þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Georgia | 58-1550675 | |
Georgia | 58-2053632 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
Post Properties, Inc. | Yes þ | No o | ||||
Post Apartment Homes, L.P. | Yes þ | No o |
Post Properties, Inc. | Large Accelerated Filer þ | Accelerated Filer o | Non-Accelerated Filer o | ||||
Post Apartment Homes, L.P. | Large Accelerated Filer þ | Accelerated Filer o | Non-Accelerated Filer o |
Post Properties, Inc. | Yes o | No þ | ||||
Post Apartment Homes, L.P. | Yes o | No þ |
Page | ||||||||
Part I FINANCIAL INFORMATION |
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Item 1 Financial Statements |
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66 | ||||||||
EX-31.1 SECTION 302 CERTIFICATION OF CEO | ||||||||
EX-31.2 SECTION 302 CERTIFICATION OF CFO | ||||||||
EX-32.1 SECTION 906 CERTIFICATION OF CEO | ||||||||
EX-32.2 SECTION 906 CERTIFICATION OF CFO |
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Real estate assets |
||||||||
Land |
$ | 275,928 | $ | 266,914 | ||||
Building and improvements |
1,791,088 | 1,789,479 | ||||||
Furniture, fixtures and equipment |
201,765 | 207,497 | ||||||
Construction in progress |
114,204 | 47,005 | ||||||
Land held for future development |
79,724 | 62,511 | ||||||
2,462,709 | 2,373,406 | |||||||
Less: accumulated depreciation |
(530,090 | ) | (516,954 | ) | ||||
For-sale condominiums |
31,481 | 38,338 | ||||||
Assets held for sale, net of accumulated depreciation of $19,004 and
$0 at September 30, 2006 and December 31, 2005, respectively |
33,944 | 4,591 | ||||||
Total real estate assets |
1,998,044 | 1,899,381 | ||||||
Investments in and advances to unconsolidated real estate entities |
34,465 | 26,614 | ||||||
Cash and cash equivalents |
5,386 | 6,410 | ||||||
Restricted cash |
5,314 | 4,599 | ||||||
Deferred charges, net |
13,311 | 11,624 | ||||||
Other assets |
33,594 | 32,826 | ||||||
Total assets |
$ | 2,090,114 | $ | 1,981,454 | ||||
Liabilities and shareholders equity |
||||||||
Indebtedness, including $18,600 and $0 of debt secured by assets held
for sale at September 30, 2006 and December 31, 2005, respectively |
$ | 1,024,440 | $ | 980,615 | ||||
Accounts payable and accrued expenses |
67,819 | 53,429 | ||||||
Dividend and distribution payable |
21,774 | 19,257 | ||||||
Accrued interest payable |
14,849 | 5,478 | ||||||
Security deposits and prepaid rents |
11,060 | 9,857 | ||||||
Total liabilities |
1,139,942 | 1,068,636 | ||||||
Minority interest of common unitholders in Operating Partnership |
13,691 | 26,764 | ||||||
Minority interests in consolidated real estate entities |
2,421 | 5,045 | ||||||
Total minority interests |
16,112 | 31,809 | ||||||
Shareholders equity |
||||||||
Preferred stock, $.01 par value, 20,000 authorized: |
||||||||
8 1/2% Series A Cumulative Redeemable Shares, liquidation preference
$50 per share, 900 shares issued and outstanding |
9 | 9 | ||||||
7 5/8% Series B Cumulative Redeemable Shares, liquidation preference
$25 per share, 2,000 shares issued and outstanding |
20 | 20 | ||||||
Common stock, $.01 par value, 100,000 authorized: |
||||||||
43,440 and 41,394 shares issued, 43,440 and 41,394 shares outstanding
at September 30, 2006 and December 31, 2005, respectively |
434 | 414 | ||||||
Additional paid-in-capital |
863,032 | 803,765 | ||||||
Accumulated earnings |
76,897 | 86,315 | ||||||
Accumulated other comprehensive income (loss) |
(4,109 | ) | (4,208 | ) | ||||
Deferred compensation |
| (3,625 | ) | |||||
936,283 | 882,690 | |||||||
Less common stock in treasury, at cost, 56 and 44 shares
at September 30, 2006 and December 31, 2005, respectively |
(2,223 | ) | (1,681 | ) | ||||
Total shareholders equity |
934,060 | 881,009 | ||||||
Total liabilities and shareholders equity |
$ | 2,090,114 | $ | 1,981,454 | ||||
-1-
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues |
||||||||||||||||
Rental |
$ | 72,216 | $ | 67,538 | $ | 210,211 | $ | 196,805 | ||||||||
Other property revenues |
4,609 | 4,298 | 12,934 | 11,675 | ||||||||||||
Other |
49 | 64 | 200 | 196 | ||||||||||||
Total revenues |
76,874 | 71,900 | 223,345 | 208,676 | ||||||||||||
Expenses |
||||||||||||||||
Property operating and maintenance (exclusive of items shown
separately below) |
35,790 | 33,019 | 102,844 | 96,832 | ||||||||||||
Depreciation |
16,966 | 17,496 | 50,101 | 53,539 | ||||||||||||
General and administrative |
4,406 | 4,558 | 13,464 | 13,506 | ||||||||||||
Investment, development and other |
1,332 | 1,333 | 4,500 | 3,737 | ||||||||||||
Total expenses |
58,494 | 56,406 | 170,909 | 167,614 | ||||||||||||
Operating income |
18,380 | 15,494 | 52,436 | 41,062 | ||||||||||||
Interest income |
175 | 229 | 413 | 583 | ||||||||||||
Interest expense |
(13,609 | ) | (13,676 | ) | (40,281 | ) | (42,722 | ) | ||||||||
Amortization of deferred financing costs |
(882 | ) | (990 | ) | (2,651 | ) | (3,707 | ) | ||||||||
Gains (losses) on sales of condominiums, net |
1,611 | (99 | ) | 10,022 | (368 | ) | ||||||||||
Equity in income of unconsolidated real estate entities |
527 | 592 | 1,251 | 1,294 | ||||||||||||
Other income |
1,401 | | 3,095 | 5,267 | ||||||||||||
Minority interest in consolidated property partnerships |
(85 | ) | 34 | (177 | ) | 212 | ||||||||||
Minority interest of common unitholders |
(87 | ) | 10 | (369 | ) | 226 | ||||||||||
Income from continuing operations |
7,431 | 1,594 | 23,739 | 1,847 | ||||||||||||
Discontinued operations |
||||||||||||||||
Income from discontinued property operations, net of
minority interest |
988 | 662 | 3,083 | 5,568 | ||||||||||||
Gains on sales of real estate assets, net of minority
interest and provision for income taxes |
27,503 | 72,733 | 27,885 | 131,991 | ||||||||||||
Loss on early extinguishment of indebtedness, net of minority
interest |
(121 | ) | (1,748 | ) | (121 | ) | (3,044 | ) | ||||||||
