UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 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
Georgia
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58-1550675
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
No
o
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Post Apartment Homes, L.P.
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Yes
þ
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.
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Post Properties, Inc.
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Large Accelerated Filer
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þ
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Accelerated Filer
o
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Non-Accelerated Filer
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o
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(Do not check if a smaller reporting company) Smaller Reporting Company
o
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Post Apartment Homes, L.P.
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Large Accelerated Filer
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o
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Accelerated Filer
o
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Non-Accelerated Filer
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þ
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(Do not check if a smaller reporting company) Smaller Reporting Company
o
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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
No
þ
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Post Apartment Homes, L.P.
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Yes
o
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:
44,125,782 shares of common stock outstanding as of August 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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June 30,
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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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232,160
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$
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276,680
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Building and improvements
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1,649,338
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1,840,563
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Furniture, fixtures and equipment
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190,407
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204,433
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Construction in progress
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135,232
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134,125
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Land held for future development
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123,167
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154,617
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2,330,304
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2,610,418
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Less: accumulated depreciation
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(499,981
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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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26,314
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38,844
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Assets held for sale, net of accumulated depreciation of $93,844 and
$4,031 at June 30, 2008 and December 31, 2007, respectively
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258,610
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24,576
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Total real estate assets
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2,115,247
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2,111,612
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Investments in and advances to unconsolidated real estate entities
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22,815
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23,036
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Cash and cash equivalents
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17,988
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11,557
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Restricted cash
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9,956
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5,642
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Deferred charges, net
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10,159
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10,538
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Other assets
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37,141
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105,756
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Total assets
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$
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2,213,306
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$
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2,268,141
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Liabilities and shareholders equity
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Indebtedness, including $34,261 and $0 secured by assets held
for sale as of June 30, 2008 and December 31, 2007, respectively
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$
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1,064,405
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$
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1,059,066
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Accounts payable and accrued expenses
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99,003
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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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4,790
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4,388
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Security deposits and prepaid rents
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15,892
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11,708
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Total liabilities
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1,204,072
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1,195,310
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Minority interest of common unitholders in Operating Partnership
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6,034
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10,354
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Minority interests in consolidated real estate entities
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2,921
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3,972
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Total minority interests
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8,955
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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, $.01 par value, 100,000 authorized:
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44,119 and 43,825 shares issued, 44,111 and 43,825 shares outstanding
at June 30, 2008 and December 31, 2007, respectively
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441
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438
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Additional paid-in-capital
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882,438
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874,928
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Accumulated earnings
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124,101
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189,985
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Accumulated other comprehensive income (loss)
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(3,385
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)
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(3,962
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)
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1,003,624
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1,061,418
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Less common stock in treasury, at cost, 83 and 72 shares
at June 30, 2008 and December 31, 2007, respectively
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(3,345
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)
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(2,913
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)
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Total shareholders equity
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1,000,279
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1,058,505
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Total liabilities and shareholders equity
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$
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2,213,306
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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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Six months ended
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June 30,
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June 30,
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2008
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2007
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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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62,286
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$
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60,873
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$
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124,474
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$
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121,538
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Other property revenues
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4,084
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3,651
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7,381
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7,050
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Other
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235
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128
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474
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245
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Total revenues
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66,605
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64,652
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132,329
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128,833
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Expenses
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Property operating and maintenance (exclusive of items
shown separately below)
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33,555
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32,265
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66,012
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63,616
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Depreciation
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14,386
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14,375
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28,649
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28,726
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General and administrative
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4,956
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5,959
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10,804
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11,407
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Investment, development and other
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1,356
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1,955
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2,814
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3,505
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Strategic review costs
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2,091
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8,161
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Impairment and severance costs
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29,300
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29,300
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Total expenses
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85,644
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54,554
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145,740
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107,254
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Operating income (loss)
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(19,039
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)
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10,098
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(13,411
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)
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21,579
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Interest income
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61
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213
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271
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|
463
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Interest expense
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(10,112
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)
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(10,863
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)
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(20,268
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)
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(21,908
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)
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Amortization of deferred financing costs
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(859
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)
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(829
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)
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(1,710
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)
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(1,641
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)
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Gains (losses) on sales of real estate assets, net
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(368
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)
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62,738
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1,751
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66,444
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Equity in income of unconsolidated real estate entities
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420
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310
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821
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814
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Other income (expense)
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66
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(261
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)
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(108
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)
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(522
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)
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Minority interest in consolidated property partnerships
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427
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(716
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)
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61
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(693
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)
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Minority interest of common unitholders
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238
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(852
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)
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284
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(882
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)
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Income (loss) from continuing operations
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(29,166
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)
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59,838
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(32,309
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)
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63,654
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Discontinued operations
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Income from discontinued property operations, net of
minority interest
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4,103
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4,099
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7,642
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7,864
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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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4,103
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4,099
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9,932
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24,754
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Net income (loss)
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(25,063
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)
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63,937
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(22,377
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)
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88,408
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Dividends to preferred shareholders
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(1,910
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)
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(1,910
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)
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(3,819
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)
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|
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(3,819
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)
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Net income (loss) available to common shareholders
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$
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(26,973
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)
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$
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62,027
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$
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(26,196
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)
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$
|
84,589
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|
|
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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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(0.71
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)
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$
|
1.33
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$
|
(0.82
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)
|
|
$
|
1.38
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|
Income from discontinued operations
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.23
|
|
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
(0.61
|
)
|
|
$
|
1.43
|
|
|
$
|
(0.60
|
)
|
|
$
|
1.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
44,011
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|
|
|
43,463
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|
|
|
43,939
|
|
|
|
43,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share data Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
(net of preferred dividends)
|
|
$
|
(0.71
|
)
|
|
$
|
1.31
|
|
|
$
|
(0.82
|
)
|
|
$
|
1.35
|
|
Income from discontinued operations
|
|
|
0.09
|
|
|
$
|
0.09
|
|
|
|
0.23
|
|
|
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
(0.61
|
)
|
|
$
|
1.40
|
|
|
$
|
(0.60
|
)
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
44,011
|
|
|
|
44,278
|
|
|
|
43,939
|
|
|
|
44,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-2-
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
ACCUMULATED EARNINGS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Total
|
|
Shareholders Equity and Accumulated
Earnings, December 31, 2007
|
|
$
|
29
|
|
|
$
|
438
|
|
|
$
|
874,928
|
|
|
$
|
189,985
|
|
|
$
|
(3,962
|
)
|
|
$
|
(2,913
|
)
|
|
$
|
1,058,505
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,377
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,377
|
)
|
Net change in derivatives, net of minority
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
593
|
|
|
|
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,784
|
)
|
Proceeds from employee stock purchase, stock
option and other plans
|
|
|
|
|
|
|
1
|
|
|
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
(914
|
)
|
|
|
903
|
|
Adjustment for minority interest of unitholders
in Operating Partnership upon conversion of
units into common shares and at dates of
capital transactions
|
|
|
|
|
|
|
2
|
|
|
|
3,397
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
482
|
|
|
|
3,865
|
|
Stock-based compensation, net of
minority interest
|
|
|
|
|
|
|
|
|
|
|
2,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,297
|
|
Dividends to preferred shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,819
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,819
|
)
|
Dividends to common shareholders
($0.90 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,688
|
)
|
|
|
|
|
|
|
|
|
|
|
(39,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity and Accumulated
Earnings, June 30, 2008
|
|
$
|
29
|
|
|
$
|
441
|
|
|
$
|
882,438
|
|
|
$
|
124,101
|
|
|
$
|
(3,385
|
)
|
|
$
|
(3,345
|
)
|
|
$
|
1,000,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-3-
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(22,377
|
)
|
|
$
|
88,408
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
32,272
|
|
|
|
34,103
|
|
Amortization of deferred financing costs
|
|
|
1,710
|
|
|
|
1,641
|
|
Minority interest of common unitholders in Operating Partnership
|
|
|
(284
|
)
|
|
|
882
|
|
Minority interest in discontinued operations
|
|
|
78
|
|
|
|
380
|
|
Minority interest in consolidated entities
|
|
|
173
|
|
|
|
831
|
|
Gains on sales of real estate assets
|
|
|
(4,062
|
)
|
|
|
(83,597
|
)
|
Other expense
|
|
|
563
|
|
|
|
562
|
|
Asset impairment charges
|
|
|
28,947
|
|
|
|
|
|
Equity in income of unconsolidated entities
|
|
|
(821
|
)
|
|
|
(814
|
)
|
Distributions of earnings of unconsolidated entities
|
|
|
1,429
|
|
|
|
1,238
|
|
Deferred compensation
|
|
|
278
|
|
|
|
277
|
|
Stock-based compensation
|
|
|
2,315
|
|
|
|
1,985
|
|
Changes in assets, (increase) decrease in:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(3,860
|
)
|
|
|
(3,597
|
)
|
Deferred charges
|
|
|
(178
|
)
|
|
|
(15
|
)
|
Changes in liabilities, increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
402
|
|
|
|
(57
|
)
|
Accounts payable and accrued expenses
|
|
|
(1,667
|
)
|
|
|
2,153
|
|
Security deposits and prepaid rents
|
|
|
(130
|
)
|
|
|
517
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
34,788
|
|
|
|
44,897
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Construction and acquisition of real estate assets, net of payables
|
|
|
(69,689
|
)
|
|
|
(55,254
|
)
|
Net proceeds from sales of real estate assets
|
|
|
104,906
|
|
|
|
150,988
|
|
Capitalized interest
|
|
|
(6,671
|
)
|
|
|
(5,795
|
)
|
Annually recurring capital expenditures
|
|
|
(5,640
|
)
|
|
|
(6,080
|
)
|
Periodically recurring capital expenditures
|
|
|
(3,331
|
)
|
|
|
(3,867
|
)
|
Community rehabilitation and other revenue generating capital expenditures
|
|
|
(7,951
|
)
|
|
|
(7,206
|
)
|
Corporate additions and improvements
|
|
|
(421
|
)
|
|
|
(1,608
|
)
|
Distributions from (investments in and advances to) unconsolidated entities
|
|
|
(262
|
)
|
|
|
22,506
|
|
Note receivable collections and other investments
|
|
|
1,529
|
|
|
|
230
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
12,470
|
|
|
|
93,914
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Lines of credit proceeds (repayments), net
|
|
|
(113,004
|
)
|
|
|
(27,969
|
)
|
Proceeds from indebtedness
|
|
|
120,000
|
|
|
|
|
|
Payments on indebtedness
|
|
|
(2,542
|
)
|
|
|
(67,632
|
)
|
Payments of financing costs
|
|
|
(952
|
)
|
|
|
(246
|
)
|
Treasury stock acquisitions
|
|
|
|
|
|
|
(3,694
|
)
|
Proceeds from employee stock purchase and stock options plans
|
|
|
624
|
|
|
|
3,806
|
|
Capital contributions (distributions) of minority interests
|
|
|
(1,224
|
)
|
|
|
430
|
|
Distributions to common unitholders
|
|
|
(351
|
)
|
|
|
(608
|
)
|
Dividends paid to preferred shareholders
|
|
|
(3,819
|
)
|
|
|
(1,909
|
)
|
Dividends paid to common shareholders
|
|
|
(39,559
|
)
|
|
|
(39,189
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(40,827
|
)
|
|
|
(137,011
|
)
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
6,431
|
|
|
|
1,800
|
|
Cash and cash equivalents, beginning of period
|
|
|
11,557
|
|
|
|
3,663
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
17,988
|
|
|
$
|
5,463
|
|
|
|
|
|
|
|
|
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 June 30, 2008, the Company owned 22,140 apartment units
in 61 apartment communities, including 1,747 apartment units in five communities held in
unconsolidated entities and 1,736 apartment units in five communities currently under
construction and/or in lease-up. The Company is also developing and selling 514 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 June 30,
2008, approximately 41.6%, 20.0%, 12.0% and 10.0% (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 June 30, 2008, the Company had outstanding 44,111 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 293 at June 30, 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 99.3% and 98.6% for the three
months ended and 99.2% and 98.5% for the six months ended June 30, 2008 and 2007, respectively.
|
|
|
|
Conclusion of Strategic Process
|
|
|
|
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 Board ended the process on June 25, 2008 due to the increasingly
difficult market environment and a lack of definitive proposals. For the three and six months
ended June 30, 2008, the Company incurred approximately $2,091 and $8,161, respectively, 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 and six months ended
June 30, 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 Form 10-K).
|
|
|
|
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 Company has less than a controlling financial interest or entities where it is not deemed to
be the primary beneficiary under FIN
|
-5-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
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 June 30, 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. The Company adopted SFAS
No. 157 on January 1, 2008. 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 and
defines it as the price that would be received to sell an asset or paid to transfer a liability
in a transaction between willing market participants. Additional disclosures focusing on the
methods used to determine fair value are also required using the following hierarchy:
|
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities that are
accessible at the measurement date.
|
|
|
|
|
Level 2 Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly.
|
|
|
|
|
Level 3 Unobservable inputs for the assets or liability.
|
-6-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
The Company applies SFAS No. 157 in relation to the valuation of its derivative instrument at
fair value (see note 6) and the Companys impairment valuation analysis related to real estate
assets (see note 8). The following table presents the Companys real estate assets and
derivative liabilities reported at fair market value and the related level in the fair value
hierarchy as defined by SFAS No. 157 used to measure those assets and liabilities at June 30,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements as of June 30, 2008
|
Assets (Liabilities)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Real estate assets, land held for development and sale
|
|
$
|
44,773
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
44,773
|
|
Interest rate swap agreement
|
|
|
(2,189
|
)
|
|
|
|
|
|
|
(2,189
|
)
|
|
|
|
|
|
|
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. 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.
|
|
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 June 30,
2008, the Company had eight apartment communities, containing 2,615 units, and certain parcels
of land classified as held for sale. These real estate assets are reflected in the accompanying
consolidated balance sheet at $258,610, which represents the lower of their depreciated cost or
fair value less costs to sell. At June 30, 2008, the Company also had portions of two
communities being converted to condominiums and certain completed condominium units at newly
developed condominium communities totaling $26,314 classified as for-sale condominiums on the
accompanying consolidated balance sheet.
|
|
|
|
For the three and six months ended June 30, 2008 and 2007, income from continuing 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 and six months ended June 30, 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Condominium revenues
|
|
$
|
10,051
|
|
|
$
|
25,222
|
|
|
$
|
18,348
|
|
|
$
|
31,091
|
|
Condominium costs and expenses
|
|
|
(10,419
|
)
|
|
|
(19,524
|
)
|
|
|
(16,597
|
)
|
|
|
(23,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on sales of condominiums, net
|
|
$
|
(368
|
)
|
|
$
|
5,698
|
|
|
$
|
1,751
|
|
|
$
|
7,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-7-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
For the three and six months ended June 30, 2007, gains on sales of real estate assets in
continuing operations also included a gain of $55,300 related to the Companys transfer of two
operating apartment communities to a newly formed unconsolidated entity in which the Company
retained a 25% non-controlling interest for aggregate proceeds of approximately $89,351. The
gain was calculated as the difference between the proceeds received from the independent third
party for its 75% interest in the unconsolidated entity and the Companys 75% proportionate
share of the net book value of operating communities transferred to the unconsolidated entity.
The unconsolidated entity obtained mortgage financing secured by the apartment communities
totaling approximately $85,723, of which approximately $21,431 was distributed to the Company.
