POST PROPERTIES, INC. / POST APARTMENT HOMES L.P.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file numbers 1-12080 and 0-28226
POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
(Exact name of registrant as specified in its charter)
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Georgia
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58-1550675 |
Georgia
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58-2053632 |
(State or other jurisdiction
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(I.R.S. Employer |
of incorporation or organization)
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Identification No.) |
4401 Northside Parkway, Suite 800, Atlanta, Georgia 30327
(Address of principal executive offices zip code)
(404) 846-5000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) have
been subject to such filing requirements for the past 90 days.
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Post Properties, Inc.
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Yes
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þ
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No
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Post Apartment Homes, L.P.
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Yes
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þ
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No
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Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or
non-accelerated filers.
See definition of accelerated filer and large accelerated filer 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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Accelerated Filer |
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Non-Accelerated Filer |
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Post Apartment Homes, L.P. |
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Large Accelerated Filer |
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þ |
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Accelerated Filer |
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Non-Accelerated Filer |
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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
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o
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No
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þ |
Post Apartment Homes, L.P.
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Yes
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o
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No
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þ |
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:
43,220,785 shares of common stock outstanding as of August 1, 2006 (excluding treasury stock).
POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
INDEX
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Page |
Part I |
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FINANCIAL INFORMATION |
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Item 1 |
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Financial Statements |
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POST PROPERTIES, INC. |
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Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005 |
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1 |
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Consolidated Statements of Operations for the three and six months ended
June 30, 2006 and 2005 |
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2 |
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Consolidated Statement of Shareholders Equity and Accumulated Earnings
for the six months ended June 30, 2006 |
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3 |
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Consolidated Statements of Cash Flows for the six months ended
June 30, 2006 and 2005 |
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4 |
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Notes to Consolidated Financial Statements |
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5 |
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POST APARTMENT HOMES, L.P. |
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Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005 |
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18 |
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Consolidated Statements of Operations for the six months ended
June 30, 2006 and 2005 |
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19 |
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Consolidated Statement of Partners Equity for the six months ended
June 30, 2006 |
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20 |
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Consolidated Statements of Cash Flows for the six months ended
June 30, 2006 and 2005 |
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21 |
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Notes to Consolidated Financial Statements |
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22 |
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Item 2
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Managements Discussion and Analysis of Financial Condition and
Results of Operations
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35 |
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Item 3
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Quantitative and Qualitative Disclosures about Market Risk
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50 |
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Item 4
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Controls and Procedures
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51 |
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Part II |
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OTHER INFORMATION |
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52 |
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Item 1
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Legal Proceedings
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52 |
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Item 1A
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Risk Factors
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52 |
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Item 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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53 |
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Item 3
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Defaults Upon Senior Securities
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53 |
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Item 4
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Submission of Matters to a Vote of Security Holders
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53 |
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Item 5
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Other Information
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54 |
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Item 6
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Exhibits
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54 |
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Signatures |
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55 |
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Exhibit Index |
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57 |
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EX-31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER |
EX-31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER |
EX-32.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER |
EX-32.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER |
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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2006 |
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2005 |
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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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$ |
266,323 |
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$ |
266,914 |
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Building and improvements |
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1,747,290 |
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1,789,479 |
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Furniture, fixtures and equipment |
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203,421 |
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207,497 |
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Construction in progress |
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83,818 |
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47,005 |
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Land held for future development |
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113,146 |
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62,511 |
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2,413,998 |
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2,373,406 |
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Less: accumulated depreciation |
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(532,340 |
) |
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(516,954 |
) |
For-sale condominiums |
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34,151 |
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38,338 |
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Assets held for sale, net of accumulated depreciation of $18,109 and
$0 at June 30, 2006 and December 31, 2005, respectively |
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88,347 |
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4,591 |
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Total real estate assets |
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2,004,156 |
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1,899,381 |
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Investments in and advances to unconsolidated real estate entities |
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20,185 |
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26,614 |
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Cash and cash equivalents |
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10,543 |
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6,410 |
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Restricted cash |
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5,005 |
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4,599 |
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Deferred charges, net |
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13,750 |
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11,624 |
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Other assets |
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37,685 |
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32,826 |
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Total assets |
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$ |
2,091,324 |
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$ |
1,981,454 |
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Liabilities and shareholders equity |
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Indebtedness |
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$ |
1,054,804 |
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$ |
980,615 |
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Accounts payable and accrued expenses |
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59,308 |
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53,429 |
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Dividend and distribution payable |
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19,764 |
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19,257 |
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Accrued interest payable |
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5,501 |
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5,478 |
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Security deposits and prepaid rents |
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10,983 |
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9,857 |
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Total liabilities |
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1,150,360 |
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1,068,636 |
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Minority interest of common unitholders in Operating Partnership |
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13,587 |
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26,764 |
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Minority interests in consolidated real estate entities |
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15,374 |
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5,045 |
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Total minority interests |
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28,961 |
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31,809 |
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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, $.01 par value, 100,000 authorized: |
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43,205 and 41,394 shares issued, 43,205 and 41,394 shares outstanding
at June 30, 2006 and December 31, 2005, respectively |
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432 |
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414 |
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Additional paid-in capital |
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854,106 |
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803,765 |
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Accumulated earnings |
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62,541 |
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86,315 |
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Accumulated other comprehensive income (loss) |
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(3,057 |
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(4,208 |
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Deferred compensation |
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(3,625 |
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914,051 |
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882,690 |
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Less common stock in treasury, at cost, 52 and 44 shares
at June 30, 2006 and December 31, 2005, respectively |
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(2,048 |
) |
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(1,681 |
) |
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Total shareholders equity |
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912,003 |
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881,009 |
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Total liabilities and shareholders equity |
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$ |
2,091,324 |
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$ |
1,981,454 |
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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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2006 |
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2005 |
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2006 |
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2005 |
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Revenues |
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Rental |
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$ |
71,607 |
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$ |
66,891 |
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$ |
141,679 |
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$ |
132,746 |
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Other property revenues |
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4,604 |
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4,093 |
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8,659 |
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7,653 |
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Other |
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85 |
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61 |
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151 |
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132 |
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Total revenues |
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76,296 |
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71,045 |
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150,489 |
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140,531 |
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Expenses |
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Property operating and maintenance (exclusive of items shown
separately below) |
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34,554 |
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32,754 |
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68,631 |
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65,346 |
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Depreciation |
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17,031 |
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18,247 |
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33,706 |
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36,612 |
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General and administrative |
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4,632 |
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4,558 |
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9,058 |
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8,949 |
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Investment, development and other |
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1,617 |
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984 |
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3,168 |
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2,404 |
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Total expenses |
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57,834 |
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56,543 |
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114,563 |
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113,311 |
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Operating Income |
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18,462 |
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14,502 |
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35,926 |
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27,220 |
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Interest income |
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118 |
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189 |
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238 |
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354 |
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Interest expense |
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(13,560 |
) |
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(14,612 |
) |
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(27,266 |
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(29,609 |
) |
Amortization of deferred financing costs |
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(834 |
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(1,029 |
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(1,769 |
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(2,717 |
) |
Gains (losses) on sales of condominiums, net |
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8,569 |
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(160 |
) |
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8,411 |
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(269 |
) |
Equity in income of unconsolidated real estate entities |
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411 |
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553 |
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724 |
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701 |
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Other income |
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270 |
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1,694 |
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5,267 |
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Minority interest in consolidated property partnerships |
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(63 |
) |
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64 |
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(92 |
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178 |
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Minority interest of common unitholders |
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(247 |
) |
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138 |
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(310 |
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154 |
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Income (loss) from continuing operations |
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13,126 |
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(355 |
) |
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17,556 |
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1,279 |
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Discontinued operations |
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Income from discontinued operations, net of minority interest |
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867 |
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1,176 |
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847 |
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3,880 |
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Gains (losses) on sales of real estate assets, net of
minority interest and provision for income taxes |
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(10 |
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58,918 |
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382 |
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59,258 |
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Loss on early extinguishment of indebtedness, net of minority
interest |
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(1,296 |
) |
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(1,296 |
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Income from discontinued operations |
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857 |
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58,798 |
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1,229 |
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61,842 |
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Net income |
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13,983 |
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58,443 |
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18,785 |
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63,121 |
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Dividends to preferred shareholders |
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(1,909 |
) |
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(1,909 |
) |
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(3,819 |
) |
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(3,819 |
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Net income available to common shareholders |
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$ |
12,074 |
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$ |
56,534 |
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$ |
14,966 |
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$ |
59,302 |
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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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$ |
0.26 |
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$ |
(0.06 |
) |
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$ |
0.32 |
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$ |
(0.06 |
) |
Income from discontinued operations |
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|
0.02 |
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|
1.47 |
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|
0.03 |
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1.54 |
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Net income available to common shareholders |
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$ |
0.28 |
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|
$ |
1.42 |
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$ |
0.35 |
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$ |
1.48 |
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Weighted average common shares outstanding basic |
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42,817 |
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39,930 |
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|
42,351 |
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40,048 |
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Per common share data Diluted |
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Income (loss) from continuing operations
(net of preferred dividends) |
|
$ |
0.26 |
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$ |
(0.06 |
) |
|
$ |
0.32 |
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|
$ |
(0.06 |
) |
Income from discontinued operations |
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|
0.02 |
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|
1.47 |
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|
0.03 |
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|
1.54 |
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Net income available to common shareholders |
|
$ |
0.28 |
|
|
$ |
1.42 |
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|
$ |
0.35 |
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|
$ |
1.48 |
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|
Weighted average common shares outstanding diluted |
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|
43,518 |
|
|
|
39,930 |
|
|
|
43,089 |
|
|
|
40,048 |
|
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Dividends declared |
|
$ |
0.45 |
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|
$ |
0.45 |
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$ |
0.90 |
|
|
$ |
0.90 |
|
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|
|
|
|
|
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|
The accompanying notes are an integral part of these consolidated financial statements.
-2-
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
ACCUMULATED EARNINGS
(In thousands, except per share data)
(Unaudited)
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Additional |
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Accumulated Other |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
Paid-in |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Deferred |
|
|
Treasury |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Compensation |
|
|
Stock |
|
|
Total |
|
Shareholders Equity and Accumulated
Earnings, December 31, 2005 |
|
$ |
29 |
|
|
$ |
414 |
|
|
$ |
803,765 |
|
|
$ |
86,315 |
|
|
$ |
(4,208 |
) |
|
$ |
(3,625 |
) |
|
$ |
(1,681 |
) |
|
$ |
881,009 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,785 |
|
Net change in derivatives, net of
minority interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,217 |
|
|
|
|
|
|
|
|
|
|
|
1,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,002 |
|
Transition effect of adoption of SFAS 123R |
|
|
|
|
|
|
|
|
|
|
(3,625 |
) |
|
|
|
|
|
|
|
|
|
|
3,625 |
|
|
|
|
|
|
|
|
|
Proceeds from employee stock purchase,
stock option plans and other |
|
|
|
|
|
|
11 |
|
|
|
39,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(367 |
) |
|
|
39,410 |
|
Adjustment for minority interest of
unitholders in Operating Partnership upon
conversion of units into common shares and
at dates of capital transactions |
|
|
|
|
|
|
7 |
|
|
|
12,894 |
|
|
|
|
|
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
12,835 |
|
Stock-based compensation,
net of minority interest |
|
|
|
|
|
|
|
|
|
|
1,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,306 |
|
Dividends to preferred shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,819 |
) |
Dividends to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity and Accumulated
Earnings, June 30, 2006 |
|
$ |
29 |
|
|
$ |
432 |
|
|
$ |
854,106 |
|
|
$ |
62,541 |
|
|
$ |
(3,057 |
) |
|
$ |
|
|
|
$ |
(2,048 |
) |
|
$ |
912,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
|
2006 |
|
|
2005 |
|
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
18,785 |
|
|
$ |
63,121 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
34,487 |
|
|
|
38,946 |
|
Amortization of deferred financing costs |
|
|
1,769 |
|
|
|
2,717 |
|
Minority interest of common unitholders in Operating Partnership |
|
|
310 |
|
|
|
(154 |
) |
Minority interest in discontinued operations |
|
|
28 |
|
|
|
3,738 |
|
Gains on sales of real estate assets |
|
|
(8,802 |
) |
|
|
(62,839 |
) |
Other non-cash income |
|
|
(1,101 |
) |
|
|
(5,267 |
) |
Equity in income of unconsolidated entities |
|
|
(724 |
) |
|
|
(701 |
) |
Distributions of earnings of unconsolidated entities |
|
|
1,114 |
|
|
|
1,040 |
|
Deferred compensation |
|
|
377 |
|
|
|
|
|
Stock-based compensation |
|
|
1,334 |
|
|
|
1,022 |
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
1,374 |
|
Changes in assets, (increase) decrease in: |
|
|
|
|
|
|
|
|
Other assets |
|
|
(1,417 |
) |
|
|
(2,913 |
) |
Deferred charges |
|
|
(45 |
) |
|
|
(327 |
) |
Changes in liabilities, increase (decrease) in: |
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
23 |
|
|
|
(1,669 |
) |
Accounts payable and accrued expenses |
|
|
5,091 |
|
|
|
9,891 |
|
Security deposits and prepaid rents |
|
|
721 |
|
|
|
2,669 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
51,950 |
|
|
|
50,648 |
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Construction and acquisition of real estate assets, net of payables |
|
|
(136,460 |
) |
|
|
(86,128 |
) |
Net proceeds from sales of real estate assets |
|
|
23,007 |
|
|
|
93,398 |
|
Proceeds from sale of technology investment |
|
|
|
|
|
|
5,267 |
|
Capitalized interest |
|
|
(4,138 |
) |
|
|
(783 |
) |
Annually recurring capital expenditures |
|
|
(5,914 |
) |
|
|
(4,822 |
) |
Periodically recurring capital expenditures |
|
|
(2,322 |
) |
|
|
(2,029 |
) |
Community rehabilitation and other revenue generating capital expenditures |
|
|
(2,837 |
) |
|
|
|
|
Corporate additions and improvements |
|
|
(983 |
) |
|
|
(978 |
) |
Distributions from (investments in and advances to) unconsolidated entities |
|
|
5,967 |
|
|
|
(13,541 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(123,680 |
) |
|
|
(9,616 |
) |
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Payments on indebtedness |
|
|
(52,365 |
) |
|
|
(189,267 |
) |
Proceeds from indebtedness |
|
|
190,000 |
|
|
|
100,000 |
|
Lines of credit proceeds (repayments), net |
|
|
(63,446 |
) |
|
|
105,785 |
|
Payments of financing costs |
|
|
(3,627 |
) |
|
|
(976 |
) |
Treasury stock acquisitions |
|
|
|
|
|
|
(21,283 |
) |
Proceeds from employee stock purchase and stock option plans |
|
|
39,033 |
|
|
|
10,617 |
|
Capital contributions of minority interests |
|
|
9,055 |
|
|
|
283 |
|
Distributions to common unitholders |
|
|
(1,045 |
) |
|
|
(2,216 |
) |
Dividends paid to preferred shareholders |
|
|
(3,819 |
) |
|
|
(3,819 |
) |
Dividends paid to common shareholders |
|
|
(37,923 |
) |
|
|
(36,110 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
75,863 |
|
|
|
(36,986 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
4,133 |
|
|
|
4,046 |
|
Cash and cash equivalents, beginning of period |
|
|
6,410 |
|
|
|
123 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
10,543 |
|
|
$ |
4,169 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-4-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
1. |
|
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Organization
Post Properties, Inc. and its subsidiaries develop, own and manage upscale multifamily apartment
communities in selected markets in the United States. As used herein, the term Company
includes Post Properties, Inc. and its subsidiaries, including Post Apartment Homes, L.P. (the
Operating Partnership), unless the context indicates otherwise. The Company, through its
wholly-owned subsidiaries, is the general partner and owns a majority interest in the Operating
Partnership which, through its subsidiaries, conducts substantially all of the on-going
operations of the Company. As of July 31, 2006, the Company owned 22,418 apartment units in 62
apartment communities, including 545 apartment units in two apartment communities held in
unconsolidated entities and including 512 apartment units currently under development in two
communities. The Company is also developing 230 for-sale condominium units in two communities
and is converting 597 apartment units in four communities (including one in an unconsolidated
entity, containing 121 units) into for-sale condominium units through a taxable REIT subsidiary.
At June 30, 2006, approximately 46.2%, 18.3%, 9.2% and 8.7% (on a unit basis) of the Companys
operating communities were located in 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 through payments of dividends to shareholders, in practical
effect, is not subject to federal income taxes at the corporate level, except to the extent that
taxable income is earned through its taxable REIT subsidiaries (see note 11).
As of June 30, 2006, the Company had outstanding 43,205 shares of common stock and owned the
same number of units of common limited partnership interests (Common Units) in the Operating
Partnership, representing a 98.4% ownership interest in the Operating Partnership. Common Units
held by persons other than the Company totaled 714 as of June 30, 2006 and represented a 1.6%
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 98.0% and 94.3% for the three
months ended and 97.8% and 94.3% for the six months ended June 30, 2006 and 2005, respectively.
Basis of Presentation
The accompanying unaudited financial statements have been prepared by the Companys management
in accordance with generally accepted accounting principles for interim financial information
and applicable rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normally recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the three and six months ended
June 30, 2006 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, 2005.
Beginning in the fourth quarter of 2005, the Company reclassified certain expenses previously
reported as general and administrative expenses to property operating and maintenance expenses
and investment, development and other expenses on the accompanying statements of operations.
Prior period amounts have been reclassified to conform to the 2006 presentation. The
reclassified expenses primarily included certain investment group executive and administrative
functions and long-term, stock-based compensation and benefits expenses associated with property
management and investment and development group activities. Certain other 2005 amounts have
been reclassified to conform to the current years financial statement presentation.
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. Under the terms of residential
leases, the residents at a majority 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
-5-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
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 the Impairment and 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 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, gains on sales of condominium units
sold 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. 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. 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 projects costs for each condominium unit under a binding real estate
contract.
At June 30, 2006, the Company had two new condominium projects under development, one with
approximately 62% of the condominium units under contract. As the initial and continuing cash
investments received under a majority of the sales contracts do not meet the requirements of
SFAS No. 66, as well as other factors (such as the uncertainties regarding the estimation of the
aggregate sales proceeds and contract rescission rates), the Company has concluded that units
under contract as of June 30, 2006 will be accounted for under the Completed Contract Method,
similar to the accounting for condominium conversion projects discussed above.
Apartment Community Acquisitions
In accordance with the provisions of SFAS No. 141, Business Combinations, the aggregate
purchase price of apartment community acquisitions is allocated to the tangible assets,
intangible assets and liabilities (including mortgage indebtedness) acquired in each
transaction, based on their estimated fair values at the acquisition date. The acquired
tangible assets, principally land, building and improvements and furniture, fixtures and
equipment, are reflected in real estate assets and such assets, excluding land, are depreciated
over their estimated useful lives. The acquired intangible assets, principally above/below
market leases, in-place leases and resident relationships, are reflected in other assets and
amortized over the average remaining lease terms of the acquired leases and resident
relationships (generally 6 months to 18 months).
Stock-based Compensation
Effective January 1, 2006, the Company accounts for stock-based compensation under the fair
value method prescribed by SFAS 123R, Share-Based Payment. SFAS No. 123R was issued in
December 2004. SFAS No. 123R revised SFAS No. 123, Accounting for Stock-Based Compensation
and required companies to expense the fair value of employee stock options and other forms of
stock-based compensation. SFAS No. 123R also superseded the provisions of APB No. 25. The
Company adopted the provisions of SFAS No. 123R using the modified prospective method of
adoption. Since the Company elected to apply the provisions of SFAS No. 123 on January 1, 2003,
the adoption of SFAS No. 123R did not have a significant impact on the Companys financial
position or results of operations.
In periods from January 1, 2003 through December 31, 2005, the Company accounted for stock-based
compensation under the fair value method prescribed by SFAS No. 123. In adopting SFAS No. 123,
the Company used the prospective method prescribed in SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure for all options issued after January 1, 2003.
New Accounting Pronouncements
The Emerging Issues Task Force issued EITF No. 04-05 (EITF No. 04-05), Determining Whether a
General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights. EITF No. 04-05 provides a framework for
evaluating whether a general partner or group of general partners or managing members controls a
limited partnership or limited liability company and therefore should consolidate the entity.
The presumption
-6-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
that the general partner or group of general partners or managing members
controls a limited liability partnership or limited liability company may be overcome if the
limited partners or members have (1) the substantive ability to dissolve the partnership without
cause, or (2) substantive participating rights. EITF No. 04-05 became effective on June 30, 2005
for new or modified limited partnerships or limited liability companies and January 1, 2006 for
all existing arrangements. The Company adopted EITF No. 04-05 on January 1, 2006 for all
existing partnerships and limited liability companies and the adoption did not have a material
impact on the Companys financial position or results of operations.
FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement 109, was issued in July 2006. FIN 48 clarifies guidance on
the recognition and measurement of uncertain tax positions and establishes a more likely than
not standard for the evaluation of whether such tax positions can be recognized in the Companys
financial statements. Previously recognized tax positions that do not meet the more likely than
not criteria will be required to be adjusted on the implementation date. FIN 48 is effective
January 1, 2007 for all calendar year companies. The Company is currently evaluating the impact
that FIN 48 will have on the Companys financial position and results of operations.
At June 30, 2006 and December 31, 2005, the Companys indebtedness consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
Description |
|
Payment Terms |
|
|
Interest Rate |
|
|
Maturity Date |
|
|
2006 |
|
|
December 31, 2005 |
|
Senior Unsecured Notes |
|
Int. |
|
|
5.125% - 7.70 |
% |
|
|
|
|
|
|
2006-2012 |
|
|
$ |
585,000 |
|
|
$ |
485,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Lines of Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated Line of Credit |
|
|
N/A |
|
|
LIBOR + 0.575% |
|
|
(1 |
) |
|
|
2007 |
|
|
|
20,000 |
|
|
|
90,000 |
|
Cash Management Line |
|
|
N/A |
|
|
LIBOR + 0.575% |
|
|
|
|
|
|
2007 |
|
|
|
17,933 |
|
|
|
11,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,933 |
|
|
|
101,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Notes (Secured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA |
|
Prin. and Int. |
|
|
6.145 |
% |
|
|
(2 |
) |
|
|
2029 |
|
|
|
97,100 |
|
|
|
97,100 |
|
Other |
|
Prin. and Int. |
|
|
4.27% - 7.69 |
% |
|
|
|
|
|
|
2007-2013 |
|
|
|
266,276 |
|
|
|
268,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363,376 |
|
|
|
365,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Note (Secured) |
|
Int. |
|
LIBOR + 1.00% |
|
|
|
|
|
|
2008 |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-Exempt Floating Rate
Bonds (Secured) |
|
Int. |
|
|
3.99 |
% |
|
|
(3 |
) |
|
|
2025 |
|
|
|
28,495 |
|
|
|
28,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,054,804 |
|
|
$ |
980,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents stated rate. At June 30, 2006, the weighted average interest rate was
5.45%. |
(2) |
|
Stated interest rate based on FNMA AAA taxable remarketed rate plus credit
enhancements and other fees. The effective interest rate is fixed at 6.145%, inclusive
of credit enhancement and other fees, to 2009 through an interest rate swap
arrangement. |
(3) |
|
FNMA credit enhanced bond indebtedness. Interest based on FNMA AAA tax-exempt
rate plus credit enhancement and other fees of 0.639%. Interest rate represents the
rate at June 30, 2006 before credit enhancements. The Company has outstanding interest
rate cap arrangements that limit the Companys exposure to increases in the base
interest rate to 5%. |
Debt Maturities
The aggregate maturities of the Companys indebtedness as of June 30, 2006 are as follows:
|
|
|
|
|
Remainder of 2006
|
|
$ |
28,904 |
|
2007
|
|
|
158,193 |
|
2008
|
|
|
44,557 |
|
2009
|
|
|
75,901 |
|
2010
|
|
|
226,200 |
(1) |
Thereafter
|
|
|
521,049 |
|
|
|
|
|
|
|
|
$ |
1,054,804 |
|
|
|
|
|
|
(1) |
|
Includes outstanding balances on
lines of credit totaling $37,933. The
Companys lines of credit mature in
April 2010. |
-7-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
Debt Issuances and Retirements
Upon their maturity in March 2006, the Company repaid $50,000 of 6.71% senior unsecured notes,
from available borrowings under its unsecured lines of credit.