Income from discontinued operations |
28,370 | 71,647 | 30,847 | 134,515 | ||||||||||||
Net income |
35,801 | 73,241 | 54,586 | 136,362 | ||||||||||||
Dividends to preferred shareholders |
(1,909 | ) | (1,909 | ) | (5,728 | ) | (5,728 | ) | ||||||||
Net income available to common shareholders |
$ | 33,892 | $ | 71,332 | $ | 48,858 | $ | 130,634 | ||||||||
Per common share data Basic |
||||||||||||||||
Income (loss) from continuing operations
(net of preferred dividends) |
$ | 0.13 | $ | (0.01 | ) | $ | 0.42 | $ | (0.10 | ) | ||||||
Income from discontinued operations |
0.66 | 1.77 | 0.72 | 3.35 | ||||||||||||
Net income available to common shareholders |
$ | 0.79 | $ | 1.77 | $ | 1.15 | $ | 3.25 | ||||||||
Weighted average common shares outstanding basic |
43,137 | 40,372 | 42,616 | 40,157 | ||||||||||||
Per common share data Diluted |
||||||||||||||||
Income (loss) from continuing operations
(net of preferred dividends) |
$ | 0.13 | $ | (0.01 | ) | $ | 0.42 | $ | (0.10 | ) | ||||||
Income from discontinued operations |
0.65 | 1.77 | 0.71 | 3.35 | ||||||||||||
Net income available to common shareholders |
$ | 0.77 | $ | 1.77 | $ | 1.13 | $ | 3.25 | ||||||||
Weighted average common shares outstanding diluted |
43,955 | 40,372 | 43,387 | 40,157 | ||||||||||||
Dividends declared |
$ | 0.45 | $ | 0.45 | $ | 1.35 | $ | 1.35 | ||||||||
-2-
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Preferred | Common | Paid-in | Accumulated | Comprehensive | Deferred | Treasury | ||||||||||||||||||||||||||
Stock | Stock | Capital | Earnings | Income (Loss) | Compensation | Stock | Total | |||||||||||||||||||||||||
Shareholders Equity and Accumulated Earnings, December 31, 2005 |
$ | 29 | $ | 414 | $ | 803,765 | $ | 86,315 | $ | (4,208 | ) | $ | (3,625 | ) | $ | (1,681 | ) | $ | 881,009 | |||||||||||||
Comprehensive income |
||||||||||||||||||||||||||||||||
Net income |
| | | 54,586 | | | | 54,586 | ||||||||||||||||||||||||
Net change in derivatives, net of minority
interest |
| | | | 172 | | | 172 | ||||||||||||||||||||||||
Total comprehensive income |
54,758 | |||||||||||||||||||||||||||||||
Transition effect of adoption of SFAS 123R |
| | (3,625 | ) | | | 3,625 | | | |||||||||||||||||||||||
Proceeds from employee stock purchase, stock
option plans and other |
| 13 | 47,673 | | | | (542 | ) | 47,144 | |||||||||||||||||||||||
Adjustment for minority interest of unitholders
in Operating Partnership upon conversion of
units into common shares and at dates of
capital transactions |
| 7 | 13,131 | | (73 | ) | | | 13,065 | |||||||||||||||||||||||
Stock-based compensation,
net of minority interest |
| | 2,088 | | | | | 2,088 | ||||||||||||||||||||||||
Dividends to preferred shareholders |
| | | (5,728 | ) | | | | (5,728 | ) | ||||||||||||||||||||||
Dividends to common shareholders |
| | | (58,276 | ) | | | | (58,276 | ) | ||||||||||||||||||||||
Shareholders Equity and Accumulated
Earnings, September 30, 2006 |
$ | 29 | $ | 434 | $ | 863,032 | $ | 76,897 | $ | (4,109 | ) | $ | | $ | (2,223 | ) | $ | 934,060 | ||||||||||||||
-3-
Nine months ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Cash Flows From Operating Activities |
||||||||
Net income |
$ | 54,586 | $ | 136,362 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
51,740 | 57,896 | ||||||
Amortization of deferred financing costs |
2,651 | 3,707 | ||||||
Minority interest of common unitholders in Operating Partnership |
369 | (226 | ) | |||||
Minority interest in discontinued operations |
633 | 7,814 | ||||||
Minority interest in consolidated entities |
177 | (212 | ) | |||||
Gains on sales of real estate assets |
(38,983 | ) | (139,658 | ) | ||||
Other income |
(1,719 | ) | (5,267 | ) | ||||
Equity in income of unconsolidated entities |
(1,251 | ) | (1,294 | ) | ||||
Distributions of earnings of unconsolidated entities |
1,775 | 1,604 | ||||||
Deferred compensation |
465 | | ||||||
Stock-based compensation |
2,129 | 1,693 | ||||||
Loss on early extinguishment of debt |
123 | 3,220 | ||||||
Changes in assets, (increase) decrease in: |
||||||||
Other assets |
(2,532 | ) | 2,906 | |||||
Deferred charges |
(114 | ) | (253 | ) | ||||
Changes in liabilities, increase (decrease) in: |
||||||||
Accrued interest payable |
9,370 | 4,103 | ||||||
Accounts payable and accrued expenses |
2,538 | 11,221 | ||||||
Security deposits and prepaid rents |
488 | 32 | ||||||
Net cash provided by operating activities |
82,445 | 83,648 | ||||||
Cash Flows From Investing Activities |
||||||||
Construction and acquisition of real estate assets, net of payables |
(185,053 | ) | (101,228 | ) | ||||
Net proceeds from sales of real estate assets |
111,471 | 193,306 | ||||||
Proceeds from sale of other investments |
898 | 5,267 | ||||||
Capitalized interest |
(7,061 | ) | (1,553 | ) | ||||
Annually recurring capital expenditures |
(9,143 | ) | (7,172 | ) | ||||
Periodically recurring capital expenditures |
(4,446 | ) | (2,636 | ) | ||||
Community rehabilitation and other revenue generating capital expenditures |
(6,490 | ) | | |||||
Corporate additions and improvements |
(2,923 | ) | (1,155 | ) | ||||
Distributions from (investments in and advances to) unconsolidated entities |
(3,384 | ) | (10,154 | ) | ||||
Note receivable collections |
1,234 | | ||||||
Net cash (used in) provided by investing activities |
(104,897 | ) | 74,675 | |||||
Cash Flows From Financing Activities |
||||||||
Payments on indebtedness |
(55,142 | ) | (216,779 | ) | ||||
Proceeds from indebtedness |
190,000 | 100,000 | ||||||
Lines of credit proceeds (repayments), net |
(92,426 | ) | 26,846 | |||||
Payments of financing costs |
(3,960 | ) | (1,176 | ) | ||||
Treasury stock acquisitions |
| (24,466 | ) | |||||
Proceeds from employee stock purchase and stock options plans |
46,679 | 23,301 | ||||||
Capital contributions (distributions) of minority interests |
(1,183 | ) | 283 | |||||
Distributions to common unitholders |