Additionally, for the three and six months ended June 30, 2007, gains on sales of real estate
assets in continuing operations included gains of $1,740 and $3,938, respectively, on the sales
of land sites in Atlanta, Georgia and Dallas, Texas.
|
|
|
|
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 six months ended June 30, 2008, income from discontinued operations included the results of
operations of eight apartment communities classified as held for sale during the first and
second quarters of 2008 and one apartment community through its sale date in January 2008. For
the six months ended June 30, 2007, income from discontinued operations included the results of
operations of the eight apartment communities classified as held for sale at June 30, 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 and six months ended June 30, 2008
and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
11,196
|
|
|
$
|
13,013
|
|
|
$
|
22,502
|
|
|
$
|
26,272
|
|
Other property revenues
|
|
|
471
|
|
|
|
645
|
|
|
|
875
|
|
|
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
11,667
|
|
|
|
13,658
|
|
|
|
23,377
|
|
|
|
27,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance (exclusive of items
shown separately below)
|
|
|
3,763
|
|
|
|
4,384
|
|
|
|
7,900
|
|
|
|
9,126
|
|
Depreciation
|
|
|
1,698
|
|
|
|
2,685
|
|
|
|
3,623
|
|
|
|
5,377
|
|
Interest
|
|
|
1,944
|
|
|
|
2,336
|
|
|
|
3,921
|
|
|
|
4,891
|
|
Minority interest in consolidated property partnerships
|
|
|
134
|
|
|
|
95
|
|
|
|
234
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
7,539
|
|
|
|
9,500
|
|
|
|
15,678
|
|
|
|
19,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued property operations
before minority interest
|
|
|
4,128
|
|
|
|
4,158
|
|
|
|
7,699
|
|
|
|
7,981
|
|
Minority interest
|
|
|
(25
|
)
|
|
|
(59
|
)
|
|
|
(57
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued property operations
|
|
$
|
4,103
|
|
|
$
|
4,099
|
|
|
$
|
7,642
|
|
|
$
|
7,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 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 six
months ended June 30, 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.
|
-8-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
For the six months ended June 30, 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 was as follows:
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30, 2007
|
|
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 June 30, 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 June 30, 2008, the
Companys investment in the 25% owned Property LLC reflects a credit investment of $13,885
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.
|
|
|
|
The Company accounts for its investments in these Property LLCs using the equity method of
accounting. At June 30, 2008, the Companys investment in these Property LLCs totaled $22,815,
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 $5,986 at
June 30, 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:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
Balance Sheet Data
|
|
2008
|
|
|
2007
|
|
Real estate assets, net of accumulated depreciation of
$18,361 and $15,204, respectively
|
|
$
|
362,036
|
|
|
$
|
325,705
|
|
Cash and other
|
|
|
7,246
|
|
|
|
7,254
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
369,282
|
|
|
$
|
332,959
|
|
|
|
|
|
|
|
|
Mortgage/construction notes payable
|
|
$
|
250,270
|
|
|
$
|
214,549
|
|
Other liabilities
|
|
|
9,993
|
|
|
|
5,541
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
260,263
|
|
|
|
220,090
|
|
Members equity
|
|
|
109,019
|
|
|
|
112,869
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
369,282
|
|
|
$
|
332,959
|
|
|
|
|
|
|
|
|
Companys equity investment in Property LLCs
|
|
$
|
8,930
|
|
|
$
|
9,348
|
|
|
|
|
|
|
|
|
-9-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Income Statement Data
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
6,794
|
|
|
$
|
4,142
|
|
|
$
|
13,487
|
|
|
$
|
6,955
|
|
Other property revenues
|
|
|
482
|
|
|
|
307
|
|
|
|
883
|
|
|
|
479
|
|
Other
|
|
|
13
|
|
|
|
19
|
|
|
|
36
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7,289
|
|
|
|
4,468
|
|
|
|
14,406
|
|
|
|
7,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
|
|
2,882
|
|
|
|
1,520
|
|
|
|
5,635
|
|
|
|
2,532
|
|
Depreciation and amortization
|
|
|
2,104
|
|
|
|
1,281
|
|
|
|
4,236
|
|
|
|
1,942
|
|
Interest
|
|
|
2,500
|
|
|
|
1,331
|
|
|
|
4,999
|
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
7,486
|
|
|
|
4,132
|
|
|
|
14,870
|
|
|
|
6,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(197
|
)
|
|
|
336
|
|
|
|
(464
|
)
|
|
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
10
|
|
|
|
(2
|
)
|
|
|
31
|
|
Gains (losses) on sales of real estate assets, net
|
|
|
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
(73
|
)
|
|
|
(2
|
)
|
|
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(197
|
)
|
|
$
|
263
|
|
|
$
|
(466
|
)
|
|
$
|
1,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys share of net income
|
|
$
|
420
|
|
|
$
|
310
|
|
|
$
|
821
|
|
|
$
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2007, gains (losses) on real estate assets represent
net gains (losses) from condominium sales at the condominium conversion community held by a
Property LLC that completed its sell out in 2007.
|
|
|
|
At June 30, 2008, mortgage/construction notes payable include a $49,996 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 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. Subsequent to June 30, 2008, this
mortgage note was refinanced by the Property LLC. The new mortgage note payable totaling
$29,272 bears interest at 5.83%, requires monthly interest only payments and matures in 2013.
The note is prepayable without penalty in August 2011.
|
|
|
|
Three additional mortgage notes were entered into in conjunction with the formation of the 25%
owned Property LLC in 2007. Two notes total $85,723, 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 June 30, 2008, the construction loan
had an outstanding balance of $56,550, 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.
|
-10-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
4.
|
|
INDEBTEDNESS
|
|
|
|
At June 30, 2008 and December 31, 2007, the Companys indebtedness consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
|
|
Maturity
|
|
June 30,
|
|
|
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
|
|
|
120,000
|
|
|
|
245,000
|
|
Cash Management Line
|
|
N/A
|
|
LIBOR + 0.575%
|
|
2010
|
|
|
24,271
|
|
|
|
12,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,271
|
|
|
|
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
|
|
|
291,134
|
|
|
|
172,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385,134
|
|
|
|
266,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
1,064,405
|
|
|
$
|
1,059,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents stated rate. At June 30, 2008, the weighted average interest rate
was 3.06%.
|
|
(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
|
|
$
|
3,572
|
|
2009
|
|
|
76,618
|
|
2010
|
|
|
332,899
|
(1)
|
2011
|
|
|
141,431
|
|
2012
|
|
|
103,296
|
|
Thereafter
|
|
|
406,589
|
|
|
|
|
|
|
|
$
|
1,064,405
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes outstanding balances on lines of
credit totaling $144,271.
|
|
|
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.
|
-11-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
Unsecured Lines of Credit
|
|
|
|
At June 30, 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 June 30, 2008, the Company had issued letters of credit to third
parties totaling $2,100 under this facility.
|
|
|
|
Additionally, at June 30, 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 (Loss) Per Common Share
|
|
|
|
For the three and six months ended June 30, 2008 and 2007, a reconciliation of the numerator and
denominator used in the computation of basic and diluted income (loss) from continuing
operations per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Income (loss) from continuing operations available to
common shareholders (numerator):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(29,166
|
)
|
|
$
|
59,838
|
|
|
$
|
(32,309
|
)
|
|
$
|
63,654
|
|
Less: Preferred stock dividends
|
|
|
(1,910
|
)
|
|
|
(1,910
|
)
|
|
|
(3,819
|
)
|
|
|
(3,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common shareholders
|
|
$
|
(31,076
|
)
|
|
$
|
57,928
|
|
|
$
|
(36,128
|
)
|
|
$
|
59,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares (denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
44,011
|
|
|
|
43,463
|
|
|
|
43,939
|
|
|
|
43,416
|
|
Dilutive shares from stock options and awards (1)
|
|
|
|
|
|
|
815
|
|
|
|
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted (1)
|
|
|
44,011
|
|
|
|
44,278
|
|
|
|
43,939
|
|
|
|
44,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For the three and six months ended June 30, 2008, the potential dilution from
the Companys outstanding stock options to purchase 307 and 358 shares,
respectively, were antidilutive to the loss from continuing operations per share
calculation. As such, the amounts were excluded from weighted average shares for
the periods.
|
|
|
For the three and six months ended June 30, 2008 and 2007, stock options to purchase 2,414 and
213 shares of common stock, respectively, and 2,414 and 183, respectively, were excluded from
the computation of diluted earnings (loss) per common share as these stock options and awards
were antidilutive.
|
-12-
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
June 30, 2008 uses Level 2 observable inputs that incorporate credit valuation adjustments to
appropriately reflect both its risk of nonperformance and the counterpartys risk of
nonperformance.
|
|
|
|
At June 30, 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 June 30, 2008, the fair value of the
interest rate swap agreement represented a liability of $2,189, and the liability was included
in consolidated liabilities in the accompanying consolidated balance sheet. The increase in the
value of this cash flow hedge of $1,499 and $35 for the three and six months ended June 30,
2008, respectively, 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 and $562 for the
six months ended June 30, 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 (loss) for the three and six months ended June 30, 2008 and
2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net income (loss)
|
|
$
|
(25,063
|
)
|
|
$
|
63,937
|
|
|
$
|
(22,377
|
)
|
|
$
|
88,408
|
|
Change in derivatives, net of minority interest (1)
|
|
|
1,765
|
|
|
|
1,044
|
|
|
|
593
|
|
|
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(23,298
|
)
|
|
$
|
64,981
|
|
|
$
|
(21,784
|
)
|
|
$
|
89,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For the three and six months ended June 30, 2008 and 2007, the change in derivatives
balance includes an adjustment of $281 ($279 net of minority interest) and $281 ($277 net
of minority interest), respectively, and $562 ($558 net of minority interest) and $562
($554 net of minority interest), 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 and six months ended June 30, 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 June 30, 2007 to discontinued operations under SFAS No. 144 (see note 2).
|
-13-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
|
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 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.
|
|
|
|
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 (loss) for the three and six months ended June 30, 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.
|
-14-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities
|
|
$
|
51,585
|
|
|
$
|
50,286
|
|
|
$
|
102,518
|
|
|
$
|
99,789
|
|
Communities stabilized during 2007
|
|
|
2,665
|
|
|
|
1,711
|
|
|
|
5,218
|
|
|
|
2,833
|
|
Development, rehabilitation and lease-up communities
|
|
|
4,543
|
|
|
|
3,974
|
|
|
|
8,838
|
|
|
|
7,799
|
|
Condominium conversion and other communities
|
|
|
188
|
|
|
|
2,760
|
|
|
|
389
|
|
|
|
6,784
|
|
Acquired communities
|
|
|
1,321
|
|
|
|
|
|
|
|
2,677
|
|
|
|
|
|
Other property segments
|
|
|
6,068
|
|
|
|
5,793
|
|
|
|
12,215
|
|
|
|
11,383
|
|
Other
|
|
|
235
|
|
|
|
128
|
|
|
|
474
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
66,605
|
|
|
$
|
64,652
|
|
|
$
|
132,329
|
|
|
$
|
128,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to Property Net Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities
|
|
$
|
30,190
|
|
|
$
|
30,223
|
|
|
$
|
60,914
|
|
|
$
|
60,257
|
|
Communities stabilized during 2007
|
|
|
1,621
|
|
|
|
618
|
|
|
|
3,051
|
|
|
|
795
|
|
Development, rehabilitation and lease-up communities
|
|
|
1,733
|
|
|
|
1,911
|
|
|
|
3,525
|
|
|
|
3,911
|
|
Condominium conversion and other communities
|
|
|
116
|
|
|
|
1,505
|
|
|
|
237
|
|
|
|
3,855
|
|
Acquired communities
|
|
|
720
|
|
|
|
|
|
|
|
1,385
|
|
|
|
|
|
Other property segments, including corporate management expenses
|
|
|
(1,565
|
)
|
|
|
(1,998
|
)
|
|
|
(3,269
|
)
|
|
|
(3,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated property net operating income
|
|
|
32,815
|
|
|
|
32,259
|
|
|
|
65,843
|
|
|
|
64,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
61
|
|
|
|
213
|
|
|
|
271
|
|
|
|
463
|
|
Other revenues
|
|
|
235
|
|
|
|
128
|
|
|
|
474
|
|
|
|
245
|
|
Minority interest in consolidated property partnerships
|
|
|
427
|
|
|
|
(716
|
)
|
|
|
61
|
|
|
|
(693
|
)
|
Depreciation
|
|
|
(14,386
|
)
|
|
|
(14,375
|
)
|
|
|
(28,649
|
)
|
|
|
(28,726
|
)
|
Interest expense
|
|
|
(10,112
|
)
|
|
|
(10,863
|
)
|
|
|
(20,268
|
)
|
|
|
(21,908
|
)
|
Amortization of deferred financing costs
|
|
|
(859
|
)
|
|
|
(829
|
)
|
|
|
(1,710
|
)
|
|
|
(1,641
|
)
|
General and administrative
|
|
|
(4,956
|
)
|
|
|
(5,959
|
)
|
|
|
(10,804
|
)
|
|
|
(11,407
|
)
|
Investment and development
|
|
|
(1,356
|
)
|
|
|
(1,955
|
)
|
|
|
(2,814
|
)
|
|
|
(3,505
|
)
|
Strategic review costs
|
|
|
(2,091
|
)
|
|
|
|
|
|
|
(8,161
|
)
|
|
|
|
|
Impairment and severance charges
|
|
|
(29,300
|
)
|
|
|
|
|
|
|
(29,300
|
)
|
|
|
|
|
Gains (losses) on sales of real estate assets, net
|
|
|
(368
|
)
|
|
|
62,738
|
|
|
|
1,751
|
|
|
|
66,444
|
|
Equity in income of unconsolidated real estate entities
|
|
|
420
|
|
|
|
310
|
|
|
|
821
|
|
|
|
814
|
|
Other income (expense)
|
|
|
66
|
|
|
|
(261
|
)
|
|
|
(108
|
)
|
|
|
(522
|
)
|
Minority interest of common unitholders
|
|
|
238
|
|
|
|
(852
|
)
|
|
|
284
|
|
|
|
(882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(29,166
|
)
|
|
|
59,838
|
|
|
|
(32,309
|
)
|
|
|
63,654
|
|
Income from discontinued operations
|
|
|
4,103
|
|
|
|
4,099
|
|
|
|
9,932
|
|
|
|
24,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(25,063
|
)
|
|
$
|
63,937
|
|
|
$
|
(22,377
|
)
|
|
$
|
88,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-15-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
8.
|
|
IMPAIRMENT AND SEVERANCE COSTS
|
|
|
|
After an evaluation of its development pipeline in light of
difficult current market conditions, the
Company recorded impairment charges of approximately $28,947 in the second quarter of 2008. The
impairment charges relate to the substantial cessation of current development activities
associated with four land parcels in pre-development which were written down to their estimated
fair market values, as well as the write-off of capitalized pursuit costs associated with
certain abandoned projects. Fair market value for the assets recorded at fair value in the
second quarter of 2008 was determined using Level 3 unobservable inputs, such as estimated cash
flows, market capitalization rates and market internal rates of return.
|
|
|
|
Additionally, in the second quarter of 2008, the Company recorded severance charges of
approximately $353 related to a management and staff workforce reduction that was initiated in
the second quarter. The impairment and severance charges reflected managements decision to
reduce the size of its workforce and lower overhead expenses in
response in part to its decision to reduce the number of markets in
which the Company operates, to sell additional operating assets and to focus its development
strategy on fewer projects in the near term. The Company expects to record additional
severance charges in the third quarter of 2008 of approximately $1,600 relating to additional
headcount reductions in July 2008. The Company may also record additional severance charges in
the second half of 2008 or in future periods, depending on market conditions and the Companys
business plans.
|
|
|
|
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 six months
ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Accrued severance charges, beginning of period
|
|
$
|
11,215
|
|
|
$
|
12,832
|
|
Severance charges
|
|
|
353
|
|
|
|
283
|
|
Payments for period
|
|
|
(1,633
|
)
|
|
|
(1,518
|
)
|
Interest accretion
|
|
|
366
|
|
|
|
370
|
|
|
|
|
|
|
|
|
Accrued severance charges, end of period
|
|
$
|
10,301
|
|
|
$
|
11,967
|
|
|
|
|
|
|
|
|
9.
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
Interest paid (including capitalized amounts of $6,671 and $5,795 for the six months ended June
30, 2008 and 2007, respectively), aggregated $30,458 and $32,651 for the six months ended June
30, 2008 and 2007, respectively.
|
|
|
|
For the six months ended June 30, 2008 and 2007, the Company and the Companys taxable REIT
subsidiaries made income tax payments to federal and state taxing authorities totaling $1,700
and $1,062, respectively.
|
|
|
|
Non-cash investing and financing activities for the six months ended June 30, 2008 and 2007 were
as follows:
|
|
|
|
For the six months ended June 30, 2008 and 2007, the Company amortized approximately $562 ($558
net of minority interest) and $562 ($554 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 six
months ended June 30, 2008, the Companys derivative financial instruments, accounted for as
cash flow hedges, increased in value causing a decrease in accounts payable and accrued expenses
and a corresponding decrease in shareholders equity of $35, net of minority interest. For the
six months ended June 30, 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 $558, net of minority interest.
|
|
|
|
For the six months ended June 30, 2008 and 2007, Common Units in the Operating Partnership
totaling 177 and 73, 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 $3,865 and $1,991 for the six months ended June 30, 2008
and 2007, respectively.
|
-16-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
The Operating Partnership committed to distribute $19,982 and $21,831 for the three months ended
June 30, 2008 and 2007, respectively. As a result, the Company declared dividends of $19,850 and
$19,647 for the three months ended June 30, 2008 and 2007, respectively. The remaining
distributions from the Operating Partnership in the amount of $132 and $274 for the three months
ended June 30, 2008 and 2007, respectively, are distributed to minority interest unitholders in
the Operating Partnership.
|
|
|
|
For the six months ended June 30, 2008 and 2007, the Company issued common shares for director
compensation, totaling $278 and $277, respectively. These stock issuances were non-cash
transactions.
|
|
10.
|
|
STOCK-BASED COMPENSATION PLANS
|
|
|
|
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 June 30, 2008, stock options outstanding under the 2003
Stock Plan and the Companys previous stock plan totaled 2,414.
|
|
|
|
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 six
months ended June 30, 2008. For options granted during the six months ended June 30, 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 six months ended June 30, 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 $309 ($307 net
of minority interest) and $379 ($374 net of minority interest) for the three months ended and
$666 ($661 net of minority interest) and $758 ($747 net of minority interest) for the six months
ended June 30, 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 six months ended June 30, 2008 and
2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
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
|
|
|
(39
|
)
|
|
|
37
|
|
|
|
(94
|
)
|
|
|
36
|
|
Forfeited
|
|
|
(2
|
)
|
|
|
39
|
|
|
|
(7
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period
|
|
|
2,414
|
|
|
|
34
|
|
|
|
2,473
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
2,037
|
|
|
|
33
|
|
|
|
1,648
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the period
|
|
$
|
|
|
|
|
|
|
|
$
|
7.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, there was $1,007 of unrecognized compensation cost related to unvested stock
options. This cost is expected to be recognized over a weighted-average period of 0.7 years.