In April 2006, the Company closed a $40,000 mortgage note payable secured by an apartment
community located in Denver, Colorado. The mortgage note bears interest at LIBOR plus 1.0%,
matures in April 2008 and is pre-payable without penalty.
In June 2006, the Company issued $150,000 of senior unsecured notes. The notes bear interest at
6.30% and mature in June 2013. The net proceeds from the unsecured notes were used to reduce
amounts outstanding under the Companys unsecured lines of credit.
In July 2006, in conjunction with an apartment community acquisition (see note 4), the Company
assumed a secured, fixed rate mortgage note payable with an outstanding balance of $41,394. The
mortgage note bears interest at a coupon rate of approximately 6.1%, requires monthly principal
and interest payments and matures in November 2011. Based on the Companys preliminary purchase
accounting allocations related to the acquisition, the fair value of the mortgage note
approximated its carrying value.
Unsecured Lines of Credit
At June 30, 2006, the Company utilizes a $450,000 syndicated unsecured revolving line of credit
(the Revolver) that matures in April 2010 for its short-term financing needs. The Revolver
currently has a stated interest rate of LIBOR plus 0.575% or the prime rate and was provided by
a syndicate of 11 banks led by Wachovia Bank, N.A. and JP Morgan Securities, Inc. Additionally,
the Revolver requires the payment of annual facility fees currently equal to 0.15% of the
aggregate loan commitment. The Revolver provides for the interest rate and facility fee rate to
be adjusted up or down based on changes in the credit ratings on the Companys senior unsecured
debt. The rates under the Revolver are based on the higher of the Companys unsecured debt
ratings in instances where the Company has split unsecured debt ratings. The Revolver also
includes a 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 Revolver contains customary
restrictions, representations, covenants and events of default, including fixed charge coverage
and maximum leverage ratios. The Revolver 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, 2006, the Company had issued letters of credit to
third parties totaling $2,280 under this facility.
Additionally at June 30, 2006, the Company has 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 Revolver.
3. |
|
INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES |
The Company holds investments in three individual limited liability companies (the Property
LLCs) with an institutional investor. Two of the Property LLCs own single apartment
communities. The third Property LLC is converting its apartment community, containing 121
units, into for-sale condominiums. The Company holds a 35% equity interest in the Property
LLCs.
The Company accounts for its investments in these Property LLCs using the equity method of
accounting. The excess of the Companys investment over its equity in the underlying net assets
of the Property LLCs was approximately $5,810 at June 30, 2006. This excess investment related
to the two Property LLCs holding apartment communities is being amortized as a reduction to
earnings on a straight-line basis over the lives of the related assets. The excess investment
of $395 at June 30, 2006 related to the Property LLC holding the condominium conversion
community will be recognized as additional cost of sales as the underlying condominiums are
sold. The Company provides real estate services (development, construction and property
management) to the Property LLCs for which it earns fees.
-8-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
The operating results of the Company include its share of net income from the investments in the
Property LLCs. A summary of financial information for the Property LLCs in the aggregate is as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
Balance Sheet Data |
|
2006 |
|
|
2005 |
|
Real estate assets, net of accumulated depreciation of
$9,639 and $8,349, respectively |
|
$ |
94,908 |
|
|
$ |
96,000 |
|
Assets held for sale, net (1) |
|
|
11,606 |
|
|
|
17,715 |
|
Cash and other |
|
|
2,734 |
|
|
|
1,770 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
109,248 |
|
|
$ |
115,485 |
|
|
|
|
|
|
|
|
Mortgage notes payable |
|
$ |
66,998 |
|
|
$ |
66,999 |
|
Mortgage notes payable to Company |
|
|
|
|
|
|
5,967 |
|
Other liabilities |
|
|
1,284 |
|
|
|
996 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
68,282 |
|
|
|
73,962 |
|
Members equity |
|
|
40,966 |
|
|
|
41,523 |
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
109,248 |
|
|
$ |
115,485 |
|
|
|
|
|
|
|
|
Companys equity investment |
|
$ |
20,185 |
|
|
$ |
20,647 |
|
|
|
|
|
|
|
|
(1) |
|
Includes one community, originally containing 121
units, being converted into condominiums. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
Income Statement Data |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
2,859 |
|
|
$ |
2,721 |
|
|
$ |
5,648 |
|
|
$ |
5,361 |
|
Other property revenues |
|
|
244 |
|
|
|
230 |
|
|
|
478 |
|
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
3,103 |
|
|
|
2,951 |
|
|
|
6,126 |
|
|
|
5,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance |
|
|
928 |
|
|
|
889 |
|
|
|
1,913 |
|
|
|
1,799 |
|
Depreciation and amortization |
|
|
661 |
|
|
|
655 |
|
|
|
1,320 |
|
|
|
1,308 |
|
Interest |
|
|
688 |
|
|
|
688 |
|
|
|
1,376 |
|
|
|
1,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
2,277 |
|
|
|
2,232 |
|
|
|
4,609 |
|
|
|
4,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
826 |
|
|
|
719 |
|
|
|
1,517 |
|
|
|
1,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations |
|
|
(120 |
) |
|
|
16 |
|
|
|
(283 |
) |
|
|
(96 |
) |
Gains on sales of real estate assets, net |
|
|
502 |
|
|
|
860 |
|
|
|
899 |
|
|
|
855 |
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
382 |
|
|
|
876 |
|
|
|
616 |
|
|
|
486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,208 |
|
|
$ |
1,595 |
|
|
$ |
2,133 |
|
|
$ |
1,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys share of net income |
|
$ |
411 |
|
|
$ |
553 |
|
|
$ |
724 |
|
|
$ |
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2006 and 2005, gains on sales of real estate
assets represent net gains from condominium sales at the condominium conversion community held
by one of the Property LLCs. A summary of revenues and costs and expenses of condominium
activities for the three and six months ended June 30, 2006 and 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Condominium revenues |
|
$ |
5,138 |
|
|
$ |
4,422 |
|
|
$ |
9,224 |
|
|
$ |
4,422 |
|
Condominium costs and expenses |
|
|
(4,636 |
) |
|
|
(3,562 |
) |
|
|
(8,325 |
) |
|
|
(3,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on condominium sales, net |
|
$ |
502 |
|
|
$ |
860 |
|
|
$ |
899 |
|
|
$ |
855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2006, mortgage notes payable include a $49,998 mortgage note that bears
interest at 4.13%, requires monthly interest payments and annual principal payment of $1 through
2009. Thereafter, the note requires monthly principal and interest payments based on a 25-year
amortization schedule and matures in April 2034. The note is callable by the lender in May 2009
and on each successive fifth year anniversary of the note thereafter. The note is pre-payable
without penalty in May 2008. The additional mortgage note payable totaling $17,000 bears
interest at a rate of 4.04% and matures in 2008.
In 2005, one of the Property LLCs elected to convert its apartment community into for-sale
condominiums. As a result of its decision to sell the community through the condominium
conversion process, the Property LLC prepaid its third party mortgage note payable of $16,392
through secured borrowings from the Company. The Property LLC incurred debt prepayment costs
and expenses associated with the write-off of unamortized deferred financing costs totaling $273
in March 2005. The mortgage note payable to the Company had a fixed rate component ($16,392)
bearing interest at 4.28% and a variable rate component bearing interest at LIBOR plus 1.90%.
In the three months ended June 30, 2006, the mortgage note payable was retired from the proceeds
of condominium sales.
-9-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
4. |
|
REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITY |
Acquisition Activity
In March 2006, the Company acquired two apartment communities, containing 308 units, located in
Austin, Texas for approximately $46,500, including closing costs. Additionally, the Company
plans to spend up to approximately $1,200 to improve the communities. The purchase price of
these communities was allocated to the assets acquired based on their estimated fair values.
In July 2006, the Company acquired a 361-unit apartment community in suburban Washington, D.C.
for approximately $85,000, including the assumption of approximately $41,394 mortgage
indebtedness and closing costs. Based on the Companys preliminary purchase accounting
allocations, the assets acquired and the mortgage indebtedness assumed were recorded at their
estimated fair values. The Company may be required to pay additional purchase consideration of
up to approximately $6,563 based on a share of the appreciation in the value of the property, if
any, over approximately the next four years.
Disposition Activity
The Company classifies real estate assets as held for sale after the approval of its investment
committee and after the Company has commenced an active program to sell the assets. At June 30,
2006, the Company had one apartment community, containing 696 units, and one condominium
conversion community, originally containing 127 units classified as held for sale. These real
estate assets are reflected in the accompanying consolidated balance sheet at $88,347, which
represents the lower of their depreciated cost or fair value less costs to sell. At June 30,
2006, the Company also had portions of two communities that are being converted to condominiums,
originally containing 349 units, that are classified as for-sale condominiums on the
accompanying consolidated balance sheet at $34,151.
As discussed in note 1, gains on condominium sales at portions of two communities that are being
converted into condominiums are reflected in continuing operations. In addition to the
condominium gains included in continuing operations, the Company expensed certain sales and
marketing costs associated with new condominium communities under development totaling $167 and
$160 for the three months ended and $289 and $269 for the six months ended June 30, 2006 and
2005, respectively. A summary of revenues and costs and expenses of condominium activities
included in continuing operations for the three and six months ended June 30, 2006 and 2005 was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Condominium revenues |
|
$ |
18,463 |
|
|
$ |
|
|
|
$ |
18,463 |
|
|
$ |
|
|
Condominium costs and expenses |
|
|
(9,894 |
) |
|
|
(160 |
) |
|
|
(10,052 |
) |
|
|
(269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on sales of condominium, net |
|
$ |
8,569 |
|
|
$ |
(160 |
) |
|
$ |
8,411 |
|
|
$ |
(269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the
operating results of real estate assets designated as held for sale are included in discontinued
operations in the consolidated statement of operations for all periods presented. Additionally,
gains or losses on the sale of these assets are included in discontinued operations. For the
three and six months ended June 30, 2006, income from discontinued operations included the
results of operations of one apartment community, containing 696 units, and one condominium
conversion community classified as held for sale at June 30, 2006. For the three and six months
ended June 30, 2005, income from discontinued operations included the results of operations of
the communities classified as held for sale at June 30, 2006, five apartment communities sold in
2005 and one condominium conversion community through its sell-out date in 2005.
-10-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
The revenues and expenses of the communities included in discontinued operations for the three
and six months ended June 30, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
1,932 |
|
|
$ |
6,708 |
|
|
$ |
3,866 |
|
|
$ |
15,564 |
|
Other property revenues |
|
|
252 |
|
|
|
649 |
|
|
|
469 |
|
|
|
1,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,184 |
|
|
|
7,357 |
|
|
|
4,335 |
|
|
|
17,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
(exclusive of items shown separately below) |
|
|
694 |
|
|
|
3,519 |
|
|
|
1,469 |
|
|
|
7,452 |
|
Depreciation |
|
|
|
|
|
|
1,166 |
|
|
|
781 |
|
|
|
2,334 |
|
Interest |
|
|
604 |
|
|
|
1,426 |
|
|
|
1,219 |
|
|
|
3,151 |
|
Minority interest in consolidated property partnerships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,298 |
|
|
|
6,111 |
|
|
|
3,469 |
|
|
|
12,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
before minority interest |
|
|
886 |
|
|
|
1,246 |
|
|
|
866 |
|
|
|
4,115 |
|
Minority interest |
|
|
(19 |
) |
|
|
(70 |
) |
|
|
(19 |
) |
|
|
(235 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
867 |
|
|
$ |
1,176 |
|
|
$ |
847 |
|
|
$ |
3,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2006 and 2005, gains on sales of real estate
assets included in discontinued operations represent the net gains from condominium sales at two
condominium conversion communities. A summary of revenues and costs and expenses of condominium
activities included in discontinued operations for the three and six months ended June 30, 2006
and 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Condominium revenues |
|
$ |
3,522 |
|
|
$ |
34,600 |
|
|
$ |
6,518 |
|
|
$ |
38,106 |
|
Condominium costs and expenses |
|
|
(3,532 |
) |
|
|
(21,447 |
) |
|
|
(6,127 |
) |
|
|
(24,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on condominium
sales, before minority
interest and income taxes |
|
|
(10 |
) |
|
|
13,153 |
|
|
|
391 |
|
|
|
13,512 |
|
Minority interest |
|
|
|
|
|
|
(728 |
) |
|
|
(9 |
) |
|
|
(748 |
) |
Provision for income taxes |
|
|
|
|
|
|
(383 |
) |
|
|
|
|
|
|
(383 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on condominium
sales, net of minority
interest and income taxes |
|
$ |
(10 |
) |
|
$ |
12,042 |
|
|
$ |
382 |
|
|
$ |
12,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2005, the Company recognized net gains in
discontinued operations of $49,710 ($46,876 net of minority interest) from the sale of five
communities, containing 1,309 units. The sales generated net proceeds of approximately $97,900,
including $34,060 of tax-exempt secured indebtedness assumed by the purchasers.
Computation of Earnings Per Common Share
For the three and six months ended June 30, 2006 and 2005, a reconciliation of the numerator and
denominator used in the computation of basic and diluted income from continuing operations per
common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Income from continuing operations available to
common shareholders (numerator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
13,126 |
|
|
$ |
(355 |
) |
|
$ |
17,556 |
|
|
$ |
1,279 |
|
Less: Preferred stock dividends |
|
|
(1,909 |
) |
|
|
(1,909 |
) |
|
|
(3,819 |
) |
|
|
(3,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
available to common shareholders |
|
$ |
11,217 |
|
|
$ |
(2,264 |
) |
|
$ |
13,737 |
|
|
$ |
(2,540 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares (denominator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
42,817 |
|
|
|
39,930 |
|
|
|
42,351 |
|
|
|
40,048 |
|
Dilutive shares from stock options and awards |
|
|
701 |
|
|
|
|
|
|
|
738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
43,518 |
|
|
|
39,930 |
|
|
|
43,089 |
|
|
|
40,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-11-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
For the three and six months ended June 30, 2006 and 2005, stock options to purchase shares
of common stock, 307 and 4,309, respectively, and 280 and 4,309, respectively, were excluded
from the computation of diluted earnings per common share as these stock options were
antidilutive.
6. |
|
DERIVATIVE FINANCIAL INSTRUMENTS |
At June 30, 2006, the Company had an outstanding interest rate swap agreement with a notional
value of approximately $97,010 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. This swap was entered into following the termination of
the prior swap arrangement discussed below. The interest rate swap agreement is included on the
accompanying consolidated balance sheet at fair value.
In the first quarter of 2006, 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). As a result, the gross increase in the market value of the interest rate swap
arrangement of $1,655 through the April 2006 termination of the swap was recognized in other
income in the consolidated statement of operations. In addition, 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. The swap arrangement discussed above
was terminated through a $2,448 termination payment to the swap counterparty.
At June 30, 2006, the Company had an outstanding interest rate cap agreement with a financial
institution with a notional value of $28,495. The interest rate cap agreement is a cash flow
hedge that provides a fixed interest ceiling at 5% for the Companys variable rate, tax-exempt
borrowings aggregating $28,495 at June 30, 2006. The Company is required to maintain the
interest rate exposure protection under the terms of the financing arrangements. The interest
rate cap arrangement is included on the accompanying balance sheet at fair value. At June 30,
2006, the difference between the amortized costs of the interest rate cap arrangement and its
fair value of $3 is included in accumulated other comprehensive loss, a shareholders equity
account. The original cost of approximately $362 of the arrangements is being amortized as
additional expense over its five-year term.
A summary of comprehensive income for the three and six months ended June 30, 2006 and 2005 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
13,983 |
|
|
$ |
58,443 |
|
|
$ |
18,785 |
|
|
$ |
63,121 |
|
Change in derivatives, net of minority interest (1) |
|
|
931 |
|
|
|
(838 |
) |
|
|
1,217 |
|
|
|
1,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
14,914 |
|
|
$ |
57,605 |
|
|
$ |
20,002 |
|
|
$ |
64,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In the three and six months ended June 30, 2006, the change in derivatives balance
includes an adjustment of $281 ($275 net of minority interest) and $554 ($542 net of
minority interest), respectively, for amortized swap costs included in net income. |
Segment Description
In accordance with SFAS No. 131, Disclosure About the Segments of an Enterprise and Related
Information, the Company presents segment information based on the way that management
organizes the segments within the enterprise for making operating decisions and assessing
performance. The segment information is prepared on substantially the same basis as the
internally reported information used by the Companys chief operating decision makers to manage
the business.
The Companys chief operating decision makers focus on the Companys primary sources of income
from apartment community rental operations. Apartment community rental operations are broken
down into four segments based on the various stages in the apartment community ownership
lifecycle. These segments are described below. All commercial properties and other ancillary
service and support operations are aggregated in the line item other in the accompanying
segment information. The segment information presented below reflects the segment categories
based on the lifecycle status of each community as of January 1, 2005. The segment information
for the three and six months ended June 30, 2005 has been adjusted due to the restatement impact
of reclassifying the operating results of the assets designated as held for sale in 2006 and
2005 to discontinued operations under SFAS No. 144 (see note 4).
|
|
|
Fully stabilized communities those apartment communities which have been stabilized
(the earlier of the point at which a property reaches 95% occupancy or one year after
completion of construction) for both the current and prior year. |
-12-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
|
|
|
Development, rehabilitation and lease-up communities those apartment communities
under construction and major rehabilitation programs. The Company had no apartment
communities in the lease-up stage for the periods presented. |
|
|
|
|
Condominium conversion communities the rental
operations of those portions of existing apartment communities
being converted into condominiums that are reflected in continuing operations under SFAS
No. 144 (see note 1). |
|
|
|
|
Acquired communities those communities acquired in the current or prior year. |
Segment Performance Measure
Management uses contribution to consolidated property net operating income (NOI) as the
performance measure for its operating segments. The Company uses net operating income, including
net operating income of stabilized communities, as an operating measure. Net operating income
is defined as rental and other property revenue from real estate operations less total property
and maintenance expenses from real estate operations (excluding depreciation and amortization).
The Company believes that net operating income is an important supplemental measure of operating
performance for a REITs operating real estate because it provides a measure of the core
operations, rather than factoring in depreciation and amortization, financing costs and general
and administrative expenses generally incurred at the corporate level. This measure is
particularly useful, in the opinion of the Company, in evaluating the performance of geographic
operations, operating segment groupings and individual properties. Additionally, the Company
believes that net operating income, as defined, is a widely accepted measure of comparative
operating performance in the real estate investment community. The Company believes that the
line on the Companys consolidated statement of operations entitled net income is the most
directly comparable GAAP measure to net operating income.
Segment Information
The following table reflects each segments contribution to consolidated revenues and property
NOI together with a reconciliation of segment contribution to property NOI to net income.
Additionally, substantially all of the Companys assets relate to the Companys property rental
operations. Asset cost, depreciation and amortization by segment are not presented because such
information at the segment level is not reported internally.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities |
|
$ |
64,893 |
|
|
$ |
61,284 |
|
|
$ |
128,233 |
|
|
$ |
121,484 |
|
Development, rehabilitation and lease-up communities |
|
|
2,403 |
|
|
|
2,614 |
|
|
|
4,966 |
|
|
|
5,154 |
|
Condominium conversion communities |
|
|
730 |
|
|
|
1,454 |
|
|
|
1,906 |
|
|
|
2,907 |
|
Acquired communities |
|
|
2,052 |
|
|
|
306 |
|
|
|
3,344 |
|
|
|
306 |
|
Other property segments |
|
|
6,133 |
|
|
|
5,326 |
|
|
|
11,889 |
|
|
|
10,548 |
|
Other |
|
|
85 |
|
|
|
61 |
|
|
|
151 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
76,296 |
|
|
$ |
71,045 |
|
|
$ |
150,489 |
|
|
$ |
140,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to NOI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities |
|
$ |
40,064 |
|
|
$ |
37,692 |
|
|
$ |
79,107 |
|
|
$ |
74,125 |
|
Development, rehabilitation and lease-up communities |
|
|
1,303 |
|
|
|
1,485 |
|
|
|
2,777 |
|
|
|
2,879 |
|
Condominium conversion communities |
|
|
270 |
|
|
|
958 |
|
|
|
921 |
|
|
|
1,877 |
|
Acquired communities |
|
|
1,031 |
|
|
|
228 |
|
|
|
1,747 |
|
|
|
228 |
|
Other |
|
|
(1,011 |
) |
|
|
(2,133 |
) |
|
|
(2,845 |
) |
|
|
(4,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated property net operating income |
|
|
41,657 |
|
|
|
38,230 |
|
|
|
81,707 |
|
|
|
75,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
118 |
|
|
|
189 |
|
|
|
238 |
|
|
|
354 |
|
Other revenue |
|
|
85 |
|
|
|
61 |
|
|
|
151 |
|
|
|
132 |
|
Minority interest in consolidated property partnerships |
|
|
(63 |
) |
|
|
64 |
|
|
|
(92 |
) |
|
|
178 |
|
Depreciation |
|
|
(17,031 |
) |
|
|
(18,247 |
) |
|
|
(33,706 |
) |
|
|
(36,612 |
) |
Interest expense |
|
|
(13,560 |
) |
|
|
(14,612 |
) |
|
|
(27,266 |
) |
|
|
(29,609 |
) |
Amortization of deferred financing costs |
|
|
(834 |
) |
|
|
(1,029 |
) |
|
|
(1,769 |
) |
|
|
(2,717 |
) |
General and administrative |
|
|
(4,632 |
) |
|
|
(4,558 |
) |
|
|
(9,058 |
) |
|
|
(8,949 |
) |
Investment, development and other expenses |
|
|
(1,617 |
) |
|
|
(984 |
) |
|
|
(3,168 |
) |
|
|
(2,404 |
) |
Gains (losses) on sales of condominiums, net |
|
|
8,569 |
|
|
|
(160 |
) |
|
|
8,411 |
|
|
|
(269 |
) |
Equity in income of unconsolidated real estate entities |
|
|
411 |
|
|
|
553 |
|
|
|
724 |
|
|
|
701 |
|
Other income |
|
|
270 |
|
|
|
|
|
|
|
1,694 |
|
|
|
5,267 |
|
Minority interest of common unitholders |
|
|
(247 |
) |
|
|
138 |
|
|
|
(310 |
) |
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
13,126 |
|
|
|
(355 |
) |
|
|
17,556 |
|
|
|
1,279 |
|
Income from discontinued operations |
|
|
857 |
|
|
|
58,798 |
|
|
|
1,229 |
|
|
|
61,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,983 |
|
|
$ |
58,443 |
|
|
$ |
18,785 |
|
|
$ |
63,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-13-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
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 severance charges for the six months ended
June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Accrued severance charges, beginning of period |
|
$ |
14,325 |
|
|
$ |
15,317 |
|
Payments for period |
|
|
(1,495 |
) |
|
|
(1,494 |
) |
Interest accretion |
|
|
424 |
|
|
|
453 |
|
|
|
|
|
|
|
|
Accrued severance charges, end of period |
|
$ |
13,254 |
|
|
$ |
14,276 |
|
|
|
|
|
|
|
|
9. |
|
SUPPLEMENTAL CASH FLOW INFORMATION |
Interest paid (including capitalized amounts of $4,138 and $783 for the six months ended June
30, 2006 and 2005, respectively), aggregated $32,600 and $35,405 for the six months ended June
30, 2006 and 2005, respectively.
Non-cash investing and financing activities for the six months ended June 30, 2006 and 2005 were
as follows:
In the six months ended June 30, 2006, a minority partner in a consolidated real estate venture
contributed land with an agreed upon value of $2,556. This non-cash land contribution was
excluded from the statement of cash flows.