(1,366 | ) | (3,266 | ) | ||||
Dividends paid to preferred shareholders |
(3,819 | ) | (5,728 | ) | ||||
Dividends paid to common shareholders |
(57,355 | ) | (54,126 | ) | ||||
Net cash provided by (used in) financing activities |
21,428 | (155,111 | ) | |||||
Net (decrease) increase in cash and cash equivalents |
(1,024 | ) | 3,212 | |||||
Cash and cash equivalents, beginning of period |
6,410 | 123 | ||||||
Cash and cash equivalents, end of period |
$ | 5,386 | $ | 3,335 | ||||
-4-
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 October 31, 2006, the Company owned 22,389 apartment units in 63 apartment communities, including 545 apartment units in two apartment communities held in unconsolidated entities, 1,031 apartment units currently under construction in four communities (including the expansion of one community) and 150 apartment homes in lease-up. 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 September 30, 2006, approximately 46.6%, 18.5%, 10.9% and 9.5% (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 September 30, 2006, the Company had outstanding 43,440 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 705 as of September 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 98.4% and 94.9% for the three months ended and 98.0% and 94.5% for the nine months ended September 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 nine months ended September 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 and development 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 |
-5-
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 Deposit 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 Deposit 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 Deposit 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 project costs for each condominium unit under a binding real estate contract. | ||
At September 30, 2006, the Company had two new condominium projects under development, one with approximately 63% 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 September 30, 2006 will be accounted for under the Deposit 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. |
-6-
New Accounting Pronouncements | ||
The Emerging Issues Task Force issued EITF No. 04-5 (EITF No. 04-5), 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. 04-5 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. 04-5 became effective on September 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. 04-5 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. | ||
Financial Accounting Standards Board (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. | ||
Staff Accounting Bulletin No. 108 (SAB 108) was issued by the Securities and Exchange Commission in September 2006. SAB 108 provides additional guidance on the quantification and consideration of the financial statement materiality of cumulative unadjusted misstatements in both current and future financial statements. SAB 108 also provides guidance on the proper accounting and reporting for the correction of immaterial unadjusted misstatements determined to be material in subsequent accounting periods. SAB 108 generally requires prior period financial statements to be revised; however, for immaterial prior year revisions previously filed Exchange Act reports would not be required to be amended. SAB 108 is effective for the Company for its fiscal year ending December 31, 2006. The Company is currently assessing the impact of SAB 108 on its consolidated financial statements and plans to adopt SAB 108 in the fourth quarter of 2006. As previously disclosed in the Companys consolidated financial statements for the years ended December 31, 2006 and 2005, the Company began accounting for certain ground leases with scheduled rent increases on a straight-line basis effective January 1, 2005. The cumulative unadjusted misstatement related to the Companys accounting for ground lease expense as incurred in years prior to 2005 was determined to be immaterial to the Companys financial statements. The Company plans to record a cumulative adjusting entry in its December 31, 2006 consolidated financial statements to correct this cumulative misstatement resulting in an increase in consolidated real estate assets of approximately $3,800, an increase in consolidated liabilities of approximately $8,800 and a decrease in consolidated equity of approximately $5,000. | ||
The Emerging Issues Task Force reached a consensus on EITF No. 06-8 (EITF No. 06-8), Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums, in September 2006. EITF No. 06-8 provides additional guidance on whether the seller of a condominium unit is required to evaluate the buyers continuing investment under SFAS No. 66 in order to recognize profit from the sale under the percentage of completion method. The EITF concluded that both the buyers initial and continuing investment must meet the criteria in SFAS No. 66 in order for condominium sale profits to be recognized under the percentage of completion method. Sales of condominiums not meeting the continuing investment test must be accounted for under the deposit method. This consensus must be ratified by the FASB after a comment period. As discussed under the Companys revenue recognition accounting policy, the Company accounts for condominium sales on the deposit method using similar criteria to those stated in EITF No. 06-8 in addition to the other criteria of SFAS No. 66. If ratified, EITF No. 06-8 is effective January 1, 2008 for calendar year companies. | ||