The total intrinsic value of stock options exercised during the six months ended June 30, 2008
and 2007 was $194 and $1,148, respectively. The aggregate intrinsic values of stock options
outstanding, exercisable and expected to vest at June 30, 2008 were $2,851, $2,376 and $2,805,
respectively. The weighted
|
-17-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
average remaining contractual lives of stock options outstanding, exercisable and expected to
vest at June 30, 2008 were 4.8, 4.4 and 4.8 years, respectively. Stock options expected to vest
at June 30, 2008 totaled 2,389 at a weighted average exercise price of approximately $33.96.
|
|
|
|
At June 30, 2008, the Company had separated its outstanding options into two ranges based on
exercise prices. There were 1,380 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 4.7 years. Of these outstanding options, 1,243 were
exercisable at June 30, 2008 at a weighted average exercise price of $29.49. In addition, there
were 1,034 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 5.1 years. Of these outstanding options, 794 were exercisable at June 30,
2008 at a weighted average exercise price of $39.09.
|
|
|
|
For the six months ended June 30, 2008 and 2007, the Company granted 78 and 49 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 six months ended June 30, 2008 and 2007 was
$42.25 and $48.15, respectively, per share. The total value of the restricted share grants for
the six months ended June 30, 2008 and 2007 was $3,308 and $2,371, respectively. The
compensation cost is amortized ratably into compensation expense over the applicable vesting
periods. Total compensation expense relating to the restricted stock was $822 ($816 net of
minority interest) and $619 ($610 net of minority interest) for the three months ended and
$1,574 ($1,562 net of minority interest) and $1,104 ($1,089 net of minority interest) for the
six months ended June 30, 2008 and 2007, respectively.
|
|
|
|
A summary of the activity related to the Companys restricted stock for the six months ended
June 30, 2008 and 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
June 30,
|
|
|
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
|
|
|
|
49
|
|
|
|
48
|
|
Vested
|
|
|
(8
|
)
|
|
|
36
|
|
|
|
(4
|
)
|
|
|
28
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period
|
|
|
189
|
|
|
|
38
|
|
|
|
169
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, there was $5,225 of unrecognized compensation cost related to restricted
stock. This cost is expected to be recognized over a weighted average period of 2.2 years. The
total intrinsic value of restricted shares vested for the six months ended June 30, 2008 and
2007 was $292 and $235, respectively.
|
|
|
|
Employee Stock Purchase Plan
|
|
|
|
The Company maintains an Employee Stock Purchase Plan (the 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 zero and
$61 for the three months ended and $75 and $123 for the six months ended June 30, 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
|
-18-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
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.
|
|
|
|
As of June 30, 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 and six months ended June 30, 2008 and at June 30, 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 and six months ended June 30,
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 current
period temporary differences and 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
Form 10-K. Other than the activity discussed above relating to the three
and six months ended June 30, 2008, there were no material changes to the components of deferred
tax assets and liabilities at June 30, 2008.
|
-19-
POST PROPERTIES. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
12.
|
|
LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
|
|
|
|
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. Fact discovery is mostly
completed by both parties, and the parties exchanged affirmative expert reports on July 8, 2008.
According to an amended scheduling order issued by the court on July 13, 2008, the parties are
to exchange expert rebuttal reports on October 3, 2008, complete expert discovery by November
18, 2008, and submit the last briefing on dispositive motions by February 3, 2009. 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.
|
|
|
|
The Company has recently undertaken an initiative to evaluate potential water penetration damage
in certain of its communities with an exterior insulation finishing system (EFIS). The
Company has initiated an inspection process of each of its EFIS communities for the purpose of
determining what, if any, improvements will be required at the communities. At this stage in
the evaluation process, it is not possible to estimate the range of possible future improvement
costs.
|
-20-
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
Real estate assets
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
232,160
|
|
|
$
|
276,680
|
|
Building and improvements
|
|
|
1,649,338
|
|
|
|
1,840,563
|
|
Furniture, fixtures and equipment
|
|
|
190,407
|
|
|
|
204,433
|
|
Construction in progress
|
|
|
135,232
|
|
|
|
134,125
|
|
Land held for future development
|
|
|
123,167
|
|
|
|
154,617
|
|
|
|
|
|
|
|
|
|
|
|
2,330,304
|
|
|
|
2,610,418
|
|
Less: accumulated depreciation
|
|
|
(499,981
|
)
|
|
|
(562,226
|
)
|
For-sale condominiums
|
|
|
26,314
|
|
|
|
38,844
|
|
Assets held for sale, net of accumulated depreciation of $93,844 and
$4,031 at June 30, 2008 and December 31, 2007, respectively
|
|
|
258,610
|
|
|
|
24,576
|
|
|
|
|
|
|
|
|
Total real estate assets
|
|
|
2,115,247
|
|
|
|
2,111,612
|
|
Investments in and advances to unconsolidated real estate entities
|
|
|
22,815
|
|
|
|
23,036
|
|
Cash and cash equivalents
|
|
|
17,988
|
|
|
|
11,557
|
|
Restricted cash
|
|
|
9,956
|
|
|
|
5,642
|
|
Deferred charges, net
|
|
|
10,159
|
|
|
|
10,538
|
|
Other assets
|
|
|
37,141
|
|
|
|
105,756
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,213,306
|
|
|
$
|
2,268,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners equity
|
|
|
|
|
|
|
|
|
Indebtedness, including $34,261 and $0 secured by assets held
for sale as of June 30, 2008 and December 31, 2007, respectively
|
|
$
|
1,064,405
|
|
|
$
|
1,059,066
|
|
Accounts payable and accrued expenses
|
|
|
99,003
|
|
|
|
100,215
|
|
Distribution payable
|
|
|
19,982
|
|
|
|
19,933
|
|
Accrued interest payable
|
|
|
4,790
|
|
|
|
4,388
|
|
Security deposits and prepaid rents
|
|
|
15,892
|
|
|
|
11,708
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,204,072
|
|
|
|
1,195,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in consolidated real estate entities
|
|
|
2,921
|
|
|
|
3,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
|
|
|
|
|
|
Preferred units
|
|
|
95,000
|
|
|
|
95,000
|
|
Common units
|
|
|
|
|
|
|
|
|
General partner
|
|
|
10,697
|
|
|
|
11,329
|
|
Limited partner
|
|
|
904,024
|
|
|
|
966,535
|
|
Accumulated other comprehensive income (loss)
|
|
|
(3,408
|
)
|
|
|
(4,005
|
)
|
|
|
|
|
|
|
|
Total partners equity
|
|
|
1,006,313
|
|
|
|
1,068,859
|
|
|
|
|
|
|
|
|
Total liabilities and partners equity
|
|
$
|
2,213,306
|
|
|
$
|
2,268,141
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-21-
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
62,286
|
|
|
$
|
60,873
|
|
|
$
|
124,474
|
|
|
$
|
121,538
|
|
Other property revenues
|
|
|
4,084
|
|
|
|
3,651
|
|
|
|
7,381
|
|
|
|
7,050
|
|
Other
|
|
|
235
|
|
|
|
128
|
|
|
|
474
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
66,605
|
|
|
|
64,652
|
|
|
|
132,329
|
|
|
|
128,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance (exclusive of items
shown separately below)
|
|
|
33,555
|
|
|
|
32,265
|
|
|
|
66,012
|
|
|
|
63,616
|
|
Depreciation
|
|
|
14,386
|
|
|
|
14,375
|
|
|
|
28,649
|
|
|
|
28,726
|
|
General and administrative
|
|
|
4,956
|
|
|
|
5,959
|
|
|
|
10,804
|
|
|
|
11,407
|
|
Investment, development and other
|
|
|
1,356
|
|
|
|
1,955
|
|
|
|
2,814
|
|
|
|
3,505
|
|
Strategic review costs
|
|
|
2,091
|
|
|
|
|
|
|
|
8,161
|
|
|
|
|
|
Impairment and severance costs
|
|
|
29,300
|
|
|
|
|
|
|
|
29,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
85,644
|
|
|
|
54,554
|
|
|
|
145,740
|
|
|
|
107,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(19,039
|
)
|
|
|
10,098
|
|
|
|
(13,411
|
)
|
|
|
21,579
|
|
|
Interest income
|
|
|
61
|
|
|
|
213
|
|
|
|
271
|
|
|
|
463
|
|
Interest expense
|
|
|
(10,112
|
)
|
|
|
(10,863
|
)
|
|
|
(20,268
|
)
|
|
|
(21,908
|
)
|
Amortization of deferred financing costs
|
|
|
(859
|
)
|
|
|
(829
|
)
|
|
|
(1,710
|
)
|
|
|
(1,641
|
)
|
Gains (losses) on sales of real estate assets, net
|
|
|
(368
|
)
|
|
|
62,738
|
|
|
|
1,751
|
|
|
|
66,444
|
|
Equity in income of unconsolidated real estate entities
|
|
|
420
|
|
|
|
310
|
|
|
|
821
|
|
|
|
814
|
|
Other income (expense)
|
|
|
66
|
|
|
|
(261
|
)
|
|
|
(108
|
)
|
|
|
(522
|
)
|
Minority interest in consolidated property partnerships
|
|
|
427
|
|
|
|
(716
|
)
|
|
|
61
|
|
|
|
(693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(29,404
|
)
|
|
|
60,690
|
|
|
|
(32,593
|
)
|
|
|
64,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued property operations
|
|
|
4,128
|
|
|
|
4,158
|
|
|
|
7,699
|
|
|
|
7,981
|
|
Gains on sales of real estate assets
|
|
|
|
|
|
|
|
|
|
|
2,311
|
|
|
|
17,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
4,128
|
|
|
|
4,158
|
|
|
|
10,010
|
|
|
|
25,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(25,276
|
)
|
|
|
64,848
|
|
|
|
(22,583
|
)
|
|
|
89,670
|
|
Distributions to preferred unitholders
|
|
|
(1,910
|
)
|
|
|
(1,910
|
)
|
|
|
(3,819
|
)
|
|
|
(3,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common unitholders
|
|
$
|
(27,186
|
)
|
|
$
|
62,938
|
|
|
$
|
(26,402
|
)
|
|
$
|
85,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
(net of preferred distributions)
|
|
$
|
(0.71
|
)
|
|
$
|
1.33
|
|
|
$
|
(0.82
|
)
|
|
$
|
1.38
|
|
Income from discontinued operations
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.23
|
|
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common unitholders
|
|
$
|
(0.61
|
)
|
|
$
|
1.43
|
|
|
$
|
(0.60
|
)
|
|
$
|
1.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding basic
|
|
|
44,305
|
|
|
|
44,086
|
|
|
|
44,287
|
|
|
|
44,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
(net of preferred distributions)
|
|
$
|
(0.71
|
)
|
|
$
|
1.31
|
|
|
$
|
(0.82
|
)
|
|
$
|
1.35
|
|
Income from discontinued operations
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.23
|
|
|
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common unitholders
|
|
$
|
(0.61
|
)
|
|
$
|
1.40
|
|
|
$
|
(0.60
|
)
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding diluted
|
|
|
44,305
|
|
|
|
44,900
|
|
|
|
44,287
|
|
|
|
44,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-22-
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 (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
3,819
|
|
|
|
(264
|
)
|
|
|
(26,138
|
)
|
|
|
|
|
|
|
(22,583
|
)
|
Net change in derivative value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
597
|
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,986
|
)
|
Contributions from the Company related to employee
stock purchase, stock option and other plans
|
|
|
|
|
|
|
9
|
|
|
|
894
|
|
|
|
|
|
|
|
903
|
|
Equity-based compensation
|
|
|
|
|
|
|
23
|
|
|
|
2,292
|
|
|
|
|
|
|
|
2,315
|
|
Distributions to preferred unitholders
|
|
|
(3,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,819
|
)
|
Distributions to common unitholders
($0.90 per unit)
|
|
|
|
|
|
|
(400
|
)
|
|
|
(39,559
|
)
|
|
|
|
|
|
|
(39,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Equity, June 30, 2008
|
|
$
|
95,000
|
|
|
$
|
10,697
|
|
|
$
|
904,024
|
|
|
$
|
(3,408
|
)
|
|
$
|
1,006,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-23-
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(22,583
|
)
|
|
$
|
89,670
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
32,272
|
|
|
|
34,103
|
|
Amortization of deferred financing costs
|
|
|
1,710
|
|
|
|
1,641
|
|
Minority interest in consolidated entities
|
|
|
173
|
|
|
|
831
|
|
Gains on sales of real estate assets
|
|
|
(4,062
|
)
|
|
|
(83,597
|
)
|
Other expense
|
|
|
563
|
|
|
|
562
|
|
Asset impairment charges
|
|
|
28,947
|
|
|
|
|
|
Equity in income of unconsolidated entities
|
|
|
(821
|
)
|
|
|
(814
|
)
|
Distributions of earnings of unconsolidated entities
|
|
|
1,429
|
|
|
|
1,238
|
|
Deferred compensation
|
|
|
278
|
|
|
|
277
|
|
Equity-based compensation
|
|
|
2,315
|
|
|
|
1,985
|
|
Changes in assets, (increase) decrease in:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(3,860
|
)
|
|
|
(3,597
|
)
|
Deferred charges
|
|
|
(178
|
)
|
|
|
(15
|
)
|
Changes in liabilities, increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
402
|
|
|
|
(57
|
)
|
Accounts payable and accrued expenses
|
|
|
(1,667
|
)
|
|
|
2,153
|
|
Security deposits and prepaid rents
|
|
|
(130
|
)
|
|
|
517
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
34,788
|
|
|
|
44,897
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Construction and acquisition of real estate assets, net of payables
|
|
|
(69,689
|
)
|
|
|
(55,254
|
)
|
Net proceeds from sales of real estate assets
|
|
|
104,906
|
|
|
|
150,988
|
|
Capitalized interest
|
|
|
(6,671
|
)
|
|
|
(5,795
|
)
|
Annually recurring capital expenditures
|
|
|
(5,640
|
)
|
|
|
(6,080
|
)
|
Periodically recurring capital expenditures
|
|
|
(3,331
|
)
|
|
|
(3,867
|
)
|
Community rehabilitation and other revenue generating capital expenditures
|
|
|
(7,951
|
)
|
|
|
(7,206
|
)
|
Corporate additions and improvements
|
|
|
(421
|
)
|
|
|
(1,608
|
)
|
Distributions from (investments in and advances to) unconsolidated entities
|
|
|
(262
|
)
|
|
|
22,506
|
|
Note receivable collections and other investments
|
|
|
1,529
|
|
|
|
230
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
12,470
|
|
|
|
93,914
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Lines of credit proceeds (repayments), net
|
|
|
(113,004
|
)
|
|
|
(27,969
|
)
|
Proceeds from indebtedness
|
|
|
120,000
|
|
|
|
|
|
Payments on indebtedness
|
|
|
(2,542
|
)
|
|
|
(67,632
|
)
|
Payments of financing costs
|
|
|
(952
|
)
|
|
|
(246
|
)
|
Redemption of common units
|
|
|
|
|
|
|
(3,694
|
)
|
Contributions from the Company related to employee stock
purchase and stock option plans
|
|
|
624
|
|
|
|
3,806
|
|
Capital contributions (distributions) of minority interests
|
|
|
(1,224
|
)
|
|
|
430
|
|
Distributions to common unitholders
|
|
|
(39,910
|
)
|
|
|
(39,797
|
)
|
Distributions to preferred unitholders
|
|
|
(3,819
|
)
|
|
|
(1,909
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(40,827
|
)
|
|
|
(137,011
|
)
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
6,431
|
|
|
|
1,800
|
|
Cash and cash equivalents, beginning of period
|
|
|
11,557
|
|
|
|
3,663
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
17,988
|
|
|
$
|
5,463
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-24-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
1.
|
|
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
|
|
|
|
Organization
|
|
|
|
Post Apartment Homes, L.P. (the Operating Partnership), a Georgia limited partnership, and its
subsidiaries develop, own and manage upscale multi-family apartment communities in selected
markets in the United States. Post Properties, Inc. (the Company) through its wholly-owned
subsidiaries is the sole general partner, a limited partner and owns a majority interest in the
Operating Partnership. The Operating Partnership, through its operating divisions and
subsidiaries conducts substantially all of the on-going operations of Post Properties, Inc., a
publicly traded company which operates as a self-administered and self-managed real estate
investment trust.
|
|
|
|
At June 30, 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 99.3% and 98.6% for the three months ended and 99.2% and 98.5% for the six
months ended June 30, 2008 and 2007, respectively. Common Units held by persons other than the
Company totaled 293 at June 30, 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 June 30, 2008, the Operating Partnership owned 22,140 apartment units in 61 apartment
communities, including 1,747 apartment units in five communities held in unconsolidated entities
and 1,736 apartment units in five communities currently under construction and/or in lease-up.
