UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2008
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
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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
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58-1550675
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Georgia
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58-2053632
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification No.)
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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
þ
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No
o
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Post Apartment Homes, L.P.
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Yes
þ
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No
o
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Indicate by check mark whether the registrants are large accelerated filers, accelerated filers,
non-accelerated filers or smaller reporting company.
See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act.
Post Properties, Inc.
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Post Apartment Homes, L.P.
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the
Exchange Act).
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Post Properties, Inc.
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Yes
o
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No
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Post Apartment Homes, L.P.
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Yes
o
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No
þ
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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:
44,111,921 shares of common stock outstanding as of May 1, 2008.
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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March 31,
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December 31,
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2008
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2007
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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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$
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272,168
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$
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276,680
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Building and improvements
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1,819,259
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1,840,563
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Furniture, fixtures and equipment
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201,484
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204,433
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Construction in progress
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149,550
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134,125
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Land held for future development
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159,736
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154,617
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2,602,197
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2,610,418
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Less: accumulated depreciation
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(553,589
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)
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(562,226
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)
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For-sale condominiums
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33,912
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38,844
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Assets held for sale, net of accumulated depreciation of $24,333 and
$4,031 at March 31, 2008 and December 31, 2007, respectively
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36,464
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24,576
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Total real estate assets
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2,118,984
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2,111,612
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Investments in and advances to unconsolidated real estate entities
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22,958
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23,036
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Cash and cash equivalents
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15,879
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11,557
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Restricted cash
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8,759
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5,642
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Deferred charges, net
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10,802
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10,538
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Other assets
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35,038
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105,756
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Total assets
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$
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2,212,420
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$
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2,268,141
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Liabilities and shareholders equity
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Indebtedness
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$
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1,015,645
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$
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1,059,066
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Accounts payable and accrued expenses
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93,446
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100,215
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Dividend and distribution payable
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19,982
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19,933
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Accrued interest payable
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13,386
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4,388
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Security deposits and prepaid rents
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15,038
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11,708
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Total liabilities
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1,157,497
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1,195,310
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Minority interest of common unitholders in Operating Partnership
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6,710
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10,354
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Minority interests in consolidated real estate entities
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4,284
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3,972
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Total minority interests
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10,994
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14,326
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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
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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
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Common stock, $.01 par value, 100,000 authorized:
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44,096 and 43,825 shares issued, 44,096 and 43,825 shares outstanding
at March 31, 2008 and December 31, 2007, respectively
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441
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438
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Additional paid-in-capital
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880,767
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874,928
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Accumulated earnings
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170,919
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189,985
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Accumulated other comprehensive income (loss)
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(5,151
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)
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(3,962
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)
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1,047,005
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1,061,418
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Less common stock in treasury, at cost, 76 and 72 shares
at March 31, 2008 and December 31, 2007, respectively
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(3,076
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(2,913
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Total shareholders equity
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1,043,929
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1,058,505
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Total liabilities and shareholders equity
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$
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2,212,420
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$
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2,268,141
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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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March 31,
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2008
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2007
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Revenues
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Rental
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$
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71,130
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$
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69,229
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Other property revenues
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3,558
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3,672
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Other
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239
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117
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Total revenues
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74,927
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73,018
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Expenses
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Property operating and maintenance (exclusive of items
shown separately below)
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35,613
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34,120
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Depreciation
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15,961
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16,255
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General and administrative
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5,848
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5,448
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Investment, development and other
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1,458
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1,550
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Strategic review costs
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6,070
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Total expenses
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64,950
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57,373
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Operating income
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9,977
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15,645
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Interest income
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210
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250
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Interest expense
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(11,703
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(12,741
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Amortization of deferred financing costs
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(851
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(812
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Gains on sales of real estate assets, net
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2,119
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3,706
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Equity in income of unconsolidated real estate entities
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401
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504
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Other income (expense)
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(174
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(261
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Minority interest in consolidated property partnerships
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(466
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(20
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Minority interest of common unitholders
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22
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(67
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Income (loss) from continuing operations
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(465
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)
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6,204
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Discontinued operations
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Income from discontinued property operations, net of
minority interest
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861
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1,377
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Gains on sales of real estate assets, net of minority interest
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2,290
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16,890
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Income from discontinued operations
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3,151
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18,267
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Net income
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2,686
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24,471
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Dividends to preferred shareholders
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(1,909
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)
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(1,909
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)
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Net income available to common shareholders
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$
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777
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$
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22,562
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Per common share data Basic
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Income (loss) from continuing operations
(net of preferred dividends)
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$
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(0.05
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)
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$
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0.10
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Income from discontinued operations
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0.07
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0.42
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Net income available to common shareholders
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$
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0.02
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$
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0.52
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Weighted average common shares outstanding basic
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43,875
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43,367
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Per common share data Diluted
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Income (loss) from continuing operations
(net of preferred dividends)
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$
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(0.05
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)
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$
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0.10
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Income from discontinued operations
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0.07
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$
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0.41
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Net income available to common shareholders
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$
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0.02
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$
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0.51
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Weighted average common shares outstanding diluted
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43,875
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44,101
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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)
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Accumulated
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Additional
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Other
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Preferred
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Common
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Paid-in
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Accumulated
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Comprehensive
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Treasury
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Stock
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Stock
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Capital
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Earnings
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Income (Loss)
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Stock
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Total
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Shareholders Equity and Accumulated
Earnings, December 31, 2007
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$
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29
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$
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438
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$
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874,928
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$
|
189,985
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$
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(3,962
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)
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$
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(2,913
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)
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$
|
1,058,505
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Comprehensive income
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Net income
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2,686
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2,686
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Net change in derivatives, net of minority
interest
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(1,172
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)
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(1,172
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)
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|
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Total comprehensive income
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1,514
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Proceeds from employee stock purchase, stock
option and other plans
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1
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|
1,618
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|
|
|
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|
|
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(643
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)
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|
976
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Adjustment for minority interest of unitholders
in Operating Partnership upon conversion of
units into common shares and at dates of
capital transactions
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2
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|
|
3,047
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|
|
|
|
|
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(17
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)
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|
480
|
|
|
|
3,512
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Stock-based compensation, net of
minority interest
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|
|
|
|
|
|
|
|
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1,174
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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1,174
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Dividends to preferred shareholders
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(1,909
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)
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|
|
|
|
|
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(1,909
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)
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Dividends to common shareholders
($0.45 per share)
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(19,843
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)
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|
|
|
|
|
|
|
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(19,843
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)
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|
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|
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|
|
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|
|
|
|
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Shareholders Equity and Accumulated
Earnings, March 31, 2008
|
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$
|
29
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$
|
441
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|
|
$
|
880,767
|
|
|
$
|
170,919
|
|
|
$
|
(5,151
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)
|
|
$
|
(3,076
|
)
|
|
$
|
1,043,929
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
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)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,686
|
|
|
$
|
24,471
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
16,188
|
|
|
|
17,044
|
|
Amortization of deferred financing costs
|
|
|
851
|
|
|
|
812
|
|
Minority interest of common unitholders in Operating Partnership
|
|
|
(22
|
)
|
|
|
67
|
|
Minority interest in discontinued operations
|
|
|
29
|
|
|
|
284
|
|
Minority interest in consolidated entities
|
|
|
466
|
|
|
|
20
|
|
Gains on sales of real estate assets
|
|
|
(4,430
|
)
|
|
|
(20,859
|
)
|
Other expense (income)
|
|
|
281
|
|
|
|
281
|
|
Equity in income of unconsolidated entities
|
|
|
(401
|
)
|
|
|
(504
|
)
|
Distributions of earnings of unconsolidated entities
|
|
|
686
|
|
|
|
796
|
|
Deferred compensation
|
|
|
133
|
|
|
|
136
|
|
Stock-based compensation
|
|
|
1,185
|
|
|
|
926
|
|
Changes in assets, (increase) decrease in:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(357
|
)
|
|
|
780
|
|
Deferred charges
|
|
|
(93
|
)
|
|
|
(14
|
)
|
Changes in liabilities, increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
8,998
|
|
|
|
8,923
|
|
Accounts payable and accrued expenses
|
|
|
(6,598
|
)
|
|
|
(6,878
|
)
|
Security deposits and prepaid rents
|
|
|
213
|
|
|
|
295
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
19,815
|
|
|
|
26,580
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Construction and acquisition of real estate assets, net of payables
|
|
|
(34,216
|
)
|
|
|
(26,479
|
)
|
Net proceeds from sales of real estate assets
|
|
|
95,131
|
|
|
|
34,665
|
|
Capitalized interest
|
|
|
(3,383
|
)
|
|
|
(3,107
|
)
|
Annually recurring capital expenditures
|
|
|
(2,258
|
)
|
|
|
(2,616
|
)
|
Periodically recurring capital expenditures
|
|
|
(1,593
|
)
|
|
|
(2,305
|
)
|
Community rehabilitation and other revenue generating capital expenditures
|
|
|
(3,508
|
)
|
|
|
(4,667
|
)
|
Corporate additions and improvements
|
|
|
(231
|
)
|
|
|
(1,261
|
)
|
Distributions from (investments in and advances to) unconsolidated entities
|
|
|
(15
|
)
|
|
|
995
|
|
Note receivable collections and other investments
|
|
|
499
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
50,426
|
|
|
|
(4,796
|
)
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Lines of credit proceeds (repayments), net
|
|
|
(162,623
|
)
|
|
|
1,230
|
|
Proceeds from indebtedness
|
|
|
120,000
|
|
|
|
|
|
Payments on indebtedness
|
|
|
(1,233
|
)
|
|
|
(1,025
|
)
|
Payments of financing costs
|
|
|
(910
|
)
|
|
|
(164
|
)
|
Treasury stock acquisitions
|
|
|
|
|
|
|
(3,694
|
)
|
Proceeds from employee stock purchase and stock options plans
|
|
|
843
|
|
|
|
2,783
|
|
Capital contributions (distributions) of minority interests
|
|
|
(154
|
)
|
|
|
200
|
|
Distributions to common unitholders
|
|
|
(212
|
)
|
|
|
(317
|
)
|
Dividends paid to preferred shareholders
|
|
|
(1,909
|
)
|
|
|
|
|
Dividends paid to common shareholders
|
|
|
(19,721
|
)
|
|
|
(19,573
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(65,919
|
)
|
|
|
(20,560
|
)
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
4,322
|
|
|
|
1,224
|
|
Cash and cash equivalents, beginning of period
|
|
|
11,557
|
|
|
|
3,663
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
15,879
|
|
|
$
|
4,887
|
|
|
|
|
|
|
|
|
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 or unit and apartment unit data)
1.
|
|
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
|
|
|
|
Organization
|
|
|
|
Post Properties, Inc. and its subsidiaries develop, own and manage upscale multifamily
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 March 31, 2008, the Company owned 22,437 apartment units
in 62 apartment communities, including 1,747 apartment units in five communities held in
unconsolidated entities and 2,266 apartment units in seven communities (and the expansion of one
community) currently under construction and/or in lease-up. The Company is also developing and
selling 535 for-sale condominium homes in four communities (including 137 units in one community
held in an unconsolidated entity) and is converting apartment homes in two communities initially
consisting of 349 units into for-sale condominium homes through a taxable REIT subsidiary. At
March 31, 2008, approximately 41.6%, 18.6%, 12.4% and 10.3% (on a unit basis) of the Companys
operating communities were located in the Atlanta, Dallas, the greater Washington D.C. and Tampa
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 is generally not subject to federal income tax on the
income it distributes to its shareholders.
|
|
|
|
At March 31, 2008, the Company had outstanding 44,096 shares of common stock and owned the same
number of units of common limited partnership interests (Common Units) in the Operating
Partnership, representing a 99.3% common ownership interest in the Operating Partnership. Common
Units held by persons other than the Company totaled 309 at March 31, 2008 and represented a
0.7% 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 99.1% and 98.5% for the three
months ended and March 31, 2008 and 2007, respectively.
|
|
|
|
Possible business combination
|
|
|
|
On January 23, 2008, the Company announced that its Board of Directors had authorized
management, working with financial and legal advisors, to initiate a formal process to pursue a
possible business combination or other sale transaction and to seek proposals from potentially
interested parties. The process commenced immediately after the announcement and is continuing.
There can be no assurance that the process will result in any transaction leading into a
business combination or other sale transaction. For the three months ended March 31, 2008, the
Company incurred approximately $6,070 of strategic review costs related to this process.
|
|
|
|
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 months ended March 31,
2008 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, as amended, for the
year ended December 31, 2007.
|
|
|
|
The accompanying consolidated financial statements include the consolidated accounts of the
Company, the Operating Partnership and their wholly owned subsidiaries. The Company also
consolidates other entities in which it has a controlling financial interest or entities where
it is determined to be the primary beneficiary under Financial Accounting Standards Board
Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities. Under FIN
46R, variable interest entities (VIEs) are generally entities that lack sufficient equity to
finance their activities without additional financial support from other parties or whose equity
holders lack adequate decision making ability. The primary beneficiary is required to
consolidate a VIE for financial reporting purposes. The application of FIN 46R requires
management to make significant estimates and judgments about the Companys and its other
partners rights, obligations and economic interests in such entities. For entities in which
the
|
-5-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
Company has less than a controlling financial interest or entities where it is not deemed to be
the primary beneficiary under FIN 46R, the entities are accounted for using the equity method of
accounting (under the provisions of Emerging Issues Task Force (EITF) No. 04-5). Accordingly,
the Companys share of the net earnings or losses of these entities is included in consolidated
net income. All significant inter-company accounts and transactions have been eliminated in
consolidation. The minority interest of unitholders in the operations of the Operating
Partnership is calculated based on the weighted average unit ownership during the period.
Revenue Recognition
Residential properties are leased under operating leases with terms of generally one year or
less. Rental revenues from residential leases are recognized on the straight-line method over
the approximate life of the leases, which is generally one year. The recognition of rental
revenues from residential leases when earned has historically not been materially different from
rental revenues recognized on a straight-line basis.
Under the terms of residential leases, the residents of the Companys residential communities
are obligated to reimburse the Company for certain utility usage, water and electricity (at
selected properties), where the Company is the primary obligor to the public utility entity.
These utility reimbursements from residents are reflected as other property revenues in the
consolidated statements 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 Statement of Financial Accounting Standards
(SFAS) No. 66, Accounting for Sales of Real Estate. For condominium conversion projects,
revenues from individual condominium unit sales are recognized upon the closing of the sale
transactions (the Completed Contract Method), as all conditions for full profit recognition
have been met at that time and the conversion construction periods are typically very short.
Under SFAS No. 66, the Company uses the relative sales value method to allocate costs and
recognize profits from condominium conversion sales. In accordance with SFAS No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets, gains on sales of condominium
units at complete community condominium conversion projects are included in discontinued
operations. For condominium conversion projects relating to a portion of an existing apartment
community, the Company also recognizes revenues and the associated gains under the Completed
Contract Method, as discussed herein. Since a portion of an operating community does not meet
the requirements of a component of an entity under SFAS No. 144, the revenues and gains on sales
of condominium units at partial condominium communities are included in continuing operations.
For newly developed condominiums, the Company accounts for each project under either the
Completed Contract Method or the Percentage of Completion Method, based on a specific
evaluation of the factors specified in SFAS No. 66 and the guidance provided by EITF 06-8. The
factors used to determine the appropriate accounting method are the legal commitment of the
purchaser in the real estate contract, whether the construction of the project is beyond a
preliminary phase, sufficient units have been contracted to ensure the project will not revert
to a rental project, the aggregate project sale proceeds and costs can be reasonably estimated
and the buyer has made an adequate initial and continuing cash investment under the contract in
accordance with SFAS No. 66 and the guidance provided by EITF 06-8. Under the Percentage of
Completion Method, revenues and the associated gains are recognized over the project
construction period generally based on the percentage of total project costs incurred to
estimated total project costs for each condominium unit under a binding real estate contract.
As of March 31, 2008, all newly developed condominium projects are accounted for under the
Completed Contract Method.
Recently Issued and Adopted Accounting Pronouncements
SFAS No. 157, Fair Value Measurements, was issued in September 2006. SFAS No. 157 provides a
definition of fair value and establishes a framework for measuring fair value. SFAS No. 157
clarified the definition of fair value in an effort to eliminate inconsistencies in the
application of fair value under generally accepted accounting principles. Additional
disclosure focusing on the methods used to determine fair value is also required. The Company
adopted SFAS No. 157 on January 1, 2008, specifically related to the valuation of the Companys
derivative instrument at fair value and the Companys impairment valuation analysis related to
real estate assets. The valuations were made using observable market data for similar
instruments and assets. The adoption of SFAS No. 157 did not have a material impact on the
Companys financial position and results of operations.
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities including
an amendment of FASB Statement No. 115, was issued in February 2007. SFAS No. 159 gives the
Company the irrevocable option to carry most financial assets and liabilities at fair value,
with changes in fair value recognized in earnings. SFAS No. 159 is effective for the Company on
January 1, 2008. The Company adopted SFAS No. 159 on January 1, 2008, and the adoption did not
have a material impact on the Companys financial position and results of operations. The
Company did not elect to record any of its financial assets and liabilities at fair value in
2008 that were not recorded as such under existing accounting pronouncements.
-6-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, was issued in
December 2007. SFAS No. 160 requires all entities to report noncontrolling (minority) interests
in subsidiaries as equity in the consolidated financial statements. SFAS No. 160 is effective
for the Company on January 1, 2009. The Company is currently evaluating the potential impact of
SFAS No. 160 on the Companys financial position and results of operations.
|
|
|
|
SFAS No. 141R, Business Combinations, was issued in December 2007. SFAS No. 141R will replace
SFAS No. 141 on the date it becomes effective. SFAS No. 141R will require 1) acquirers to
recognize all of the assets acquired and liabilities assumed in a business combination, 2) that
the acquisition date be used to determine fair value for all assets acquired and all liabilities
assumed, and 3) enhanced disclosures for the acquirer surrounding the financial effects of the
business combination. The provisions of SFAS 141R will lead to the expensing of acquisition
related transaction costs and the potential recognition of acquisition related contingencies.
SFAS No. 141R is effective for the Company on January 1, 2009. The Company is currently
evaluating the potential impact of SFAS No. 141R on the Companys financial position and results
of operations.
|
|
2.
|
|
REAL ESTATE ACTIVITY
|
|
|
|
Dispositions
|
|
|
|
The Company classifies real estate assets as held for sale after the approval of its board of
directors and after the Company has commenced an active program to sell the assets. At March
31, 2008, the Company had two apartment communities, containing 744 units, and certain parcels
of land classified as held for sale. These real estate assets are reflected in the accompanying
consolidated balance sheet at $36,464, which represents the lower of their depreciated cost or
fair value less costs to sell. At March 31, 2008, the Company also had portions of two
communities being converted to condominiums, originally containing 349 units, and certain
completed condominium units at newly developed condominium communities totaling $33,912
classified as for-sale condominiums on the accompanying consolidated balance sheet.
|
|
|
|
For the three months ended March 31, 2008 and 2007, income from operations included net gains
from condominium sales activities at newly developed and condominium conversion projects
representing portions of existing communities. In addition to the condominium gains included in
continuing operations, the Company expensed certain sales and marketing costs associated with
pre-sale condominium communities and condominium communities under development and such costs
are included in condominium expenses in the table below. A summary of revenues and costs and
expenses of condominium activities included in continuing operations for the three months ended
March 31, 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Condominium revenues
|
|
$
|
8,297
|
|
|
$
|
5,869
|
|
Condominium costs and expenses
|
|
|
(6,178
|
)
|
|
|
(4,361
|
)
|
|
|
|
|
|
|
|
Gains on sales of condominiums, net
|
|
$
|
2,119
|
|
|
$
|
1,508
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2007, gains on sales of real estate assets in continuing
operations also included a $2,198 gain on the sale of a land site and an associated corporate
facility previously used in the Companys landscape and maintenance operations.
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,
all gains and losses on the sale of these assets are included in discontinued operations. For
the three months ended March 31, 2008, income from discontinued operations included the results
of operations of two apartment communities classified as held for sale during the first quarter
of 2008 and one apartment community through its sale date in January 2008. For the three months
ended March 31, 2007, income from discontinued operations included the results of operations of
the two apartment communities classified as held for sale at March 31, 2008, the apartment
community sold in 2008, a condominium conversion community through its sell out date in February
2007 and three apartment communities sold in 2007 through their respective sale dates.