During the six months ended June 30, 2006, the Company amortized approximately $554 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, 2006, the Company derivative financial instruments, accounted for
as cash flow hedges, increased in value causing a decrease in accounts payable and accrued
expenses and a corresponding increase in shareholder equity of $690 ($675 net of minority
interest). During the six months ended June 30, 2005, 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 increase in shareholders equity of
$1,940 ($1,828 net of minority interest).
During the six months ended June 30, 2006 and 2005, holders of 688 and 166 units, respectively,
in the Operating Partnership exercised their option to convert their units to shares of common
stock of the Company on a one-for-one basis. These conversions and adjustments for the impact of
the common stock issued under the Companys employee stock purchase and stock option plans and
other capital transactions resulted in adjustments to minority interest. The net effect of the
conversions and adjustments was a reclassification decreasing minority interest and increasing
shareholders equity in the amounts of $12,835 and $3,230 for the six months ended June 30, 2006
and 2005, respectively.
The Operating Partnership committed to distribute $19,764 and $19,065 for the quarters ended
June 30, 2006 and 2005, respectively. As a result, the Company declared dividends of $19,441 and
$18,015 for the quarters ended June 30, 2006 and 2005, respectively. The remaining distributions
from the Operating Partnership in the amount of $323 and $1,050 for the quarters ended June 30,
2006 and 2005, respectively, were distributed to minority interest unitholders in the Operating
Partnership.
10. |
|
STOCK-BASED COMPENSATION PLAN |
Stock Compensation Plans
Effective January 1, 2006, the Company accounts for stock-based compensation using the fair
value method prescribed in SFAS No. 123R (see note 1). For stock-based compensation granted
from January 1, 2003 to December 31, 2005, the Company accounted for stock-based compensation
under the fair value method prescribed by SFAS No. 123. Other than the required modification
under SFAS No. 123R to use an estimated forfeiture rate for award terminations and forfeitures,
the adoption of SFAS 123R did not have a material impact on the Companys accounting for
stock-based compensation. In prior years, the Company used a policy of recognizing the effect
of award forfeitures as they occurred. Under SFAS No. 123R, such award forfeitures are
recognized based on an estimate of the number of awards expected to be forfeited during the
estimated service period. The cumulative impact of this modification on awards granted prior to
January 1, 2006 was $172 and the amount was reflected as a reduction of compensation expense in
the six months ended June 30, 2006.
-14-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
The Companys audited financial statements for the year ended December 31, 2005 included in the
Companys Form 10-K, as amended, include the footnote disclosures under SFAS No. 123. The
disclosures below summarize the new disclosures under SFAS 123R.
Incentive Stock Plans
Under the Companys 2003 Incentive Stock Plan (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 stock
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 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
Companys compensation committee. Compensation costs are recognized ratably over the vesting
period. At June 30, 2006, stock options outstanding under the 2003 Stock Plan and the Companys
previous stock plan totaled 2,746.
Compensation costs for stock options has been estimated on the grant date using the
Black-Scholes option-pricing method. The weighted average assumptions used in the Black-Scholes
option-pricing model were as follows:
|
|
|
|
|
|
|
Six months ended |
|
|
June 30, 2006 |
Dividend yield |
|
|
4.5 |
% |
Expected volatility |
|
|
17.5 |
% |
Risk-free interest rate |
|
|
4.3 |
% |
Expected option term (years) |
|
|
5.0 |
|
In connection with the adoption of SFAS No. 123R, the Company reviewed the above
assumptions based on the additional guidance provided in the pronouncement. 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.
In the six months ended June 30, 2006, the Company granted stock options to purchase 291 shares
of Company common stock to Company officers and directors, of which 50 were granted to the
Companys non-executive chairman of the board. For the three and six months ended June 30,
2006, the Company recorded compensation expense related to stock options of $286 ($280 net of
minority interest) and $507 ($496 net of minority interest), respectively. In the six months
ended June 30, 2006, such expense was net of the cumulative impact of the adoption of SFAS 123R
of $60, as discussed above. 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, 2006, is
presented below.
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, 2006 |
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Shares |
|
|
Exercise Price |
|
Options outstanding, beginning of period |
|
|
3,534 |
|
|
$ |
34 |
|
Granted |
|
|
291 |
|
|
|
40 |
|
Exercised |
|
|
(1,079 |
) |
|
|
36 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period |
|
|
2,746 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
Options exercisable, end of period |
|
|
1,671 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the period |
|
$ |
4.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2006, there was $2,205 of unrecognized compensation cost related to unvested
stock options. This cost is expected to be recognized over a weighted-average period of 2.0
years. The total intrinsic value of stock options exercised during the six months ended June
30, 2006 was $8,586. The aggregate intrinsic values of stock options outstanding and
exercisable at June 30, 2006 were $33,591 and $18,708, respectively.
At June 30, 2006, the Company has separated its outstanding options into two ranges based on
exercise prices. There were 1,645 options outstanding with exercise prices ranging from $23.90
to $36.13. These options have a weighted average exercise price of
-15-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
$29.53 and a weighted average remaining contractual life of 6 years. Of these outstanding
options, 883 were exercisable at June 30, 2006 at a weighted average exercise price of $30.91.
In addition, there were 1,101 options outstanding with exercise prices ranging from $36.47 to
$44.13. These options have a weighted average exercise price of $38.43 and a weighted average
remaining contractual life of 5 years. Of these outstanding options, 788 were exercisable at
June 30, 2006 at a weighted average exercise price of $37.77.
In the six months ended June 30, 2006, the Company granted 39 shares of restricted stock,
respectively, to Company officers, employees and directors, of which 5 shares were granted to
the Companys non-executive chairman of the board. The restricted shares granted in 2006 vest
ratably over three to five year periods. The weighted average grant date fair value for the
restricted shares was $40.24 per share. The total value of the restricted share grants in the
six months ended June 30, 2006 was $1,571. The compensation cost is amortized ratably into
compensation expense over the applicable vesting periods. Total compensation expense relating
to the restricted stock was $438 ($429 net of minority interest) and $726 ($710 net of minority
interest) in the three and six months ended June 30, 2006, respectively. In the six months
ended June 30, 2006, such expense was net of the cumulative impact of the adoption of SFAS No.
123R of $112, as discussed above.
A summary of the activity related to the Companys restricted stock for the six months ended
June 30, 2006 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
Shares |
|
|
Fair Value |
|
Unvested shares, beginning or period |
|
|
140 |
|
|
$ |
28 |
|
Granted |
|
|
39 |
|
|
|
40 |
|
Vested |
|
|
(4 |
) |
|
|
27 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period |
|
|
175 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
At June 30, 2006, there was $4,093 of unrecognized compensation cost related to restricted
stock. This cost is expected to be recognized over a weighted average period of 3.3 years.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (the 2005 ESPP) under a plan approved by
Company shareholders in 2005. 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 $60 and $100 for the three and six months ended June 30, 2006,
respectively.
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended (the Code). To qualify as a REIT, the Company must distribute annually at least 90%
of its adjusted taxable income, as defined in the Code, to its shareholders and satisfy certain
other organizational and operating requirements. It is managements current intention to adhere
to these requirements and maintain the Companys REIT status. As a REIT, the Company generally
will not be subject to federal income tax at the corporate level on the taxable income it
distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year,
it will be subject to federal income taxes at regular corporate rates (including any applicable
alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable
years. The Company may be subject to certain state and local taxes on its income and property,
and to federal income taxes and excise taxes on its undistributed taxable income.
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 utilizes taxable REIT subsidiaries (TRSs) to perform such nonqualifying
activities as property management, ground-up condominium development and conversions and to
provide noncustomary services for the Companys apartment residents. Income at the TRS level is
subject to federal and state income taxes. For the six months ended June 30, 2006, the
Companys TRSs had an estimated taxable loss. At December 31, 2005, the Companys TRSs had an
estimated consolidated federal income tax net operating loss of approximately $1,200. This
carryforward and other net deferred tax assets were fully offset by a valuation allowance. As a
result, the Company recorded no income tax expense (benefit) related to its TRSs for the six
months ended June 30, 2006. The tax benefits associated with such income tax net operating loss
carryforwards may be
-16-
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
recognized in future periods should the TRSs generate sufficient taxable income to utilize these
loss carryforwards or should the Company determine that it is more likely than not that the
related deferred tax assets are realizable.
In the three and six months ended June 30, 2005, the Company estimated that its TRSs would be
subject to federal alternative minimum taxes and applicable state income taxes and recorded a
tax provision of approximately $383.
A summary of the components of the TRSs deferred tax assets and liabilities at December 31,
2005 are included in the footnotes to the Companys audited financial statements included in the
Companys Form 10-K, as amended. Other than the additional estimated taxable losses for the six
months ended June 30, 2006, there were no material changes to the components of deferred tax
assets and liabilities at June 30, 2006.
On May 13, 2004, an alleged Company shareholder filed a purported pro se derivative and direct
action in the Superior Court of Fulton County, Georgia, against the Company, certain members of
the Companys board of directors, and certain of its executive officers. The case was removed to
the United States District Court for the Northern District of Georgia on May 21, 2004. The
complaint alleged, among other things, breaches of fiduciary duties, fraud, corporate waste,
withholding certain documents from shareholder inspection and certain securities laws claims.
The complaint requested various types of relief, such as injunctive relief and damages and
demanded production of certain Company records. Because the Company believed the allegations
were wholly without merit, the Company moved to dismiss the litigation. On April 20, 2005, the
court entered an order dismissing all claims without prejudice, save a claim seeking production
of certain Company records, upon which the Court declined to rule, concluding it lacked
jurisdiction to do so, and ordered the claim remanded to the Superior Court of Fulton County.
Since that time, the Company has moved for its attorney fees in the United States District
Court, arguing that the plaintiff frivolously pursued the litigation, and the plaintiff has
moved for entry of judgment in Superior Court, which the Company has vigorously contested. In
February 2006, the United States District Court granted the Companys motion for attorneys fees
in an amount to be determined by the agreement of the parties, or, alternatively, by the Court.
On May 5, 2003, the Company received notice that a shareholder derivative and purported class
action lawsuit was filed against members of the board of directors of the Company and the
Company as a nominal defendant. This complaint was filed in the Superior Court of Fulton County,
Atlanta, Georgia on May 2, 2003 and alleged various breaches of fiduciary duties by the board of
directors of the Company and sought, among other relief, the disclosure of certain information
by the defendants. This complaint also sought to compel the defendants to undertake various
actions to facilitate a sale of the Company. On May 7, 2003, the plaintiff made a request for
voluntary expedited discovery. On May 13, 2003, the Company received notice that a similar
shareholder derivative and purported class action lawsuit was filed against certain members of
the board of directors of the Company and against the Company as a nominal defendant. The
complaint was filed in the Superior Court of Fulton County, Atlanta, Georgia on May 12, 2003 and
alleged breaches of fiduciary duties, abuse of control and corporate waste by the defendants.
The plaintiff sought monetary damages and, as appropriate, injunctive relief. These lawsuits
were settled, and in October 2004, the Superior Court of Fulton County entered an order
approving the settlement and related orders dismissing the litigation. The estimated legal and
settlement costs, not covered by insurance, associated with the expected resolution of the
lawsuits were recorded in 2003 as a component of a proxy contest and related costs charge. An
alleged Company shareholder, who had filed a separate purported derivative and direct action
against the Company and certain of its officers and directors (which is described in the
paragraph above), has appealed from the Superior Courts orders approving the settlement,
overruling the shareholders objection to the settlement denying the shareholders motion to
intervene, and dismissing the litigation with prejudice. In November 2005, the Georgia Court of
Appeals affirmed the orders. In December 2005, the alleged Company shareholder asked the Georgia
Supreme Court to review the case. In April 2006, the Georgia Supreme Court denied review, and
the alleged Company shareholder has indicated that he will seek review by the United States
Supreme Court.
The Company is involved in various other legal proceedings incidental to its business from time
to time, most of which are expected to be covered by liability or other insurance. Management of
the Company believes that any resolution of pending proceedings or liability to the Company
which may arise as a result of these proceedings will not have a material adverse effect on the
Companys results of operations or financial position.
13. |
|
SALE OF TECHNOLOGY INVESTMENT |
In February 2005, the Company sold its investment in Rent.com, a privately-held internet leasing
company, and recognized a gain of $5,267. The gain is included in other income on the consolidated
statement of operations.
-17-
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Real estate assets |
|
|
|
|
|
|
|
|
Land |
|
$ |
266,323 |
|
|
$ |
266,914 |
|
Building and improvements |
|
|
1,747,290 |
|
|
|
1,789,479 |
|
Furniture, fixtures and equipment |
|
|
203,421 |
|
|
|
207,497 |
|
Construction in progress |
|
|
83,818 |
|
|
|
47,005 |
|
Land held for future development |
|
|
113,146 |
|
|
|
62,511 |
|
|
|
|
|
|
|
|
|
|
|
2,413,998 |
|
|
|
2,373,406 |
|
Less: accumulated depreciation |
|
|
(532,340 |
) |
|
|
(516,954 |
) |
For-sale condominiums |
|
|
34,151 |
|
|
|
38,338 |
|
Assets held for sale, net of accumulated depreciation of $18,109 and
$0 at June 30, 2006 and December 31, 2005, respectively |
|
|
88,347 |
|
|
|
4,591 |
|
|
|
|
|
|
|
|
Total real estate assets |
|
|
2,004,156 |
|
|
|
1,899,381 |
|
Investments in and advances to unconsolidated real estate entities |
|
|
20,185 |
|
|
|
26,614 |
|
Cash and cash equivalents |
|
|
10,543 |
|
|
|
6,410 |
|
Restricted cash |
|
|
5,005 |
|
|
|
4,599 |
|
Deferred charges, net |
|
|
13,750 |
|
|
|
11,624 |
|
Other assets |
|
|
37,685 |
|
|
|
32,826 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,091,324 |
|
|
$ |
1,981,454 |
|
|
|
|
|
|
|
|
Liabilities and partners equity |
|
|
|
|
|
|
|
|
Indebtedness |
|
$ |
1,054,804 |
|
|
$ |
980,615 |
|
Accounts payable and accrued expenses |
|
|
59,308 |
|
|
|
53,429 |
|
Dividend and distribution payable |
|
|
19,764 |
|
|
|
19,257 |
|
Accrued interest payable |
|
|
5,501 |
|
|
|
5,478 |
|
Deposits and prepaid rents |
|
|
10,983 |
|
|
|
9,857 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,150,360 |
|
|
|
1,068,636 |
|
|
|
|
|
|
|
|
Minority interest in consolidated real estate entities |
|
|
15,374 |
|
|
|
5,045 |
|
|
|
|
|
|
|
|
Partners equity |
|
|
|
|
|
|
|
|
Preferred units |
|
|
95,000 |
|
|
|
95,000 |
|
Common units
|
|
|
|
|
|
|
|
|
General partner |
|
|
9,887 |
|
|
|
9,722 |
|
Limited partner |
|
|
823,811 |
|
|
|
807,403 |
|
Accumulated other comprehensive income (loss) |
|
|
(3,108 |
) |
|
|
(4,352 |
) |
|
|
|
|
|
|
|
Total partners equity |
|
|
925,590 |
|
|
|
907,773 |
|
|
|
|
|
|
|
|
Total liabilities and partners equity |
|
$ |
2,091,324 |
|
|
$ |
1,981,454 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-18-
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, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
71,607 |
|
|
$ |
66,891 |
|
|
$ |
141,679 |
|
|
$ |
132,746 |
|
Other property revenues |
|
|
4,604 |
|
|
|
4,093 |
|
|
|
8,659 |
|
|
|
7,653 |
|
Other |
|
|
85 |
|
|
|
61 |
|
|
|
151 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
76,296 |
|
|
|
71,045 |
|
|
|
150,489 |
|
|
|
140,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance (exclusive of items shown
separately below) |
|
|
34,554 |
|
|
|
32,754 |
|
|
|
68,631 |
|
|
|
65,346 |
|
Depreciation |
|
|
17,031 |
|
|
|
18,247 |
|
|
|
33,706 |
|
|
|
36,612 |
|
General and administrative |
|
|
4,632 |
|
|
|
4,558 |
|
|
|
9,058 |
|
|
|
8,949 |
|
Investment, development and other |
|
|
1,617 |
|
|
|
984 |
|
|
|
3,168 |
|
|
|
2,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
57,834 |
|
|
|
56,543 |
|
|
|
114,563 |
|
|
|
113,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
18,462 |
|
|
|
14,502 |
|
|
|
35,926 |
|
|
|
27,220 |
|
Interest income |
|
|
118 |
|
|
|
189 |
|
|
|
238 |
|
|
|
354 |
|
Interest expense |
|
|
(13,560 |
) |
|
|
(14,612 |
) |
|
|
(27,266 |
) |
|
|
(29,609 |
) |
Amortization of deferred financing costs |
|
|
(834 |
) |
|
|
(1,029 |
) |
|
|
(1,769 |
) |
|
|
(2,717 |
) |
Gains (losses) on sales of condominiums, net |
|
|
8,569 |
|
|
|
(160 |
) |
|
|
8,411 |
|
|
|
(269 |
) |
Equity in income of unconsolidated real estate entities |
|
|
411 |
|
|
|
553 |
|
|
|
724 |
|
|
|
701 |
|
Other income |
|
|
270 |
|
|
|
|
|
|
|
1,694 |
|
|
|
5,267 |
|
Minority interest in consolidated property partnerships |
|
|
(63 |
) |
|
|
64 |
|
|
|
(92 |
) |
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
13,373 |
|
|
|
(493 |
) |
|
|
17,866 |
|
|
|
1,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
886 |
|
|
|
1,246 |
|
|
|
866 |
|
|
|
4,115 |
|
Gains (losses) on sales of real estate assets, net of provision
for income taxes |
|
|
(10 |
) |
|
|
62,480 |
|
|
|
391 |
|
|
|
62,839 |
|
Loss on early extinguishment of indebtedness |
|
|
|
|
|
|
(1,374 |
) |
|
|
|
|
|
|
(1,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
876 |
|
|
|
62,352 |
|
|
|
1,257 |
|
|
|
65,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
14,249 |
|
|
|
61,859 |
|
|
|
19,123 |
|
|
|
66,705 |
|
Distributions to preferred unitholders |
|
|
(1,909 |
) |
|
|
(1,909 |
) |
|
|
(3,819 |
) |
|
|
(3,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common unitholders |
|
$ |
12,340 |
|
|
$ |
59,950 |
|
|
$ |
15,304 |
|
|
$ |
62,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
(net of preferred distributions) |
|
$ |
0.26 |
|
|
$ |
(0.06 |
) |
|
$ |
0.32 |
|
|
$ |
(0.06 |
) |
Income from discontinued operations |
|
|
0.02 |
|
|
|
1.47 |
|
|
|
0.03 |
|
|
|
1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common unitholders |
|
$ |
0.28 |
|
|
$ |
1.42 |
|
|
$ |
0.35 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding basic |
|
|
43,687 |
|
|
|
42,325 |
|
|
|
43,313 |
|
|
|
42,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
(net of preferred distributions) |
|
$ |
0.26 |
|
|
$ |
(0.06 |
) |
|
$ |
0.32 |
|
|
$ |
(0.06 |
) |
Income from discontinued operations |
|
|
0.02 |
|
|
|
1.47 |
|
|
|
0.03 |
|
|
|
1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common unitholders |
|
$ |
0.28 |
|
|
$ |
1.42 |
|
|
$ |
0.35 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding diluted |
|
|
44,388 |
|
|
|
42,325 |
|
|
|
44,051 |
|
|
|
42,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared |
|
$ |
0.45 |
|
|
$ |
0.45 |
|
|
$ |
0.90 |
|
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-19-
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, 2005 |
|
$ |
95,000 |
|
|
$ |
9,722 |
|
|
$ |
807,403 |
|
|
$ |
(4,352 |
) |
|
$ |
907,773 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
3,819 |
|
|
|
153 |
|
|
|
15,151 |
|
|
|
|
|
|
|
19,123 |
|
Net change in derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,244 |
|
|
|
1,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,367 |
|
Contributions from the Company related
to employee stock purchase and stock
option plans |
|
|
|
|
|
|
394 |
|
|
|
39,016 |
|
|
|
|
|
|
|
39,410 |
|
Distributions to preferred unitholders |
|
|
(3,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,819 |
) |
Distributions to common unitholders |
|
|
|
|
|
|
(395 |
) |
|
|
(39,080 |
) |
|
|
|
|
|
|
(39,475 |
) |
Equity-based compensation |
|
|
|
|
|
|
13 |
|
|
|
1,321 |
|
|
|
|
|
|
|
1,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Equity, June 30, 2006 |
|
$ |
95,000 |
|
|
$ |
9,887 |
|
|
$ |
823,811 |
|
|
$ |
(3,108 |
) |
|
$ |
925,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-20-
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,123 |
|
|
$ |
66,705 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
34,487 |
|
|
|
38,946 |
|
Amortization of deferred financing costs |
|
|
1,769 |
|
|
|
2,717 |
|
Gains on sales of real estate assets |
|
|
(8,802 |
) |
|
|
(62,839 |
) |
Other non-cash income |
|
|
(1,101 |
) |
|
|
(5,267 |
) |
Equity in income of unconsolidated entities |
|
|
(724 |
) |
|
|
(701 |
) |
Distributions of earnings of unconsolidated entities |
|
|
1,114 |
|
|
|
1,040 |
|
Deferred compensation |
|
|
377 |
|
|
|
|
|
Equity-based compensation |
|
|
1,334 |
|
|
|
1,022 |
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
1,374 |
|
Changes in assets, (increase) decrease in: |
|
|
|
|
|
|
|
|
Other assets |
|
|
(1,417 |
) |
|
|
(2,913 |
) |
Deferred charges |
|
|
(45 |
) |
|
|
(327 |
) |
Changes in liabilities, increase (decrease) in: |
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
23 |
|
|
|
(1,669 |
) |
Accounts payable and accrued expenses |
|
|
5,091 |
|
|
|
9,891 |
|
Security deposits and prepaid rents |
|
|
721 |
|
|
|
2,669 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
51,950 |
|
|
|
50,648 |
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Construction and acquisition of real estate assets, net of payables |
|
|
(136,460 |
) |
|
|
(86,128 |
) |
Net proceeds from sales of real estate assets |
|
|
23,007 |
|
|
|
93,398 |
|
Proceeds from sale of technology investment |
|
|
|
|
|
|
5,267 |
|
Capitalized interest |
|
|
(4,138 |
) |
|
|
(783 |
) |
Annually recurring capital expenditures |
|
|
(5,914 |
) |
|
|
(4,822 |
) |
Periodically recurring capital expenditures |
|
|
(2,322 |
) |
|
|
(2,029 |
) |
Community rehabilitation and other revenue generating capital expenditures |
|
|
(2,837 |
) |
|
|
|
|
Corporate additions and improvements |
|
|
(983 |
) |
|
|
(978 |
) |
Distributions from (investments in and advances to) unconsolidated entities |
|
|
5,967 |
|
|
|
(13,541 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(123,680 |
) |
|
|
(9,616 |
) |
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Payments on indebtedness |
|
|
(52,365 |
) |
|
|
(189,267 |
) |
Proceeds from indebtedness |
|
|
190,000 |
|
|
|
100,000 |
|
Lines of credit proceeds (repayments), net |
|
|
(63,446 |
) |
|
|
105,785 |
|
Payments of financing costs |
|
|
(3,627 |
) |
|
|
(976 |
) |
Redemption of common units |
|
|
|
|
|
|
(21,283 |
) |
Contributions from the Company related to employee stock
purchase and stock option plans |
|
|
39,033 |
|
|
|
10,617 |
|
Capital contributions of minority interests |
|
|
9,055 |
|
|
|
283 |
|
Distributions to common unitholders |
|
|
(38,968 |
) |
|
|
(38,326 |
) |
Distributions to preferred unitholders |
|
|
(3,819 |
) |
|
|
(3,819 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
75,863 |
|
|
|
(36,986 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
4,133 |
|
|
|
4,046 |
|
Cash and cash equivalents, beginning of period |
|
|
6,410 |
|
|
|
123 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
10,543 |
|
|
$ |
4,169 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-21-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share 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, 2006, the Company owned 98.4% of the common limited partnership interests (Common
Units) in the Operating Partnership and 100.0% of the preferred limited partnership interests
(Preferred Units). The Companys weighted average common ownership interest in the Operating
Partnership was 98.0% and 94.3% for the three months ended and 97.8% and 94.3% for the six
months ended June 30, 2006 and 2005, respectively. At June 30, 2006, Common Units held by
persons other than the Company represented a 1.6% 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.