The Operating Partnership is also developing and selling 514 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 June 30, 2008, approximately 41.6%,
20.0%, 12.0% and 10.0% (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.
|
|
|
|
Conclusion of Strategic Process
|
|
|
|
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 Board ended the process on June 25, 2008 due to the
increasingly difficult market environment and a lack of definitive proposals. For the three and
six months ended June 30, 2008, the Operating Partnership incurred approximately $2,091 and
$8,161, respectively, 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
and six months ended June 30, 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 (the Form 10-K).
|
-25-
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 June 30, 2008, all newly developed condominium projects are accounted for under the
Completed Contract Method.
|
-26-
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. The Operating
Partnership adopted SFAS No. 157 on January 1, 2008. 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 and defines it as the price that would be received to sell an asset or
paid to transfer a liability in a transaction between willing market participants. Additional
disclosures focusing on the methods used to determine fair value are also required using the
following hierarchy:
|
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities that are
accessible at the measurement date.
|
|
|
|
|
Level 2 Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly.
|
|
|
|
|
Level 3 Unobservable inputs for the assets or liability.
|
The Operating Partnership applies SFAS No. 157 in relation to the valuation of its derivative
instrument at fair value (see note 6) and the Operating Partnerships impairment valuation
analysis related to real estate assets (see note 8). The following table presents the Operating
Partnerships real estate assets and derivative liabilities reported at fair market value and
the related level in the fair value hierarchy as defined by SFAS No. 157 used to measure those
assets and liabilities at June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements as of June 30, 2008
|
Assets (Liabilities)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Real estate assets, land held for development and sale
|
|
$
|
44,773
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
44,773
|
|
Interest rate swap agreement
|
|
|
(2,189
|
)
|
|
|
|
|
|
|
(2,189
|
)
|
|
|
|
|
|
|
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. 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 June 30, 2008, the Operating Partnership had eight apartment communities,
containing 2,615 units, and certain parcels of land classified as held for sale. These real
estate assets are reflected in the accompanying consolidated balance sheet at $258,610, which
represents the lower of their depreciated cost or fair value less costs to sell. At June 30,
2008, the Operating Partnership also had portions of two communities being converted to
condominiums and certain completed condominium units at newly developed condominium communities
totaling $26,314 classified as for-sale condominiums on the accompanying consolidated balance
sheet.
|
-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 and six months ended June 30, 2008 and 2007, income from continuing 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 and six months ended June 30, 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Condominium revenues
|
|
$
|
10,051
|
|
|
$
|
25,222
|
|
|
$
|
18,348
|
|
|
$
|
31,091
|
|
Condominium costs and expenses
|
|
|
(10,419
|
)
|
|
|
(19,524
|
)
|
|
|
(16,597
|
)
|
|
|
(23,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on sales of condominiums, net
|
|
$
|
(368
|
)
|
|
$
|
5,698
|
|
|
$
|
1,751
|
|
|
$
|
7,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2007, gains on sales of real estate assets in
continuing operations also included a gain of $55,300 related to the Operating Partnerships
transfer of two operating apartment communities to a newly formed unconsolidated entity in which
the Operating Partnership retained a 25% non-controlling interest for aggregate proceeds of
approximately $89,351. The gain was calculated as the difference between the proceeds received
from the independent third party for its 75% interest in the unconsolidated entity and the
Operating Partnerships 75% proportionate share of the net book value of operating communities
transferred to the unconsolidated entity. The unconsolidated entity obtained mortgage financing
secured by the apartment communities totaling approximately $85,723, of which approximately
$21,431 was distributed to the Operating Partnership. Additionally, for the three and six
months ended June 30, 2007, gains on sales of real estate assets in continuing operations
included gains of $1,740 and $3,938, respectively, on the sales of land sites in Atlanta,
Georgia and Dallas, Texas.
|
|
|
|
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 six months ended June 30, 2008, income from discontinued operations included the results of
operations of eight apartment communities classified as held for sale during the first and
second quarters of 2008 and one apartment community through its sale date in January 2008. For
the six months ended June 30, 2007, income from discontinued operations included the results of
operations of the eight apartment communities classified as held for sale at June 30, 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 June 30, 2008 and 2007
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
11,196
|
|
|
$
|
13,013
|
|
|
$
|
22,502
|
|
|
$
|
26,272
|
|
Other property revenues
|
|
|
471
|
|
|
|
645
|
|
|
|
875
|
|
|
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
11,667
|
|
|
|
13,658
|
|
|
|
23,377
|
|
|
|
27,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance (exclusive of items
shown separately below)
|
|
|
3,763
|
|
|
|
4,384
|
|
|
|
7,900
|
|
|
|
9,126
|
|
Depreciation
|
|
|
1,698
|
|
|
|
2,685
|
|
|
|
3,623
|
|
|
|
5,377
|
|
Interest
|
|
|
1,944
|
|
|
|
2,336
|
|
|
|
3,921
|
|
|
|
4,891
|
|
Minority interest in consolidated property partnerships
|
|
|
134
|
|
|
|
95
|
|
|
|
234
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
7,539
|
|
|
|
9,500
|
|
|
|
15,678
|
|
|
|
19,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued property operations
|
|
$
|
4,128
|
|
|
$
|
4,158
|
|
|
$
|
7,699
|
|
|
$
|
7,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-28-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
For the six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 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 was as follows:
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30, 2007
|
|
Condominium revenues
|
|
$
|
560
|
|
Condominium costs and expenses
|
|
|
(381
|
)
|
|
|
|
|
Gains on condominium sales
|
|
$
|
179
|
|
|
|
|
|
3.
|
|
INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES
|
|
|
|
At June 30, 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.
|
|
|
|
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 June
30, 2008, the Operating Partnerships investment in the 25% owned Property LLC reflects a credit
investment of $13,885 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 June 30, 2008, the Operating Partnerships investment in these Property
LLCs totaled $22,815, 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 $5,986 at June 30, 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:
|
-29-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
Balance Sheet Data
|
|
2008
|
|
|
2007
|
|
Real estate assets, net of accumulated depreciation of
$18,361 and $15,204, respectively
|
|
$
|
362,036
|
|
|
$
|
325,705
|
|
Cash and other
|
|
|
7,246
|
|
|
|
7,254
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
369,282
|
|
|
$
|
332,959
|
|
|
|
|
|
|
|
|
Mortgage/construction notes payable
|
|
$
|
250,270
|
|
|
$
|
214,549
|
|
Other liabilities
|
|
|
9,993
|
|
|
|
5,541
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
260,263
|
|
|
|
220,090
|
|
Members equity
|
|
|
109,019
|
|
|
|
112,869
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
369,282
|
|
|
$
|
332,959
|
|
|
|
|
|
|
|
|
Operating Partnerships equity investment in Property LLCs
|
|
$
|
8,930
|
|
|
$
|
9,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Income Statement Data
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
6,794
|
|
|
$
|
4,142
|
|
|
$
|
13,487
|
|
|
$
|
6,955
|
|
Other property revenues
|
|
|
482
|
|
|
|
307
|
|
|
|
883
|
|
|
|
479
|
|
Other
|
|
|
13
|
|
|
|
19
|
|
|
|
36
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7,289
|
|
|
|
4,468
|
|
|
|
14,406
|
|
|
|
7,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
|
|
2,882
|
|
|
|
1,520
|
|
|
|
5,635
|
|
|
|
2,532
|
|
Depreciation and amortization
|
|
|
2,104
|
|
|
|
1,281
|
|
|
|
4,236
|
|
|
|
1,942
|
|
Interest
|
|
|
2,500
|
|
|
|
1,331
|
|
|
|
4,999
|
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
7,486
|
|
|
|
4,132
|
|
|
|
14,870
|
|
|
|
6,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(197
|
)
|
|
|
336
|
|
|
|
(464
|
)
|
|
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
10
|
|
|
|
(2
|
)
|
|
|
31
|
|
Gains (losses) on sales of real estate assets, net
|
|
|
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
(73
|
)
|
|
|
(2
|
)
|
|
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(197
|
)
|
|
$
|
263
|
|
|
$
|
(466
|
)
|
|
$
|
1,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnerships share of net income
|
|
$
|
420
|
|
|
$
|
310
|
|
|
$
|
821
|
|
|
$
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2007, gains (losses) on real estate assets represent
net gains (losses) from condominium sales at the condominium conversion community held by a
Property LLC that completed its sell out in 2007.
|
|
|
|
At June 30, 2008, mortgage/construction notes payable include a $49,996 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 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. Subsequent to June 30, 2008, this
mortgage note was refinanced by the Property LLC. The new mortgage note payable totaling
$29,272 bears interest at 5.83%, requires monthly interest only payments and matures in 2013.
The note is prepayable without penalty in August 2011.
|
|
|
|
Three additional mortgage notes were entered into in conjunction with the formation of the 25%
owned Property LLC in 2007. Two notes total $85,723, 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 June 30, 2008, the construction loan
had an outstanding balance of $56,550, 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.
|
-30-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
4.
|
|
INDEBTEDNESS
|
|
|
|
At June 30, 2008 and December 31, 2007, the Operating Partnerships indebtedness consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
|
|
|
|
|
Maturity
|
|
|
June 30,
|
|
|
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
|
|
|
|
120,000
|
|
|
|
245,000
|
|
Cash Management Line
|
|
|
N/A
|
|
|
LIBOR + 0.575%
|
|
|
2010
|
|
|
|
24,271
|
|
|
|
12,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,271
|
|
|
|
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
|
|
|
|
291,134
|
|
|
|
172,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385,134
|
|
|
|
266,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,064,405
|
|
|
$
|
1,059,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents stated rate. At June 30, 2008, the weighted average interest rate
was 3.06%.
|
|
(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 Operating Partnerships indebtedness are as follows:
|
|
|
|
|
|
Remainder of 2008
|
|
$
|
3,572
|
|
2009
|
|
|
76,618
|
|
2010
|
|
|
332,899
|
(1)
|
2011
|
|
|
141,431
|
|
2012
|
|
|
103,296
|
|
Thereafter
|
|
|
406,589
|
|
|
|
|
|
|
|
$
|
1,064,405
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes outstanding balances on lines of
credit totaling $144,271.
|
|
|
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 June 30, 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
|
-31-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
improved land,
properties under construction, condominium properties, non-multifamily properties, debt or
equity securities, notes receivable and unconsolidated affiliates. At June 30, 2008, the
Operating Partnership had issued letters of credit to third parties totaling $2,100 under this
facility.
|
|
|
|
Additionally, at June 30, 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.
|
|
5.
|
|
PARTNERS EQUITY
|
|
|
|
Computations of Earnings (Loss) Per Common Unit
|
|
|
|
For the three and three months ended June 30, 2008 and 2007, a reconciliation of the numerator
and denominator used in the computation of basic and diluted income (loss) from continuing
operations per common unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Income (loss) from continuing operations available to
common unitholders (numerator):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(29,404
|
)
|
|
$
|
60,690
|
|
|
$
|
(32,593
|
)
|
|
$
|
64,536
|
|
Less: Preferred unit distributions
|
|
|
(1,910
|
)
|
|
|
(1,910
|
)
|
|
|
(3,819
|
)
|
|
|
(3,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common unitholders
|
|
$
|
(31,314
|
)
|
|
$
|
58,780
|
|
|
$
|
(36,412
|
)
|
|
$
|
60,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units (denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding basic
|
|
|
44,305
|
|
|
|
44,086
|
|
|
|
44,287
|
|
|
|
44,064
|
|
Dilutive units from stock options and awards (1)
|
|
|
|
|
|
|
814
|
|
|
|
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding diluted (1)
|
|
|
44,305
|
|
|
|
44,900
|
|
|
|
44,287
|
|
|
|
44,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For the three and six months ended June 30, 2008, the potential dilution from
the Companys outstanding stock options to purchase 307 and 358 shares,
respectively, were antidilutive to the loss from continuing operations per unit
calculation. As such, the amounts were excluded from weighted average units for
the periods.
|
|
|
For the three and six months ended June 30, 2008 and 2007, stock options to purchase 2,414 and
213 shares of common stock, respectively, and 2,414 and 183, respectively, were excluded from
the computation of diluted earnings (loss) 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 June 30, 2008 uses Level 2 observable inputs that incorporate credit
valuation adjustments to appropriately reflect both its risk of nonperformance and the
counterpartys risk of nonperformance.
|
|
|
|
At June 30, 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 June 30, 2008, the fair value of the interest rate
swap agreement represented a liability of $2,189, and the liability was included in consolidated
liabilities in the accompanying consolidated balance sheet. The increase in the value of this
cash flow hedge of $1,499 and $35 for the three and six months ended June 30, 2008,
respectively, 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
|
-32-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
$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 and $562 for the
six months ended June 30, 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 (loss) for the three and six months ended June 30, 2008 and
2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net income (loss)
|
|
$
|
(25,276
|
)
|
|
$
|
64,848
|
|
|
$
|
(22,583
|
)
|
|
$
|
89,670
|
|
Change in derivatives (1)
|
|
|
1,780
|
|
|
|
1,060
|
|
|
|
597
|
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(23,496
|
)
|
|
$
|
65,908
|
|
|
$
|
(21,986
|
)
|
|
$
|
90,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For the three and six months ended June 30, 2008 and 2007, the change in derivatives
balance includes an adjustment of $281 and $562, 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 June 30, 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 June 30, 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
|
-33-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
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.
|
|
|
|
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 (loss) for the three and six months ended June 30, 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
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities
|
|
$
|
51,585
|
|
|
$
|
50,286
|
|
|
$
|
102,518
|
|
|
$
|
99,789
|
|
Communities stabilized during 2007
|
|
|
2,665
|
|
|
|
1,711
|
|
|
|
5,218
|
|
|
|
2,833
|
|
Development, rehabilitation and lease-up communities
|
|
|
4,543
|
|
|
|
3,974
|
|
|
|
8,838
|
|
|
|
7,799
|
|
Condominium conversion and other communities
|
|
|
188
|
|
|
|
2,760
|
|
|
|
389
|
|
|
|
6,784
|
|
Acquired communities
|
|
|
1,321
|
|
|
|
|
|
|
|
2,677
|
|
|
|
|
|
Other property segments
|
|
|
6,068
|
|
|
|
5,793
|
|
|
|
12,215
|
|
|
|
11,383
|
|
Other
|
|
|
235
|
|
|
|
128
|
|
|
|
474
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
66,605
|
|
|
$
|
64,652
|
|
|
$
|
132,329
|
|
|
$
|
128,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to Property Net Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities
|
|
$
|
30,190
|
|
|
$
|
30,223
|
|
|
$
|
60,914
|
|
|
$
|
60,257
|
|
Communities stabilized during 2007
|
|
|
1,621
|
|
|
|
618
|
|
|
|
3,051
|
|
|
|
795
|
|
Development, rehabilitation and lease-up communities
|
|
|
1,733
|
|
|
|
1,911
|
|
|
|
3,525
|
|
|
|
3,911
|
|
Condominium conversion and other communities
|
|
|
116
|
|
|
|
1,505
|
|
|
|
237
|
|
|
|
3,855
|
|
Acquired communities
|
|
|
720
|
|
|
|
|
|
|
|
1,385
|
|
|
|
|
|
Other property segments, including corporate management expenses
|
|
|
(1,565
|
)
|
|
|
(1,998
|
)
|
|
|
(3,269
|
)
|
|
|
(3,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated property net operating income
|
|
|
32,815
|
|
|
|
32,259
|
|
|
|
65,843
|
|
|
|
64,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
61
|
|
|
|
213
|
|
|
|
271
|
|
|
|
463
|
|
Other revenues
|
|
|
235
|
|
|
|
128
|
|
|
|
474
|
|
|
|
245
|
|
Minority interest in consolidated property partnerships
|
|
|
427
|
|
|
|
(716
|
)
|
|
|
61
|
|
|
|
(693
|
)
|
Depreciation
|
|
|
(14,386
|
)
|
|
|
(14,375
|
)
|
|
|
(28,649
|
)
|
|
|
(28,726
|
)
|
Interest expense
|
|
|
(10,112
|
)
|
|
|
(10,863
|
)
|
|
|
(20,268
|
)
|
|
|
(21,908
|
)
|
Amortization of deferred financing costs
|
|
|
(859
|
)
|
|
|
(829
|
)
|
|
|
(1,710
|
)
|
|
|
(1,641
|
)
|
General and administrative
|
|
|
(4,956
|
)
|
|
|
(5,959
|
)
|
|
|
(10,804
|
)
|
|
|
(11,407
|
)
|
Investment and development
|
|
|
(1,356
|
)
|
|
|
(1,955
|
)
|
|
|
(2,814
|
)
|
|
|
(3,505
|
)
|
Strategic review costs
|
|
|
(2,091
|
)
|
|
|
|
|
|
|
(8,161
|
)
|
|
|
|
|
Impairment and severance charges
|
|
|
(29,300
|
)
|
|
|
|
|
|
|
(29,300
|
)
|
|
|
|
|
Gains (losses) on sales of real estate assets, net
|
|
|
(368
|
)
|
|
|
62,738
|
|
|
|
1,751
|
|
|
|
66,444
|
|
Equity in income of unconsolidated real estate entities
|
|
|
420
|
|
|
|
310
|
|
|
|
821
|
|
|
|
814
|
|
Other income (expense)
|
|
|
66
|
|
|
|
(261
|
)
|
|
|
(108
|
)
|
|
|
(522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(29,404
|
)
|
|
|
60,690
|
|
|
|
(32,593
|
)
|
|
|
64,536
|
|
Income from discontinued operations
|
|
|
4,128
|
|
|
|
4,158
|
|
|
|
10,010
|
|
|
|
25,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(25,276
|
)
|
|
$
|
64,848
|
|
|
$
|
(22,583
|
)
|
|
$
|
89,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-34-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
8.