-7-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
The revenues and expenses of these communities for the three months ended March 31, 2008 and
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
2,364
|
|
|
$
|
4,695
|
|
Other property revenues
|
|
|
143
|
|
|
|
323
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,507
|
|
|
|
5,018
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Property operating and maintenance (exclusive of items
shown separately below)
|
|
|
981
|
|
|
|
1,973
|
|
Depreciation
|
|
|
227
|
|
|
|
788
|
|
Interest
|
|
|
430
|
|
|
|
859
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,638
|
|
|
|
3,620
|
|
|
|
|
|
|
|
|
Income from discontinued property operations
before minority interest
|
|
|
869
|
|
|
|
1,398
|
|
Minority interest
|
|
|
(8
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
Income from discontinued property operations
|
|
$
|
861
|
|
|
$
|
1,377
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2008, the Company recognized net gains in discontinued
operations of $2,311 ($2,290 net of minority interest) from the sale of one community,
containing 143 units. This sale generated net proceeds of approximately $19,433. For the three
months ended March 31, 2007, the Company recognized net gains in discontinued operations of
$16,974 ($16,714 net of minority interest) from the sale of one community, containing 182 units.
The sale generated net proceeds of $23,741.
For the three months ended March 31, 2007, gains on sales of real estate assets included in
discontinued operations also included net gains from condominium sales at one condominium
conversion community that sold out in February 2007. A summary of revenues and costs and
expenses of condominium activities included in discontinued operations for the three months
ended March 31, 2007 was as follows:
|
|
|
|
|
Condominium revenues
|
|
$
|
560
|
|
Condominium costs and expenses
|
|
|
(381
|
)
|
|
|
|
|
Gains on condominium sales, before minority interest
|
|
|
179
|
|
Minority interest
|
|
|
(3
|
)
|
|
|
|
|
Gains on condominium sales, net of minority interest
|
|
$
|
176
|
|
|
|
|
|
3.
|
|
INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES
|
|
|
|
At March 31, 2008, the Company holds investments in four individual limited liability companies
(the Property LLCs) with institutional investors. Three of the Property LLCs own apartment
communities. The fourth Property LLC commenced construction in 2007 of a mixed-use development,
consisting of for-sale condominiums and Class A office space. The Company holds a 35% equity
interest in two Property LLCs, each owning one apartment community. The Company holds a 25%
interest in one Property LLC owning three apartment communities, and a 50% interest in the
condominium portion of the Property LLC developing the mixed-use project. In 2007, another
Property LLC completed the sell-out of a condominium conversion community, initially consisting
of 121 units.
|
|
|
|
In 2007, the Companys investment in the 25% owned Property LLC resulted from the transfer of
three previously owned apartment communities to the Property LLC co-owned with an institutional
investor. The assets, liabilities and members equity of this Property LLC were recorded at
fair value based on agreed-upon amounts contributed to the Property LLC. At March 31, 2008, the
Companys investment in the 25% owned Property LLC reflects a credit investment of $13,784
resulting primarily from distributions of financing proceeds in excess of the Companys
historical cost investment. The credit investment is reflected in consolidated liabilities on
the Companys consolidated balance sheet.
|
-8-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
The Company accounts for its investments in these Property LLCs using the equity method of
accounting. At March 31, 2008, the Companys investment in these Property LLCs totaled $22,958,
excluding the credit investment discussed above. The excess of the Companys investment over
its equity in the underlying net assets of certain Property LLCs was approximately $5,907 at
March 31, 2008. The excess investment related to 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 related to the Property LLC constructing condominiums will
be recognized as additional costs as the 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 allocable share of net income from the
investments in the Property LLCs. A summary of financial information for the Property LLCs in
the aggregate was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Balance Sheet Data
|
|
2008
|
|
|
2007
|
|
Real estate assets, net of accumulated depreciation of
$17,048 and $15,204, respectively
|
|
$
|
343,990
|
|
|
$
|
325,705
|
|
Cash and other
|
|
|
7,385
|
|
|
|
7,254
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
351,375
|
|
|
$
|
332,959
|
|
|
|
|
|
|
|
|
Mortgage/construction notes payable
|
|
$
|
228,474
|
|
|
$
|
214,549
|
|
Other liabilities
|
|
|
11,914
|
|
|
|
5,541
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
240,388
|
|
|
|
220,090
|
|
Members equity
|
|
|
110,987
|
|
|
|
112,869
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
351,375
|
|
|
$
|
332,959
|
|
|
|
|
|
|
|
|
Companys equity investment in Property LLCs (1)
|
|
$
|
9,174
|
|
|
$
|
9,348
|
|
|
|
|
|
|
|
|
|
|
|
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
Income Statement Data
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
6,693
|
|
|
$
|
2,814
|
|
Other property revenues
|
|
|
400
|
|
|
|
169
|
|
Other
|
|
|
22
|
|
|
|
19
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7,115
|
|
|
|
3,002
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
|
|
2,753
|
|
|
|
1,012
|
|
Depreciation and amortization
|
|
|
2,131
|
|
|
|
661
|
|
Interest
|
|
|
2,500
|
|
|
|
688
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
7,384
|
|
|
|
2,361
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(269
|
)
|
|
|
641
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
22
|
|
Gains on sales of real estate assets, net
|
|
|
|
|
|
|
858
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
880
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(269
|
)
|
|
$
|
1,521
|
|
|
|
|
|
|
|
|
Companys share of net income
|
|
$
|
401
|
|
|
$
|
504
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2007, gains on real estate assets represent net gains from
condominium sales at the condominium conversion community held by a Property LLC that completed
its sell out in 2007. A summary of revenues and costs and expenses of condominium activities
for the three months ended March 31, 2007 was as follows:
|
|
|
|
|
Condominium revenues
|
|
$
|
4,112
|
|
Condominium costs and expenses
|
|
|
(3,254
|
)
|
|
|
|
|
Gains on condominium sales, net
|
|
$
|
858
|
|
|
|
|
|
At March 31, 2008, mortgage/construction notes payable include a $49,997 mortgage note that
bears interest at 4.13%, requires monthly interest payments and annual principal payments of $1
through 2009. Thereafter, the note requires monthly principal
-9-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
and interest payments based on a 25-year amortization schedule and matures in 2034. The note is
callable by the lender in 2009 and on each successive fifth year anniversary of the note
thereafter. The note is prepayable without penalty in May 2008. Another mortgage note payable
totaling $17,000 bears interest at a fixed rate of 4.04% requires interest only payments and
matures in 2008. The Property LLC intends to refinance the mortgage note on or before their
maturity with new mortgage indebtedness. Three additional mortgage notes were entered into in
conjunction with the formation of the 25% owned Property LLC in 2007. Two notes total $85,724,
bear interest at 5.63%, require interest only payments and mature in 2017. The third mortgage
note totals $41,000, bears interest at 5.71%, requires interest only payments, and matures in
2017.
|
|
|
|
In 2007, the Property LLC constructing the mixed-use development entered into a construction
loan facility with an aggregate capacity of $187,128. At March 31, 2008, the construction loan
had an outstanding balance of $34,753, bears interest at LIBOR plus 1.35% and matures in 2011.
Under the terms of the construction loan facility, the Company and its 50% equity partner have
jointly and severally guaranteed approximately $25,313 of the construction loan attributable to
the condominium portion of the project. Additionally, the Company and its 50% equity partner
have jointly and severally guaranteed certain debt service payments of the condominium portion
of the loan not to exceed approximately $6,153, and all of the equity owners of the project,
including the Company, have guaranteed the completion of the first building at the project.
|
|
4.
|
|
INDEBTEDNESS
|
|
|
|
At March 31, 2008 and December 31, 2007, the Companys indebtedness consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
|
|
|
|
|
Maturity
|
|
|
March 31,
|
|
|
December 31,
|
|
Description
|
|
Terms
|
|
|
Interest Rate
|
|
|
Date
|
|
|
2008
|
|
|
2007
|
|
Senior Unsecured Notes
|
|
Int.
|
|
|
5.13% - 7.70
|
%
|
|
|
2010-2013
|
|
|
$
|
535,000
|
|
|
$
|
535,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Lines of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated Line of Credit
|
|
N/A
|
|
LIBOR + 0.575
|
%(1)
|
|
|
2010
|
|
|
|
70,000
|
|
|
|
245,000
|
|
Cash Management Line
|
|
N/A
|
|
LIBOR + 0.575
|
%
|
|
|
2010
|
|
|
|
24,652
|
|
|
|
12,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,652
|
|
|
|
257,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Secured Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
|
|
Prin. and Int.
|
|
|
6.15
|
%(2)
|
|
|
2029
|
|
|
|
94,000
|
|
|
|
94,000
|
|
Other
|
|
Prin. and Int.
|
|
|
4.27% - 6.50
|
%
|
|
|
2009-2015
|
|
|
|
291,993
|
|
|
|
172,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385,993
|
|
|
|
266,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,015,645
|
|
|
$
|
1,059,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents stated rate. At March 31, 2008, the weighted average interest rate
was 3.34%.
|
|
(2)
|
|
Interest rate is fixed at 6.15%, inclusive of credit enhancement and other
fees, to 2009 through an interest rate swap arrangement.
|
Debt maturities
The aggregate maturities of the Companys indebtedness are as follows:
|
|
|
|
|
Remainder of 2008
|
|
$
|
4,432
|
|
2009
|
|
|
76,618
|
|
2010
|
|
|
283,280
|
(1)
|
2011
|
|
|
141,431
|
|
2012
|
|
|
103,296
|
|
Thereafter
|
|
|
406,588
|
|
|
|
|
|
|
|
$
|
1,015,645
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes outstanding balances on lines of
credit totaling $94,652.
|
-10-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
Debt issuances
In January 2008, the Company closed a $120,000 secured, fixed rate mortgage note payable. The
note bears interest at 4.88%, requires interest only payments and matures in 2015. The note
contains an automatic one year extension under which the interest rate converts to a variable
rate, as defined.
Unsecured Lines of Credit
At March 31, 2008, the Company utilizes a $600,000 syndicated unsecured revolving line of credit
(the Syndicated Line) that matures in April 2010 for its short-term financing needs. The
Syndicated Line currently has a stated interest rate of LIBOR plus 0.575% or the prime rate and
was provided by a syndicate of 17 banks led by Wachovia Bank, N.A. and JP Morgan Securities,
Inc. Additionally, the Syndicated Line requires the payment of annual facility fees currently
equal to 0.15% of the aggregate loan commitment. The Syndicated Line 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 Syndicated Line are based on the
higher of the Companys unsecured debt ratings in instances where the Company has split
unsecured debt ratings. The Syndicated Line also includes a competitive bid option for
short-term funds up to 50% of the loan commitment at rates generally below the stated line rate.
The credit agreement for the Syndicated Line contains customary restrictions, representations,
covenants and events of default, including fixed charge coverage and maximum leverage ratios.
The Syndicated Line also restricts the amount of capital the Company can invest in specific
categories of assets, such as improved land, properties under construction, condominium
properties, non-multifamily properties, debt or equity securities, notes receivable and
unconsolidated affiliates. At March 31, 2008, the Company had issued letters of credit to third
parties totaling $2,100 under this facility.
Additionally, at March 31, 2008, the Company had a $30,000 unsecured line of credit with
Wachovia Bank, N.A. (the Cash Management Line). The Cash Management Line matures in April
2010 and carries pricing and terms, including debt covenants, substantially consistent with the
Syndicated Line.
5. SHAREHOLDERS EQUITY
Computation of Earnings Per Common Share
For the three months ended March 31, 2008 and 2007, 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
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Income from continuing operations available to common
shareholders (numerator):
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(465
|
)
|
|
$
|
6,204
|
|
Less: Preferred stock dividends
|
|
|
(1,909
|
)
|
|
|
(1,909
|
)
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common shareholders
|
|
$
|
(2,374
|
)
|
|
$
|
4,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares (denominator):
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
43,875
|
|
|
|
43,367
|
|
Dilutive shares from stock options and awards (1)
|
|
|
|
|
|
|
734
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted (1)
|
|
|
43,875
|
|
|
|
44,101
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For the three months ended March 31, 2008, the potential dilution from the
Companys outstanding stock options to purchase 419 shares were antidilutive to
the loss from continuing operations per share calculation. As such, the amounts
were excluded from weighted average shares for the period.
|
For the three months ended March 31, 2008 and 2007, stock options to purchase 2,423 and 148
shares of common stock, respectively, were excluded from the computation of diluted earnings per
common share as these stock options and awards were antidilutive.
-11-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
6.
|
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
|
|
|
The Company adopted the provisions of SFAS No. 157 on January 1, 2008. To comply with the
provisions of SFAS No. 157, the Companys fair value measurement of its derivative instrument at
March 31, 2008 incorporates credit valuation adjustments to appropriately reflect both its risk
of nonperformance and the counterpartys risk of nonperformance.
|
|
|
|
At March 31, 2008, the Company had an outstanding interest rate swap agreement with a notional
value of approximately $93,890 with a maturity date in 2009. The swap arrangement is a variable
to fixed rate swap at a fixed rate of 5.21% and the swap was designated as a cash flow hedge of
the Companys FNMA variable rate debt. The interest rate swap agreement is included on the
accompanying consolidated balance sheet at fair value. At March 31, 2008, the fair value of the
interest rate swap agreement represented a liability of $3,688, and the liability was included
in consolidated liabilities in the accompanying consolidated balance sheet. The change in the
value of this cash flow hedge was recorded as a change in accumulated other comprehensive income
(loss), a shareholders equity account, in the accompanying consolidated balance sheet.
|
|
|
|
In prior years, a previous interest rate swap arrangement, accounted for as a cash flow hedge,
became ineffective under generally accepted accounting principles (SFAS No. 133, as amended).
Under SFAS No. 133, as amended, the Company is required to amortize into interest expense the
cumulative unrecognized loss on the terminated interest rate swap arrangement of $4,021,
included in shareholders equity, over the remaining life of the swap through 2009. Total
amortization expense related to this swap was $281 for the three months ended March 31, 2008 and
2007.
|
|
|
|
On February 1, 2008, a $28,495 interest rate cap arrangement expired on its maturity date with
no change in value from December 31, 2007.
|
|
|
|
A summary of comprehensive income for the three months ended March 31, 2008 and 2007 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Net income
|
|
$
|
2,686
|
|
|
$
|
24,471
|
|
Change in derivatives, net of minority interest (1)
|
|
|
(1,172
|
)
|
|
|
67
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,514
|
|
|
$
|
24,538
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The change in derivatives balance includes an adjustment
of $281 ($278 net of minority interest) and $281 ($277 net
of minority interest) for the three months ended March 31,
2008 and 2007, respectively, for amortized swap costs
included in net income.
|
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 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 generally
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 combined 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, 2007. The segment information for the
three months ended March 31, 2007 has been adjusted due to the restatement impact of
reclassifying the operating results of the assets designated as held for sale or sold subsequent
to March 31, 2007 to discontinued operations under SFAS No. 144 (see note 2).
|
|
|
|
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.
|
-12-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
|
Communities stabilized during 2007 communities which reached stabilized occupancy in
the prior year.
|
|
|
|
|
Development, rehabilitation and lease-up communities those apartment communities
under development, rehabilitation and lease-up during the period.
|
|
|
|
|
Condominium conversion and other communities those portions of existing apartment
communities being converted into condominiums and other communities converted to joint
venture ownership that are reflected in continuing operations.
|
|
|
|
|
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 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.
-13-
POST PROPERTIES. INC.
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 NOI
together with a reconciliation of segment contribution to property NOI to consolidated net
income for the three months ended March 31, 2008 and 2007. 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
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
Fully stabilized communities
|
|
$
|
59,916
|
|
|
$
|
58,128
|
|
Communities stabilized during 2007
|
|
|
2,553
|
|
|
|
1,121
|
|
Development, rehabilitation and lease-up communities
|
|
|
4,295
|
|
|
|
3,825
|
|
Condominium conversion and other communities
|
|
|
201
|
|
|
|
4,023
|
|
Acquired communities
|
|
|
1,356
|
|
|
|
|
|
Other property segments
|
|
|
6,367
|
|
|
|
5,804
|
|
Other
|
|
|
239
|
|
|
|
117
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
74,927
|
|
|
$
|
73,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to Property Net Operating Income
|
|
|
|
|
|
|
|
|
Fully stabilized communities
|
|
$
|
36,567
|
|
|
$
|
35,902
|
|
Communities stabilized during 2007
|
|
|
1,431
|
|
|
|
176
|
|
Development, rehabilitation and lease-up communities
|
|
|
1,793
|
|
|
|
2,000
|
|
Condominium conversion and other communities
|
|
|
122
|
|
|
|
2,349
|
|
Acquired communities
|
|
|
665
|
|
|
|
|
|
Other property segments, including corporate management expenses
|
|
|
(1,503
|
)
|
|
|
(1,646
|
)
|
|
|
|
|
|
|
|
Consolidated property net operating income
|
|
|
39,075
|
|
|
|
38,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
210
|
|
|
|
250
|
|
Other revenues
|
|
|
239
|
|
|
|
117
|
|
Minority interest in consolidated property partnerships
|
|
|
(466
|
)
|
|
|
(20
|
)
|
Depreciation
|
|
|
(15,961
|
)
|
|
|
(16,255
|
)
|
Interest expense
|
|
|
(11,703
|
)
|
|
|
(12,741
|
)
|
Amortization of deferred financing costs
|
|
|
(851
|
)
|
|
|
(812
|
)
|
General and administrative
|
|
|
(5,848
|
)
|
|
|
(5,448
|
)
|
Investment and development
|
|
|
(1,458
|
)
|
|
|
(1,550
|
)
|
Strategic review costs
|
|
|
(6,070
|
)
|
|
|
|
|
Gains on sales of real estate assets, net
|
|
|
2,119
|
|
|
|
3,706
|
|
Equity in income of unconsolidated real estate entities
|
|
|
401
|
|
|
|
504
|
|
Other income (expense)
|
|
|
(174
|
)
|
|
|
(261
|
)
|
Minority interest of common unitholders
|
|
|
22
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(465
|
)
|
|
|
6,204
|
|
Income from discontinued operations
|
|
|
3,151
|
|
|
|
18,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,686
|
|
|
$
|
24,471
|
|
|
|
|
|
|
|
|
-14-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit 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. The following
table summarizes the activity relating to aggregate net severance charges for the three months
ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Accrued severance charges, beginning of period
|
|
$
|
11,215
|
|
|
$
|
12,832
|
|
Severance charges
|
|
|
353
|
|
|
|
|
|
Payments for period
|
|
|
(540
|
)
|
|
|
(440
|
)
|
Interest accretion
|
|
|
183
|
|
|
|
185
|
|
|
|
|
|
|
|
|
Accrued severance charges, end of period
|
|
$
|
11,211
|
|
|
$
|
12,577
|
|
|
|
|
|
|
|
|
9.
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
Interest paid (including capitalized amounts of $3,383 and $3,107 for the three months ended
March 31, 2008 and 2007, respectively), aggregated $6,518 and $7,784 for the three months ended
March 31, 2008 and 2007, respectively.
|
|
|
|
For the three months ended March 31, 2008 and 2007, the Company and the Companys taxable REIT
subsidiaries made income tax payments to federal and state taxing authorities totaling $971 and
$143, respectively.
|
|
|
|
Non-cash investing and financing activities for the three months ended March 31, 2008 and 2007
were as follows:
|
|
|
|
For the three months ended March 31, 2008 and 2007, the Company amortized approximately $281
($278 net of minority interest) and $281 ($277 net of minority interest), respectively, of
accumulated other comprehensive non-cash losses into earnings related to an interest rate swap
derivative financial instrument (see note 6). Other than the amortization discussed herein, for
the three months ended March 31, 2008 the Companys derivative financial instruments, accounted
for as cash flow hedges, decreased in value causing an increase in accounts payable and accrued
expenses and a corresponding increase in shareholders equity of $1,450, net of minority
interest. For the three months ended March 31, 2007, the Companys derivative financial
instruments accounted for as cash flow hedges decreased in value causing an increase in accounts
payable and accrued expenses and a corresponding decrease in shareholders equity of $209, net
of minority interest.
|
|
|
|
For the three months ended March 31, 2008 and 2007, Common Units in the Operating Partnership
totaling 161 and 57, respectively, were converted into Company common shares on a one-for-one
basis. The net effect of the conversion of Common Units of the Operating Partnership to common
shares of the Company and the adjustments to minority interest for the impact of the Companys
employee stock purchase and stock options plans, decreased minority interest and increased
shareholders equity in the amounts of $3,512 and $1,256 for the three months ended March 31,
2008 and 2007, respectively.
|
|
|
|
The Operating Partnership committed to distribute $19,982 and $21,815 for the three months ended
March 31, 2008 and 2007, respectively. As a result, the Company declared dividends of $19,843
and $21,523 for the three months ended March 31, 2008 and 2007, respectively. The remaining
distributions from the Operating Partnership in the amount of $139 and $292 for the three months
ended March 31, 2008 and 2007, respectively, are distributed to minority interest unitholders in
the Operating Partnership.
|
|
|
|
For the three months ended March 31, 2008 and 2007, the Company issued common shares for
director compensation, totaling $133 and $136, respectively. These stock issuances were
non-cash transactions.
|
|
10.
|
|
STOCK-BASED COMPENSATION PLANS
|
|
|
|
Stock Compensation Plans
|
|
|
|
Effective January 1, 2006, the Company accounts for stock-based compensation using the fair
value method prescribed in SFAS No. 123R (see note 1). Other than the required modification
under SFAS No. 123R to use an estimated forfeiture rate for award terminations and forfeitures,
the adoption of SFAS 123R did not have a material impact on the Companys accounting for
stock-based compensation.
|
-15-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
Incentive Stock Plans
Incentive stock awards are granted under the Companys 2003 Incentive Stock Plan (the 2003
Stock Plan). Under the 2003 Stock Plan, an aggregate of 4,000 shares of common stock were
reserved for issuance. Of this amount, not more than 500 shares of common stock are available
for grants of restricted stock. The exercise price of each option granted under the 2003 Stock
Plan may not be less than the market price of the Companys common stock on the date of the
option grant and all options may have a maximum life of ten years. Participants receiving
restricted stock grants are generally eligible to vote such shares and receive dividends on such
shares. Substantially all stock option and restricted stock grants are subject to annual
vesting provisions (generally three to five years) as determined by the compensation committee
overseeing the 2003 Stock Plan. At March 31, 2008, stock options outstanding under the 2003
Stock Plan and the Companys previous stock plan totaled 2,423.