As of July 31, 2006, the Operating Partnership owned 22,418 apartment units in 62 apartment
communities, including 545 apartment units in two apartment communities held in unconsolidated
entities and including 512 apartment units currently under development in two communities. The
Operating Partnership is also developing 230 for-sale condominium units in two communities and
is converting 597 apartment units in four communities (including one in an unconsolidated
entity, containing 121 units) into for-sale condominium units through a taxable REIT subsidiary.
At June 30, 2006, approximately 46.2%, 18.3%, 9.2% and 8.7% (on a unit basis) of the Operating
Partnerships communities were located in the Atlanta, Dallas, 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.
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, 2006 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, 2005.
Beginning in the fourth quarter of 2005, the Operating Partnership reclassified certain expenses
previously reported as general and administrative expenses to property operating and maintenance
expenses and investment, development and other expenses on the accompanying statements of
operations. Prior period amounts have been reclassified to conform to the 2006 presentation.
The reclassified expenses primarily included certain investment group executive and
administrative functions and long-term, equity-based compensation and benefits expenses
associated with property management and investment and development group activities. Certain
other 2005 amounts have been reclassified to conform to the current years financial statement
presentation.
-22-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
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. Under the terms of residential
leases, the residents at a majority 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 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 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 the Impairment and 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 will also recognize 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 sold at partial condominium communities will be 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. 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. 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 projects costs for each condominium unit under a binding real estate
contract.
At June 30, 2006, the Operating Partnership had two new condominium projects under development,
one with approximately 62% of the condominium units under contract. As the initial and
continuing cash investments received under a majority of the sales contracts do not meet the
requirements of SFAS No. 66, as well as other factors (such as the uncertainties regarding the
estimation of the aggregate sales proceeds and contract rescission rates), the Operating
Partnership has concluded that units under contract as of June 30, 2006 will be accounted for
under the Completed Contract Method, similar to the accounting for condominium conversion
projects discussed above.
Apartment Community Acquisitions
In accordance with the provisions of SFAS No. 141, Business Combinations, the aggregate
purchase price of apartment community acquisitions is allocated to the tangible assets,
intangible assets and liabilities (including mortgage indebtedness) acquired in each
transaction, based on their estimated fair values at the acquisition date. The acquired
tangible assets, principally land, building and improvements and furniture, fixtures and
equipment, are reflected in real estate assets and such assets, excluding land, are depreciated
over their estimated useful lives. The acquired intangible assets, principally above/below
market leases, in-place leases and resident relationships, are reflected in other assets and
amortized over the average remaining lease terms of the acquired leases and resident
relationships (generally 6 months to 18 months).
Equity-based Compensation
Effective January 1, 2006, the Operating Partnership accounts for equity-based compensation
under the fair value method prescribed by SFAS 123R, Share-Based Payment. SFAS No. 123R was
issued in December 2004. SFAS No. 123R revised SFAS No. 123, Accounting for Stock-Based
Compensation and required companies to expense the fair value of employee stock options and
other forms of equity-based compensation. SFAS No. 123R also superseded the provisions of APB
No. 25. The Operating Partnership adopted the provisions of SFAS No. 123R using the modified
prospective method of adoption. Since the Operating Partnership elected to apply the provisions
of SFAS No. 123 on January 1, 2003, the adoption of SFAS No. 123R did not have a significant
impact on the Operating Partnerships financial position or results of operations.
-23-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
In periods from January 1, 2003 through December 31, 2005, the Operating Partnership accounted
for equity-based compensation under the fair value method prescribed by SFAS No. 123. In
adopting SFAS No. 123, the Operating Partnership used the prospective method prescribed in SFAS
No. 148, Accounting for Stock-Based Compensation Transition and Disclosure for all options
issued after January 1, 2003.
New Accounting Pronouncements
The Emerging Issues Task Force issued EITF No. 04-05 (EITF No. 04-05), Determining Whether a
General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights. EITF No. 04-05 provides a framework for
evaluating whether a general partner or group of general partners or managing members controls a
limited partnership or limited liability company and therefore should consolidate the entity.
The presumption that the general partner or group of general partners or managing members
controls a limited liability partnership or limited liability company may be overcome if the
limited partners or members have (1) the substantive ability to dissolve the partnership without
cause, or (2) substantive participating rights. EITF No. 04-05 became effective on June 30, 2005
for new or modified limited partnerships or limited liability companies and January 1, 2006 for
all existing arrangements. The Operating Partnership adopted EITF No. 04-05 on January 1, 2006
for all existing partnerships and limited liability companies and the adoption did not have a
material impact on the Companys financial position or results of operations.
FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement 109, was issued in July 2006. FIN 48 clarifies guidance on
the recognition and measurement of uncertain tax positions and establishes a more likely than
not standard for the evaluation of whether such tax positions can be recognized in the Operating
Partnerships financial statements. Previously recognized tax positions that do not meet the
more likely than not criteria will be required to be adjusted on the implementation date. FIN
48 is effective January 1, 2007 for all calendar year companies. The Operating Partnership is
currently evaluating the impact that FIN 48 will have on the Operating Partnerships financial
position and results of operations.
At June 30, 2006 and December 31, 2005, the Operating Partnerships indebtedness consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment |
|
|
|
|
|
|
|
|
|
|
|
Maturity |
|
June 30, |
|
|
December 31, |
|
Description |
|
Terms |
|
|
Interest Rate |
|
|
Date |
|
|
2006 |
|
|
2005 |
|
Senior Unsecured Notes |
|
Int. |
|
|
5.125% - 7.70 |
% |
|
|
|
|
|
|
2006-2012 |
|
|
$ |
585,000 |
|
|
$ |
485,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Lines of Credit & Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated Line of Credit |
|
|
N/A |
|
|
LIBOR + 0.575% |
(1) |
|
|
|
|
|
2007 |
|
|
|
20,000 |
|
|
|
90,000 |
|
Cash Management Line |
|
|
N/A |
|
|
LIBOR + 0.575% |
|
|
|
|
|
|
2007 |
|
|
|
17,933 |
|
|
|
11,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,933 |
|
|
|
101,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Note (Secured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA |
|
Prin. and Int. |
|
|
6.145 |
% |
(2) |
|
|
|
|
|
2029 |
|
|
|
97,100 |
|
|
|
97,100 |
|
Other |
|
Prin. and Int. |
|
|
4.27% - 7.69 |
% |
|
|
|
|
|
|
2007-2013 |
|
|
|
266,276 |
|
|
|
268,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363,376 |
|
|
|
365,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Notes (Secured) |
|
Int. |
|
LIBOR + 1.00% |
|
|
|
|
|
|
2008 |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-Exempt Floating Rate
Bonds (Secured) |
|
Int. |
|
|
3.99 |
% |
(3) |
|
|
|
|
|
2025 |
|
|
|
28,495 |
|
|
|
28,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,054,804 |
|
|
$ |
980,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents stated rate. At June 30, 2006, the weighted average interest rate was
5.45%. |
(2) |
|
Stated interest rate based on FNMA AAA taxable remarketed rate plus credit
enhancements and other fees. The effective interest rate is fixed at 6.145%, inclusive
of credit enhancement and other fees, to 2009 through an interest rate swap
arrangement. |
(3) |
|
FNMA credit enhanced bond indebtedness. Interest based on FNMA AAA tax-exempt
rate plus credit enhancement and other fees of 0.639%. Interest rate represents the
rate at June 30, 2006 before credit enhancements. The Operating Partnership has
outstanding interest rate cap arrangements that limit the Operating Partnerships
exposure to increases in the base interest rate to 5%. |
-24-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
Debt Maturities
The aggregate maturities of the Operating Partnerships indebtedness as of June 30, 2006 are as
follows:
|
|
|
|
|
Remainder of 2006 |
|
$ |
28,904 |
|
2007 |
|
|
158,193 |
|
2008 |
|
|
44,557 |
|
2009 |
|
|
75,901 |
|
2010 |
|
|
226,200 |
(1) |
Thereafter |
|
|
521,049 |
|
|
|
|
|
|
|
$ |
1,054,804 |
|
|
|
|
|
(1) |
|
Includes outstanding balances
on lines of credit totaling
$37,933. The Operating
Partnerships lines of credit
mature in April 2010. |
Debt Issuances and Retirements
Upon their maturity in March 2006, the Operating Partnership repaid $50,000 of 6.71% senior
unsecured notes, from available borrowings under its unsecured lines of credit.
In April 2006, the Operating Partnership closed a $40,000 mortgage note payable secured by an
apartment community located in Denver, Colorado. The mortgage note bears interest at LIBOR plus
1.0%, matures in April 2008 and is pre-payable without penalty.
In June 2006, the Operating Partnership issued $150,000 of senior unsecured notes. The notes
bear interest at 6.30% and mature in June 2013. The net proceeds from the unsecured notes were
used to reduce amounts outstanding under the Operating Partnerships unsecured lines of credit.
In July 2006, in conjunction with an apartment community acquisition (see note 4), the Operating
Partnership assumed a secured, fixed rate mortgage note payable with an outstanding balance of
$41,394. The mortgage note bears interest at a coupon rate of approximately 6.1%, requires
monthly principal and interest payments and matures in November 2011. Based on the Operating
Partnerships preliminary purchase accounting allocations related to the acquisition, the fair
value of the mortgage note approximated its carrying value.
Unsecured Lines of Credit
At June 30, 2006, the Operating Partnership utilizes a $450,000 syndicated unsecured revolving
line of credit (the Revolver) that matures in April 2010 for its short-term financing needs.
The Revolver currently has a stated interest rate of LIBOR plus 0.575% or the prime rate and was
provided by a syndicate of 11 banks led by Wachovia Bank, N.A. and JP Morgan Securities, Inc.
Additionally, the Revolver requires the payment of annual facility fees currently equal to 0.15%
of the aggregate loan commitment. The Revolver provides for the interest rate and facility fee
rate to be adjusted up or down based on changes in the credit ratings on the Operating
Partnerships senior unsecured debt. The rates under the Revolver are based on the higher of
the Operating Partnerships unsecured debt ratings in instances where the Operating Partnership
has split unsecured debt ratings. The Revolver also includes a 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 Revolver contains customary restrictions, representations,
covenants and events of default, including fixed charge coverage and maximum leverage ratios.
The Revolver also restricts the amount of capital the Operating Partnership can invest in
specific categories of assets, such as improved land, properties under construction, condominium
properties, non-multifamily properties, debt or equity securities, notes receivable and
unconsolidated affiliates. At June 30, 2006, the Operating Partnership had issued letters of
credit to third parties totaling $2,280 under this facility.
Additionally at June 30, 2006, the Operating Partnership has 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 Revolver.
3. |
|
INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES |
The Operating Partnership holds investments in three individual limited liability companies (the
Property LLCs) with an institutional investor. Two of the Property LLCs own single apartment
communities. The third Property LLC is converting its apartment community, containing 121
units, into for-sale condominiums. The Operating Partnership holds a 35% equity interest in the
Property LLCs.
-25-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
The Operating Partnership accounts for its investments in these Property LLCs using the equity
method of accounting. The excess of the Operating Partnerships investment over its equity in
the underlying net assets of the Property LLCs was approximately $5,810 at June 30, 2006. This
excess investment related to the two Property LLCs holding apartment communities is being
amortized as a reduction to earnings on a straight-line basis over the lives of the related
assets. The excess investment of $395 at June 30, 2006 related to the Property LLC holding the
condominium conversion community will be recognized as additional cost of sales as the
underlying condominiums are sold. The Operating Partnership provides real estate services
(development, construction and property management) to the Property LLCs for which it earns
fees.
The operating results of the Operating Partnership include its share of net income from the
investments in the Property LLCs. A summary of financial information for the Property LLCs in
the aggregate is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
Balance Sheet Data |
|
2006 |
|
|
2005 |
|
Real estate assets, net of accumulated depreciation of
$9,639 and $8,349, respectively |
|
$ |
94,908 |
|
|
$ |
96,000 |
|
Assets held for sale, net (1) |
|
|
11,606 |
|
|
|
17,715 |
|
Cash and other |
|
|
2,734 |
|
|
|
1,770 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
109,248 |
|
|
$ |
115,485 |
|
|
|
|
|
|
|
|
Mortgage notes payable |
|
$ |
66,998 |
|
|
$ |
66,999 |
|
Mortgage notes payable to Operating Partnership |
|
|
|
|
|
|
5,967 |
|
Other liabilities |
|
|
1,284 |
|
|
|
996 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
68,282 |
|
|
|
73,962 |
|
Members equity |
|
|
40,966 |
|
|
|
41,523 |
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
109,248 |
|
|
$ |
115,485 |
|
|
|
|
|
|
|
|
Operating Partnerships equity investment |
|
$ |
20,185 |
|
|
$ |
20,647 |
|
|
|
|
|
|
|
|
(1) |
|
Includes one community, originally containing 121
units, being converted into condominiums. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
Income Statement Data |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
2,859 |
|
|
$ |
2,721 |
|
|
$ |
5,648 |
|
|
$ |
5,361 |
|
Other
property revenues |
|
|
244 |
|
|
|
230 |
|
|
|
478 |
|
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
3,103 |
|
|
|
2,951 |
|
|
|
6,126 |
|
|
|
5,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance |
|
|
928 |
|
|
|
889 |
|
|
|
1,913 |
|
|
|
1,799 |
|
Depreciation and amortization |
|
|
661 |
|
|
|
655 |
|
|
|
1,320 |
|
|
|
1,308 |
|
Interest |
|
|
688 |
|
|
|
688 |
|
|
|
1,376 |
|
|
|
1,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
2,277 |
|
|
|
2,232 |
|
|
|
4,609 |
|
|
|
4,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
826 |
|
|
|
719 |
|
|
|
1,517 |
|
|
|
1,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations |
|
|
(120 |
) |
|
|
16 |
|
|
|
(283 |
) |
|
|
(96 |
) |
Gains on sales of real estate assets, net |
|
|
502 |
|
|
|
860 |
|
|
|
899 |
|
|
|
855 |
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
382 |
|
|
|
876 |
|
|
|
616 |
|
|
|
486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,208 |
|
|
$ |
1,595 |
|
|
$ |
2,133 |
|
|
$ |
1,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnerships share of net income |
|
$ |
411 |
|
|
$ |
553 |
|
|
$ |
724 |
|
|
$ |
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2006 and 2005, gains on sales of real estate
assets represent net gains from condominium sales at the condominium conversion community held
by one of the Property LLCs. A summary of revenues and costs and expenses of condominium
activities for the three and six months ended June 30, 2006 and 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Condominium revenues |
|
$ |
5,138 |
|
|
$ |
4,422 |
|
|
$ |
9,224 |
|
|
$ |
4,422 |
|
Condominium costs and expenses |
|
|
(4,636 |
) |
|
|
(3,562 |
) |
|
|
(8,325 |
) |
|
|
(3,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on condominium sales, net |
|
$ |
502 |
|
|
$ |
860 |
|
|
$ |
899 |
|
|
$ |
855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2006, mortgage notes payable include a $49,998 mortgage note that bears
interest at 4.13%, requires monthly interest payments and annual principal payment of $1 through
2009. Thereafter, the note requires monthly principal and interest payments based on a 25-year
amortization schedule and matures in April 2034. The note is callable by the lender in May 2009
and on each successive fifth year anniversary of the note thereafter. The note is pre-payable
without penalty in May 2008. The additional mortgage note payable totaling $17,000 bears
interest at a rate of 4.04% and matures in 2008.
-26-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
In 2005, one of the Property LLCs elected to convert its apartment community into for-sale
condominiums. As a result of its decision to sell the community through the condominium
conversion process, the Property LLC prepaid its third party mortgage note payable of $16,392
through secured borrowings from the Operating Partnership. The Property LLC incurred debt
prepayment costs and expenses associated with the write-off of unamortized deferred financing
costs totaling $273 in March 2005. The mortgage note payable to the Operating Partnership had a
fixed rate component ($16,392) bearing interest at 4.28% and a variable rate component bearing
interest at LIBOR plus 1.90%. In the three months ended June 30, 2006, the mortgage note
payable was retired from the proceeds of condominium sales.
4. |
|
REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITY |
Acquisition Activity
In March 2006, the Operating Partnership acquired two apartment communities, containing 308
units, located in Austin, Texas for approximately $46,500, including closing costs.
Additionally, the Operating Partnership plans to spend up to approximately $1,200 to improve the
communities. The purchase price of these communities was allocated to the assets acquired based
on their estimated fair values.
In July 2006, the Operating Partnership acquired a 361-unit apartment community in suburban
Washington, D.C. for approximately $85,000, including the assumption of approximately $41,394
mortgage indebtedness and closing costs. Based on the Operating Partnerships preliminary
purchase accounting allocations, the assets acquired and the mortgage indebtedness assumed were
recorded at their estimated fair values. The Operating Partnership may be required to pay
additional purchase consideration of up to approximately $6,563 based on a share of the
appreciation in the value of the property, if any, over approximately the next four years.
Disposition Activity
The Operating Partnership classifies real estate assets as held for sale after the approval of
its investment committee and after the Operating Partnership has commenced an active program to
sell the assets. At June 30, 2006, the Operating Partnership had one apartment community,
containing 696 units, and one condominium conversion community, originally containing 127 units
classified as held for sale. These real estate assets are reflected in the accompanying
consolidated balance sheet at $88,347, which represents the lower of their depreciated cost or
fair value less costs to sell. At June 30, 2006, the Operating Partnership also had portions of
two communities that are being converted to condominiums, originally containing 349 units, that
are classified as for-sale condominiums on the accompanying consolidated balance sheet at
$34,151.
As discussed in note 1, gains on condominium sales at portions of two communities that are being
converted into condominiums are reflected in continuing operations. In addition to the
condominium gains included in continuing operations, the Operating Partnership expensed certain
sales and marketing costs associated with new condominium communities under development totaling
$167 and $160 for the three months ended and $289 and $269 for the six months ended June 30,
2006 and 2005, respectively. A summary of revenues and costs and expenses of condominium
activities included in continuing operations for the three and six months ended June 30, 2006
and 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Condominium revenues |
|
$ |
18,463 |
|
|
$ |
|
|
|
$ |
18,463 |
|
|
$ |
|
|
Condominium costs and expenses |
|
|
(9,894 |
) |
|
|
(160 |
) |
|
|
(10,052 |
) |
|
|
(269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on sales of condominium, net |
|
$ |
8,569 |
|
|
$ |
(160 |
) |
|
$ |
8,411 |
|
|
$ |
(269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the
operating results of real estate assets designated as held for sale are included in discontinued
operations in the consolidated statement of operations for all periods presented. Additionally,
gains or losses on the sale of these assets are included in discontinued operations. For the
three and six months ended June 30, 2006, income from discontinued operations included the
results of operations of one apartment community, containing 696 units, and one condominium
conversion community classified as held for sale at June 30, 2006. For the three and six months
ended June 30, 2005, income from discontinued operations included the results of operations of
the communities classified as held for sale at June 30, 2006, five apartment communities sold in
2005 and one condominium conversion community through its sell-out date in 2005.
-27-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
The revenues and expenses of the communities included in discontinued operations for the three
and six months ended June 30, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
1,932 |
|
|
$ |
6,708 |
|
|
$ |
3,866 |
|
|
$ |
15,564 |
|
Other property revenues |
|
|
252 |
|
|
|
649 |
|
|
|
469 |
|
|
|
1,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,184 |
|
|
|
7,357 |
|
|
|
4,335 |
|
|
|
17,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
(exclusive of items shown separately below) |
|
|
694 |
|
|
|
3,519 |
|
|
|
1,469 |
|
|
|
7,452 |
|
Depreciation |
|
|
|
|
|
|
1,166 |
|
|
|
781 |
|
|
|
2,334 |
|
Interest |
|
|
604 |
|
|
|
1,426 |
|
|
|
1,219 |
|
|
|
3,151 |
|
Minority interest in consolidated property partnerships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,298 |
|
|
|
6,111 |
|
|
|
3,469 |
|
|
|
12,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
886 |
|
|
$ |
1,246 |
|
|
$ |
866 |
|
|
$ |
4,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2006 and 2005, gains on sales of real estate
assets included in discontinued operations represent the net gains from condominium sales at two
condominium conversion communities. A summary of revenues and costs and expenses of condominium
activities included in discontinued operations for the three and six months ended June 30, 2006
and 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Condominium revenues |
|
$ |
3,522 |
|
|
$ |
34,600 |
|
|
$ |
6,518 |
|
|
$ |
38,106 |
|
Condominium costs and expenses |
|
|
(3,532 |
) |
|
|
(21,447 |
) |
|
|
(6,127 |
) |
|
|
(24,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on condominium sales, before minority
interest and income taxes |
|
|
(10 |
) |
|
|
13,153 |
|
|
|
391 |
|
|
|
13,512 |
|
Provision for income taxes |
|
|
|
|
|
|
(383 |
) |
|
|
|
|
|
|
(383 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on condominium sales, net of income taxes |
|
$ |
(10 |
) |
|
$ |
12,770 |
|
|
$ |
391 |
|
|
$ |
13,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2005, the Operating Partnership recognized net
gains in discontinued operations of $49,710 ($46,876 net of minority interest) from the sale of
five communities, containing 1,309 units. The sales generated net proceeds of approximately
$97,900, including $34,060 of tax-exempt secured indebtedness assumed by the purchasers.
Computations of Earnings Per Common Unit
For the six months ended June 30, 2006 and 2005, a reconciliation of the numerator and
denominator used in the computation of basic and diluted income from continuing operations per
common unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Income from continuing operations available to common
unitholders (numerator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
13,373 |
|
|
$ |
(493 |
) |
|
$ |
17,866 |
|
|
$ |
1,125 |
|
Less: Preferred unit distributions |
|
|
(1,909 |
) |
|
|
(1,909 |
) |
|
|
(3,819 |
) |
|
|
(3,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common unitholders |
|
$ |
11,464 |
|
|
$ |
(2,402 |
) |
|
$ |
14,047 |
|
|
$ |
(2,694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units (denominator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding basic |
|
|
43,687 |
|
|
|
42,325 |
|
|
|
43,313 |
|
|
|
42,469 |
|
Dilutive units from of stock options and awards |
|
|
701 |
|
|
|
|
|
|
|
738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding diluted |
|
|
44,388 |
|
|
|
42,325 |
|
|
|
44,051 |
|
|
|
42,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2006 and 2005, stock options to purchase shares
of common stock, 307 and 4,309, respectively, and 280 and 4,309, respectively, were excluded
from the computation of diluted earnings per common share as these stock options were
antidilutive.
-28-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
6. |
|
DERIVATIVE FINANCIAL INSTRUMENTS |
At June 30, 2006, the Operating Partnership had an outstanding interest rate swap agreement with
a notional value of approximately $97,010 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. This swap was entered into
following the termination of the prior swap arrangement discussed below. The interest rate swap
agreement is included on the accompanying consolidated balance sheet at fair value.
In the first quarter of 2006, 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). As a result, the gross increase in the market value of the interest rate swap
arrangement of $1,655 through the April 2006 termination of the swap was recognized in other
income in the consolidated statement of operations. In addition, under SFAS No. 133, as
amended, the Operating Partnership is required to amortize into interest expense the cumulative
unrecognized loss on the terminated interest rate swap arrangement of $4,021, included in
shareholders equity, over the remaining life of the swap through 2009. The swap arrangement
discussed above was terminated through a $2,448 termination payment to the swap counterparty.