|
|
IMPAIRMENT AND SEVERANCE COSTS
|
|
|
|
After an evaluation of its development pipeline in light of difficult current market conditions, the
Operating Partnership recorded impairment charges of approximately $28,947 in the second quarter
of 2008. The impairment charges relate to the substantial cessation of current
development activities associated with four land parcels in pre-development which were written
down to their estimated fair market values, as well as the write-off of capitalized pursuit
costs associated with certain abandoned projects. Fair market value for the assets recorded at
fair value in the second quarter of 2008 was determined using Level 3 unobservable inputs, such
as estimated cash flows, market capitalization rates and market internal rates of return.
|
|
|
|
Additionally, in the second quarter of 2008, the Operating Partnership recorded severance
charges of approximately $353 related to a management and staff workforce reduction that was
initiated in the second quarter. The impairment and severance charges reflected managements
decision to reduce the size of its workforce and lower overhead expenses in response in part to its decision
to reduce the number
of markets in which the Operating Partnership operates, to sell additional operating assets and
to focus its development strategy on fewer projects in the near term. The Operating
Partnership expects to record additional severance charges in the third quarter of 2008 of
approximately $1,600 relating to additional headcount reductions in July 2008. The Operating
Partnership may also record additional severance charges in the second half of 2008 or in future
periods, depending on market conditions and the Operating Partnerships business plans.
|
|
|
|
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 six months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Accrued severance charges, beginning of period
|
|
$
|
11,215
|
|
|
$
|
12,832
|
|
Severance charges
|
|
|
353
|
|
|
|
283
|
|
Payments for period
|
|
|
(1,633
|
)
|
|
|
(1,518
|
)
|
Interest accretion
|
|
|
366
|
|
|
|
370
|
|
|
|
|
|
|
|
|
Accrued severance charges, end of period
|
|
$
|
10,301
|
|
|
$
|
11,967
|
|
|
|
|
|
|
|
|
9.
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
Interest paid (including capitalized amounts of $6,671 and $5,795 for the six months ended June
30, 2008 and 2007, respectively), aggregated $30,458 and $32,651 for the six months ended June
30, 2008 and 2007, respectively.
|
|
|
|
For the six months ended June 30, 2008 and 2007, the Operating Partnership and the Operating
Partnerships taxable REIT subsidiaries made income tax payments to federal and state taxing
authorities totaling $1,700 and $1,062, respectively.
|
|
|
|
Non-cash investing and financing activities for the six months ended June 30, 2008 and 2007 were
as follows:
|
|
|
|
For the six months ended June 30, 2008 and 2007, the Operating Partnership amortized
approximately $562 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 six months ended June 30, 2008 the Operating Partnerships derivative
financial instruments, accounted for as cash flow hedges, increased in value causing a decrease
in accounts payable and accrued expenses and a corresponding decrease in partners equity of
$35. For the six months ended June 30, 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 $566.
|
|
|
|
The Operating Partnership committed to distribute $19,982 and $21,831 for the three months ended
June 30, 2008 and 2007, respectively.
|
|
|
|
For the six months ended June 30, 2008 and 2007, the Company issued common shares for director
compensation, totaling $278 and $277, 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.
|
-35-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
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.
|
|
|
|
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 June 30, 2008, stock options outstanding under the 2003
Stock Plan and the Companys previous stock plan totaled 2,414.
|
|
|
|
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 six
months ended June 30, 2008. For options granted during the six months ended June 30, 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 six months ended June 30, 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 $309 and $379
for the three months ended and $666 and $758 for the six months ended June 30, 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 six months ended June 30, 2008 and
2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
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
|
|
|
(39
|
)
|
|
|
37
|
|
|
|
(94
|
)
|
|
|
36
|
|
Forfeited
|
|
|
(2
|
)
|
|
|
39
|
|
|
|
(7
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period
|
|
|
2,414
|
|
|
|
34
|
|
|
|
2,473
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
2,037
|
|
|
|
33
|
|
|
|
1,648
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the period
|
|
$
|
|
|
|
|
|
|
|
$
|
7.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, there was $1,007 of unrecognized compensation cost related to unvested stock
options. This cost is expected to be recognized over a weighted-average period of 0.7 years.
The total intrinsic value of stock options exercised during the six months ended June 30, 2008
and 2007 was $194 and $1,148, respectively. The aggregate intrinsic values of stock options
outstanding, exercisable and expected to vest at June 30, 2008 were $2,851, $2,376 and $2,805,
respectively. The weighted average remaining contractual lives of stock options outstanding,
exercisable and expected to vest at June 30, 2008 were 4.8, 4.4 and 4.8 years, respectively.
Stock options expected to vest at June 30, 2008 totaled 2,389 at a weighted average exercise
price of approximately $33.96.
|
-36-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
At June 30, 2008, the Company had separated its outstanding options into two ranges based on
exercise prices. There were 1,380 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 4.7 years. Of these outstanding options, 1,243 were
exercisable at June 30, 2008 at a weighted average exercise price of $29.49. In addition, there
were 1,034 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 5.1 years. Of these outstanding options, 794 were exercisable at June 30,
2008 at a weighted average exercise price of $39.09.
|
|
|
|
For the six months ended June 30, 2008 and 2007, the Company granted 78 and 49 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 six months ended June 30, 2008 and 2007 was
$42.25 and $48.15, respectively, per share. The total value of the restricted share grants for
the six months ended June 30, 2008 and 2007 was $3,308 and $2,371, respectively. The
compensation cost is amortized ratably into compensation expense over the applicable vesting
periods. Total compensation expense relating to the restricted stock was $822 and $619 for the
three months ended and $1,574 and $1,104 for the six months ended June 30, 2008 and 2007,
respectively.
|
|
|
|
A summary of the activity related to the Companys restricted stock for the six months ended
June 30, 2008 and 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
June 30,
|
|
|
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
|
|
|
|
49
|
|
|
|
48
|
|
Vested
|
|
|
(8
|
)
|
|
|
36
|
|
|
|
(4
|
)
|
|
|
28
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period
|
|
|
189
|
|
|
|
38
|
|
|
|
169
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, there was $5,225 of unrecognized compensation cost related to restricted
stock. This cost is expected to be recognized over a weighted average period of 2.2 years. The
total intrinsic value of restricted shares vested for the six months ended June 30, 2008 and
2007 was $292 and $235, respectively.
|
|
|
|
Employee Stock Purchase Plan
|
|
|
|
The Company maintains an Employee Stock Purchase Plan (the 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 zero and
$61 for the three months ended and $75 and $123 for the six months ended June 30, 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
|
-37-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share or unit and apartment unit data)
|
|
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 June 30, 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 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 and six months ended June 30, 2008 and at June 30, 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 and six
months ended June 30, 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 current period temporary differences and 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 Form 10-K. Other than the activity
discussed above relating to the three and six months ended June 30, 2008, there were no material
changes to the components of deferred tax assets and liabilities at June 30, 2008.
|
|
12.
|
|
LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
|
|
|
|
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. Fact discovery is mostly
completed by both parties, and the parties exchanged affirmative expert reports on July 8, 2008.
According to an amended scheduling order issued by the court on July 13, 2008, the parties are
to exchange expert rebuttal reports on October 3, 2008, complete expert discovery by November
18, 2008, and submit the last briefing on dispositive motions by February 3, 2009. 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.
|
|
|
|
The Operating Partnership has recently undertaken an initiative to evaluate potential water
penetration damage in certain of its communities with an exterior insulation finishing system
(EFIS). The Operating Partnership has initiated an inspection process of each of its EFIS
communities for the purpose of determining what, if any, improvements will be required at the
communities. At this stage in the evaluation process, it is not possible to estimate the range
of possible future improvement costs.
|
-38-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Company Overview
Post Properties, Inc. and its subsidiaries develop, own and manage upscale multifamily communities
in selected markets in the United States. As used in this report, the term Company includes Post
Properties, Inc. and its subsidiaries, including Post Apartment Homes, L.P. (the Operating
Partnership), unless the context indicates otherwise. The Company, through its wholly-owned
subsidiaries is the general partner and owns a majority interest in the Operating Partnership
which, through its subsidiaries, conducts substantially all of the on-going operations of the
Company. At June 30, 2008, the Company owned 22,140 apartment units in 61 apartment communities,
including 1,747 apartment units in five communities held in unconsolidated entities and 1,736
apartment units in five communities currently under construction and/or in lease-up. The Company
is also developing and selling 514 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 June 30, 2008, approximately 41.6%, 20.0%, 12.0% and 10.0% (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 June 30, 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.
Conclusion of Strategic Process and Strategies to Enhance Shareholder Value
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 Board announced on June 25, 2008 that the process had concluded without a business
combination or other sale transaction due to the increasingly difficult market environment and a
lack of definitive proposals. For the three and six months ended June 30, 2008, the Company
incurred approximately $2,091 and $8,161, respectively, of strategic review costs related to this
process. At the same time, the Board reaffirmed its commitment to actively pursue other strategies
to enhance shareholder value through the following strategies:
|
|
|
Realizing value through asset sales, the proceeds of which can be used to repay debt,
pay potential special dividends or repurchase shares, and fund committed investments:
|
|
|
|
|
The Company is currently, or expects to commence, marketing for sale eight apartment
communities from which it currently expects to realize gross proceeds of approximately $500,000.
The communities, comprising 2,615 apartment units, include five communities located
in Atlanta, Georgia, one community located in the northern Virginia submarket of greater
Washington, D.C., and the Companys only two communities located in New York City. As of
June 30, 2008, all eight communities were classified on the Companys balance sheet as held
for sale. The Companys ability to sell these apartment communities will be dependent on the
sales market for multifamily assets and the continued availability of financing at terms
attractive to potential buyers. The Company currently expects to use net proceeds to repay
debt, pay potential special dividends or repurchase shares of its common stock and fund its
committed investments. There can be no assurance that the gross proceeds will be realized or
used for the purposes intended or that these sales will close.
|
|
|
|
|
The objectives above follow the Companys strategy over recent years of 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 meet 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 half of 2008 for aggregate gross proceeds
of approximately $91,800 and $19,850, respectively. In 2007, the Company also transferred
three communities, containing 1,202 apartment units, to a newly formed unconsolidated entity,
in which
|
-39-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
|
|
|
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.
|
|
|
|
|
Cutting costs by reducing corporate overhead, development and property management
expenses:
|
|
|
|
|
The Company is taking steps to reduce overhead expenses, including the elimination of 24
property management, corporate and development employment positions as of July 31, 2008 and
certain other positions though attrition, which the Company currently expects will reduce
overhead costs prospectively on an annual basis by approximately $3,000. The Company
recognized severance charges of $353 and expects to recognize additional severance charges of
approximately $1,600 relating to these job eliminations in the second and third quarters of
2008, respectively. There can be no assurance that the Company will not recognize additional
severance charges in the third quarter of 2008 or that the anticipated overhead savings will
be achieved.
|
|
|
|
|
Focusing the Company by evaluating the number of markets within which it operates, and
the appropriate size of its development pipeline:
|
|
|
|
|
After an evaluation of its development pipeline in light of difficult current market
conditions, the Company decided to defer further activities on four of its development
projects and abandon the pursuit of certain other development projects. These development
projects included Allen Plaza I in Atlanta, Georgia, the third phase of Post Lake
®
at Baldwin Park in Orlando, Florida, Post Soho Square in Tampa, Florida, and Post Walk
®
at
Citrus Park Village in Tampa, Florida which is also currently held for sale. The total
projected development costs of these projects totaled more than $430,000. As a result,
the Company recognized impairment charges in the second quarter of 2008 of $28,947 to write
down these four projects to fair market value and to write off pursuit costs on abandoned
projects. As discussed above, the Company has also decided to exit the New York market
through the sale of its two high-rise apartment communities located in Manhattan.
|
|
|
|
|
Pursuing construction loan financing and joint venture equity to fund development
activity:
|
|
|
|
|
As of June 30, 2008, the Companys aggregate pipeline of development projects under
construction totaled approximately $525,200 (including the Companys share, net of joint
venture partner interests, of $479,400). The Company also owns land for which it is
in pre-development with respect to approximately 1,822 rental apartment units and
approximately 133,000 square feet of retail amenities. Total projected future development
costs of this pre-development pipeline are currently estimated to be approximately $380,000.
|
|
|
|
|
Of the Companys share of its active development pipeline discussed above, approximately
$280,000 of estimated construction costs remain to be funded (approximately $250,000,
excluding committed construction loan financing). The Company expects primarily to fund its
active development pipeline using asset sale proceeds and available borrowing capacity under
its unsecured revolving lines of credit. The Company is also currently pursuing potential
construction loan financing and joint venture equity to fund its development pipeline and
future project starts that are currently in pre-development. The start of future
developments will depend in large part on local market conditions, the Companys ability to
generate asset sale proceeds and the Companys ability to attract potential construction loan
financing and joint venture equity to fund development activities on terms that management
believes are attractive. If unable to do so, the Company expects to postpone projects
currently in pre-development.
|
|
|
|
|
Based on the factors discussed above, there can be no assurance that projects in
pre-development will commence construction in the future or at all or that actual development
costs will approximate estimated costs. Also, should the Company change its current
expectations regarding the timing and intended future use of projects currently in
pre-development, the Company may be required to recognize additional impairment losses in
future periods, if the Company determines that the carrying values of such assets are not
recoverable through future cash flows.
|
Operations Overview
The Companys operating results have benefited from generally improved fundamentals in the
multifamily apartment market over approximately the last three years, although the rate of growth
began to show signs of moderation later in 2007 and has continued 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 2.7% and 1.1%, respectively, for the first half 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 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 foregoing, 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
-40-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
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.
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 second 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 72% of their total units as of the
end of the second 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 July 28, 2008, the Company had 8 condominium homes under contract and had closed
171 homes (73%) at these communities. The Company expects closings at these communities to continue
in the second half of 2008. Beginning in 2007 and continuing into 2008, there has been a softening
in the condominium and single family housing markets due to increasing supply, 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 has continued into 2008. It is likely that closings will continue to be slow
at these communities for the remainder of 2008. The Company implemented reduced pricing programs in
2008 in an effort to reduce its unsold condominium inventory at its four completed projects. These
reduced pricing programs have generally resulted in lower condominium profits in 2008 compared to
prior years. 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 profits
costs and profits each period. Should the Company further adjust its estimates regarding costs and
profits expected to be realized from its condominium projects in future periods, the Company may
recognize additional 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 June 30, 2008, the Company had approximately
$207,414 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
(the Form 10-K) 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 0.8% weighted
average common minority interest in the Operating Partnership. See the summary financial
information in the section below titled, Results of Operations.
