POST PROPERTIES, INC./POST APARTMENT HOMES, L.P.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended June 30, 2005
OR
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o |
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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)
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Georgia
Georgia
(State or other jurisdiction
of incorporation or organization)
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58-1550675
58-2053632
(I.R.S. Employer
Identification No.) |
4401 Northside Parkway, Suite 800, Atlanta, Georgia 30327
(Address of principal executive offices zip code)
(404) 846-5000
(Registrants telephone number, including area code)
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.
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Post Properties, Inc.
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Yes
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þ
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No
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o |
Post Apartment Homes, L.P.
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Yes
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þ
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No
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o |
Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of
the Exchange Act).
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Post Properties, Inc.
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Yes
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þ
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No
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o |
Post Apartment Homes, L.P.
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Yes
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þ
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No
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o |
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the
latest practicable date:
40,225,565 shares of common stock outstanding as of August 5, 2005 (excluding treasury stock).
POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
INDEX
POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
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June 30, |
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December 31, |
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2005 |
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2004 |
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(Unaudited) |
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Assets |
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Real estate assets |
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Land |
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$ |
270,167 |
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$ |
266,520 |
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Building and improvements |
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1,824,414 |
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1,887,514 |
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Furniture, fixtures and equipment |
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208,348 |
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214,954 |
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Construction in progress |
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34,291 |
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19,527 |
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Land held for future development |
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51,972 |
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18,910 |
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2,389,192 |
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2,407,425 |
|
Less: accumulated depreciation |
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(489,812 |
) |
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(498,367 |
) |
Assets held for sale, net of accumulated depreciation of $46,506 and
$26,332 at June 30, 2005 and December 31, 2004, respectively |
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72,073 |
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68,661 |
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Total real estate assets |
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1,971,453 |
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1,977,719 |
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Investments in and advances to unconsolidated real estate entities |
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34,441 |
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21,320 |
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Cash and cash equivalents |
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4,169 |
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123 |
|
Restricted cash |
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4,321 |
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1,844 |
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Deferred charges, net |
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13,462 |
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15,574 |
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Other assets |
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41,855 |
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37,262 |
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Total assets |
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$ |
2,069,701 |
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$ |
2,053,842 |
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Liabilities and shareholders equity |
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Indebtedness, including $47,500 and $34,060 of debt secured by assets
held for sale at June 30, 2005 and December 31, 2004, respectively |
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$ |
1,111,936 |
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$ |
1,129,478 |
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Accounts payable and accrued expenses |
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74,407 |
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58,837 |
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Dividend and distribution payable |
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19,065 |
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19,203 |
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Security deposits and prepaid rents |
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9,905 |
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7,236 |
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Accrued interest payable |
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6,008 |
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7,677 |
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Total liabilities |
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1,221,321 |
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1,222,431 |
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Minority interest of common unitholders in Operating Partnership |
|
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41,687 |
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43,341 |
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Commitments and contingencies |
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Shareholders equity |
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Preferred stock, $.01 par value, 20,000 authorized: |
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8 1/2 % Series A Cumulative Redeemable Shares, liquidation
preference $50 per share, 900 shares issued and outstanding |
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9 |
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9 |
|
7 5/8 % Series B Cumulative Redeemable Shares, liquidation
preference $25 per share, 2,000 shares issued and outstanding |
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20 |
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20 |
|
Common stock, $.01 par value, 100,000 authorized: |
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40,372 and 40,164 shares issued, 40,035 and 40,164 shares
outstanding at June 30, 2005 and December 31, 2004, respectively |
|
|
403 |
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|
401 |
|
Additional paid-in capital |
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779,907 |
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775,221 |
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Accumulated earnings |
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|
48,330 |
|
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|
25,075 |
|
Accumulated other comprehensive income (loss) |
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|
(6,840 |
) |
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|
(8,668 |
) |
Deferred compensation |
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|
(4,055 |
) |
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|
(3,988 |
) |
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|
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817,774 |
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|
788,070 |
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Less common stock in treasury, at cost, 337 and 0 shares
at June 30, 2005 and December 31, 2004, respectively |
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(11,081 |
) |
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|
|
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|
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Total shareholders equity |
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|
806,693 |
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|
788,070 |
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Total liabilities and shareholders equity |
|
$ |
2,069,701 |
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|
$ |
2,053,842 |
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The accompanying notes are an integral part of these consolidated financial statements.
-1-
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2005 |
|
2004 |
|
2005 |
|
2004 |
Revenues |
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Rental |
|
$ |
68,744 |
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$ |
65,827 |
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$ |
136,471 |
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$ |
130,779 |
|
Other property revenues |
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|
4,316 |
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3,986 |
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|
8,098 |
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7,646 |
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Other |
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|
61 |
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|
47 |
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|
132 |
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|
122 |
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Total revenues |
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73,121 |
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|
69,860 |
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|
144,701 |
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138,547 |
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Expenses |
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Property operating and maintenance (exclusive of items
shown separately below) |
|
|
32,973 |
|
|
|
30,621 |
|
|
|
65,766 |
|
|
|
61,093 |
|
Depreciation |
|
|
19,414 |
|
|
|
19,689 |
|
|
|
38,946 |
|
|
|
39,312 |
|
General and administrative |
|
|
5,433 |
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|
|
5,476 |
|
|
|
10,728 |
|
|
|
10,119 |
|
Development costs and other |
|
|
740 |
|
|
|
381 |
|
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|
1,837 |
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|
916 |
|
|
|
|
|
|
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Total expenses |
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58,560 |
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|
56,167 |
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|
|
117,277 |
|
|
|
111,440 |
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|
Operating Income |
|
|
14,561 |
|
|
|
13,693 |
|
|
|
27,424 |
|
|
|
27,107 |
|
|
|
|
|
|
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|
|
|
|
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|
Interest income |
|
|
189 |
|
|
|
213 |
|
|
|
354 |
|
|
|
393 |
|
Interest expense |
|
|
(15,206 |
) |
|
|
(15,942 |
) |
|
|
(30,885 |
) |
|
|
(31,362 |
) |
Amortization of deferred financing costs |
|
|
(1,029 |
) |
|
|
(1,092 |
) |
|
|
(2,717 |
) |
|
|
(2,208 |
) |
Equity in income of unconsolidated real estate entities |
|
|
553 |
|
|
|
207 |
|
|
|
701 |
|
|
|
422 |
|
Gain on sale of technology investment |
|
|
|
|
|
|
|
|
|
|
5,267 |
|
|
|
|
|
Minority interest in consolidated property partnerships |
|
|
64 |
|
|
|
248 |
|
|
|
178 |
|
|
|
432 |
|
Minority interest of preferred unitholders |
|
|
|
|
|
|
(1,400 |
) |
|
|
|
|
|
|
(2,800 |
) |
Minority interest of common unitholders |
|
|
159 |
|
|
|
365 |
|
|
|
200 |
|
|
|
964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(709 |
) |
|
|
(3,708 |
) |
|
|
522 |
|
|
|
(7,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations,
net of minority interest |
|
|
1,529 |
|
|
|
4,137 |
|
|
|
4,637 |
|
|
|
9,381 |
|
Gains on sales of real estate assets, net of minority
interest and provision for income taxes |
|
|
58,919 |
|
|
|
104,530 |
|
|
|
59,258 |
|
|
|
106,039 |
|
Loss in early extinguishment of indebtedness associated
with property sales, net of minority interest |
|
|
(1,296 |
) |
|
|
(3,849 |
) |
|
|
(1,296 |
) |
|
|
(3,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
59,152 |
|
|
|
104,818 |
|
|
|
62,599 |
|
|
|
111,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
58,443 |
|
|
|
101,110 |
|
|
|
63,121 |
|
|
|
104,519 |
|
Dividends to preferred shareholders |
|
|
(1,909 |
) |
|
|
(1,909 |
) |
|
|
(3,819 |
) |
|
|
(4,507 |
) |
Redemption costs on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
56,534 |
|
|
$ |
99,201 |
|
|
$ |
59,302 |
|
|
$ |
98,296 |
|
|
|
|
|
|
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|
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|
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|
|
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Per common share data Basic |
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Loss from continuing operations (net of preferred dividends
and redemption costs) |
|
$ |
(0.07 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.34 |
) |
Income from discontinued operations |
|
|
1.48 |
|
|
|
2.63 |
|
|
|
1.56 |
|
|
|
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
1.42 |
|
|
$ |
2.49 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding basic |
|
|
39,930 |
|
|
|
39,807 |
|
|
|
40,048 |
|
|
|
39,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share data Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations (net of preferred dividends
and redemption costs) |
|
$ |
(0.07 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.34 |
) |
Income from discontinued operations |
|
|
1.48 |
|
|
|
2.63 |
|
|
|
1.56 |
|
|
|
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
1.42 |
|
|
$ |
2.49 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding diluted |
|
|
39,930 |
|
|
|
39,807 |
|
|
|
40,048 |
|
|
|
39,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
$ |
0.45 |
|
|
$ |
0.45 |
|
|
$ |
0.90 |
|
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-2-
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
ACCUMULATED EARNINGS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Preferred |
|
Common |
|
Paid-in |
|
Accumulated |
|
Comprehensive |
|
Deferred |
|
Treasury |
|
|
|
|
Stock |
|
Stock |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Compensation |
|
Stock |
|
Total |
Shareholders Equity and Accumulated Earnings,
December 31, 2004 |
|
$ |
29 |
|
|
$ |
401 |
|
|
$ |
775,221 |
|
|
$ |
25,075 |
|
|
$ |
(8,668 |
) |
|
$ |
(3,988 |
) |
|
$ |
|
|
|
$ |
788,070 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,121 |
|
Net change in derivative value, net of
minority interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,828 |
|
|
|
|
|
|
|
|
|
|
|
1,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,949 |
|
Proceeds from employee stock purchase and
stock option plans |
|
|
|
|
|
|
2 |
|
|
|
2,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,653 |
|
|
|
10,617 |
|
Adjustment for minority interest of
unitholders in Operating Partnership upon
conversion of units into common shares and at
dates of capital transactions |
|
|
|
|
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,945 |
|
|
|
3,230 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341 |
|
Restricted stock issuances, net of forfeitures |
|
|
|
|
|
|
|
|
|
|
1,098 |
|
|
|
|
|
|
|
|
|
|
|
(702 |
) |
|
|
(396 |
) |
|
|
|
|
Amortization of deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635 |
|
|
|
|
|
|
|
635 |
|
Treasury stock acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,283 |
) |
|
|
(21,283 |
) |
Dividends to preferred shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,819 |
) |
Dividends to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity and Accumulated Earnings,
June 30, 2005 |
|
$ |
29 |
|
|
$ |
403 |
|
|
$ |
779,907 |
|
|
$ |
48,330 |
|
|
$ |
(6,840 |
) |
|
$ |
(4,055 |
) |
|
$ |
(11,081 |
) |
|
$ |
806,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-3-
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
63,121 |
|
|
$ |
104,519 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
38,946 |
|
|
|
42,365 |
|
Amortization of deferred financing costs |
|
|
2,717 |
|
|
|
2,208 |
|
Minority interest of preferred unitholders in Operating Partnership |
|
|
|
|
|
|
2,800 |
|
Minority interest of common unitholders in Operating Partnership |
|
|
(200 |
) |
|
|
(964 |
) |
Minority interest in discontinued operations |
|
|
3,784 |
|
|
|
8,102 |
|
Gains on sales of real estate assets discontinued operations |
|
|
(62,839 |
) |
|
|
(113,739 |
) |
Gain on sale of technology investment |
|
|
(5,267 |
) |
|
|
|
|
Asset impairment charge |
|
|
|
|
|
|
626 |
|
Equity in income of unconsolidated entities, net of distributions |
|
|
339 |
|
|
|
238 |
|
Stock-based compensation |
|
|
1,022 |
|
|
|
865 |
|
Loss on early extinguishment of debt |
|
|
1,374 |
|
|
|
4,128 |
|
Changes in assets, (increase) decrease in: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(2,477 |
) |
|
|
(20 |
) |
Other assets |
|
|
(436 |
) |
|
|
(1,835 |
) |
Deferred charges |
|
|
(327 |
) |
|
|
1,361 |
|
Changes in liabilities, increase (decrease) in: |
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
(1,669 |
) |
|
|
(34 |
) |
Accounts payable and accrued expenses |
|
|
9,891 |
|
|
|
8,446 |
|
Security deposits and prepaid rents |
|
|
2,669 |
|
|
|
(566 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
50,648 |
|
|
|
58,500 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Construction and acquisition of real estate assets, net of payables |
|
|
(86,911 |
) |
|
|
(37,663 |
) |
Net proceeds from sales of real estate assets |
|
|
93,398 |
|
|
|
138,637 |
|
Proceeds from sale of technology investment |
|
|
5,267 |
|
|
|
|
|
Recurring capital expenditures |
|
|
(4,822 |
) |
|
|
(5,193 |
) |
Non-recurring capital expenditures |
|
|
(2,029 |
) |
|
|
(2,546 |
) |
Revenue generating capital expenditures |
|
|
|
|
|
|
(26 |
) |
Corporate additions and improvements |
|
|
(978 |
) |
|
|
(287 |
) |
Distributions from (investments in and advances to) unconsolidated entities |
|
|
(13,541 |
) |
|
|
52,287 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(9,616 |
) |
|
|
145,209 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Payments on indebtedness |
|
|
(189,267 |
) |
|
|
(14,354 |
) |
Proceeds from indebtedness |
|
|
100,000 |
|
|
|
35,000 |
|
Payments of financing costs |
|
|
(976 |
) |
|
|
(4,262 |
) |
Lines of credit proceeds (repayments), net |
|
|
105,785 |
|
|
|
(72,010 |
) |
Treasury stock acquisitions |
|
|
(21,283 |
) |
|
|
|
|
Redemption of preferred stock |
|
|
|
|
|
|
(50,000 |
) |
Proceeds from employee stock purchase and stock option plans |
|
|
10,617 |
|
|
|
2,845 |
|
Capital
contributions (distributions) of minority interests |
|
|
283 |
|
|
|
(1,506 |
) |
Distributions to preferred unitholders |
|
|
|
|
|
|
(2,800 |
) |
Distributions to common unitholders |
|
|
(2,216 |
) |
|
|
(2,942 |
) |
Dividends paid to preferred shareholders |
|
|
(3,819 |
) |
|
|
(4,507 |
) |
Dividends paid to common shareholders |
|
|
(36,110 |
) |
|
|
(35,216 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(36,986 |
) |
|
|
(149,752 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
4,046 |
|
|
|
53,957 |
|
Cash and cash equivalents, beginning of period |
|
|
123 |
|
|
|
1,334 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
4,169 |
|
|
$ |
55,291 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-4-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
1. |
|
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
Organization |
|
|
|
Post Properties, Inc. and its subsidiaries develop, own and manage upscale multifamily apartment
communities in selected markets in the United States. As used herein, the term Company
includes Post Properties, Inc. and its subsidiaries, including Post Apartment Homes, L.P. (the
Operating Partnership), unless the context indicates otherwise. The Company, through its
wholly-owned subsidiaries, is the general partner and owns a majority interest in the Operating
Partnership which, through its subsidiaries, conducts substantially all of the on-going
operations of the Company. At June 30, 2005, the Company owned 23,533 apartment units in 59
apartment communities, including 545 apartment units in two apartment communities held in
unconsolidated entities and including 205 apartment units currently under development in one
community. The Company is also developing 145 for-sale condominium units and is converting 382
apartment units in three communities (including one in an unconsolidated entity) into for-sale
condominium units through a taxable REIT subsidiary. At June 30, 2005, approximately 50.1%,
16.9%, 9.0% and 8.5% (on a unit basis) of the Companys operating communities were located in
Atlanta, Dallas, Tampa and the greater Washington, D.C. metropolitan areas, respectively. |
|
|
|
The Company has elected to qualify and operate as a self-administrated and self-managed real
estate investment trust (REIT) for federal income tax purposes. 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, except to the extent that
taxable income is earned through its taxable REIT subsidiaries (see note 11). |
|
|
|
As of June 30, 2005, the Company had outstanding 40,035 shares of common stock and owned the
same number of units of common limited partnership interests (Common Units) in the Operating
Partnership, representing a 94.5% ownership interest in the Operating Partnership. Common Units
held by persons other than the Company totaled 2,333 as of June 30, 2005 and represented a 5.5%
common minority interest in the Operating Partnership. Each Common Unit may be redeemed by the
holder thereof for either one share of Company common stock or cash equal to the fair market
value thereof at the time of redemption, at the option of the Company. The Companys weighted
average common ownership interest in the Operating Partnership was 94.3% and 93.7% for the three
months and 94.3% and 93.2% for the six months ended June 30, 2005 and 2004, respectively. |
|
|
|
Basis of Presentation |
|
|
|
The accompanying unaudited financial statements have been prepared by the Companys 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 disclosures 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 and six months ended
June 30, 2005 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 Companys audited
financial statements and notes thereto included in its Annual Report on Form 10-K for the year
ended December 31, 2004. Certain 2004 amounts have been reclassified to conform to the current
years financial statement presentation. |
|
|
|
Revenue Recognition |
|
|
|
Sales and the associated gains or losses of real estate assets and for-sale condominiums are
recognized in accordance with the provisions of SFAS No. 66, Accounting for Sales of Real
Estate. For condominium conversion projects, sales and the associated gains for individual
condominium units are recognized upon the closing of the sale transactions, as all conditions
for full profit recognition have been met. In accordance with SFAS No. 144, Accounting for the
Impairment and Disposal of Long-Lived Assets, gains on sales of condominium units at
condominium conversion projects are included in discontinued operations. |
-5-
POST
PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
Stock-based Compensation
Effective January 1, 2003, the Company accounts for stock-based compensation under the fair
value method prescribed by SFAS No. 123, Accounting for Stock-Based Compensation. In adopting
SFAS No. 123, the Company used the prospective method prescribed in SFAS No. 148, Accounting
for Stock-Based Compensation Transition and Disclosure.
The following table reflects the effect on the Companys net income and earnings per common
share had the fair value method of accounting under SFAS No. 123 been applied to all stock
awards for each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net income available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
56,534 |
|
|
$ |
99,201 |
|
|
$ |
59,302 |
|
|
$ |
98,296 |
|
Stock-based compensation included in
net income as reported, net of
minority interest |
|
|
525 |
|
|
|
420 |
|
|
|
963 |
|
|
|
805 |
|
Stock-based compensation determined
under the fair value method for all
awards, net of minority interest |
|
|
(532 |
) |
|
|
(434 |
) |
|
|
(968 |
) |
|
|
(839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
56,527 |
|
|
$ |
99,187 |
|
|
$ |
59,297 |
|
|
$ |
98,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.42 |
|
|
$ |
2.49 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
Pro forma |
|
$ |
1.42 |
|
|
$ |
2.49 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.42 |
|
|
$ |
2.49 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
Pro forma |
|
$ |
1.42 |
|
|
$ |
2.49 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
SFAS No. 123R, Share-Based Payment, was issued in December 2004. SFAS No. 123R revises
SFAS No. 123, Accounting for Stock-Based Compensation and requires companies to expense the
fair value of employee stock options and other forms of stock-based compensation. SFAS No. 123R
also supersedes the provisions of APB No. 25. The provisions of SFAS No. 123R will be effective
for the Company as of January 1, 2006. The Company plans to adopt the provisions of SFAS No.
123R in the first quarter of 2006 and is currently evaluating the alternative methods of
adoption. Since the Company elected to apply the provisions of SFAS No. 123 on January 1, 2003,
the adoption of SFAS No. 123R is not expected to have a significant impact on the Companys
financial position or results of operations.
Long-term Ground Leases
The Company is party to six long-term ground leases associated with land underlying certain of
the Companys operating communities. The ground leases generally provide for future increases
in minimum lease payments tied to an inflation index or contain stated rent increases that
generally compensate for the impact of inflation. Beginning in 2005, the Company recognizes
ground lease expense on the straight-line method over the life of the ground lease for all
ground leases with stated rent increases. The recognition of ground lease expense as incurred
has historically not been materially different than recognizing ground lease expense on a
straight-line basis.
-6-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
2. |
|
INDEBTEDNESS |
|
|
|
At June 30, 2005 and December 31, 2004, the Companys indebtedness consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment |
|
|
|
|
|
Maturity |
|
June 30, |
|
December 31, |
Description |
|
Terms |
|
Interest Rate |
|
Date |
|
2005 |
|
2004 |
Unsecured Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes |
|
Int. |
|
|
5.125% - 7.70 |
% |
|
2006-2012 |
|
$ |
485,000 |
|
|
$ |
385,000 |
|
Medium Term Notes |
|
Int. |
|
|
6.78 |
% |
|
2005 |
|
|
25,000 |
|
|
|
212,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510,000 |
|
|
|
597,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Lines of Credit & Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated Line of Credit |
|
N/A |
|
LIBOR + 0.75%(1) |
|
2007 |
|
|
147,000 |
|
|
|
40,000 |
|
Cash Management Line |
|
N/A |
|
LIBOR + 0.75% |
|
2007 |
|
|
9,533 |
|
|
|
10,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,533 |
|
|
|
50,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional Fixed Rate (Secured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA |
|
Prin. and Int. |
|
|
6.975 |
%(2) |
|
2029 |
|
|
98,500 |
|
|
|
98,500 |
|
Other |
|
Prin. and Int. |
|
|
4.27% - 7.69 |
% |
|
2007-2013 |
|
|
270,908 |
|
|
|
273,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
369,408 |
|
|
|
371,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-Exempt Floating Rate
Bonds (Secured) |
|
Int. |
|
|
2.29 |
%(3) |
|
2025 |
|
|
75,995 |
|
|
|
110,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
1,111,936 |
|
|
$ |
1,129,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents stated rate. At June 30, 2005, the weighted average interest rate was
3.82%. |
|
(2) |
|
Interest rate is fixed at 6.975%, inclusive of credit enhancement and other fees, to
2009 through an interest rate swap arrangement. |
|
(3) |
|
FNMA credit enhanced bond indebtedness. Interest based on FNMA AAA tax-exempt rate
plus credit enhancement and other fees of 0.639%. Interest rate represents the rate at
June 30, 2005 before credit enhancements. The Company has outstanding interest rate cap
arrangements that limit the Companys exposure to increases in the base interest rate to
5%. At June 30, 2005 and December 31, 2004, approximately $47,500 and $34,060,
respectively, of this debt was secured by assets held for sale. In June 2005, the
Company executed an amendment to its master reimbursement agreement with FNMA, which
agreement, among other things, sets forth the Companys payment obligations under its
variable-rate, tax-exempt bond indebtedness. The amendment defers the commencement of
principal repayments under the bonds by five years from the originally scheduled
commencement date. The original maturity date for the bonds remains unchanged and the
amortization schedule of the bonds was changed commensurate with the five-year deferral
of the start of principal amortization. |
Debt maturities
The aggregate maturities of the Companys indebtedness are as follows:
|
|
|
|
|
Remainder of 2005 |
|
$ |
28,652 |
|
2006 |
|
|
81,269 |
|
2007 |
|
|
314,726 |
(1) |
2008 |
|
|
4,557 |
|
2009 |
|
|
75,901 |
|
Thereafter |
|
|
606,831 |
|
|
|
|
|
|
|
|
$ |
1,111,936 |
|
|
|
|
|
|
|
|
|
(1) |
|
Includes outstanding balances on lines of credit
totaling $156,533. |
Debt issuances and retirements
Upon their maturity in February 2005, the Company repaid $25,000 of its 7.28% medium term,
unsecured notes, from available borrowings under its unsecured lines of credit. In March 2005,
the Company repaid the $100,000 outstanding principal balance under its 6.85% Mandatory Par Put
Remarketed Securities (MOPPRS) debt arrangement from available borrowings under its unsecured
lines of credit.
