved
access by disabled persons. We cannot ascertain the costs of compliance with
these laws, which may be substantial.
POST MAY FAIL TO QUALIFY AS A REIT FOR FEDERAL INCOME TAX PURPOSES.
Post's qualification as a REIT for federal income tax purposes depends
upon our ability to meet on a continuing basis, through actual annual operating
results, distribution levels and diversity of stock ownership, the various
qualification tests and organizational requirements imposed upon REITs under the
Internal Revenue Code. We believe that Post has qualified for taxation as a REIT
for federal income tax purposes commencing with its taxable year ended December
31, 1993, and we plan to continue to meet the requirements for Post to qualify
as a REIT in the future. Many of these requirements, however, are highly
technical and complex. We cannot guarantee, therefore, that Post has qualified
or will continue to qualify in the future as a REIT. The determination that Post
qualifies as a REIT for federal income tax purposes requires an analysis of
various factual matters that may not be totally within our control. Even a
technical or inadvertent mistake could jeopardize Post's REIT status.
Furthermore, Congress and the IRS
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might make changes to the tax laws and regulations, and the courts might issue
new decisions that make it more difficult, or impossible, for Post to remain
qualified as a REIT. We do not believe, however, that any pending or proposed
tax law changes would jeopardize Post's REIT status.
If Post were to fail to qualify for taxation as a REIT in any taxable
year, and certain relief provisions of the Internal Revenue Code did not apply,
Post would be subject to tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate rates, leaving less money available
for distributions to Post's shareholders. In addition, distributions to
shareholders in any year in which Post failed to qualify would not be deductible
by Post for federal income tax purposes nor would they be required to be made.
Unless entitled to relief under specific statutory provisions, Post also would
be disqualified from taxation as a REIT for the four taxable years following the
year during which it ceased to qualify as a REIT. It is not possible to predict
whether in all circumstances Post would be entitled to such statutory relief.
Post's failure to qualify as a REIT likely would have a significant adverse
effect on the value of our securities.
POST APARTMENT HOMES MAY FAIL TO BE TREATED AS A PARTNERSHIP FOR FEDERAL INCOME
TAX PURPOSES.
We believe that Post Apartment Homes qualifies, and has so qualified
since its formation, as a partnership for federal income tax purposes and not as
a publicly traded partnership taxable as a corporation. No assurance can be
provided, however, that the IRS will not challenge the treatment of Post
Apartment Homes as a partnership for federal income tax purposes or that a court
would not sustain such a challenge. If the IRS were successful in treating Post
Apartment Homes as a corporation for federal income tax purposes, then the
taxable income of Post Apartment Homes would be taxable at regular corporate
income tax rates. In addition, the treatment of Post Apartment Homes as a
corporation would cause Post to fail to qualify as a REIT. See "--Post may fail
to qualify as a REIT for federal income tax purposes" above.
OUR SHAREHOLDERS MAY NOT BE ABLE TO EFFECT A CHANGE OF CONTROL.
The articles of incorporation and bylaws of Post, the partnership
agreement of Post Apartment Homes, and the Georgia Business Corporation Code
contain a number of provisions that could delay, defer or prevent a transaction
or a change in control of us that might involve a premium price for our
shareholders or otherwise be in their best interests, including the following:
Ownership limit. One of the requirements for maintenance of Post's
qualification as a REIT for federal income tax purposes is that no more than 50%
in value of Post's outstanding capital stock may be owned by five or fewer
individuals, including entities specified in the Internal Revenue Code, during
the last half of any taxable year. Primarily to facilitate maintenance of its
qualification as a REIT for federal income tax purposes, the ownership limit
under Post's articles of incorporation prohibits ownership, directly or by
virtue of the attribution provisions of the Internal Revenue Code, by any person
or persons acting as a group of more than 6.0% of the issued and outstanding
shares of our common stock, subject to an exception for shares of our common
stock held by Mr. Williams and Mr. Glover, our Chairman and Vice Chairman.
Together, these limitations are referred to as the "ownership limit." Further,
Post's articles of incorporation include provisions allowing it to stop
transfers of and redeem its shares that are intended to assist Post in complying
with these requirements. These provisions may have the effect of delaying,
deferring or preventing someone from taking control of Post, even though a
change of control might involve a premium price for our shareholders or might
otherwise be in our shareholders' best interests.
Staggered board. Post's articles of incorporation provides that the
board of directors will consist of eight members and can be increased or
decreased after that according to its bylaws, provided that the
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total number of directors is not less than three nor more than 15. Pursuant to
Post's bylaws, the number of directors will be fixed by the board of directors
within the limits in its articles of incorporation. The board of directors is
divided into three classes of directors. Directors for each class are chosen for
a three-year term. The staggered terms for directors may affect our
shareholders' ability to effect a change in control of us, even if a change in
control would be in the interest of our shareholders.
Preferred shares; classification or reclassification of unissued shares
of capital stock without shareholder approval. Post's articles of incorporation
provide that the total number of shares of stock of all classes which it has
authority to issue is 120,000,000, consisting of 100,000,000 shares of common
stock and 20,000,000 shares of preferred stock, of which 5,000,000 had been
issued as of September 30, 2000. The board of directors has the authority,
without a vote of shareholders, to classify or reclassify any unissued shares of
stock, including common stock into preferred stock or vice versa, and to
establish the preferences and rights of any preferred or other class or series
of shares to be issued. The issuance of preferred stock or other shares having
special preferences or rights could delay or prevent a change in control of Post
even if a change in control would be in the interests of our shareholders.
Because the board of directors has the power to establish the preferences and
rights of additional classes or series of shares without a shareholder vote, the
board of directors may give the holders of any class or series preferences,
powers and rights, including voting rights, senior to the rights of holders of
our common stock.
Consent rights of the Unitholders. Under the partnership agreement of
Post Apartment Homes, Post may not merge or consolidate with another entity
unless the merger includes the merger of Post Apartment Homes, which requires
the approval of the holders of a majority of the outstanding units of limited
partnership. If Post were to ever hold less than a majority of the units, this
voting requirement might limit the possibility for acquisition or change in the
control of Post.
Georgia Anti-Takeover Statutes. The Georgia Business Corporation Code
generally restricts a company from entering into certain business combinations
with an interested shareholder for a period of five years after the date on
which the shareholder becomes an interested shareholder unless (1) the
transaction is approved by the board of directors of the company prior to the
date the person becomes an interested shareholder, (2) the interested
shareholder acquires 90% of the company's voting stock in the same transaction
in which it exceeds 10% or (3) subsequent to becoming an interested shareholder,
the shareholder acquires 90% of the company's voting stock and the business
combination is approved by the holders of a majority of the voting stock
entitled to vote on the business combination. An interested shareholder is
defined as any person or entity that is the beneficial owner of at least 10% of
the company's voting stock. This business combination statute will not apply
unless the bylaws of the corporation specifically provides that the statute is
applicable to the corporation. Post has not elected to be covered by this
statute, but it could so by action of the board of directors at any time.
Georgia Fair Price Statute. The Georgia Fair Price Statute imposes fair
price and procedural requirements applicable to business combinations with any
person who owns 10% or more of the common stock. These statutory requirements
restrict business combinations with, and accumulations of shares of voting stock
of, certain Georgia corporations. This fair price statute will not apply unless
the bylaws of the corporation specifically provides that the statute is
applicable to the corporation. Post has not elected to be covered by this
statute, but it could do so by action of the board of directors at any time.
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