At June 30, 2006, the Operating Partnership had an outstanding interest rate cap agreement with
a financial institution with a notional value of $28,495. The interest rate cap agreement is a
cash flow hedge that provides a fixed interest ceiling at 5% for the Operating Partnerships
variable rate, tax-exempt borrowings aggregating $28,495 at June 30, 2006. The Operating
Partnership is required to maintain the interest rate exposure protection under the terms of the
financing arrangements. The interest rate cap arrangement is included on the accompanying
balance sheet at fair value. At June 30, 2006, the difference between the amortized costs of
the interest rate cap arrangement and its fair value of $3 is included in accumulated other
comprehensive loss, a shareholders equity account. The original cost of approximately $362 of
the arrangements is being amortized as additional expense over its five-year term.
A summary of comprehensive income for the three and six months ended June 30, 2006 and 2005 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
14,249 |
|
|
$ |
61,859 |
|
|
$ |
19,123 |
|
|
$ |
66,705 |
|
Change in derivatives, (1) |
|
|
953 |
|
|
|
(888 |
) |
|
|
1,244 |
|
|
|
1,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
15,202 |
|
|
$ |
60,971 |
|
|
$ |
20,367 |
|
|
$ |
68,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In the three and six months ended June 30, 2006, the change in derivatives balance
includes an adjustment of $281 and $554, respectively, for amortized swap costs
included in net income. |
Segment Description
In accordance with SFAS No. 131, Disclosure About the Segments of an Enterprise and Related
Information, the Operating Partnership presents segment information based on the way that
management organizes the segments within the enterprise for making operating decisions and
assessing performance. The segment information is prepared on substantially the same basis as
the internally reported information used by the Operating Partnerships chief operating decision
makers to manage the business.
The Operating Partnerships chief operating decision makers focus on the Operating Partnerships
primary sources of income from apartment community rental operations. Apartment community
rental operations are broken down into four segments based on the various stages in the
apartment community ownership lifecycle. These segments are described below. All commercial
properties and other ancillary service and support operations are aggregated in the line item
other in the accompanying segment information. The segment information presented below
reflects the segment categories based on the lifecycle status of each community as of January 1,
2005. The segment information for the six months ended June 30, 2005 has been adjusted due to
the restatement impact of reclassifying the operating results of the assets designated as held
for sale in 2006 and 2005 to discontinued operations under SFAS No. 144 (see note 4).
|
|
|
Fully stabilized communities those apartment communities which have been stabilized
(the earlier of the point at which a property reaches 95% occupancy or one year after
completion of construction) for both the current and prior year. |
|
|
|
|
Development, rehabilitation and lease-up communities those apartment communities
under construction and major rehabilitation programs. The Operating Partnership had no
apartment communities in the lease-up stage for the periods presented. |
-29-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
|
|
|
Condominium conversion communities the rental operations of those portions of existing apartment communities
being converted into condominiums that are reflected in continuing operations under SFAS
No. 144 (see note 1). |
|
|
|
|
Acquired communities those communities acquired in the current or prior year. |
Segment Performance Measure
Management uses contribution to consolidated property net operating income (NOI) as the
performance measure for its operating segments. The Operating Partnership uses net operating
income, including net operating income of stabilized communities, as an operating measure. Net
operating income is defined as rental and other property revenue from real estate operations
less total property and maintenance expenses from real estate operations (excluding depreciation
and amortization). The Operating Partnership believes that net operating income is an important
supplemental measure of operating performance for a REITs operating real estate because it
provides a measure of the core operations, rather than factoring in depreciation and
amortization, financing costs and general and administrative expenses generally incurred at the
corporate level. This measure is particularly useful, in the opinion of the Operating
Partnership, in evaluating the performance of geographic operations, operating segment groupings
and individual properties. Additionally, the Operating Partnership believes that net operating
income, as defined, is a widely accepted measure of comparative operating performance in the
real estate investment community. The Operating Partnership believes that the line on the
Operating Partnerships consolidated statement of operations entitled net income is the most
directly comparable GAAP measure to net operating income.
Segment Information
The following table reflects each segments contribution to consolidated revenues and property
NOI together with a reconciliation of segment contribution to property NOI to net income.
Additionally, substantially all of the Operating Partnerships assets relate to the Operating
Partnerships property rental operations. Asset cost, depreciation and amortization by segment
are not presented because such information at the segment level is not reported internally.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities |
|
$ |
64,893 |
|
|
$ |
61,284 |
|
|
$ |
128,233 |
|
|
$ |
121,484 |
|
Development, rehabilitation and lease-up communities |
|
|
2,403 |
|
|
|
2,614 |
|
|
|
4,966 |
|
|
|
5,154 |
|
Condominium conversion communities |
|
|
730 |
|
|
|
1,454 |
|
|
|
1,906 |
|
|
|
2,907 |
|
Acquired communities |
|
|
2,052 |
|
|
|
306 |
|
|
|
3,344 |
|
|
|
306 |
|
Other property segments |
|
|
6,133 |
|
|
|
5,326 |
|
|
|
11,889 |
|
|
|
10,548 |
|
Other |
|
|
85 |
|
|
|
61 |
|
|
|
151 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
76,296 |
|
|
$ |
71,045 |
|
|
$ |
150,489 |
|
|
$ |
140,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to NOI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities |
|
$ |
40,064 |
|
|
$ |
37,692 |
|
|
$ |
79,107 |
|
|
$ |
74,125 |
|
Development, rehabilitation and lease-up communities |
|
|
1,303 |
|
|
|
1,485 |
|
|
|
2,777 |
|
|
|
2,879 |
|
Condominium conversion communities |
|
|
270 |
|
|
|
958 |
|
|
|
921 |
|
|
|
1,877 |
|
Acquired communities |
|
|
1,031 |
|
|
|
228 |
|
|
|
1,747 |
|
|
|
228 |
|
Other |
|
|
(1,011 |
) |
|
|
(2,133 |
) |
|
|
(2,845 |
) |
|
|
(4,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated property net operating income |
|
|
41,657 |
|
|
|
38,230 |
|
|
|
81,707 |
|
|
|
75,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
118 |
|
|
|
189 |
|
|
|
238 |
|
|
|
354 |
|
Other revenue |
|
|
85 |
|
|
|
61 |
|
|
|
151 |
|
|
|
132 |
|
Minority interest in consolidated property partnerships |
|
|
(63 |
) |
|
|
64 |
|
|
|
(92 |
) |
|
|
178 |
|
Depreciation |
|
|
(17,031 |
) |
|
|
(18,247 |
) |
|
|
(33,706 |
) |
|
|
(36,612 |
) |
Interest expense |
|
|
(13,560 |
) |
|
|
(14,612 |
) |
|
|
(27,266 |
) |
|
|
(29,609 |
) |
Amortization of deferred financing costs |
|
|
(834 |
) |
|
|
(1,029 |
) |
|
|
(1,769 |
) |
|
|
(2,717 |
) |
General and administrative |
|
|
(4,632 |
) |
|
|
(4,558 |
) |
|
|
(9,058 |
) |
|
|
(8,949 |
) |
Investment, development and other expenses |
|
|
(1,617 |
) |
|
|
(984 |
) |
|
|
(3,168 |
) |
|
|
(2,404 |
) |
Gains (losses) on sales of condominiums, net |
|
|
8,569 |
|
|
|
(160 |
) |
|
|
8,411 |
|
|
|
(269 |
) |
Equity in income of unconsolidated real estate entities |
|
|
411 |
|
|
|
553 |
|
|
|
724 |
|
|
|
701 |
|
Other income |
|
|
270 |
|
|
|
|
|
|
|
1,694 |
|
|
|
5,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
13,373 |
|
|
|
(493 |
) |
|
|
17,866 |
|
|
|
1,125 |
|
Income from discontinued operations |
|
|
876 |
|
|
|
62,352 |
|
|
|
1,257 |
|
|
|
65,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,249 |
|
|
$ |
61,859 |
|
|
$ |
19,123 |
|
|
$ |
66,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-30-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
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 severance charges for the six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Accrued severance charges, beginning of period |
|
$ |
14,325 |
|
|
$ |
15,317 |
|
Payments for period |
|
|
(1,495 |
) |
|
|
(1,494 |
) |
Interest accretion |
|
|
424 |
|
|
|
453 |
|
|
|
|
|
|
|
|
Accrued severance charges, end of period |
|
$ |
13,254 |
|
|
$ |
14,276 |
|
|
|
|
|
|
|
|
9. |
|
SUPPLEMENTAL CASH FLOW INFORMATION |
Interest paid (including capitalized amounts of $4,138 and $783 for the six months ended June
30, 2006 and 2005, respectively), aggregated $32,600 and $35,405 for the six months ended June
30, 2006 and 2005, respectively.
Non-cash investing and financing activities for the six months ended June 30, 2006 and 2005 were
as follows:
In the six months ended June 30, 2006, a minority partner in a consolidated real estate venture
contributed land with an agreed upon value of $2,556. This non-cash land contribution was
excluded from the statement of cash flows.
During the six months ended June 30, 2006, the Operating Partnership amortized approximately
$554 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, 2006, the Operating Partnership derivative financial
instruments, accounted for as cash flow hedges, increased in value causing a decrease in
accounts payable and accrued expenses and a corresponding increase in partners equity of $690.
During the six months ended June 30, 2005, 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 increase in partners equity of
$1,940.
The Operating Partnership committed to distribute $19,764 and $19,065 for the quarters ended
June 30, 2006 and 2005, respectively. These distributions were not reflected in the statement of
cash flows as of June 30, 2006 and 2005.
10. |
|
EQUITY-BASED COMPENSATION PLAN |
Equity Compensation Plans
As the primary operating subsidiary of the Company, the Operating Partnership participates in
and bears the compensation expenses associated with the Companys stock-based compensation
plans. The information discussed below relating to the Companys stock-based compensation plans
is also applicable for the Operating Partnership. Effective January 1, 2006, the Operating
Partnership accounts for equity-based compensation using the fair value method prescribed in
SFAS No. 123R (see note 1). For equity-based compensation granted from January 1, 2003 to
December 31, 2005, the Operating Partnership accounted for equity-based compensation under the
fair value method prescribed by SFAS No. 123. Other than the required modification under SFAS
No. 123R to use an estimated forfeiture rate for award terminations and forfeitures, the
adoption of SFAS 123R did not have a material impact on the Operating Partnerships accounting
for equity-based compensation. In prior years, the Operating Partnership used a policy of
recognizing the effect of award forfeitures as they occurred. Under SFAS No. 123R, such award
forfeitures are recognized based on an estimate of the number of awards expected to be forfeited
during the estimated service period. The cumulative impact of this modification on awards
granted prior to January 1, 2006 was $172 and the amount was reflected as a reduction of
compensation expense in the six months ended June 30, 2006.
The Operating Partnerships audited financial statements for the year ended December 31, 2005
included in the Operating Partnerships Form 10-K, as amended, include the footnote disclosures
under SFAS No. 123. The disclosures below summarize the new disclosures under SFAS 123R.
-31-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
Incentive Stock Plans
Under the Companys 2003 Incentive Stock Plan (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 stock
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 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
Companys compensation committee. Compensation costs are recognized ratably over the vesting
period. At June 30, 2006, stock options outstanding under the 2003 Stock Plan and the Companys
previous stock plan totaled 2,746.
Compensation costs for stock options has been estimated on the grant date using the
Black-Scholes option-pricing method. The weighted average assumptions used in the Black-Scholes
option-pricing model were as follows:
|
|
|
|
|
|
|
Six months ended |
|
|
June 30, 2006 |
Dividend yield |
|
|
4.5 |
% |
Expected volatility |
|
|
17.5 |
% |
Risk-free interest rate |
|
|
4.3 |
% |
Expected option term (years) |
|
|
5.0 |
|
In connection with the adoption of SFAS No. 123R, the Company reviewed the above
assumptions based on the additional guidance provided in the pronouncement. 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.
In the six months ended June 30, 2006, the Company granted stock options to purchase 291 shares
of Company common stock to Company officers and directors, of which 50 were granted to the
Companys non-executive chairman of the board. For the three and six months ended June 30,
2006, the Company recorded compensation expense related to stock options of $286 and $507,
respectively. In the six months ended June 30, 2006, such expense was net of the cumulative
impact of the adoption of SFAS 123R of $60, as discussed above. 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, 2006, is
presented below.
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, 2006 |
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Shares |
|
|
Exercise Price |
|
Options outstanding, beginning of period |
|
|
3,534 |
|
|
$ |
34 |
|
Granted |
|
|
291 |
|
|
|
40 |
|
Exercised |
|
|
(1,079 |
) |
|
|
36 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period |
|
|
2,746 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
Options exercisable, end of period |
|
|
1,671 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the period |
|
$ |
4.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2006, there was $2,205 of unrecognized compensation cost related to unvested
stock options. This cost is expected to be recognized over a weighted-average period of 2.0
years. The total intrinsic value of stock options exercised during the six months ended June
30, 2006 was $8,586. The aggregate intrinsic values of stock options outstanding and
exercisable at June 30, 2006 were $33,591 and $18,708, respectively.
At June 30, 2006, the Company has separated its outstanding options into two ranges based on
exercise prices. There were 1,645 options outstanding with exercise prices ranging from $23.90
to $36.13. These options have a weighted average exercise price of $29.53 and a weighted
average remaining contractual life of 6 years. Of these outstanding options, 883 were
exercisable at June 30, 2006 at a weighted average exercise price of $30.91. In addition, there
were 1,101 options outstanding with exercise prices ranging from $36.47 to $44.13. These
options have a weighted average exercise price of $38.43 and a weighted average remaining
contractual life of 5 years. Of these outstanding options, 788 were exercisable at June 30,
2006 at a weighted average exercise price of $37.77.
-32-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
In the six months ended June 30, 2006, the Company granted 39 shares of restricted stock,
respectively, to Company officers, employees and directors, of which 5 shares were granted to
the Companys non-executive chairman of the board. The restricted shares granted in 2006 vest
ratably over three to five year periods. The weighted average grant date fair value for the
restricted shares was $40.24 per share. The total value of the restricted share grants in the
six months ended June 30, 2006 was $1,571. The compensation cost is amortized ratably into
compensation expense over the applicable vesting periods. Total compensation expense relating
to the restricted stock was $438 and $726 in the three and six months ended June 30, 2006,
respectively. In the six months ended June 30, 2006, such expense was net of the cumulative
impact of the adoption of SFAS No. 123R of $112, as discussed above.
A summary of the activity related to the Companys restricted stock for the six months ended
June 30, 2006 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
Shares |
|
|
Fair Value |
|
Unvested shares, beginning or period |
|
|
140 |
|
|
$ |
28 |
|
Granted |
|
|
39 |
|
|
|
40 |
|
Vested |
|
|
(4 |
) |
|
|
27 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period |
|
|
175 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
At June 30, 2006, there was $4,093 of unrecognized compensation cost related to restricted
stock. This cost is expected to be recognized over a weighted average period of 3.3 years.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (the 2005 ESPP) under a plan approved by
Company shareholders in 2005. 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 $60 and $100 for the three and six months ended June 30, 2006,
respectively.
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
elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the Code)
commencing with the taxable year ended December 31, 1993. In order for the Company to qualify
as a REIT, it must distribute 90% of its REIT taxable incomes, as defined in the Code, to its
shareholders and satisfy certain other requirements. The Operating Partnership intends to make
sufficient cash distributions to the Company to enable it to meet its annual REIT distribution
requirements.
In the preparation of income tax returns in federal and state jurisdictions, the Operating
Partnership and its taxable REIT subsidiaries assert certain tax positions based on their
understanding and interpretation of the income tax law. The taxing authorities may challenge
such positions and the resolution of such matters could result in the payment and recognition of
additional income tax expense. Management believes it has used reasonable judgments and
conclusions in the preparation of its income tax returns.
The Operating Partnership utilizes taxable REIT subsidiaries (TRSs) to perform such
nonqualifying activities as property management, ground-up condominium development and
conversions and to provide noncustomary services for the Operating Partnerships apartment
residents. Income at the TRS level is subject to federal and state income taxes. For the six
months ended June 30, 2006, the Operating Partnerships TRSs had an estimated taxable loss. At
December 31, 2005, the Operating Partnerships TRSs had an estimated consolidated federal income
tax net operating loss of approximately $1,200. This carryforward and other net deferred tax
assets were fully offset by a valuation allowance. As a result, the Operating Partnership
recorded no income tax expense (benefit) related to its TRSs for the six months ended June 30,
2006. The tax benefits associated with such income tax net operating loss carryforwards may be
recognized in future periods should the TRSs generate sufficient taxable income to utilize these
loss carryforwards or should the Operating Partnership determine that it is more likely than not
that the related deferred tax assets are realizable.
-33-
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)
In the three and six months ended June 30, 2005, the Operating Partnership estimated that its
TRSs would be subject to federal alternative minimum taxes and applicable state income taxes and
recorded a tax provision of approximately $383.
A summary of the components of the TRSs deferred tax assets and liabilities at December 31,
2005 are included in the footnotes to the Operating Partnerships audited financial statements
included in the Operating Partnerships Form 10-K, as amended. Other than the additional
estimated taxable losses for the six months ended June 30, 2006, there were no material changes
to the components of deferred tax assets and liabilities at June 30, 2006.
On May 13, 2004, an alleged Company shareholder filed a purported pro se derivative and direct
action in the Superior Court of Fulton County, Georgia, against the Company, certain members of
the Companys board of directors, and certain of its executive officers. The case was removed to
the United States District Court for the Northern District of Georgia on May 21, 2004. The
complaint alleged, among other things, breaches of fiduciary duties, fraud, corporate waste,
withholding certain documents from shareholder inspection and certain securities laws claims.
The complaint requested various types of relief, such as injunctive relief and damages and
demanded production of certain Company records. Because the Company believed the allegations
were wholly without merit, the Company moved to dismiss the litigation. On April 20, 2005, the
court entered an order dismissing all claims without prejudice, save a claim seeking production
of certain Company records, upon which the Court declined to rule, concluding it lacked
jurisdiction to do so, and ordered the claim remanded to the Superior Court of Fulton County.
Since that time, the Company has moved for its attorney fees in the United States District
Court, arguing that the plaintiff frivolously pursued the litigation, and the plaintiff has
moved for entry of judgment in Superior Court, which the Company has vigorously contested. In
February 2006, the United States District Court granted the Companys motion for attorneys fees
in an amount to be determined by the agreement of the parties, or, alternatively, by the Court.
On May 5, 2003, the Company received notice that a shareholder derivative and purported class
action lawsuit was filed against members of the board of directors of the Company and the
Company as a nominal defendant. This complaint was filed in the Superior Court of Fulton County,
Atlanta, Georgia on May 2, 2003 and alleged various breaches of fiduciary duties by the board of
directors of the Company and sought, among other relief, the disclosure of certain information
by the defendants. This complaint also sought to compel the defendants to undertake various
actions to facilitate a sale of the Company. On May 7, 2003, the plaintiff made a request for
voluntary expedited discovery. On May 13, 2003, the Company received notice that a similar
shareholder derivative and purported class action lawsuit was filed against certain members of
the board of directors of the Company and against the Company as a nominal defendant. The
complaint was filed in the Superior Court of Fulton County, Atlanta, Georgia on May 12, 2003 and
alleged breaches of fiduciary duties, abuse of control and corporate waste by the defendants.
The plaintiff sought monetary damages and, as appropriate, injunctive relief. These lawsuits
were settled, and in October 2004, the Superior Court of Fulton County entered an order
approving the settlement and related orders dismissing the litigation. The estimated legal and
settlement costs, not covered by insurance, associated with the expected resolution of the
lawsuits were recorded in 2003 as a component of a proxy contest and related costs charge. An
alleged Company shareholder, who had filed a separate purported derivative and direct action
against the Company and certain of its officers and directors (which is described in the
paragraph above), has appealed from the Superior Courts orders approving the settlement,
overruling the shareholders objection to the settlement denying the shareholders motion to
intervene, and dismissing the litigation with prejudice. In November 2005, the Georgia Court of
Appeals affirmed the orders. In December 2005, the alleged Company shareholder asked the Georgia
Supreme Court to review the case. In April 2006, the Georgia Supreme Court denied review, and
the alleged Company shareholder has indicated that he will seek review by the United States
Supreme Court.
The Company is involved in various other legal proceedings incidental to its business from time
to time, most of which are expected to be covered by liability or other insurance. Management of
the Company believes that any resolution of pending proceedings or liability to the Company
which may arise as a result of these proceedings will not have a material adverse effect on the
Companys results of operations or financial position.
13. |
|
SALE OF TECHNOLOGY INVESTMENT |
In February 2005, the Operating Partnership sold its investment in Rent.com, a privately-held
internet leasing company, and recognized a gain of $5,267. The gain is included in other income
on the consolidated statement of operations.
-34-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Overview
Post Properties, Inc. and its subsidiaries develop, own and manage upscale multifamily apartment
communities in selected markets in the United States. As used in this report, the term Company
includes Post Properties, Inc. and its subsidiaries, including Post Apartment Homes, L.P. (the
Operating Partnership), unless the context indicates otherwise. The Company, through its
wholly-owned subsidiaries is the general partner and owns a majority interest in the Operating
Partnership which, through its subsidiaries, conducts substantially all of the on-going operations
of the Company. As of July 31, 2006, the Company owned 22,418 apartment units in 62 apartment
communities, including 545 apartment units in two communities held in unconsolidated entities and
including 512 apartment units currently under development in two communities. The Company is also
developing 230 for-sale condominium units in two communities and is converting 597 apartment units
in four communities (including one in an unconsolidated entity, containing 121 units) into for-sale
condominium units through a taxable REIT subsidiary. At June 30, 2006, approximately 46.2%, 18.3%,
9.2% and 8.7% (on a unit basis) of the Companys communities were located in 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, through payments of dividends to shareholders, in practical effect is
not subject to federal income taxes at the corporate level, except to the extent that taxable
income is earned through its taxable REIT subsidiaries.
At June 30, 2006, the Company owned approximately 98.4% of the common limited partnership interests
(Common Units) in the Operating Partnership. Common Units held by persons other than the Company
represented a 1.6% common minority interest in the Operating Partnership.
Beginning in 2001 and leading into 2004, the multifamily apartment sector was adversely impacted by
the supply of multifamily apartments outpacing demand, due primarily to the availability of capital
and the low interest rate environment, reduced demand for multifamily apartments due to the
weakness in the overall U.S. economy and the job market, as well as increased rates of
homeownership due primarily to historically low mortgage interest rates. In particular, the Sunbelt
markets in which a substantial portion of the Companys apartment communities are located were
adversely impacted.
In 2005, the Companys operating results benefited from improved fundamentals in the multifamily
apartment market. The Company believes that fundamentals improved due primarily to improved job
growth and overall growth in the U.S. economy, increasing mortgage interest rates and single-family
housing prices which have decreased the affordability of housing, and moderation in the supply of
new market-rate apartments in the primary markets and submarkets where the Company operates. The
Company believes that these factors are continuing to favorably impact apartment market
fundamentals in 2006.
The Company has also been active over the past several years in repositioning its real estate
portfolio and building its development and value creation capabilities centered upon its Southeast,
Southwest and Mid-Atlantic regions. During this time, the Company has been a net seller of
apartment assets in an effort to exploit opportunities to harvest value and recycle capital through
the sale of non-core assets that no longer met the Companys growth objectives. The Companys
asset sales program has been consistent with its strategy of reducing its concentration in Atlanta,
Georgia and Dallas, Texas, exiting single asset markets, 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 acquired a 319-unit apartment community located in Charlotte, North
Carolina in 2005, two apartment communities located in Austin, Texas in early 2006, consisting of
308 units, and a 361-unit apartment community in suburban Washington, D.C. in July 2006. The
Company also re-commenced development activities with its start of a new 350-unit mixed-use,
for-rent apartment and for-sale condominium project located in Alexandria, Virginia at the end of
2004, the start of a new 307 for-rent apartment project in Atlanta, Georgia in 2006 and the start
of a new 85 unit for-sale condominium project in Dallas, Texas in 2006. The Company also expects to begin additional
development projects in the second half of 2006.
-35-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
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. As a result, the Company launched a new for-sale brand, Post Preferred Homes, which serves
as the unified marketing umbrella for the Companys for-sale ventures, including developing new
communities and converting existing assets into upscale for-sale housing in several key markets.