Compensation costs for stock options have been estimated on the grant date using the
Black-Scholes option-pricing method. The Company did not grant any stock options for the three
months ended March 31, 2008. For options granted during the three months ended March 31, 2007,
the weighted average assumptions used in the Black-Scholes option-pricing model were dividend
yield of 3.8%, expected volatility of 18.1%, risk-free interest rate of 4.8% and expected option
term of 5.0 years.
The Companys assumptions were derived from the methodologies discussed herein. The expected
dividend yield reflects the Companys current historical yield, which is expected to approximate
the future yield. Expected volatility was based on the historical volatility of the Companys
common stock. The risk-free interest rate for the expected life of the options was based on the
implied yields on the U.S. Treasury yield curve. The weighted average expected option term was
based on the Companys historical data for prior period stock option exercise and forfeiture
activity.
For the three months ended March 31, 2008 and 2007, the Company granted stock options to
purchase zero and 199 shares of Company common stock, respectively, to Company officers and
directors, of which zero and 28 shares, respectively, were granted to the Companys
non-executive chairman of the board. The Company recorded compensation expense related to stock
options of $357 ($354 net of minority interest) and $379 ($373 net of minority interest) for the
three months ended March 31, 2008 and 2007, respectively, under the fair value method. Upon the
exercise of stock options, the Company issues shares of common stock from treasury shares or, to
the extent treasury shares are not available, from authorized common shares.
A summary of stock option activity under all plans for the three months ended March 31, 2008 and
2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
Options outstanding, beginning of period
|
|
|
2,455
|
|
|
$
|
34
|
|
|
|
2,375
|
|
|
$
|
33
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
48
|
|
Exercised
|
|
|
(32
|
)
|
|
|
39
|
|
|
|
(64
|
)
|
|
|
35
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period
|
|
|
2,423
|
|
|
|
34
|
|
|
|
2,509
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
2,008
|
|
|
|
33
|
|
|
|
1,642
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the period
|
|
$
|
|
|
|
|
|
|
|
$
|
7.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008, there was $1,310 of unrecognized compensation cost related to unvested stock
options. This cost is expected to be recognized over a weighted-average period of 0.9 years.
The total intrinsic value of stock options exercised during the three months ended March 31,
2008 and 2007 was $146 and $789, respectively. The aggregate intrinsic values of stock options
outstanding, exercisable and expected to vest at March 31, 2008 were $13,736, $11,616 and
$13,532, respectively. The weighted average remaining contractual lives of stock options
outstanding, exercisable and expected to vest at March 31, 2008 were 5.1, 4.7 and 5.1 years,
respectively. Stock options expected to vest at March 31, 2008 totaled 2,393 at a weighted
average exercise price of approximately $33.96.
At March 31, 2008, the Company had separated its outstanding options into two ranges based on
exercise prices. There were 1,386 options outstanding with exercise prices ranging from $23.90
to $36.13. These options have a weighted average exercise price of $29.17 and a weighted
average remaining contractual life of 4.9 years. Of these outstanding options, 1,213 were
exercisable at March 31, 2008 at a weighted average exercise price of $29.57. In addition,
there were 1,036 options outstanding with exercise prices ranging from $36.47 to $48.00. These
options had a weighted average exercise price of $40.37 and a
-16-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
weighted average remaining contractual life of 5.3 years. Of these outstanding options, 794
were exercisable at March 31, 2008 at a weighted average exercise price of $39.08.
For the three months ended March 31, 2008 and 2007, the Company granted 78 and 47 shares of
restricted stock, respectively, to Company officers and directors, of which 9 and 4 shares,
respectively, were granted to the Companys non-executive chairman of the board. The restricted
share grants generally vest ratably over three to five year periods. The weighted average grant
date fair value for the restricted shares for the three months ended March 31, 2008 and 2007 was
$42.25 and $47.98, respectively, per share. The total value of the restricted share grants for
the three months ended March 31, 2008 and 2007 was $3,308 and $2,240, respectively. The
compensation cost is amortized ratably into compensation expense over the applicable vesting
periods. Total compensation expense relating to the restricted stock was $752 ($746 net of
minority interest) and $486 ($478 net of minority interest) for the three months ended March 31,
2008 and 2007, respectively.
A summary of the activity related to the Companys restricted stock for the three months ended
March 31, 2008 and 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested shares, beginning or period
|
|
|
119
|
|
|
$
|
35
|
|
|
|
125
|
|
|
$
|
31
|
|
Granted
|
|
|
78
|
|
|
|
42
|
|
|
|
47
|
|
|
|
48
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period
|
|
|
197
|
|
|
|
38
|
|
|
|
172
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008, there was $6,034 of unrecognized compensation cost related to restricted
stock. This cost is expected to be recognized over a weighted average period of 2.4 years. The
total intrinsic value of restricted shares vested for the three months ended March 31, 2008 and
2007 was $7 and $20, respectively.
|
|
|
|
Employee Stock Purchase Plan
|
|
|
|
The Company maintains an Employee Stock Purchase Plan (the 2005 ESPP) under a plan approved by
Company shareholders in 2005, and the maximum number of shares issuable is 300. The purchase
price of shares of common stock under the ESPP is equal to 85% of the lesser of the closing
price per share of common stock on the first or last day of the trading period, as defined. The
Company records the aggregate cost of the ESPP (generally the 15% discount on the share
purchases) as a period expense. Total compensation expense relating to the ESPP was $76 and $62
for the three months ended March 31, 2008 and 2007, respectively.
|
|
11.
|
|
INCOME TAXES
|
|
|
|
The Company has elected to be taxed as a REIT under 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. Should the Company
fail to qualify as a REIT in any tax year, it may 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.
|
|
|
|
In the preparation of income tax returns in federal and state jurisdictions, the Company and its
taxable REIT subsidiaries assert certain tax positions based on their understanding and
interpretation of the income tax law. The taxing authorities may challenge such positions and
the resolution of such matters could result in the payment and recognition of additional income
tax expense. Management believes it has used reasonable judgments and conclusions in the
preparation of its income tax returns. The Company and its subsidiaries (including the TRSs)
income tax returns are subject to examination by federal and state tax jurisdictions for years
2004 through 2006. Net income tax loss carryforwards and other tax attributes generated in
years prior to 2004 are also subject to challenge in any examination of the 2004 to 2006 tax
years.
|
-17-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
As of March 31, 2008, the Companys taxable REIT subsidiaries (TRSs) had unrecognized tax
benefits of approximately $797 which primarily related to uncertainty regarding the
sustainability of certain deductions taken on prior year income tax returns of the TRS with
respect to the amortization of certain intangible assets. The Company does not expect any
significant change in this unrecognized tax benefit in the remainder of 2008. To the extent
these unrecognized tax benefits are ultimately recognized, they may affect the effective tax
rate in a future period. The Companys policy is to recognize interest and penalties, if any,
related to unrecognized tax benefits as income tax expense. Accrued interest and penalties for
the three months ended March 31, 2008 and at March 31, 2008 were not material to the Companys
results of operations, cash flows or financial position.
|
|
|
|
The Company utilizes TRSs principally to perform such non-REIT activities as asset and property
management, for-sale housing (condominiums) conversions and sales and other services. These
TRSs are subject to federal and state income taxes. For the three months ended March 31, 2008,
the TRS recorded no net income tax expense (benefit) as the provision for estimated income taxes
payable is expected to be fully offset by deferred tax benefits resulting from reductions of
valuation allowances recorded in prior years.
|
|
|
|
At December 31, 2007, management had established valuation allowances of approximately $3,157
against net deferred tax assets due primarily to historical losses at the TRSs in years prior to
2007 and the variability of the income of these subsidiaries. The tax benefits associated with
such unused valuation allowances 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.
|
|
|
|
A summary of the components of the TRS deferred tax assets and liabilities at December 31, 2007
are included in the footnotes to the Companys audited financial statements included in the
Companys Form 10-K, as amended. Other than the activity discussed above relating to the three
months ended March 31, 2008, there were no material changes to the components of deferred tax
assets and liabilities at March 31, 2008.
|
|
12.
|
|
LEGAL PROCEEDINGS
|
|
|
|
In November 2006, the Equal Rights Center (ERC) filed a lawsuit against the Company and the
Operating Partnership in the United States District Court for the District of Columbia. This
suit alleges various violations of the Fair Housing Act (FHA) and the Americans with
Disabilities Act (ADA) at properties designed, constructed or operated by the Company and the
Operating Partnership in the District of Columbia, Virginia, Colorado, Florida, Georgia, New
York, North Carolina and Texas. The plaintiff seeks compensatory and punitive damages in
unspecified amounts, an award of attorneys fees and costs of suit, as well as preliminary and
permanent injunctive relief that includes retrofitting multi-family units and public use areas
to comply with the FHA and the ADA and prohibiting construction or sale of noncompliant units or
complexes. On April 18, 2007, ERC filed a motion for a preliminary injunction to prohibit the
Company and the Operating Partnership from selling any alleged noncompliant apartment
communities or condominium units while the litigation is ongoing. On July 25, 2007 the court
entered an order denying ERCs motion for the preliminary injunction. Discovery is being
conducted by both parties. On October 29, 2007, the court granted, in part, ERCs motion to
amend the scheduling order and expand the time permitted for discovery and filing of dispositive
motions. As a result, the cutoff for fact discovery was extended to February 29, 2008 with the
end of all briefing on dispositive motions set for August 11, 2008. On January 29, 2008, the
Operating Partnership and ERC agreed to an extension of discovery dates to accommodate further
depositions and inspections. Under the agreement, which was approved by the court on February 7,
2008, fact discovery was to be completed by April 30, 2008, expert discovery was to be completed
by August 29, 2008, and summary judgment briefing would be completed by November 10, 2008. No
trial date has been set. The parties have agreed to certain additional limited deposition and
property inspection discovery, which will occur after April 30, 2008. In addition, on April 23,
2008, the Company and Operating Partnership filed a Motion to Compel Production of Documents and
Deposition Testimony against ERC. The parties are in the process of submitting a joint motion
to extend certain deadlines, which, if approved, will extend the deadline for the completion of
expert discovery until October 28, 2008 and the completion of summary judgment briefing until
January 20, 2009. As a result, it is possible that the dates set forth in the Courts current
scheduling order will be further extended. At this stage in the proceeding, it is not possible
to predict or determine the outcome of the lawsuit, nor is it possible to estimate the amount of
loss that would be associated with an adverse decision.
|
|
|
|
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 various other legal proceedings will not have a material
adverse effect on the Companys results of operations or financial position.
|
-18-
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Real estate assets
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
272,168
|
|
|
$
|
276,680
|
|
Building and improvements
|
|
|
1,819,259
|
|
|
|
1,840,563
|
|
Furniture, fixtures and equipment
|
|
|
201,484
|
|
|
|
204,433
|
|
Construction in progress
|
|
|
149,550
|
|
|
|
134,125
|
|
Land held for future development
|
|
|
159,736
|
|
|
|
154,617
|
|
|
|
|
|
|
|
|
|
|
|
2,602,197
|
|
|
|
2,610,418
|
|
Less: accumulated depreciation
|
|
|
(553,589
|
)
|
|
|
(562,226
|
)
|
For-sale condominiums
|
|
|
33,912
|
|
|
|
38,844
|
|
Assets held for sale, net of accumulated depreciation of $24,333 and
$4,031 at March 31, 2008 and December 31, 2007, respectively
|
|
|
36,464
|
|
|
|
24,576
|
|
|
|
|
|
|
|
|
Total real estate assets
|
|
|
2,118,984
|
|
|
|
2,111,612
|
|
Investments in and advances to unconsolidated real estate entities
|
|
|
22,958
|
|
|
|
23,036
|
|
Cash and cash equivalents
|
|
|
15,879
|
|
|
|
11,557
|
|
Restricted cash
|
|
|
8,759
|
|
|
|
5,642
|
|
Deferred charges, net
|
|
|
10,802
|
|
|
|
10,538
|
|
Other assets
|
|
|
35,038
|
|
|
|
105,756
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,212,420
|
|
|
$
|
2,268,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners equity
|
|
|
|
|
|
|
|
|
Indebtedness
|
|
$
|
1,015,645
|
|
|
$
|
1,059,066
|
|
Accounts payable and accrued expenses
|
|
|
93,446
|
|
|
|
100,215
|
|
Distribution payable
|
|
|
19,982
|
|
|
|
19,933
|
|
Accrued interest payable
|
|
|
13,386
|
|
|
|
4,388
|
|
Security deposits and prepaid rents
|
|
|
15,038
|
|
|
|
11,708
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,157,497
|
|
|
|
1,195,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in consolidated real estate entities
|
|
|
4,284
|
|
|
|
3,972
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
|
|
|
|
|
|
Preferred units
|
|
|
95,000
|
|
|
|
95,000
|
|
Common units
|
|
|
|
|
|
|
|
|
General partner
|
|
|
11,159
|
|
|
|
11,329
|
|
Limited partner
|
|
|
949,668
|
|
|
|
966,535
|
|
Accumulated other comprehensive income (loss)
|
|
|
(5,188
|
)
|
|
|
(4,005
|
)
|
|
|
|
|
|
|
|
Total partners equity
|
|
|
1,050,639
|
|
|
|
1,068,859
|
|
|
|
|
|
|
|
|
Total liabilities and partners equity
|
|
$
|
2,212,420
|
|
|
$
|
2,268,141
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-19-
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
71,130
|
|
|
$
|
69,229
|
|
Other property revenues
|
|
|
3,558
|
|
|
|
3,672
|
|
Other
|
|
|
239
|
|
|
|
117
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
74,927
|
|
|
|
73,018
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Property operating and maintenance (exclusive of items
shown separately below)
|
|
|
35,613
|
|
|
|
34,120
|
|
Depreciation
|
|
|
15,961
|
|
|
|
16,255
|
|
General and administrative
|
|
|
5,848
|
|
|
|
5,448
|
|
Investment, development and other
|
|
|
1,458
|
|
|
|
1,550
|
|
Strategic review costs
|
|
|
6,070
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
64,950
|
|
|
|
57,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
9,977
|
|
|
|
15,645
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
210
|
|
|
|
250
|
|
Interest expense
|
|
|
(11,703
|
)
|
|
|
(12,741
|
)
|
Amortization of deferred financing costs
|
|
|
(851
|
)
|
|
|
(812
|
)
|
Gains on sales of real estate assets, net
|
|
|
2,119
|
|
|
|
3,706
|
|
Equity in income of unconsolidated real estate entities
|
|
|
401
|
|
|
|
504
|
|
Other income (expense)
|
|
|
(174
|
)
|
|
|
(261
|
)
|
Minority interest in consolidated property partnerships
|
|
|
(466
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(487
|
)
|
|
|
6,271
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
Income from discontinued property operations
|
|
|
869
|
|
|
|
1,398
|
|
Gains on sales of real estate assets
|
|
|
2,311
|
|
|
|
17,153
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
3,180
|
|
|
|
18,551
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,693
|
|
|
|
24,822
|
|
Distributions to preferred unitholders
|
|
|
(1,909
|
)
|
|
|
(1,909
|
)
|
|
|
|
|
|
|
|
Net income available to common unitholders
|
|
$
|
784
|
|
|
$
|
22,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data Basic
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
(net of preferred distributions)
|
|
$
|
(0.05
|
)
|
|
$
|
0.10
|
|
Income from discontinued operations
|
|
|
0.07
|
|
|
|
0.42
|
|
|
|
|
|
|
|
|
Net income available to common unitholders
|
|
$
|
0.02
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding basic
|
|
|
44,278
|
|
|
|
44,041
|
|
|
|
|
|
|
|
|
Per common unit data Diluted
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
(net of preferred distributions)
|
|
$
|
(0.05
|
)
|
|
$
|
0.10
|
|
Income from discontinued operations
|
|
|
0.07
|
|
|
|
0.41
|
|
|
|
|
|
|
|
|
Net income available to common unitholders
|
|
$
|
0.02
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding diluted
|
|
|
44,278
|
|
|
|
44,776
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-20-
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, 2007
|
|
$
|
95,000
|
|
|
$
|
11,329
|
|
|
$
|
966,535
|
|
|
$
|
(4,005
|
)
|
|
$
|
1,068,859
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,909
|
|
|
|
8
|
|
|
|
776
|
|
|
|
|
|
|
|
2,693
|
|
Net change in derivative value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,183
|
)
|
|
|
(1,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,510
|
|
Contributions from the Company related to
employee
stock purchase, stock option and other plans
|
|
|
|
|
|
|
10
|
|
|
|
966
|
|
|
|
|
|
|
|
976
|
|
Equity-based compensation
|
|
|
|
|
|
|
12
|
|
|
|
1,173
|
|
|
|
|
|
|
|
1,185
|
|
Distributions to preferred unitholders
|
|
|
(1,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,909
|
)
|
Distributions to common unitholders
($0.45 per unit)
|
|
|
|
|
|
|
(200
|
)
|
|
|
(19,782
|
)
|
|
|
|
|
|
|
(19,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Equity, March 31, 2008
|
|
$
|
95,000
|
|
|
$
|
11,159
|
|
|
$
|
949,668
|
|
|
$
|
(5,188
|
)
|
|
$
|
1,050,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-21-
POST APARTMENT HOMES, L.P
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,693
|
|
|
$
|
24,822
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
16,188
|
|
|
|
17,044
|
|
Amortization of deferred financing costs
|
|
|
851
|
|
|
|
812
|
|
Minority interest in consolidated entities
|
|
|
466
|
|
|
|
20
|
|
Gains on sales of real estate assets
|
|
|
(4,430
|
)
|
|
|
(20,859
|
)
|
Other expense (income)
|
|
|
281
|
|
|
|
281
|
|
Equity in income of unconsolidated entities
|
|
|
(401
|
)
|
|
|
(504
|
)
|
Distributions of earnings of unconsolidated entities
|
|
|
686
|
|
|
|
796
|
|
Deferred compensation
|
|
|
133
|
|
|
|
136
|
|
Equity-based compensation
|
|
|
1,185
|
|
|
|
926
|
|
Changes in assets, (increase) decrease in:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(357
|
)
|
|
|
780
|
|
Deferred charges
|
|
|
(93
|
)
|
|
|
(14
|
)
|
Changes in liabilities, increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
8,998
|
|
|
|
8,923
|
|
Accounts payable and accrued expenses
|
|
|
(6,598
|
)
|
|
|
(6,878
|
)
|
Security deposits and prepaid rents
|
|
|
213
|
|
|
|
295
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
19,815
|
|
|
|
26,580
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Construction and acquisition of real estate assets, net of payables
|
|
|
(34,216
|
)
|
|
|
(26,479
|
)
|
Net proceeds from sales of real estate assets
|
|
|
95,131
|
|
|
|
34,665
|
|
Capitalized interest
|
|
|
(3,383
|
)
|
|
|
(3,107
|
)
|
Annually recurring capital expenditures
|
|
|
(2,258
|
)
|
|
|
(2,616
|
)
|
Periodically recurring capital expenditures
|
|
|
(1,593
|
)
|
|
|
(2,305
|
)
|
Community rehabilitation and other revenue generating capital expenditures
|
|
|
(3,508
|
)
|
|
|
(4,667
|
)
|
Corporate additions and improvements
|
|
|
(231
|
)
|
|
|
(1,261
|
)
|
Distributions from (investments in and advances to) unconsolidated entities
|
|
|
(15
|
)
|
|
|
995
|
|
Note receivable collections and other investments
|
|
|
499
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
50,426
|
|
|
|
(4,796
|
)
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Lines of credit proceeds (repayments), net
|
|
|
(162,623
|
)
|
|
|
1,230
|
|
Proceeds from indebtedness
|
|
|
120,000
|
|
|
|
|
|
Payments on indebtedness
|
|
|
(1,233
|
)
|
|
|
(1,025
|
)
|
Payments of financing costs
|
|
|
(910
|
)
|
|
|
(164
|
)
|
Redemption of common units
|
|
|
|
|
|
|
(3,694
|
)
|
Contributions from the Company related to employee stock
purchase and stock option plans
|
|
|
843
|
|
|
|
2,783
|
|
Capital contributions (distributions) of minority interests
|
|
|
(154
|
)
|
|
|
200
|
|
Distributions to common unitholders
|
|
|
(19,933
|
)
|
|
|
(19,890
|
)
|
Distributions to preferred unitholders
|
|
|
(1,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(65,919
|
)
|
|
|
(20,560
|
)
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
4,322
|
|
|
|
1,224
|
|
Cash and cash equivalents, beginning of period
|
|
|
11,557
|
|
|
|
3,663
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
15,879
|
|
|
$
|
4,887
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-22-
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 March 31, 2008, the Company owned 99.3% of the common limited partnership interests (Common
Units) in the Operating Partnership and 100% of the preferred limited partnership interests
(Preferred Units). The Companys weighted average common ownership interest in the Operating
Partnership was 99.1% and 98.5% for the three months ended March 31, 2008 and 2007,
respectively. Common Units held by persons other than the Company totaled 309 at March 31, 2008
and represented a 0.7% 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 March 31, 2008, the Operating Partnership owned 22,437 apartment units in 62 apartment
communities, including 1,747 apartment units in five communities held in unconsolidated entities
and 2,266 apartment units in seven communities (and the expansion of one community) currently
under construction and/or in lease-up. The Operating Partnership is also developing and selling
535 for-sale condominium homes in four communities (including 137 units in one community held in
an unconsolidated entity) and is converting apartment homes in two communities initially
consisting of 349 units into for-sale condominium homes through a taxable REIT subsidiary. At
March 31, 2008, approximately 41.6%, 18.6%, 12.4% and 10.3% (on a unit basis) of the Operating
Partnerships operating communities were located in the Atlanta, Dallas, the greater Washington D.C. and Tampa 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.
|
|
|
|
Possible business combination
|
|
|
|
On January 23, 2008, the Company announced that its Board of Directors had authorized
management, working with financial and legal advisors, to initiate a formal process to pursue a
possible business combination or other sale transaction and to seek proposals from potentially
interested parties. The process commenced immediately after the announcement and is continuing.