In May 2005, the Company issued $100,000 of senior unsecured notes. The notes bear interest at
5.45% and mature in June 2012. The net proceeds from the unsecured notes were used to reduce
amounts outstanding under the Companys unsecured lines of credit. Upon their maturity in June
2005, the Company repaid $62,043 of its 8.125% medium term, unsecured notes, from available
borrowings under its unsecured lines of credit.
In May 2005, the Company sold two apartment communities subject to the assumption of $34,060 of
tax-exempt mortgage indebtedness (see note 4). As a result of this debt assumption, the Company
recorded a loss on early extinguishment of debt of $1,374 ($1,296 net of minority interest)
related to the write-off of deferred loan costs of $966 ($911 net of minority interest) relating
to such assumed indebtedness and the realization of a $408 ($385 net of minority interest) loss
in connection with the termination of related interest rate cap agreements that were used as
cash flow hedges of the assumed debt.
-7-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
Unsecured Lines of Credit
The Company utilizes a $350,000 syndicated unsecured revolving line of credit (the Revolver)
that matures in January 2007 for its short-term financing needs. The Revolver has a current
stated interest rate of LIBOR plus 0.75% or the prime rate and was provided by a syndicate of
nine banks led by Wachovia Bank, N.A. Additionally, the Revolver requires the payment of annual
facility fees currently equal to 0.15% of the aggregate loan commitment. The Revolver provides
for the interest rate and facility fee rate to be adjusted up or down based on changes in the
credit ratings on the Companys senior unsecured debt. The rates under the Revolver are based
on the higher of the Companys unsecured debt ratings in instances where the Company has split
unsecured debt ratings. The Revolver also includes a money market competitive bid option for
short-term funds up to $175,000 at rates generally below the stated line rate. The credit
agreement for the Revolver contains customary representations, covenants and events of default,
including fixed charge coverage and maximum leverage ratios as well as covenants which restrict
the ability of the Operating Partnership to make distributions, in excess of stated amounts,
which in turn restrict 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
Partnerships consolidated income available for distribution (as defined in the credit
agreement) exclusive of distributions of up to $15,000 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 these ratios and covenants will adversely affect the ability of the
Operating Partnership to borrow money or make distributions, or the Company to declare
dividends, at the Companys current dividend level. At June 30, 2005, the Company had issued
letters of credit to third parties totaling $2,778 under this facility.
Additionally, the Company has a $20,000 unsecured line of credit with Wachovia Bank, N.A. (the
Cash Management Line). The Cash Management line matures in January 2007 and carries pricing
and terms, including debt covenants, substantially consistent with those of the Revolver.
3. |
|
INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES |
|
|
|
At June 30, 2005, the Company held investments in three individual limited liability companies
(the Property LLCs) with an institutional investor. Each Property LLC owns a single apartment
community. In March 2005, one of the Property LLCs elected to convert its apartment community
into for-sale condominiums. The Company holds a 35% equity interest in the Property LLCs. |
|
|
|
The Company accounts for its investments in these Property LLCs using the equity method of
accounting. The excess of the Companys investment over its equity in the underlying net assets
of the Property LLCs was approximately $6,404 at June 30, 2005. This excess investment related
to the two Property LLCs holding apartment communities is being amortized as a reduction to
earnings on a straight-line basis over the lives of the related assets. The excess investment
of $844 at June 30, 2005 related to the Property LLC holding the condominium conversion
community will be recognized as additional cost of sales as the underlying condominiums are
sold. The Company provides real estate services (development, construction and property
management) to the Property LLCs for which it earns fees. |
|
|
|
The operating results of the Company include its share of net income from the investments in the
Property LLCs. A summary of financial information for the Property LLCs in the aggregate is as
follows: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
Balance Sheet Data |
|
2005 |
|
2004 |
Real estate assets, net of accumulated depreciation of
$7,067 and $9,712, respectively |
|
$ |
97,225 |
|
|
$ |
124,072 |
|
Assets held for sale, net (1) |
|
|
23,889 |
|
|
|
|
|
Cash and other |
|
|
2,182 |
|
|
|
2,797 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
123,296 |
|
|
$ |
126,869 |
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable |
|
$ |
66,999 |
|
|
$ |
83,468 |
|
Mortgage notes payable to Company |
|
|
13,661 |
|
|
|
|
|
Other liabilities |
|
|
1,606 |
|
|
|
1,296 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
82,266 |
|
|
|
84,764 |
|
Members equity |
|
|
41,030 |
|
|
|
42,105 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
123,296 |
|
|
$ |
126,869 |
|
|
|
|
|
|
|
|
|
|
Companys equity investment |
|
$ |
20,780 |
|
|
$ |
21,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes one community, originally containing 121
units, being converted into condominiums through a taxable
REIT subsidiary. |
-8-
POST
PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
Income Statement Data |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
2,721 |
|
|
$ |
2,614 |
|
|
$ |
5,361 |
|
|
$ |
5,178 |
|
Other property revenues |
|
|
230 |
|
|
|
211 |
|
|
|
415 |
|
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,951 |
|
|
|
2,825 |
|
|
|
5,776 |
|
|
|
5,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance |
|
|
889 |
|
|
|
933 |
|
|
|
1,799 |
|
|
|
1,836 |
|
Depreciation and amortization |
|
|
655 |
|
|
|
648 |
|
|
|
1,308 |
|
|
|
1,278 |
|
Interest |
|
|
688 |
|
|
|
688 |
|
|
|
1,376 |
|
|
|
1,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
2,232 |
|
|
|
2,269 |
|
|
|
4,483 |
|
|
|
4,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
719 |
|
|
|
556 |
|
|
|
1,293 |
|
|
|
1,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
16 |
|
|
|
(67 |
) |
|
|
(96 |
) |
|
|
(164 |
) |
Gains on sales of real estate assets |
|
|
860 |
|
|
|
|
|
|
|
855 |
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
876 |
|
|
|
(67 |
) |
|
|
486 |
|
|
|
(164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,595 |
|
|
$ |
489 |
|
|
$ |
1,779 |
|
|
$ |
1,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys share of net income |
|
$ |
553 |
|
|
$ |
207 |
|
|
$ |
701 |
|
|
$ |
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2005, gains on sales of real estate assets
represent net gains of $860 and $855, respectively, from condominium sales at the condominium
conversion community held by one of the Property LLCs. A summary of revenues and costs and
expenses of condominium activities for the three and six months ended June 30, 2005 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Six months |
|
|
ended |
|
ended |
|
|
June 30, 2005 |
|
June 30, 2005 |
Condominium revenues, net |
|
$ |
4,183 |
|
|
$ |
4,183 |
|
Condominium costs and expenses |
|
|
(3,323 |
) |
|
|
(3,328 |
) |
|
|
|
|
|
|
|
|
|
Gains on condominium sales |
|
$ |
860 |
|
|
$ |
855 |
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2005, mortgage notes payable include a $50,000 mortgage note that bears
interest at 4.13%, requires monthly interest payments and annual principal payment of $1 through
2009. Thereafter, the note requires monthly principal and interest payments based on a 25-year
amortization schedule and matures in April 2034. The note is callable by the lender in May 2009
and on each successive fifth year anniversary of the note thereafter. The note is prepayable
without penalty in May 2008. The additional mortgage note payable totaling $17,000 bears
interest at a rate of 4.04% and matures in 2008. |
|
|
|
In March 2005, one of the Property LLCs elected to convert its apartment community into for-sale
condominiums. As a result of its decision to sell the community through the condominium
conversion process, the Property LLC prepaid its third party mortgage note payable of $16,392
through secured borrowings from the Company. The Property LLC incurred debt prepayment costs
and expenses associated with the write-off of unamortized deferred financing costs totaling $273
in March 2005. The mortgage note payable to the Company has a fixed rate component ($16,392)
bearing interest at 4.28% and a variable rate component bearing interest at LIBOR plus 1.90%.
This note is repayable from the proceeds of condominium sales and matures in February 2008. |
|
4. |
|
REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITY |
|
|
|
Acquisition Activity |
|
|
|
In June 2005, the Company acquired a 319-unit apartment community located in suburban Charlotte,
NC for approximately $38,240, including closing costs and the reimbursement of a fee to
terminate a loan commitment paid for by the seller. Additionally, the Company plans to spend up
to approximately $1,100 to improve the community. The purchase price of this community was
preliminarily allocated to the assets acquired based on their estimated fair values. |
|
|
|
Disposition Activity |
|
|
|
The Company classifies real estate assets as held for sale after the approval of its investment
committee and after the Company has commenced an active program to sell the assets. At June 30,
2005, the Company had one apartment community, containing 1,738 units, and certain tracts of
land classified as held for sale. In addition, the Company had two communities, originally
containing 261 units, held for sale at June 30, 2005 that are being converted into condominiums
and sold. These real estate assets |
-9-
POST
PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
are reflected in the accompanying consolidated balance sheet at $72,073, which represents the
lower of their depreciated cost or fair value less costs to sell. The
Company sold the one apartment community held for sale containing
1,738 units in the third quarter of 2005 for a total gross
purchase price of approximately $132,500, including the assumption by
the purchaser of approximately $47,500 of tax-exempt secured
indebtedness.
Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the
operating results of real estate assets designated as held for sale are included in discontinued
operations in the consolidated statement of operations for all periods presented. Additionally,
gains or losses on the sale of these assets are included in discontinued operations. For the
three and six months ended June 30, 2005, income from discontinued operations included the
results of operations of one community, containing 1,738 units, classified as held for sale at
June 30, 2005 and results of operations of five apartment communities sold in 2005 through their
sale dates. Additionally, discontinued operations included the operating results and gains on
sales of real estate of two communities, originally containing 261 units, held for sale at June
30, 2005 that are being converted into condominiums and sold. For the three and six months
ended June 30, 2004, income from discontinued operations included the results of operations of
the communities classified as held for sale at June 30, 2005, five apartment communities sold in
2005 and eight apartment communities sold in 2004 through the earlier of June 30, 2004 or their
sale dates.
The revenues and expenses of these communities for the three and six months ended June 30, 2005
and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
4,855 |
|
|
$ |
13,199 |
|
|
$ |
11,839 |
|
|
$ |
27,504 |
|
Other property revenues |
|
|
426 |
|
|
|
1,186 |
|
|
|
1,057 |
|
|
|
2,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
5,281 |
|
|
|
14,335 |
|
|
|
12,896 |
|
|
|
29,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
(exclusive of items shown separately below) |
|
|
2,828 |
|
|
|
6,365 |
|
|
|
6,088 |
|
|
|
12,972 |
|
Depreciation |
|
|
|
|
|
|
1,488 |
|
|
|
|
|
|
|
3,053 |
|
Interest |
|
|
832 |
|
|
|
1,553 |
|
|
|
1,876 |
|
|
|
3,337 |
|
Minority interest in consolidated property partnerships |
|
|
|
|
|
|
(55 |
) |
|
|
14 |
|
|
|
(144 |
) |
Asset impairment charge |
|
|
|
|
|
|
626 |
|
|
|
|
|
|
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
3,660 |
|
|
|
9,977 |
|
|
|
7,978 |
|
|
|
19,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
before minority interest |
|
|
1,621 |
|
|
|
4,408 |
|
|
|
4,918 |
|
|
|
10,062 |
|
Minority interest |
|
|
(92 |
) |
|
|
(271 |
) |
|
|
(281 |
) |
|
|
(681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
1,529 |
|
|
$ |
4,137 |
|
|
$ |
4,637 |
|
|
$ |
9,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2005, the Company recognized net gains in
discontinued operations of $49,710 ($46,877 net of minority interest) from the sale of five
communities, containing 1,309 units. The sales generated net proceeds of approximately $97,900,
including $34,060 of tax-exempt secured debt assumed by the purchasers.
In addition, for the three and six months ended June 30, 2005, gains on sales of real estate
assets included the net gains of $13,153 ($12,042 net of minority interest and provision for
income taxes) and $13,512 ($12,381 net of minority interest and provision for income taxes),
respectively, from condominium sales at the Companys condominium conversion communities. A
summary of revenues and costs and expenses of condominium activities for the three and six
months ended June 30, 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Six months |
|
|
ended |
|
ended |
|
|
June 30, 2005 |
|
June 30, 2005 |
Condominium revenues, net |
|
$ |
32,074 |
|
|
$ |
35,370 |
|
Condominium costs and expenses |
|
|
(18,921 |
) |
|
|
(21,858 |
) |
|
|
|
|
|
|
|
|
|
Gains on condominium sales,
before minority interest and
provision for income taxes |
|
|
13,153 |
|
|
|
13,512 |
|
Minority interest |
|
|
(728 |
) |
|
|
(748 |
) |
Provision for income taxes |
|
|
(383 |
) |
|
|
(383 |
) |
|
|
|
|
|
|
|
|
|
Gains on condominium sales,
net of minority interest and
provision for income taxes |
|
$ |
12,042 |
|
|
$ |
12,381 |
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2004, the Company recognized net gains from
discontinued operations of $112,112 ($104,530 net of minority interest) from the sale of seven
communities containing 3,482 units. These sales generated net proceeds of approximately
$218,982, including $104,325 of tax-exempt secured indebtedness assumed by the purchasers. For the
-10-
POST
PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
|
|
six months ended June 30, 2004, the Company recognized net gains from discontinued
operations of $113,739 ($106,039 net of minority interest) from the sale of eight communities
containing 3,880 units and certain land parcels. Theses sales generated net proceeds of
approximately $242,962, including debt assumed by the purchasers of $104,325. |
|
5. |
|
SHAREHOLDERS EQUITY |
|
|
|
Common Stock Purchases |
|
|
|
In the three and six months ended June 30, 2005, the Company repurchased approximately 375 and
661 shares, respectively, of its common stock at an aggregate cost of $12,237 and $21,283,
respectively, under 10b5-1 stock repurchase plans, the latest of which will expire on August 31,
2005. These shares were purchased under a board of directors approved plan which provides for
aggregate common or preferred stock repurchases of up to $200,000 through December 31, 2006. |
|
|
|
Computation of Earnings Per Common Share |
|
|
|
For the three and six months ended June 30, 2005 and 2004, a reconciliation of the numerator and
denominator used in the computation of basic and diluted income from continuing operations per
common share is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Income (loss) from continuing operations available
to common shareholders (numerator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(709 |
) |
|
$ |
(3,708 |
) |
|
$ |
522 |
|
|
$ |
(7,052 |
) |
Less: Preferred stock dividends |
|
|
(1,909 |
) |
|
|
(1,909 |
) |
|
|
(3,819 |
) |
|
|
(4,507 |
) |
Less: Preferred stock redemption costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations available to
common shareholders |
|
$ |
(2,618 |
) |
|
$ |
(5,617 |
) |
|
$ |
(3,297 |
) |
|
$ |
(13,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares (denominator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
39,930 |
|
|
|
39,807 |
|
|
|
40,048 |
|
|
|
39,595 |
|
Incremental shares from assumed conversion of
stock options (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted (1) |
|
|
39,930 |
|
|
|
39,807 |
|
|
|
40,048 |
|
|
|
39,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The potential dilution from the Companys outstanding stock options of 250 and 46
shares, respectively, for the three months ended June 30, 2005 and 2004, and 236 and
51 shares, respectively, for the six months ended June 30, 2005 and 2004, were
antidilutive to the loss from continuing operations per share calculation. As such,
the amounts were excluded from weighted average shares for the period. |
|
|
At June 30, 2005 and 2004, stock options to purchase 4,309 and 4,800 shares of common
stock, respectively, were excluded from the computation of diluted earnings per common share as
these stock options were antidilutive. |
|
6. |
|
DERIVATIVE FINANCIAL INSTRUMENTS |
|
|
|
At June 30, 2005, the Company had an outstanding interest rate swap agreement with a notional
value of approximately $98,500 with a maturity date in 2009. The interest rate swap agreement
is included on the accompanying consolidated balance sheet at fair value. The Company records
the changes in the fair value of this cash flow hedge as a change in accumulated other
comprehensive income (loss), a shareholders equity account, in the accompanying consolidated
balance sheet. |
|
|
|
At June 30, 2005, the Company had an outstanding interest rate cap agreement with a financial
institution with a notional value of $75,995. The interest rate cap agreement is a cash flow
hedge that provides a fixed interest ceiling at 5% for the Companys variable rate, tax-exempt
borrowings aggregating $75,995 at June 30, 2005. The Company is required to maintain the
interest rate exposure protection under the terms of the financing arrangements. The interest
rate cap arrangement is included on the accompanying balance sheet at fair value. At June 30,
2005, the difference between the amortized costs of the interest rate cap arrangements and their
fair value of $27 is included in accumulated other comprehensive income (loss), a shareholders
equity account. The original cost of $967 of the arrangements is being amortized as additional
expense over their five-year term. |
|
|
|
In May 2005, in connection with the sale of two communities discussed in note 4 above, the
Company sold its interest in interest rate cap agreements with a notional value of $34,060 for
aggregate proceeds of $10 and realized a loss of $408 ($385 net of minority interest) that was
included in the loss on early extinguishment of indebtedness on the accompanying statement of |
-11-
POST
PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
operations. The unrealized loss on these interest rate cap agreements was previously reflected
in accumulated other comprehensive income, a shareholders equity account. These interest rate
cap agreements were sold as the underlying hedged indebtedness was assumed by the purchaser in
connection with the sale of the related assets.
A summary of comprehensive income for the three and six months ended June 30, 2005 and 2004 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net income |
|
$ |
58,443 |
|
|
$ |
101,110 |
|
|
$ |
63,121 |
|
|
$ |
104,519 |
|
Change in derivative values, net of minority interest |
|
|
(838 |
) |
|
|
5,770 |
|
|
|
1,828 |
|
|
|
3,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
57,605 |
|
|
$ |
106,880 |
|
|
$ |
64,949 |
|
|
$ |
108,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. |
|
SEGMENT INFORMATION |
|
|
|
Segment Description |
|
|
|
In accordance with SFAS No. 131, Disclosure About the Segments of an Enterprise and Related
Information, the Company presents segment information based on the way that management
organizes the segments within the enterprise for making operating decisions and assessing
performance. The segment information is prepared on substantially the same basis as the
internally reported information used by the Companys chief operating decision makers to manage
the business. |
|
|
|
The Companys chief operating decision makers focus on the Companys primary sources of income
from apartment community rental operations. Apartment community rental operations are broken
down into four segments based on the various stages in the apartment community ownership
lifecycle. These segments are described below. All commercial properties and other ancillary
service and support operations are aggregated in the line item other in the accompanying
segment information. The segment information presented below reflects the segment categories
based on the lifecycle status of each community as of January 1, 2004. The segment information
for the three and six months ended June 30, 2004 has been adjusted due to the restatement impact
of reclassifying the operating results of the assets designated as held for sale in 2004 and
2005 to discontinued operations under SFAS No. 144 (see note 4). |
|
|
|
Fully stabilized communities those apartment communities which have been stabilized
(the earlier of the point at which a property reaches 95% occupancy or one year after
completion of construction) for both the current and prior year. |
|
|
|
|
Communities stabilized during 2004 communities which reached stabilized occupancy in
the prior year. |
|
|
|
|
Development and lease-up communities those communities that are in lease-up but were
not stabilized by the beginning of the current year, including communities that stabilized
during the current year. The Company has no communities in the development or lease-up
stage for the periods presented. |
|
|
|
|
Acquired communities those communities acquired in the current or prior year. |
Segment Performance Measure
Management uses contribution to consolidated property net operating income (NOI) as the
performance measure for its operating segments. The Company uses net operating income, including
net operating income of stabilized communities, as an operating measure. Net operating income
is defined as rental and other property revenue from real estate operations less total property
and maintenance expenses from real estate operations (excluding depreciation and amortization).
The Company believes that net operating income is an important supplemental measure of operating
performance for a REITs operating real estate because it provides a measure of the core
operations, rather than factoring in depreciation and amortization, financing costs and general
and administrative expenses generally incurred at the corporate level. This measure is
particularly useful, in the opinion of the Company, in evaluating the performance of geographic
operations, operating segment groupings and individual properties. Additionally, the Company
believes that net operating income, as defined, is a widely accepted measure of comparative
operating performance in the real estate investment community. The Company believes that the line on the
Companys consolidated statement of operations entitled net income is the most directly
comparable GAAP measure to net operating income.
-12-
POST
PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
Segment Information
The following table reflects each segments contribution to consolidated revenues and property
NOI together with a reconciliation of segment contribution to property NOI to net income.
Additionally, substantially all of the Companys assets relate to the Companys property rental
operations. Asset cost, depreciation and amortization by segment are not presented because such
information at the segment level is not reported internally.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities |
|
$ |
63,515 |
|
|
$ |
62,319 |
|
|
$ |
125,928 |
|
|
$ |
124,182 |
|
Communities stabilized during 2004 |
|
|
1,761 |
|
|
|
1,872 |
|
|
|
3,521 |
|
|
|
3,588 |
|
Acquired communities |
|
|
2,415 |
|
|
|
206 |
|
|
|
4,499 |
|
|
|
206 |
|
Other property segments |
|
|
5,369 |
|
|
|
5,416 |
|
|
|
10,621 |
|
|
|
10,449 |
|
Other |
|
|
61 |
|
|
|
47 |
|
|
|
132 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
73,121 |
|
|
$ |
69,860 |
|
|
$ |
144,701 |
|
|
$ |
138,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to NOI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities |
|
$ |
38,788 |
|
|
$ |
38,101 |
|
|
$ |
76,358 |
|
|
$ |
76,004 |
|
Communities stabilized during 2004 |
|
|
1,197 |
|
|
|
1,367 |
|
|
|
2,408 |
|
|
|
2,608 |
|
Acquired communities |
|
|
1,696 |
|
|
|
149 |
|
|
|
3,031 |
|
|
|
149 |
|
Other |
|
|
(1,594 |
) |
|
|
(425 |
) |
|
|
(2,994 |
) |
|
|
(1,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated property net operating income |
|
|
40,087 |
|
|
|
39,192 |
|
|
|
78,803 |
|
|
|
77,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
189 |
|
|
|
213 |
|
|
|
354 |
|
|
|
393 |
|
Other revenue |
|
|
61 |
|
|
|
47 |
|
|
|
132 |
|
|
|
122 |
|
Minority interest in consolidated property partnerships |
|
|
64 |
|
|
|
248 |
|
|
|
178 |
|
|
|
432 |
|
Depreciation |
|
|
(19,414 |
) |
|
|
(19,689 |
) |
|
|
(38,946 |
) |
|
|
(39,312 |
) |
Interest expense |
|
|
(15,206 |
) |
|
|
(15,942 |
) |
|
|
(30,885 |
) |
|
|
(31,362 |
) |
Amortization of deferred financing costs |
|
|
(1,029 |
) |
|
|
(1,092 |
) |
|
|
(2,717 |
) |
|
|
(2,208 |
) |
General and administrative |
|
|
(5,433 |
) |
|
|
(5,476 |
) |
|
|
(10,728 |
) |
|
|
(10,119 |
) |
Development costs and other |
|
|
(740 |
) |
|
|
(381 |
) |
|
|
(1,837 |
) |
|
|
(916 |
) |
Equity in income of unconsolidated real estate entities |
|
|
553 |
|
|
|
207 |
|
|
|
701 |
|
|
|
422 |
|
Gain on sale of technology investment |
|
|
|
|
|
|
|
|
|
|
5,267 |
|
|
|
|
|
Minority interest of preferred unitholders |
|
|
|
|
|
|
(1,400 |
) |
|
|
|
|
|
|
(2,800 |
) |
Minority interest of common unitholders |
|
|
159 |
|
|
|
365 |
|
|
|
200 |
|
|
|
964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(709 |
) |
|
|
(3,708 |
) |
|
|
522 |
|
|
|
(7,052 |
) |
Income from discontinued operations |
|
|
59,152 |
|
|
|
104,818 |
|
|
|
62,599 |
|
|
|
111,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
58,443 |
|
|
$ |
101,110 |
|
|
$ |
63,121 |
|
|
$ |
104,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-13-
POST
PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
8. |
|
SEVERANCE COSTS |
|
|
|
In prior years, the Company recorded severance charges associated with the departure of certain
executive officers of the Company. Under certain of these arrangements, the Company is required
to make certain payments and provide specified benefits through 2013 and 2016, respectively.