Statement of Financial Accounting Standards No. 157 (SFAS No. 157), Fair Value Measurements, was issued in September 2006. SFAS No. 157 provides one definition of fair value and establishes a framework for measuring fair value. SFAS No. 157 does not require any additional financial statement items to be measured at fair value. Instead, the FASB clarified fair value measurements for existing financial statement items in an effort to eliminate inconsistencies among companies in the application of fair value under generally accepted accounting principles. Additional disclosure focusing on the inputs used to determine fair value are also required under the new guidance. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and should be applied prospectively. The Company is currently assessing the impact that SFAS No. 157 will have on its financial position and results of operations. |
-7-
2. | INDEBTEDNESS | |
At September 30, 2006 and December 31, 2005, the Companys indebtedness consisted of the following: |
Payment | Maturity | September 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 |
||||||||||||||||
Syndicated Line of Credit |
N/A | LIBOR + 0.575 | % (1) | 2010 | | 90,000 | ||||||||||
Cash Management Line |
N/A | LIBOR + 0.575 | % | 2010 | 8,953 | 11,379 | ||||||||||
8,953 | 101,379 | |||||||||||||||
Fixed Rate Secured Notes |
||||||||||||||||
FNMA |
Prin. and Int. | 6.15% | (2) | 2029 | 95,600 | 97,100 | ||||||||||
Other |
Prin. and Int. | 4.27% - 7.69 | % | 2007-2013 | 306,392 | 268,641 | ||||||||||
401,992 | 365,741 | |||||||||||||||
Tax-Exempt Floating Rate |
||||||||||||||||
Secured Bonds |
Int. | 3.74% | (3) | 2025 | 28,495 | 28,495 | ||||||||||
Total |
$ | 1,024,440 | $ | 980,615 | ||||||||||||
(1) | Represents stated rate. | |
(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 September 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%. |
Remainder of 2006 |
$ | 26,373 | ||
2007 |
158,828 | |||
2008 |
5,230 | |||
2009 |
76,618 | |||
2010 |
197,981 | (1) | ||
Thereafter |
559,410 | |||
$ | 1,024,440 | |||
(1) | Includes outstanding balances on lines of credit totaling $8,953. The Companys lines of credit mature in April 2010. |
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 August 2006, the Company sold the apartment community subject to the assumption of this indebtedness (see note 4). As a result of this debt assumption, the Company recorded a loss on early extinguishment of indebtedness of $123 ($121 net of minority interest) related to the write-off of unamortized deferred financing costs. | ||
In June 2006, the Company issued $150,000 of senior unsecured notes. The notes bear interest at 6.30% and mature in September 2013. The net proceeds from the unsecured notes were used to reduce amounts outstanding under the Companys unsecured lines of credit. |
-8-
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 September 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 September 30, 2006, the Company had issued letters of credit to third parties totaling $2,280 under this facility. | ||
Additionally, at September 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 | |
Apartment and Condominium Conversion Communities | ||
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 $5,607 at September 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 $228 at September 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. |
-9-
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: |
September 30, | December 31, | |||||||
Balance Sheet Data | 2006 | 2005 | ||||||
Real estate assets, net of accumulated depreciation of
$10,289 and $8,349, respectively |
$ | 94,309 | $ | 96,000 | ||||
Assets held for sale, net (1) |
6,431 | 17,715 | ||||||
Cash and other |
5,760 | 1,770 | ||||||
Total assets |
$ | 106,500 | $ | 115,485 | ||||
Mortgage notes payable |
$ | 66,998 | $ | 66,999 | ||||
Mortgage notes payable to Company |
| 5,967 | ||||||
Other liabilities |
1,053 | 996 | ||||||
Total liabilities |
68,051 | 73,962 | ||||||
Members equity |
38,449 | 41,523 | ||||||
Total liabilities and members equity |
$ | 106,500 | $ | 115,485 | ||||
Companys equity investment |
$ | 19,074 | $ | 20,647 | ||||
(1) | Includes one community, originally containing 121 units, being converted into condominiums. |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues |
||||||||||||||||
Rental |
$ | 2,900 | $ | 2,720 | $ | 8,624 | $ | 8,081 | ||||||||
Other property revenues |
208 | 231 | 610 | 645 | ||||||||||||
Total revenues |
3,108 | 2,951 | 9,234 | 8,726 | ||||||||||||
Expenses |
||||||||||||||||
Property operating and maintenance |
964 | 877 | 2,877 | 2,676 | ||||||||||||
Depreciation and amortization |
665 | 656 | 1,985 | 1,963 | ||||||||||||
Interest |
688 | 688 | 2,064 | 2,064 | ||||||||||||
Total expenses |
2,317 | 2,221 | 6,926 | 6,703 | ||||||||||||
Income from continuing operations |
791 | 730 | 2,308 | 2,023 | ||||||||||||
Discontinued operations |
||||||||||||||||
Loss from discontinued operations |
(75 | ) | (23 | ) | (359 | ) | (119 | ) | ||||||||
Gains on sales of real estate assets, net |
997 | 994 | 1,897 | 1,849 | ||||||||||||
Loss on early extinguishment of debt |
| | | (273 | ) | |||||||||||
Income from discontinued operations |
922 | 971 | 1,538 | 1,457 | ||||||||||||
Net income |
$ | 1,713 | $ | 1,701 | $ | 3,846 | $ | 3,480 | ||||||||
Companys share of net income |
$ | 527 | $ | 592 | $ | 1,251 | $ | 1,294 | ||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Condominium revenue |
$ | 7,289 | $ | 4,769 | $ | 16,513 | $ | 9,191 | ||||||||
Condominium costs and expenses |
(6,292 | ) | (3,775 | ) | (14,616 | ) | (7,342 | ) | ||||||||
Gains on condominium sales, net |
$ | 997 | $ | 994 | $ | 1,897 | $ | 1,849 | ||||||||
At September 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 |
-10-
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 second quarter of 2006, the mortgage note payable was retired from the proceeds of condominium sales. | ||
Land Entities | ||