Disclosure Regarding Forward-Looking Statements
Certain statements made in this report, and other written or oral statements made by or on behalf
of the Company, may constitute forward-looking statements within the meaning of the federal
securities laws. In addition, the Company, or the executive officers on the Companys behalf, may
from time to time make forward-looking statements in reports and other documents the Company files
with the SEC or in connection with oral statements made to the press, potential investors or
others. Statements regarding future events and developments and the Companys future performance,
as well as managements expectations, beliefs, plans, estimates or projections relating to the
future, are forward-looking statements within the meaning of these laws. Forward-looking statements
include statements preceded by, followed by or that include the words believes, expects,
anticipates, plans, estimates, or similar expressions. Examples of such statements in this
report include expectations with respect to the Companys strategies to enhance shareholder value,
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 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 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, expected overhead and severance
expenses 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
-41-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
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
Form 10-K and those discussed under Conclusion of Strategic Process and Strategies to
Enhance Shareholder Value in this Management Discussion and Analysis of Financial Condition
and Results of Operations;
|
|
|
|
Future local and national economic conditions, including changes in job growth, interest
rates, the availability of mortgage and other financing and related 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 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, the
market for such sales and the resulting gains/losses associated with such sales;
|
|
|
|
The Companys ability to enter into new joint ventures and the availability of equity
financing from traditional real estate investors to fund development activities;
|
|
|
|
The Companys ability to obtain construction loan financing to fund development
activities;
|
|
|
|
Uncertainties associated with the Companys condominium conversion and for-sale housing
business, including the timing and volume of condominium sales;
|
|
|
|
Uncertainties associated with loss of personnel in connection with the Companys
reduction of corporate and property development and management overhead;
|
|
|
|
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;
and
|
|
|
|
Other factors, including the risk factors discussed on pages 8 to 16 of the Form 10-K.
|
Management believes these forward-looking statements are reasonable; however, undue reliance should
not be placed on any forward-looking statements, which are based on current expectations. Further,
forward-looking statements speak only as of the date they are made, and management undertakes no
obligation to update publicly any of them in light of new information or future events.
Critical Accounting Policies 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 six months ended June 30, 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 June 30, 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 and unobservable market data for similar instruments and
assets.
-42-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
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. 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 June 30, 2008, the Companys portfolio of operating apartment communities, excluding five
communities held in unconsolidated entities consisted of the following: (1) 36 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 three communities under development (not
currently in lease-up) and the operations of eight 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 (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 and six months
ended June 30, 2008 and 2007 is summarized as follows:
-43-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
|
Six months ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
Rental and other property revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities (1)
|
|
$
|
51,585
|
|
|
$
|
50,286
|
|
|
|
2.6
|
%
|
|
$
|
102,518
|
|
|
$
|
99,789
|
|
|
|
2.7
|
%
|
Communities stabilized during 2007 (2)
|
|
|
2,665
|
|
|
|
1,711
|
|
|
|
55.8
|
%
|
|
|
5,218
|
|
|
|
2,833
|
|
|
|
84.2
|
%
|
Development, rehabilitation and
lease-up communities
|
|
|
4,543
|
|
|
|
3,974
|
|
|
|
14.3
|
%
|
|
|
8,838
|
|
|
|
7,799
|
|
|
|
13.3
|
%
|
Condominium conversion and other communities (3)
|
|
|
188
|
|
|
|
2,760
|
|
|
|
(93.2
|
)%
|
|
|
389
|
|
|
|
6,784
|
|
|
|
(94.3
|
)%
|
Acquired communities (4)
|
|
|
1,321
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
2,677
|
|
|
|
|
|
|
|
100.0
|
%
|
Other property segments (5)
|
|
|
6,068
|
|
|
|
5,793
|
|
|
|
4.7
|
%
|
|
|
12,215
|
|
|
|
11,383
|
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,370
|
|
|
|
64,524
|
|
|
|
2.9
|
%
|
|
|
131,855
|
|
|
|
128,588
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
expenses (excluding depreciation
and amortization)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities (1)
|
|
|
21,395
|
|
|
|
20,063
|
|
|
|
6.6
|
%
|
|
|
41,604
|
|
|
|
39,532
|
|
|
|
5.2
|
%
|
Communities stabilized during 2007 (2)
|
|
|
1,044
|
|
|
|
1,093
|
|
|
|
(4.5
|
)%
|
|
|
2,167
|
|
|
|
2,038
|
|
|
|
6.3
|
%
|
Development, rehabilitation and
lease-up communities
|
|
|
2,810
|
|
|
|
2,063
|
|
|
|
36.2
|
%
|
|
|
5,313
|
|
|
|
3,888
|
|
|
|
36.7
|
%
|
Condominium conversion and other communities (3)
|
|
|
72
|
|
|
|
1,255
|
|
|
|
(94.3
|
)%
|
|
|
152
|
|
|
|
2,929
|
|
|
|
(94.8
|
)%
|
Acquired communities (4)
|
|
|
601
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
1,292
|
|
|
|
|
|
|
|
100.0
|
%
|
Other property segments, including corporate
management expenses (6)
|
|
|
7,633
|
|
|
|
7,791
|
|
|
|
(2.0
|
)%
|
|
|
15,484
|
|
|
|
15,229
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,555
|
|
|
|
32,265
|
|
|
|
4.0
|
%
|
|
|
66,012
|
|
|
|
63,616
|
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property net operating income (7)
|
|
$
|
32,815
|
|
|
$
|
32,259
|
|
|
|
1.7
|
%
|
|
$
|
65,843
|
|
|
$
|
64,972
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (8)(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annually recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet
|
|
$
|
692
|
|
|
$
|
737
|
|
|
|
(6.1
|
)%
|
|
$
|
1,271
|
|
|
$
|
1,348
|
|
|
|
(5.7
|
)%
|
Other
|
|
|
2,218
|
|
|
|
2,010
|
|
|
|
10.3
|
%
|
|
|
3,503
|
|
|
|
3,552
|
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,910
|
|
|
$
|
2,747
|
|
|
|
5.9
|
%
|
|
$
|
4,774
|
|
|
$
|
4,900
|
|
|
|
(2.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodically recurring
|
|
$
|
1,695
|
|
|
$
|
1,534
|
|
|
|
10.5
|
%
|
|
$
|
3,201
|
|
|
$
|
3,726
|
|
|
|
(14.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average apartment units in service
|
|
|
16,082
|
|
|
|
16,050
|
|
|
|
0.2
|
%
|
|
|
16,061
|
|
|
|
16,252
|
|
|
|
(1.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $235 and $128 for the three months ended and $474 and $245 for the six months
ended June 30, 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.
|
-44-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
|
|
|
|
(7)
|
|
A reconciliation of property net operating income to GAAP net income is detailed
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Total same store NOI
|
|
$
|
30,190
|
|
|
$
|
30,223
|
|
|
$
|
60,914
|
|
|
$
|
60,257
|
|
Property NOI from other operating segments
|
|
|
2,625
|
|
|
|
2,036
|
|
|
|
4,929
|
|
|
|
4,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated property NOI
|
|
|
32,815
|
|
|
|
32,259
|
|
|
|
65,843
|
|
|
|
64,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (subtract):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
61
|
|
|
|
213
|
|
|
|
271
|
|
|
|
463
|
|
Other revenues
|
|
|
235
|
|
|
|
128
|
|
|
|
474
|
|
|
|
245
|
|
Minority interest in consolidated
property partnerships
|
|
|
427
|
|
|
|
(716
|
)
|
|
|
61
|
|
|
|
(693
|
)
|
Depreciation
|
|
|
(14,386
|
)
|
|
|
(14,375
|
)
|
|
|
(28,649
|
)
|
|
|
(28,726
|
)
|
Interest expense
|
|
|
(10,112
|
)
|
|
|
(10,863
|
)
|
|
|
(20,268
|
)
|
|
|
(21,908
|
)
|
Amortization of deferred financing costs
|
|
|
(859
|
)
|
|
|
(829
|
)
|
|
|
(1,710
|
)
|
|
|
(1,641
|
)
|
General and administrative
|
|
|
(4,956
|
)
|
|
|
(5,959
|
)
|
|
|
(10,804
|
)
|
|
|
(11,407
|
)
|
Investment and development
|
|
|
(1,356
|
)
|
|
|
(1,955
|
)
|
|
|
(2,814
|
)
|
|
|
(3,505
|
)
|
Strategic review costs
|
|
|
(2,091
|
)
|
|
|
|
|
|
|
(8,161
|
)
|
|
|
|
|
Impairment and severance charges
|
|
|
(29,300
|
)
|
|
|
|
|
|
|
(29,300
|
)
|
|
|
|
|
Gains on sales of real estate assets, net
|
|
|
(368
|
)
|
|
|
62,738
|
|
|
|
1,751
|
|
|
|
66,444
|
|
Equity in income of unconsolidated
real estate entities
|
|
|
420
|
|
|
|
310
|
|
|
|
821
|
|
|
|
814
|
|
Other income (expense)
|
|
|
66
|
|
|
|
(261
|
)
|
|
|
(108
|
)
|
|
|
(522
|
)
|
Minority interest of common unitholders
|
|
|
238
|
|
|
|
(852
|
)
|
|
|
284
|
|
|
|
(882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(29,166
|
)
|
|
|
59,838
|
|
|
|
(32,309
|
)
|
|
|
63,654
|
|
Income from discontinued operations
|
|
|
4,103
|
|
|
|
4,099
|
|
|
|
9,932
|
|
|
|
24,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(25,063
|
)
|
|
$
|
63,937
|
|
|
$
|
(22,377
|
)
|
|
$
|
88,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Annually recurring capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2,910
|
|
|
$
|
2,747
|
|
|
$
|
4,774
|
|
|
$
|
4,900
|
|
Discontinued operations
|
|
|
472
|
|
|
|
717
|
|
|
|
866
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total annually recurring capital expenditures
per statements of cash flows
|
|
$
|
3,382
|
|
|
$
|
3,464
|
|
|
$
|
5,640
|
|
|
$
|
6,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodically recurring capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1,695
|
|
|
$
|
1,534
|
|
|
$
|
3,201
|
|
|
$
|
3,726
|
|
Discontinued operations
|
|
|
43
|
|
|
|
28
|
|
|
|
130
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total periodically recurring capital expenditures
per statements of cash flows
|
|
$
|
1,738
|
|
|
$
|
1,562
|
|
|
$
|
3,331
|
|
|
$
|
3,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-45-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
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 36 communities with 13,693 units, including 10 communities with 4,243
units (31.0%) located in Atlanta, Georgia, 10 communities with 3,095 units (22.6%) located in
Dallas, Texas, four communities with 1,700 units (12.4%) located in the greater Washington, DC
area, three communities with 1,877 units (13.7%) located in Tampa, Florida, four communities with
1,388 units (10.1%) located in Charlotte, North Carolina and five communities with 1,390 units
(10.2%) located in other markets. The operating performance and capital expenditures of these
communities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
|
Six months ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
Rental and other revenues
|
|
$
|
51,585
|
|
|
$
|
50,286
|
|
|
|
2.6
|
%
|
|
$
|
102,518
|
|
|
$
|
99,789
|
|
|
|
2.7
|
%
|
Property operating and
maintenance expenses
(excluding depreciation and
amortization)
|
|
|
21,395
|
|
|
|
20,063
|
|
|
|
6.6
|
%
|
|
|
41,604
|
|
|
|
39,532
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store net operating income (1)
|
|
$
|
30,190
|
|
|
$
|
30,223
|
|
|
|
(0.1
|
)%
|
|
$
|
60,914
|
|
|
$
|
60,257
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annually recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet
|
|
$
|
628
|
|
|
$
|
643
|
|
|
|
(2.3
|
)%
|
|
$
|
1,154
|
|
|
$
|
1,189
|
|
|
|
(2.9
|
)%
|
Other
|
|
|
1,660
|
|
|
|
1,326
|
|
|
|
25.2
|
%
|
|
|
2,633
|
|
|
|
2,261
|
|
|
|
16.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total annually recurring
|
|
|
2,288
|
|
|
|
1,969
|
|
|
|
16.2
|
%
|
|
|
3,787
|
|
|
|
3,450
|
|
|
|
9.8
|
%
|
Periodically recurring
|
|
|
1,575
|
|
|
|
571
|
|
|
|
175.8
|
%
|
|
|
2,813
|
|
|
|
1,136
|
|
|
|
147.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
(A)
|
|
$
|
3,863
|
|
|
$
|
2,540
|
|
|
|
52.1
|
%
|
|
$
|
6,600
|
|
|
$
|
4,586
|
|
|
|
43.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures per unit
(A ÷ 13,693 units)
|
|
$
|
282
|
|
|
$
|
185
|
|
|
|
52.4
|
%
|
|
$
|
482
|
|
|
$
|
335
|
|
|
|
43.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average economic occupancy (3)
|
|
|
93.8
|
%
|
|
|
94.1
|
%
|
|
|
(0.3
|
)%
|
|
|
94.1
|
%
|
|
|
94.0
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average monthly rental rate per unit (4)
|
|
$
|
1,246
|
|
|
$
|
1,218
|
|
|
|
2.3
|
%
|
|
$
|
1,244
|
|
|
$
|
1,213
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Net operating income of stabilized communities is a supplemental non-GAAP financial
measure. See page 45 for a reconciliation of net operating income for stabilized
communities to GAAP net income.
|
-46-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Annually recurring capital expenditures by operating segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized
|
|
$
|
2,288
|
|
|
$
|
1,969
|
|
|
$
|
3,787
|
|
|
$
|
3,450
|
|
Communities stabilized during 2007
|
|
|
92
|
|
|
|
|
|
|
|
122
|
|
|
|
23
|
|
Development, rehabilitation and lease-up
|
|
|
416
|
|
|
|
410
|
|
|
|
655
|
|
|
|
661
|
|
Condominium conversion and other
|
|
|
|
|
|
|
277
|
|
|
|
|
|
|
|
616
|
|
Acquired
|
|
|
35
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
Other segments
|
|
|
551
|
|
|
|
808
|
|
|
|
1,010
|
|
|
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total annually recurring capital expenditures per
statements of cash flows
|
|
$
|
3,382
|
|
|
$
|
3,464
|
|
|
$
|
5,640
|
|
|
$
|
6,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodically recurring capital expenditures by operating segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized
|
|
$
|
1,575
|
|
|
$
|
571
|
|
|
$
|
2,813
|
|
|
$
|
1,136
|
|
Communities stabilized during 2007
|
|
|
|
|
|
|
748
|
|
|
|
17
|
|
|
|
1,975
|
|
Development, rehabilitation and lease-up
|
|
|
25
|
|
|
|
49
|
|
|
|
93
|
|
|
|
273
|
|
Condominium conversion and other
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
225
|
|
Acquired
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
Other segments
|
|
|
138
|
|
|
|
93
|
|
|
|
372
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total periodically recurring capital expenditures per
statements of cash flows
|
|
$
|
1,738
|
|
|
$
|
1,562
|
|
|
$
|
3,331
|
|
|
$
|
3,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 93.0% and
93.4% for the three months ended and 93.2% and 93.3% for the six months ended June 30, 2008
and 2007, respectively. For the three months ended June 30, 2008 and 2007, net concessions
were $320 and $216, respectively, and employee discounts were $143 and $153, respectively.
For the six months ended June 30, 2008 and 2007, net concessions were $607 and $427,
respectively, and employee discounts were $286 and $310, 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 June 30, 2008 to Three Months Ended June 30, 2007
The Operating Partnership reported a net loss attributable to common unitholders of $27,186 for the
three months ended June 30, 2008 compared to net income available to common unitholders of $62,938
for the three months ended June 30, 2007. The Company reported a net loss attributable to common
shareholders of $26,973 for the three months ended June 30, 2008 compared to net income available
to common shareholders of $62,027 for the three months ended June 30, 2007. As discussed below,
the decrease between periods primarily reflects reduced gains on sales of apartment communities and
land parcels of $57,040 between periods and impairment, severance and strategic review costs of
$31,391 in 2008.
Rental and other revenues from property operations increased $1,846 or 2.9% from 2007 to 2008
primarily due to increased revenues from the Companys fully stabilized communities of $1,299 or
2.6%, increased revenues of $954 from communities that achieved full stabilization in 2007,
increased revenues from development, rehabilitation and lease-up communities of $569 or 14.3% and
increased revenues from acquired communities of $1,321, offset by reduced revenues from condominium
conversion and other communities of $2,572. 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 second quarter of
2008 compared to the communities being in lease up and under rehabilitation for the second
quarter of 2007. The revenue increase from acquired communities reflects the Companys acquisition
of one community in July 2007. The revenue decrease from
-47-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
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 at
condominium conversion communities as units were vacated for conversion and sale throughout 2008
and 2007.
Property operating and maintenance expenses (exclusive of depreciation and amortization) increased
$1,290 or 4.0% from 2007 to 2008 primarily due to increases from fully stabilized communities of
$1,332 or 6.6%, from development, rehabilitation and lease-up communities of $747 or 36.2% and
from acquisition communities of $601, offset by reduced expenses from condominium conversion and
other communities of $1,183 or 94.3%. The expense increase from stabilized communities is
discussed below. The expense increase from development, rehabilitation and lease-up communities
reflects the lease-up of two communities and one community expansion in late 2007 and early 2008.
The expense increase from acquisition communities reflects a full quarter of expenses in 2008
from the community acquired in July 2007. 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 June 30, 2007, gains on sales of real estate assets in continuing
operations included a 75% proportionate gain of $55,300 from the transfer of a 75% interest in two
communities into a newly formed unconsolidated entity, in which the Company retained a 25% interest
and a gain of $1,740 from the sale of a land site. There were no sales of apartment communities or
land sites for the three months ended June 30, 2008. 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 Company may also enter into additional joint venture arrangements in future
periods.