The following table summarizes the activity relating to aggregate severance charges for the six
months ended June 30, 2005 and 2004: |
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Accrued severance charges, beginning of period |
|
$ |
15,317 |
|
|
$ |
19,717 |
|
Payments for period |
|
|
(1,494 |
) |
|
|
(1,665 |
) |
Interest accretion |
|
|
453 |
|
|
|
502 |
|
|
|
|
|
|
|
|
|
|
Accrued severance charges, end of period |
|
$ |
14,276 |
|
|
$ |
18,008 |
|
|
|
|
|
|
|
|
|
|
9. |
|
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
Interest paid (including capitalized amounts of $783 and $500 for the six months ended June 30,
2005 and 2004, respectively), aggregated $35,405 and $35,106 for the six months ended June 30,
2005 and 2004, respectively. |
|
|
|
Non-cash investing and financing activities for the six months ended June 30, 2005 and 2004 were
as follows: |
|
|
|
In May 2005, the Company sold two apartment communities subject to $34,060 of mortgage
indebtedness assumed by the purchaser. This mortgage debt assumed by the purchaser was excluded
from the cash flow statement as a non-cash transaction (see note 4). |
|
|
|
During the six months ended June 30, 2005, the Companys derivative financial instruments (see
note 6) increased in value causing a decrease in accounts payable and accrued expenses and a
corresponding increase in shareholders equity of $1,828, net of minority interest. During the
six months ended June 30, 2004, the Companys derivative financial instruments increased in
value causing a decrease in accounts payable and accrued expenses and a corresponding increase
in shareholders equity of $3,683, net of minority interest. |
|
|
|
During the six months ended June 30, 2005 and 2004, holders of 166 and 1,107 units,
respectively, in the Operating Partnership exercised their option to convert their units to
shares of common stock of the Company on a one-for-one basis. These conversions and adjustments
for the impact of the common stock issued under the Companys employee stock purchase and stock
option plans and other capital transactions result in adjustments to minority interest. The net
effect of the conversions and adjustments was a reclassification decreasing minority interest
and increasing shareholders equity in the amounts of $3,230 and $19,404 for the six months
ended June 30, 2005 and 2004, respectively. |
|
|
|
The Operating Partnership committed to distribute $19,065 and $19,115 for the quarters ended
June 30, 2005 and 2004, respectively. As a result, the Company declared dividends of $18,015 and
$17,963 for the quarters ended June 30, 2005 and 2004, respectively. The remaining distributions
from the Operating Partnership in the amount of $1,050 and $1,152 for the quarters ended June
30, 2005 and 2004, respectively, were distributed to minority interest unitholders in the
Operating Partnership. |
|
|
|
In the three months ended June 30, 2005, a portion of the net proceeds from an apartment
community sale totaling $2,951 were held by a third party intermediary under a qualified tax
deferred exchange program. The $2,951 was included in other assets on the consolidated balance
sheet. This transaction was excluded from the statement of cash flows as a non-cash
transaction. |
|
|
|
In June 2004, the Company acquired an apartment community for cash and the assumption of
mortgage indebtedness with an estimated fair value of $49,694. Also, in June 2004, the Company
sold certain apartment communities subject to $104,325 of mortgage indebtedness assumed by the
purchasers. These transactions involving mortgage indebtedness were excluded from the statement
of cash flows as non-cash transactions (see note 4). |
-14-
POST
PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
10. |
|
STOCK-BASED COMPENSATION PLAN |
|
|
|
During the six months ended June 30, 2005, the Company granted approximately 31 shares of
restricted stock to Company officers and directors, of which approximately 6 shares were granted
to the Companys non-executive Chairman of the Board. No shares of restricted stock were
granted in the three months ended June 30, 2005. The restricted shares vest ratably over three
years. The total value of the restricted share grants of $1,098 for the six months ended June
30, 2005 was initially reflected in shareholders equity as additional paid in capital and as
deferred compensation, a contra shareholders equity account. Such deferred compensation is
amortized ratably into compensation expense over the three year vesting period. |
|
|
|
Additionally, in the six months ended June 30, 2005, the Company granted stock options to
purchase approximately 254 shares of Company common stock to Company officers and directors, of
which 50 stock options were granted to the Companys non-executive Chairman of the Board. No
stock options were granted in the three months ended June 30, 2005. As discussed in note 1, the
Company expenses the estimated fair value of stock options over their three year vesting
periods. |
|
11. |
|
INCOME TAXES |
|
|
|
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended (the Code). To qualify as a REIT, the Company must distribute annually at least 90%
of its adjusted taxable income, as defined in the Code, to its shareholders and satisfy certain
other organizational and operating requirements. It is managements current intention to adhere
to these requirements and maintain the Companys REIT status. As a REIT, the Company generally
will not be subject to federal income tax at the corporate level on the taxable income it
distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year,
it will be subject to federal income taxes at regular corporate rates (including any applicable
alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable
years. The Company may be subject to certain state and local taxes on its income and property,
and to federal income taxes and excise taxes on its undistributed taxable income. |
|
|
|
The Company utilizes taxable REIT subsidiaries to perform such non-REIT activities as asset and
property management, for-sale housing (condominiums) conversions and sales, leasing and
landscaping services for third parties. These taxable REIT subsidiaries are subject to federal,
state and local income taxes. For the six months ended June 30, 2005, the Company estimated it
will utilize approximately $5,000 of income tax net operating loss carry-forwards to offset its
federal taxable income generated by its taxable REIT subsidiaries (primarily as a result of
condominium sale gains). Through June 30, 2005, the Company estimated that its taxable REIT
subsidiaries will be subject to federal alternative minimum taxes and applicable state income
taxes and has recorded an income tax provision of approximately $383. At June 30, 2005, the
Companys taxable REIT subsidiaries had consolidated federal income tax net operating loss
carry-forwards totaling approximately $4,000. These tax loss carry-forwards begin to expire in
2019. At June 30, 2005, management had established a valuation allowance against the deferred
tax asset associated with these net operating loss carry-forwards due to the historical
operating losses of these subsidiaries. The tax benefits associated with such net operating
loss carry-forwards may be recognized in future periods, if the taxable REIT subsidiaries
generate sufficient taxable income to utilize such amounts or if the Company determines that it
is more likely than not that the related deferred tax assets are realizable. |
|
12. |
|
LEGAL PROCEEDINGS |
|
|
|
On May 13, 2004, an alleged Company shareholder filed a purported pro se derivative and direct
action in the Superior Court of Fulton County, Georgia, against the Company, certain members of
the Companys board of directors, and certain of its executive officers. The case was removed to
the United States District Court for the Northern District of Georgia on May 21, 2004. The
complaint alleged, among other things, breaches of fiduciary duties, fraud, corporate waste,
withholding certain documents from shareholder inspection and certain securities laws claims.
The complaint requested various types of relief, such as injunctive relief and damages and
demanded production of certain Company records. Because the Company believed the allegations
were wholly without merit, the Company moved to dismiss the litigation. On April 20, 2005, the
court entered an order dismissing all claims without prejudice, save a claim seeking production
of certain Company records, upon which the Court declined to rule, concluding it lacked
jurisdiction to do so, and ordered the claim remanded to the Superior Court of Fulton County.
Since that time, the Company has moved for their attorney fees in the United States District
Court, arguing that the plaintiff frivolously pursued the litigation, and the plaintiff has
moved for entry of judgment in Superior Court, which the Company has vigorously contested. |
-15-
POST
PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
|
|
On May 5, 2003, the Company received notice that a shareholder derivative and purported class
action lawsuit was filed against members of the board of directors of the Company and the
Company as a nominal defendant. This complaint was filed in the Superior Court of Fulton County,
Atlanta, Georgia on May 2, 2003 and alleged various breaches of fiduciary duties by the board of
directors of the Company and sought, among other relief, the disclosure of certain information
by the defendants. This complaint also sought to compel the defendants to undertake various
actions to facilitate a sale of the Company. On May 7, 2003, the plaintiff made a request for
voluntary expedited discovery. On May 13, 2003, the Company received notice that a similar
shareholder derivative and purported class action lawsuit was filed against certain members of
the board of directors of the Company and against the Company as a nominal defendant. The
complaint was filed in the Superior Court of Fulton County, Atlanta, Georgia on May 12, 2003 and
alleged breaches of fiduciary duties, abuse of control and corporate waste by the defendants.
The plaintiff sought monetary damages and, as appropriate, injunctive relief. These lawsuits
were settled, and in October 2004, the Superior Court of Fulton County entered an order
approving the settlement and related orders dismissing the litigation. The estimated legal and
settlement costs, not covered by insurance, associated with the expected resolution of the
lawsuits were recorded in the second quarter of 2003 as a component of a proxy contest and
related costs charge. An alleged Company shareholder, who had filed a separate purported
derivative and direct action against the Company and certain of its officers and directors
(which is described in the paragraph above), has appealed from the Superior Courts orders
approving the settlement, overruling the shareholders objection to the settlement denying the
shareholders motion to intervene, and dismissing the litigation with prejudice. The Company is
contesting the alleged shareholders appeal vigorously. |
|
|
|
The Company is involved in various other legal proceedings incidental to its business from time
to time, most of which are expected to be covered by liability or other insurance. Management of
the Company believes that any resolution of pending proceedings or liability to the Company
which may arise as a result of these proceedings will not have a material adverse effect on the
Companys results of operations or financial position. |
|
13. |
|
SALE OF TECHNOLOGY INVESTMENT |
|
|
|
In February 2005, the Company sold its investment in Rent.com, a privately-held internet leasing
company, and recognized a gain of $5,267. |
-16-
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
|
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Real estate assets
Land |
|
$ |
270,167 |
|
|
$ |
266,520 |
|
Building and improvements |
|
|
1,824,414 |
|
|
|
1,887,514 |
|
Furniture, fixtures and equipment |
|
|
208,348 |
|
|
|
214,954 |
|
Construction in progress |
|
|
34,291 |
|
|
|
19,527 |
|
Land held for future development |
|
|
51,972 |
|
|
|
18,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,389,192 |
|
|
|
2,407,425 |
|
Less: accumulated depreciation |
|
|
(489,812 |
) |
|
|
(498,367 |
) |
Assets held for sale, net of accumulated depreciation of $46,506 and
$26,332 at June 30, 2005 and December 31, 2004, respectively |
|
|
72,073 |
|
|
|
68,661 |
|
|
|
|
|
|
|
|
|
|
Total real estate assets |
|
|
1,971,453 |
|
|
|
1,977,719 |
|
Investments in and advances to unconsolidated entities |
|
|
34,441 |
|
|
|
21,320 |
|
Cash and cash equivalents |
|
|
4,169 |
|
|
|
123 |
|
Restricted cash |
|
|
4,321 |
|
|
|
1,844 |
|
Deferred charges, net |
|
|
13,462 |
|
|
|
15,574 |
|
Other assets |
|
|
41,855 |
|
|
|
37,262 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,069,701 |
|
|
$ |
2,053,842 |
|
|
|
|
|
|
|
|
|
|
Liabilities and partners equity |
|
|
|
|
|
|
|
|
Indebtedness, including $47,500 and $34,060 of debt secured by assets
held for sale at June 30, 2005 and December 31, 2004, respectively |
|
$ |
1,111,936 |
|
|
$ |
1,129,478 |
|
Accounts payable and accrued expenses |
|
|
74,407 |
|
|
|
58,837 |
|
Distribution payable |
|
|
19,065 |
|
|
|
19,203 |
|
Security deposits and prepaid rents |
|
|
9,905 |
|
|
|
7,236 |
|
Accrued interest payable |
|
|
6,008 |
|
|
|
7,677 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,221,321 |
|
|
|
1,222,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners equity |
|
|
|
|
|
|
|
|
Preferred units |
|
|
95,000 |
|
|
|
95,000 |
|
Common units |
|
|
|
|
|
|
|
|
General partner |
|
|
9,055 |
|
|
|
8,673 |
|
Limited partners |
|
|
752,587 |
|
|
|
737,940 |
|
Accumulated other comprehensive loss |
|
|
(8,262 |
) |
|
|
(10,202 |
) |
|
|
|
|
|
|
|
|
|
Total partners equity |
|
|
848,380 |
|
|
|
831,411 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners equity |
|
$ |
2,069,701 |
|
|
$ |
2,053,842 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-17-
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
68,744 |
|
|
$ |
65,827 |
|
|
$ |
136,471 |
|
|
$ |
130,779 |
|
Other property revenues |
|
|
4,316 |
|
|
|
3,986 |
|
|
|
8,098 |
|
|
|
7,646 |
|
Other |
|
|
61 |
|
|
|
47 |
|
|
|
132 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
73,121 |
|
|
|
69,860 |
|
|
|
144,701 |
|
|
|
138,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance (exclusive of items
shown separately below) |
|
|
32,973 |
|
|
|
30,621 |
|
|
|
65,766 |
|
|
|
61,093 |
|
Depreciation |
|
|
19,414 |
|
|
|
19,689 |
|
|
|
38,946 |
|
|
|
39,312 |
|
General and administrative |
|
|
5,433 |
|
|
|
5,476 |
|
|
|
10,728 |
|
|
|
10,119 |
|
Development costs and other |
|
|
740 |
|
|
|
381 |
|
|
|
1,837 |
|
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
58,560 |
|
|
|
56,167 |
|
|
|
117,277 |
|
|
|
111,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
14,561 |
|
|
|
13,693 |
|
|
|
27,424 |
|
|
|
27,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
189 |
|
|
|
213 |
|
|
|
354 |
|
|
|
393 |
|
Interest expense |
|
|
(15,206 |
) |
|
|
(15,942 |
) |
|
|
(30,885 |
) |
|
|
(31,362 |
) |
Amortization of deferred financing costs |
|
|
(1,029 |
) |
|
|
(1,092 |
) |
|
|
(2,717 |
) |
|
|
(2,208 |
) |
Equity in income of unconsolidated real estate entities |
|
|
553 |
|
|
|
207 |
|
|
|
701 |
|
|
|
422 |
|
Gain on sale of technology investment |
|
|
|
|
|
|
|
|
|
|
5,267 |
|
|
|
|
|
Minority interest in consolidated property partnerships |
|
|
64 |
|
|
|
248 |
|
|
|
178 |
|
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(868 |
) |
|
|
(2,673 |
) |
|
|
322 |
|
|
|
(5,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
1,621 |
|
|
|
4,408 |
|
|
|
4,918 |
|
|
|
10,062 |
|
Gains on sales of real estate assets, net of provision
for income taxes |
|
|
62,480 |
|
|
|
112,112 |
|
|
|
62,839 |
|
|
|
113,739 |
|
Loss on early extinguishment of indebtedness associated
with property sales |
|
|
(1,374 |
) |
|
|
(4,128 |
) |
|
|
(1,374 |
) |
|
|
(4,128 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
62,727 |
|
|
|
112,392 |
|
|
|
66,383 |
|
|
|
119,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
61,859 |
|
|
|
109,719 |
|
|
|
66,705 |
|
|
|
114,457 |
|
Distributions to preferred unitholders |
|
|
(1,909 |
) |
|
|
(3,309 |
) |
|
|
(3,819 |
) |
|
|
(7,307 |
) |
Redemption costs on preferred units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common unitholders |
|
$ |
59,950 |
|
|
$ |
106,410 |
|
|
$ |
62,886 |
|
|
$ |
105,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations (net of preferred
distributions and redemption costs) |
|
$ |
(0.07 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.34 |
) |
Income from discontinued operations |
|
|
1.48 |
|
|
|
2.64 |
|
|
|
1.56 |
|
|
|
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common unitholders |
|
$ |
1.42 |
|
|
$ |
2.50 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common units outstanding basic |
|
|
42,325 |
|
|
|
42,478 |
|
|
|
42,469 |
|
|
|
42,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations (net of preferred
distributions and redemption costs) |
|
$ |
(0.07 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.34 |
) |
Income from discontinued operations |
|
|
1.48 |
|
|
|
2.64 |
|
|
|
1.56 |
|
|
|
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common unitholders |
|
$ |
1.42 |
|
|
$ |
2.50 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common units outstanding diluted |
|
|
42,325 |
|
|
|
42,478 |
|
|
|
42,469 |
|
|
|
42,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared |
|
$ |
0.45 |
|
|
$ |
0.45 |
|
|
$ |
0.90 |
|
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-18-
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS EQUITY
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Common Units |
|
Other |
|
|
|
|
Preferred |
|
General |
|
Limited |
|
Comprehensive |
|
|
|
|
Units |
|
Partner |
|
Partners |
|
Income (Loss) |
|
Total |
Partners Equity, December 31, 2004 |
|
$ |
95,000 |
|
|
$ |
8,673 |
|
|
$ |
737,940 |
|
|
$ |
(10,202 |
) |
|
$ |
831,411 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
1,909 |
|
|
|
648 |
|
|
|
64,148 |
|
|
|
|
|
|
|
66,705 |
|
Net change in derivative value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,940 |
|
|
|
1,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,645 |
|
Contributions from the Company related
to employee stock purchase and stock
option plans |
|
|
|
|
|
|
106 |
|
|
|
10,511 |
|
|
|
|
|
|
|
10,617 |
|
Purchase of common units |
|
|
|
|
|
|
|
|
|
|
(21,283 |
) |
|
|
|
|
|
|
(21,283 |
) |
Stock-based compensation |
|
|
|
|
|
|
4 |
|
|
|
358 |
|
|
|
|
|
|
|
362 |
|
Distributions to preferred Unitholders |
|
|
(1,909 |
) |
|
|
|
|
|
|
(1,910 |
) |
|
|
|
|
|
|
(3,819 |
) |
Distributions to common Unitholders |
|
|
|
|
|
|
(382 |
) |
|
|
(37,806 |
) |
|
|
|
|
|
|
(38,188 |
) |
Contributions from the Company related
to shares issued for restricted stock,
net of deferred compensation |
|
|
|
|
|
|
6 |
|
|
|
629 |
|
|
|
|
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Equity, June 30, 2005 |
|
$ |
95,000 |
|
|
$ |
9,055 |
|
|
$ |
752,587 |
|
|
$ |
(8,262 |
) |
|
$ |
848,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-19-
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
66,705 |
|
|
$ |
114,457 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
38,946 |
|
|
|
42,365 |
|
Amortization of deferred financing costs |
|
|
2,717 |
|
|
|
2,208 |
|
Gains sales of real estate assets discontinued operations |
|
|
(62,839 |
) |
|
|
(113,739 |
) |
Asset impairment charge |
|
|
|
|
|
|
626 |
|
Gain on sale of technology investment |
|
|
(5,267 |
) |
|
|
|
|
Equity in income of unconsolidated entities, net of distributions of
accumulated earnings |
|
|
339 |
|
|
|
238 |
|
Equity-based compensation |
|
|
1,022 |
|
|
|
865 |
|
Loss on early extinguishment of debt |
|
|
1,374 |
|
|
|
4,128 |
|
Changes in assets, (increase) decrease in: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(2,477 |
) |
|
|
(20 |
) |
Other assets |
|
|
(436 |
) |
|
|
(1,835 |
) |
Deferred charges |
|
|
(327 |
) |
|
|
1,361 |
|
Changes in liabilities, increase (decrease) in: |
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
(1,669 |
) |
|
|
(34 |
) |
Accounts payable and accrued expenses |
|
|
9,891 |
|
|
|
8,446 |
|
Security deposits and prepaid rents |
|
|
2,669 |
|
|
|
(566 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
50,648 |
|
|
|
58,500 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Construction and acquisition of real estate assets, net of payables |
|
|
(86,911 |
) |
|
|
(37,663 |
) |
Net proceeds from sales of real estate assets |
|
|
93,398 |
|
|
|
138,637 |
|
Proceeds from sale of technology investment |
|
|
5,267 |
|
|
|
|
|
Recurring capital expenditures |
|
|
(4,822 |
) |
|
|
(5,193 |
) |
Non-recurring capital expenditures |
|
|
(2,029 |
) |
|
|
(2,546 |
) |
Revenue generating capital expenditures |
|
|
|
|
|
|
(26 |
) |
Corporate additions and improvements |
|
|
(978 |
) |
|
|
(287 |
) |
Distribution from (investments in and advances to) unconsolidated entities |
|
|
(13,541 |
) |
|
|
52,287 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(9,616 |
) |
|
|
(145,209 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Payments on notes payable |
|
|
(189,267 |
) |
|
|
(14,354 |
) |
Proceeds from notes payable |
|
|
100,000 |
|
|
|
35,000 |
|
Payments of financing costs |
|
|
(976 |
) |
|
|
(4,262 |
) |
Lines of credit proceeds (repayments), net |
|
|
105,785 |
|
|
|
(72,010 |
) |
Redemption of preferred units |
|
|
|
|
|
|
(50,000 |
) |
Redemption of common units |
|
|
(21,283 |
) |
|
|
|
|
Contributions from the Company related to employee stock purchase
and stock option plans |
|
|
10,617 |
|
|
|
2,845 |
|
Capital
contributions (distributions) of minority interests |
|
|
283 |
|
|
|
(1,506 |
) |
Distributions to preferred unitholders |
|
|
(3,819 |
) |
|
|
(7,307 |
) |
Distributions to common unitholders |
|
|
(38,326 |
) |
|
|
(38,158 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(36,986 |
) |
|
|
(149,752 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
4,046 |
|
|
|
53,957 |
|
Cash and cash equivalents, beginning of period |
|
|
123 |
|
|
|
1,334 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
4,169 |
|
|
$ |
55,291 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-20-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
1. |
|
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Organization
Post Apartment Homes, L.P. (the Operating Partnership), a Georgia limited partnership, and its
subsidiaries develop, own and manage upscale multi-family apartment communities in selected
markets in the United States. Post Properties, Inc. (the Company) through its wholly owned
subsidiaries is the sole general partner, a limited partner and owns a majority interest in the
Operating Partnership. The Operating Partnership, through its operating divisions and
subsidiaries, conducts substantially all of the on-going operations of Post Properties, Inc., a
publicly traded company which operates as a self-administered and self-managed real estate
investment trust.
At June 30, 2005, the Company owned 94.5% of the common limited partnership interests (Common
Units) in the Operating Partnership and 100.0% of the preferred limited partnership interests
(Preferred Units). The Companys weighted average common ownership interest in the Operating
Partnership was 94.3% and 93.7% for the three months ended and 94.3% and 93.2% for the six
months ended June 30, 2005 and 2004, respectively. At June 30, 2005, Common Units held by
persons other than the Company represented a 5.5% ownership interest in the Operating
Partnership. Each Common Unit may be redeemed by the holder thereof for either one share of
Company common stock or cash equal to the fair market value thereof at the time of such
redemptions, at the option of the Operating Partnership. The Operating Partnership presently
anticipates that it will cause shares of common stock to be issued in connection with each such
redemption rather than paying cash (as has been done in all redemptions to date). With each
redemption of outstanding Common Units for Company common stock, the Companys percentage
ownership interest in the Operating Partnership will increase. In addition, whenever the Company
issues shares of common stock, the Company will contribute any net proceeds therefrom to the
Operating Partnership and the Operating Partnership will issue an equivalent number of Common
Units to the Company.