At September 30, 2006, the Company holds a 50% equity interest in a limited liability company whose sole investment consists of a partnership interest in an entity (the Land Partnership) which holds land for future development. At September 30, 2006, the Land Partnership had total assets of $24,985, principally land held for future development, total liabilities of $13,171 (including a secured note payable of $12,000 to the Company) and total equity of $11,814 (including the Companys equity investment of $3,391). | ||
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 (see note 3) 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. | ||
In October 2006, the Company acquired a 150-unit apartment community in Tampa, Florida for approximately $23,800, including closing costs. At the time of acquisition, the community was undergoing an extensive renovation program and was predominantly vacant. The Company plans to spend up to approximately $2,000 to complete the renovation of the community. Leasing of the renovated apartment units will commence upon the completion of the units. | ||
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 September 30, 2006, the Company had three apartment communities, containing 826 units, and one condominium conversion community, originally containing 127 units and several land parcels classified as held for sale. These real estate assets are reflected in the accompanying consolidated balance sheet at $33,944, which represents the lower of their depreciated cost or fair value less costs to sell. At September 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 $31,481. |
-11-
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 and such costs are included in condominium expenses in the table below. A summary of revenues and costs and expenses of condominium activities included in continuing operations for the three and nine months ended September 30, 2006 and 2005 was as follows: |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Condominium revenues |
$ | 6,778 | $ | | $ | 25,241 | $ | | ||||||||
Condominium costs and expenses |
(5,167 | ) | (99 | ) | (15,219 | ) | (368 | ) | ||||||||
Gains (losses) on sales of condominiums, net |
$ | 1,611 | $ | (99 | ) | $ | 10,022 | $ | (368 | ) | ||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues |
||||||||||||||||
Rental |
$ | 2,806 | $ | 5,086 | $ | 10,355 | $ | 24,129 | ||||||||
Other property revenues |
324 | 652 | 1,128 | 2,430 | ||||||||||||
Total revenues |
3,130 | 5,738 | 11,483 | 26,559 | ||||||||||||
Expenses |
||||||||||||||||
Property operating and maintenance (exclusive of items shown
separately below) |
1,258 | 2,569 | 4,304 | 11,554 | ||||||||||||
Depreciation |
286 | 1,454 | 1,639 | 4,359 | ||||||||||||
Interest |
582 | 1,026 | 2,394 | 4,741 | ||||||||||||
Minority interest in consolidated property partnerships |
| | | 14 | ||||||||||||
Total expenses |
2,126 | 5,049 | 8,337 | 20,668 | ||||||||||||
Income from discontinued property operations
before minority interest |
1,004 | 689 | 3,146 | 5,891 | ||||||||||||
Minority interest |
(16 | ) | (27 | ) | (63 | ) | (323 | ) | ||||||||
Income from discontinued property operations |
$ | 988 | $ | 662 | $ | 3,083 | $ | 5,568 | ||||||||
-12-
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Condominium revenues |
$ | 504 | $ | 11,911 | $ | 7,022 | $ | 50,016 | ||||||||
Condominium costs and expenses |
(558 | ) | (9,537 | ) | (6,685 | ) | (34,130 | ) | ||||||||
Gains (losses) on condominium sales, before minority interest
and income taxes |
(54 | ) | 2,374 | 337 | 15,886 | |||||||||||
Minority interest |
2 | (88 | ) | (7 | ) | (836 | ) | |||||||||
Provision for income taxes |
| (270 | ) | | (653 | ) | ||||||||||
Gains (losses) on condominium sales, net of minority interest
and income taxes |
$ | (52 | ) | $ | 2,016 | $ | 330 | $ | 14,397 | |||||||
5. | SHAREHOLDERS EQUITY | |
Computation of Earnings Per Common Share | ||
For the three and nine months ended September 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 | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Income from continuing operations available to common
shareholders (numerator): |
||||||||||||||||
Income from continuing operations |
$ | 7,431 | $ | 1,594 | $ | 23,739 | $ | 1,847 | ||||||||
Less: Preferred stock dividends |
(1,909 | ) | (1,909 | ) | (5,728 | ) | (5,728 | ) | ||||||||
Income from continuing operations available to
common shareholders |
$ | 5,522 | $ | (315 | ) | $ | 18,011 | $ | (3,881 | ) | ||||||
Common shares (denominator): |
||||||||||||||||
Weighted average shares outstanding basic |
43,137 | 40,372 | 42,616 | 40,157 | ||||||||||||
Dilutive shares from stock options and awards |
818 | | 771 | | ||||||||||||
Weighted average shares outstanding diluted |
43,955 | 40,372 | 43,387 | 40,157 | ||||||||||||
For the three and nine months ended September 30, 2006, there were no antidilutive securities. For the three and nine months ended September 30, 2005, stock options to purchase 3,933 shares of common stock were excluded from the computation of diluted earnings per common share as these stock options and awards were antidilutive. | ||
6. | DERIVATIVE FINANCIAL INSTRUMENTS | |
At September 30, 2006, the Company had an outstanding interest rate swap agreement with a notional value of approximately $95,510 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 |
-13-
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net income |
$ | 35,801 | $ | 73,241 | $ | 54,586 | $ | 136,362 | ||||||||
Change in derivatives, net of minority interest (1) |
(1,045 | ) | 2,680 | 172 | 4,508 | |||||||||||
Comprehensive income |
$ | 34,756 | $ | 75,921 | $ | 54,758 | $ | 140,870 | ||||||||
(1) | In the three and nine months ended September 30, 2006, the change in derivatives balance includes an adjustment of $281 ($275 net of minority interest) and $834 ($817 net of minority interest), respectively, for amortized swap costs included in net income. |
7. | SEGMENT INFORMATION | |
Segment Description | ||