During 2005, the Company, through a taxable REIT subsidiary, commenced the conversion of three
existing apartment communities consisting of a total of 382 units into for-sale condominium homes,
including one in an unconsolidated entity, located in Atlanta, Georgia, Dallas, Texas and Tampa,
Florida. One of these communities, containing 134 units, located in Tampa, Florida, was completely
sold out in 2005. The other two communities are expected to be substantially sold out in 2006.
During 2006, the Company, through a taxable REIT subsidiary, also commenced the conversion of a
portion of two additional existing apartment communities consisting of a total of 349 units into
for-sale condominium homes, located in Houston, Texas and Tampa, Florida. These two communities
began closing condominium sales in the second quarter of 2006. Recently, there has been a
softening in the condominium and single family housing markets due to increasing mortgage financing
rates, increasing supplies of such assets, uncertainties related to the cost of energy and a
perceived slow down in overall economic activity in the U.S. It is likely that the pace of
condominium closings will slow in the third and fourth quarters of 2006, however, there can be no
assurances of the amount or pace of future for-sale condominium sales and closings.
The Companys expansion into for-sale condominium housing exposes the Company to new risks and
challenges, which if they materialize, could have an adverse impact on the Companys business,
results of operations and financial condition. See the Risk Factors discussion in the Companys
Form 10-K, as amended, for the year ended December 31, 2005 for a discussion of the Companys
significant risks. As of June 30, 2006, the Company had approximately $100,000 of 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 projected
development costs expected to be funded relating to two for-sale projects currently under
construction. In addition the Company also had, in the aggregate, approximately $113,000 of land
held for future development as of June 30, 2006, of which a portion may be used to develop future
for-sale condominium projects depending upon market conditions. There can be no assurance,
however, that land held for future development will be used for such purposes or whether
developments will actually commence.
The following discussion should be read in conjunction with the accompanying consolidated financial
statements appearing elsewhere in this report. This discussion is combined for the Company and the
Operating Partnership as their results of operations and the financial condition are substantially
the same except for the effect of the 2.2% 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 the Companys anticipated performance for the three months ended September 30, 2006
(including the Companys assumptions for such performance and expected levels of costs and expenses
to be incurred), anticipated apartment community sales in 2006 (including the estimated proceeds,
estimated gains on sales and the use of proceeds from such sales), anticipated conversion of
apartment communities into condominium units, development of new for-sale condominium housing and
the related sales of the for-sale condominium units, estimated timing
of availability of apartment and condominium units under
construction, estimated timing of apartment community stabilization, anticipated future acquisition and development
activities, anticipated refinancing and other new financing needs, the anticipated dividend level
in 2006, the Companys ability to meet new construction, development and other long-term liquidity
requirements, and its ability to execute future asset sales. Forward-looking statements are only
predictions and are not guarantees of performance. These statements are based on beliefs and
assumptions of the Companys management, which in turn are based on currently available
information. Important assumptions relating to the forward-looking statements include, among
others, assumptions regarding the market for the Companys apartment communities, demand for
apartments in the markets in which it operates, competitive conditions and general economic
conditions. These assumptions could prove inaccurate. The forward-looking statements also involve
risks and uncertainties, which could cause actual results to differ materially from those contained
in any forward-looking statement. Many of these factors are beyond the Companys ability to control
or predict. Such factors include, but are not limited to, the following:
-36-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
|
|
|
The success of the Companys business strategies described on pages 2-3 of the Companys
Form 10-K, as amended, for the year ended December 31, 2005; |
|
|
|
|
Future local and national economic conditions, including changes in job growth, interest
rates, the availability of financing and other factors; |
|
|
|
|
Demand for apartments in the Companys markets and the effect on occupancy and rental
rates; |
|
|
|
|
The impact of competition on the Companys business, including competition for residents
in the Companys apartment communities and buyers of the Companys for-sale condominium
units and development locations; |
|
|
|
|
The Companys ability to obtain financing or self-fund the development or acquisition of
additional apartment communities and for-sale condominium housing; |
|
|
|
|
The uncertainties associated with the Companys real estate development, including
actual costs exceeding the Companys budgets or development periods exceeding expectations; |
|
|
|
|
Uncertainties associated with the timing and amount of apartment community sales and the
resulting gains/losses associated with such sales; |
|
|
|
|
Uncertainties associated with the Companys condominium conversion and for-sale housing
business, including the timing and volume of condominium sales; |
|
|
|
|
Conditions affecting ownership of residential real estate and general conditions in the
multi-family residential real estate market; |
|
|
|
|
Uncertainties associated with environmental and other regulatory matters, including the
Americans with Disabilities Act and the Fair Housing Act; |
|
|
|
|
The effects of changes in accounting policies and other regulatory matters detailed in
the Companys filings with the Securities and Exchange Commission and uncertainties of
litigation; |
|
|
|
|
The Companys ability to continue to qualify as a REIT under the Internal Revenue Code;
and |
|
|
|
|
Other factors, including the risk factors discussed on pages 7 through 15 of the
Companys Annual Report on Form 10-K, as amended, for the year ended December 31, 2005. |
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 audited financial
statements included in the Companys Annual Report on Form 10-K, as amended, for the year ended
December 31, 2005. 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 26 and 27 of the Companys Annual Report on Form 10-K, as amended, for the
year ended December 31, 2005. There were no significant changes to the Companys critical
accounting policies and estimates during the six months ended June 30, 2006. The discussion below
addresses the implementation and impact of new accounting pronouncements with an impact on the
Company in the six months ended June 30, 2006 and in the future periods.
SFAS No. 123R, Share-Based Payment, was issued in December 2004. SFAS No. 123R revised SFAS No.
123, Accounting for Stock-Based Compensation and requires companies to expense the fair value of
employee stock options and other forms of stock-based compensation. SFAS No. 123R also superseded
the provisions of APB No. 25. The Company adopted the provisions of SFAS No. 123R on January 1,
2006 using the modified prospective method of adoption. Since the Company elected to apply the
provisions of SFAS No. 123 on January 1, 2003, the adoption of SFAS No. 123R did not have a
significant impact on the Companys financial position or results of operations. For an additional
discussion of FAS 123R, see note 10 to the consolidated financial statements included in this Form
10-Q.
The Emerging Issues Task Force issued EITF No. 04-05 (EITF No. 04-05), Determining Whether a
General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights. EITF No. 04-05 provides a framework for
evaluating whether a general partner or group of general partners or managing members controls a
limited partnership or limited liability company and therefore should consolidate the entity. The
presumption that the general partner or group of general partners or managing members controls a
limited liability partnership or limited liability company may be overcome if the limited partners
or members have (1) the substantive ability to dissolve the partnership without cause, or (2)
-37-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
substantive participating rights. EITF No. 04-05 became effective on June 30, 2005 for new or
modified limited partnerships or limited liability companies and January 1, 2006 for all existing
arrangements. The Company adopted EITF No. 04-05 on January 1, 2006 for all existing partnerships
and limited liability companies and the adoption did not have a material impact on the Companys
financial position or results of operations.
FASB Interpretation No 48 (FIN 48), Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement 109, was issued in July 2006. FIN 48 clarifies guidance on the
recognition and measurement of uncertain tax positions and establishes a more likely than not
standard for the evaluation of whether such tax positions can be recognized in the Companys
financial statements. Previously recognized tax positions that do not meet the more likely than
not criteria will be required to be adjusted on the implementation date. FIN 48 is effective
January 1, 2007 for all calendar year companies. The Company is currently evaluating the impact
that FIN 48 will have 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, 2006, the Companys portfolio of apartment communities, excluding three communities
held in unconsolidated entities (including one community being converted into condominiums) and
three communities being converted into condominiums, consisted of the following: (1) 51 communities
that were completed and stabilized for all of the current and prior year, (2) four communities
under development or under major rehabilitation programs, (3) portions of two communities that are
being converted into condominiums that are reflected in continuing operations under SFAS No. 144
(see note 1 to the consolidated financial statements), and (4) three communities that were acquired
in 2006 and 2005. Currently, the Company has no development communities in the lease-up stage.
These operating segments also exclude the operations of apartment communities classified as
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.
-38-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
All Operating Communities
The operating performance and capital expenditures from continuing operations for all of the
Companys apartment communities and other commercial properties summarized by segment for the three
and six months ended June 30, 2006 and 2005 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
Rental and other property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities (1) |
|
$ |
64,893 |
|
|
$ |
61,284 |
|
|
|
5.9 |
% |
|
$ |
128,233 |
|
|
$ |
121,484 |
|
|
|
5.6 |
% |
Development, rehabilitation and lease-up
communities |
|
|
2,403 |
|
|
|
2,614 |
|
|
|
(8.1 |
)% |
|
|
4,966 |
|
|
|
5,154 |
|
|
|
(3.6 |
)% |
Condominium conversion communities (2) |
|
|
730 |
|
|
|
1,454 |
|
|
|
(49.8 |
)% |
|
|
1,906 |
|
|
|
2,907 |
|
|
|
(34.4 |
)% |
Acquired communities (3) |
|
|
2,052 |
|
|
|
306 |
|
|
|
n/a |
|
|
|
3,344 |
|
|
|
306 |
|
|
|
n/a |
|
Other property segments (4) |
|
|
6,133 |
|
|
|
5,326 |
|
|
|
15.2 |
% |
|
|
11,889 |
|
|
|
10,548 |
|
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,211 |
|
|
|
70,984 |
|
|
|
7.4 |
% |
|
|
150,338 |
|
|
|
140,399 |
|
|
|
7.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance expenses
(exclusive of depreciation and
amortization) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully stabilized communities (1) |
|
|
24,829 |
|
|
|
23,592 |
|
|
|
5.2 |
% |
|
|
49,126 |
|
|
|
47,359 |
|
|
|
3.7 |
% |
Development, rehabilitation and lease-up
communities |
|
|
1,100 |
|
|
|
1,129 |
|
|
|
(2.6 |
)% |
|
|
2,189 |
|
|
|
2,275 |
|
|
|
(3.8 |
)% |
Condominium conversion communities (2) |
|
|
460 |
|
|
|
496 |
|
|
|
(7.3 |
)% |
|
|
985 |
|
|
|
1,030 |
|
|
|
(4.4 |
)% |
Acquired communities (3) |
|
|
1,021 |
|
|
|
78 |
|
|
|
n/a |
|
|
|
1,597 |
|
|
|
78 |
|
|
|
n/a |
|
Other expense (5) |
|
|
7,144 |
|
|
|
7,459 |
|
|
|
(4.2 |
)% |
|
|
14,734 |
|
|
|
14,604 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,554 |
|
|
|
32,754 |
|
|
|
5.5 |
% |
|
|
68,631 |
|
|
|
65,346 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property net operating income (6) |
|
$ |
41,657 |
|
|
$ |
38,230 |
|
|
|
9.0 |
% |
|
$ |
81,707 |
|
|
$ |
75,053 |
|
|
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures (7)(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annually recurring capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet |
|
$ |
1,037 |
|
|
$ |
832 |
|
|
|
24.6 |
% |
|
$ |
1,770 |
|
|
$ |
1,474 |
|
|
|
20.1 |
% |
Other |
|
|
2,811 |
|
|
|
1,666 |
|
|
|
68.7 |
% |
|
|
4,116 |
|
|
|
2,669 |
|
|
|
54.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,848 |
|
|
$ |
2,498 |
|
|
|
54.0 |
% |
|
$ |
5,886 |
|
|
$ |
4,143 |
|
|
|
42.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodically recurring capital expenditures |
|
$ |
1,557 |
|
|
$ |
1,070 |
|
|
|
45.5 |
% |
|
$ |
2,246 |
|
|
$ |
1,924 |
|
|
|
16.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average apartment units in service |
|
|
20,653 |
|
|
|
20,136 |
|
|
|
|
|
|
|
20,550 |
|
|
|
20,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Communities which reached stabilization prior to January 1, 2005. |
(2) |
|
Portions of existing apartment communities being converted into condominiums that
are reflected in continuing operations under SFAS No. 144. |
(3) |
|
Communities acquired subsequent to January 1, 2005. |
(4) |
|
Other property segment revenues include revenue from commercial properties, from
furnished apartment rentals above the unfurnished rental rates and any property revenue
not directly related to property operations. Other property segment revenues exclude
other corporate revenues of $85 and $61 for the three months ended and $151 and $132 for
the six months ended June 30, 2006 and 2005, respectively. |
(5) |
|
Other expenses includes certain indirect central office operating expenses related
to management, grounds maintenance, and costs associated with commercial properties and
furnished apartment rentals. |
(6) |
|
A reconciliation of property net operating income to GAAP net income is
detailed below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Total same store NOI |
|
$ |
40,064 |
|
|
$ |
37,692 |
|
|
$ |
79,107 |
|
|
$ |
74,125 |
|
Property NOI from other operating segments |
|
|
1,593 |
|
|
|
538 |
|
|
|
2,600 |
|
|
|
928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated property NOI |
|
|
41,657 |
|
|
|
38,230 |
|
|
|
81,707 |
|
|
|
75,053 |
|
Add (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
85 |
|
|
|
61 |
|
|
|
151 |
|
|
|
132 |
|
Interest income |
|
|
118 |
|
|
|
189 |
|
|
|
238 |
|
|
|
354 |
|
Minority interest in consolidated property partnerships |
|
|
(63 |
) |
|
|
64 |
|
|
|
(92 |
) |
|
|
178 |
|
Depreciation |
|
|
(17,031 |
) |
|
|
(18,247 |
) |
|
|
(33,706 |
) |
|
|
(36,612 |
) |
Interest expense |
|
|
(13,560 |
) |
|
|
(14,612 |
) |
|
|
(27,266 |
) |
|
|
(29,609 |
) |
Amortization of deferred financing costs |
|
|
(834 |
) |
|
|
(1,029 |
) |
|
|
(1,769 |
) |
|
|
(2,717 |
) |
General and administrative |
|
|
(4,632 |
) |
|
|
(4,558 |
) |
|
|
(9,058 |
) |
|
|
(8,949 |
) |
Investment, development and other expenses |
|
|
(1,617 |
) |
|
|
(984 |
) |
|
|
(3,168 |
) |
|
|
(2,404 |
) |
Gains (losses) on sales of condominiums, net |
|
|
8,569 |
|
|
|
(160 |
) |
|
|
8,411 |
|
|
|
(269 |
) |
Equity in income of unconsolidated entities |
|
|
411 |
|
|
|
553 |
|
|
|
724 |
|
|
|
701 |
|
Other income |
|
|
270 |
|
|
|
|
|
|
|
1,694 |
|
|
|
5,267 |
|
Minority interest of common unitholders |
|
|
(247 |
) |
|
|
138 |
|
|
|
(310 |
) |
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
13,126 |
|
|
|
(355 |
) |
|
|
17,556 |
|
|
|
1,279 |
|
Income from discontinued operations |
|
|
857 |
|
|
|
58,798 |
|
|
|
1,229 |
|
|
|
61,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,983 |
|
|
$ |
58,443 |
|
|
$ |
18,785 |
|
|
$ |
63,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-39-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
(7) |
|
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. |
(8) |
|
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, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Annually recurring capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
3,848 |
|
|
$ |
2,498 |
|
|
$ |
5,886 |
|
|
$ |
4,143 |
|
Discontinued operations |
|
|
12 |
|
|
|
366 |
|
|
|
28 |
|
|
|
679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total annually recurring capital expenditures per
statements of cash flows |
|
$ |
3,860 |
|
|
$ |
2,864 |
|
|
$ |
5,914 |
|
|
$ |
4,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodically recurring capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1,557 |
|
|
$ |
1,070 |
|
|
$ |
2,246 |
|
|
$ |
1,924 |
|
Discontinued operations |
|
|
42 |
|
|
|
57 |
|
|
|
76 |
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total periodically recurring capital expenditures per
statements of cash flows |
|
$ |
1,599 |
|
|
$ |
1,127 |
|
|
$ |
2,322 |
|
|
$ |
2,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, under major rehabilitation and
classified as held for sale. For the 2006 to 2005 comparison, fully stabilized communities are
defined as those communities which reached stabilization prior to January 1, 2005. This portfolio
consisted of 51 communities with 18,787 units, including 24 communities with 9,110 units (48.5%)
located in Atlanta, Georgia, 12 communities with 3,607 units (19.2%) located in Dallas, Texas,
three communities with 1,883 units (10.0%) located in Tampa, Florida, four communities with 1,703
units (9.1%) located in Washington, DC, three communities with 1,065 units (5.7%) located in
Charlotte, North Carolina and five communities with 1,419 units (7.5%) 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, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
Rental and other revenues |
|
$ |
64,893 |
|
|
$ |
61,284 |
|
|
|
5.9 |
% |
|
$ |
128,233 |
|
|
$ |
121,484 |
|
|
|
5.6 |
% |
Property operating and maintenance
expenses (excluding depreciation and
amortization) |
|
|
24,829 |
|
|
|
23,592 |
|
|
|
5.2 |
% |
|
|
49,126 |
|
|
|
47,359 |
|
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store net operating income (1) |
|
$ |
40,064 |
|
|
$ |
37,692 |
|
|
|
6.3 |
% |
|
$ |
79,107 |
|
|
$ |
74,125 |
|
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annually recurring: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet |
|
$ |
966 |
|
|
$ |
723 |
|
|
|
33.6 |
% |
|
$ |
1,676 |
|
|
$ |
1,311 |
|
|
|
27.8 |
% |
Other |
|
|
2,402 |
|
|
|
1,512 |
|
|
|
58.9 |
% |
|
|
3,647 |
|
|
|
2,413 |
|
|
|
51.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total annually recurring |
|
|
3,368 |
|
|
|
2,235 |
|
|
|
50.7 |
% |
|
|
5,323 |
|
|
|
3,724 |
|
|
|
42.9 |
% |
Periodically recurring |
|
|
859 |
|
|
|
605 |
|
|
|
42.0 |
% |
|
|
1,272 |
|
|
|
1,086 |
|
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures (A) |
|
$ |
4,227 |
|
|
$ |
2,840 |
|
|
|
48.8 |
% |
|
$ |
6,595 |
|
|
$ |
4,810 |
|
|
|
37.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures per unit
(A÷18,787 units) |
|
$ |
225 |
|
|
$ |
151 |
|
|
|
49.0 |
% |
|
$ |
351 |
|
|
$ |
256 |
|
|
|
37.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average economic occupancy (3) |
|
|
95.3 |
% |
|
|
94.0 |
% |
|
|
1.3 |
% |
|
|
95.2 |
% |
|
|
93.9 |
% |
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average monthly rental rate per unit (4) |
|
$ |
1,131 |
|
|
$ |
1,087 |
|
|
|
4.0 |
% |
|
$ |
1,121 |
|
|
$ |
1,083 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net operating income of stabilized communities is a supplemental non-GAAP financial
measure. See page 39 for a reconciliation of net operating income for stabilized communities
to GAAP net income. |
-40-
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 is detailed below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Annually recurring capital expenditures by operating segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store |
|
$ |
3,368 |
|
|
$ |
2,235 |
|
|
$ |
5,323 |
|
|
$ |
3,724 |
|
Development, rehabilitation and lease-up |
|
|
286 |
|
|
|
148 |
|
|
|
353 |
|
|
|
271 |
|
Condominium conversion communities |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
53 |
|
Acquired |
|
|
56 |
|
|
|
15 |
|
|
|
59 |
|
|
|
15 |
|
Other segments |
|
|
150 |
|
|
|
436 |
|
|
|
179 |
|
|
|
759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total annually recurring capital expenditures per
statements of cash flows |
|
$ |
3,860 |
|
|
$ |
2,864 |
|
|
$ |
5,914 |
|
|
$ |
4,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodically recurring capital expenditures by operating segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store |
|
$ |
859 |
|
|
$ |
605 |
|
|
$ |
1,272 |
|
|
$ |
1,086 |
|
Development, rehabilitation and lease-up |
|
|
196 |
|
|
|
123 |
|
|
|
212 |
|
|
|
237 |
|
Condominium conversion communities |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
36 |
|
Acquired |
|
|
3 |
|
|
|
5 |
|
|
|
8 |
|
|
|
5 |
|
Other segments |
|
|
541 |
|
|
|
383 |
|
|
|
830 |
|
|
|
665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total periodically recurring capital expenditures per statements
of cash flows |
|
$ |
1,599 |
|
|
$ |
1,127 |
|
|
$ |
2,322 |
|
|
$ |
2,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Beginning in the fourth quarter of 2005, the Company adjusted its stated
market rents at the majority of its communities to be more reflective of current market
conditions. The impact of this change is estimated to have increased the computed average
economic occupancy amounts by less than 1% for the three and six months ended June 30, 2006.
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 94.5% and 93.0% for the
three months ended June 30, 2006 and 2005, respectively, and 94.5% and 92.9% for the six
months ended June 30, 2006 and 2005, respectively. For the three months ended June 30, 2006
and 2005, net concessions were $324 and $496, respectively, and employee discounts were $177
and $143, respectively. For the six months ended June 30, 2006 and 2005, net concessions
were $611 and $952, respectively, and employee discounts were $348 and $287, 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. Beginning in the fourth quarter of 2005, the Company adjusted its stated
market rents at the majority of its communities to be more reflective of current market
conditions. The impact of this change is estimated to have reduced the average monthly
rental rate per unit by less than 1% for the three and six months ended June 30, 2006. |
Comparison of Three months Ended June 30, 2006 to Three months Ended June 30, 2005
The Operating Partnership reported net income available to common unitholders of $12,340 for the
three months ended June 30, 2006 compared to $59,950 for the three months ended June 30, 2005. The
Company reported net income available to common shareholders of $12,074 for the three months ended
June 30, 2006 compared to $56,534 for the three months ended June 30, 2005. The decrease between
years primarily reflects reduced gains on sales of operating real estate assets of $49,710 and
reduced gains on condominium sales of approximately $4,051 offset by the improved operating
performance of the Companys stabilized communities and increased interest capitalization due to a
growing development pipeline. The impact of these items is discussed below.
Rental and other revenues from property operations increased $5,227 or 7.4% from 2005 to 2006
primarily due to increased revenues from the Companys same store communities of $3,609 or 5.9% and
acquired communities of $1,746 offset somewhat by reduced revenues from partial condominium
conversions of $724. The revenue increase from acquired communities reflects the Companys
acquisition of one community in June 2005 and two communities in March 2006. The revenue increase
from same store communities in 2006 reflects higher average rental rates and increased occupancy
rates between periods as discussed more fully below. The revenue decrease from condominium
conversion communities reflects the reduction of leased units as units were vacated for conversion
and sale. Property operating and maintenance expenses (exclusive of depreciation and amortization)
increased $1,800 or 5.5% primarily due to increased property operating and maintenance expenses
(excluding depreciation and amortization) for fully stabilized communities of $1,237 or 5.2% and
for acquired communities of $943, between periods (see discussion below).
For the three months ended June 30, 2006 and 2005, gains on sales of real estate assets resulting
from condominium sales activities represent the net gains of $8,559 and $12,610, respectively. As
discussed in the consolidated financial statements, net condominium gains of $8,569 in the three
months ended June 30, 2006 are included in continuing operations. All prior year condominium gains
-41-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
were included in discontinued operations. The decrease in aggregate condominium gains between
periods primarily reflects the volume and timing of condominium closings. In the three months
ended June 30, 2006 and 2005, the Company closed 83 and 163 units, respectively, at wholly owned
conversion communities. Aggregate condominium sales generated net proceeds of $20,219 in 2006 and
$32,074 in 2005. The Company expects gains on sales of real estate assets at the Companys
condominium conversion communities to decrease in the third quarter of 2006 compared to the second
quarter of 2006 due to slower expected sales at two new conversion communities located in Tampa, FL
and Houston, TX.
Depreciation expense decreased $1,216, or 6.7% from 2005 to 2006 primarily due to reduced
depreciation resulting from certain furniture and fixtures (with a five year life) at certain
properties becoming fully depreciated in early 2005 and the cessation of depreciation expense in
late 2005 on portions of two communities being converted into condominiums that continue to be
reported in continuing operations under SFAS No. 144. These decreases in depreciation expense
between periods were partially offset by increased depreciation in the second quarter of 2006 on
communities acquired in June 2005 and March 2006.