At June 30, 2005, the Operating Partnership owned 23,533 apartment units in 59 apartment
communities, including 545 apartment units in two apartment communities held in unconsolidated
entities and including 205 apartment units currently under development in on community. The
Operating Partnership is also developing 145 for-sale condominium units and is converting 382
apartment units in three communities (including one in an unconsolidated entity) into for-sale
condominium units through a taxable REIT subsidiary. At June 30, 2005, approximately 50.1%,
16.9%, 9.0% and 8.5% (on a unit basis) of the Operating Partnerships communities were located
in the Atlanta, Dallas, Tampa and greater Washington, D.C. metropolitan areas, respectively.
Under the provisions of the limited partnership agreement, as amended, Operating Partnership net
profits, net losses and cash flow (after allocations to preferred ownership interests) are
allocated to the partners in proportion to their common ownership interests. Cash distributions
from the Operating Partnership shall be, at a minimum, sufficient to enable the Company to
satisfy its annual dividend requirements to maintain its REIT status under the Code.
Basis of Presentation
The accompanying unaudited financial statements have been prepared by the Operating
Partnerships 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 disclosures 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
and six month period ended June 30, 2005 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 Operating Partnerships audited financial statements and notes thereto included in its
Annual Report on Form 10-K for the year ended December 31, 2004. Certain 2004 amounts have been
reclassified to conform to the current years financial statement presentation.
Revenue Recognition
Sales and the associated gains or losses of real estate assets and for-sale condominiums are
recognized in accordance with the provisions of SFAS No. 66, Accounting for Sales of Real
Estate. For condominium conversion projects, sales and the associated gains for individual
condominium units are recognized upon the closing of the sale transactions, as all conditions
for full profit recognition have been met. In accordance with SFAS No. 144, Accounting for the
Impairment and Disposal of Long-Lived Assets, gains on sales of condominium units at
condominium conversion projects are included in discontinued operations.
-21-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
Equity-based Compensation
Effective January 1, 2003, the Operating Partnership accounts for stock-based compensation under
the fair value method prescribed by SFAS No. 123, Accounting for Stock-Based Compensation. In
adopting SFAS No. 123, the Operating Partnership used the prospective method prescribed in SFAS
No. 148, Accounting for Stock-Based Compensation Transition and Disclosure.
The following table reflects the effect on the Operating Partnerships net income and earnings
per common unit had the fair value method of accounting under SFAS No. 123 been applied to all
stock awards for each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net income available to common unitholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
59,950 |
|
|
$ |
106,410 |
|
|
$ |
62,886 |
|
|
$ |
105,434 |
|
Stock-based compensation included in net income as reported |
|
|
558 |
|
|
|
449 |
|
|
|
1,022 |
|
|
|
865 |
|
Stock-based compensation determined under the fair value
method for all awards |
|
|
(564 |
) |
|
|
(463 |
) |
|
|
(1,027 |
) |
|
|
(901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
59,944 |
|
|
$ |
106,396 |
|
|
$ |
62,881 |
|
|
$ |
105,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common unit basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.42 |
|
|
$ |
2.50 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
Pro forma |
|
$ |
1.42 |
|
|
$ |
2.50 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common unit diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.42 |
|
|
$ |
2.50 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
Pro forma |
|
$ |
1.42 |
|
|
$ |
2.50 |
|
|
$ |
1.48 |
|
|
$ |
2.48 |
|
SFAS No. 123R, Share-Based Payment, was issued in December 2004. SFAS No. 123R revises
SFAS No. 123, Accounting for Stock-Based Compensation and requires companies to expense the
fair value of employee stock options and other forms of stock-based compensation. SFAS No. 123R
also supersedes the provisions of APB No. 25. The provisions of SFAS No. 123R will be effective
for the Operating Partnership as of January 1, 2006. The Operating Partnership plans to adopt
the provisions of SFAS No. 123R in the first quarter of 2006 and is currently evaluating the
alternative methods of adoption. Since the Operating Partnership elected to apply the
provisions of SFAS No. 123 on January 1, 2003, the adoption of SFAS No. 123R is not expected to
have a significant impact on the Operating Partnerships financial position or results of
operations.
Long-term Ground Leases
The Operating Partnership is party to six long-term ground leases associated with land
underlying certain of the Operating Partnerships operating communities. The ground leases
generally provide for future increases in minimum lease payments tied to an inflation index or
contain stated rent increases that generally compensate for the impact of inflation. Beginning
in 2005, the Operating Partnership recognizes ground lease expense on the straight-line method
over the life of the ground lease for all ground leases with stated rent increases. The
recognition of ground lease expense as incurred has historically not been materially different
than recognizing ground lease expense on a straight-line basis.
-22-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
At June 30, 2005 and December 31, 2004, the Operating Partnerships indebtedness consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment |
|
|
|
|
|
|
|
|
|
Maturity |
|
June 30, |
|
December 31, |
Description |
|
Terms |
|
Interest Rate |
|
|
|
|
|
Date |
|
2005 |
|
2004 |
Unsecured Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes |
|
Int. |
|
|
5.125% - 7.70 |
% |
|
|
|
|
|
|
2006-2012 |
|
|
$ |
485,000 |
|
|
$ |
385,000 |
|
Medium Term Notes |
|
Int. |
|
|
6.78 |
% |
|
|
|
|
|
|
2005 |
|
|
|
25,000 |
|
|
|
212,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510,000 |
|
|
|
597,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Lines of Credit & Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated Line of Credit |
|
|
N/A |
|
|
LIBOR + 0.75 |
% |
(1) |
|
|
|
|
|
2007 |
|
|
|
147,000 |
|
|
|
40,000 |
|
Cash Management Line |
|
|
N/A |
|
|
LIBOR + 0.75 |
% |
|
|
|
|
|
|
2007 |
|
|
|
9,533 |
|
|
|
10,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,533 |
|
|
|
50,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional Fixed Rate (Secured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA |
|
Prin. and Int. |
|
|
6.975 |
% |
(2) |
|
|
|
|
|
2029 |
|
|
|
98,500 |
|
|
|
98,500 |
|
Other |
|
Prin. and Int. |
|
|
4.27% - 7.69 |
% |
|
|
|
|
|
|
2007-2013 |
|
|
|
270,908 |
|
|
|
273,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
369,408 |
|
|
|
371,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-Exempt Floating Rate
Bonds (Secured) |
|
Int. |
|
|
2.29 |
% |
(3) |
|
|
|
|
|
2025 |
|
|
|
75,995 |
|
|
|
110,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,111,936 |
|
|
$ |
1,129,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents stated rate. At June 30, 2005, the weighted average interest rate was
3.82%. |
|
(2) |
|
Interest rate is fixed at 6.975%, inclusive of credit enhancement and other fees, to
2009 through an interest rate swap arrangement. |
|
(3) |
|
FNMA credit enhanced bond indebtedness. Interest based on FNMA AAA tax-exempt rate
plus credit enhancement and other fees of 0.639%. Interest rate represents the rate at
June 30, 2005 before credit enhancements. The Operating Partnership has outstanding
interest rate cap arrangements that limit the Operating Partnerships exposure to
increases in the base interest rate to 5%. At June 30, 2005 and December 31, 2004,
approximately $47,500 and $34,060, respectively, of this debt was secured by assets held
for sale. In June 2005, the Operating Partnership executed an amendment to its master
reimbursement agreement with FNMA, which agreement, among other things, sets forth the
Operating Partnerships payment obligations under its variable-rate, tax-exempt bond
indebtedness. The amendment defers the commencement of principal repayments under the
bonds by five years from the originally scheduled commencement date. The original
maturity date for the bonds remains unchanged and the amortization schedule of the bonds
was changed commensurate with the five-year deferral of the start of principal
amortization. |
Debt maturities
The aggregate maturities of the Operating Partnerships indebtedness are as follows:
|
|
|
|
|
Remainder of 2005 |
|
$ |
28,652 |
|
2006 |
|
|
81,269 |
|
2007 |
|
|
314,726 |
(1) |
2008 |
|
|
4,557 |
|
2009 |
|
|
75,901 |
|
Thereafter |
|
|
606,831 |
|
|
|
|
|
|
|
|
$ |
1,111,936 |
|
|
|
|
|
|
|
|
|
(1) |
|
Includes outstanding balances on lines of credit
totaling $156,533. |
Debt issuances and retirements
Upon their maturity in February 2005, the Operating Partnership repaid $25,000 of its 7.28%
medium term, unsecured notes, from available borrowings under its unsecured lines of credit. In
March 2005, the Operating Partnership repaid the $100,000 outstanding principal balance under
its 6.85% Mandatory Par Put Remarketed Securities (MOPPRS) debt arrangement from available
borrowings under its unsecured lines of credit.
In May 2005, the Operating Partnership issued $100,000 of senior unsecured notes. The notes
bear interest at 5.45% and mature in June 2012. The net proceeds from the unsecured notes were
used to reduce amounts outstanding under the Operating Partnerships unsecured lines of credit.
Upon their maturity in June 2005, the Operating Partnership repaid $62,043 of its 8.125% medium
term, unsecured notes, from available borrowings under its unsecured lines of credit.
In May 2005, the Operating Partnership sold two apartment communities subject to the assumption
of $34,060 of tax-exempt mortgage indebtedness (see note 4). As a result of this debt
assumption, the Operating Partnership recorded a loss on early extinguishment of debt of $1,374
related to the write-off of deferred loan costs of $966 relating to such assumed indebtedness
and the realization of a $408 loss in connection with the termination of related interest rate
cap agreements that were used as cash flow hedges of the assumed debt.
-23-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
Unsecured Lines of Credit
The Operating Partnership utilizes a $350,000 syndicated unsecured revolving line of credit (the
Revolver) that matures in January 2007 for its short-term financing needs. The Revolver has a
current stated interest rate of LIBOR plus 0.75% or the prime rate and was provided by a
syndicate of nine banks led by Wachovia Bank, N.A. Additionally, the Revolver requires the
payment of annual facility fees currently equal to 0.15% of the aggregate loan commitment. The
Revolver provides for the interest rate and facility fee rate to be adjusted up or down based on
changes in the credit ratings on the Operating Partnerships senior unsecured debt. The rates
under the Revolver are based on the higher of the Operating Partnerships unsecured debt ratings
in instances where the Operating Partnership has split unsecured debt ratings. The Revolver
also includes a money market competitive bid option for short-term funds up to $175,000 at rates
generally below the stated line rate. The credit agreement for the Revolver contains customary
representations, covenants and events of default, including fixed charge coverage and maximum
leverage ratios as well as covenants which restrict the ability of the Operating Partnership to
make distributions, in excess of stated amounts, which in turn restrict 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 Partnerships consolidated income
available for distribution (as defined in the credit agreement) exclusive of distributions of up
to $15,000 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 Operating Partnership does not anticipate that
these ratios and covenants will adversely affect the ability of the Operating Partnership to
borrow money or make distributions, or the Company to declare dividends, at the Companys
current dividend level. At June 30, 2005, the Operating Partnership had issued letters of
credit to third parties totaling $2,778 under this facility.
Additionally, the Operating Partnership has a $20,000 unsecured line of credit with Wachovia
Bank, N.A. (the Cash Management Line). The Cash Management line matures in January 2007 and
carries pricing and terms, including debt covenants, substantially consistent with those of the
Revolver.
3. |
|
INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES |
At June 30, 2005, the Operating Partnership held investments in three individual limited
liability companies (the Property LLCs) with an institutional investor. Each Property LLC
owns a single apartment community. In March 2005, one of the Property LLCs elected to convert
its apartment community into for-sale condominiums. The Operating Partnership holds a 35%
equity interest in the Property LLCs.
The Operating Partnership accounts for its investments in these Property LLCs using the equity
method of accounting. The excess of the Operating Partnerships investment over its equity in
the underlying net assets of the Property LLCs was approximately $6,404 at June 30, 2005. This
excess investment related to the two Property LLCs holding apartment communities is being
amortized as a reduction to earnings on a straight-line basis over the lives of the related
assets. The excess investment of $844 at June 30, 2005 related to the Property LLC holding the
condominium conversion community will be recognized as additional cost of sales as the
underlying condominiums are sold. The Operating Partnership provides real estate services
(development, construction and property management) to the Property LLCs for which it earns
fees.
The operating results of the Operating Partnership include its share of net income from the
investments in the Property LLCs. A summary of financial information for the Property LLCs in
the aggregate is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
Balance Sheet Data |
|
2005 |
|
2004 |
Real estate assets, net of accumulated depreciation of
$7,067 and $9,712, respectively |
|
$ |
97,225 |
|
|
$ |
124,072 |
|
Assets held for sale, net (1) |
|
|
23,889 |
|
|
|
|
|
Cash and other |
|
|
2,182 |
|
|
|
2,797 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
123,296 |
|
|
$ |
126,869 |
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable |
|
$ |
66,999 |
|
|
$ |
83,468 |
|
Mortgage notes payable to Operating Partnership |
|
|
13,661 |
|
|
|
|
|
Other liabilities |
|
|
1,606 |
|
|
|
1,296 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
82,266 |
|
|
|
84,764 |
|
Members equity |
|
|
41,030 |
|
|
|
42,105 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
123,296 |
|
|
$ |
126,869 |
|
|
|
|
|
|
|
|
|
|
Operating Partnerships equity investment |
|
$ |
20,780 |
|
|
$ |
21,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes one community, originally containing 121
units, being converted into condominiums through a taxable
REIT subsidiary. |
-24-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
Income Statement Data |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
2,721 |
|
|
$ |
2,614 |
|
|
$ |
5,361 |
|
|
$ |
5,178 |
|
Other property revenues |
|
|
230 |
|
|
|
211 |
|
|
|
415 |
|
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,951 |
|
|
|
2,825 |
|
|
|
5,776 |
|
|
|
5,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance |
|
|
889 |
|
|
|
933 |
|
|
|
1,799 |
|
|
|
1,836 |
|
Depreciation and amortization |
|
|
655 |
|
|
|
648 |
|
|
|
1,308 |
|
|
|
1,278 |
|
Interest |
|
|
688 |
|
|
|
688 |
|
|
|
1,376 |
|
|
|
1,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
2,232 |
|
|
|
2,269 |
|
|
|
4,483 |
|
|
|
4,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
719 |
|
|
|
556 |
|
|
|
1,293 |
|
|
|
1,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
16 |
|
|
|
(67 |
) |
|
|
(96 |
) |
|
|
(164 |
) |
Gains on sales of real estate assets |
|
|
860 |
|
|
|
|
|
|
|
855 |
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
876 |
|
|
|
(67 |
) |
|
|
486 |
|
|
|
(164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,595 |
|
|
$ |
489 |
|
|
$ |
1,779 |
|
|
$ |
1,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnerships share of net income |
|
$ |
553 |
|
|
$ |
207 |
|
|
$ |
701 |
|
|
$ |
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2005, gains on sales of real estate assets
represent net gains of $860 and $855, respectively, from condominium sales at the condominium
conversion community held by one of the Property LLCs. A summary of revenues and costs and
expenses of condominium activities for the three and six months ended June 30, 2005 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Six months |
|
|
ended |
|
ended |
|
|
June 30, 2005 |
|
June 30, 2005 |
Condominium revenues, net |
|
$ |
4,183 |
|
|
$ |
4,183 |
|
Condominium costs and expenses |
|
|
(3,323 |
) |
|
|
(3,328 |
) |
|
|
|
|
|
|
|
|
|
Gains on condominium sales |
|
$ |
860 |
|
|
$ |
855 |
|
|
|
|
|
|
|
|
|
|
At June 30, 2005, mortgage notes payable include a $50,000 mortgage note that bears
interest at 4.13%, requires monthly interest payments and annual principal payment of $1 through
2009. Thereafter, the note requires monthly principal and interest payments based on a 25-year
amortization schedule and matures in April 2034. The note is callable by the lender in May 2009
and on each successive fifth year anniversary of the note thereafter. The note is pre-payable
without penalty in May 2008. The additional mortgage note payable totaling $17,000 bears
interest at a rate of 4.04% and matures in 2008.
In March 2005, one of the Property LLCs elected to convert its apartment community into for-sale
condominiums. As a result of its decision to sell the community through the condominium
conversion process, the Property LLC prepaid its third party mortgage note payable of $16,392
through secured borrowings from the Operating Partnership. The Property LLC incurred debt
prepayment costs and expenses associated with the write-off of unamortized deferred financing
costs totaling $273 in March 2005. The mortgage note payable to the Operating Partnership has a
fixed rate component ($16,392) bearing interest at 4.28% and a variable rate component bearing
interest at LIBOR plus 1.90%. This note is repayable from the proceeds of condominium sales and
matures in February 2008.
4. |
|
REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITY |
Acquisition Activity
In June 2005, the Operating Partnership acquired a 319-unit apartment community located in
suburban Charlotte, NC for approximately $38,240, including closing costs and the reimbursement
of a fee to terminate a loan commitment paid for by the seller. Additionally, the Operating
Partnership plans to spend up to approximately $1,100 to improve the community. The purchase
price of this community was preliminarily allocated to the assets acquired based on their
estimated fair values.
Disposition Activity
The Operating Partnership classifies real estate assets as held for sale after the approval of
its investment committee and after the Operating Partnership has commenced an active program to
sell the assets. At June 30, 2005, the Operating Partnership had one apartment community,
containing 1,738 units, and certain tracts of land classified as held for sale. In addition,
the Operating Partnership had two communities, originally containing 261 units, held for sale at
June 30, 2005 that are being converted into
-25-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
condominiums and sold. These real estate assets are
reflected in the accompanying consolidated balance sheet at $72,073, which represents the lower
of their depreciated cost or fair value less costs to sell. The
Operating Partnership sold the one apartment community held for sale
containing 1,738 units in the third quarter of 2005 for a total gross
purchase price of approximately $132,500, including the assumption by
the purchaser of approximately $47,500 of tax-exempt secured
indebtedness.
Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the
operating results of real estate assets designated as held for sale are included in discontinued
operations in the consolidated statement of operations for all periods presented. Additionally,
gains or losses on the sale of these assets are included in discontinued operations. For the
three and six months ended June 30, 2005, income from discontinued operations included the
results of operations of one community, containing 1,738 units, classified as held for sale at
June 30, 2005 and results of operations of five apartment communities sold in 2005 through their
sale dates. Additionally, discontinued operations included the operating results and gains on
sales of real estate of two communities, originally containing 261 units, held for sale at June
30, 2005 that are being converted into condominiums and sold. For the three and six months
ended June 30, 2004, income from discontinued operations included the results of operations of
the communities classified as held for sale at June 30, 2005, five apartment communities sold in
2005 and eight apartment communities sold in 2004 through the earlier of June 30, 2004 or their
sale dates.
The revenues and expenses of these communities for the three and six months ended June 30, 2005
and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
4,855 |
|
|
$ |
13,199 |
|
|
$ |
11,839 |
|
|
$ |
27,504 |
|
Other property revenues |
|
|
426 |
|
|
|
1,186 |
|
|
|
1,057 |
|
|
|
2,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
5,281 |
|
|
|
14,335 |
|
|
|
12,896 |
|
|
|
29,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
(exclusive of items shown separately below) |
|
|
2,828 |
|
|
|
6,365 |
|
|
|
6,088 |
|
|
|
12,972 |
|
Depreciation |
|
|
|
|
|
|
1,488 |
|
|
|
|
|
|
|
3,053 |
|
Interest |
|
|
832 |
|
|
|
1,553 |
|
|
|
1,876 |
|
|
|
3,337 |
|
Minority interest in consolidated property partnerships |
|
|
|
|
|
|
(55 |
) |
|
|
14 |
|
|
|
(144 |
) |
Asset impairment charge |
|
|
|
|
|
|
626 |
|
|
|
|
|
|
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
3,660 |
|
|
|
9,977 |
|
|
|
7,978 |
|
|
|
19,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
1,621 |
|
|
$ |
4,408 |
|
|
$ |
4,918 |
|
|
$ |
10,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2005, the Operating Partnership recognized net
gains in discontinued operations of $49,710 from the sale of five communities, containing 1,309
units. The sales generated net proceeds of approximately $97,900, including $34,060 of
tax-exempt secured debt assumed by the purchasers.
In addition, for the three and six months ended June 30, 2005, gains on sales of real estate
assets included the net gains of $13,153 ($12,770 net of provision for income taxes) and $13,512
($13,129 net of provision for income taxes), respectively, from condominium sales at the
Operating Partnerships condominium conversion communities. A summary of revenues and costs and
expenses of condominium activities for the three and six months ended June 30, 2005 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Six months |
|
|
ended |
|
ended |
|
|
June 30, 2005 |
|
June 30, 2005 |
Condominium revenues, net |
|
$ |
32,074 |
|
|
$ |
35,370 |
|
Condominium costs and expenses |
|
|
(18,921 |
) |
|
|
(21,858 |
) |
|
|
|
|
|
|
|
|
|
Gains on condominium sales, before provision
for income taxes |
|
|
13,153 |
|
|
|
13,512 |
|
Provision for income taxes |
|
|
(383 |
) |
|
|
(383 |
) |
|
|
|
|
|
|
|
|
|
Gains on condominium sales, net of provision
for income taxes |
|
$ |
12,770 |
|
|
$ |
13,129 |
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2004, the Operating Partnership recognized net gains
from discontinued operations of $112,112 from the sale of seven communities containing 3,482
units. These sales generated net proceeds of approximately $218,982, including $104,325 of
tax-exempt secured indebtedness assumed by the purchasers. For the six months ended June 30,
2004, the Operating Partnership recognized net gains from discontinued operations of $113,739
from the sale of eight communities containing 3,880 units and certain land parcels. Theses
sales generated net proceeds of approximately $242,962, including debt assumed by the purchasers
of $104,325.
-26-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited,
in thousands, except per share or unit and apartment unit data)
Common Unit Purchases
In the three and six months ended June 30, 2005, the Company repurchased approximately 375 and
661 shares, respectively, of its common stock at an aggregate cost of $12,237 and $21,283,
respectively, under a 10b5-1 stock purchase plans, the latest of which will expire on August 31,
2005. These shares were purchased under a board of directors approved plan which provides for
aggregate common or preferred stock repurchases of up to $200,000 through December 31, 2006.
Correspondingly, the Operating Partnership repurchased the same number of common units at an
aggregate cost of $12,237 and $21,283, respectively.
Computations of Earnings Per Common Unit
For the three and six months ended June 30, 2005 and 2004, a reconciliation of the numerator and
denominator used in the computation of basic and diluted income from continuing operations per
common unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Income (loss) from continuing operations available
to common unitholders (numerator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(868 |
) |
|
$ |
(2,673 |
) |
|
$ |
322 |
|
|
$ |
(5,216 |
) |
Less: Preferred unit distributions |
|
|
(1,909 |
) |
|
|
(3,309 |
) |
|
|
(3,819 |
) |
|
|
(7,307 |
) |
Less: Preferred unit redemption costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations available to
common unitholders |
|
$ |
(1,041 |
) |
|
$ |
(5,982 |
) |
|
$ |
(3,497 |
) |
|
|
(14,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units (denominator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding basic |
|
|
42,325 |
|
|
|
42,478 |
|
|
|
42,469 |
|
|
|
42,469 |
|
Incremental units from assumed conversion of
stock options (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding diluted (1) |
|
|
42,325 |
|
|
|
42,478 |
|
|
|
42,469 |
|
|
|
42,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The potential dilution from the Companys outstanding stock options of 250 and 46
shares, respectively, for the three months ended June 30, 2005 and 2004, and 236 and 51
shares, respectively, for the six months ended June 30, 2005 and 2004, were antidilutive
to the loss from continuing operations per share calculation. As such, the amounts were
excluded from weighted average shares for the period. |
6. |
|
DERIVATIVE FINANCIAL INSTRUMENTS |
At June 30, 2005, the Operating Partnership had an outstanding interest rate swap agreement with
a notional value of approximately $98,500 with a maturity date in 2009. The interest rate swap
agreement is included on the accompanying consolidated balance sheet at fair value. The
Operating Partnership records the changes in the fair value of this cash flow hedge as a change
in accumulated other comprehensive income (loss), a partners equity account, in the
accompanying consolidated balance sheet.