In accordance with SFAS No. 131, Disclosure About the Segments of an Enterprise and Related Information, the Company presents segment information based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. The segment information is prepared on 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 nine months ended September 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 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. |
-14-
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues |
||||||||||||||||
Fully stabilized communities |
$ | 64,350 | $ | 60,931 | $ | 188,565 | $ | 178,661 | ||||||||
Development, rehabilitation and lease-up communities |
2,202 | 2,653 | 7,168 | 7,806 | ||||||||||||
Condominium conversion communities |
428 | 1,520 | 2,334 | 4,427 | ||||||||||||
Acquired communities |
3,664 | 1,005 | 7,008 | 1,311 | ||||||||||||
Other property segments |
6,181 | 5,727 | 18,070 | 16,275 | ||||||||||||
Other |
49 | 64 | 200 | 196 | ||||||||||||
Consolidated revenues |
$ | 76,874 | $ | 71,900 | $ | 223,345 | $ | 208,676 | ||||||||
Contribution to NOI |
||||||||||||||||
Fully stabilized communities |
$ | 39,377 | $ | 37,392 | $ | 116,044 | $ | 109,295 | ||||||||
Development, rehabilitation and lease-up communities |
821 | 1,543 | 3,598 | 4,422 | ||||||||||||
Condominium conversion communities |
(72 | ) | 990 | 849 | 2,868 | |||||||||||
Acquired communities |
2,129 | 625 | 3,876 | 854 | ||||||||||||
Other |
(1,220 | ) | (1,733 | ) | (4,066 | ) | (5,791 | ) | ||||||||
Consolidated property net operating income |
41,035 | 38,817 | 120,301 | 111,648 | ||||||||||||
Interest income |
175 | 229 | 413 | 583 | ||||||||||||
Other revenues |
49 | 64 | 200 | 196 | ||||||||||||
Minority interest in consolidated property partnerships |
(85 | ) | 34 | (177 | ) | 212 | ||||||||||
Depreciation |
(16,966 | ) | (17,496 | ) | (50,101 | ) | (53,539 | ) | ||||||||
Interest expense |
(13,609 | ) | (13,676 | ) | (40,281 | ) | (42,722 | ) | ||||||||
Amortization of deferred financing costs |
(882 | ) | (990 | ) | (2,651 | ) | (3,707 | ) | ||||||||
General and administrative |
(4,406 | ) | (4,558 | ) | (13,464 | ) | (13,506 | ) | ||||||||
Investment, development and other expenses |
(1,332 | ) | (1,333 | ) | (4,500 | ) | (3,737 | ) | ||||||||
Gains (losses) on sales of condominiums, net |
1,611 | (99 | ) | 10,022 | (368 | ) | ||||||||||
Equity in income of unconsolidated real estate entities |
527 | 592 | 1,251 | 1,294 | ||||||||||||
Other income |
1,401 | | 3,095 | 5,267 | ||||||||||||
Minority interest of common unitholders |
(87 | ) | 10 | (369 | ) | 226 | ||||||||||
Income from continuing operations |
7,431 | 1,594 | 23,739 | 1,847 | ||||||||||||
Income from discontinued operations |
28,370 | 71,647 | 30,847 | 134,515 | ||||||||||||
Net income |
$ | 35,801 | $ | 73,241 | $ | 54,586 | $ | 136,362 | ||||||||
-15-
8. | SEVERANCE COSTS | |
In prior years, the Company recorded severance charges associated with the departure of certain executive officers of the Company. Under certain of these arrangements, the Company is required to make certain payments and provide specified benefits through 2013 and 2016. The following table summarizes the activity relating to aggregate severance charges for the nine months ended September 30, 2006 and 2005: |
Nine months ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Accrued severance charges, beginning of period |
$ | 14,325 | $ | 15,317 | ||||
Payments for period |
(2,372 | ) | (2,095 | ) | ||||
Interest accretion |
636 | 679 | ||||||
Accrued severance charges, end of period |
$ | 12,589 | $ | 13,901 | ||||
9. | SUPPLEMENTAL CASH FLOW INFORMATION | |
Interest paid (including capitalized amounts of $7,061 and $1,553 for the nine months ended September 30, 2006 and 2005, respectively), aggregated $40,315 and $45,288 for the nine months ended September 30, 2006 and 2005, respectively. | ||
Non-cash investing and financing activities for the nine months ended September 30, 2006 and 2005 were as follows: | ||
During the nine months ended September 30, 2006, the Company sold an apartment community subject to $40,000 of mortgage debt assumed by the purchaser. During the nine months ended September 30, 2005, the Company sold three apartment communities subject to $81,560 of mortgage indebtedness assumed by the purchasers. This mortgage debt assumed by the purchasers was excluded from the cash flow statements as a non-cash transactions (see note 4). | ||
In July 2006 the Company acquired an apartment community for cash and the assumption of mortgage indebtedness totaling $41,394. The mortgage debt assumed by the Company was excluded from the statement of cash flows as a non-cash transaction (see note 4). | ||
During the nine months ended September 30, 2006, the Company amortized approximately $834 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 nine months ended September 30, 2006, the Companys derivative financial instruments, accounted for as cash flow hedges, decreased in value causing an increase in accounts payable and accrued expenses and a corresponding decrease in shareholders equity of $660 ($647 net of minority interest). During the nine months ended September 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 $4,763 ($4,508 net of minority interest). | ||
During the nine months ended September 30, 2006 and 2005, holders of 697 and 635 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 $13,065 and $12,200 for the nine months ended September 30, 2006 and 2005, respectively. | ||
The Operating Partnership committed to distribute $21,774 and $19,190 for the quarters ended September 30, 2006 and 2005, respectively. As a result, the Company declared dividends of $21,456 and $18,396 for the quarters ended September 30, 2006 and 2005, respectively. The remaining distributions from the Operating Partnership in the amount of $318 and $794 for the quarters ended September 30, 2006 and 2005, respectively, were distributed to minority interest unitholders in the Operating Partnership. | ||