There can be no assurance that the process will result in any transaction leading into a
business combination or other sale transaction. For the three months ended March 31, 2008, the
Operating Partnership incurred approximately $6,070 of strategic review costs related to this
process.
|
|
|
|
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
months ended March 31, 2008 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, as amended, for the year ended December 31, 2007.
|
-23-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
The accompanying consolidated financial statements include the consolidated accounts of the
Operating Partnership and their wholly owned subsidiaries. The Operating Partnership also
consolidates other entities in which it has a controlling financial interest or entities where
it is determined to be the primary beneficiary under Financial Accounting Standards Board
Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities. Under FIN
46R, variable interest entities (VIEs) are
generally entities that lack sufficient equity to finance their activities without additional
financial support from other parties or whose equity holders lack adequate decision making
ability. The primary beneficiary is required to consolidate a VIE for financial reporting
purposes. The application of FIN 46R requires management to make significant estimates and
judgments about the Operating Partnerships and its other partners rights, obligations and
economic interests in such entities. For entities in which the Operating Partnership has less
than a controlling financial interest or entities where it is not deemed to be the primary
beneficiary under FIN 46R, the entities are accounted for using the equity method of accounting
(under the provisions of Emerging Issues Task Force (EITF) No. 04-5). Accordingly, the
Operating Partnerships share of the net earnings or losses of these entities is included in
consolidated net income. All significant inter-company accounts and transactions have been
eliminated in consolidation.
|
|
|
|
Revenue Recognition
|
|
|
|
Residential properties are leased under operating leases with terms of generally one year or
less. Rental revenues from residential leases are recognized on the straight-line method over
the approximate life of the leases, which is generally one year. The recognition of rental
revenues from residential leases when earned has historically not been materially different from
rental revenues recognized on a straight-line basis.
|
|
|
|
Under the terms of residential leases, the residents of the Operating Partnerships residential
communities are obligated to reimburse the Operating Partnership for certain utility usage,
water and electricity (at selected properties), where the Operating Partnership is the primary
obligor to the public utility entity. These utility reimbursements from residents are reflected
as other property revenues in the consolidated statements 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, revenues from individual condominium unit sales
are recognized upon the closing of the sale transactions (the Completed Contract Method), as
all conditions for full profit recognition have been met at that time and the conversion
construction periods are typically very short. Under SFAS No. 66, the Operating Partnership uses
the relative sales value method to allocate costs and recognize profits from condominium
conversion sales. In accordance with SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets, gains on sales of condominium units at complete community condominium
conversion projects are included in discontinued operations. For condominium conversion
projects relating to a portion of an existing apartment community, the Operating Partnership
also recognizes revenues and the associated gains under the Completed Contract Method, as
discussed herein. Since a portion of an operating community does not meet the requirements of a
component of an entity under SFAS No. 144, the revenues and gains on sales of condominium units
at partial condominium communities are included in continuing operations.
|
|
|
|
For newly developed condominiums, the Operating Partnership accounts for each project under
either the Completed Contract Method or the Percentage of Completion Method, based on a
specific evaluation of the factors specified in SFAS No. 66 and the guidance provided by EITF
06-8. The factors used to determine the appropriate accounting method are the legal commitment
of the purchaser in the real estate contract, whether the construction of the project is beyond
a preliminary phase, sufficient units have been contracted to ensure the project will not revert
to a rental project, the aggregate project sale proceeds and costs can be reasonably estimated
and the buyer has made an adequate initial and continuing cash investment under the contract in
accordance with SFAS No. 66 and the guidance provided by EITF 06-8. Under the Percentage of
Completion Method, revenues and the associated gains are recognized over the project
construction period generally based on the percentage of total project costs incurred to
estimated total project costs for each condominium unit under a binding real estate contract.
As of March 31, 2008, all newly developed condominium projects are accounted for under the
Completed Contract Method.
|
-24-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
Recently Issued and Adopted Accounting Pronouncements
|
|
|
|
SFAS No. 157, Fair Value Measurements, was issued in September 2006. SFAS No. 157 provides a
definition of fair value and establishes a framework for measuring fair value. SFAS No. 157
clarified the definition of fair value in an effort to eliminate inconsistencies in the
application of fair value under generally accepted accounting principles. Additional
disclosure focusing on the methods used to determine fair value is also required. The Company
adopted SFAS No. 157 on January 1, 2008, specifically related to the valuation of the Companys
derivative instrument at fair value and the Companys impairment valuation analysis related to
real estate assets. The valuations were made using observable market data for similar
instruments and assets. The adoption of SFAS No. 157 did not have a material impact on the
Companys financial position and results of operations.
|
|
|
|
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities including
an amendment of FASB Statement No. 115, was issued in February 2007. SFAS No. 159 gives the
Operating Partnership the irrevocable option to carry most financial assets and liabilities at
fair value, with changes in fair value recognized in earnings. SFAS No. 159 is effective for
the Operating Partnership on January 1, 2008. The Operating Partnership adopted SFAS No. 159 on
January 1, 2008, and the adoption did not have a material impact on the Operating Partnerships
financial position and results of operations. The Operating Partnership did not elect to record
any of its financial assets and liabilities at fair value in 2008 that were not recorded as such
under existing accounting pronouncements.
|
|
|
|
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, was issued in
December 2007. SFAS No. 160 requires all entities to report noncontrolling (minority) interests
in subsidiaries as equity in the consolidated financial statements. SFAS No. 160 is effective
for the Operating Partnership on January 1, 2009. The Operating Partnership is currently
evaluating the potential impact of SFAS No. 160 on the Operating Partnerships financial
position and results of operations.
|
|
|
|
SFAS No. 141R, Business Combinations, was issued in December 2007. SFAS No. 141R will replace
SFAS No. 141 on the date it becomes effective. SFAS No. 141R will require 1) acquirers to
recognize all of the assets acquired and liabilities assumed in a business combination, 2) that
the acquisition date be used to determine fair value for all assets acquired and all liabilities
assumed, and 3) enhanced disclosures for the acquirer surrounding the financial effects of the
business combination. The provisions of SFAS 141R will lead to the expensing of acquisition
related transaction costs and the potential recognition of acquisition related contingencies.
SFAS No. 141R is effective for the Operating Partnership on January 1, 2009. The Operating
Partnership is currently evaluating the potential impact of SFAS No. 141R on the Operating
Partnerships financial position and results of operations.
|
2. REAL ESTATE ACTIVITY
|
|
Dispositions
|
|
|
|
The Operating Partnership classifies real estate assets as held for sale after the approval of
its board of directors and after the Operating Partnership has commenced an active program to
sell the assets. At March 31, 2008, the Operating Partnership had two apartment communities,
containing 744 units, and certain parcels of land classified as held for sale. These real
estate assets are reflected in the accompanying consolidated balance sheet at $36,464, which
represents the lower of their depreciated cost or fair value less costs to sell. At March 31,
2008, the Operating Partnership also had portions of two communities being converted to
condominiums, originally containing 349 units, and certain completed condominium units at newly
developed condominium communities totaling $33,912 classified as for-sale condominiums on the
accompanying consolidated balance sheet.
|
|
|
|
For the three months ended March 31, 2008 and 2007, income from operations included net gains
from condominium sales activities at newly developed and condominium conversion projects
representing portions of existing communities. In addition to the condominium gains included in
continuing operations, the Operating Partnership expensed certain sales and marketing costs
associated with pre-sale condominium communities and condominium communities under development
and such costs are included in condominium expenses in the table below. A summary of revenues
and costs and expenses of condominium activities included in continuing operations for the three
months ended March 31, 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Condominium revenues
|
|
$
|
8,297
|
|
|
$
|
5,869
|
|
Condominium costs and expenses
|
|
|
(6,178
|
)
|
|
|
(4,361
|
)
|
|
|
|
|
|
|
|
Gains on sales of condominiums, net
|
|
$
|
2,119
|
|
|
$
|
1,508
|
|
|
|
|
|
|
|
|
-25-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
For the three months ended March 31, 2007, gains on sales of real estate assets in continuing
operations also included a $2,198 gain on the sale of a land site and an associated corporate
facility previously used in the Operating Partnerships landscape and maintenance operations.
|
|
|
|
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,
all gains and losses on the sale of these assets are included in discontinued operations. For
the three months ended March 31, 2008, income from discontinued operations included the results
of operations of two apartment communities classified as held for sale during the first quarter
of 2008 and one apartment community through its sale date in January 2008. For the three months
ended March 31, 2007, income from discontinued operations included the results of operations of
the two apartment communities classified as held for sale at March 31, 2008, the apartment
community sold in 2008, a condominium conversion community through its sell out date in February
2007 and three apartment communities sold in 2007 through their respective sale dates.
|
The revenues and expenses of these communities for the three months ended March 31, 2008 and
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
2,364
|
|
|
$
|
4,695
|
|
Other property revenues
|
|
|
143
|
|
|
|
323
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,507
|
|
|
|
5,018
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Property operating and maintenance (exclusive of items
shown separately below)
|
|
|
981
|
|
|
|
1,973
|
|
Depreciation
|
|
|
227
|
|
|
|
788
|
|
Interest
|
|
|
430
|
|
|
|
859
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,638
|
|
|
|
3,620
|
|
|
|
|
|
|
|
|
Income from discontinued property operations
|
|
$
|
869
|
|
|
$
|
1,398
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2008, the Operating Partnership recognized net gains in
discontinued operations of $2,311 from the sale of one community, containing 143 units. This
sale generated net proceeds of approximately $19,433. For the three months ended March 31,
2007, the Operating Partnership recognized net gains in discontinued operations of $16,974 from
the sale of one community, containing 182 units. The sale generated net proceeds of $23,741.
|
|
|
|
For the three months ended March 31, 2007, gains on sales of real estate assets included in
discontinued operations also included net gains from condominium sales at one condominium
conversion community that sold out in February 2007. A summary of revenues and costs and
expenses of condominium activities included in discontinued operations for the three months
ended March 31, 2007 was as follows:
|
|
|
|
|
|
Condominium revenues
|
|
$
|
560
|
|
Condominium costs and expenses
|
|
|
(381
|
)
|
|
|
|
|
Gains on condominium sales
|
|
$
|
179
|
|
|
|
|
|
3. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES
|
|
At March 31, 2008, the Operating Partnership holds investments in four individual limited
liability companies (the Property LLCs) with institutional investors. Three of the Property
LLCs own apartment communities. The fourth Property LLC commenced construction in 2007 of a
mixed-use development, consisting of for-sale condominiums and Class A office space. The
Operating Partnership holds a 35% equity interest in two Property LLCs, each owning one
apartment community. The Operating Partnership holds a 25% interest in one Property LLC owning
three apartment communities, and a 50% interest in the
condominium portion of the Property LLC developing the mixed-use project. In 2007, another
Property LLC completed the sell-out of a condominium conversion community, initially consisting
of 121 units.
|
-26-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
In 2007, the Operating Partnerships investment in the 25% owned Property LLC resulted from the
transfer of three previously owned apartment communities to the Property LLC co-owned with an
institutional investor. The assets, liabilities and members equity of this Property LLC were
recorded at fair value based on agreed-upon amounts contributed to the Property LLC. At March
31, 2008, the Operating Partnerships investment in the 25% owned Property LLC reflects a credit
investment of $13,784 resulting primarily from distributions of financing proceeds in excess of
the Operating Partnerships historical cost investment. The credit investment is reflected in
consolidated liabilities on the Operating Partnerships consolidated balance sheet.
|
|
|
|
The Operating Partnership accounts for its investments in these Property LLCs using the equity
method of accounting. At March 31, 2008, the Operating Partnerships investment in these
Property LLCs totaled $22,958, excluding the credit investment discussed above. The excess of
the Operating Partnerships investment over its equity in the underlying net assets of certain
Property LLCs was approximately $5,907 at March 31, 2008. The excess investment related to
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 related to the
Property LLC constructing condominiums will be recognized as additional costs as the
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 allocable share of net income
from the investments in the Property LLCs. A summary of financial information for the Property
LLCs in the aggregate was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Balance Sheet Data
|
|
2008
|
|
|
2007
|
|
Real estate assets, net of accumulated depreciation of
$17,048 and $15,204, respectively
|
|
$
|
343,990
|
|
|
$
|
325,705
|
|
Cash and other
|
|
|
7,385
|
|
|
|
7,254
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
351,375
|
|
|
$
|
332,959
|
|
|
|
|
|
|
|
|
Mortgage/construction notes payable
|
|
$
|
228,474
|
|
|
$
|
214,549
|
|
Other liabilities
|
|
|
11,914
|
|
|
|
5,541
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
240,388
|
|
|
|
220,090
|
|
Members equity
|
|
|
110,987
|
|
|
|
112,869
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
351,375
|
|
|
$
|
332,959
|
|
|
|
|
|
|
|
|
Operating Partnerships equity investment in Property
LLCs (1)
|
|
$
|
9,174
|
|
|
$
|
9,348
|
|
|
|
|
|
|
|
|
|
|
|
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
Income Statement Data
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
6,693
|
|
|
$
|
2,814
|
|
Other property revenues
|
|
|
400
|
|
|
|
169
|
|
Other
|
|
|
22
|
|
|
|
19
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7,115
|
|
|
|
3,002
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
|
|
2,753
|
|
|
|
1,012
|
|
Depreciation and amortization
|
|
|
2,131
|
|
|
|
661
|
|
Interest
|
|
|
2,500
|
|
|
|
688
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
7,384
|
|
|
|
2,361
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(269
|
)
|
|
|
641
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
22
|
|
Gains on sales of real estate assets, net
|
|
|
|
|
|
|
858
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
880
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(269
|
)
|
|
$
|
1,521
|
|
|
|
|
|
|
|
|
Operating Partnerships share of net income
|
|
$
|
401
|
|
|
$
|
504
|
|
|
|
|
|
|
|
|
-27-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
For the three months ended March 31, 2007, gains on real estate assets represent net gains from
condominium sales at the condominium conversion community held by a Property LLC that completed
its sell out in 2007. A summary of revenues and costs and expenses of condominium activities
for the three months ended March 31, 2007 was as follows:
|
|
|
|
|
|
Condominium revenues
|
|
$
|
4,112
|
|
Condominium costs and expenses
|
|
|
(3,254
|
)
|
|
|
|
|
Gains on condominium sales, net
|
|
$
|
858
|
|
|
|
|
|
|
|
At March 31, 2008, mortgage/construction notes payable include a $49,997 mortgage note that
bears interest at 4.13%, requires monthly interest payments and annual principal payments of $1
through 2009. Thereafter, the note requires monthly principal and interest payments based on a
25-year amortization schedule and matures in 2034. The note is callable by the lender in 2009
and on each successive fifth year anniversary of the note thereafter. The note is prepayable
without penalty in May 2008. Another mortgage note payable totaling $17,000 bears interest at a
fixed rate of 4.04% requires interest only payments and matures in 2008. The Property LLC
intends to refinance the mortgage note on or before their maturity with new mortgage
indebtedness. Three additional mortgage notes were entered into in conjunction with the
formation of the 25% owned Property LLC in 2007. Two notes total $85,724, bear interest at
5.63%, require interest only payments and mature in 2017. The third mortgage note totals
$41,000, bears interest at 5.71%, requires interest only payments, and matures in 2017.
|
|
|
|
In 2007, the Property LLC constructing the mixed-use development entered into a construction
loan facility with an aggregate capacity of $187,128. At March 31, 2008, the construction loan
had an outstanding balance of $34,753, bears interest at LIBOR plus 1.35% and matures in 2011.
Under the terms of the construction loan facility, the Operating Partnership and its 50% equity
partner have jointly and severally guaranteed approximately $25,313 of the construction loan
attributable to the condominium portion of the project. Additionally, the Operating Partnership
and its 50% equity partner have jointly and severally guaranteed certain debt service payments
of the condominium portion of the loan not to exceed approximately $6,153, and all of the equity
owners of the project, including the Operating Partnership, have guaranteed the completion of
the first building at the project.
|
4. INDEBTEDNESS
|
|
At March 31, 2008 and December 31, 2007, the Operating Partnerships indebtedness consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
|
|
|
|
|
Maturity
|
|
|
March 31,
|
|
|
December 31,
|
|
Description
|
|
Terms
|
|
|
Interest Rate
|
|
|
Date
|
|
|
2008
|
|
|
2007
|
|
Senior Unsecured Notes
|
|
Int.
|
|
|
5.13%-7.70
|
%
|
|
|
2010-2013
|
|
|
$
|
535,000
|
|
|
$
|
535,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Lines of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated Line of Credit
|
|
N/A
|
|
LIBOR+ 0.575
|
%(1)
|
|
|
2010
|
|
|
|
70,000
|
|
|
|
245,000
|
|
Cash Management Line
|
|
N/A
|
|
LIBOR+ 0.575
|
%
|
|
|
2010
|
|
|
|
24,652
|
|
|
|
12,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,652
|
|
|
|
257,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Secured Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
|
|
Prin.and Int.
|
|
|
6.15
|
%(2)
|
|
|
2029
|
|
|
|
94,000
|
|
|
|
94,000
|
|
Other
|
|
Prin.and Int.
|
|
|
4.27%-6.50
|
%
|
|
|
2009-2015
|
|
|
|
291,993
|
|
|
|
172,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385,993
|
|
|
|
266,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,015,645
|
|
|
$
|
1,059,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents stated rate. At March 31, 2008, the weighted average interest rate
was 3.34%.
|
|
(2)
|
|
Interest rate is fixed at 6.15%, inclusive of credit enhancement and other
fees, to 2009 through an interest rate swap arrangement.
|
-28-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
Debt maturities
|
|
|
|
The aggregate maturities of the Operating Partnerships indebtedness are as follows:
|
|
|
|
|
|
Remainder of 2008
|
|
$
|
4,432
|
|
2009
|
|
|
76,618
|
|
2010
|
|
|
283,280
|
(1)
|
2011
|
|
|
141,431
|
|
2012
|
|
|
103,296
|
|
Thereafter
|
|
|
406,588
|
|
|
|
|
|
|
|
$
|
1,015,645
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes outstanding balances on lines of
credit totaling $94,652.
|
|
|
Debt issuances
|
|
|
|
In January 2008, the Operating Partnership closed a $120,000 secured, fixed rate mortgage note
payable. The note bears interest at 4.88%, requires interest only payments and matures in 2015.