General and administrative expenses increased $74, or 1.6%, from 2005 to 2006 primarily due to
higher compensation costs offset by a reduction in board compensation costs. Higher compensation
costs reflected annual compensation increases and annual incentive awards to management. Decreased
board compensation costs resulted from higher 2005 costs caused by a director variable incentive
compensation plan which was tied to increases in the Companys stock price. This director plan was
amended in the third quarter of 2005. As a result, the volatility in director compensation expense
was reduced in periods subsequent to the modification.
Beginning in the fourth quarter of 2005, the Company reclassified certain expenses previously
reported as general and administrative expenses to property operating and maintenance expenses and
investment, development and other expenses on the accompanying statements of operations. Prior
period amounts have been reclassified to conform to the 2006 presentation. The reclassified
expenses primarily included certain investment group executive and administrative functions and
long-term, stock-based compensation and benefits expenses associated with property management and
investment and development group activities.
Investment, development and other expenses increased $633 or 64.3% from 2005 to 2006 primarily due
to the continued increase in development personnel and other costs to establish and grow the
Companys development capabilities in three regional markets in 2005 and 2006 and the write-off of
approximately $200 of pursuit costs related to abandoned investment activities.
Interest expense included in continuing operations decreased $1,052 or 7.2% from 2005 to 2006. The
decreased expense amounts between periods primarily reflect the impact of increased interest
capitalization on the Companys development projects of $1,890 between periods, somewhat offset by
higher debt levels due to apartment community acquisitions and land acquisitions in 2005 and the
first half of 2006. Interest expense included in discontinued operations decreased from $1,426 in
2005 to $604 in 2006 primarily due to interest expense associated with three communities sold in
2005.
Equity in income of unconsolidated real estate entities decreased $142 or 25.7% from 2005 to 2006.
The decrease was primarily due to a reduction in net gains from condominium sales and net operating
income at the unconsolidated entity that began converting its apartment community into condominiums
in early 2005. The reduced net operating income reflects the reduction in rental units throughout
the conversion process and the reduced net gains from condominium sales reflect reduced sales
prices and margins in 2006 in order to maintain a modest sales pace. See note 3 to the
consolidated financial statements for a summary of the operating results of the Companys
unconsolidated entities.
Other income in 2006 primarily reflects net mark-to-market derivative gains from an ineffective
cash flow hedge. See note 6 to the consolidated financial statements for a further discussion of
the derivative transaction.
Annually recurring and periodically recurring capital expenditures from continuing operations
increased $1,837 or 51.8% from 2005 to 2006. The increase in capital expenditures primarily
reflects the impact of several properties beginning to capitalize the replacement of carpet, vinyl
and blinds in mid 2005 and into 2006 under the Companys accounting policies (during the first five
years of a community, the Company expenses the replacements of these items), leasing office, model
and amenity upgrades at several communities in 2006, as well as the timing of larger structural
expenditures between periods.
Fully Stabilized Communities
Rental and other revenues increased $3,609 or 5.9% from 2005 to 2006. This increase resulted from
a 4.0% increase in the average monthly rental rate per apartment unit and an increase in average
economic occupancy of the portfolio from 94.0% to 95.3%. This increase in average rental rates
resulted in a revenue increase of approximately $2,492 between years. The occupancy increases
resulted in lower vacancy losses and net rental concessions of $769. Additionally, other property
fees increased $348 due to better pricing power resulting from improving market conditions, and
higher utility reimbursements from residents due to increased utility
-42-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
expenses. Overall, the improving performance of the operating portfolio reflects improving market
conditions, with the Companys operations in all of its markets reporting increased revenues over
the prior year. With only modestly increasing occupancy rates in 2006, the Companys strategy
continues to be focused on increasing average rental rates in 2006 as the Companys markets
continue to show economic improvement.
Property operating and maintenance expenses (exclusive of depreciation and amortization) increased
$1,237 or 5.2% from 2005 to 2006. This increase was primarily due to increased property tax
expenses of $545 or 7.2%, increased utility expenses of $311 or 10.7%, increased repairs and
maintenance expenses of $109 or 3.7%, increased personnel expenses of $155 or 2.8%, offset by
decreased advertising and promotion expenses of $224 or 20.6%. Property tax expenses increased due
to increased accrual rates in 2006 and more favorable tax settlements recorded in the second
quarter of 2005. Utility expenses increased primarily due to generally higher electric and gas
rates and due to significantly higher electricity rates at certain properties in the Companys
Texas markets. Repairs and maintenance expenses increased primarily due to the timing of expenses
between periods. Personnel costs increased primarily due to annual salary increases. The decrease
in advertising and promotions expense in 2006 primarily reflects reduced payments to apartment
locator services resulting from more favorable market conditions and lower resident turnover
between periods.
Comparison of Six months Ended June 30, 2006 to Six months Ended June 30, 2005
The Operating Partnership reported net income available to common unitholders of $15,304 for the
six months ended June 30, 2006 compared to $62,886 for the six months ended June 30, 2005. The
Company reported net income available to common shareholders of $14,966 for the six months ended
June 30, 2006 compared to $59,302 for the six months ended June 30, 2005. The decrease between
years reflects reduced gains on sales of operating real estate assets of $49,710 and reduced gains
on condominium sales of approximately $4,058 offset by the improved operating performance of the
Companys stabilized communities and increased interest capitalization due to a growing development
pipeline. The impact of these items is discussed below.
Rental and other revenues from property operations increased $9,939 or 7.1% from 2005 to 2006
primarily due to increased revenues from the Companys same store communities of $6,749 or 5.6% and
acquired communities of $3,038. The revenue increase from acquired communities reflects the
Companys acquisition of one community in June 2005 and two communities in March 2006. The revenue
increase from same store communities in 2006 reflects higher average rental rates and increased
occupancy rates between periods as discussed more fully below. Property operating and maintenance
expenses (exclusive of depreciation and amortization) increased $3,285 or 5.0% primarily due to
increased property operating and maintenance expenses (excluding depreciation and amortization) for
fully stabilized communities of $1,767 or 3.7% and for acquired communities of $1,519, between
periods (see discussion below).
For the six months ended June 30, 2006 and 2005, gains on sales of real estate assets from
condominium sales activities represent the net gains of $8,802 and $12,860, respectively. As
discussed in the consolidated financial statements, net condominium gains of $8,411 in the six
months ended June 30, 2006 are included in continuing operations. All prior year condominium gains
were included in discontinued operations. The decrease in aggregate condominium gains between
periods primarily reflects the volume and timing of condominium closings. In the six months ended
June 30, 2006 and 2005 the Company closed 95 and 181 units, respectively, at wholly owned
conversion communities. The condominium sales generated net proceeds of $23,007 in 2006 and
$35,370 in 2005. The Company expects gains on sales of real estate assets at the Companys
condominium conversion communities to decrease in the second half of 2006 compared to the first
half of 2006 due to slower expected sales at two new conversion communities located in Tampa, FL
and Houston, TX.
Depreciation expense decreased $2,906, or 7.9% from 2005 to 2006 primarily due to reduced
depreciation resulting from certain furniture and fixtures (with a five year life) at certain
properties becoming fully depreciated in early 2005 and the cessation of depreciation expense in
late 2005 on portions of two communities being converted into condominiums that continue to be
reported in continuing operations under SFAS No. 144. These decreases in depreciation expense
between periods were offset by increased depreciation in 2006 on communities acquired in June 2005
and March 2006.
General and administrative expenses increased $109, or 1.2%, from 2005 to 2006 primarily due to
higher compensation costs offset by reduced legal, professional fees and the cumulative effect of
the adoption of SFAS 123R for recognizing stock-based compensation. Higher compensation costs
reflected annual compensation increases and annual incentive awards to management. Decreased legal
fees of approximately $111 reflected reduced activity associated with shareholder litigation and
other shareholder legal matters in 2006 compared to 2005. Professional fees decreased
approximately $86 in 2006 primarily due to expected savings in annual audit and Sarbanes/Oxley
compliance costs. In the first quarter of 2006, the Company implemented SFAS 123R. As the Company
had recorded stock-based compensation expense under SFAS 123 since 2003 using the actual forfeiture
method for early terminations of awards, the implementation of SFAS 123 using the estimated
forfeiture method required by SFAS 123R resulted in a one-time reduction of general and
administrative expenses of approximately $100 in the first quarter of 2006. The aggregate one-time
reduction
-43-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
of expenses resulting from the adoption of SFAS 123R totaled $172, with $72 recorded as reductions
of investment and development expenses and property operating expenses. The one-time effect of
implementing SFAS 123R will not recur in future periods.
Beginning in the fourth quarter of 2005, the Company reclassified certain expenses previously
reported as general and administrative expenses to property operating and maintenance expenses and
investment, development and other expenses on the accompanying statements of operations. Prior
period amounts have been reclassified to conform to the 2006 presentation. The reclassified
expenses primarily included certain investment group executive and administrative functions and
long-term, stock-based compensation and benefits expenses associated with property management and
investment and development group activities.
Investment, development and other expenses increased $764 or 31.8% from 2005 to 2006 primarily due
to the continued increase in development personnel and other costs to establish and grow the
Companys development capabilities in three regional markets in 2005 and 2006 and the write-off of
approximately $200 of pursuit costs related to abandoned investment activities.
Interest expense included in continuing operations decreased $2,343 or 7.9% from 2005 to 2006. The
decreased expense amounts between periods reflect the impact of increased interest capitalization
on its development projects of $3,355 between periods, somewhat offset by higher debt levels due to
apartment community acquisitions and land acquisitions in 2005 and the first half 2006. Interest
expense included in discontinued operations decreased from $3,151 in 2005 to $1,219 in 2006
primarily due to interest expense associated with five communities sold in 2005.
Equity in income of unconsolidated real estate entities increased $23 or 3.3% from 2005 to 2006.
This increase was primarily due to a loss on early debt extinguishment of $273 in the first half of
2005 at the unconsolidated entity converting its units into condominiums. Net gains from
condominium sales and net operating income decreased in 2006 at the unconsolidated entity that
began converting its apartment community into condominiums in early 2005. The reduced net
operating income reflects the reduction in rental units throughout the conversion process and the
reduced net gains from condominium sales reflects reduced sale prices and margins in 2006 in order
to maintain a modest sales pace. See note 3 to the consolidated financial statements for a summary
of the operating results of the Companys unconsolidated entities.
Other income in 2006 primarily reflects net mark-to-market derivative gains from an ineffective
cash flow hedge. See note 6 to the consolidated financial statements for a further discussion of
derivative transactions.
Annually recurring and periodically recurring capital expenditures from continuing operations
increased $2,065 or 34.0% from 2005 to 2006. The increase in capital expenditures primarily
reflects the impact of several properties beginning to capitalize the replacement of carpet, vinyl
and blinds in mid 2005 and into 2006 under the Companys accounting policies (during the first five
years of a community, the Company expenses the replacements of these items), leasing office and
amenity upgrades at several communities in 2006, as well as the timing of larger structural
expenditures between periods.
Fully Stabilized Communities
Rental and other revenues increased $6,749 or 5.6% from 2005 to 2006. This increase resulted from
a 3.5% increase in the average monthly rental rate per apartment unit and an increase in average
economic occupancy of the portfolio from 93.9% to 95.2%. This increase in average rental rates
resulted in a revenue increase of approximately $4,321 between years. The occupancy increases
resulted in lower vacancy losses and net rental concessions of $1,619. Additionally, other property
fees increased $809 due to better pricing power resulting from improving market conditions, and
higher utility reimbursements from residents due to increased utility expenses. Overall, the
improving performance of the operating portfolio reflects improving market conditions, with the
Companys operations in all of its markets reporting increased revenues over the prior year. With
only modestly increasing occupancy rates in 2006, the Companys strategy continues to be focused on
increasing average rental rates in 2006 as the Companys markets continue to show economic
improvement.
Property operating and maintenance expenses (exclusive of depreciation and amortization) increased
$1,767 or 3.7% from 2005 to 2006. This increase was primarily due to increased property tax
expenses of $420 or 2.7%, increased utility expenses of $662 or 11.0%, increased repairs and
maintenance expenses of $163 or 3.1%, increased personnel expenses of $369 or 3.2%, offset by
decreased advertising and promotion expenses of $442 or 20.3%. Property tax expenses increased due
to increased accrual rates in 2006 and more favorable tax settlements recorded in the first half of
2005. Utility expenses increased primarily due to generally higher electric and gas rates and due
to significantly higher electricity rates at certain properties in the Companys Texas markets.
Repairs and maintenance expenses increased primarily due to increased exterior painting costs of
$79 as well as the general timing of expenses between periods. Personnel costs increased primarily
due to annual salary increases. The decrease in advertising and promotions expense in 2006
primarily reflects reduced payments to apartment locator services resulting from more favorable
market conditions and lower resident turnover between periods.
-44-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Discontinued Operations
In accordance with SFAS No. 144, the operating results and gains and losses on property sales of
real estate assets designated as held for sale are included in discontinued operations in the
consolidated statement of operations. For the three and six months ended June 30, 2006, income
from discontinued operations included the results of operations of one apartment community,
containing 696 units, and one condominium conversion community, classified as held for sale at June
30, 2006. For the three and six months ended June 30, 2005, income from discontinued operations
included the results of operations of the communities classified as held for sale at June 30, 2006,
five communities sold in 2005 and one condominium conversion community through its sell-out date in
2005. The revenues and expenses of discontinued operations are summarized in note 4 to the
consolidated financial statements. The gains on sales of real estate assets between periods
reflect the timing and size of the communities and for-sale condominiums sold. In the three months
ended June 30, 2006, the Company sold eight condominiums at discontinued conversion communities
compared to 163 in the three months ended June 30, 2005. These reduced condominium sales resulted
in reduced condominium gains of $12,780 between periods. In the six months ended June 30, 2006,
the Company sold 20 condominiums at discontinued conversion communities compared to 181 in the six
months ended June 30, 2005. These decreases in 2006 primarily reflect the complete sell-out of one
conversion community in the second and third quarters of 2005. These gains are discussed in note 4
to the consolidated financial statements. As of June 30, 2006, the Company had 4 remaining
condominium units to sell at communities included in discontinued operations. These condominium
units are expected to be sold in 2006. In the three and six months ended June 30, 2005, the
Company recognized net gains of $49,710 from the sale of five apartment communities. There were no
sales of apartment communities in the first half of 2006.
As discussed under Liquidity and Capital Resources, the Company expects to continue to sell real
estate assets and also convert certain apartment assets into for-sale condominiums in future
periods as part of its overall investment, disposition and acquisition strategy. As such, the
Company may continue to have additional assets classified as held for sale; however, the timing and
amount of such asset sales and their impact on the aggregate revenues and expenses included in
discontinued operations will vary from period to period. Additionally, should the Company change
its expectations regarding the holding period for certain assets or decide to classify certain
assets as held for sale, this could cause the Company to recognize impairment losses in future
periods if the carrying value of these assets is not deemed recoverable.
Outlook
Certain statements made below may constitute forward-looking statements within the meaning of the
federal securities laws, and are based on current apartment market and general economic conditions
and other risks as outlined in the section titled Disclosure Regarding Forward-Looking Statements
above.
The Companys outlook for the third quarter of 2006 is based on the expectation that apartment
fundamentals will continue to improve. Rental and other revenues from fully stabilized communities
are expected to increase modestly when compared to 2005, primarily driven by expected rental rate
increases. However, operating expenses of fully stabilized communities are also expected to
increase in the third quarter of 2006. The Company expects the primary drivers of the expense
increase will be personnel, utility and property tax expenses. Based on these assumptions for the
third quarter of 2006, management expects stabilized community net operating income to increase
modestly in 2006 compared to 2005.
Additionally, the Company, through taxable REIT subsidiaries, is converting portions of two
existing apartment communities in 2006 into for-sale condominium units as well as completing the
sell out at two other condominium conversion communities (one held in an unconsolidated entity).
The Company expects to continue to sell those units during the third and fourth quarters of 2006.
The Company expects to realize net accounting gains in the third and fourth quarter of 2006 from
these condominium sales. The net accounting gains from for-sale condominiums are expected to be
modestly lower in the third and fourth quarters of 2006 as compared to the second quarter of 2006,
due to modestly lower expected unit sales at the two new conversion communities in the second half
of 2006. There can be no assurances that the sale of for-sale condominium units will close.
Management expects interest expense in the third quarter of 2006 to be lower than in the third
quarter of 2005 due generally to expected increases in interest capitalization in 2006 resulting
from an increasing volume of construction in progress and from additional development starts and
activities in late 2005 and into 2006. Management also expects general and administrative expenses
to increase modestly when compared to the third quarter of 2005.
The Company has three projects under construction with a total expected cost of approximately
$179,000 and expects to begin additional development projects later in 2006. Beginning in the
second half of 2004 and continuing into 2006, the Company added additional development personnel
for the purpose of increasing its development and investment activities in 2005 and 2006. The
Company expects these additional personnel resources will continue to be dilutive to earnings in
2006 until the incremental personnel and associated costs can be fully absorbed by new development
and value creation activities.
-45-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
On a sequential basis for the third quarter of 2006, management expects to report higher net income
compared to the second quarter of 2006. Management believes the increased net income in the third
quarter of 2006 compared to the second quarter of 2006 will result from higher projected gains on
apartment community sales offset by lower projected gains from condominium sales as discussed above
and lower projected net operating income from rehabilitation and condominium conversion
communities. Management expects same store property net operating income to be somewhat higher
when compared to the second quarter of 2006, primarily driven by higher projected operating revenue
due to rental rate increases. General and administrative costs, property management expenses and
development costs in the aggregate are expected to increase modestly compared to the second quarter
of 2006.
Liquidity and Capital Resources
The discussion in this Liquidity and Capital Resources section is the same for the Company and the
Operating Partnership, except that all indebtedness discussed herein has been incurred by the
Operating Partnership.
The Companys net cash provided by operating activities increased from $50,648 in 2005 to $51,950
in 2006 primarily due to the improved operating performance of the Companys stabilized communities
and reduced interest expense resulting from increased interest capitalization to development
communities in 2006.
Net cash flows used in investing activities increased from $9,616 in 2005 to $123,680 in 2006
primarily due to increased development, apartment acquisition and land acquisition costs in 2006.
The Company acquired two apartment communities in the first quarter of 2006 for approximately
$46,500 and also acquired additional development land of approximately $52,782 in 2006. In
addition, construction and development expenditures are increasing in 2006 as the Company initiated
new development starts.
Net cash flows from financing activities increased from net cash used of $36,986 in 2005 to net
cash provided by financing activities of $75,863 in 2006 primarily due to higher net borrowings to
fund increasing development and acquisition activities and increased equity proceeds from stock
option exercises in 2006 resulting from the Companys increased stock price between periods.
Since 1993, the Company has elected to be taxed as a real estate investment trust (REIT) under
the Internal Revenue Code of 1986, as amended (the Code). Management currently intends to
continue operating the Company as a REIT in 2006. As a REIT, the Company is subject to a number of
organizational and operating requirements, including a requirement to distribute 90% of its taxable
income to its shareholders. As a REIT, the Company generally will not be subject to federal income
taxes on its taxable income, except to the extent that taxable income is earned though its taxable
REIT subsidiaries.
Generally, the Companys objective is to meet its short-term liquidity requirement of funding the
payment of its current level of quarterly preferred and common dividends to shareholders through
its net cash flows provided by operating activities, less its annually recurring and periodically
recurring property and corporate capital expenditures. These operating capital expenditures are
the capital expenditures necessary to maintain the earnings capacity of the Companys operating
assets over time.
For the six months ended June 30, 2006, the Companys net cash flow from operations, reduced by
operating capital expenditures (excluding community rehabilitation and other revenue generating
capital expenditures), was sufficient to fully fund the Companys current level of dividend
payments to common and preferred shareholders by approximately $1,000. Cash flows from operations,
reduced by operating capital expenditures (excluding community rehabilitation and other revenue
generating capital expenditures), would have been lower, by approximately $4,000, excluding the
favorable change in working capital items impacting operating cash flows for the period. These
working capital items fluctuate from period to period, primarily due to the timing of payments of
interest, property taxes and operating payables. As discussed below, the Company expects its
operating cash flows, less operating capital expenditures, to be less than its dividend
requirements for the full year of 2006. The Companys net cash flow from operations and proceeds
from apartment communities and for-sale condominium sales continue to be sufficient to meet the
dividend requirements necessary to maintain its REIT status under the Code.
For the full year of 2006, management of the Company currently expects to maintain its current
quarterly dividend payment rate to common shareholders of $0.45 per share. At this dividend rate,
the Company currently expects that net cash flows from operations reduced by annual operating
capital expenditures (excluding community rehabilitation and other revenue generating capital
expenditures) will not be sufficient to fund the dividend payments to common and preferred
shareholders by approximately $10,000 to $15,000. This forecasted dividend shortfall excludes
incremental gains on condominium sales which are included in cash flows from investing activities.
The Company intends to use primarily the proceeds from 2006 apartment community and for-sale
condominium sales to fund the additional cash flow necessary to fully fund the dividend payments to
common shareholders. The primary factor leading to this net operating cash flow shortfall is the
short-term negative operating cash flow impact of apartment rehabilitation activities at two
communities, sales of operating communities (discussed below) and condominium conversion
communities prior to the reinvestment of such proceeds. The Companys board of directors, however,
will continue to review the dividend quarterly.
-46-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
The Company generally expects to utilize net cash flow from operations, available cash and cash
equivalents and the available capacity under its revolving lines of credit to fund its short-term
liquidity requirements, including capital expenditures, development and construction expenditures,
land and apartment community acquisitions, dividends and distributions on its common and preferred
equity and its debt service requirements. The Company generally expects to fund its long-term
liquidity requirements, including maturities of long-term debt and acquisition and development
activities, through long-term unsecured and secured borrowings, through additional sales of
selective operating properties and for-sale condominiums, and possibly through equity or leveraged
joint venture arrangements. The Company may also continue to use joint venture arrangements in
future periods to reduce its market concentrations in certain markets, build critical mass in other
markets and to reduce its exposure to certain risks of its future development activities.
As previously discussed, the Company intends to use the proceeds from the sale of operating and
condominium conversion properties, availability under its unsecured revolving lines of credit,
future construction loan financing and joint venture arrangements as the primary source of capital
to fund its current and future development and acquisition expenditures. In prior years, the
Company had instituted an active asset sale and capital recycling program as the primary means to
fund its on-going community development and acquisition program. Total net sales proceeds in 2005
and 2004 were $281,106 (including $81,560 of debt assumed) and $242,962 (including $104,325 of debt
assumed), respectively.
In 2006, the Company currently plans to sell one apartment community and the sale is expected to
generate net proceeds in excess of $100,000. The Company also expects to generate additional sales
proceeds from the sale of converted condominium units. It is the current intent of management to
continue to recycle capital through selling assets and reinvesting the proceeds as a strategy to
diversify the cash flows of the Company across its markets and focus on building critical mass in
fewer markets.
In 2006, the Company used borrowings under its lines of credit to retire approximately $50,000 of
maturing unsecured notes. Later in 2006, the Company has approximately $71,000 of unsecured and
secured debt that matures or becomes pre-payable. The Company currently anticipates repaying some
or all of this debt using line of credit facility borrowings, and potentially new debt issuances,
depending on the amount and timing of the Companys capital needs and general credit market
conditions. The Company expects modest interest rate increases in 2006 compared to interest rates
realized in 2005.
At June 30, 2006, the Company had $37,933 outstanding under its $480,000 combined line of credit
facilities. The credit facilities mature in April 2010. The terms, conditions and restrictive
covenants associated with the Companys line of credit facilities are summarized in note 2 to the
consolidated financial statements. Management believes it will have adequate capacity under its
facilities to execute its 2006 business plan and short-term liquidity requirements.