At June 30, 2005, the Operating Partnership had an outstanding interest rate cap agreement with
a financial institution with a notional value of $75,995. This interest rate cap agreement is a
cash flow hedge that provides a fixed interest ceiling at 5% for the Operating Partnerships
variable rate, tax-exempt borrowings aggregating $75,995 at June 30, 2005. The Operating
Partnership is required to maintain the interest rate exposure protection under the terms of the
financing arrangements. The interest rate cap arrangements are included on the accompanying
balance sheet at fair value. At June 30, 2005, the difference between the amortized costs of
the interest rate cap arrangements and their fair value of $27 is included in accumulated other
comprehensive income (loss), a partners equity account. The original cost of $967 of the
arrangements is being amortized as additional expense over their five-year term.
In May 2005, in connection with the sale of two communities discussed in note 4 above, the
Operating Partnership sold its interest in interest rate cap agreements with a notional value of
$34,060 for aggregate proceeds of $10 and realized a loss of $408 that was included in the loss
on early extinguishment of indebtedness on the accompanying statement of operations. The
unrealized loss on these interest rate cap agreements was previously reflected in accumulated
other comprehensive income, a partners equity account. These interest rate cap agreements were
sold as the underlying hedged indebtedness was assumed by the purchaser in connection with the
sale of the related assets.
-27-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
A summary of comprehensive income for the three months ended June 30, 2005 and 2004 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net income |
|
$ |
61,859 |
|
|
$ |
109,719 |
|
|
$ |
66,705 |
|
|
$ |
114,457 |
|
Change in derivative values |
|
|
(888 |
) |
|
|
6,202 |
|
|
|
1,940 |
|
|
|
3,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
60,971 |
|
|
$ |
115,921 |
|
|
$ |
68,645 |
|
|
$ |
118,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Description
In accordance with SFAS No. 131, Disclosure About the Segments of an Enterprise and Related
Information, the Operating Partnership presents segment information based on the way that
management organizes the segments within the enterprise for making operating decisions and
assessing performance. The segment information is prepared on substantially the same basis as
the internally reported information used by the Operating Partnerships chief operating decision
makers to manage the business.
The Operating Partnerships chief operating decision makers focus on the Operating Partnerships
primary sources of income from apartment community rental operations. Apartment community
rental operations are broken down into four segments based on the various stages in the
apartment community ownership lifecycle. These segments are described below. All commercial
properties and other ancillary service and support operations are aggregated in the line item
other in the accompanying segment information. The segment information presented below
reflects the segment categories based on the lifecycle status of each community as of January 1,
2004. The segment information for the three and six months ended June 30, 2004 has been
adjusted due to the restatement impact of reclassifying the operating results of the assets
designated as held for sale in 2004 and 2005 to discontinued operations under SFAS No. 144 (see
note 4).
|
|
|
Fully stabilized communities those apartment communities which have been stabilized
(the earlier of the point at which a property reaches 95% occupancy or one year after
completion of construction) for both the current and prior year. |
|
|
|
|
Communities stabilized during 2004 communities which reached stabilized occupancy in
the prior year. |
|
|
|
|
Development and lease-up communities those communities that are in lease-up but were
not stabilized by the beginning of the current year, including communities that stabilized
during the current year. The Operating Partnership has no communities in the development
or lease-up stage for the periods presented. |
|
|
|
|
Acquired communities those communities acquired in the current or prior year. |
Segment Performance Measure
Management uses contribution to consolidated property net operating income (NOI) as the
performance measure for its operating segments. The Operating Partnership uses net operating
income, including net operating income of stabilized communities, as an operating measure. Net
operating income is defined as rental and other property revenue from real estate operations
less total property and maintenance expenses from real estate operations (excluding depreciation
and amortization). The Operating Partnership believes that net operating income is an important
supplemental measure of operating performance for a REITs operating real estate because it
provides a measure of the core operations, rather than factoring in depreciation and
amortization, financing costs and general and administrative expenses generally incurred at the
corporate level. This measure is particularly useful, in the opinion of the Operating
Partnership, in evaluating the performance of geographic operations, operating segment groupings
and individual properties. Additionally, the Operating Partnership believes that net operating
income, as defined, is a widely accepted measure of comparative operating performance in the
real estate investment community. The Operating Partnership believes that the line on the
Operating Partnerships consolidated statement of operations entitled net income is the most
directly comparable GAAP measure to net operating income.
-28-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
Segment Information
The following table reflects each segments contribution to consolidated revenues and property
NOI together with a reconciliation of segment contribution to property NOI to net income.
Additionally, substantially all of the Operating Partnerships assets relate to the Operating
Partnerships property rental operations. Asset cost, depreciation and amortization by segment
are not presented because such information at the segment level is not reported internally.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities |
|
$ |
63,515 |
|
|
$ |
62,319 |
|
|
$ |
125,928 |
|
|
$ |
124,182 |
|
Communities stabilized during 2004 |
|
|
1,761 |
|
|
|
1,822 |
|
|
|
3,521 |
|
|
|
3,588 |
|
Acquired communities |
|
|
2,415 |
|
|
|
206 |
|
|
|
4,499 |
|
|
|
206 |
|
Other property segments |
|
|
5,369 |
|
|
|
5,416 |
|
|
|
10,621 |
|
|
|
10,449 |
|
Other |
|
|
61 |
|
|
|
47 |
|
|
|
132 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
73,121 |
|
|
$ |
69,860 |
|
|
$ |
144,701 |
|
|
$ |
138,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to NOI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities |
|
$ |
38,788 |
|
|
$ |
38,101 |
|
|
$ |
76,358 |
|
|
$ |
76,004 |
|
Communities stabilized during 2004 |
|
|
1,197 |
|
|
|
1,367 |
|
|
|
2,408 |
|
|
|
2,608 |
|
Acquired communities |
|
|
1,696 |
|
|
|
149 |
|
|
|
3,031 |
|
|
|
149 |
|
Other |
|
|
(1,594 |
) |
|
|
(425 |
) |
|
|
(2,994 |
) |
|
|
(1,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated property net operating income |
|
|
40,087 |
|
|
|
39,192 |
|
|
|
78,803 |
|
|
|
77,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
189 |
|
|
|
213 |
|
|
|
354 |
|
|
|
393 |
|
Other revenue |
|
|
61 |
|
|
|
47 |
|
|
|
132 |
|
|
|
122 |
|
Minority interest in consolidated property partnerships |
|
|
64 |
|
|
|
248 |
|
|
|
178 |
|
|
|
432 |
|
Depreciation |
|
|
(19,414 |
) |
|
|
(19,689 |
) |
|
|
(38,946 |
) |
|
|
(39,312 |
) |
Interest expense |
|
|
(15,206 |
) |
|
|
(15,942 |
) |
|
|
(30,885 |
) |
|
|
(31,362 |
) |
Amortization of deferred financing costs |
|
|
(1,029 |
) |
|
|
(1,092 |
) |
|
|
(2,717 |
) |
|
|
(2,208 |
) |
General and administrative |
|
|
(5,433 |
) |
|
|
(5,476 |
) |
|
|
(10,728 |
) |
|
|
(10,119 |
) |
Development costs and other |
|
|
(740 |
) |
|
|
(381 |
) |
|
|
(1,837 |
) |
|
|
(916 |
) |
Equity in income of unconsolidated real estate entities |
|
|
553 |
|
|
|
207 |
|
|
|
701 |
|
|
|
422 |
|
Gain on sale of technology investment |
|
|
|
|
|
|
|
|
|
|
5,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(868 |
) |
|
|
(2,673 |
) |
|
|
322 |
|
|
|
(5,216 |
) |
Income from discontinued operations |
|
|
62,727 |
|
|
|
112,392 |
|
|
|
66,383 |
|
|
|
119,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
61,859 |
|
|
$ |
109,719 |
|
|
$ |
66,705 |
|
|
$ |
114,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 29 -
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
8. SEVERANCE COSTS
In prior years, the Operating Partnership recorded severance charges associated with the
departure of certain executive officers of the Operating Partnership. Under certain of these
arrangements, the Operating Partnership is required to make certain payments and provide
specified benefits through 2013 and 2016, respectively. The following table summarizes the
activity relating to aggregate severance charges for the six months ended June 30, 2005 and
2004:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Accrued severance charges, beginning of period |
|
$ |
15,317 |
|
|
$ |
19,717 |
|
Payments for period |
|
|
(1,494 |
) |
|
|
(1,665 |
) |
Interest accretion |
|
|
453 |
|
|
|
502 |
|
|
|
|
|
|
|
|
|
|
Accrued severance charges, end of period |
|
$ |
14,276 |
|
|
$ |
18,008 |
|
|
|
|
|
|
|
|
|
|
9. SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid (including capitalized amounts of $783 and $500 for the six months ended June 30,
2005 and 2004, respectively), aggregated $35,405 and $35,106 for the six months ended June 30,
2005 and 2004, respectively.
Non-cash investing and financing activities for the six months ended June 30, 2005 and 2004 were
as follows:
In May 2005, the Operating Partnership sold two apartment communities subject to $34,060 of
mortgage indebtedness assumed by the purchaser. This mortgage debt assumed by the purchaser was
excluded from the cash flow statement as a non-cash transaction (see note 4).
During the six months ended June 30, 2005, the Operating Partnerships derivative financial
instruments (see note 6) increased in value causing a decrease in accounts payable and accrued
expenses and a corresponding increase in partners equity of $1,940. During the six months
ended June 30, 2004, the Operating Partnerships derivative financial instruments increased in
value causing a decrease in accounts payable and accrued expenses and a corresponding increase
in partners equity of $3,950.
The Operating Partnership committed to distribute $19,065 and $19,115 for the quarters ended
June 30, 2005 and 2004, respectively. These distributions were not reflected in the statement of
cash flows as of June 30, 2005 and 2004.
In the three months ended June 30, 2005, a portion of the net proceeds from an apartment
community sale totaling $2,951 were held by a third party intermediary under a qualified tax
deferred exchange program. The $2,951 was included in other assets on the consolidated balance
sheet. This transaction was excluded from the statement of cash flows as a non-cash transaction
(see note 4).
In June 2004, the Operating Partnership acquired an apartment community for cash and the
assumption of mortgage indebtedness with an estimated fair value of $49,694. Also, in June
2004, the Operating Partnership sold certain apartment communities subject to $104,325 of
mortgage indebtedness assumed by the purchasers. These transactions involving mortgage
indebtedness were excluded from the statement of cash flows as non-cash transactions.
- 30 -
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
10. STOCK-BASED COMPENSATION PLAN
During the six months ended June 30, 2005, the Company granted approximately 31 shares of
restricted stock to Company officers and directors, of which approximately 6 shares were granted
to the Companys non-executive Chairman of the Board. No shares of restricted stock were
granted in the three months ended June 30, 2005. The restricted shares vest ratably over three
years. The total value of the restricted share grants of $1,098 for the six months ended June
30, 2005 was initially reflected in partners equity reduced by non-amortized deferred
compensation expense. Such deferred compensation is amortized ratably into compensation expense
over the three year vesting period.
Additionally, in the six months ended June 30, 2005, the Company granted stock options to
purchase approximately 254 shares of Company common stock to Company officers and directors, of
which 50 stock options were granted to the Companys non-executive Chairman of the Board. No
stock options were granted in the three months ended June 30, 2005. As discussed in note 1, the
Company expenses the estimated fair value of stock options over their three year vesting
periods.
11. INCOME TAXES
Income or losses of the Operating Partnership are allocated to the partners of the Operating
Partnership for inclusion in their respective income tax returns. Accordingly, no provisions or
benefit for income taxes has been made in the accompanying financial statements, except to the
extent that taxable income was earned through the Operating Partnerships taxable REIT
subsidiaries as described below. The Company elected to be taxed as a REIT under the Internal
Revenue Code of 1986, as amended (the Code) commencing with the taxable year ended December
31, 1993. In order for the Company to qualify as a REIT, it must distribute 90% of its REIT
taxable income, as defined in the Code, to its shareholders and satisfy certain other
requirements. The Operating Partnership intends to make sufficient cash distributions to the
Company to enable it to meet its annual REIT distribution requirements.
The Operating Partnership utilizes taxable REIT subsidiaries to perform such non-REIT activities
as asset and property management, for-sale housing (condominiums) conversions and sales, leasing
and landscaping services for third parties. These taxable REIT subsidiaries are subject to
federal, state and local income taxes. For the six months ended June 30, 2005, the Operating
Partnership estimated it will utilize approximately $5,000 of income tax net operating loss
carry-forwards to offset its federal taxable income generated by its taxable REIT subsidiaries
(primarily as a result of condominium sale gains). Through June 30, 2005, the Operating
Partnership estimated that its taxable REIT subsidiaries will be subject to federal alternative
minimum taxes and applicable state income taxes and has recorded an income tax provision of
approximately $383. At June 30, 2005, the Operating Partnerships taxable REIT subsidiaries had
consolidated federal income tax net operating loss carry-forwards totaling approximately $4,000.
These tax loss carry-forwards begin to expire in 2019. At June 30, 2005, management had
established a valuation allowance against the deferred tax asset associated with these net
operating loss carry-forwards due to the historical operating losses of these subsidiaries. The
tax benefits associated with such net operating loss carry-forwards may be recognized in future
periods, if the taxable REIT subsidiaries generate sufficient taxable income to utilize such
amounts or if the Operating Partnership determines that it is more likely than not that the
related deferred tax assets are realizable.
12. LEGAL PROCEEDINGS
On May 13, 2004, an alleged Company shareholder filed a purported pro se derivative and direct
action in the Superior Court of Fulton County, Georgia, against the Company, certain members of
the Companys board of directors, and certain of its executive officers. The case was removed to
the United States District Court for the Northern District of Georgia on May 21, 2004. The
complaint alleged, among other things, breaches of fiduciary duties, fraud, corporate waste,
withholding certain documents from shareholder inspection and certain securities laws claims.
The complaint requested various types of relief, such as injunctive relief and damages and
demanded production of certain Company records. Because the Company believed the allegations
were wholly without merit, the Company moved to dismiss the litigation. On April 20, 2005, the
court entered an order dismissing all claims without prejudice, save a claim seeking production
of certain Company records, upon which the Court declined to rule, concluding it lacked
jurisdiction to do so, and ordered the claim remanded to the Superior Court of Fulton County.
Since that time, the Company has moved for their attorney fees in the United States District
Court, arguing that the plaintiff frivolously pursued the litigation, and the plaintiff has
moved for entry of judgment in Superior Court, which the Company has vigorously contested.
On May 5, 2003, the Company received notice that a shareholder derivative and purported class
action lawsuit was filed against members of the board of directors of the Company and the
Company as a nominal defendant. This complaint was filed in the Superior Court of Fulton County,
Atlanta, Georgia on May 2, 2003 and alleged various breaches of fiduciary duties by the board
- 31 -
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
of directors of the Company and sought, among other relief, the disclosure of certain
information by the defendants. This complaint also sought to compel the defendants to undertake
various actions to facilitate a sale of the Company. On May 7, 2003, the plaintiff made a
request for voluntary expedited discovery. On May 13, 2003, the Company received notice that a
similar shareholder derivative and purported class action lawsuit was filed against certain
members of the board of directors of the Company and against the Company as a nominal defendant.
The complaint was filed in the Superior Court of Fulton County, Atlanta, Georgia on May 12, 2003
and alleged breaches of fiduciary duties, abuse of control and corporate waste by the
defendants. The plaintiff sought monetary damages and, as appropriate, injunctive relief. These
lawsuits were settled, and in October 2004, the Superior Court of Fulton County entered an order
approving the settlement and related orders dismissing the litigation. The estimated legal and
settlement costs, not covered by insurance, associated with the expected resolution of the
lawsuits were recorded in the second quarter of 2003 as a component of a proxy contest and
related costs charge. An alleged Company shareholder, who had filed a separate purported
derivative and direct action against the Company and certain of its officers and directors
(which is described in the paragraph above), has appealed from the Superior Courts orders
approving the settlement, overruling the shareholders objection to the settlement denying the
shareholders motion to intervene, and dismissing the litigation with prejudice. The Company is
contesting the alleged shareholders appeal vigorously.
The Company is involved in various other legal proceedings incidental to its business from time
to time, most of which are expected to be covered by liability or other insurance. Management of
the Company believes that any resolution of pending proceedings or liability to the Company
which may arise as a result of these proceedings will not have a material adverse effect on the
Companys results of operations or financial position.
13. SALE OF TECHNOLOGY INVESTMENT
In February 2005, the Operating Partnership sold its investment in Rent.com, a privately-held
internet leasing company, and recognized a gain of $5,267.
- 32 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
Company Overview
Post Properties, Inc. and its subsidiaries develop, own and manage upscale multifamily apartment
communities in selected markets in the United States. As used in this report, the term Company
includes Post Properties, Inc. and its subsidiaries, including Post Apartment Homes, L.P. (the
Operating Partnership), unless the context indicates otherwise. The Company, through its
wholly-owned subsidiaries is the general partner and owns a majority interest in the Operating
Partnership which, through its subsidiaries, conducts substantially all of the on-going operations
of the Company. At June 30, 2005, the Company owned 23,533 apartment units in 59 apartment
communities, including 545 apartment units in two communities held in unconsolidated entities and
including 205 apartment units currently under development in one community. The Company is also
developing 145 for-sale condominium units and is converting 382 apartment units in three
communities (one in an unconsolidated entity) into for-sale condominium units through a taxable
REIT subsidiary. At June 30, 2005, approximately 50.1%, 16.9%, 9.0% and 8.5% (on a unit basis) of
the Companys communities were located in Atlanta, Dallas, Tampa and the greater Washington, D.C.
metropolitan area, respectively.
The Company has elected to qualify and operate as a self-administrated and self-managed real estate
investment trust (REIT) for federal income tax purposes. 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, except to the extent that taxable
income is earned through its taxable REIT subsidiaries.
At June 30, 2005, the Company owned approximately 94.5% of the common limited partnership interests
(Common Units) in the Operating Partnership. Common Units held by persons other than the Company
represented a 5.5% common minority interest in the Operating Partnership.
Over the past several years, the multifamily apartment sector has been adversely impacted by the
supply of multifamily apartments outpacing demand. While the construction of new multifamily
apartments had continued at historical norms due primarily to the availability of capital and the
low interest rate environment, demand for multifamily apartments was adversely impacted by overall
weakness in the economy and the job market, as well as increased rates of homeownership due
primarily to historically low mortgage interest rates. These factors contributed to the Company
reporting declining apartment rental rates, same-store revenue and net operating income since 2001.
Starting in 2004, however, the Company began to see gradual signs of stabilization in apartment
market fundamentals. In the three and six months ended June 30, 2005, the Company reported
increased average monthly rental rates on a year over year basis and reported increases in average
economic occupancy over those same periods. In the second quarter of 2005, the Companys same
store portfolio reported positive revenue growth on both a year over year and sequential basis.
See Results of Operations below where the Companys operating results are discussed in more
detail.
Over the past several years, the Company has also been a net seller of apartment assets in an
effort to exploit opportunities to harvest value and recycle capital through the sale of non-core
assets that no longer met the Companys growth objectives. The Companys asset sales program is
consistent with its strategy of reducing its concentration in Atlanta, Georgia and Dallas, Texas,
building critical mass in fewer markets and leveraging the Post® brand in order to improve
operating efficiencies. The Company has redeployed capital raised from asset sales to strengthen
its balance sheet, by reducing high-coupon preferred equity and debt, and reinvesting in assets
that the Company believes demonstrate better growth potential. In this regard, the Company
acquired a 319-unit luxury apartment community located in Charlotte, NC in June 2005 for an
aggregate price upon closing of approximately $38,240. Additionally, in the second quarter of
2005, the Company used approximately $27,300 of sale proceeds to acquire additional land parcels in
Atlanta, GA and Tampa, FL for future development.
At June 30, 2005, the Company had one apartment community, containing 1,738 units, classified as
held for sale (in addition to three communities, including one in an unconsolidated entity, that
are being converted to condominiums). The Company closed the sale of this apartment community in the
third quarter of 2005 for an aggregate gross purchase price of approximately $132,500, including
the assumption by the purchaser of approximately $47,500 of tax-exempt secured indebtedness
encumbering the community. The community held for sale is a garden-style community located in
Atlanta, Georgia and is approximately 20 years old. During the second quarter of 2005, the Company
sold five apartment communities totaling 1,309 units for aggregate gross purchase prices of
approximately $99,050, including the assumption by a purchaser of approximately $34,060 of
tax-exempt secured indebtedness.
In late 2004 and early 2005, the Company, through a taxable REIT subsidiary, commenced the
conversion of three existing apartment communities into for-sale condominium housing units,
including one in an unconsolidated entity. These communities are located in Atlanta, Georgia,
Dallas, Texas and Tampa, Florida. The Company transferred these communities (including its interest
in one
- 33 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
unconsolidated entity) to a taxable REIT subsidiary at their aggregate fair value of approximately
$66,000 (including the aggregate fair value of approximately $30,190 relating to its Post
Peachtree property in Atlanta, GA, in which the Companys equity ownership interest is 35%). The
Company began selling for-sale condominium units in the first quarter of 2005. Through June 30,
2005, the Company had closed on the sale of 193 condominium units out of a total of 382 units being
converted into condominiums. The gains on the sales of these condominiums are discussed in the
sections below. In early 2005, the Company also launched a new for-sale housing brand, Post
Preferred HomesTM, which serves as the unified marketing umbrella for the Companys
for-sale ventures, including developing new communities and converting existing assets into upscale
for-sale housing in several key markets.
The Company has and expects to continue to utilize net asset sales proceeds (including net proceeds
from sales of for-sale condominium units) primarily to repay a portion of its debt that matures in
2005 and to reinvest in new developments and acquisitions, including land for future development.
The Company may also consider utilizing asset sales proceeds to repurchase its common stock, if the
Company is able to do so at prices it considers attractive relative to its estimates of net asset
value per share, or to pay a special dividend to common shareholders depending on the level of
undistributed taxable gains, if any, during 2005. Based on current expectations regarding the
timing of asset sales and related capital reinvestment activities, the Company expects that
disposition activities will result in earnings dilution in 2005, in part, due to the assumption of
low-floater, tax-exempt debt encumbering three of the Atlanta,
Georgia communities sold in 2005. The timing of these asset sales
relative to the related capital reinvestment
activities could significantly impact short-term operating results. There can be no assurances
that the sale of for-sale condominium units will close. See
Liquidity and Capital Resources below where the Companys capital activities are discussed in
more detail.
The following discussion should be read in conjunction with the accompanying consolidated financial
statements appearing elsewhere in this report. This discussion is combined for the Company and the
Operating Partnership as their results of operations and the financial condition are substantially
the same except for the effect of the 5.7% common minority interest in the Operating Partnership.
See the summary financial information in the section below titled, Results of Operations.