The note contains an automatic one year extension under which the interest rate converts to a
variable rate, as defined.
|
|
|
|
Unsecured Lines of Credit
|
|
|
|
At March 31, 2008, the Operating Partnership utilizes a $600,000 syndicated unsecured revolving
line of credit (the Syndicated Line) that matures in April 2010 for its short-term financing
needs. The Syndicated Line currently has a stated interest rate of LIBOR plus 0.575% or the
prime rate and was provided by a syndicate of 17 banks led by Wachovia Bank, N.A. and JP Morgan
Securities, Inc. Additionally, the Syndicated Line requires the payment of annual facility fees
currently equal to 0.15% of the aggregate loan commitment. The Syndicated Line 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 Syndicated
Line are based on the higher of the Operating Partnerships unsecured debt ratings in instances
where the Operating Partnership has split unsecured debt ratings. The Syndicated Line also
includes a competitive bid option for short-term funds up to 50% of the loan commitment at rates
generally below the stated line rate. The credit agreement for the Syndicated Line contains
customary restrictions, representations, covenants and events of default, including fixed charge
coverage and maximum leverage ratios. The Syndicated Line also restricts the amount of capital
the Operating Partnership can invest in specific categories of assets, such as improved land,
properties under construction, condominium properties, non-multifamily properties, debt or
equity securities, notes receivable and unconsolidated affiliates. At March 31, 2008, the
Operating Partnership had issued letters of credit to third parties totaling $2,100 under this
facility.
|
|
|
|
Additionally, at March 31, 2008, the Operating Partnership had a $30,000 unsecured line of
credit with Wachovia Bank, N.A. (the Cash Management Line). The Cash Management Line matures
in April 2010 and carries pricing and terms, including debt covenants, substantially consistent
with the Syndicated Line.
|
-29-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
5. PARTNERS EQUITY
|
|
Computations of Earnings Per Common Unit
|
|
|
|
For the three and three months ended March 31, 2008 and 2007, 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
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Income from continuing operations available to common
unitholders (numerator):
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(487
|
)
|
|
$
|
6,271
|
|
Less: Preferred unit distributions
|
|
|
(1,909
|
)
|
|
|
(1,909
|
)
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common unitholders
|
|
$
|
(2,396
|
)
|
|
$
|
4,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units (denominator):
|
|
|
|
|
|
|
|
|
Weighted average units outstanding basic
|
|
|
44,278
|
|
|
|
44,041
|
|
Dilutive units from stock options and awards (1)
|
|
|
|
|
|
|
735
|
|
|
|
|
|
|
|
|
Weighted average units outstanding diluted (1)
|
|
|
44,278
|
|
|
|
44,776
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For the three months ended March 31, 2008, the potential dilution from the
Companys outstanding stock options to purchase 419 shares were antidilutive to
the loss from continuing operations per unit calculation. As such, the amounts
were excluded from weighted average units for the period.
|
|
|
For the three months ended March 31, 2008 and 2007, stock options to purchase 2,423 and 148
shares of common stock, respectively, were excluded from the computation of diluted earnings per
common unit as these stock options and awards were antidilutive.
|
6. DERIVATIVE FINANCIAL INSTRUMENTS
|
|
The Operating Partnership adopted the provisions of SFAS No. 157 on January 1, 2008. To comply
with the provisions of SFAS No. 157, the Operating Partnerships fair value measurement of its
derivative instrument at March 31, 2008 incorporates credit valuation adjustments to
appropriately reflect both its risk of nonperformance and the counterpartys risk of
nonperformance.
|
|
|
|
At March 31, 2008, the Operating Partnership had an outstanding interest rate swap agreement
with a notional value of approximately $93,890 with a maturity date in 2009. The swap
arrangement is a variable to fixed rate swap at a fixed rate of 5.21% and the swap was
designated as a cash flow hedge of the Operating Partnerships FNMA variable rate debt. The
interest rate swap agreement is included on the accompanying consolidated balance sheet at fair
value. At March 31, 2008, the fair value of the interest rate swap agreement represented a
liability of $3,688, and the liability was included in consolidated liabilities in the
accompanying consolidated balance sheet. The change in the value of this cash flow hedge was
recorded as a change in accumulated other comprehensive income (loss), a partners equity
account, in the accompanying consolidated balance sheet.
|
|
|
|
In prior years, a previous interest rate swap arrangement, accounted for as a cash flow hedge,
became ineffective under generally accepted accounting principles (SFAS No. 133, as amended).
Under SFAS No. 133, as amended, the Operating Partnership is required to amortize into interest
expense the cumulative unrecognized loss on the terminated interest rate swap arrangement of
$4,021, included in partners equity, over the remaining life of the swap through 2009. Total
amortization expense related to this swap was $281 for the three months ended March 31, 2008 and
2007.
|
|
|
|
On February 1, 2008, a $28,495 interest rate cap arrangement expired on its maturity date with
no change in value from December 31, 2007.
|
-30-
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 March 31, 2008 and 2007 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Net income
|
|
$
|
2,693
|
|
|
$
|
24,822
|
|
Change in derivatives (1)
|
|
|
(1,183
|
)
|
|
|
68
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,510
|
|
|
$
|
24,890
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The change in derivatives balance includes an adjustment
of $281 and $281 for the three months ended March 31, 2008
and 2007, respectively, for amortized swap costs included in
net income.
|
7. SEGMENT INFORMATION
|
|
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 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 generally 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 combined 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,
2007. The segment information for the three months ended March 31, 2007 has been adjusted due
to the restatement impact of reclassifying the operating results of the assets designated as
held for sale or sold subsequent to March 31, 2007 to discontinued operations under SFAS No. 144
(see note 2).
|
|
|
|
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 2007 communities which reached stabilized occupancy in
the prior year.
|
|
|
|
|
Development, rehabilitation and lease-up communities those apartment communities
under development, rehabilitation and lease-up during the period.
|
|
|
|
|
Condominium conversion and other communities those portions of existing apartment
communities being converted into condominiums and other communities converted to joint
venture ownership that are reflected in continuing operations.
|
|
|
|
|
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 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.
|
-31-
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 NOI
together with a reconciliation of segment contribution to property NOI to consolidated net
income for the three months ended March 31, 2008 and 2007. 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
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
Fully stabilized communities
|
|
$
|
59,916
|
|
|
$
|
58,128
|
|
Communities stabilized during 2007
|
|
|
2,553
|
|
|
|
1,121
|
|
Development, rehabilitation and lease-up communities
|
|
|
4,295
|
|
|
|
3,825
|
|
Condominium conversion and other communities
|
|
|
201
|
|
|
|
4,023
|
|
Acquired communities
|
|
|
1,356
|
|
|
|
|
|
Other property segments
|
|
|
6,367
|
|
|
|
5,804
|
|
Other
|
|
|
239
|
|
|
|
117
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
74,927
|
|
|
$
|
73,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to Property Net Operating Income
|
|
|
|
|
|
|
|
|
Fully stabilized communities
|
|
$
|
36,567
|
|
|
$
|
35,902
|
|
Communities stabilized during 2007
|
|
|
1,431
|
|
|
|
176
|
|
Development, rehabilitation and lease-up communities
|
|
|
1,793
|
|
|
|
2,000
|
|
Condominium conversion and other communities
|
|
|
122
|
|
|
|
2,349
|
|
Acquired communities
|
|
|
665
|
|
|
|
|
|
Other property segments, including corporate management expenses
|
|
|
(1,503
|
)
|
|
|
(1,646
|
)
|
|
|
|
|
|
|
|
Consolidated property net operating income
|
|
|
39,075
|
|
|
|
38,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
210
|
|
|
|
250
|
|
Other revenues
|
|
|
239
|
|
|
|
117
|
|
Minority interest in consolidated property partnerships
|
|
|
(466
|
)
|
|
|
(20
|
)
|
Depreciation
|
|
|
(15,961
|
)
|
|
|
(16,255
|
)
|
Interest expense
|
|
|
(11,703
|
)
|
|
|
(12,741
|
)
|
Amortization of deferred financing costs
|
|
|
(851
|
)
|
|
|
(812
|
)
|
General and administrative
|
|
|
(5,848
|
)
|
|
|
(5,448
|
)
|
Investment and development
|
|
|
(1,458
|
)
|
|
|
(1,550
|
)
|
Strategic review costs
|
|
|
(6,070
|
)
|
|
|
|
|
Gains on sales of real estate assets, net
|
|
|
2,119
|
|
|
|
3,706
|
|
Equity in income of unconsolidated real estate entities
|
|
|
401
|
|
|
|
504
|
|
Other income (expense)
|
|
|
(174
|
)
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(487
|
)
|
|
|
6,271
|
|
Income from discontinued operations
|
|
|
3,180
|
|
|
|
18,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,693
|
|
|
$
|
24,822
|
|
|
|
|
|
|
|
|
-32-
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. The following table summarizes the activity relating
to aggregate net severance charges for the three months ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Accrued severance charges, beginning of period
|
|
$
|
11,215
|
|
|
$
|
12,832
|
|
Severance charges
|
|
|
353
|
|
|
|
|
|
Payments for period
|
|
|
(540
|
)
|
|
|
(440
|
)
|
Interest accretion
|
|
|
183
|
|
|
|
185
|
|
|
|
|
|
|
|
|
Accrued severance charges, end of period
|
|
$
|
11,211
|
|
|
$
|
12,577
|
|
|
|
|
|
|
|
|
9. SUPPLEMENTAL CASH FLOW INFORMATION
|
|
Interest paid (including capitalized amounts of $3,383 and $3,107 for the three months ended
March 31, 2008 and 2007, respectively), aggregated $6,518 and $7,784 for the three months ended
March 31, 2008 and 2007, respectively.
|
|
|
|
For the three months ended March 31, 2008 and 2007, the Operating Partnership and the Operating
Partnerships taxable REIT subsidiaries made income tax payments to federal and state taxing
authorities totaling $971 and $143, respectively.
|
|
|
|
Non-cash investing and financing activities for the three months ended March 31, 2008 and 2007
were as follows:
|
|
|
|
For the three months ended March 31, 2008 and 2007, the Operating Partnership amortized
approximately $281 and $281, respectively, of accumulated other comprehensive non-cash losses
into earnings related to an interest rate swap derivative financial instrument (see note 6).
Other than the amortization discussed herein, for the three months ended March 31, 2008 the
Operating Partnerships derivative financial instruments, accounted for as cash flow hedges,
decreased in value causing a increase in accounts payable and accrued expenses and a
corresponding increase in partners equity of $1,464. For the three months ended March 31,
2007, the Operating Partnerships derivative financial instruments accounted for as cash flow
hedges decreased in value causing an increase in accounts payable and accrued expenses and a
corresponding decrease in partners equity of $212.
|
|
|
|
The Operating Partnership committed to distribute $19,982 and $21,815 for the three months ended
March 31, 2008 and 2007, respectively.
|
|
|
|
For the three months ended March 31, 2008 and 2007, the Company issued common shares for
director compensation, totaling $133 and $136, respectively. These stock issuances were
non-cash transactions. The Operating Partnership bears the compensation costs associated with
the Companys compensation plans. As such, the Operating Partnership issued common units to the
Company in amounts equal to the above.
|
10. EQUITY-BASED COMPENSATION PLANS
|
|
Equity Compensation Plans
|
|
|
|
As the primary operating subsidiary of the Company, the Operating Partnership participates in
and bears the compensation expenses associated with the Companys stock-based compensation
plans. The information discussed below relating to the Companys stock-based compensation plans
is also applicable for the Operating Partnership. Effective January 1, 2006, the Company
accounts for stock-based compensation using the fair value method prescribed in SFAS No. 123R
(see note 1). Other than the required modification under SFAS No. 123R to use an estimated
forfeiture rate for award terminations and forfeitures, the adoption of SFAS 123R did not have a
material impact on the Companys accounting for stock-based compensation.
|
-33-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
Incentive Stock Plans
Incentive stock awards are granted under the Companys 2003 Incentive Stock Plan (the 2003
Stock Plan). Under the 2003 Stock Plan, an aggregate of 4,000 shares of common stock were
reserved for issuance. Of this amount, not more than 500 shares of common stock are available
for grants of restricted stock. The exercise price of each option granted under the 2003 Stock
Plan may not be less than the market price of the Companys common stock on the date of the
option grant and all options may have a maximum life of ten years. Participants receiving
restricted stock grants are generally eligible to vote such shares and receive dividends on such
shares. Substantially all stock option and restricted stock grants are subject to annual
vesting provisions (generally three to five years) as determined by the compensation committee
overseeing the 2003 Stock Plan. At March 31, 2008, stock options outstanding under the 2003
Stock Plan and the Companys previous stock plan totaled 2,423.
Compensation costs for stock options have been estimated on the grant date using the
Black-Scholes option-pricing method. The Company did not grant any stock options for the three
months ended March 31, 2008. For options granted during the three months ended March 31, 2007,
the weighted average assumptions used in the Black-Scholes option-pricing model were dividend
yield of 3.8%, expected volatility of 18.1%, risk-free interest rate of 4.8% and expected option
term of 5.0 years.
The Companys assumptions were derived from the methodologies discussed herein. The expected
dividend yield reflects the Companys current historical yield, which is expected to approximate
the future yield. Expected volatility was based on the historical volatility of the Companys
common stock. The risk-free interest rate for the expected life of the options was based on the
implied yields on the U.S. Treasury yield curve. The weighted average expected option term was
based on the Companys historical data for prior period stock option exercise and forfeiture
activity.
For the three months ended March 31, 2008 and 2007, the Company granted stock options to
purchase zero and 199 shares of Company common stock, respectively, to Company officers and
directors, of which zero and 28 shares, respectively, were granted to the Companys
non-executive chairman of the board. The Company recorded compensation expense related to stock
options of $357 and $379 for the three months ended March 31, 2008 and 2007, respectively, under
the fair value method. Upon the exercise of stock options, the Company issues shares of common
stock from treasury shares or, to the extent treasury shares are not available, from authorized
common shares.
A summary of stock option activity under all plans for the three months ended March 31, 2008 and
2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
Options outstanding, beginning of period
|
|
|
2,455
|
|
|
$
|
34
|
|
|
|
2,375
|
|
|
$
|
33
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
48
|
|
Exercised
|
|
|
(32
|
)
|
|
|
39
|
|
|
|
(64
|
)
|
|
|
35
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period
|
|
|
2,423
|
|
|
|
34
|
|
|
|
2,509
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
2,008
|
|
|
|
33
|
|
|
|
1,642
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the period
|
|
$
|
|
|
|
|
|
|
|
$
|
7.22
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008, there was $1,310 of unrecognized compensation cost related to unvested stock
options. This cost is expected to be recognized over a weighted-average period of 0.9 years.
The total intrinsic value of stock options exercised during the three months ended March 31,
2008 and 2007 was $146 and $789, respectively. The aggregate intrinsic values of stock options
outstanding, exercisable and expected to vest at March 31, 2008 were $13,736, $11,616 and
$13,532, respectively. The weighted average remaining contractual lives of stock options
outstanding, exercisable and expected to vest at March 31, 2008 were 5.1, 4.7 and 5.1 years,
respectively. Stock options expected to vest at March 31, 2008 totaled 2,393 at a weighted
average exercise price of approximately $33.96.
At March 31, 2008, the Company had separated its outstanding options into two ranges based on
exercise prices. There were 1,386 options outstanding with exercise prices ranging from $23.90
to $36.13. These options have a weighted average exercise
price of $29.17 and a weighted average remaining contractual life of 4.9 years. Of these
outstanding options, 1,213 were exercisable at March 31, 2008 at a weighted average exercise
price of $29.57. In addition, there were 1,036 options outstanding with exercise prices ranging
from $36.47 to $48.00. These options had a weighted average exercise price of $40.37 and a
weighted average remaining contractual life of 5.3 years. Of these outstanding options, 794
were exercisable at March 31, 2008 at a weighted average exercise price of $39.08.
-34-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
For the three months ended March 31, 2008 and 2007, the Company granted 78 and 47 shares of
restricted stock, respectively, to Company officers and directors, of which 9 and 4 shares,
respectively, were granted to the Companys non-executive chairman of the board. The restricted
share grants generally vest ratably over three to five year periods. The weighted average grant
date fair value for the restricted shares for the three months ended March 31, 2008 and 2007 was
$42.25 and $47.98, respectively, per share. The total value of the restricted share grants for
the three months ended March 31, 2008 and 2007 was $3,308 and $2,240, respectively. The
compensation cost is amortized ratably into compensation expense over the applicable vesting
periods. Total compensation expense relating to the restricted stock was $752 and $486 for the
three months ended March 31, 2008 and 2007, respectively.
A summary of the activity related to the Companys restricted stock for the three months ended
March 31, 2008 and 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
|
Grant-Date
|
|
|
Shares
|
|
Fair Value
|
|
Shares
|
|
Fair Value
|
Unvested shares, beginning or period
|
|
|
119
|
|
|
$
|
35
|
|
|
125
|
|
|
$
|
31
|
Granted
|
|
|
78
|
|
|
|
42
|
|
|
47
|
|
|
|
48
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period
|
|
|
197
|
|
|
|
38
|
|
|
172
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008, there was $6,034 of unrecognized compensation cost related to restricted
stock. This cost is expected to be recognized over a weighted average period of 2.4 years. The
total intrinsic value of restricted shares vested for the three months ended March 31, 2008 and
2007 was $7 and $20, respectively.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (the 2005 ESPP) under a plan approved by
Company shareholders in 2005, and the maximum number of shares issuable is 300. The purchase
price of shares of common stock under the ESPP is equal to 85% of the lesser of the closing
price per share of common stock on the first or last day of the trading period, as defined. The
Company records the aggregate cost of the ESPP (generally the 15% discount on the share
purchases) as a period expense. Total compensation expense relating to the ESPP was $76 and $62
for the three months ended March 31, 2008 and 2007, respectively.
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. The Company
has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the
Code). 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 unitholders and satisfy certain other
organizational and operating requirements. The Operating Partnership intends to make sufficient
cash distributions to the Company to enable it to meet its annual REIT distribution
requirements.
In the preparation of income tax returns in federal and state jurisdictions, the Operating
Partnership and its taxable REIT subsidiaries assert certain tax positions based on their
understanding and interpretation of the income tax law. The taxing authorities may challenge
such positions and the resolution of such matters could result in the payment and recognition of
additional income tax expense. Management believes it has used reasonable judgments and
conclusions in the preparation of its income tax returns. The Operating Partnership and its
subsidiaries (including the TRSs) income tax returns are subject to examination by federal and
state tax jurisdictions for years 2004 through 2006. Net income tax loss carryforwards and
other tax attributes generated in years prior to 2004 are also subject to challenge in any
examination of the 2004 to 2006 tax years.
As of March 31, 2008, the Operating Partnerships taxable REIT subsidiaries (TRSs) had
unrecognized tax benefits of approximately $797 which primarily related to uncertainty regarding
the sustainability of certain deductions taken on prior year income tax returns of the TRS with
respect to the amortization of certain intangible assets. The Operating Partnership does not
expect any significant change in this unrecognized tax benefit in the remainder of 2008. To the
extent these unrecognized tax
-35-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
benefits are ultimately recognized, they may affect the effective
tax rate in a future period. The Operating Partnerships policy is to recognize interest and
penalties, if any, related to unrecognized tax benefits as income tax expense. Accrued interest
and penalties for the three months ended March 31, 2008 and at March 31, 2008 were not material
to the Operating Partnerships results of operations, cash flows or financial position.
The Operating Partnership utilizes TRSs principally to perform such non-REIT activities as asset
and property management, for-sale housing (condominiums) conversions and sales and other
services. These TRSs are subject to federal and state income taxes. For the three months ended
March 31, 2008, the TRS recorded no net income tax expense (benefit) as the provision for
estimated income taxes payable is expected to be fully offset by deferred tax benefits resulting
from reductions of valuation allowances recorded in prior years.
At December 31, 2007, management had established valuation allowances of approximately $3,157
against net deferred tax assets due primarily to historical losses at the TRSs in years prior to
2007 and the variability of the income of these subsidiaries. The tax benefits associated with
such unused valuation allowances 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.
A summary of the components of the TRS deferred tax assets and liabilities at December 31, 2007
are included in the footnotes to the Operating Partnerships audited financial statements
included in the Operating Partnerships Form 10-K, as amended. Other than the activity
discussed above relating to the three months ended March 31, 2008, there were no material
changes to the components of deferred tax assets and liabilities at March 31, 2008.