10. | STOCK-BASED COMPENSATION PLANS | |
Stock Compensation Plans | ||
Effective January 1, 2006, the Company accounts for stock-based compensation using the fair value method prescribed in SFAS No. 123R (see note 1). 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 |
-16-
Nine months ended | ||||
September 30, 2006 | ||||
Dividend yield |
4.5 | % | ||
Expected volatility |
17.5 | % | ||
Risk-free interest rate |
4.3 | % | ||
Expected option term (years) |
5.0 |
Nine months ended | ||||||||
September 30, 2006 | ||||||||
Weighted Average | ||||||||
Shares | Exercise Price | |||||||
Options outstanding, beginning of period |
3,534 | $ | 34 | |||||
Granted |
291 | 40 | ||||||
Exercised |
(1,299 | ) | 36 | |||||
Forfeited |
(1 | ) | 37 | |||||
Options outstanding, end of period |
2,525 | 33 | ||||||
Options exercisable, end of period |
1,595 | 33 | ||||||
Weighted-average fair value of options granted during the period |
$ | 4.80 | ||||||
-17-
Weighted Average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Unvested shares, beginning or period |
140 | $ | 28 | |||||
Granted |
39 | 40 | ||||||
Vested |
(23 | ) | 27 | |||||
Forfeited |
| | ||||||
Unvested shares, end of period |
156 | $ | 31 | |||||
At September 30, 2006, there was $3,675 of unrecognized compensation cost related to restricted stock. This cost is expected to be recognized over a weighted average period of 3.0 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 $40 and $141 for the three and nine months ended September 30, 2006, respectively. | ||
11. | INCOME TAXES | |
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the Code). To qualify as a REIT, the Company must distribute annually at least 90% of its adjusted taxable income, as defined in the Code, to its shareholders and satisfy certain other organizational and operating requirements. It is managements current intention to adhere to these requirements and maintain the Companys REIT status. As a REIT, the Company generally will not be subject to federal income tax at the corporate level on the taxable income it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. The Company may be subject to certain state and local taxes on its income and property, and to federal income taxes and excise taxes on its undistributed taxable income. |
-18-
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 nine months ended September 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 $700. 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 three and nine months ended September 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 Company determine that it is more likely than not that the related deferred tax assets are realizable. | ||
In the three and nine months ended September 30, 2005, the Company estimated that its TRSs would be subject to federal alternative minimum taxes and applicable state income taxes and recorded tax provisions of approximately $270 and $653, respectively. | ||
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 nine months ended September 30, 2006, there were no material changes to the components of deferred tax assets and liabilities at September 30, 2006. | ||
12. | LEGAL PROCEEDINGS | |
On May 13, 2004, an alleged Company shareholder filed a purported pro se derivative and direct action in the Superior Court of Fulton County, Georgia, against the Company, certain members of the Companys board of directors, and certain of its executive officers. The case was removed to the United States District Court for the Northern District of Georgia on May 21, 2004. The complaint alleged, among other things, breaches of fiduciary duties, fraud, corporate waste, withholding certain documents from shareholder inspection and certain securities laws claims. The complaint requested various types of relief, such as injunctive relief and damages and demanded production of certain Company records. Because the Company believed the allegations were wholly without merit, the Company moved to dismiss the litigation. On April 20, 2005, the court entered an order dismissing all claims without prejudice, save a claim seeking production of certain Company records, upon which the Court declined to rule, concluding it lacked jurisdiction to do so, and ordered the claim remanded to the Superior Court of Fulton County. Since that time, the Company has moved for 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 vigorously contested. In February 2006, the United States District Court granted the Companys motion for attorneys fees in an amount yet to be determined by the Court. In September 2006, a hearing was held in the Superior Court of Fulton County on plaintiffs motion for entry of judgment on his claim seeking production of certain Company records, after which the Court granted plaintiffs motion. The Company has appealed the Superior Courts order. | ||
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), appealed from the Superior Courts orders approving the settlement, overruling the |
-19-
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 indicated that he would seek review by the United States Supreme Court. The alleged shareholder has not sought such review, however, and the deadline has passed. | ||
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. | OTHER INCOME | |
In the three months ended September 30, 2006, other income includes a gain on the sale of marketable securities of $573, an additional gain on sale of its prior investment in Rent.com of $325 resulting from the receipt of previously escrowed proceeds under the prior year sale (see below) and a $503 gain on the sale of a land parcel. In the first quarter of 2006, one of the Companys derivative financial instruments, previously accounted for as a cash flow hedge, became ineffective under generally accepted accounting principles. As a result, the net increase in the market value of this derivative prior to its termination in April 2006 totaling $1,655 was recognized in other income. | ||