Disclosure Regarding Forward-Looking Statements
Certain statements made in this report, and other written or oral statements made by or on behalf
of the Company, may constitute forward-looking statements within the meaning of the federal
securities laws. In addition, the Company, or the executive officers on the Companys behalf, may
from time to time make forward-looking statements in reports and other documents the Company files
with the SEC or in connection with oral statements made to the press, potential investors or
others. Statements regarding future events and developments and the Companys future performance,
as well as managements expectations, beliefs, plans, estimates or projections relating to the
future, are forward-looking statements within the meaning of these laws. Forward-looking statements
include statements preceded by, followed by or that include the words believes, expects,
anticipates, plans, estimates, or similar expressions. Examples of such statements in this
report include the Companys expectations with regard to: apartment community sales in
2005 (including the estimated proceeds, estimated gains on sales and the use of proceeds from such
sales), anticipated conversion of apartment communities into condominium units and the related
sales of the for-sale condominium units, net operating income for 2005, occupancy levels and rental
rates, operating expenses, stabilized community net operating income, accounting recognition and
measurement of guarantees, debt maturities and financing needs, dividend payments, its ability to
meet new construction, development and other long-term liquidity requirements, and its ability to
execute future asset sales. Forward-looking statements are only predictions and are not guarantees
of performance. These statements are based on beliefs and assumptions of the Companys management,
which in turn are based on currently available information. Important assumptions relating to the
forward-looking statements include, among others, assumptions regarding the market for the
Companys apartment communities held for sale and for-sale housing, demand for apartments in the
markets in which it operates, competitive conditions and general economic conditions. These
assumptions could prove inaccurate. The forward-looking statements also involve risks and
uncertainties, which could cause actual results to differ materially from those contained in any
forward-looking statement. Many of these factors are beyond the Companys ability to control or
predict. Such factors include, but are not limited to, the following:
|
|
|
The success of the Companys business strategies described on pages 2-3 of the
Companys Annual Report on Form 10-K for the year ended December 31, 2004; |
|
|
|
|
Future local and national economic conditions, including changes in job growth,
interest rates, the availability of financing and other factors; |
|
|
|
|
Demand for apartments in the Companys markets and the effect on occupancy and rental rates; |
|
|
|
|
The impact of competition on the Companys business, including competition for residents and development locations; |
|
|
|
|
The Companys ability to obtain financing or self-fund the development of
additional multifamily rental and for-sale housing and for its apartment communities and
competing for-sale housing in markets where the Company is completing condominium
conversions or developing new condominiums; |
- 34 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
|
|
|
The uncertainties associated with the Companys real estate development,
including actual costs exceeding the Companys budgets or development periods exceeding
expectations; |
|
|
|
|
Uncertainties associated with the timing and amount of apartment community
sales and the resulting gains/losses associated with such sales; |
|
|
|
|
Uncertainties associated with the Companys expansion into the condominium
conversion and for-sale housing business; |
|
|
|
|
Conditions affecting ownership of residential real estate and general
conditions in the multi-family residential real estate market; |
|
|
|
|
The effects of changes in accounting policies and other regulatory matters
detailed in the Companys filings with the Securities and Exchange Commission and
uncertainties of litigation; |
|
|
|
|
The Companys ability to continue to qualify as a REIT under the Internal
Revenue Code; and |
|
|
|
|
Other factors, including the risk factors discussed on pages 7 through 14 of
the Companys Annual Report on Form 10-K for the year ended December 31, 2004. |
Management believes these forward-looking statements are reasonable; however, undue reliance should
not be placed on any forward-looking statements, which are based on current expectations. Further,
forward-looking statements speak only as of the date they are made, and management undertakes no
obligation to update publicly any of them in light of new information or future events.
Critical Accounting Policies
In the preparation of financial statements and in the determination of Company operating
performance, the Company utilizes certain significant accounting polices. The Companys
significant accounting policies are included in the notes to the Companys audited financial
statements included in the Companys Annual Report on Form 10-K for the year ended December 31,
2004. The discussion below addresses the implementation and impact of accounting policies with an
impact on the Company in the three and six months ended June 30, 2005 and in the future periods.
SFAS No. 123R, Share-Based Payment, was issued in December 2004. SFAS No. 123R revises SFAS No.
123, Accounting for Stock-Based Compensation and requires companies to expense the fair value of
employee stock options and other forms of stock-based compensation. SFAS No. 123R also supersedes
the provisions of APB No. 25. The provisions of SFAS No. 123R are effective for the Company
beginning on January 1, 2006. The Company plans to adopt the provisions of SFAS No. 123R in the
first quarter of 2006 and is currently evaluating the alternative methods of adoption. Since the
Company elected to apply the provisions of SFAS No. 123 on January 1, 2003, the adoption of SFAS
No. 123R is not expected to have a significant impact on the Companys financial position or
results of operations.
Sales and the associated gains or losses of real estate assets and for-sale condominiums are
recognized in accordance with the provisions of SFAS No. 66, Accounting for Sales of Real Estate.
For condominium conversion projects, sales and the associated gains for individual condominium
units are recognized upon the closing of the transactions, as all conditions for full profit
recognition have been met. In accordance with SFAS No. 144, Accounting for the Impairment and
Disposal of Long-Lived Assets, gains on sales of condominium units at condominium conversion
projects are included in discontinued operations.
Results of Operations
The following discussion of results of operations should be read in conjunction with the
consolidated statements of operations and the community operations/segment performance information
included below.
The Companys revenues and earnings are 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. The
Company generally considers a development community to have achieved stabilized occupancy on the
earlier to occur of (1) attainment of 95% physical occupancy on the first day of any month or (2)
one year after completion of construction.
At June 30, 2005, the Companys portfolio of apartment communities, excluding three communities
held in unconsolidated entities (including one community being converted into condominiums) and
three communities held for sale (including two communities being converted into condominiums),
consisted of the following: (1) 52 communities that were completed and stabilized for all of the
current and prior year, (2) one community that achieved full stabilization during 2004, and (3) two
communities that were acquired in 2005 and 2004. Currently, with the exception of the apartment
community acquired in 2005 which is in its initial lease-up and approximately 91.5% leased, all of
the Companys development communities have reached stabilized occupancy and the Company
- 35 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
has no development communities in the lease-up stage. These operating segments exclude the
operations of apartment communities classified as discontinued operations and apartment communities
held in unconsolidated entities for the periods presented.
In order to evaluate the operating performance of its communities for the comparative years listed
below, the Company has presented financial information which summarizes the rental and other
property revenues, property operating and maintenance expenses (excluding depreciation and
amortization) and net operating income on a comparative basis for all of its operating communities
and for its stabilized operating communities. Net operating income is a supplemental non-GAAP
financial measure. The Company believes that the line on the Companys consolidated statement of
operations entitled net income is the most directly comparable GAAP measure to net operating
income. A reconciliation of net operating income to GAAP net income is included below. The
Company believes that net operating income is an important supplemental measure of operating
performance for a REITs operating real estate because it provides a measure of the core
operations, rather than factoring in depreciation and amortization, financing costs and general and
administrative expenses. This measure is particularly useful, in the opinion of the Company, in
evaluating the performance of geographic operations, operating segment groupings and individual
properties. Additionally, the Company believes that net operating income, as defined, is a widely
accepted measure of comparative operating performance in the real estate investment community.
All Operating Communities
The operating performance and capital expenditures from continuing operations for all of the
Companys apartment communities and other commercial properties summarized by segment for the three
and six months ended June 30, 2005 and 2004 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
Six months ended |
|
|
|
|
June 30, |
|
|
|
|
|
June 30, |
|
|
|
|
2005 |
|
2004 |
|
% Change |
|
2005 |
|
2004 |
|
% Change |
Rental and other property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities (1) |
|
$ |
63,515 |
|
|
$ |
62,319 |
|
|
|
1.9 |
% |
|
$ |
125,928 |
|
|
$ |
124,182 |
|
|
|
1.4 |
% |
Communities stabilized in 2004 |
|
|
1,761 |
|
|
|
1,872 |
|
|
|
(5.9 |
)% |
|
|
3,521 |
|
|
|
3,588 |
|
|
|
(1.9 |
)% |
Acquired communities (2) |
|
|
2,415 |
|
|
|
206 |
|
|
|
1,072.3 |
% |
|
|
4,499 |
|
|
|
206 |
|
|
|
2,084.0 |
% |
Other property segments (3) |
|
|
5,369 |
|
|
|
5,416 |
|
|
|
(0.9 |
)% |
|
|
10,621 |
|
|
|
10,449 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,060 |
|
|
|
69,813 |
|
|
|
4.7 |
% |
|
|
144,569 |
|
|
|
138,425 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
expenses (exclusive of
depreciation and amortization) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities (1) |
|
|
24,727 |
|
|
|
24,218 |
|
|
|
2.1 |
% |
|
|
49,570 |
|
|
|
48,178 |
|
|
|
2.9 |
% |
Communities stabilized in 2004 |
|
|
564 |
|
|
|
505 |
|
|
|
11.7 |
% |
|
|
1,113 |
|
|
|
980 |
|
|
|
13.6 |
% |
Acquired communities (2) |
|
|
719 |
|
|
|
57 |
|
|
|
1,161.4 |
% |
|
|
1,468 |
|
|
|
57 |
|
|
|
2,475.4 |
% |
Other expense (4) |
|
|
6,963 |
|
|
|
5,841 |
|
|
|
19.2 |
% |
|
|
13,615 |
|
|
|
11,878 |
|
|
|
14.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,973 |
|
|
|
30,621 |
|
|
|
7.7 |
% |
|
|
65,766 |
|
|
|
61,093 |
|
|
|
7.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property net operating income (5) |
|
$ |
40,087 |
|
|
$ |
39,192 |
|
|
|
2.3 |
% |
|
$ |
78,803 |
|
|
$ |
77,332 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures (6)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet |
|
|
804 |
|
|
|
552 |
|
|
|
45.7 |
% |
|
|
1,446 |
|
|
|
1,164 |
|
|
|
24.2 |
% |
Other |
|
|
1,707 |
|
|
|
1,647 |
|
|
|
3.6 |
% |
|
|
2,735 |
|
|
|
2,817 |
|
|
|
(2.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,511 |
|
|
$ |
2,199 |
|
|
|
14.2 |
% |
|
$ |
4,181 |
|
|
$ |
3,981 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring capital expenditures |
|
$ |
1,112 |
|
|
$ |
901 |
|
|
|
23.4 |
% |
|
$ |
1,986 |
|
|
$ |
2,117 |
|
|
|
(6.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average apartment units in service |
|
|
20,832 |
|
|
|
20,227 |
|
|
|
3.0 |
% |
|
|
20,779 |
|
|
|
20,227 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Communities which reached stabilization prior to January 1, 2004.
|
|
(2) |
|
Communities acquired subsequent to January 1, 2004. |
|
(3) |
|
Other property segment revenues include revenue from commercial properties,
from furnished apartment rentals above the unfurnished rental rates and any
property revenue not directly related to property operations. Other property
segment revenues exclude other corporate revenues of $61 and $47 for the three
months ended and $132 and $122 for the six months ended June 30, 2005 and 2004,
respectively. |
|
(4) |
|
Other expenses includes certain indirect central office operating expenses
related to management, grounds maintenance, and costs associated with commercial
properties and furnished apartment rentals. |
|
(5) |
|
A reconciliation of property net operating income to GAAP net income is
detailed below. |
- 36 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Total same store NOI |
|
$ |
38,788 |
|
|
$ |
38,101 |
|
|
$ |
76,358 |
|
|
$ |
76,004 |
|
Property NOI from other operating segments |
|
|
1,299 |
|
|
|
1,091 |
|
|
|
2,445 |
|
|
|
1,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated property NOI |
|
|
40,087 |
|
|
|
39,192 |
|
|
|
78,803 |
|
|
|
77,332 |
|
Add (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
61 |
|
|
|
47 |
|
|
|
132 |
|
|
|
122 |
|
Interest income |
|
|
189 |
|
|
|
213 |
|
|
|
354 |
|
|
|
393 |
|
Minority interest in consolidated property
partnerships |
|
|
64 |
|
|
|
248 |
|
|
|
178 |
|
|
|
432 |
|
Depreciation |
|
|
(19,414 |
) |
|
|
(19,689 |
) |
|
|
(38,946 |
) |
|
|
(39,312 |
) |
Interest expense |
|
|
(15,206 |
) |
|
|
(15,942 |
) |
|
|
(30,885 |
) |
|
|
(31,362 |
) |
Amortization of deferred financing costs |
|
|
(1,029 |
) |
|
|
(1,092 |
) |
|
|
(2,717 |
) |
|
|
(2,208 |
) |
General and administrative |
|
|
(5,433 |
) |
|
|
(5,476 |
) |
|
|
(10,728 |
) |
|
|
(10,119 |
) |
Development costs and other expenses |
|
|
(740 |
) |
|
|
(381 |
) |
|
|
(1,837 |
) |
|
|
(916 |
) |
Equity in income of unconsolidated entities |
|
|
553 |
|
|
|
207 |
|
|
|
701 |
|
|
|
422 |
|
Gain on sale of technology investment |
|
|
|
|
|
|
|
|
|
|
5,267 |
|
|
|
|
|
Minority interest of preferred unitholders |
|
|
|
|
|
|
(1,400 |
) |
|
|
|
|
|
|
(2,800 |
) |
Minority interest of common unitholders |
|
|
159 |
|
|
|
365 |
|
|
|
200 |
|
|
|
964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(709 |
) |
|
|
(3,708 |
) |
|
|
522 |
|
|
|
(7,052 |
) |
Income from discontinued operations |
|
|
59,152 |
|
|
|
104,818 |
|
|
|
62,599 |
|
|
|
111,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
58,443 |
|
|
$ |
101,110 |
|
|
$ |
63,121 |
|
|
$ |
104,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) |
|
In addition to those expenses which relate to property operations, the
Company incurs recurring and non-recurring expenditures relating to acquiring and
developing 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. Recurring capital expenditures are those that are generally expected
to be incurred on an annual basis. Non-recurring capital expenditures are those
that generally occur less frequently than on an annual basis. |
|
(7) |
|
A reconciliation of property capital expenditures from continuing operations
to total recurring and non-recurring capital expenditures as presented in the
consolidated statements of cash flows under GAAP is detailed below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Recurring capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
2,511 |
|
|
$ |
2,199 |
|
|
$ |
4,181 |
|
|
$ |
3,981 |
|
Discontinued operations |
|
|
353 |
|
|
|
572 |
|
|
|
641 |
|
|
|
1,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring capital
expenditures per statements of
cash flows |
|
$ |
2,864 |
|
|
$ |
2,771 |
|
|
$ |
4,822 |
|
|
$ |
5,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1,112 |
|
|
$ |
901 |
|
|
$ |
1,986 |
|
|
$ |
2,117 |
|
Discontinued operations |
|
|
15 |
|
|
|
401 |
|
|
|
43 |
|
|
|
429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-recurring capital
expenditures per statements of
cash flows |
|
$ |
1,127 |
|
|
$ |
1,302 |
|
|
$ |
2,029 |
|
|
$ |
2,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 37 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Stabilized Communities
The Company defines fully stabilized communities as those which have reached stabilization prior to
the beginning of the previous year. For the 2005 to 2004 comparison, fully stabilized communities
are defined as those communities which reached stabilization prior to January 1, 2004. This
portfolio consisted of 52 communities with 20,028 units, including 25 communities with 9,672 units
(48.3%) located in Atlanta, Georgia, 13 communities with 3,939 units (19.7%) located in Dallas,
Texas, three communities with 2,089 units (10.4%) located in Tampa, Florida, three communities with
1,204 units (6.0%) located in Washington, DC, three communities with 1,065 units (5.3%) located in
Charlotte, North Carolina and five communities with 2,059 units (10.3%) located in other markets.
The operating performance and capital expenditures of these communities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
Six months ended |
|
|
|
|
June 30, |
|
|
|
|
|
June 30, |
|
|
|
|
2005 |
|
2004 |
|
% Change |
|
2005 |
|
2004 |
|
% Change |
Rental and other revenues |
|
$ |
63,515 |
|
|
$ |
62,319 |
|
|
|
1.9 |
% |
|
$ |
125,928 |
|
|
$ |
124,182 |
|
|
|
1.4 |
% |
Property operating and maintenance
expenses (excluding depreciation and
amortization) |
|
|
24,727 |
|
|
|
24,218 |
|
|
|
2.1 |
% |
|
|
49,570 |
|
|
|
48,178 |
|
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store net operating income (1) |
|
$ |
38,788 |
|
|
$ |
38,101 |
|
|
|
1.8 |
% |
|
$ |
76,358 |
|
|
$ |
76,004 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (2)
Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet |
|
$ |
705 |
|
|
$ |
568 |
|
|
|
24.1 |
% |
|
$ |
1,260 |
|
|
$ |
1,164 |
|
|
|
8.2 |
% |
Other |
|
|
1,618 |
|
|
|
1,613 |
|
|
|
0.3 |
% |
|
|
2,638 |
|
|
|
2,786 |
|
|
|
(5.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring |
|
|
2,323 |
|
|
|
2,181 |
|
|
|
6.5 |
% |
|
|
3,898 |
|
|
|
3,950 |
|
|
|
(1.3 |
)% |
Non-recurring |
|
|
715 |
|
|
|
817 |
|
|
|
(12.5 |
)% |
|
|
1,333 |
|
|
|
1,961 |
|
|
|
(32.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures (A) |
|
$ |
3,038 |
|
|
$ |
2,998 |
|
|
|
1.3 |
% |
|
$ |
5,231 |
|
|
$ |
5,911 |
|
|
|
(11.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures per unit
(A÷20,028 units) |
|
$ |
152 |
|
|
$ |
150 |
|
|
|
1.3 |
% |
|
$ |
261 |
|
|
$ |
295 |
|
|
|
(11.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average economic occupancy (3) |
|
|
93.7 |
% |
|
|
93.6 |
% |
|
|
0.1 |
% |
|
|
93.6 |
% |
|
|
93.3 |
% |
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average monthly rental rate per unit (4) |
|
$ |
1,051 |
|
|
$ |
1,033 |
|
|
|
1.7 |
% |
|
$ |
1,047 |
|
|
$ |
1,034 |
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net operating income of stabilized communities is a supplemental non-GAAP financial
measure. See note 7 to the consolidated financial statements for a reconciliation of net
operating income for stabilized communities to GAAP net income. |
|
(2) |
|
A reconciliation of these segment components of property capital expenditures to total
recurring and non-recurring capital expenditures as presented in the consolidated
statements of cash flows prepared under GAAP is detailed below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Recurring capital expenditures by operating segment
Same store |
|
$ |
2,323 |
|
|
$ |
2,181 |
|
|
$ |
3,898 |
|
|
$ |
3,950 |
|
Partially stabilized |
|
|
3 |
|
|
|
5 |
|
|
|
7 |
|
|
|
12 |
|
Construction and lease-up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segments |
|
|
538 |
|
|
|
585 |
|
|
|
917 |
|
|
|
1,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring capital expenditures per statements of cash flows |
|
$ |
2,864 |
|
|
$ |
2,771 |
|
|
$ |
4,822 |
|
|
$ |
5,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring capital expenditures by operating segment
Same store |
|
$ |
715 |
|
|
$ |
817 |
|
|
$ |
1,333 |
|
|
$ |
1,961 |
|
Partially stabilized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and lease-up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segments |
|
|
412 |
|
|
|
485 |
|
|
|
696 |
|
|
|
585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-recurring capital expenditures per statements of cash flows |
|
$ |
1,127 |
|
|
$ |
1,302 |
|
|
$ |
2,029 |
|
|
$ |
2,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company uses same store recurring and non-recurring capital expenditures as cash
flow measures. Same store recurring and non-recurring capital expenditures are supplemental
non-GAAP financial measures. The Company believes that same store recurring and
non-recurring capital expenditures are important indicators of the costs incurred by the
Company in maintaining same store communities. The corresponding GAAP measures include
information with respect to the Companys other operating segments consisting of communities
stabilized in the prior year, lease-up communities, and sold communities in addition to same
store information. Therefore, the Company believes that the Companys presentation of same
store recurring and non-recurring capital expenditures is necessary to demonstrate same
store replacement costs over time. The Company believes that the most directly comparable
GAAP measure to same store recurring and non-recurring capital expenditures are the lines on
the Companys consolidated statements of cash flows entitled recurring capital
expenditures and non-recurring capital expenditures. |
|
(3) |
|
Average economic occupancy is defined as gross potential rent less vacancy losses, model
expenses and bad debt expenses divided by gross potential rent for the period, expressed
as a percentage. Gross potential rent is defined as the sum of the gross actual rental
rates for leased units and the anticipated rental rates for unoccupied units. The
calculation of average economic occupancy does not include a deduction for net concessions
and employee discounts. Average economic occupancy including these amounts would have
been 93.0% and 93.2% for the three months ended and 93.0% and 93.0% for the six months
ended June 30, 2005 and 2004, respectively. For the three months ended June 30, 2005 and
2004, net concessions were $341 and $142, respectively, and employee discounts were $107
and $115, respectively. For the six months ended June 30, 2005 and 2004, net concessions
were $612 and $199, respectively, and employee discounts were $216 and $230, respectively. |
|
(4) |
|
Average monthly rental rate is defined as the average of the gross actual rental rates
for leased units and the average of the anticipated rental rates for unoccupied units,
divided by total units. |
- 38 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Comparison of Three Months Ended June 30, 2005 to Three Months Ended June 30, 2004
The Operating Partnership reported net income available to common unitholders of $59,950 and
$106,410 for the three months ended June 30, 2005 and 2004, respectively, and the Company reported
net income available to common shareholders of $56,534 and $99,201 for the three months ended June
30, 2005 and 2004, respectively. The decrease between periods primarily reflects reduced gains on
the sales of real estate assets of approximately $49,249 ($45,611 net of minority interest and
provision for income taxes) between periods. The impact of these items is discussed below.
Rental and other revenues from property operations increased $3,247 or 4.7% from 2004 to 2005
primarily due to increased revenues from the Companys acquired communities of $2,209 and same
store communities of $1,195 or 1.9%. The revenue increase from acquired communities reflects the
Companys acquisition of one community in June 2004 and a second community in June 2005. The
revenue increase from same store communities in 2005 reflects modestly higher average rental rates
between periods as discussed more fully below. Property operating and maintenance expenses
(exclusive of depreciation and amortization) increased $2,352 or 7.7% primarily due to increased
corporate property management expenses associated with annual personnel and incentive compensation
increases, expenses associated with the Companys property management software implementation
project and increased expenses due to increased business volume in the Companys corporate
apartment business (included in other expenses) of $1,122 or 19.2% as well as increases in property
operating and maintenance expenses (excluding depreciation and amortization) for acquired
communities of $662 and for fully stabilized communities of $509, or 2.1%, between periods (see
discussion below).
For the three months ended June 30, 2005, gains on sales of real estate assets from discontinued
operations represents the net gains of $13,153 ($12,042 net of minority interest and provision for
income taxes) from condominium sales at the Companys condominium conversion communities and gains
on sales of five apartment communities, containing 1,309 units, of $49,710 ($46,877 net of minority
interest). The condominium sales generated net proceeds of $32,074 in 2005. The apartment
community sales generated net proceeds of approximately $97,900, including $34,060 of tax-exempt
mortgage indebtedness assumed by the purchasers. For the three months ended June 30, 2004, gains
on sales of real estate assets from discontinued operations include $112,112 ($104,530, net of
minority interest) from the sale of seven communities containing 3,482 units and certain land
parcels. These sales generated net proceeds of approximately $218,982, including $104,325 of
tax-exempt mortgage indebtedness assumed by the purchasers.
Depreciation expense decreased $275, or 1.4% from 2004 to 2005 primarily due to reduced
depreciation resulting from certain furniture and fixtures (with a five year life) at certain
properties becoming fully depreciated in 2004 offset by increased depreciation on a property
acquired in June 2004 and another property acquired in June 2005.
General and administrative expenses decreased $43, or 0.1%, from 2004 to 2005 primarily due to
lower legal expenses offset by higher compensation costs. The decrease in legal expenses of $531
between periods was due to reduced expenses associated with shareholder proxy proposals in 2004 and
with shareholder litigation between periods. This decrease was offset by increased annual
compensation and insurance expenses and increased board compensation costs primarily due to
increases in a director variable incentive compensation plan tied to increases in the Companys
stock price. To a lesser extent expenses increased in 2005 due to increased costs associated with
the implementation of new property management software systems in 2005 of $65.
Development costs and other expenses increased $359 or 94.2% primarily due to increased personal
and associated costs relating to the addition of new development personnel and to establish
development capabilities in three regional markets in mid to late 2004 and into 2005 and
approximately $160 of expenses associated with marketing the Companys for-sale condominium product
in the Washington D.C. market.