12. LEGAL PROCEEDINGS
In November 2006, the Equal Rights Center (ERC) filed a lawsuit against the Company and the
Operating Partnership in the United States District Court for the District of Columbia. This
suit alleges various violations of the Fair Housing Act (FHA) and the Americans with
Disabilities Act (ADA) at properties designed, constructed or operated by the Company and the
Operating Partnership in the District of Columbia, Virginia, Colorado, Florida, Georgia, New
York, North Carolina and Texas. The plaintiff seeks compensatory and punitive damages in
unspecified amounts, an award of attorneys fees and costs of suit, as well as preliminary and
permanent injunctive relief that includes retrofitting multi-family units and public use areas
to comply with the FHA and the ADA and prohibiting construction or sale of noncompliant units or
complexes. On April 18, 2007, ERC filed a motion for a preliminary injunction to prohibit the
Company and the Operating Partnership from selling any alleged noncompliant apartment
communities or condominium units while the litigation is ongoing. On July 25, 2007 the court
entered an order denying ERCs motion for the preliminary injunction. Discovery is being
conducted by both parties. On October 29, 2007, the court granted, in part, ERCs motion to
amend the scheduling order and expand the time permitted for discovery and filing of dispositive
motions. As a result, the cutoff for fact discovery was extended to February 29, 2008 with the
end of all briefing on dispositive motions set for August 11, 2008. On January 29, 2008, the
Operating Partnership and ERC agreed to an extension of discovery dates to accommodate further
depositions and inspections. Under the agreement, which was approved by the court on February 7,
2008, fact discovery was to be completed by April 30, 2008, expert discovery was to be
completed by August 29, 2008, and summary judgment briefing would be completed by November 10,
2008. No trial date has been set. The parties have agreed to certain additional limited
deposition and property inspection discovery, which will occur after April 30, 2008. In
addition, on April 23, 2008, the Company and Operating Partnership filed a Motion to Compel
Production of Documents and Deposition Testimony against ERC. The parties are in the process of
submitting a joint motion to extend certain deadlines, which, if approved, will extend the
deadline for the completion of expert discovery until October 28, 2008 and the completion of
summary judgment briefing until January 20, 2009. As a result, it is possible that the dates set
forth in the Courts current scheduling order will be further extended. At this stage in the
proceeding, it is not possible to predict or determine the outcome of the lawsuit, nor is it
possible to estimate the amount of loss that would be associated with an adverse decision.
The Operating Partnership 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 Operating Partnership believes that any resolution of pending
proceedings or liability to the Operating Partnership which may arise as a result of these
various other legal proceedings will not have a material adverse effect on the Operating
Partnerships results of operations or financial position.
-36-
|
|
|
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 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 March 31, 2008, the Company owned 22,437 apartment units in 62 apartment communities,
including 1,747 apartment units in five communities held in unconsolidated entities and 2,266
apartment units in seven communities (and the expansion of one community) currently under
construction and/or in lease-up. The Company is also developing and selling 535 for-sale
condominium homes in four communities (including 137 units in one community held in an
unconsolidated entity) and is converting apartment homes in two communities initially consisting of
349 units into for-sale condominium homes through a taxable REIT subsidiary. At March 31, 2008,
approximately 41.6%, 18.6%, 12.4% and 10.3% (on a unit basis) of the Companys operating
communities were located in the Atlanta, Dallas, the greater Washington D.C. and Tampa 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 is generally not subject to federal income tax on the income it
distributes to its shareholders.
At March 31, 2008, the Company owned approximately 99.3% of the common limited partnership
interests (Common Units) in the Operating Partnership. Common Units held by persons other than
the Company represented a 0.7% common minority interest in the Operating Partnership.
The Companys operating results have benefited from generally improved fundamentals in the
multifamily apartment market over approximately the last two years, although the rate of growth has
begun to show signs of moderation later in 2007 and continuing into 2008. This is evidenced by a
decrease in the year over year rate of growth in same store operating revenues and property net
operating income (NOI) which increased 3.1% and 1.9%, respectively, for the first three months of
2008, compared to 4.7% and 4.7%, respectively, for the full year of 2007. Some concerns have
emerged relating to a general economic slowdown in the U.S., including early signs of declining job
growth. Historically, weaker economic conditions and declining job growth in the U.S. and in the
Companys markets has led to deteriorating, even negative, revenue and NOI growth in the
multifamily market. The multifamily market is also being impacted by a slowdown in the overall
U.S. housing market, attributable in part to continued concerns relating to the impact of rising
mortgage delinquencies, tighter credit markets and a rising (shadow) supply of for-sale
multifamily product entering the rental market. Notwithstanding, the delivery of new competitive
for-rent multifamily supply has been more moderate than in previous periods. Based on these
factors, the Company is forecasting a moderation in the rate of growth of same store community
revenues and NOI for the remainder of 2008, as compared to 2007, and as more fully discussed in the
Outlook section below. If an economic recession were to occur in the U.S., apartment
fundamentals would be adversely affected.
The Company has also been active over the past several years repositioning its real estate
portfolio and building its development and value creation capabilities centered upon its Southeast,
Southwest and Mid-Atlantic regions. During this time, the Company has 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 has been 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 its
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 disposed of 807 apartment units in 2007 and 143 units in the first
quarter of 2008 for aggregate gross proceeds of approximately $91,800 and $19,850, respectively,
and is currently marketing for sale two apartment communities located in Atlanta, Georgia,
consisting of a total of 744 units. Gross proceeds from the sales of these two communities are
currently expected to be approximately $100 million. There can be no assurance that the gross
proceeds will be realized or that these sales will close. In 2007, the Company also transferred
three communities, containing 1,202 apartment units, to a newly formed unconsolidated entity, in
which the Company retained a 25% interest. The 75% interest in these communities effectively sold
to the institutional partner generated gross proceeds of approximately $136,200. In 2007, the
Company also acquired a 350-unit apartment community in Orlando, Florida, of which a portion of the
community is currently in lease-up, for an aggregate gross purchase price of approximately $74,000.
-37-
As more fully described in Current Development Activity later in this Item 2, the Company has
continued to grow its active development pipeline. The Company also expects to begin additional
development projects later in 2008 and in 2009, depending on the outcome of its formal process to
pursue a possible business combination or other sale transaction as well as the availability of
financing and general capital market conditions. The Company may elect to fund new development
projects through joint venture structures to minimize the Companys capital investment in such
projects.
In early 2005, the Company entered the for-sale condominium housing market to exploit the strategic
opportunity for Post to serve those consumers who are choosing to own, rather than rent, their
home. In total, the Company has converted five apartment communities since 2005, initially
consisting of 731 units (including one held in a joint venture), into for-sale condominium homes.
As of the end of the first quarter of 2008, three of these condominium conversion projects were
sold out. The other two projects, consisting of a 206-unit project in Tampa, FL and a 143-unit in
Houston, TX, had, on average, closed the sales of approximately 67% of their total units as of the
end of the first quarter of 2008. Beginning in the second quarter of 2007, the Company also began
closing condominium homes at two of its newly developed for-sale condominium projects, containing
230 homes. As of April 21, 2008, the Company had 10 condominium homes under contract and had
closed 149 homes (65%) at these communities. The Company expects closings at these communities to
continue in 2008. Beginning in 2007 and continuing into 2008, there has been a softening in the
condominium and single family housing markets due to increasing supplies of such assets, tighter
credit standards and a significant slow down in the residential housing market in the U.S.
Further, in late 2007 and into 2008, the turbulence in weakening credit markets accelerated,
resulting in a further decline in for-sale housing markets. As a result, the pace of condominium
closings slowed beginning in 2007 and is continuing into 2008. It is likely that closings will
continue to be slow at these communities for the remainder of 2008. There can be no assurance of
the amount or pace of future for-sale condominium sales and closings. As discussed in Note 1 to
the consolidated financial statement contained herein, the Company uses the relative sales value
method to allocate costs and recognize profits from condominium projects. This method requires the
Company to estimate its total condominium projects costs and profits each period. Should the
Company adjust its estimates regarding costs and profits expected to be realized from its
condominium projects in future periods, the Company may recognize losses in subsequent periods to
reduce estimated profits previously recorded or may recognize impairment losses if the carrying
value of these assets is not deemed recoverable.
The Companys expansion into for-sale condominium housing exposes the Company to additional risks
and challenges, which if they materialize, could have an adverse impact on the Companys business,
results of operations and financial condition. As of March 31, 2008, the Company had approximately
$215,000 of total estimated capital cost (based on book value and including the Companys
investment in unconsolidated entities) committed to its for-sale condominium conversion and
ground-up development projects, including the Companys share of projected development costs
expected to be funded relating to for-sale projects currently under construction and held for sale.
See Risk Factors in the Companys Form 10-K, as amended, for the year ended December 31, 2007
for a discussion of these and other Company risk factors.
The following discussion should be read in conjunction with the selected financial data and with
all of 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 financial condition are substantially the same except for the effect of the 0.9% weighted
average common minority interest in the Operating Partnership. See the summary financial
information in the section below titled, Results of Operations.
Possible Business Combination
On January 23, 2008, the Company announced that its Board of Directors has authorized management to
initiate a formal process to pursue a possible business combination or other sale transaction and
to seek proposals from potentially interested parties. The formal process was commenced by the
Company immediately following the announcement and is continuing. There can be no assurance that
the initiation of a formal process will result in any transaction leading to a business combination
or other sale transaction.
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 anticipated performance for the remainder of 2008 (including the
Companys assumptions for such performance and expected levels of costs and expenses to be incurred
in 2008), anticipated apartment community sales in 2008 (including the estimated proceeds,
estimated gains on sales and the use of proceeds from such sales), anticipated conversion of
apartment communities into condominium homes, development of new for-sale
-38-
condominium housing and
the related sales of the for-sale condominium homes, anticipated future acquisition and development
activities, accounting recognition and measurement of guarantees, anticipated refinancing and other
new financing needs, the anticipated dividend level in 2008, the Companys 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, 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 to 3 of the
Companys Annual Report on Form 10-K, as amended, for the year ended December 31, 2007;
|
|
|
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
in the Companys apartment communities and buyers of the Companys for-sale condominium homes
and development locations;
|
|
|
The Companys ability to obtain financing, enter into joint venture arrangements in
relation to or self-fund the development or acquisition of additional apartment communities
and for-sale condominium housing;
|
|
|
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 condominium conversion and for-sale housing
business, including the timing and volume of condominium sales;
|
|
|
Conditions affecting ownership of residential real estate and general conditions in the
multi-family residential real estate market;
|
|
|
Uncertainties associated with environmental and other regulatory matters;
|
|
|
The impact of the Companys ongoing litigation with the Equal Rights Center regarding the
Americans with Disabilities Act and the Fair Housing Act (including any award of compensatory
or punitive damages or injunctive relief requiring the Company to retrofit apartments or
public use areas or prohibiting the sale of apartment communities or condominium units) as
well as the impact of other litigation;
|
|
|
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;
|
|
|
The progress and results of the Companys formal process to pursue a potential sale or
other business combination; and
|
|
|
Other factors, including the risk factors discussed on pages 8 to 16 of the Companys
Annual Report on Form 10-K, as amended, for the year ended December 31, 2007.
|
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.
-39-
Critical Accounting Policies and New Accounting Pronouncements
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 consolidated financial
statements included in the Companys Annual Report on Form 10-K, as amended, for the year ended
December 31, 2007. The Companys critical accounting policies are those that require application
of managements most difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may change in
subsequent periods. For a complete description of the Companys critical accounting policies,
please refer to pages 28 and 29 of the Companys Annual Report on Form 10-K, as amended, for the
year ended December 31, 2007. There were no significant changes to the Companys critical
accounting policies and estimates during the three months ended March 31, 2008. The discussion
below addresses the implementation and impact of recently issued and adopted accounting
pronouncements with an impact on the Company for the three months ended March 31, 2008 or that may
have an impact on future reported results.
SFAS No. 157, Fair Value Measurements, was issued in September 2006. SFAS No. 157 provides a
definition of fair value and establishes a framework for measuring fair value. SFAS No. 157
clarified the definition of fair value in an effort to eliminate inconsistencies in the
application of fair value under generally accepted accounting principles. Additional
disclosure focusing on the methods used to determine fair value is also required. The Company
adopted SFAS No. 157 on January 1, 2008, specifically related to the valuation of the Companys
derivative instrument at fair value and the Companys impairment valuation analysis related to
real estate assets. The valuations were made using observable market data for similar
instruments and assets. The adoption of SFAS No. 157 did not have a material impact on the
Companys financial position and results of operations.
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities including an
amendment of FASB Statement No. 115, was issued in February 2007. SFAS No. 159 gives the Company
the irrevocable option to carry most financial assets and liabilities at fair value, with changes
in fair value recognized in earnings. SFAS No. 159 is effective for the Company on January 1,
2008. The Company adopted SFAS No. 159 on January 1, 2008, and the adoption did not have a
material impact on the Companys financial position and results of operations. The Company did not
elect to record any of its financial assets and liabilities at fair value in 2008 that were not
recorded as such under existing accounting pronouncements.
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, was issued in
December 2007. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in
subsidiaries as equity in the consolidated financial statements. SFAS No. 160 is effective for the
Company on January 1, 2009. The Company is currently evaluating the potential impact of SFAS No.
160 on the Companys financial position and results of operations.
SFAS No. 141R, Business Combinations, was issued in December 2007. SFAS No. 141R will replace
SFAS No. 141 on the date it becomes effective. SFAS No. 141R will require 1) acquirers to
recognize all of the assets acquired and liabilities assumed in a business combination, 2) that
the acquisition date be used to determine fair value for all assets acquired and all liabilities
assumed, and 3) enhanced disclosures for the acquirer surrounding the financial effects of the
business combination. The provisions of SFAS 141R will lead to the expensing of acquisition
related transaction costs and the potential recognition of acquisition related contingencies. SFAS
No. 141R is effective for the Company on January 1, 2009. The Company is currently evaluating the
potential impact of SFAS No. 141R on the Companys financial position and results of 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 March 31, 2008, the Companys portfolio of operating apartment communities, excluding five
communities held in unconsolidated entities consisted of the following: (1) 42 communities that
were completed and stabilized for all of the current and prior year, (2) two communities that
achieved full stabilization during 2007, (3) six communities and an additional phase of one
community under rehabilitation programs or in lease-up, (4) one community that was acquired in 2007
and (5) portions of two communities that are being converted into condominiums that are reflected
in continuing operations. These community totals exclude four communities under development (not
currently in lease-up) and the operations of two apartment communities classified in discontinued
operations.
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
-40-
(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, condominium conversion communities included in continuing
operations, and other commercial properties summarized by segment for the three ended March 31,
2008 and 2007 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
Rental and other property revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities (1)
|
|
$
|
59,916
|
|
|
$
|
58,128
|
|
|
|
3.1
|
%
|
Communities stabilized during 2007 (2)
|
|
|
2,553
|
|
|
|
1,121
|
|
|
|
127.7
|
%
|
Development, rehabilitation and
lease-up communities
|
|
|
4,295
|
|
|
|
3,825
|
|
|
|
12.3
|
%
|
Condominium conversion and other communities (3)
|
|
|
201
|
|
|
|
4,023
|
|
|
|
(95.0
|
)%
|
Acquired communities (4)
|
|
|
1,356
|
|
|
|
|
|
|
|
100.0
|
%
|
Other property segments (5)
|
|
|
6,367
|
|
|
|
5,804
|
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,688
|
|
|
|
72,901
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
expenses (excluding depreciation
and amortization)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities (1)
|
|
|
23,349
|
|
|
|
22,226
|
|
|
|
5.1
|
%
|
Communities stabilized during 2007 (2)
|
|
|
1,122
|
|
|
|
945
|
|
|
|
18.7
|
%
|
Development, rehabilitation and
lease-up communities
|
|
|
2,502
|
|
|
|
1,825
|
|
|
|
37.1
|
%
|
Condominium conversion and other communities (3)
|
|
|
79
|
|
|
|
1,674
|
|
|
|
(95.3
|
)%
|
Acquired communities (4)
|
|
|
691
|
|
|
|
|
|
|
|
100.0
|
%
|
Other property segments, including corporate
management expenses (6)
|
|
|
7,870
|
|
|
|
7,450
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,613
|
|
|
|
34,120
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Property net operating income (7)
|
|
$
|
39,075
|
|
|
$
|
38,781
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (8)(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
Annually recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet
|
|
$
|
673
|
|
|
$
|
703
|
|
|
|
(4.3
|
)%
|
Other
|
|
|
1,470
|
|
|
|
1,677
|
|
|
|
(12.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,143
|
|
|
$
|
2,380
|
|
|
|
(10.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Periodically recurring
|
|
$
|
1,569
|
|
|
$
|
2,292
|
|
|
|
(31.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Average apartment units in service
|
|
|
17,912
|
|
|
|
18,325
|
|
|
|
(2.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Communities which reached stabilization prior to January 1, 2007.
|
|
(2)
|
|
Communities which reached stabilization in 2007.
|
|
(3)
|
|
Portions of existing apartment communities being converted into condominiums that are
reflected in continuing operations under SFAS No. 144 and communities converted to joint
venture ownership in 2007.
|
|
(4)
|
|
Communities acquired subsequent to January 1, 2007.
|
|
(5)
|
|
Other property segment revenues include revenues 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 $239 and $117 for the three months ended March 31, 2008 and 2007, respectively.
|
|
(6)
|
|
Other expenses includes certain indirect central office operating expenses related to
management, grounds maintenance, and costs associated with commercial properties and
furnished apartment rentals.
|
-41-
|
|
|
(7)
|
|
A reconciliation of property net operating income to GAAP net income is detailed
below.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Total same store NOI
|
|
$
|
36,567
|
|
|
$
|
35,902
|
|
Property NOI from other operating segments
|
|
|
2,508
|
|
|
|
2,879
|
|
|
|
|
|
|
|
|
Consolidated property NOI
|
|
|
39,075
|
|
|
|
38,781
|
|
|
|
|
|
|
|
|
Add (subtract):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
210
|
|
|
|
250
|
|
Other revenues
|
|
|
239
|
|
|
|
117
|
|
Minority interest in consolidated
property partnerships
|
|
|
(466
|
)
|
|
|
(20
|
)
|
Depreciation
|
|
|
(15,961
|
)
|
|
|
(16,255
|
)
|
Interest expense
|
|
|
(11,703
|
)
|
|
|
(12,741
|
)
|
Amortization of deferred financing costs
|
|
|
(851
|
)
|
|
|
(812
|
)
|
General and administrative
|
|
|
(5,848
|
)
|
|
|
(5,448
|
)
|
Investment and development
|
|
|
(1,458
|
)
|
|
|
(1,550
|
)
|
Strategic review costs
|
|
|
(6,070
|
)
|
|
|
|
|
Gains on sales of real estate assets, net
|
|
|
2,119
|
|
|
|
3,706
|
|
Equity in income of unconsolidated
real estate entities
|
|
|
401
|
|
|
|
504
|
|
Other income (expense)
|
|
|
(174
|
)
|
|
|
(261
|
)
|
Minority interest of common unitholders
|
|
|
22
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(465
|
)
|
|
|
6,204
|
|
Income from discontinued operations
|
|
|
3,151
|
|
|
|
18,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,686
|
|
|
$
|
24,471
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
|
In addition to those expenses which relate to property operations, the Company incurs
annually recurring and periodically recurring capital 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. Annually
recurring capital expenditures are those that are generally expected to be incurred on an
annual basis. Periodically recurring capital expenditures are those that generally occur
less frequently than on an annual basis.
|
|
(9)
|
|
A reconciliation of property capital expenditures from continuing operations to total
annually recurring and periodically recurring capital expenditures as presented in the
consolidated statements of cash flows under GAAP is detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Annually recurring capital expenditures
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2,143
|
|
|
$
|
2,380
|
|
Discontinued operations
|
|
|
115
|
|
|
|
236
|
|
|
|
|
|
|
|
|
Total annually recurring capital expenditures
per statements of cash flows
|
|
$
|
2,258
|
|
|
$
|
2,616
|
|
|
|
|
|
|
|
|
Periodically recurring capital expenditures
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1,569
|
|
|
$
|
2,292
|
|
Discontinued operations
|
|
|
24
|
|
|
|
13
|
|
|
|
|
|
|
|
|
Total periodically recurring capital expenditures
per statements of cash flows
|
|
$
|
1,593
|
|
|
$
|
2,305
|
|
|
|
|
|
|
|
|
-42-
Fully Stabilized (Same Store) Communities
The Company defines fully stabilized communities as those which have reached stabilization prior to
the beginning of the previous year, adjusted by communities sold and classified as held for sale
and communities under rehabilitation. For the 2008 to 2007 comparison, fully stabilized
communities are defined as those communities which reached stabilization prior to January 1, 2007.