For the three months ended June 30, 2008, gains (losses) on sales of real estate assets from
condominium sales activities in continuing operations represented net
losses of ($368), compared to
net gains of $5,698 for the three months ended June 30, 2007. There were no condominium gains
included in discontinued operations for the three months ended June 30, 2008 and 2007. The
decrease in aggregate condominium gains between periods primarily reflects the sales of 35 units at
newly developed communities in 2007 compared to 17 in 2008. Unit sales at condominium conversion
communities also decreased from 33 units in 2007 to 16 units in 2008. Additionally, the decrease
in condominium profits between periods reflects lower revenue and profit margin expectations in
2008, including the negative impact of adjusting such expectations in the second quarter of 2008.
Lower revenues and profit margins resulted from the slower residential housing market in 2008
resulting from tighter credit markets, an over supply of condominium units and softening general
economic conditions. The Company expects profits from condominium sales activities to continue at a
slow pace for the remainder of 2008 as the backlog of condominiums under contract continues to be
low 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 remained flat from 2007 to 2008 primarily due to reduced depreciation of $343
between periods resulting from the contribution of three communities into unconsolidated entities
in mid to late 2007 and decreased depreciation of $329 at commercial properties due to prior year
accelerated depreciation of tenant improvements at certain retail properties resulting from early
terminations, offset by increased depreciation of $270 related to development and lease-up
communities as apartment units were placed in service in late 2007 and early 2008 and $431 related
to one community acquired in 2007.
General and administrative expenses decreased $1,003, or 16.8%, from 2007 to 2008 primarily due to
lower aggregate compensation costs and lower severance charges in 2008. Lower compensation costs
in 2008 of $323 resulted primarily from a reduction of approximately $584 related to changes in the
Companys variable compensation costs due to changes in the Companys stock price between years,
offset by annual compensation increases between years. The Company recognized $283 of additional
severance charges in 2007 relating to increased accruals of prior year
severance arrangements. The Company recorded additional severance
costs in the second quarter of 2008 which are discussed below. In addition,
legal and technology expenses were lower in 2008 primarily due to the timing of the expenses
between periods.
Investment
and development expenses decreased $599 or 30.6% from 2007 to 2008. In 2008,
development personnel and other costs increased $247 over 2007, as the Company expanded its
development pipeline in three regional markets. These increases were offset by $846 of increased
capitalization of development personnel to increasing development activity commencing in 2007 and
continuing into 2008.
Impairment and severance charges in 2008 included non-cash impairment charges of approximately
$28,947 attributable to the cessation of current development activities associated with four
pre-development projects which were written down to their estimated fair market values, as well as
the write-off of capitalized pursuit costs associated with certain abandoned projects. Impairment
and severance charges in 2008 also included severance charges of $353 associated with the
elimination of certain employment positions in the second quarter of 2008. The impairment and
severance charges resulted from decisions to reduce the Companys development
-48-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
pipeline and
personnel costs after an evaluation of its current pipeline in light of difficult current market
conditions and upon the conclusion of a strategic review process
conducted in the first six months of 2008.
The Company expects to record additional severance charges in the third quarter of 2008 of
approximately $1,600 relating to additional headcount reductions in July 2008. The Company may
record additional severance charges in the second half of 2008 or in
future periods, depending on
market conditions and the Companys business plans. See
note 8 to the consolidated financial statements for further
discussion.
Strategic review costs in 2008 of $2,091 were a result of the Companys formal process to pursue a
possible business combination or sale transaction. These costs generally consist of legal,
financial and other costs. The Companys Board of Directors ended the process on June 25, 2008 due
to the increasingly difficult market environment as well as a lack of definitive proposals.
Interest expense included in continuing operations decreased $751 or 6.9% from 2007 to 2008. The
decreased expense amounts between periods primarily reflects lower debt levels due to apartment
community dispositions and due to increased interest capitalization on the Companys development
projects of $600 between periods. Interest expense included in discontinued operations decreased
from $2,336 in 2007 to $1,944 in 2008 primarily due to interest expense associated with nine
communities classified as held for sale or sold in 2008 compared to twelve communities classified
as held for sale or sold in 2007.
Equity in income of unconsolidated real estate entities increased $110 or 35.5% from 2007 to 2008.
The increase was primarily due to the earnings from three communities transferred into an
unconsolidated entity in mid to late 2007.
Other income (expense) in 2008 and 2007 represented expenses associated with estimated state
franchise and other taxes, offset in 2008 by favorable estimate adjustments of prior year franchise
taxes and a miscellaneous loan receivable recovery. 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
increased $324 or 7.6% from 2007 to 2008. The increase in annually recurring capital expenditures
of $163 primarily reflects an increase of $447 primarily related to amenity and breezeway upgrades
offset by reduced expenditures of $277 at three communities that were contributed to unconsolidated
entities in mid to late 2007. The increase in periodically recurring capital expenditures of $161
primarily reflects increased costs associated with the Companys resident design center program,
offset by reduced expenditures associated with access upgrades at several communities between
years. 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. The resident design center program started in
late 2007 with a more significant roll out in 2008. The capital expenditure increase associated
with this program in continuing operations was approximately $496 in 2008. Capital expenditures
related to this program are expected to continue for the remainder of 2008.
Fully Stabilized Communities
Rental and other revenues increased $1,299 or 2.6% from 2007 to 2008. This increase resulted from
a 2.3% increase in the average monthly rental rate per apartment unit, offset be a small decline in
the average economic occupancy of the portfolio from 94.1% to 93.8%. This increase in average
rental rates resulted in a revenue increase of approximately $1,161 between years. The occupancy
decrease resulted in higher vacancy losses of $153. Additionally, other property revenues increased
$291 due primarily to higher utility reimbursements offset by slightly higher net concessions
between years of $104. Overall, the improved revenue performance of the operating portfolio in the
second quarter of 2008 reflects the continuation of somewhat favorable, yet moderating, market
conditions (see Company Overview and Outlook where discussed further). Average occupancy
levels have remained generally consistent between years. 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
$1,332 or 6.6% from 2007 to 2008. This increase was primarily due to increased property tax
expenses of $411 or 5.6%, increased maintenance expenses of $576 or 23.4%, increased utility
expenses of $213 or 8.8% and increased personnel expenses of $161 or 3.8%. Property tax expenses
increased due to increased accrual rates in 2008 resulting from actual and expected tax increases
in 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. Utility costs increased
due to generally higher utility rates and due to the expiration in early 2008 of a favorable
pricing program in Texas. Personnel costs increased primarily due to annual salary increases
effective in January each year.
-49-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Comparison of Six Months Ended June 30, 2008 to Six Months Ended June 30, 2007
The Operating Partnership reported a net loss attributable to common unitholders of $26,402 for the
six months ended June 30, 2008 compared to net income available to common unitholders of $85,851
for the six months ended June 30, 2007. The Company reported a net loss attributable to common
shareholders of $26,196 for the six months ended June 30, 2008 compared to net income available to
common shareholders of $84,589 for the six months ended June 30, 2007. As discussed below, the
decrease between periods primarily reflects reduced gains on sales of apartment communities and
land parcels of $73,901 between years and impairment, severance and strategic review costs of
$37,461 in 2008.
Rental and other revenues from property operations increased $3,267 or 2.5% from 2007 to 2008
primarily due to increased revenues from the Companys fully stabilized communities of $2,729 or
2.7%, increased revenues of $2,385 or 84.2% from communities that
achieved full stabilization in 2007, increased revenue from development, rehabilitation and
lease-up communities of $1,039 or 13.3% and increased revenues from acquired communities of $2,677,
offset by reduced revenues from condominium conversion and other communities of $6,395. 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 2008 compared to the communities being in lease up and under
rehabilitation for 2007. The revenue increase from development, rehabilitation and lease-up
communities reflects the lease-up of two communities and one community expansion in late 2007 and
early 2008. 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.
Property operating and maintenance expenses (exclusive of depreciation and amortization) increased
$2,396 or 3.8% from 2007 to 2008 primarily due to increases from fully stabilized communities of
$2,072 or 5.2%, from development, rehabilitation and lease-up communities of $1,425 or 36.7% and
from acquisition communities of $1,292, offset by reduced expenses from condominium conversion and
other communities of $2,777 or 94.8%. The expense increase from stabilized communities is
discussed below. The expense increase from development, rehabilitation and lease-up communities
reflects the lease-up of two communities and one community expansion in late 2007 and early 2008.
The expense increase from acquisition communities reflects six months of expenses in 2008 from the
community acquired in July 2007. 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 six months ended June 30, 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 six months ended June 30, 2007, gains on sales of real estate assets in continuing
operations included a 75% proportionate gain of $55,300 related to the transfer and sale of a 75%
interest in two communities to an unconsolidated entity as well as $3,938 from the sales of land
sites. Gains on real estate assets in discontinued operations for the six months ended June 30,
2007 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 six months ended June 30, 2008 and 2007, gains on sales of real estate assets from
condominium sales activities represented net gains of $1,751 and $7,385, respectively. As
discussed in the consolidated financial statements, net condominium gains of $1,751 and $7,206 on
2008 and 2007, respectively, were included in continuing operations. The decrease in aggregate
condominium gains between periods primarily reflects the sales of 25 units at condominium
conversion communities in 2008 compared to 56 in 2007, as unit sales remained flat at 35 units sold
in 2008 and 2007 for newly developed communities. Additionally, the decrease in condominium
profits between periods reflects lower revenue and profit margin expectations in 2008, including
the negative impact of adjusting such expectations in the second quarter of 2008. Lower revenues
and profit margins resulted from the slower residential housing market in 2008 resulting from
tighter credit markets, an over supply of condominium units and softening general economic
conditions. The Company expects gains (losses) on condominium sales activities to continue at a
slow pace for the remainder of 2008 as the backlog of condominiums under contract continues to be
low and due to a 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 $77 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
-50-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
accommodate the expansion of the
community in 2007, reduced depreciation of $940 resulting from the contribution of three
communities into an unconsolidated entity in mid to late 2007 and decreased depreciation of $318 at
commercial properties due to prior year accelerated depreciation of tenant improvements at certain
properties resulting from early terminations. These decreases were partially offset by increased
depreciation of $364 related to development and lease-up communities as apartment units were placed
in service in late 2007 and early 2008 and $1,133 related to one community acquired in 2007.
General and administrative expenses decreased $603, or 5.3%, from 2007 to 2008 primarily due to
reduced legal expenses of $281, reduced technology expenses of $226 and reduced director
compensations costs of $169, offset slightly by increased personnel compensation costs of $268.
Legal expenses decreased due to generally lower corporate recurring legal costs being incurred
during the strategic review process. Corporate technology expenses decreased due to reduced
consulting expenses between years and due to the deferral of discretionary technology projects
during the strategic review process. Director compensation expenses decreased due
to having one less director in 2008 and due to the timing of meetings between years. The increase
in personnel compensation costs in 2008 is a result of the Companys annual compensation increases
in January.
Investment and development expenses decreased $691 or 19.7% from 2007 and 2008. In 2008, the
Companys development personnel and other costs increased $1,152 over 2007, as the Company expanded
its development pipeline in three regional markets. These cost increases were offset by $1,843 of
increased capitalization of development personnel to increasing development activity commencing in
2007 and continuing into 2008.
Impairment and severance charges in 2008 included non-cash impairment charges of approximately
$28,947 attributable to the cessation of current development activities associated with four
pre-development projects which were written down to their estimated fair market values, as well as
the write off of capitalized pursuit costs associated with abandoned projects. Impairment and
severance charges in 2008 also included severance charges of $353 associated with the elimination
of certain employment positions in the second quarter of 2008. The impairment and severance
charges resulted from decisions to reduce the Companys development pipeline and personnel costs
after an evaluation of its current pipeline in light of difficult current market conditions and
upon the conclusion of a strategic review process in the first six months of 2008. The Company
expects to record additional severance charges in the third quarter of 2008 of approximately $1,600
relating to additional headcount reductions in July 2008. The Company may record additional
severance charges in the second half of 2008 or in future periods,
depending on market conditions and the Companys business plans.
See note 8 to the consolidated financial statements for further
discussion.
Strategic review costs in 2008 of $8,161 were a result of the Companys formal process to pursue a
possible business combination or sale transaction. These costs generally consist of legal,
financial and other costs. The Companys Board of Directors ended the process on June 25, 2008 due
to the increasingly difficult market environment as well as a lack of definitive proposals.
Interest expense included in continuing operations decreased $1,640 or 7.5% 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 $876 between periods. Interest expense included in discontinued
operations decreased from $4,891 in 2007 to $3,921 in 2008 primarily due to interest expense
associated with nine communities classified as held for sale or sold in 2008 compared to twelve
communities classified as held for sale or sold in 2007.
Equity in income of unconsolidated real estate entities remained essentially flat from 2007 to
2008. This was primarily due to the cessation of earnings from the unconsolidated entity that was
selling condominium conversion units in 2007, offset by earnings from three communities transferred
into an unconsolidated entity that was formed in mid to late 2007.
Other income (expense) for the three six ended June 30, 2008 and 2007 represented expenses
associated with estimated state franchise and other taxes offset somewhat in 2008 by favorable
estimate adjustments of prior year franchise taxes and a miscellaneous loan receivable recovery.
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 $651 or 7.5% from 2007 to 2008. The decrease in annually recurring capital expenditures
of $126 primarily reflects a decrease in expenditures of $617 at three communities that were
contributed to an unconsolidated entity in mid to late 2007, offset by an increase in expenditures
of $485 primarily related to amenity and breezeway upgrades. The decrease in periodically
recurring capital expenditures of $525 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 $1,974). This community completed its
rehabilitation activities in 2007. This decrease was primarily 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
-51-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
out in 2008. The capital expenditure increase in continuing operations associated with this program was approximately $972 in 2008. Capital
expenditures related to this program are expected to continue for the remainder of 2008.
Fully Stabilized Communities
Rental and other revenues increased $2,729 or 2.7% from 2007 to 2008. This increase resulted from
a 2.6% 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 94.1%. This increase in average rental
rates resulted in a revenue increase of approximately $2,535 between years. As occupancy remained
relatively flat, vacancy losses increased $181 from 2007. Additionally, other property revenues
increased $375 due primarily to higher utility reimbursements offset by slightly higher net
concessions between years of $180. Overall, the improved revenue performance of the operating
portfolio in the first half of 2008 reflects the continuation of somewhat favorable, yet
moderating, market conditions (see Company Overview and Outlook where discussed further).
Average occupancy levels have remained generally consistent
between years. 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
$2,072 or 5.2% from 2007 to 2008. This increase was primarily due to increased property tax
expenses of $678 or 4.9%, increased maintenance expenses of $718 or 16.3%, increased utility
expenses of $275 or 5.6% and increase personnel costs of $225 or 2.6%. Property tax expenses
increased due to increased accrual rates in 2008 resulting from actual and expected tax increases
in 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. Utility costs increased
primarily due to generally higher utility rates and due to the expectation in early 2008 of a
favorable pricing program in Texas. 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 six months ended June 30, 2008, income from
discontinued operations included the results of operations of one
apartment community, containing 143 units, through its sale date in January 2008 and the results of
operations of eight apartment communities classified as held for sale in 2008. For the six months
ended June 30, 2007, income from discontinued operations included the results of operations of the
eight apartment communities held for sale at June 30, 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 six months ended June 30, 2008, the
Company recognized net gains of $2,311 from the sale of one apartment community in the first
quarter of 2008. For the six months ended June 30, 2007, the Company recognized net gains of
$16,974 from the sale of one apartment community and net gains of $179 from a condominium
conversion community included in discontinued operations that sold out in the first quarter of
2007. These gains are discussed in note 2 to the consolidated financial statements.
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 third quarter of 2008 is based on the expectation that apartment
market fundamentals will continue to moderate compared to 2007 and the first half of 2008 as a
result of slowing job growth expectations and a slowing overall U.S. economy. Additionally, the
Company continues to expect increased rental competition from the rental of excess for-sale
-52-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
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 third quarter of 2008 are
expected to increase modestly compared to the third 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 third quarter of 2008. Other than general inflationary increases, the
Company expects property taxes to increase at slightly higher rates. Management expects fully
stabilized community net operating income to increase at a modest pace in the third 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 third quarter of 2008 compared to 2007 due
generally to increased interest capitalization resulting from increased project development volume,
as well as lower interest rates on variable rate, unsecured debt. Management also expects general
and administrative expenses to be relatively flat to lower between years. Property management
expenses are expected to be lower due to a workforce reduction and expense reduction initiatives
that began late in the second quarter of 2008. The Company expects to record additional severance
charges in the third quarter of 2008 of approximately $1,600 relating to additional headcount
reductions in July 2008. The Company may record additional severance charges in the second half of
2008 and in future periods, depending on market conditions and the
Companys business plans.