Interest expense included in continuing operations decreased $736 or 4.6% from 2004 to 2005. The
decreased expense amounts between periods reflect the impact of refinancing certain fixed rate debt
with lower fixed rate debt in the first half of 2005 and the impact of increased interest
capitalization on its development project of $155 between periods. Interest expense included in
discontinued operations decreased from $1,553 in 2004 to $832 in 2005 primarily due to interest
expense associated with eight communities sold in 2004.
Equity in income of unconsolidated real estate entities increased $346 or 167.2% from 2004 to 2005.
This increase was primarily due to gains from condominium sales in an unconsolidated entity that
converted its apartment units into condominiums. The first closings of condominium sales began in
the three months ended June 30, 2005. In the three months ended June 30, 2005, the unconsolidated
entity closed 12 condominium unit sales generating net gains to the Company of approximately $201.
See note 3 to the consolidated financial statements for a summary of the operating results of the
Companys unconsolidated entities.
-39-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Recurring and nonrecurring capital expenditures from continuing operations increased $523 or 16.9%
from 2004 to 2005. The increase in capital expenditures primarily reflects the impact of several
properties beginning to capitalize the replacement of carpet, vinyl and blinds under the Companys
accounting policies (during the first five years of a community, the Company expenses the
replacements of these items) and a large replacement of air conditioning equipment at a property in
Orlando, FL.
Stabilized Communities
Rental and other revenues increased $1,196 or 1.9% from 2004 to 2005. This increase resulted
primarily from a 1.7% increase in the average monthly rental rate per apartment unit. This
increase in average rental rates resulted in a revenue increase of approximately $1,117 between
years. Average economic occupancy was relatively stable between periods. Additionally, other
property fees increased $320 due to better pricing power resulting from improving market
conditions, but were offset somewhat by higher net concessions of $200 due to the impact of
straight-lining net rentals and concessions under generally accepted accounting standards.
Overall, the improving performance of the operating portfolio reflects gradually improving market
conditions with the Companys operations in its five largest markets reporting increased revenues
over the prior year. With generally stable to slightly increasing occupancy rates in 2005, the
Companys strategy continues to be focused on increasing average rental rates in 2005 as the
Companys markets show general economic improvement.
Property operating and maintenance expenses (exclusive of depreciation and amortization) increased
$509 or 2.1% from 2004 to 2005. This increase was primarily due to increased personnel expenses of
$91 or 1.6%, increased maintenance and repairs expenses of $367 or 13.4% and increased ground rent
expenses of $324 or 95.0%, offset by decreased property tax expenses of $328 or 3.9%. Personnel
expenses increased due to annual salary increases and increased health insurance expenses in 2005.
Repairs and maintenance expenses increased primarily due to increased exterior painting costs in
2005. The increase in ground rent expense of $324 reflects the Companys decision in 2005 to begin
straight-lining long-term ground lease payments associated with leases with stated rent escalations
(the straight-lining of ground rents resulted in $314 of the increase). The decrease in property
tax expenses in 2005 reflected reduced tax accruals in the second quarter of 2005 resulting from
favorable tax valuations from taxing authorities in 2005.
Comparison of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2004
The Operating Partnership reported net income available to common unitholders of $62,886 and
$105,434 for the six months ended June 30, 2005 and 2004, respectively, and the Company reported
net income available to common shareholders of $59,302 and $98,296 for the six months ended June
30, 2005 and 2004, respectively. The decrease between periods primarily reflects reduced gains on
the sales of real estate assets of approximately $50,517 ($46,781, net of minority interest and
provision for income taxes) between periods offset somewhat by a gain of $5,267 ($4,967 net of
minority interest) on the sale of a technology investment in the first quarter of 2005. The impact
of these items is discussed below.
Rental and other revenues from property operations increased $6,144 or 4.4% from 2004 to 2005
primarily due to increased revenues from the Companys acquired communities of $4,293 and same
store communities of $1,746 or 1.4%. The revenue increase from acquired communities reflects the
Companys acquisition of one community in June 2004 and a second community in June 2005. The
revenue increase from same store communities in 2005 reflects modestly higher average rental rates
between periods, as discussed more fully below. Property operating and maintenance expenses
(exclusive of depreciation and amortization) increased $4,673 or 7.6% primarily due to increased
corporate property management expenses associated with annual personnel and incentive plan
increases, expenses associated with the Companys property management software implementation
project and increased expenses due to increased business volume in the Companys corporate
apartment business (included in other expenses) of $1,737 or 14.6%, as well as increases in
property operating and maintenance expenses (excluding depreciation and amortization) for acquired
communities of $1,411 and for fully stabilized communities of $1,392, or 2.9%, between periods (see
discussion below).
For the six months ended June 30, 2005, gains on sales of real estate assets from discontinued
operations represents the net gains of $13,512 ($12,381 net of minority interest and provision for
income taxes) from condominium sales at the Companys condominium conversion communities and gains
on sales of five apartment communities, containing 1,309 units, of $49,710 ($46,877 net of minority
interest). The condominium sales generated net proceeds of $35,370 in 2005. The apartment
community sales generated net proceeds of approximately $97,900, including $34,060 of tax-exempt
mortgage indebtedness assumed by the purchasers. For the six months ended June 30, 2004, gains on
sales of real estate assets from discontinued operations include $113,739 ($106,039, net of
minority interest) from the sale of seven communities containing 3,880 units and certain land
parcels. These sales generated net proceeds of approximately $242,962, including $104,325 of
tax-exempt mortgage indebtedness assumed by the purchasers.
-40-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Depreciation expense decreased $366, or 0.1% from 2004 to 2005 primarily due to reduced
depreciation resulting from certain furniture and fixtures (with a five year life) at certain
properties becoming fully depreciated in 2004 offset by increased depreciation on one property
acquired in June 2004 and another property acquired in June 2005.
General and administrative expenses increased $609, or 6.0%, from 2004 to 2005 primarily due to
higher compensation costs offset by lower legal expenses. The decrease in legal expenses of $379
between periods was due to reduced expenses in 2005 as compared to 2004 when the Company incurred
legal fees associated with shareholder proxy proposals and also due to less shareholder litigation
expense between periods. This decrease was offset by increased annual compensation and insurance
expense and increased board compensation costs primarily due to increases in a director variable
incentive compensation plan tied to increases in the Companys stock price. To a lesser extent
expenses increased in 2005 due to increased costs associated with the implementation of new
property management software systems of $123 in 2005 and final settlement of 2004 audit costs of
approximately $90.
Development costs and other expenses increased $921 or 100.5% primarily due to increased personal
and associated costs relating to the addition of new development personnel and to establish
development capabilities in three regional markets in mid to late 2004 and into 2005 and
approximately $270 of expenses associated with marketing the Companys for-sale condominium product
in the Washington D.C. market.
Interest expense included in continuing operations decreased $477 or 1.5% from 2004 to 2005. The
decreased expense amounts between periods reflect the impact of refinancing certain fixed rate debt
with lower fixed rate debt in the first half of 2005 and the impact of increased interest
capitalization on its development project of $283 between periods. Interest expense included in
discontinued operations decreased from $3,337 in 2004 to $1,876 in 2005 primarily due to interest
expense associated with eight communities sold in 2004.
Equity in income of unconsolidated real estate entities increased $279 or 66.1% from 2004 to 2005.
This increase was primarily due to gains from condominium sales in an unconsolidated entity that
converted its apartment units into condominiums. The first closings of condominium sales began in
the three months ended June 30, 2005. In the six months ended June 30, 2005, the unconsolidated
entity closed 12 condominium unit sales generating net gains to the Company of approximately $201.
See note 3 to the consolidated financial statements for a summary of the operating results of the
Companys unconsolidated entities.
Recurring and nonrecurring capital expenditures from continuing operations increased $69 or 1.1%
from 2004 to 2005. The increase in capital expenditures primarily reflects the impact of several
properties beginning to capitalize the replacement of carpet, vinyl and blinds under the Companys
accounting policies (during the first five years of a community, the Company expenses the
replacements of these items) offset by reduced nonrecurring projects in 2005 as 2004 included a
large project related to water infiltration at one large property located in Tampa, FL.
Stabilized Communities
Rental and other revenues increased $1,746 or 1.4% from 2004 to 2005. This increase resulted
primarily from a 1.3% increase in the average monthly rental rate per apartment unit. This
increase in average rental rates resulted in a revenue increase of approximately $1,584 between
years. Average economic occupancy was relatively stable between periods. Additionally, other
property fees increased $536 as a result of better pricing power due to improved market conditions,
but were offset somewhat by higher net concessions of $413 due to the impact of straight-lining net
rentals and concessions under generally accepted accounting standards. Overall, the improving
performance of the operating portfolio reflects gradually improving market conditions with the
Companys operations in its five largest markets reporting flat to increased revenues over the
prior year. With generally stable to slightly increasing occupancy rates in 2005, the Companys
strategy continues to be focused on increasing average rental rates in 2005 as the Companys
markets show general economic improvement.
Property operating and maintenance expenses (exclusive of depreciation and amortization) increased
$1,392 or 2.9% from 2004 to 2005. This increase was primarily due to increased personnel expenses
of $251 or 2.2%, increased maintenance and repairs expenses of $234 or 4.5% and increased ground
rent expenses of $648 or 95.4%. Personnel expenses increased primarily due to annual salary
increases and increased health insurance expenses in 2005. Repairs and maintenance expenses
increased primarily due to increased exterior painting costs in 2005. The increase in ground rent
expense of $648 reflects the Companys decision in 2005 to begin straight-lining long-term ground
lease payments associated with leases with stated rent escalations (the straight-lining of ground
rents resulted in $631 of the increase).
-41-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Discontinued Operations
In accordance with SFAS No. 144, the operating results and gains and losses on property sales of
real estate assets designated as held for sale are included in discontinued operations in the
consolidated statement of operations. For the three months ended June 30, 2005, income from
discontinued operations included the results of operations of one community, containing 1,738 units
and two condominium conversion communities, classified as held for sale at June 30, 2005, as well
as the operations of five communities sold in 2005 through their sale dates. For the three months
ended June 30, 2004, income from discontinued operations included the results of operations of the
communities classified as held for sale at June 30, 2005, five communities sold in 2005 and eight
communities sold in 2004 through the earlier of June 30, 2004 or their sale dates. The revenues
and expenses of discontinued operations are summarized in note 4 to the consolidated financial
statements. The gains on sales of real estate assets between periods reflect the timing and size
of the communities and for-sale condominiums sold. In the second quarter of 2005, the Company
continued closing for-sale condominiums from assets converted into condominiums. The Company
recognized net gains from these sales of $13,153 ($12,042 net of minority interest and provision
for income taxes) in the second quarter of 2005. These gains are discussed in note 4 to the
consolidated financial statements. The Company expects to continue closing for-sale condominium
sales in 2005 at three communities (one held in an unconsolidated entity).
As discussed under Liquidity and Capital Resources, the Company expects to continue to sell real
estate assets and also convert certain apartment assets into for-sale condominiums in future
periods as part of its overall investment, disposition and acquisition strategy. As such, the
Company may continue to have additional assets classified as held for sale, however, the timing and
amount of such asset sales and their impact on the aggregate revenues and expenses included in
discontinued operations will vary from period to period. Additionally, should the Company change
its expectations regarding the holding period for certain assets or decide to classify certain
assets as held for sale, this could cause the Company to recognize impairment losses in future
periods if the carrying value of these assets is not deemed recoverable.
Outlook
Certain statements made below may constitute forward-looking statements within the meaning of the
federal securities laws, and are based on current apartment market and general economic conditions
and other risks as outlined in the section titled Disclosure Regarding Forward-Looking Statements
above.
The Companys outlook for the full year of 2005 is based on the expectation that apartment
fundamentals will continue to steadily improve throughout the year. Rental and other revenues from
fully stabilized communities are expected to increase modestly when compared to 2004, primarily
driven by expected rental rate increases. However, operating expenses of fully stabilized
communities are also expected to increase in 2005. The Company expects the primary drivers of this
expense increase will be personnel expenses, utility expenses and repairs and maintenance expenses,
which are expected to increase mainly due to increases in exterior painting between years. Based on
these assumptions for 2005, management expects stabilized community net operating income to
increase modestly in 2005 compared to 2004.
In 2005, management expects to complete the sale of six apartment communities, five of which were
sold as of June 30, 2005. The sale of the one remaining
community closed in the
third quarter of 2005 and is expected to generate accounting gains in
excess of $70,000 and a loss on the early extinguishment of related
indebtedness of approximately $1,900. The net
proceeds from these sales are being used and are intended to be used for various corporate
purposes, including repayments of debt maturing in 2005, the acquisition of an apartment community
in June 2005 and of additional land for future development, the funding of development expenditures
and possible common stock repurchases. Additionally, the Company, through a taxable REIT
subsidiary, is converting three of its existing apartment communities (one held in an
unconsolidated entity) into for-sale condominium units and expects to continue to sell those units
during 2005 and 2006. The Company expects to realize net accounting gains in 2005 from these
condominium sales. The net accounting gains from for-sale condominiums are expected to be
substantially reduced in the second half of 2005 as compared to the first half of 2005, as the
Company sold the vast majority of one conversion community in the
second quarter of 2005. There can be no assurances that the sale of
for-sale condominium units will close.
Management expects interest expense in 2005 to be lower than in 2004 due generally to lower average
debt levels between years and the refinancing of maturing public debt at lower rates in 2005. In
addition, the Company expects increased interest capitalization in the second half of 2005 as new
projects are placed in development. Management also expects modest declines in general and
administrative expenses due primarily to reductions in estimated costs associated with
Sarbanes-Oxley compliance.
The Company has one project under construction with a total expected cost of approximately $97,000
and expects to begin additional development projects later in 2005. In mid to late 2004 and 2005,
the Company added additional executive development personnel for the purpose of increasing its
development and investment activities in 2005. The Company expects these additional personnel
-42-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
resources will be dilutive to earnings in 2005 until the incremental personnel and associated costs
can be fully absorbed by new development and value creation activities.
For the third quarter of 2005, management expects to report higher net income compared to the
second quarter of 2005. Net income for the third quarter is expected to be driven by the gains from
real estate asset sales (primarily the gain on the apartment community sale). This gain will be
somewhat offset by lower projected gains from condominium sales as closings are anticipated to
decrease at one condominium conversion property that was substantially sold out in the second
quarter of 2005 and to remain modest at two additional condominium conversion properties (including
one in an unconsolidated entity). Management expects same store property net operating income to
be somewhat higher when compared to the second quarter of 2005, primarily driven by modestly higher
projected operating revenues, offset in part by modestly higher projected operating expenses.
General and administrative costs, property management expenses and development costs in the
aggregate are expected to be relatively flat compared to the second quarter of 2005.
Liquidity and Capital Resources
The discussion in this Liquidity and Capital Resources section is the same for the Company and the
Operating Partnership, except that all indebtedness discussed herein has been incurred by the
Operating Partnership.
The Companys net cash provided by operating activities decreased from $58,500 in 2004 to $50,648
in 2005 primarily due to reduced earnings from the dilutive impact of prior year asset sales. The
Company also expects cash flows from operating activities to show declines for the full year of
2005 compared to 2004 primarily driven by the dilutive cash flow impact from asset sales.
Net cash flows from investing activities decreased from net cash provided by investing activities
of $145,209 in 2004 to net cash used in investing activities of $9,616 in 2005 primarily due to
increased development, apartment acquisition and land acquisition costs in 2005 (as the Company
initiated new development activities) and additional mortgage advances to unconsolidated entities
in 2005, offset somewhat by the proceeds from the sale of a technology investment in 2005. In
2004, the Company received net repayments of construction loan advances from unconsolidated
entities. Additionally, the net proceeds from asset sales were lower in 2005 due to the timing of
sales between periods.
Net cash flows from financing activities increased from net cash used in financing activities of
$149,752 in 2004 to net cash used in financing activities of $36,986 in 2005 primarily due to the
increased financing proceeds of $100,000 from a new unsecured public debt placement in the second
quarter of 2005.
Since 1993, the Company has elected to be taxed as a real estate investment trust (REIT) under
the Internal Revenue Code of 1986, as amended (the Code). Management currently intends to
continue operating the Company as a REIT in 2005. As a REIT, the Company is subject to a number of
organizational and operating requirements, including a requirement to distribute 90% of its taxable
income to its shareholders. As a REIT, the Company generally will not be subject to federal income
taxes on its taxable income, except to the extent that taxable income is earned though its taxable
REIT subsidiaries.
Generally, the Companys objective is to meet its short-term liquidity requirement of funding the
payment of its current level of quarterly preferred and common dividends to shareholders through
its net cash flows provided by operating activities, less its annual recurring and nonrecurring
property and corporate capital expenditures. These operating capital expenditures are the capital
expenditures necessary to maintain the earnings capacity of the Companys operating assets over
time.
For the six months ended June 30, 2005, the Companys net cash flow from operations, reduced by
operating capital expenditures, was sufficient to fully fund the Companys current level of
dividend payments to common and preferred shareholders by approximately $1,000. Cash flows from
operations, reduced by operating capital expenditures, would have been lower, by approximately
$8,000, excluding the favorable change in working capital items impacting operating cash flows for
the period. These working capital items fluctuate from period to period, primarily due to the
timing of payments of interest, property taxes and operating payables. As discussed below, the
Company expects its operating cash flows, less operating capital expenditures, to be less than its
dividend requirements for the full year of 2005. The Companys net cash flow from operations and
proceeds from apartment communities and for-sale condominiums sales continue to be sufficient to
meet the dividend requirements necessary to maintain its REIT status under the Code.
For the full year of 2005, management of the Company currently expects to maintain its current
quarterly dividend payment rate to common shareholders of $0.45 per share. At this dividend rate,
the Company currently expects that net cash flows from operations reduced by annual operating
capital expenditures will not be sufficient to fund the dividend payments to common and preferred
-43-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
shareholders
by approximately $18,000 to $23,000. This forecasted dividend shortfall excludes
incremental gains on condominium sales and gain on sale of technology investment which are included
in cash flows from investing activities. The Company intends to use primarily the proceeds from
2005 apartment community and for-sale condominium sales to fund the additional cash flow necessary
to fully fund the dividend payments to common shareholders. The factors leading to this net
operating cash flow shortfall are the soft market conditions for the Companys operating properties
over the last few years and the short-term negative cash flow impact of sales of operating
properties (discussed below) prior to the reinvestment of such proceeds. The Companys board of
directors, however, will continue to review the dividend quarterly.
The Company generally expects to utilize net cash flow from operations and available capacity under
its revolving lines of credit to fund its short-term liquidity requirements, including capital
expenditures, development and construction expenditures, land and apartment community acquisitions,
dividends and distributions on its common and preferred equity and its debt service requirements.
The Company generally expects to fund its long-term liquidity requirements, including maturities of
long-term debt and acquisition and development activities, through long-term unsecured and secured
borrowings, through additional sales of selective operating properties and for-sale condominiums,
and possibly through equity or leveraged joint venture arrangements. The Company may also continue
to use joint venture arrangements in future periods to reduce its market concentrations in certain
markets, build critical mass in other markets and to reduce its exposure to certain risks of its
future development activities.
In the six months ended June 30, 2005, the Company sold five communities, containing 1,309 units,
for gross proceeds of approximately $97,900, including the assumption by the purchaser of
approximately $34,060 of tax-exempt secured debt encumbering two of the properties. In addition,
in the first half of 2005, the Company generated approximately $35,370 of net proceeds from
for-sale condominium sales. The Company expects to continue to generate cash proceeds from the
sale of apartment communities and sale of condominiums at its condominium conversion projects in
the second half of 2005. The Company had one additional community
located in Atlanta, GA, which was sold in the third quarter of 2005 for a gross sales price of approximately $132,500, including the assumption by
the purchaser of approximately $47,500 of tax-exempt secured debt.
These apartment community sales are expected to generate significant capital gains for tax purposes
in 2005. Realized capital gains must generally be distributed to shareholders, in the form of
dividends, in order to avoid the payment of income taxes at the corporate level. The Company
expects to be able to use its regular quarterly dividend of $0.45 per share, as well as other tax
planning strategies, to pay out or otherwise mitigate the impact of these capital gains. The
Company may also consider paying a special dividend to common shareholders depending on the level
of undistributed taxable gains, if any, during 2005.
At June 30, 2005, the Company had $156,533 outstanding under its $370,000 combined line of credit
facilities. The Companys credit facilities mature in January 2007. Management believes it will
have adequate capacity under its facilities to execute its business plan and meet its short-term
liquidity requirements. The Company intends to reduce its outstanding borrowings under its
revolving lines of credit through a combination of permanent financing and asset sales (as
discussed above). A further discussion of the terms of the Companys line of credit agreements is
included in note 2 to the consolidated financial statements.
Long-term Debt Issuances and Retirements
A summary of the Companys outstanding debt and debt maturities at June 30, 2005 is included in
note 2 to the consolidated financial statements. A discussion of changes in secured and unsecured
debt during the first half of 2005 is discussed below.
Upon their maturity in February 2005, the Company repaid $25,000 of its 7.28% medium term,
unsecured notes, from available borrowings under its unsecured lines of credit. In March 2005, the
Company repaid its $100,000 outstanding principal balance under the 6.85% Mandatory Par Put
Remarketed Securities (MOPPRS) debt arrangement.
In May 2005, the Company issued $100,000 of senior unsecured notes. The notes bear interest at
5.45% and mature in June 2012. The net proceeds from the unsecured notes were used to reduce
amounts outstanding under the Companys unsecured lines of credit. Upon their maturity in June
2005, the Company repaid $62,043 of its 8.125% medium term, unsecured notes, from available
borrowings under its unsecured lines of credit.
In May 2005, the Company sold two apartment communities subject to the assumption of $34,060 of
tax-exempt mortgage indebtedness (see note 4). As a result of this debt assumption, the Company
recorded a loss on early extinguishment of debt of $1,374 ($1,296 net of minority interest) related
to the write-off of deferred loan costs of $966 ($911 net of minority interest) relating to such
assumed indebtedness and the realization of a $408 ($385 net of minority interest) loss in
connection with the termination of related interest rate cap agreements that were used as cash flow
hedges of assumed debt.
-44-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Stock Repurchase Program
In the fourth quarter of 2004, the Companys board of directors adopted a new stock repurchase
program under which the Company may repurchase up to $200,000 of common or preferred stock at
market prices from time to time until December 31, 2006. In the three and six months ended June 30,
2005, the Company repurchased $12,237 and $21,283, respectively of common stock under 10b5-1 stock
purchase plans, the latest of which will expire on August 31, 2005. In addition for the six months
ended June 30, 2005, the Company received approximately 2 shares of common stock at an aggregate
cost of $83 from certain employees through the surrender of such shares to satisfy tax withholding
obligations under the Companys existing stock compensation plans.
Subsequent to quarter-end through July 31, 2005, the Company has repurchased an additional $1,357
of its common stock under a 10b5-1 stock purchase plan.
Capitalization of Fixed Assets and Community Improvements
The Company has a policy of capitalizing those expenditures relating to the acquisition of new
assets and the development and construction of new apartment and condominium communities. In
addition, the Company capitalizes expenditures that enhance the value of existing assets and
expenditures that substantially extend the life of existing assets. All other expenditures
necessary to maintain a community in ordinary operating condition are expensed as incurred.
Additionally, for new development communities, carpet, vinyl and blind replacements are expensed as
incurred during the first five years (which corresponds to the estimated depreciable life of these
assets) after construction completion. Thereafter, these replacements are capitalized. Further,
the Company expenses as incurred all interior and exterior painting of communities.
In conjunction with acquisitions of existing communities, it is the Companys policy to provide in
its acquisition budgets adequate funds to complete any deferred maintenance items and to otherwise
make the communities acquired competitive with comparable newly-constructed communities. In some
cases, the Company will provide in its acquisition budgets additional funds to upgrade or otherwise
improve new acquisitions. Such costs are generally capitalized as costs of the acquired
communities, when identified and included as part of an approved capital budget at the time of
acquisition and when incurred during the twelve months subsequent to the acquisition date.