This portfolio consisted of 42 communities with 15,565 units, including 13 communities with 5,413
units (34.8%) located in Atlanta, Georgia, 10 communities with 3,096 units (19.9%) located in
Dallas, Texas, five communities with 2,064 units (13.3%) located in the greater Washington, DC
area, three communities with 1,877 units (12.1%) located in Tampa, Florida, four communities with
1,388 units (8.9%) located in Charlotte, North Carolina and seven communities with 1,727 units
(11.0%) located in other markets. The operating performance and capital expenditures of these
communities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
Rental and other revenues
|
|
$
|
59,916
|
|
|
$
|
58,128
|
|
|
|
3.1
|
%
|
Property operating and
maintenance expenses
(excluding depreciation and
amortization)
|
|
|
23,349
|
|
|
|
22,226
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Same store net operating income (1)
|
|
$
|
36,567
|
|
|
$
|
35,902
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Annually recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet
|
|
$
|
618
|
|
|
$
|
639
|
|
|
|
(3.3
|
)%
|
Other
|
|
|
1,160
|
|
|
|
1,070
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total annually recurring
|
|
|
1,778
|
|
|
|
1,709
|
|
|
|
4.0
|
%
|
Periodically recurring
|
|
|
1,301
|
|
|
|
666
|
|
|
|
95.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
(A)
|
|
$
|
3,079
|
|
|
$
|
2,375
|
|
|
|
29.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures per unit
(A ÷ 15,565 units)
|
|
$
|
198
|
|
|
$
|
153
|
|
|
|
29.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Average economic occupancy (3)
|
|
|
94.5
|
%
|
|
|
94.0
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Average monthly rental rate per unit (4)
|
|
$
|
1,287
|
|
|
$
|
1,252
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Net operating income of stabilized communities is a supplemental non-GAAP financial
measure. See page 42 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 annually recurring and periodically recurring capital expenditures as presented
in the consolidated statements of cash flows prepared under GAAP detailed below.
|
-43-
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Annually recurring capital expenditures by operating segment
Fully stabilized
|
|
$
|
1,778
|
|
|
$
|
1,709
|
|
Communities stabilized during 2007
|
|
|
25
|
|
|
|
30
|
|
Development, rehabilitation and lease-up
|
|
|
239
|
|
|
|
245
|
|
Condominium conversion and other
|
|
|
|
|
|
|
338
|
|
Acquired
|
|
|
31
|
|
|
|
|
|
Other segments
|
|
|
185
|
|
|
|
294
|
|
|
|
|
|
|
|
|
Total annually recurring capital expenditures per
statements of cash flows
|
|
$
|
2,258
|
|
|
$
|
2,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodically recurring capital expenditures by operating segment
Fully stabilized
|
|
$
|
1,301
|
|
|
$
|
666
|
|
Communities stabilized during 2007
|
|
|
16
|
|
|
|
1,226
|
|
Development, rehabilitation and lease-up
|
|
|
68
|
|
|
|
224
|
|
Condominium conversion and other
|
|
|
|
|
|
|
124
|
|
Acquired
|
|
|
35
|
|
|
|
|
|
Other segments
|
|
|
173
|
|
|
|
65
|
|
|
|
|
|
|
|
|
Total periodically recurring capital expenditures per
statements of cash flows
|
|
$
|
1,593
|
|
|
$
|
2,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company uses same store annually recurring and periodically recurring capital expenditures
as cash flow measures. Same store annually recurring and periodically recurring capital
expenditures are supplemental non-GAAP financial measures. The Company believes that same
store annually recurring and periodically 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, development, rehabilitation
and lease-up communities, condominium conversion communities, acquired communities, held for
sale communities and sold communities in addition to same store information. Therefore, the
Company believes that the Companys presentation of same store annually recurring and
periodically 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 annually recurring and periodically recurring capital expenditures are the lines on the
Companys consolidated statements of cash flows entitled annually recurring capital
expenditures and periodically 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 93.6% and
93.2% for the three months ended March 31, 2008 and 2007, respectively. For the three
months ended March 31, 2008 and 2007, net concessions were $323 and $238, respectively, and
employee discounts were $198 and $216, 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.
|
Comparison of Three Months Ended March 31, 2008 to Three Months Ended March 31, 2007
The Operating Partnership reported net income available to common unitholders of $784 for the three
months ended March 31, 2008 compared to $22,913 for the three months ended March 31, 2007. The
Company reported net income available to common shareholders of $777 for the three months ended
March 31, 2008 compared to $22,562 for the three months ended March 31, 2007. The decrease between
periods primarily reflects strategic review costs of $6,070 associated with the Companys
initiation of a formal process to pursue a possible business combination or other sale transaction
for the three months ended March 31, 2008 as well as gains on the sale of one apartment community
of $2,311 in 2008 compared to gains on sales of one apartment community of $16,974 and a land site
of $2,198 in 2007.
Rental and other revenues from property operations increased $1,787 or 2.5% from 2007 to 2008
primarily due to increased revenues from the Companys fully stabilized communities of $1,788 or
3.1%, increased revenues of $1,432 from communities that achieved full stabilization in 2007 and
increased revenues from acquired communities of $1,356, offset by reduced revenues from condominium
conversion and other communities of $3,822. The revenue increase from fully stabilized communities
is discussed more fully below. The revenue increase from communities that achieved full
stabilization in 2007 reflects two communities that were fully stabilized for the first quarter of
2008 compared to one community in lease up and one community under rehabilitation for the first
quarter of 2007. The revenue increase from acquired communities reflects the Companys acquisition
of one community in July 2007. The revenue decrease from condominium conversion and other
communities was due primarily to the transfer and sale of a 75% interest in three communities to an
unconsolidated entity in mid to late 2007 and to a lesser extent the reduction of leased units as
units were vacated for conversion and sale throughout 2008 and 2007.
-44-
Property operating and maintenance expenses (exclusive of depreciation and amortization) increased
$1,493 or 4.4% from 2007 to 2008 primarily due to increases from fully stabilized communities of
$1,123 or 5.1%, from acquisition communities of $691, and from development, rehabilitation and
lease-up communities of $677 or 37.1%, offset by reduced expenses from condominium conversion and
other communities of $1,595. The expense increase from stabilized communities is discussed below.
The expense increase from acquisition communities reflects a full quarter of expenses in 2008 from
the community acquired in 2007. The expense increase from development, rehabilitation and lease-up
communities primarily reflects expenses associated with the lease-up of two communities and one
community expansion in 2008. The expense decrease from condominium conversion and other
communities primarily reflects the reduced expenses from the transfer and sale of a 75% interest in
three communities to an unconsolidated entity in mid to late 2007.
For the three months ended March 31, 2008, gains on real estate assets in discontinued operations
included a gain of $2,311 from the sale of one apartment community containing 143 apartment units.
For the three months ended March 31, 2007, gains on sales of real estate assets in continuing
operations included a gain of $2,198 from the sale of a land site and an associated corporate
facility and gains on real estate assets in discontinued operations included a gain of $16,974 from
the sale of one apartment community containing 182 apartment units. The Company may continue to be
a seller of apartment communities in future periods depending on market conditions and consistent
with its investment strategy of recycling investment capital to fund new development and
acquisition
activities. The timing and amount of future gain recognition will fluctuate based on the size and
individual age of apartment communities sold.
For the three months ended March 31, 2008 and 2007, gains on sales of real estate assets from
condominium sales activities represented net gains of $2,119 and $1,687, respectively. As
discussed in the consolidated financial statements, net condominium gains of $2,119 and $1,508 for
the three months ended March 31, 2008 and 2007, respectively, were included in continuing
operations. The increase in aggregate condominium gains between periods primarily reflects the
sales of 18 units at newly developed communities in 2008 compared to none in 2007. Unit sales at
condominium conversion communities decreased from 23 units in 2007 to 9 units in 2008 which offset
a portion of gains from newly developed communities. The Company expects gains on sales of real
estate assets at the Companys condominium development and conversion communities to continue at a
slow pace for the remainder of 2008 as the backlog of condominiums under contract is lower than in
previous quarters and due to the further tightening of credit market conditions in an already slow
for-sale housing market. See the Outlook section below for a discussion of expected condominium
sale closings at the Companys condominium communities.
Depreciation expense decreased $294, or 1.8% from 2007 to 2008 primarily due to reduced
depreciation expense of approximately $466 due to accelerated depreciation related to the
retirement of six apartment units and certain enclosed garages at a Florida community to
accommodate the expansion of the community in 2007 and due to reduced depreciation between periods
at fully stabilized communities resulting from certain furniture and fixtures (with a five year
life) at certain properties becoming fully depreciated in 2007. These decreases were partially
offset by increased depreciation of $285 related to development and lease-up communities as
apartment units were placed in service in late 2007 and early 2008 and $702 related to one
community acquired in 2007.
General and administrative expenses increased $400, or 7.3%, from 2007 to 2008 primarily due to
higher compensation costs and an additional severance charge for the cost of prior year severance
arrangements. Higher compensation costs in 2008 of $591 reflected annual compensation increases
and additional costs of $126 related to the Company shareholder value incentive compensation plan,
which is tied to the increase in the Companys stock price during the quarter. The additional
severance charges of $353 related to increased accruals for the increased cost of providing the
aircraft benefits under prior year severance arrangements. The increases were offset by lower
legal and technology expenses primarily due to the timing of the expenses between periods.
Investment and development expenses decreased $92 or 5.9% from 2007 and 2008. In 2008, the
Companys development personnel and other costs increased $902 over 2007, as the Company continued
to grow its development pipeline in three regional markets. These cost increases were offset by
$997 of increased capitalization of development personnel to increasing development activity
commencing in 2007 and continuing into 2008.
Strategic review costs in 2008 of $6,070 are a result of the Companys initiation of a formal
process to pursue a possible business combination or sale transaction. These costs generally
consist of legal, financial and other costs. These costs will continue until the Company concludes
its formal process. There can be no assurance as to the level of such costs in the future or that
the initiation of a formal process will result in any transaction leading to a business combination
or other sale transaction.
Interest expense included in continuing operations decreased $1,038 or 8.1% from 2007 to 2008. The
decreased expense amounts between periods primarily reflect lower interest expense from lower debt
levels due to apartment community dispositions and due to increased interest capitalization on the
Companys development projects of $276 between periods. Interest expense included in discontinued
operations decreased from $859 in 2007 to $430 in 2008 primarily due to interest expense associated
with three communities classified as held for sale or sold in 2008 compared to seven communities
classified as held for sale or sold in 2007.
-45-
Equity in income of unconsolidated real estate entities decreased $103 or 20.4% from 2007 to 2008.
The decrease was primarily due to the cessation of earnings from the unconsolidated entity that was
selling condominium conversion units. This unconsolidated entity sold out its remaining
condominium inventory in 2007.
Other income (expense) for the three months ended March 31, 2008 and 2007 represented expenses
associated with estimated state franchise and other taxes. Franchise taxes are associated with
margin-based taxes in Texas that were effective in 2007.
Annually recurring and periodically recurring capital expenditures from continuing operations
decreased $960 or 20.5% from 2007 to 2008. The decrease in annually recurring capital expenditures
of $237 primarily reflects recurring capital expenditures at three communities in 2007 that were
contributed to unconsolidated entities in mid to late 2007. The decrease in periodically recurring
capital expenditures of $723 primarily reflects decreased costs associated with non revenue
generating capital expenditures at one community incurred in conjunction with the Companys
rehabilitation of the community (approximately $1,217). This community completed its
rehabilitation activities in 2007. This decrease was offset by increased capital expenditures for
resident design center costs. The resident design center program offers certain residents
selected unit enhancements (principally appliance upgrades, granite counter tops, closet
organizers, wood flooring and wood blinds) in return for increased rental revenues. This program
started in late 2007 with a more significant roll out in 2008. The capital expenditure increase
associated with this program was approximately
$504 during the three months ended March 31, 2008. Capital expenditures related to this program
are expected to continue for the remainder of 2008.
Fully Stabilized Communities
Rental and other revenues increased $1,788 or 3.1% from 2007 to 2008. This increase resulted from
a 2.8% increase in the average monthly rental rate per apartment unit and a small increase in
average economic occupancy of the portfolio from 94.0% to 94.5%. This increase in average rental
rates resulted in a revenue increase of approximately $1,661 between years. The occupancy increase
resulted in lower vacancy losses of $59. Additionally, other property revenues increased $68 due
primarily to higher utility reimbursements offset by slightly higher net concessions between years
of $85. Overall, the improved performance of the operating portfolio in the first quarter of 2008
reflects the continuation of favorable, yet moderating, market conditions (see Company Overview
and Outlook where discussed further). Average occupancy levels have increased slightly year over
year as the portfolio entered into 2008 with higher occupancy rates than in 2007. The Company
continues to focus on maintaining rent growth in 2008 while also maintaining a rental rate
structure that enables average occupancy rates to remain at mid-90% levels. See the Outlook
section below for an additional discussion of trends for the remainder of 2008.
Property operating and maintenance expenses (exclusive of depreciation and amortization) increased
$1,123 or 5.1% from 2007 to 2008. This increase was primarily due to increased property tax
expenses of $388 or 5.2%, increased insurance expenses of $221 or 18.3%, increased maintenance
expenses of $264 or 11.9% and increased personnel expenses of $121 or 2.3%. Property tax expenses
increased due to increased accrual rates in 2008 resulting from expected tax increases in 2008.
Insurance expenses increased due to higher insurance rates compared to 2007. Insurance rates for
the Companys May 2007 to May 2008 property insurance program reflected large increases related to
catastrophic coverage in coastal areas. The Companys property insurance program renews in the
second quarter of 2008. Maintenance expenses increased due to higher interior and exterior
painting costs, partially due to the timing of the expenses between years. For the full year of
2008, the Company expects exterior painting expenses to be somewhat higher compared to 2007.
Personnel costs increased primarily due to annual salary increases effective in January each year.
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 March 31, 2008, income from
discontinued operations included the results of operations of the results of operations of one
apartment community, containing 143 units, through its sale date in January 2008 and the results of
operations of two apartment communities classified as held for sale in the first quarter of 2008.
For the three months ended March 31, 2007, income from discontinued operations included the results
of operations of the two apartment communities held for sale at March 31, 2008, the apartment
community sold in 2008 and a condominium conversion community and three apartment communities sold
in 2007. The revenues and expenses of discontinued operations are summarized in note 2 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. For the three
months ended March 31, 2008, the Company recognized net gains of $2,311 from the sale of one
apartment community in the first quarter of 2008. For the three months ended March 31, 2007, the
Company recognized net gains of $16,974 from the sale of one apartment community. In the first
quarter of 2007, the Company sold out its remaining condominium conversion community included in
discontinued operations. These gains are discussed in note 2 to the consolidated financial
statements.
-46-
As discussed under Liquidity and Capital Resources, the Company expects to continue to sell real
estate assets 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
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
litigation and other risks as outlined in the section titled Disclosure Regarding Forward-Looking
Statements above.
The Companys outlook for the second quarter of 2008 is based on the expectation that apartment
market fundamentals will continue to moderate compared to 2007 as a result of slowing job growth
expectations and a slowing overall U.S. economy. Additionally, the Company expects an increased
supply of rental competition from the rental of excess for-sale condominiums and single family
inventories in some of its markets. However, the supply of new apartment deliveries is projected
to remain in balance with rental demand and tighter credit markets may reduce turnover driven by
residents purchasing their own homes.
Rental and other revenues from fully stabilized communities in the second quarter of 2008 are
expected to increase compared to the second quarter of 2007, driven by modest rental rate increases
and stable occupancies. Operating expenses of fully stabilized communities are also expected to
increase in the second quarter of 2008. Other than general inflationary increases, the Company
expects property taxes and insurance expenses to increase at slightly higher rates. Management
expects fully stabilized community net operating income to increase at a modest pace in the second
quarter of 2008 compared to 2007. If the U.S. economy should enter into a recession, rental
revenues and net operating income could be adversely affected.
Management expects interest expense to decrease in the second quarter of 2008 compared to 2007 due
generally to increased interest capitalization resulting from increased project development volume,
lower debt levels as well as lower interest rates on variable rate, unsecured debt. Management
also expects general and administrative and property management expenses to be relatively flat. In
addition, the Company expects that it will incur additional costs associated with its commencement
of a formal process to pursue a possible combination or other sale transaction, which is continuing
into the second quarter of 2008.
In the third quarter of 2008, management currently expects to sell two apartment communities
located in Atlanta, Georgia that were designated as held for sale in the first quarter of 2008.
These sales are expected to generate gross proceeds of approximately $100,000. There can be no
assurance that the gross proceeds will be realized or that these sales will close. The expected
proceeds from these sales, and any other sales occurring throughout the year, are intended to be
used for various corporate purposes, including funding of the Companys development pipeline.
Finally, the Company, through a taxable REIT subsidiary, expects to continue the sale of
condominium homes in its condominium conversion projects that commenced in 2006 and at the two
newly developed condominium communities that commenced sales in 2007. The Company expects to
realize net accounting gains in the second and third quarters of 2008 from these apartment and
condominium sales.
The
Company has six apartment projects (and the expansion of one
community) and two condominium communities under construction with a
total expected cost to the Company of approximately $540,000 and expects to begin additional
development projects in 2008. Management currently expects a decrease in expensed investment,
development and other expenses on a quarterly basis throughout the remainder of 2008 primarily
resulting from the increased capitalization of development personnel to the increased volume of
construction activity in 2008. However, the start of additional development projects and the
amount of development personnel capitalized to such projects are dependent on the outcome of the
Companys formal process to pursue a possible business combination or other sales transaction as
well as the availability of financing and general capital market conditions.
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 described herein has been incurred by the
Operating Partnership.
The Companys net cash flow from operating activities decreased from $26,580 in the first quarter
of 2007 to $19,815 in the first quarter of 2008 primarily due to the payment of strategic review
costs of approximately $2,491 in the first quarter of 2008 and due to unfavorable changes in the
working capital components (primarily larger decreases in accounts payable and accrued expenses due
to the timing of payments between periods) included in operating activities. The Company expects
cash flows from operating activities to be lower in 2008 primarily driven by costs of the strategic
review process underway at the Company offset by the expected modest improvement in the operating
performance of the Companys fully stabilized properties.
-47-
Net cash flows used in investing activities changed from net cash used in investing activities of
$4,796 in the first quarter of 2007 to net cash provided by investing activities of $50,426 in the
first quarter of 2008 primarily due to the net proceeds of real estate asset sales in 2008 offset
somewhat by increased spending on development and rehabilitation activities between periods.
Proceeds from sales of real estate assets were higher in 2008 primarily due to the sales of an
apartment community and the collection of the net cash proceeds of approximately $67,000, held by
an exchange intermediary at December 31, 2007, upon the completion of a tax deferred like kind
exchange in the first quarter of 2008. The Company began renovations of two of its apartment
communities in the first quarter of 2008 and construction and development expenditures increased in
2008 as the Company initiated development starts in late 2007. For the remainder of 2008, the
Company expects to increase development activities (additional starts in 2008 and higher
expenditures at existing developments) primarily financed through debt borrowings or leveraged
joint venture arrangements (see also Outlook where discussed further). As of March 31, 2008, the
Company had two apartment communities held for sale as well as condominium units for sale. The
Company plans to principally reinvest the proceeds from these sales in its development communities
and to repay debt.
Net cash flows used in financing activities increased from $20,560 in the first quarter of 2007 to
$65,919 in the first quarter of 2008 primarily due to increased net debt repayment between periods
primarily resulting from the increased proceeds from asset sales discussed above. In 2008, the
Company expects that its outstanding debt may increase modestly, depending on the level of
potential asset sales, principally to fund the expected increase in development activity discussed
above.
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 for the remainder of 2008. As a REIT, the Company is
subject to a number of organizational and operating requirements, including a requirement to
distribute 90% of its adjusted taxable income to its shareholders. As a REIT, the Company
generally will not be subject to federal income taxes on its taxable income it distributes to its
shareholders.
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 stock dividends to shareholders
through its net cash flows provided by operating activities, less its annual recurring,
periodically recurring 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 three months ended March 31, 2008, the Companys net cash flow from operations, reduced by
annual operating capital expenditures, was not sufficient to fully fund the Companys current level
of dividend payments to common and preferred shareholders by approximately $6,000, including the
impact of costs associated with a possible business combination or other sale transaction. The
Company used line of credit borrowings to fund the additional cash flow necessary to satisfy the
Companys quarterly dividend to common shareholders of $0.45 per share. The Companys net cash
flow from operations continues to be sufficient to meet the dividend requirements necessary to
maintain its REIT status under the Code.
For the remainder of 2008, management of the Company expects to maintain its current quarterly
dividend payment rate to common shareholders of $0.45 per share. At this dividend rate, the
Company 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
shareholders. The Company intends to use primarily the proceeds from apartment community and
condominium sales in the remainder of 2008 to fund the additional cash flow necessary to fully fund
the dividend payments to common shareholders. The primary factors leading to the shortfall are the
negative cash flow impact of sales of operating communities (discussed below) and the short-term
negative impact of apartment rehabilitation and lease-up activities. The Companys board of
directors reviews the dividend quarterly, and there can be no assurance that the current dividend
level will be maintained.
The Company generally expects to utilize net cash flow from operations, available cash and cash
equivalents 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. Available borrowing capacity under the Companys
revolving lines of credit as of March 31, 2008 was created primarily through the Companys asset
sales program. 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 selected operating
communities, 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.
As previously discussed, the Company intends to use the proceeds from the sale of operating
communities and condominium homes, availability under its unsecured revolving lines of credit, debt
financing and joint venture arrangements as the primary source of capital to fund its current and
future development and acquisition expenditures. The Company had instituted an active asset sale
and
-48-
capital recycling program as the primary means to fund its on-going community development and
acquisition program. In the first quarter of 2008, the Company generated net proceeds of
approximately $19,433 from the sale of an apartment community. For the remainder of 2008, the
Company also expects to generate additional sales proceeds from the sale of two Atlanta, Georgia
communities as well as condominium homes. It is the current intent of management to continue to
recycle capital, from time to time, through selling assets (possibly through joint venture
arrangements) and reinvesting the proceeds as a strategy to diversify the cash flows of the Company
across its markets and focus on building critical mass in fewer markets.