Long-term Debt Issuances and Retirements
A summary of the Companys outstanding debt and debt maturities at June 30, 2006 is included in
note 2 to the consolidated financial statements. A discussion of changes in secured and unsecured
debt in the six months ended June 30, 2006 is discussed below.
Upon their maturity in March 2006, the Company repaid $50,000 of 6.71% senior unsecured notes from
available borrowings under its unsecured lines of credit.
In April 2006, the Company closed a $40,000 mortgage note payable secured by an apartment community
located in Denver, Colorado. The mortgage note bears interest at LIBOR plus 1.0%, matures in April
2008 and is pre-payable without penalty.
In June 2006, the Company issued $150,000 of senior unsecured notes. The notes bear interest at
6.30% and mature in June 2013. The net proceeds from the unsecured notes were used to reduce
amounts outstanding under the Companys unsecured lines of credit.
In July 2006, in conjunction with an apartment community acquisition (see note 4 to the
consolidated financial statements), the Company assumed a secured, fixed rate mortgage note payable
with an outstanding balance of $41,394. The mortgage note bears interest at a coupon rate of
approximately 6.1%, requires monthly principal and interest payments and matures in November 2011.
Based on the Companys preliminary purchase accounting allocations related to the acquisition, the
fair value of the mortgage note approximated its carrying value.
-47-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Stock Repurchase Program
In the fourth quarter of 2004, the Companys board of directors adopted a new stock repurchase
program under which the Company may repurchase up to $200,000 of common or preferred stock at
market prices from time to time until December 31, 2006. In the six months ended June 30, 2006, the
Company did not repurchase any shares of common stock under this program, although the Company has
a 10b5-1 stock purchase program in place which expires on August 31, 2006.
Capitalization of Fixed Assets and Community Improvements
The Company has a policy of capitalizing those expenditures relating to the acquisition of new
assets and the development and construction of new apartment and condominium communities. In
addition, the Company capitalizes expenditures that enhance the value of existing assets and
expenditures that substantially extend the life of existing assets. All other expenditures
necessary to maintain a community in ordinary operating condition are expensed as incurred.
Additionally, for new development communities, carpet, vinyl and blind replacements are expensed as
incurred during the first five years (which corresponds to the estimated depreciable life of these
assets) after construction completion. Thereafter, these replacements are capitalized. Further,
the Company expenses as incurred all interior and exterior painting of communities.
In conjunction with acquisitions of existing communities, it is the Companys policy to provide in
its acquisition budgets adequate funds to complete any deferred maintenance items and to otherwise
make the communities acquired competitive with comparable newly-constructed communities. In some
cases, the Company will provide in its acquisition budgets additional funds to upgrade or otherwise
improve new acquisitions. Such costs are generally capitalized as costs of the acquired
communities, when identified and included as part of an approved capital budget at the time of
acquisition and when incurred during the twelve months subsequent to the acquisition date.
The Company capitalizes interest, real estate taxes, and certain internal personnel and associated
costs related to communities under development and construction. The incremental personnel and
associated costs are capitalized to the projects under development based upon the effort
identifiable with such projects. The Company treats each unit in a community separately for cost
accumulation, capitalization and expense recognition purposes. Prior to the commencement of
leasing or sales activities, interest and other construction costs are capitalized and included in
construction in progress. The Company ceases the capitalization of such costs as the residential
units in a community become substantially complete and available for occupancy or sale. This
practice results in a pro-ration of these costs between amounts that are capitalized and expensed
as the residential units in a development community become available for occupancy or sale. In
addition, prior to the completion of units, the Company expenses as incurred, substantially all
operating expenses (including pre-opening marketing expenses) of such communities.
Acquisition of assets and community development and other capitalized expenditures for the three
and six months ended June 30, 2006 and 2005 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
New community development and acquisition activity (1) |
|
$ |
43,455 |
|
|
$ |
78,410 |
|
|
$ |
144,536 |
|
|
$ |
93,397 |
|
Periodically recurring capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community rehabilitation and other revenue
generating improvements (2) |
|
|
1,972 |
|
|
|
|
|
|
|
2,837 |
|
|
|
|
|
Other community additions and improvements (3) |
|
|
1,599 |
|
|
|
1,127 |
|
|
|
2,322 |
|
|
|
2,029 |
|
Annually recurring capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carpet replacements and other community additions
and improvements (4) |
|
|
3,860 |
|
|
|
2,864 |
|
|
|
5,914 |
|
|
|
4,822 |
|
Corporate additions and improvements |
|
|
487 |
|
|
|
278 |
|
|
|
983 |
|
|
|
978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,373 |
|
|
$ |
82,679 |
|
|
$ |
156,592 |
|
|
$ |
101,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest |
|
$ |
2,306 |
|
|
$ |
416 |
|
|
$ |
4,138 |
|
|
$ |
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized development costs and fees (5) |
|
$ |
490 |
|
|
$ |
316 |
|
|
$ |
754 |
|
|
$ |
566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects aggregate community development 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. |
-48-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
Current Development Activity
The Company currently has three communities under development as summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
Costs Incurred |
|
|
Quarter of |
|
|
Quarter of |
|
|
Quarter of |
|
|
|
|
|
|
Estimated |
|
|
Units |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Construction |
|
|
as of |
|
|
Construction |
|
|
First Units |
|
|
Stabilized |
|
|
Units |
|
|
Quarter |
|
|
Under |
|
|
Units |
|
Community |
|
Location |
|
|
of Units |
|
|
Cost |
|
|
June 30, 2006 |
|
|
Start |
|
|
Available
(3) |
|
|
Occupancy
(1)(3) |
|
|
Leased |
|
|
Sell-out |
|
|
Contract |
|
|
Closed |
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apartments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Carlyle |
|
Alexandria, VA |
|
|
205 |
|
|
$ |
56.5 |
|
|
$ |
41.7 |
|
|
4Q 2004 |
|
|
4Q 2006 |
|
|
4Q 2007 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Post Alexander |
|
Atlanta, GA |
|
|
307 |
|
|
|
62.0 |
|
|
|
10.0 |
|
|
2Q 2006 |
|
|
1Q 2008 |
|
|
1Q 2009 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments |
|
|
|
|
|
|
512 |
|
|
$ |
118.5 |
|
|
$ |
51.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condominiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Condominiums at
Carlyle Square (2) |
|
Alexandria, VA |
|
|
145 |
|
|
$ |
43.2 |
|
|
$ |
28.3 |
|
|
4Q 2004 |
|
|
1Q 2007 |
|
|
|
N/A |
|
|
|
N/A |
|
|
4Q 2007 |
|
|
|
90 |
|
|
|
|
|
Mercer Square |
|
Dallas, TX |
|
|
85 |
|
|
|
17.0 |
|
|
|
3.8 |
|
|
2Q 2006 |
|
|
3Q 2007 |
|
|
|
N/A |
|
|
|
N/A |
|
|
2Q 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Condominiums |
|
|
|
|
|
|
230 |
|
|
$ |
60.2 |
|
|
$ |
32.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company defines stabilized occupancy as the earlier to occur of (i) the
attainment of 95% physical occupancy on the first day of any month or (ii) one year
after completion of construction. |
(2) |
|
The condominium component of the project, consisting of 145 units, is being developed
in a majority owned joint venture with a Washington D.C. based developer. As of July
24, 2006, the Company has 90 units under contract for sale upon completion and delivery
of the units. There can be no assurance that condominium units under contract will
close. |
(3) |
|
The Company's estimates of when apartment and condominium units will be available for rental or sale and estimates of when
apartment communities will achieve stabilized occupancy are subject to risks and uncertainties, and there can be no assurance that the actual timing will not differ from these estimates.
|
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 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.
-49-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
FFO should not be considered as an alternative to net income available to common shareholders
(determined in accordance with GAAP) as an indicator of the Companys financial performance. While
management believes that FFO is an important supplemental non-GAAP financial measure, management
believes it is also important to stress that FFO should not be considered as an alternative to cash
flow from operating activities (determined in accordance with GAAP) as a measure of the Companys
liquidity. Further, FFO is not necessarily indicative of sufficient cash flow to fund all of the
Companys needs or ability to service indebtedness or make distributions.
A reconciliation of net income available to common shareholders and unitholders to FFO is provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income available to common shareholders |
|
$ |
12,074 |
|
|
$ |
56,534 |
|
|
$ |
14,966 |
|
|
$ |
59,302 |
|
Minority interest of common unitholders
continuing operations |
|
|
247 |
|
|
|
(138 |
) |
|
|
310 |
|
|
|
(154 |
) |
Minority interest in discontinued operations (1) |
|
|
19 |
|
|
|
3,554 |
|
|
|
28 |
|
|
|
3,737 |
|
Depreciation on wholly-owned real estate assets, net (2) |
|
|
16,423 |
|
|
|
18,636 |
|
|
|
33,256 |
|
|
|
37,385 |
|
Depreciation on real estate assets held in
unconsolidated entities |
|
|
226 |
|
|
|
224 |
|
|
|
451 |
|
|
|
521 |
|
Gains on sales of real estate assets, net of provision for
income taxes |
|
|
(8,559 |
) |
|
|
(62,320 |
) |
|
|
(8,802 |
) |
|
|
(62,570 |
) |
Incremental gains on condominium sales, net of provision for
income taxes (3) |
|
|
1,809 |
|
|
|
5,811 |
|
|
|
2,052 |
|
|
|
6,061 |
|
Gains on sales of real estate assets unconsolidated entities |
|
|
(48 |
) |
|
|
(201 |
) |
|
|
(73 |
) |
|
|
(201 |
) |
Incremental gains(losses) on condominium sales
unconsolidated entities (3) |
|
|
(43 |
) |
|
|
35 |
|
|
|
(91 |
) |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations available to common shareholders
and unitholders (4) |
|
$ |
22,148 |
|
|
$ |
22,135 |
|
|
$ |
42,097 |
|
|
$ |
44,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
26,391 |
|
|
$ |
27,025 |
|
|
$ |
51,950 |
|
|
$ |
50,648 |
|
Investing activities |
|
$ |
(27,175 |
) |
|
$ |
15,870 |
|
|
$ |
(123,680 |
) |
|
$ |
(9,616 |
) |
Financing activities |
|
$ |
1,562 |
|
|
$ |
(41,661 |
) |
|
$ |
75,863 |
|
|
$ |
(36,986 |
) |
Weighted average shares outstanding basic |
|
|
42,817 |
|
|
|
39,930 |
|
|
|
42,351 |
|
|
|
40,048 |
|
Weighted average shares and units outstanding basic |
|
|
43,687 |
|
|
|
42,325 |
|
|
|
43,313 |
|
|
|
42,469 |
|
Weighted average shares outstanding diluted (5) |
|
|
43,518 |
|
|
|
40,180 |
|
|
|
43,089 |
|
|
|
40,284 |
|
Weighted average shares and units outstanding diluted (5) |
|
|
44,388 |
|
|
|
42,575 |
|
|
|
44,051 |
|
|
|
42,705 |
|
(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) |
|
Depreciation on wholly-owned real estate assets is net of the minority interest portion
of depreciation in consolidated entities. |
(3) |
|
The Company recognizes incremental gains on condominium sales in FFO, net of provision
for income taxes, to the extent that net sales proceeds from the sale of condominium units
exceeds the greater of their fair value or net book value as of the date the property is
acquired by its taxable REIT subsidiary. |
(4) |
|
Funds from operations for the three and six months ended June 30, 2005 includes a loss
of $1,374 from the early extinguishment of debt associated with asset sales and for the
six months ended June 30, 2005 FFO includes a gain of $5,267 on the sale of a technology
investment. |
(5) |
|
Diluted weighted average shares and units for the three and six months ended June 30,
2005 include 250 and 236 shares and units, respectively. Such diluted securities were
antidilutive to the income (loss) computations in the three and six months ended June 30,
2005 under generally accepted accounting principles. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys primary market risk exposure is interest rate risk. At June 30, 2006, the Company had
$175,033 of variable rate debt tied to LIBOR. In addition, the Company had $28,495 of variable
tax-exempt debt with interest based on the FNMA AAA tax-exempt rate. In addition, the Company has
interest rate risk associated with fixed rate debt at maturity. The discussion in this section is
the same for the Company and the Operating Partnership, except that all indebtedness described
herein has been incurred by the Operating Partnership.
Management has and will continue to manage interest rate risk as follows:
|
|
maintain a conservative ratio of fixed rate, long-term debt to total debt such that
variable rate exposure is kept at an acceptable level; |
|
|
|
fix certain long-term variable rate debt through the use of interest rate swaps or
interest rate caps with appropriately matching maturities; |
|
|
|
use treasury locks where appropriate to fix rates on anticipated debt transactions; and |
|
|
|
take advantage of favorable market conditions for long-term debt and/or equity. |
Management uses various financial models and advisors to achieve these objectives.
-50-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
The table below provides information about the Companys derivative financial instruments at June
30, 2006 that are sensitive to changes in interest rates. For interest rate swap and cap
arrangements, the table presents notional amounts and weighted average interest rates by expected
contractual maturity dates. Notional amounts are used to calculate the contractual payments to be
exchanged under the contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$97,010 amortizing |
|
|
5.21 |
% |
|
1 month LIBOR |
|
|
7/31/09 |
|
|
$ |
645 |
|
|
|
to $90,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Cap |
|
$ |
28,495 |
|
|
|
5.00 |
% |
|
|
|
|
|
|
2/01/08 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As more fully described in note 6 to the consolidated financial statements, the interest rate
swap and cap arrangements are carried on the consolidated balance sheet at the fair value shown
above in accordance with SFAS No. 133, as amended. If interest rates under the Companys floating
rate LIBOR-based and tax-exempt borrowings, in excess of the $97,100 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, 2006, would increase or decrease by approximately $1,064 on
an annualized basis.
In April 2006, the Company terminated an existing interest rate swap arrangement through a $2,448
termination payment to the swap counterparty. Subsequent to the termination of the swap
arrangement, the Company entered into the new, market rate swap arrangement reflected in the table
above. Similar to the terminated swap, the new swap has been designated as a cash flow hedge of
the Companys FNMA variable rate debt.
There have been no material changes in the value of the Companys fixed debt since December 31,
2005.
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.
-51-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 13, 2004, an alleged Company shareholder filed a purported pro se derivative and direct
action in the Superior Court of Fulton County, Georgia, against the Company, certain members of the
Companys board of directors, and certain of its executive officers. The case was removed to the
United States District Court for the Northern District of Georgia on May 21, 2004. The complaint
alleged, among other things, breaches of fiduciary duties, fraud, corporate waste, withholding
certain documents from shareholder inspection and certain securities laws claims. The complaint
requested various types of relief, such as injunctive relief and damages and demanded production of
certain Company records. Because the Company believed the allegations were wholly without merit,
the Company moved to dismiss the litigation. On April 20, 2005, the court entered an order
dismissing all claims without prejudice, save a claim seeking production of certain Company
records, upon which the Court declined to rule, concluding it lacked jurisdiction to do so, and
ordered the claim remanded to the Superior Court of Fulton County. Since that time, the Company has
moved for its attorney fees in the United States District Court, arguing that the plaintiff
frivolously pursued the litigation, and the plaintiff has moved for entry of judgment in Superior
Court, which the Company has vigorously contested. In February 2006, the United States District
Court granted the Companys motion for attorneys fees in an amount to be determined by the
agreement of the parties, or, alternatively, by the Court.
On May 5, 2003, the Company received notice that a shareholder derivative and purported class
action lawsuit was filed against members of the board of directors of the Company and the Company
as a nominal defendant. This complaint was filed in the Superior Court of Fulton County, Atlanta,
Georgia on May 2, 2003 and alleged various breaches of fiduciary duties by the board of directors
of the Company and sought, among other relief, the disclosure of certain information by the
defendants. This complaint also sought to compel the defendants to undertake various actions to
facilitate a sale of the Company. On May 7, 2003, the plaintiff made a request for voluntary
expedited discovery. On May 13, 2003, the Company received notice that a similar shareholder
derivative and purported class action lawsuit was filed against certain members of the board of
directors of the Company and against the Company as a nominal defendant. The complaint was filed in
the Superior Court of Fulton County, Atlanta, Georgia on May 12, 2003 and alleged breaches of
fiduciary duties, abuse of control and corporate waste by the defendants. The plaintiff sought
monetary damages and, as appropriate, injunctive relief. These lawsuits were settled, and in
October 2004, the Superior Court of Fulton County entered an order approving the settlement and
related orders dismissing the litigation. The estimated legal and settlement costs, not covered by
insurance, associated with the expected resolution of the lawsuits were recorded in 2003 as a
component of a proxy contest and related costs charge. An alleged Company shareholder, who had
filed a separate purported derivative and direct action against the Company and certain of its
officers and directors (which is described in the paragraph above), has appealed from the Superior
Courts orders approving the settlement, overruling the shareholders objection to the settlement
denying the shareholders motion to intervene, and dismissing the litigation with prejudice. In
November 2005, the Georgia Court of Appeals affirmed the orders. In December 2005, the alleged
Company shareholder asked the Georgia Supreme Court to review the case. In April 2006, the Georgia
Supreme Court denied review, and the alleged Company shareholder has indicated that he will seek
review by the United States Supreme Court.
The Company is involved in various other legal proceedings incidental to its business from time to
time, most of which are expected to be covered by liability or other insurance. Management of the
Company believes that any resolution of pending proceedings or liability to the Company which may
arise as a result of these proceedings will not have a material adverse effect on the Companys
results of operations or financial position.
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, 2005.
-52-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) |
|
The following table summarizes the Companys purchases of its equity securities
in the three months ended June 30, 2006 (in thousands, except per share amounts). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Value of Shares |
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
|
that May Yet Be |
|
|
|
Total Number of |
|
|
Average Price Paid |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
Period |
|
Shares Purchased |
|
|
Per Share |
|
|
Programs |
|
|
Plans or Programs(1) |
|
April 1, 2006 to
April 30, 2006 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
165,600 |
|
May 1, 2006 to
May 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
165,600 |
|
June 1, 2006 to
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
165,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
165,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In the fourth quarter of 2004, the Companys board of directors
approved a stock repurchase program under which the Company may
repurchase up to $200,000 of common or preferred stock through
December 31, 2006. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Companys Annual Meeting of Shareholders was held on May 18, 2006. The following
proposals were adopted by the shareholders of the Company at the Annual Meeting:
Election of Directors
Nominees for Board of Directors
|
|
|
|
|
|
|
|
|
|
|
For |
|
|
Withheld |
|
Robert C. Goddard, III |
|
|
38,038,004 |
|
|
|
186,425 |
|
David P. Stockert |
|
|
38,039,303 |
|
|
|
185,126 |
|
Herschel M. Bloom |
|
|
25,202,224 |
|
|
|
3,022,205 |
|
Douglas Crocker III |
|
|
37,905,205 |
|
|
|
319,224 |
|
Walter M. Deriso, Jr. |
|
|
37,866,098 |
|
|
|
358,331 |
|
Russell R. French |
|
|
37,544,910 |
|
|
|
679,519 |
|
Nicholas B. Paumgarten |
|
|
37,978,424 |
|
|
|
246,055 |
|
Charles E. Rice |
|
|
37,862,901 |
|
|
|
361,528 |
|
Stella F. Thayer |
|
|
37,858,785 |
|
|
|
365,644 |
|
Ronald de Waal |
|
|
38,039,705 |
|
|
|
184,724 |
|
A Proposal to Adopt Ratify the Appointment of Independent Registered Public Accountants
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
|
|
37,994,373 |
|
200,743 |
|
29,313 |
|
A Proposal to Require Director Election Majority Vote Standard
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
Broker Non-Votes |
|
13,649,734 |
|
20,861,811 |
|
247,830 |
|
3,465,054 |
|
-53-
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)
ITEM 5. OTHER INFORMATION
None
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 November 5, 2003) |
3.7(e)
|
|
|
|
Amendment No. 1 to the Amended and Restated By-Laws of the Company |
4.1(f)
|
|
|
|
Indenture between the Company and SunTrust Bank, as Trustee |
4.2(f)
|
|
|
|
Form of First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee |
10.1(g)
|
|
|
|
Amended and Restated Credit Agreement dated as of April 28, 2006 by and among Post Apartment Homes, L.P.,
Wachovia Capital Markets, LLC and J.P. Morgan Securities Inc., Wachovia Bank, National Association, Sun
Trust Bank and Sumitomo Mitsui Banking Corporation, and the financial institutions a party thereto and
their assignees |
11.1(h)
|
|
|
|
Statement Regarding Computation of Per Share Earnings |
31.1
|
|
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended, and adopted under Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2
|
|
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended, and adopted under Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1
|
|
|
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906 of
the Sarbanes-Oxley Act of 2002 |
32.2
|
|
|
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906 of
the Sarbanes-Oxley Act of 2002 |
* |
|
Identifies each management contract or compensatory plan required to be filed. |
(a) |
|
Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as
amended, of the Company and incorporated herein by reference. |
|
(b) |
|
Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2002 and incorporated herein by reference. |
|
(c) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 1999 and incorporated herein by reference. |
|
(d) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 2003 and incorporated herein by reference. |
|
(e) |
|
Filed as Appendix A to the 2004 proxy statement and incorporated herein by reference. |
|
(f) |
|
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. |
|
(g) |
|
Filed as an exhibit to the Current Report on Form 8-K of the Registrants filed May 2, 2006
and incorporated herein by reference. |
|
(h) |
|
The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference. |
-54-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
POST PROPERTIES, INC.
|
|
August 9, 2006 |
By /s/ David P. Stockert
|
|
|
David P. Stockert |
|
|
President
and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
August 9, 2006 |
By /s/ Christopher J. Papa
|
|
|
Christopher J. Papa |
|
|
Executive
Vice President and Chief Financial
Officer (Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
|
August 9, 2006 |
By /s/ Arthur J. Quirk
|
|
|
Arthur J. Quirk |
|
|
Senior
Vice President and Chief
Accounting Officer (Principal Accounting Officer) |
|
-55-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
POST APARTMENT HOMES, L.P.
|
|
|
By: |
Post GP Holdings, Inc., its sole general partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 9, 2006 |
By /s/ David P. Stockert
|
|
|
David P. Stockert |
|
|
President
and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
August 9, 2006 |
By /s/ Christopher J. Papa
|
|
|
Christopher J. Papa |
|
|
Executive
Vice President and Chief Financial
Officer
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
|
August 9, 2006 |
By /s/ Arthur J. Quirk
|
|
|
Arthur J. Quirk |
|
|
Senior
Vice President and Chief Accounting
Officer (Principal Accounting Officer) |
|
-56-
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 November 5, 2003) |
3.7(e)
|
|
|
|
Amendment No. 1 to the Amended and Restated By-Laws of the Company |
4.1(f)
|
|
|
|
Indenture between the Company and SunTrust Bank, as Trustee |
4.2(f)
|
|
|
|
Form of First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee |
10.1(g)
|
|
|
|
Amended and Restated Credit Agreement dated as of April 28, 2006 by and among Post Apartment Homes, L.P.,
Wachovia Capital Markets, LLC and J.P. Morgan Securities Inc., Wachovia Bank, National Association, Sun
Trust Bank and Sumitomo Mitsui Banking Corporation, and the financial institutions a party thereto and
their assignees |
11.1(h)
|
|
|
|
Statement Regarding Computation of Per Share Earnings |
31.1
|
|
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended, and adopted under Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2
|
|
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended, and adopted under Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1
|
|
|
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906 of
the Sarbanes-Oxley Act of 2002 |
32.2
|
|
|
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906 of
the Sarbanes-Oxley Act of 2002 |
* |
|
Identifies each management contract or compensatory plan required to be filed. |
(a) |
|
Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as
amended, of the Company and incorporated herein by reference. |
(b) |
|
Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2002 and incorporated herein by reference. |
(c) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 1999 and incorporated herein by reference. |
(d) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 2003 and incorporated herein by reference. |
|
(e) |
|
Filed as Appendix A to the 2004 proxy statement and incorporated herein by reference. |
(f) |
|
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. |
(g) |
|
Filed as an exhibit to the Current Report on Form 8-K of the Registrants filed May 2, 2006
and incorporated herein by reference. |
(h) |
|
The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference. |
-57-