The Company capitalizes interest, real estate taxes, and certain internal personnel and associated
costs related to apartment communities under development and construction. The incremental
personnel and associated costs are capitalized to the projects under development based upon the
effort identifiable with such projects. 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
included in construction in progress. The Company ceases the capitalization of such costs as the
residential units in a community become substantially complete and available for occupancy. This
practice results in a pro-ration of these costs between amounts that are capitalized and expensed
as the residential units in a development community become available for occupancy. In addition,
prior to the completion of units, the Company expenses as incurred substantially all operating
expenses (including pre-opening marketing expenses) of such communities.
-45-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Acquisition of assets and community development and other capitalized expenditures for the three
and six months ended June 30, 2005 and 2004 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
New community development and acquisition activity (1) |
|
$ |
78,410 |
|
|
$ |
37,249 |
|
|
$ |
93,397 |
|
|
$ |
37,542 |
|
Non-recurring capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue generating additions and improvements (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
Other community additions and improvements (3) |
|
|
1,127 |
|
|
|
1,302 |
|
|
|
2,029 |
|
|
|
2,546 |
|
Recurring capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet replacements and other community additions
and improvements (4) |
|
|
2,864 |
|
|
|
2,771 |
|
|
|
4,822 |
|
|
|
5,193 |
|
Corporate additions and improvements |
|
|
278 |
|
|
|
153 |
|
|
|
978 |
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
82,679 |
|
|
$ |
41,475 |
|
|
$ |
101,226 |
|
|
$ |
45,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest |
|
$ |
416 |
|
|
$ |
261 |
|
|
$ |
783 |
|
|
$ |
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized development costs and fees (5) |
|
$ |
316 |
|
|
$ |
250 |
|
|
$ |
566 |
|
|
$ |
499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects aggregate community development costs, exclusive of the
change in construction payables between years. |
|
(2) |
|
Represents expenditures for major renovations of communities,
water sub-metering equipment and other upgrade costs that enhance the
rental value of such units. |
|
(3) |
|
Represents property improvement expenditures that generally occur
less frequently than on an annual basis. |
|
(4) |
|
Represents property improvement expenditures of a type that are
expected to be incurred on an annual basis. |
|
(5) |
|
Reflects internal personnel and associated costs capitalized to
construction and development activities. |
Current Development Activity
At June 30, 2005, the Company had one community under development containing 350 apartment and
for-sale condominium units. This community is summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
Amount |
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Construction |
|
Spent |
|
Quarter of |
|
Quarter of |
|
Quarter of |
|
|
|
|
|
|
Cost |
|
as of |
|
Construction |
|
First Units |
|
Stabilized |
Metropolitan Area |
|
Number of Units |
|
($ in millions) |
|
06/30/2005 |
|
Start |
|
Available |
|
Occupancy (1) |
Construction/Lease-up
Communities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington D.C. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post
CarlyleTM Apartment and Condominiums (2) |
|
|
350 |
|
|
$ |
97 |
|
|
$ |
34 |
|
|
|
4Q 2004 |
|
|
|
2Q 2006 |
|
|
|
2Q 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Lease-Up Communities |
|
|
350 |
|
|
$ |
97 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company defines stabilized occupancy as the earlier to occur of (i) the
attainment of 95% physical occupancy on the first day of any month or (ii) one year
after completion of construction. |
|
(2) |
|
The condominium component of the project, consisting of 145 units, is being developed
in a majority owned joint venture with a Washington D.C. based developer. As of July
29, 2005, the Company has 64 units under contract for sale upon completion and delivery
of the units. The first condominium units at this project are expected to be delivered
in late 2006. There can be no assurance that condominium units under contract will
close. |
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 Companys lease agreements generally 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 Companys policy generally permits the earlier
termination of a lease by a lessee upon thirty (30) days written notice to the Company and the
payment of an amount equal to two months 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.
-46-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Funds from Operations
The Company uses the National Association of Real Estate Investment Trusts (NAREIT) definition of
funds from operations (FFO). FFO is defined by NAREIT as net income available to common
shareholders determined in accordance with GAAP, excluding gains (or losses) from extraordinary
items and sales of depreciable 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 GAAP. FFO is a supplemental non-GAAP financial measure. FFO presented herein
is not necessarily comparable to FFO presented by other real estate companies because not all real
estate companies use the same definition. The Companys FFO is comparable to the FFO of real
estate companies that use the current NAREIT definition.
The Company also uses FFO as an operating measure. Accounting for real estate assets using
historical cost accounting under GAAP assumes that the value of real estate assets diminishes
predictably over time. NAREIT stated in its April 2002 White Paper on Funds from Operations since
real estate asset values have historically risen or fallen with market conditions, many industry
investors have considered presentations of operating results for real estate companies that use
historical cost accounting to be insufficient by themselves. As a result, the concept of FFO was
created by NAREIT for the REIT industry to provide an alternate measure. Since the Company agrees
with the concept of FFO and appreciates the reasons surrounding its creation, management believes
that FFO is an important supplemental measure of operating performance. In addition, since most
equity REITs provide FFO information to the investment community, the Company believes FFO is a
useful supplemental measure for comparing the Companys results to those of other equity REITs.
The Company believes that the line on the Companys consolidated statement of operations entitled
net income available to common shareholders is the most directly comparable GAAP measure to FFO.
FFO should not be considered as an alternative to net income available to common shareholders
(determined in accordance with GAAP) as an indicator of the Companys financial performance. While
management believes that FFO is an important supplemental non-GAAP financial measure, management
believes it is also important to stress that FFO should not be considered as an alternative to cash
flow from operating activities (determined in accordance with GAAP) as a measure of the Companys
liquidity. Further, FFO is not necessarily indicative of sufficient cash flow to fund all of the
Companys needs or ability to service indebtedness or make distributions.
A reconciliation of net income available to common shareholders and unitholders to FFO is provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net income available to common shareholders |
|
$ |
56,534 |
|
|
$ |
99,201 |
|
|
$ |
59,302 |
|
|
$ |
98,296 |
|
Minority interest of common unitholders continuing operations |
|
|
(159 |
) |
|
|
(365 |
) |
|
|
(200 |
) |
|
|
(964 |
) |
Minority interest in discontinued operations (1) |
|
|
3,575 |
|
|
|
7,574 |
|
|
|
3,783 |
|
|
|
8,102 |
|
Depreciation on wholly-owned real estate assets, net (2) |
|
|
18,636 |
|
|
|
20,107 |
|
|
|
37,385 |
|
|
|
40,145 |
|
Depreciation on real estate assets held in unconsolidated entities |
|
|
224 |
|
|
|
331 |
|
|
|
521 |
|
|
|
662 |
|
Gains on sales of real estate assets, net of provision for income
taxes discontinued operations |
|
|
(62,480 |
) |
|
|
(112,112 |
) |
|
|
(62,839 |
) |
|
|
(113,739 |
) |
Incremental gains on condominium sales, net of provision for income
taxes (3) |
|
|
5,971 |
|
|
|
|
|
|
|
6,330 |
|
|
|
|
|
Gains on sales of real estate assets unconsolidated entities |
|
|
(201 |
) |
|
|
|
|
|
|
(201 |
) |
|
|
|
|
Incremental gains on condominium sales unconsolidated entities (3) |
|
|
35 |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations available to common shareholders
and unitholders (4) |
|
$ |
22,135 |
|
|
$ |
14,736 |
|
|
$ |
44,116 |
|
|
$ |
32,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
27,025 |
|
|
$ |
29,608 |
|
|
$ |
50,648 |
|
|
$ |
58,500 |
|
Investing activities |
|
$ |
15,587 |
|
|
$ |
96,412 |
|
|
$ |
(9,616 |
) |
|
$ |
145,209 |
|
Financing activities |
|
$ |
(41,378 |
) |
|
$ |
(87,676 |
) |
|
$ |
(36,986 |
) |
|
$ |
(149,752 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
39,930 |
|
|
|
39,807 |
|
|
|
40,048 |
|
|
|
39,595 |
|
Weighted average shares and units outstanding basic |
|
|
42,325 |
|
|
|
42,478 |
|
|
|
42,469 |
|
|
|
42,469 |
|
Weighted average shares outstanding diluted (5) |
|
|
40,180 |
|
|
|
39,853 |
|
|
|
40,284 |
|
|
|
39,645 |
|
Weighted average shares and units outstanding diluted (5) |
|
|
42,575 |
|
|
|
42,524 |
|
|
|
42,705 |
|
|
|
42,520 |
|
|
|
|
(1) |
|
Represents the minority interest in earnings and gains (losses) on properties held for sale
and sold reported as discontinued operations for the periods presented. |
|
(2) |
|
Depreciation on wholly-owned real estate assets is net of the minority interest portion of
depreciation in consolidated entities. |
|
(3) |
|
The Company recognizes incremental gains on condominium sales in FFO, net of provision for
income taxes to the extent that net sales proceeds from the sale of condominium units exceeds
the greater of their fair value or net book value as of the date the property is acquired by
its taxable REIT subsidiary. |
|
(4) |
|
Funds from operations for the three and six months ended June 30, 2005 include a loss of
$1,374 from the early extinguishment of debt associated with asset sales and for the six
months ended June 30, 2005 FFO includes a gain of $5,267 on the sale of a technology
investment. Funds from operation for the three months ended June 30, 2004,
include a loss of $4,128 from the early extinguishment of debt associated with asset sales and
a $626 asset impairment charge. Funds from operations for the six months ended June 30, 2004
also include a reduction for preferred stock redemption costs of $1,716. |
|
(5) |
|
Diluted weighted average shares and units for the three months ended June 30, 2005 and 2004
include 250 and 46 shares and units, respectively, that were antidilutive to all income (loss)
per share computations under generally accepted accounting principles. Diluted weighted
average shares and units for the six months ended June 30, 2005 and 2004 include 236 and 51
shares and units, respectively, that were antidilutive to all income (loss) per share
computations under generally accepted accounting principles. |
-47-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys primary market risk exposure is interest rate risk. At June 30, 2005, the Company had
$255,033 of variable rate debt tied to LIBOR. In addition, the Company had $75,995 of variable
tax-exempt debt with interest based on the FNMA AAA tax-exempt rate. In addition, the Company has
interest rate risk associated with fixed rate debt at maturity. The discussion in this section is
the same for the Company and the Operating Partnership, except that all indebtedness described
herein has been incurred by the Operating Partnership.
Management has and will continue to manage interest rate risk as follows:
|
|
maintain a conservative ratio of fixed rate, long-term debt to total debt such that
variable rate exposure is kept at an acceptable level; |
|
|
|
fix certain long-term variable rate debt through the use of interest rate swaps or
interest rate caps with appropriately matching maturities; |
|
|
|
use treasury locks where appropriate to fix rates on anticipated debt transactions; and |
|
|
|
take advantage of favorable market conditions for long-term debt and/or equity. |
Management uses various financial models and advisors to achieve these objectives.
The table below provides information about the Companys derivative financial instruments at June
30, 2005 that are sensitive to changes in interest rates. For interest rate swap and cap
arrangements, the table presents notional amounts and weighted average interest rates by expected
contractual maturity dates. Notional amounts are used to calculate the contractual payments to be
exchanged under the contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected |
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Settlement |
|
|
Interest Rate Derivatives |
|
Notional Amount |
|
Pay Rate/Cap Rate |
|
Receive Rate |
|
Date |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liab.) |
Interest Rate Swap
Variable to fixed |
|
$104,000 amortizing |
|
|
6.04 |
% |
|
1 month LIBOR |
|
|
7/31/09 |
|
|
$ |
(7,358 |
) |
|
|
to $90,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Cap |
|
$ |
75,995 |
|
|
|
5.00 |
% |
|
|
|
|
|
|
2/01/08 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(7,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As more fully described in note 6 to the consolidated financial statements, the interest rate
swap and cap arrangements are carried on the consolidated balance sheet at the fair value shown
above in accordance with SFAS No. 133, as amended. If interest rates under the Companys floating
rate LIBOR-based and tax-exempt borrowings, in excess of the $98,500 FNMA borrowings effectively
converted to fixed rates discussed above, fluctuated by 1.0%, interest costs to the Company, based
on outstanding borrowings at June 30, 2005, would increase or decrease by approximately $2,325 on
an annualized basis.
There have been no material changes in the value of the Companys fixed debt since December 31,
2004.
ITEM 4. CONTROLS AND PROCEDURES
As required by Securities and Exchange Commission rules, the Company has evaluated the
effectiveness of the design and operation of its disclosure controls and procedures as of the end
of the period covered by this quarterly report on Form 10-Q. This evaluation was carried out under
the supervision and with the participation of the Companys management, including its principal
executive officer and principal financial officer. Based on this evaluation, these officers have
concluded that the design and operation of the Companys disclosure control and procedures were
effective as of the end of the period covered by this quarterly report on Form 10-Q. Disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 as amended (the Exchange Act)) are the Companys controls and other procedures that
are designed to ensure that information required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions rules and forms.
In the second quarter of 2005, the Company began the implementation of new information systems
responsible for reporting property management operations and for general procurement and accounts
payable processing. As part of the implementation, the Company modified its internal controls over
financial reporting, as necessary, to align its controls with the new technology. The Company
anticipates that it will continue to implement these new information systems through the end of
2005, and in that process, expects that there may be future changes
in internal controls. Other than
the changes related to these information system implementations, there were no changes to the
Companys internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
under the Exchange Act) during the period covered by this report that materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.
-48-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 13, 2004, an alleged Company shareholder filed a purported pro se derivative and direct
action in the Superior Court of Fulton County, Georgia, against the Company, certain members of the
Companys board of directors, and certain of its executive officers. The case was removed to the
United States District Court for the Northern District of Georgia on May 21, 2004. The complaint
alleged, among other things, breaches of fiduciary duties, fraud, corporate waste, withholding
certain documents from shareholder inspection and certain securities laws claims. The complaint
requested various types of relief, such as injunctive relief and damages and demanded production of
certain Company records. Because the Company believed the allegations were wholly without merit,
the Company moved to dismiss the litigation. On April 20, 2005, the court entered an order
dismissing all claims without prejudice, save a claim seeking production of certain Company
records, upon which the Court declined to rule, concluding it lacked jurisdiction to do so, and
ordered the claim remanded to the Superior Court of Fulton County. Since that time, the Company
has moved for their attorney fees in the United States District Court, arguing that the plaintiff
frivolously pursued the litigation, and the plaintiff has moved for entry of judgment in Superior
Court, which the Company has vigorously contested.
On May 5, 2003, the Company received notice that a shareholder derivative and purported class
action lawsuit was filed against members of the board of directors of the Company and the Company
as a nominal defendant. This complaint was filed in the Superior Court of Fulton County, Atlanta,
Georgia on May 2, 2003 and alleged various breaches of fiduciary duties by the board of directors
of the Company and sought, among other relief, the disclosure of certain information by the
defendants. This complaint also sought to compel the defendants to undertake various actions to
facilitate a sale of the Company. On May 7, 2003, the plaintiff made a request for voluntary
expedited discovery. On May 13, 2003, the Company received notice that a similar shareholder
derivative and purported class action lawsuit was filed against certain members of the board of
directors of the Company and against the Company as a nominal defendant. The complaint was filed in
the Superior Court of Fulton County, Atlanta, Georgia on May 12, 2003 and alleged breaches of
fiduciary duties, abuse of control and corporate waste by the defendants. The plaintiff sought
monetary damages and, as appropriate, injunctive relief. These lawsuits were settled, and in
October 2004, the Superior Court of Fulton County entered an order approving the settlement and
related orders dismissing the litigation. The estimated legal and settlement costs, not covered by
insurance, associated with the expected resolution of the lawsuits were recorded in the second
quarter of 2003 as a component of a proxy contest and related costs charge. An alleged Company
shareholder, who had filed a separate purported derivative and direct action against the Company
and certain of its officers and directors (which is described in the paragraph above), has appealed
from the Superior Courts orders approving the settlement, overruling the shareholders objection
to the settlement denying the shareholders motion to intervene, and dismissing the litigation with
prejudice. The Company is contesting the alleged shareholders appeal vigorously.
The Company is involved in various other legal proceedings incidental to its business from time to
time, most of which are expected to be covered by liability or other insurance. Management of the
Company believes that any resolution of pending proceedings or liability to the Company which may
arise as a result of these proceedings will not have a material adverse effect on the Companys
results of operations or financial position.
-49-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
(a) |
|
through (b) None |
|
|
(c) |
|
The following table summarizes the Companys purchases of its equity securities
in the three months ended June 30, 2005 (in thousands, except per share amounts). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Dollar Value of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
as Part of Publicly |
|
Yet Be Purchased |
|
|
Total Number of |
|
Average Price Paid |
|
Announced Plans |
|
Under the Plans |
Period |
|
Shares Purchased |
|
Per Share |
|
or Programs |
|
or Programs (1) |
April 1, 2005 to
April 30, 2005 |
|
|
206 |
|
|
$ |
30.75 |
|
|
|
206 |
|
|
$ |
184,607 |
|
May 1, 2005 to
May 31, 2005 |
|
|
62 |
|
|
$ |
32.34 |
|
|
|
62 |
|
|
$ |
182,608 |
|
June 1, 2005 to
June 30, 2005 |
|
|
107 |
|
|
$ |
36.43 |
|
|
|
107 |
|
|
$ |
178,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
375 |
|
|
$ |
32.63 |
|
|
|
375 |
|
|
$ |
178,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In the fourth quarter of 2004, the Companys board of directors
approved a stock repurchase program under which the Company may
repurchase up to $200,000 of common or preferred stock through
December 31, 2006. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Companys Annual Meeting of Shareholders was held on May 19, 2005. The following
proposals were adopted by the shareholders of the Company at the Annual Meeting:
Election of Directors
Nominees for Board of Directors
|
|
|
|
|
|
|
For |
|
Withheld |
Robert C. Goddard, III |
|
36,796,389 |
|
715,973 |
David P. Stockert |
|
36,714,502 |
|
797,860 |
Herschel M. Bloom |
|
36,333,903 |
|
1,178,459 |
Douglas Crocker III |
|
36,716,009 |
|
796,353 |
Walter M. Deriso, Jr. |
|
36,318,049 |
|
1,194,313 |
Russell R. French |
|
35,956,528 |
|
1,555,834 |
Nicholas B. Paumgarten |
|
36,285,362 |
|
1,227,000 |
Charles E. Rice |
|
36,790,750 |
|
721,612 |
Ronald de Waal |
|
36,799,121 |
|
713,241 |
A Proposal To Adopt The 2005 Non-Qualified Employee Stock Purchase Plan
|
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker Non-Votes |
28,471,436
|
|
2,596,103
|
|
582,266
|
|
5,862,556 |
ITEM 5. OTHER INFORMATION
None
-50-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
ITEM 6. EXHIBITS
Certain exhibits required by Item 601 of Regulation S-K have been filed with previous reports (as
indicated in the footnotes to this Exhibit Table) and are incorporated by reference herein.
|
|
|
(a)
|
|
Exhibits |
|
|
|
3.1(a)
|
|
Articles of Incorporation of the Company. |
|
|
|
3.2(b)
|
|
Articles of Amendment to the Articles of Incorporation of the Company. |
|
|
|
3.3(b)
|
|
Articles of Amendment to the Articles of Incorporation of the Company. |
|
|
|
3.4(b)
|
|
Articles of Amendment to the Articles of Incorporation of the Company. |
|
|
|
3.5(c)
|
|
Articles of Amendment to the Articles of Incorporation of the Company. |
|
|
|
3.6(d)
|
|
Bylaws of the Company, as Amended and Restated as of November 5, 2003, as further amended
effective May 27, 2004. |
|
|
|
4.1(e)
|
|
Indenture between the Company and SunTrust Bank, as Trustee. |
|
|
|
4.2(e)
|
|
First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee. |
|
|
|
10.1
|
|
Purchase and Sale Agreement, dated June 10, 2005, by and among Post Apartment Homes, L.P. and
RREEF America, L.L.C. |
|
|
|
10.2(f)
|
|
2005 Post Properties, Inc. Non-Qualified Employee Stock Purchase Plan. |
|
|
|
11.1(g)
|
|
Statement Regarding Computation of Per Share Earnings. |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
(a) |
|
Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as
amended, of the Company and incorporated herein by reference. |
|
(b) |
|
Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2002 and incorporated herein by reference. |
|
(c) |
|
Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 1999 and incorporated herein by reference. |
|
(d) |
|
Filed as Appendix A to the 2004 proxy statement and incorporated herein by reference. |
|
(e) |
|
Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884), as
amended, of the Company and incorporated herein by reference. |
|
(f) |
|
Filed as Appendix A to the 2005 proxy statement and incorporated herein by reference. |
|
(g) |
|
The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference. |
-51-
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 9, 2005 |
By |
/s/ David P. Stockert
|
|
|
|
David P. Stockert |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
August 9, 2005 |
By |
/s/ Christopher J. Papa
|
|
|
|
Christopher J. Papa |
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
August 9, 2005 |
By |
/s/ Arthur J. Quirk
|
|
|
|
Arthur J. Quirk |
|
|
|
Senior Vice President and Chief Accounting Officer |
|
-52-
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 APARTMENT HOMES, L.P. |
|
|
By: |
Post GP Holdings, Inc., its sole general partner |
|
|
|
|
|
August 9, 2005 |
By |
/s/ David P. Stockert |
|
|
|
David P. Stockert
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
August 9, 2005 |
By |
/s/ Christopher J. Papa
|
|
|
|
Christopher J. Papa |
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
August 9, 2005 |
By |
/s/ Arthur J. Quirk
|
|
|
|
Arthur J. Quirk |
|
|
|
Senior Vice President and Chief Accounting Officer |
|
|
-53-
EXHIBIT INDEX
|
|
|
(a)
|
|
Exhibits |
|
|
|
3.1(a)
|
|
Articles of Incorporation of the Company. |
|
|
|
3.2(b)
|
|
Articles of Amendment to the Articles of Incorporation of the Company. |
|
|
|
3.3(b)
|
|
Articles of Amendment to the Articles of Incorporation of the Company. |
|
|
|
3.4(b)
|
|
Articles of Amendment to the Articles of Incorporation of the Company. |
|
|
|
3.5(c)
|
|
Articles of Amendment to the Articles of Incorporation of the Company. |
|
|
|
3.6(d)
|
|
Bylaws of the Company, as Amended and Restated as of November 5, 2003, as further amended
effective May 27, 2004. |
|
|
|
4.1(e)
|
|
Indenture between the Company and SunTrust Bank, as Trustee. |
|
|
|
4.2(e)
|
|
First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee. |
|
|
|
10.1
|
|
Purchase and Sale Agreement, dated June 10, 2005, by and among Post Apartment Homes, L.P. and
RREEF America, L.L.C. |
|
|
|
10.2(f)
|
|
2005 Post Properties, Inc. Non-Qualified Employee Stock Purchase Plan. |
|
|
|
11.1(g)
|
|
Statement Regarding Computation of Per Share Earnings. |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the
Sarbanes-Oxley Act of 2002. |
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32.1
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Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under
Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under
Section 906 of the Sarbanes-Oxley Act of 2002. |
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(a) |
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Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as
amended, of the Company and incorporated herein by reference. |
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(b) |
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Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2002 and incorporated herein by reference. |
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(c) |
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Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 1999 and incorporated herein by reference. |
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(d) |
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Filed as Appendix A to the 2004 proxy statement and incorporated herein by reference. |
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(e) |
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Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884), as
amended, of the Company and incorporated herein by reference. |
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(f) |
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Filed as Appendix A to the 2005 proxy statement and incorporated herein by reference. |
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(g) |
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The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference. |
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