In the
second half of 2008 and potentially into 2009, management currently expects to sell eight apartment
communities located in Atlanta, Georgia, New York City, New York and the greater Washington D.C.
area that were designated as held for sale in 2008. These sales are expected to generate gross
proceeds of approximately $500,000. 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 currently expected to be used for various corporate purposes,
including funding of the Companys development pipeline, to repay debt and to pay potential special
dividends or repurchase shares of Company common stock; although,
there can be no assurance that proceeds will be used for these
intended purposes. 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 half of
2008 from these apartment and condominium sales.
The Company has five apartment projects and two condominium communities under construction with a
total expected cost to the Company of approximately $479,400. The start of additional development
projects and the amount of development personnel capitalized to such projects are dependent on the
Companys ability to attract construction loan financing and joint venture equity on terms that are
attractive to management. Management currently expects an increase in expensed investment,
development and other expenses in the second half of 2008 primarily resulting from the slow down of
new development starts.
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 $44,897 for the first half of
2007 to $34,788 in the first half of 2008 primarily due to the payment of strategic review costs of
approximately $6,836 in the first half 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 continue to be lower for 2008
primarily given the strategic
review costs incurred to date and the expected costs associated with employee severance
arrangements offset somewhat by the expected modest improvement in the operating performance of the
Companys fully stabilized properties.
Net cash flows provided by investing activities decreased from $93,914 in the first half of 2007 to
$12,470 in the first half of 2008 primarily due to reduced net proceeds of real estate asset sales
in 2008 as well as reduced distributions from unconsolidated entities in 2008. The decrease
was also related to increased spending on development and rehabilitation activities between
periods. Proceeds from sales of real estate assets were higher in 2007 primarily due to the sales
of an apartment community, a 75% interest in two apartment communities and land sites in 2007
compared to one apartment community sold and the collection of the net cash proceeds of
approximately $67,000, held by an exchange intermediary at December 31, 2007, in 2008.
Distributions from unconsolidated entities were higher in 2007 due to distributions made to the
Company upon formation of an unconsolidated entity in May 2007. The Company began renovations of
two 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 its development spending to increase as it completes its
existing development projects. Future development starts
-53-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
will be dependant on market conditions
and the availability of joint venture equity and construction financing. As of June 30, 2008, the
Company had eight apartment communities held for sale as well as condominium units for sale. The
Company currently plans to principally reinvest the proceeds from these sales in its development communities,
to repay debt and to pay potential special dividends or repurchase
shares of its common stock; although, there can be no assurance that
proceeds will be used for these intended purposes.
Net cash flows used in financing activities decreased from $137,011 in the first half of 2007 to
$40,827 in the first half of 2008 primarily due to debt proceeds of $120,000 in 2008 from a
secured mortgage note. 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 six months ended June 30, 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 $18,000, including the
impact of costs associated with the recently concluded strategic
review process. The
Company used line of credit borrowings and proceeds from asset sales 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 line of credit
borrowings and 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 use of asset sales proceeds to pay potential special dividends or
repurchase shares could impact the Companys ability to maintain the current dividend level in
future periods.
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 June 30, 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 is
currently pursuing potential construction loan financing and joint venture equity to fund its
development pipeline and future project starts that are currently in pre-development. The start of
future developments will depend in large part on local market conditions, the Companys ability to
generate asset sale proceeds and the Companys ability to attract potential construction loan
financing and joint venture equity to fund development activities on terms that management believes
are attractive. If unable to do so, the Company expects to postpone projects currently in
pre-development.
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 capital recycling program as a means to fund its on-going community development and
acquisition program. In the first
-54-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
half of 2008, the Company generated net proceeds of
approximately $19,433 from the sale of an apartment community in the first quarter. For the
remainder of 2008 and potentially into 2009, the Company also expects to generate additional sales proceeds from the sales of
apartment communities. The Company is currently, or expects to commence, marketing the sale of five
Atlanta, Georgia communities, two New York City communities and one greater Washington D.C.
community as well as condominium homes. As previously discussed, the Company currently expects to
use asset sale proceeds to repay debt, to pay potential special dividends or repurchase shares of its
common stock and fund its committed investments. There can be no assurance that sales will close,
gross proceeds will be realized or used for the purposes intended.
For the remainder of 2008, the Company has no scheduled maturities of consolidated unsecured or
secured indebtedness. One unconsolidated entity completed the refinancing, subsequent to June 30,
2008, of a mortgage note that was scheduled to mature in 2008.
At June 30, 2008, the Company had approximately $144,271 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. Management believes
the Company was in compliance with the covenants of the Companys credit facility arrangements at
June 30, 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 half 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.
Acquisition of assets and community development and other capitalized expenditures for the three
and six months ended June 30, 2008 and 2007 are summarized as follows:
-55-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
New community development and acquisition activity (1)
|
|
$
|
41,255
|
|
|
$
|
37,030
|
|
|
$
|
80,613
|
|
|
$
|
66,620
|
|
Periodically recurring capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community rehabilitation and other revenue
generating improvements (2)
|
|
|
4,443
|
|
|
|
2,539
|
|
|
|
7,951
|
|
|
|
7,206
|
|
Other community additions and improvements (3)
|
|
|
1,738
|
|
|
|
1,562
|
|
|
|
3,331
|
|
|
|
3,867
|
|
Annually recurring capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet replacements and other community additions
and improvements (4)
|
|
|
3,382
|
|
|
|
3,464
|
|
|
|
5,640
|
|
|
|
6,080
|
|
Corporate additions and improvements
|
|
|
190
|
|
|
|
347
|
|
|
|
421
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,008
|
|
|
$
|
44,942
|
|
|
$
|
97,956
|
|
|
$
|
85,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest
|
|
$
|
3,288
|
|
|
$
|
2,688
|
|
|
$
|
6,671
|
|
|
$
|
5,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized development and associated costs (5)
|
|
$
|
1,568
|
|
|
$
|
722
|
|
|
$
|
3,328
|
|
|
$
|
1,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
-56-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Current Development Activity
At June 30, 2008, the Company had five communities containing 1,736 apartment units and 284
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 ($ in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Incurred
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Company
|
|
|
Estimated
|
|
|
Share of
|
|
|
as of
|
|
Community
|
|
Location
|
|
|
of Units
|
|
|
Retail Sq. Ft.
|
|
|
Ownership
|
|
|
Cost
|
|
|
Est. Cost
|
|
|
06/30/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share)
|
|
Apartments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Alexander
|
|
Atlanta, GA
|
|
|
307
|
|
|
|
|
|
|
|
100
|
%
|
|
$
|
62.4
|
|
|
$
|
62.4
|
|
|
$
|
54.5
|
|
Post Eastside
|
|
Dallas, TX
|
|
|
435
|
|
|
|
37,900
|
|
|
|
100
|
%
|
|
|
56.7
|
|
|
|
56.7
|
|
|
|
35.0
|
|
Post Frisco Bridges
|
|
Dallas, TX
|
|
|
269
|
|
|
|
29,000
|
|
|
|
100
|
%
|
|
|
41.3
|
|
|
|
41.3
|
|
|
|
13.2
|
|
Post Park®
|
|
Wash. DC
|
|
|
396
|
|
|
|
1,700
|
|
|
|
100
|
%
|
|
|
84.7
|
|
|
|
84.7
|
|
|
|
29.1
|
|
Post West Austin
|
|
Austin, TX
|
|
|
329
|
|
|
|
|
|
|
|
100
|
%
|
|
|
53.2
|
|
|
|
53.2
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments
|
|
|
|
|
|
|
1,736
|
|
|
|
68,600
|
|
|
|
|
|
|
$
|
298.3
|
|
|
$
|
298.3
|
|
|
$
|
152.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condominiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Residences at 3630 Peachtree (4)
|
|
Atlanta, GA
|
|
|
137
|
|
|
|
|
|
|
|
50
|
%
|
|
$
|
93.4
|
|
|
$
|
47.6
|
|
|
$
|
15.2
|
|
Four Seasons Residences
|
|
Austin, TX
|
|
|
147
|
(5)
|
|
|
8,000
|
|
|
|
100
|
%
|
|
|
133.5
|
|
|
|
133.5
|
|
|
|
29.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Condominiums
|
|
|
|
|
|
|
284
|
|
|
|
8,000
|
|
|
|
|
|
|
$
|
226.9
|
|
|
$
|
181.1
|
|
|
$
|
44.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
Quarter of
|
|
Quarter of
|
|
|
|
|
|
Units
|
|
|
|
|
of Const.
|
|
First Units
|
|
Stabilized
|
|
Units
|
|
Under
|
|
Units
|
Community
|
|
Start
|
|
Available
|
|
Occupancy
(1)
|
|
Leased
(2)
|
|
Contract
(3)
|
|
Closed
(2)
|
Apartments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Alexander
|
|
|
2Q 2006
|
|
|
|
1Q 2008
|
|
|
|
2Q 2009
|
|
|
|
97
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post Eastside
|
|
|
4Q 2006
|
|
|
|
2Q 2008
|
|
|
|
4Q 2009
|
|
|
|
71
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post Frisco Bridges
|
|
|
3Q 2007
|
|
|
|
1Q 2009
|
|
|
|
2Q 2010
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post Park®
|
|
|
4Q 2007
|
|
|
|
1Q 2009
|
|
|
|
3Q 2010
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Post West Austin
|
|
|
4Q 2007
|
|
|
|
1Q 2009
|
|
|
|
1Q 2010
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condominiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Residences at 3630 Peachtree (4)
|
|
|
3Q 2007
|
|
|
|
3Q 2009
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Four Seasons Residences
|
|
|
1Q 2008
|
|
|
|
4Q 2009
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
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 July 28, 2008.
|
|
(3)
|
|
As of July 28, 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)
|
|
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.
|
|
(5)
|
|
Due to the combination of certain contiguous units, the aggregate unit count was
reduced from 168 units to 147 units.
|
After an evaluation of its development pipeline and current market conditions, the Company has
decided to defer further activities on four of its development projects: Allen Plaza I in Atlanta,
Georgia, the third phase of Post Lake® at Baldwin Park in Orlando, Florida, Post Soho Square in
Tampa, Florida, and Post Walk® at Citrus Park Village in Tampa, Florida which is also currently
held for sale. The Company also decided to abandon the pursuit of its Post Plaza South
development project in Charlotte, North Carolina and to terminate its purchase contract to acquire
that site. The total projected development costs of these projects
totaled more than $430,000.
As a result of these decisions, the Company recognized non-cash impairment charges of
approximately $28,947 attributable to the substantial cessation of these development activities,
specifically to write down these projects to their estimated fair market values as well as to write
off of capitalized pursuit costs associated with certain abandoned projects. As stated previously,
the Company expects primarily to fund its active development pipeline (see above) using asset sale
proceeds and available borrowing capacity under its unsecured revolving lines of credit. The
Company is also currently pursuing potential construction loan financing and joint venture equity
to fund its development pipeline and future project starts that are currently in pre-development.
The start of future developments will depend in large part on local market conditions, the
Companys ability to generate asset sale proceeds and
-57-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
the Companys ability to attract potential
construction loan financing and joint venture equity to fund development activities on terms that
management believes are attractive. If unable to do so, the Company expects to postpone projects
currently in pre-development.
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.
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.
-58-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
A reconciliation of net income (loss) available to common shareholders and unitholders to FFO is
provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net income (loss) available to common shareholders
|
|
$
|
(26,973
|
)
|
|
$
|
62,027
|
|
|
$
|
(26,196
|
)
|
|
$
|
84,589
|
|
Minority interest of common unitholders continuing operations
|
|
|
(238
|
)
|
|
|
852
|
|
|
|
(284
|
)
|
|
|
882
|
|
Minority interest in discontinued operations (1)
|
|
|
25
|
|
|
|
59
|
|
|
|
78
|
|
|
|
380
|
|
Depreciation on consolidated real estate assets
|
|
|
15,582
|
|
|
|
16,524
|
|
|
|
31,284
|
|
|
|
33,013
|
|
Depreciation on real estate assets held in
unconsolidated entities
|
|
|
345
|
|
|
|
274
|
|
|
|
693
|
|
|
|
500
|
|
Gains on sales of real estate assets
|
|
|
368
|
|
|
|
(60,998
|
)
|
|
|
(4,062
|
)
|
|
|
(79,659
|
)
|
Incremental gains (losses) on condominium sales (2)
|
|
|
(1,748
|
)
|
|
|
3,360
|
|
|
|
(244
|
)
|
|
|
3,164
|
|
Gains on sales of real estate assets unconsolidated
entities
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
(162
|
)
|
Incremental gains on condominium sales -
unconsolidated entities (2)
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations available to common
shareholders and unitholders (3)
|
|
$
|
(12,639
|
)
|
|
$
|
22,092
|
|
|
$
|
1,269
|
|
|
$
|
42,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
44,011
|
|
|
|
43,463
|
|
|
|
43,939
|
|
|
|
43,416
|
|
Weighted average shares and units outstanding basic
|
|
|
44,305
|
|
|
|
44,086
|
|
|
|
44,287
|
|
|
|
44,064
|
|
Weighted average shares outstanding diluted (4)
|
|
|
44,011
|
|
|
|
44,278
|
|
|
|
44,297
|
|
|
|
44,192
|
|
Weighted average shares and units outstanding diluted (4)
|
|
|
44,305
|
|
|
|
44,900
|
|
|
|
44,645
|
|
|
|
44,840
|
|
|
|
|
(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 and six months ended June 30, 2008, FFO included $2,091 and
$8,161, respectively, of strategic review costs associated with the Companys
initiation of a formal process to pursue a possible business combination or other
sale transaction. FFO also included $29,300 for the three and six months ended
June 30, 2008 for impairment and severance charges. For the three and six months
ended June 30, 2007, FFO included gains on land sales of $1,740 and $3,938,
respectively.
|
|
(4)
|
|
Funds from operations per share were computed using weighted average shares and
units outstanding, including the impact of dilutive securities totaling 358
shares and units for the six months ended June 30, 2008. Such dilutive securities
were antidilutive to the income (loss) per share computations for the six months
ended June 30, 2008 under generally accepted accounting principles for such
period.
|
-59-
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys primary market risk exposure is interest rate risk. At June 30, 2008, the Company had
$238,271 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
|
|
|
$
|
(2,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As more fully described in note 6 to the consolidated financial statements, the interest rate swap
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 June 30, 2008, would increase or decrease by
approximately $1,443 on an annualized basis.
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.
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.
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
-60-
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. Fact discovery is mostly completed by both parties, and the parties
exchanged affirmative expert reports on July 8, 2008. According to an amended scheduling order
issued by the court on July 13, 2008, the parties are to exchange expert rebuttal reports on
October 3, 2008, complete expert discovery by November 18, 2008, and submit the last briefing on
dispositive motions by February 3, 2009. 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.
-61-
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 June 30, 2008 (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Value of Shares that
May
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Announced Plans or
|
|
|
Yet Be Purchased Under
|
|
Period
|
|
Shares Purchased
|
|
|
Per Share
|
|
|
Programs
|
|
|
the Plans or Programs
(1)
|
|
April 1, 2008 to
April 30, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
196,300
|
|
May 1, 2008 to
May 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,300
|
|
June 1, 2008 to
June 30, 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
-62-
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
|
|
|
|
|
|
11.1(f)
|
|
|
|
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
|
|
|
|
(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)
|
|
The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference.
|
-63-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
POST PROPERTIES, INC.
|
|
|
|
|
|
August 8, 2008
|
|
By
|
|
/s/ David P. Stockert
|
|
|
|
|
|
|
|
|
|
David P. Stockert
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
August 8, 2008
|
|
By
|
|
/s/ Christopher J. Papa
|
|
|
|
|
|
|
|
|
|
Christopher J. Papa
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
|
|
|
|
|
August 8, 2008
|
|
By
|
|
/s/ Arthur J. Quirk
|
|
|
|
|
|
|
|
|
|
Arthur J. Quirk
|
|
|
|
|
Senior Vice President and Chief Accounting Officer
|
|
|
|
|
(Principal Accounting Officer)
|
-64-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
POST APARTMENT HOMES, L.P.
By: Post GP Holdings, Inc., its sole general partner
|
|
|
|
|
|
August 8, 2008
|
|
By
|
|
/s/ David P. Stockert
|
|
|
|
|
|
|
|
|
|
David P. Stockert
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
August 8, 2008
|
|
By
|
|
/s/ Christopher J. Papa
|
|
|
|
|
|
|
|
|
|
Christopher J. Papa
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
|
|
|
|
|
August 8, 2008
|
|
By
|
|
/s/ Arthur J. Quirk
|
|
|
|
|
|
|
|
|
|
Arthur J. Quirk
|
|
|
|
|
Senior Vice President and Chief Accounting Officer
|
|
|
|
|
(Principal Accounting Officer)
|
-65-
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
|
|
|
|
|
|
11.1(f)
|
|
|
|
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
|
|
|
|
(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)
|
|
The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference.
|
-66-
Grafico Azioni Post Properties (NYSE:PPS)
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Grafico Azioni Post Properties (NYSE:PPS)
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