For the remainder of 2008, the Company has no scheduled maturities of consolidated unsecured or
secured indebtedness. Aggregate maturities of secured indebtedness in unconsolidated entities
totals $17,000 in the second half of 2008.
At March 31, 2008, the Company had approximately $94,652 borrowed under its $630,000 combined line
of credit facilities. The credit facilities mature in April 2010. The terms, conditions and
restrictive covenants associated with the Companys lines of credit facilities are summarized in
note 4 to the consolidated financial statements. The Company delivered certain wholly owned subsidiary guarantees under its credit facility
arrangements subsequent to quarter end to ensure its compliance with such covenants at March
31, 2008. Giving effect to the delivery of the guarantees, management believes the Company
was in compliance with the covenants of the Companys credit
facility arrangements at March 31, 2008. Management
believes it will have adequate capacity under its facilities to execute the remainder of its 2008
business plan and meet its short-term liquidity requirements.
Stock Repurchase Program
In the fourth quarter of 2006, the Companys board of directors adopted a 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, 2008. During the first
quarter of 2008, the Company did not repurchase any shares under this program. During 2007, the
Company repurchased 83 shares of common stock totaling approximately $3,694 under this program.
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, construction and rehabilitation of 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 the interior and exterior painting of
operating communities, except such costs at communities under major rehabilitation programs.
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 and condominium communities under development, construction, and major
rehabilitation. The internal 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 and condominium community separately for cost accumulation, capitalization and expense
recognition purposes. Prior to the commencement of leasing and sales activities, interest and
other construction costs are capitalized and are reflected on the balance sheet as 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 results in a proration
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 and property management and leasing personnel expenses) of such communities.
-49-
Acquisition of assets and community development and other capitalized expenditures for the three
months ended March 31, 2008 and 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
New community development and acquisition activity(1)
|
|
$
|
39,358
|
|
|
$
|
29,590
|
|
Periodically recurring capital expenditures
|
|
|
|
|
|
|
|
|
Community rehabilitation and other revenue
generating improvements (2)
|
|
|
3,508
|
|
|
|
4,667
|
|
Other community additions and improvements (3)
|
|
|
1,593
|
|
|
|
2,305
|
|
Annually recurring capital expenditures
|
|
|
|
|
|
|
|
|
Carpet replacements and other community additions
and improvements (4)
|
|
|
2,258
|
|
|
|
2,616
|
|
Corporate additions and improvements
|
|
|
231
|
|
|
|
1,261
|
|
|
|
|
|
|
|
|
|
|
$
|
46,948
|
|
|
$
|
40,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data
|
|
|
|
|
|
|
|
|
|
Capitalized interest
|
|
$
|
3,383
|
|
|
$
|
3,107
|
|
|
|
|
|
|
|
|
|
Capitalized development and associated costs (5)
|
|
$
|
1,760
|
|
|
$
|
763
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Reflects aggregate land and community development and acquisition costs,
exclusive of the change in construction payables between years.
|
|
(2)
|
|
Represents expenditures for major community rehabilitations and other unit
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.
|
-50-
Current Development Activity
At March 31, 2008, the Company had six communities (and the expansion of one community) containing
2,116 apartment units and 305 for-sale condominiums in two communities (including
137 units in one community held in an unconsolidated entity) under development. These communities are summarized in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Incurred
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Company
|
|
|
Estimated
|
|
|
Share of
|
|
|
as of
|
|
Community
|
|
Location
|
|
|
of Units
|
|
|
Retail Sq. Ft.
|
|
|
Ownership
|
|
|
Cost
|
|
|
Est. Cost
|
|
|
03/31/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share)
|
|
Apartments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Alexander
|
|
Atlanta, GA
|
|
|
307
|
|
|
|
|
|
|
|
100
|
%
|
|
$
|
62.4
|
|
|
$
|
62.4
|
|
|
$
|
49.3
|
|
Post Walk® at Citrus Park Village
|
|
Tampa, FL
|
|
|
296
|
|
|
|
|
|
|
|
100
|
%
|
|
|
41.6
|
|
|
|
41.6
|
|
|
|
8.3
|
|
Post Eastside
|
|
Dallas, TX
|
|
|
435
|
|
|
|
37,900
|
|
|
|
100
|
%
|
|
|
56.7
|
|
|
|
56.7
|
|
|
|
29.0
|
|
Post Hyde Park®
|
|
Tampa, FL
|
|
|
84
|
|
|
|
|
|
|
|
100
|
%
|
|
|
18.8
|
(4)
|
|
|
18.8
|
|
|
|
15.4
|
|
Post Frisco Bridges
|
|
Dallas, TX
|
|
|
269
|
|
|
|
29,000
|
|
|
|
100
|
%
|
|
|
41.3
|
|
|
|
41.3
|
|
|
|
10.5
|
|
Post Park®
|
|
Wash. DC
|
|
|
396
|
|
|
|
1,700
|
|
|
|
100
|
%
|
|
|
84.7
|
|
|
|
84.7
|
|
|
|
19.1
|
|
Post West Austin
|
|
Austin, TX
|
|
|
329
|
|
|
|
|
|
|
|
100
|
%
|
|
|
53.2
|
|
|
|
53.2
|
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments
|
|
|
|
|
|
|
2,116
|
|
|
|
68,600
|
|
|
|
|
|
|
$
|
358.7
|
|
|
$
|
358.7
|
|
|
$
|
149.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condominiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Residences at 3630 Peachtree (5)
|
|
Atlanta, GA
|
|
|
137
|
|
|
|
|
|
|
|
50
|
%
|
|
$
|
93.4
|
|
|
$
|
47.6
|
|
|
$
|
12.7
|
|
Four Seasons Residences
|
|
Austin, TX
|
|
|
168
|
|
|
|
8,000
|
|
|
|
100
|
%
|
|
|
133.5
|
|
|
|
133.5
|
|
|
|
23.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Condominiums
|
|
|
|
|
|
|
305
|
|
|
|
8,000
|
|
|
|
|
|
|
$
|
226.9
|
|
|
$
|
181.1
|
|
|
$
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
Quarter of
|
|
Quarter of
|
|
|
|
|
|
Estimated
|
|
Units
|
|
|
|
|
of Const.
|
|
First Units
|
|
Stabilized
|
|
Units
|
|
Quarter
|
|
Under
|
|
Units
|
Community
|
|
Start
|
|
Available
|
|
Occupancy
(1)
|
|
Leased
(2)
|
|
Sell-out
|
|
Contract
(3)
|
|
Closed
(2)
|
Apartments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Alexander
|
|
|
2Q 2006
|
|
|
|
1Q 2008
|
|
|
|
2Q 2009
|
|
|
|
32
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post Walk® at Citrus Park Village
|
|
|
1Q 2008
|
|
|
|
1Q 2009
|
|
|
|
1Q 2010
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post Eastside
|
|
|
4Q 2006
|
|
|
|
2Q 2008
|
|
|
|
4Q 2009
|
|
|
|
18
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post Hyde Park®
|
|
|
4Q 2006
|
|
|
|
4Q 2007
|
|
|
|
3Q 2008
|
|
|
|
49
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post Frisco Bridges
|
|
|
3Q 2007
|
|
|
|
4Q 2008
|
|
|
|
2Q 2010
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post Park®
|
|
|
4Q 2007
|
|
|
|
1Q 2009
|
|
|
|
3Q 2010
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post West Austin
|
|
|
4Q 2007
|
|
|
|
1Q 2009
|
|
|
|
1Q 2010
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condominiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Residences at 3630 Peachtree (5)
|
|
|
3Q 2007
|
|
|
|
3Q 2009
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4Q 2010
|
|
|
|
|
|
|
|
|
|
Four Seasons Residences
|
|
|
1Q 2008
|
|
|
|
4Q 2009
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4Q 2010
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Condominiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
|
As of April 21, 2008.
|
|
(3)
|
|
As of April 21, 2008, represents the total number of units under contract for sale upon
completion and delivery of the units. There can be no assurance that condominium units
under contract will close.
|
|
(4)
|
|
Total estimated construction costs for the Post Hyde Park® expansion includes the
estimated replacement costs of six apartment units at the Companys existing Hyde Park
community that were demolished to accommodate the expansion.
|
|
(5)
|
|
The amounts reflected for this project represent the condominium portion of a mixed-use
development currently being developed in an entity owned with other third-party developers.
This condominium portion of the project is co-owned with an Atlanta-based condominium
development partner.
|
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.
-51-
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 operating 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
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Net income available to common shareholders
|
|
$
|
777
|
|
|
$
|
22,562
|
|
Minority interest of common unitholders -
continuing operations
|
|
|
(22
|
)
|
|
|
67
|
|
Minority interest in discontinued operations (1)
|
|
|
29
|
|
|
|
284
|
|
Depreciation on consolidated real estate assets
|
|
|
15,700
|
|
|
|
16,489
|
|
Depreciation on real estate assets held in
unconsolidated entities
|
|
|
350
|
|
|
|
226
|
|
Gains on sales of real estate assets
|
|
|
(4,430
|
)
|
|
|
(18,661
|
)
|
Incremental gains (losses) on condominium sales (2)
|
|
|
1,504
|
|
|
|
(196
|
)
|
Gains on sales of real estate assets unconsolidated
entities
|
|
|
|
|
|
|
(202
|
)
|
Incremental gains on condominium sales -
unconsolidated entities (2)
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
|
Funds from operations available to common
shareholders and unitholders (3)
|
|
$
|
13,908
|
|
|
$
|
20,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
43,875
|
|
|
|
43,367
|
|
Weighted average shares and units outstanding basic
|
|
|
44,278
|
|
|
|
44,041
|
|
Weighted average shares outstanding diluted (4)
|
|
|
44,294
|
|
|
|
44,101
|
|
Weighted average shares and units outstanding diluted (4)
|
|
|
44,697
|
|
|
|
44,776
|
|
|
|
|
(1)
|
|
Represents the minority interest in earnings and gains on properties held for
sale and sold reported as discontinued operations for the periods presented.
|
|
(2)
|
|
For conversion projects, 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. For development projects, gains on condominium sales in FFO
are equivalent to gains reported under GAAP.
|
|
(3)
|
|
For the three months ended March 31, 2008, FFO included $6,070 of strategic
review costs associated with the Companys initiation of a formal process to
pursue a possible business combination or other sale transaction. For the three
months ended March 31, 2007, FFO included gains on land sales of $2,198.
|
|
(4)
|
|
Diluted weighted average shares and units for the three months ended March 31,
2008 include 419 shares and units representing the potential dilution from the
Companys outstanding stock options and awards. Such dilutive securities were
antidilutive to the income (loss) per share computations for the three months
ended March 31, 2008 under generally accepted accounting principles for such
period.
|
-52-
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys primary market risk exposure is interest rate risk. At March 31, 2008, the Company
had $188,652 of variable rate debt tied to LIBOR. In addition, the Company has interest rate risk
associated with fixed rate debt at maturity. The discussion in this Interest Rate Sensitivity
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, including fair value measured in accordance with the
guidelines established in SFAS No. 157, about the Companys derivative financial instruments that
are sensitive to changes in interest rates. For the Companys interest rate swap arrangement, 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 contract.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
Expected
|
|
|
|
|
Interest Rate Derivatives
|
|
Notional Amount
|
|
Pay Rate/Cap Rate
|
|
|
Receive Rate
|
|
Settlement Date
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liab.)
|
|
Interest Rate Swap (variable to fixed)
|
|
$95,600 amortizing to $90,270
|
|
5.21%
|
|
|
1 month LIBOR
|
|
|
7/31/09
|
|
|
$
|
(3,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and SFAS No. 157. If interest rates under the Companys
floating rate LIBOR-based and tax-exempt borrowings, in excess of the $94,000 FNMA borrowings
effectively converted to fixed rates discussed above, fluctuated by 1.0%, interest costs to the
Company, based on outstanding borrowings at March 31, 2008, would increase or decrease by
approximately $947 on an annualized basis.
On February 1, 2008, a $28,495,000 interest rate cap arrangement expired on its maturity date with
no change in value from December 31, 2007.
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 controls 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.
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.
-53-
ITEM 4T.
CONTROLS AND PROCEDURES
As required by Securities and Exchange Commission rules, the Operating Partnership 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 management of the general partner of the
Operating Partnership, including its principal executive officer and principal financial officer.
Based on this evaluation, these officers have concluded that the design and operation of the
Operating Partnerships disclosure controls 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 Operating Partnerships controls and other procedures that are designed to
ensure that information required to be disclosed by the Operating Partnership 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.
There were no changes to the Operating Partnerships 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 Operating
Partnerships internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
In November 2006, the Equal Rights Center (ERC) filed a lawsuit against the Company and the
Operating Partnership in the United States District Court for the District of Columbia. This suit
alleges various violations of the Fair Housing Act (FHA) and the Americans with Disabilities Act
(ADA) at properties designed, constructed or operated by the Company and the Operating
Partnership in the District of Columbia, Virginia, Colorado, Florida, Georgia, New York, North
Carolina and Texas. The plaintiff seeks compensatory and punitive damages in unspecified amounts,
an award of attorneys fees and costs of suit, as well as preliminary and permanent injunctive
relief that includes retrofitting multi-family units and public use areas to comply with the FHA
and the ADA and prohibiting construction or sale of noncompliant units or complexes. On April 18,
2007, ERC filed a motion for a preliminary injunction to prohibit the Company and the Operating
Partnership from selling any alleged noncompliant apartment communities or condominium units while
the litigation is ongoing. On July 25, 2007 the court entered an order denying ERCs motion for the
preliminary injunction. Discovery is being conducted by both parties. On October 29, 2007, the
court granted, in part, ERCs motion to amend the scheduling order and expand the time permitted
for discovery and filing of dispositive motions. As a result, the cutoff for fact discovery was
extended to February 29, 2008 with the end of all briefing on dispositive motions set for August
11, 2008. On January 29, 2008, the Operating Partnership and ERC agreed to an extension of
discovery dates to accommodate further depositions and inspections. Under the agreement, which was
approved by the court on February 7, 2008, fact discovery was to be completed by April 30, 2008,
expert discovery was to be completed by August 29, 2008, and summary judgment briefing would be
completed by November 10, 2008. No trial date has been set. The parties have agreed to certain
additional limited deposition and property inspection discovery, which will occur after April 30,
2008. In addition, on April 23, 2008, the Company and Operating Partnership filed a Motion to
Compel Production of Documents and Deposition Testimony against ERC. The parties are in the
process of submitting a joint motion to extend certain deadlines, which, if approved, will extend
the deadline for the completion of expert discovery until October 28, 2008 and the completion of
summary judgment briefing until January 20, 2009. As a result, it is possible that the dates set
forth in the Courts current scheduling order will be further extended. At this stage in the
proceeding, it is not possible to predict or determine the outcome of the lawsuit, nor is it
possible to estimate the amount of loss that would be associated with an adverse decision.
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 various other legal proceedings will not have a material adverse effect
on the Companys results of operations or financial position.
ITEM 1A.
RISK FACTORS
There were no material changes in the Registrants Risk Factors as previously disclosed in Item 1A
of the Registrants Form 10-K, as amended, for the year ended December 31, 2007.
-54-
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 for the three
months ended March 31, 2008 (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Value of Shares that May
|
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Yet Be Purchased Under
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Announced Plans or
|
|
|
the Plans or Programs
|
|
Period
|
|
Shares Purchased
|
|
|
Per Share
|
|
|
Programs
|
|
|
(1)
|
|
January 1, 2008 to
January 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
196,300
|
|
February 1, 2008 to
February 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,300
|
|
March 1, 2008 to
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
196,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In the fourth quarter of 2006, 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, 2008.
|
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5.
OTHER INFORMATION
None
-55-
ITEM 6.
EXHIBITS
Certain exhibits required by Item 601 of Regulation S-K have been filed with previous reports by
the Registrants and are incorporated by reference herein.
The Registrants agree to furnish a copy of all agreements relating to long-term debt upon request
of the SEC.
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
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 March 14, 2008)
|
|
|
|
|
|
4.1(e)
|
|
|
|
Indenture between the Company and SunTrust Bank, as Trustee
|
|
|
|
|
|
4.2(e)
|
|
|
|
Form of First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee
|
|
|
|
|
|
10.1(f)
|
|
|
|
Multi-Family Note, dated as of January 25, 2008 by and between Post Addison Circle, as the borrower, and
Deutsche Bank Berkshire Mortgage, Inc., d/b/a DB Berkshire Mortgage, Inc., a Delaware corporation, as the
lender.
|
|
|
|
|
|
10.2(f)*
|
|
|
|
Form of Change in Control Agreement (2.0X)
|
|
|
|
|
|
10.3(f)*
|
|
|
|
Form of Change in Control Agreement (1.5X)
|
|
|
|
|
|
10.4(f)*
|
|
|
|
Form of Change in Control Agreement (1.0X)
|
|
|
|
|
|
10.5(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with David P. Stockert
|
|
|
|
|
|
10.6(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with Christopher J. Papa
|
|
|
|
|
|
10.7(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with Thomas D. Senkbeil
|
|
|
|
|
|
10.8(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with Thomas L. Wilkes
|
|
|
|
|
|
10.8(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with Sherry W. Cohen
|
|
|
|
|
|
11.1(h)
|
|
|
|
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, and 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, and 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
|
|
|
|
*
|
|
Identifies each management contract or compensatory plan required to be filed.
|
|
(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 to 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 an exhibit to the Current Report on Form 8-K of the Registrants filed March 20, 2008
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 an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2007 and incorporated herein by reference.
|
|
(g)
|
|
Filed as an exhibit to the Current Report on Form 8-K of the Registrants filed February 15,
2008 and incorporated herein by reference.
|
|
(h)
|
|
The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference.
|
-56-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
POST PROPERTIES, INC.
|
|
May 9, 2008
|
By
|
/s/ David P. Stockert
|
|
|
|
David P. Stockert
|
|
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
|
May 9, 2008
|
By
|
/s/ Christopher J. Papa
|
|
|
|
Christopher J. Papa
|
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
|
|
May 9, 2008
|
By
|
/s/ Arthur J. Quirk
|
|
|
|
Arthur J. Quirk
|
|
|
|
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
|
|
|
-57-
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
|
|
May 9, 2008
|
By
|
/s/ David P. Stockert
|
|
|
|
David P. Stockert
|
|
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
|
May 9, 2008
|
By
|
/s/ Christopher J. Papa
|
|
|
|
Christopher J. Papa
|
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
|
|
May 9, 2008
|
By
|
/s/ Arthur J. Quirk
|
|
|
|
Arthur J. Quirk
|
|
|
|
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
|
|
|
-58-
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
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 March 14, 2008)
|
|
|
|
|
|
4.1(e)
|
|
|
|
Indenture between the Company and SunTrust Bank, as Trustee
|
|
|
|
|
|
4.2(e)
|
|
|
|
Form of First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee
|
|
|
|
|
|
10.1(f)
|
|
|
|
Multi-Family Note, dated as of January 25, 2008 by and between Post Addison Circle, as the borrower, and
Deutsche Bank Berkshire Mortgage, Inc., d/b/a DB Berkshire Mortgage, Inc., a Delaware corporation, as the
lender.
|
|
|
|
|
|
10.2(f)*
|
|
|
|
Form of Change in Control Agreement (2.0X)
|
|
|
|
|
|
10.3(f)*
|
|
|
|
Form of Change in Control Agreement (1.5X)
|
|
|
|
|
|
10.4(f)*
|
|
|
|
Form of Change in Control Agreement (1.0X)
|
|
|
|
|
|
10.5(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with David P. Stockert
|
|
|
|
|
|
10.6(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with Christopher J. Papa
|
|
|
|
|
|
10.7(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with Thomas D. Senkbeil
|
|
|
|
|
|
10.8(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with Thomas L. Wilkes
|
|
|
|
|
|
10.8(g)*
|
|
|
|
Amended and Restated Employment and Change in Control Agreement with Sherry W. Cohen
|
|
|
|
|
|
11.1(h)
|
|
|
|
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, and 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, and 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
|
|
|
|
*
|
|
Identifies each management contract or compensatory plan required to be filed.
|
|
(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 to 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 an exhibit to the Current Report on Form 8-K of the Registrants filed March 20, 2008
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 an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2007 and incorporated herein by reference.
|
|
(g)
|
|
Filed as an exhibit to the Current Report on Form 8-K of the Registrants filed February 15,
2008 and incorporated herein by reference.
|
|
(h)
|
|
The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference.
|
-59-
Grafico Azioni Post Properties (NYSE:PPS)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Post Properties (NYSE:PPS)
Storico
Da Lug 2023 a Lug 2024