In 2005, the Company sold its investment in Rent.com, a privately-held internet leasing company, and recognized a gain of $5,267. |
-20-
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Real estate assets |
||||||||
Land |
$ | 275,928 | $ | 266,914 | ||||
Building and improvements |
1,791,088 | 1,789,479 | ||||||
Furniture, fixtures and equipment |
201,765 | 207,497 | ||||||
Construction in progress |
114,204 | 47,005 | ||||||
Land held for future development |
79,724 | 62,511 | ||||||
2,462,709 | 2,373,406 | |||||||
Less: accumulated depreciation |
(530,090 | ) | (516,954 | ) | ||||
For-sale condominiums |
31,481 | 38,338 | ||||||
Assets held for sale, net of accumulated depreciation of $19,004 and
$0 at September 30, 2006 and December 31, 2005, respectively |
33,944 | 4,591 | ||||||
Total real estate assets |
1,998,044 | 1,899,381 | ||||||
Investments in and advances to unconsolidated real estate entities |
34,465 | 26,614 | ||||||
Cash and cash equivalents |
5,386 | 6,410 | ||||||
Restricted cash |
5,314 | 4,599 | ||||||
Deferred charges, net |
13,311 | 11,624 | ||||||
Other assets |
33,594 | 32,826 | ||||||
Total assets |
$ | 2,090,114 | $ | 1,981,454 | ||||
Liabilities and partners equity |
||||||||
Indebtedness, including $18,600 and $0 of debt secured by assets held
for sale at September 30, 2006 and December 31, 2005, respectively |
$ | 1,024,440 | $ | 980,615 | ||||
Accounts payable and accrued expenses |
67,819 | 53,429 | ||||||
Distribution payable |
21,774 | 19,257 | ||||||
Accrued interest payable |
14,849 | 5,478 | ||||||
Security deposits and prepaid rents |
11,060 | 9,857 | ||||||
Total liabilities |
1,139,942 | 1,068,636 | ||||||
Minority interests in consolidated real estate entities |
2,421 | 5,045 | ||||||
Partners equity |
||||||||
Preferred units |
95,000 | 95,000 | ||||||
Common units |
||||||||
General partner |
10,120 | 9,722 | ||||||
Limited partner |
846,808 | 807,403 | ||||||
Accumulated other comprehensive income (loss) |
(4,177 | ) | (4,352 | ) | ||||
Total partners equity |
947,751 | 907,773 | ||||||
Total liabilities and partners equity |
$ | 2,090,114 | $ | 1,981,454 | ||||
-21-
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues |
||||||||||||||||
Rental |
$ | 72,216 | $ | 67,538 | $ | 210,211 | $ | 196,805 | ||||||||
Other property revenues |
4,609 | 4,298 | 12,934 | 11,675 | ||||||||||||
Other |
49 | 64 | 200 | 196 | ||||||||||||
Total revenues |
76,874 | 71,900 | 223,345 | 208,676 | ||||||||||||
Expenses |
||||||||||||||||
Property operating and maintenance (exclusive of items shown
separately below) |
35,790 | 33,019 | 102,844 | 96,832 | ||||||||||||
Depreciation |
16,966 | 17,496 | 50,101 | 53,539 | ||||||||||||
General and administrative |
4,406 | 4,558 | 13,464 | 13,506 | ||||||||||||
Investment, development and other |
1,332 | 1,333 | 4,500 | 3,737 | ||||||||||||
Total expenses |
58,494 | 56,406 | 170,909 | 167,614 | ||||||||||||
Operating income |
18,380 | 15,494 | 52,436 | 41,062 | ||||||||||||
Interest income |
175 | 229 | 413 | 583 | ||||||||||||
Interest expense |
(13,609 | ) | (13,676 | ) | (40,281 | ) | (42,722 | ) | ||||||||
Amortization of deferred financing costs |
(882 | ) | (990 | ) | (2,651 | ) | (3,707 | ) | ||||||||
Gains (losses) on sales of condominiums, net |
1,611 | (99 | ) | 10,022 | (368 | ) | ||||||||||
Equity in income of unconsolidated real estate entities |
527 | 592 | 1,251 | 1,294 | ||||||||||||
Other income |
1,401 | | 3,095 | 5,267 | ||||||||||||
Minority interest in consolidated property partnerships |
(85 | ) | 34 | (177 | ) | 212 | ||||||||||
Income from continuing operations |
7,518 | 1,584 | 24,108 | 1,621 | ||||||||||||
Discontinued operations |
||||||||||||||||
Income from discontinued property operations |
1,004 | 689 | 3,146 | 5,891 | ||||||||||||
Gains (losses) on sales of real estate assets, net of provision
for income taxes |
28,066 | 76,818 | 28,457 | 139,658 | ||||||||||||
Loss on early extinguishment of indebtedness |
(123 | ) | (1,846 | ) | (123 | ) | (3,220 | ) | ||||||||
Income from discontinued operations |
28,947 | 75,661 | 31,480 | 142,329 | ||||||||||||
Net income |
36,465 | 77,245 | 55,588 | 143,950 | ||||||||||||
Distributions to preferred unitholders |
(1,909 | ) | (1,909 | ) | (5,728 | ) | (5,728 | ) | ||||||||
Net income available to common unitholders |
$ | 34,556 | $ | 75,336 | $ | 49,860 | $ | 138,222 | ||||||||
Per common unit data Basic |
||||||||||||||||
Income (loss) from continuing operations
(net of preferred distributions) |
$ | 0.13 | $ | (0.01 | ) | $ | 0.42 | $ | (0.10 | ) | ||||||
Income from discontinued operations |
0.66 | 1.78 | 0.72 | 3.35 | ||||||||||||
Net income available to common unitholders |
$ | 0.79 | $ | 1.77 | $ | 1.15 | $ | 3.25 | ||||||||
Weighted average common units outstanding basic |
43,845 | 42,536 | 43,492 | 42,492 | ||||||||||||
Per common unit data Diluted |
||||||||||||||||
Income (loss) from continuing operations
(net of preferred distributions) |
$ | 0.13 | $ | (0.01 | ) | $ | 0.42 | $ | (0.10 | ) | ||||||
Income from discontinued operations |
0.65 | 1.78 | 0.71 | 3.35 | ||||||||||||
Net income available to common unitholders |
$ | 0.77 | $ | 1.77 | $ | 1.13 | $ | 3.25 | ||||||||
Weighted average common units outstanding diluted |
44,663 | 42,536 | 44,263 | 42,492 | ||||||||||||
Distributions declared |
$ | 0.45 | $ | 0.45 | $ | 1.35 | $ | 1.35 | ||||||||
-22-
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 |
5,728 | 499 | 49,361 | | 55,588 | |||||||||||||||
Net change in derivatives |
| | | 175 | 175 | |||||||||||||||
Total comprehensive income |
55,763 | |||||||||||||||||||
Contributions from the Company related to employee
stock purchase and stock option plans |
| 471 | 46,673 | | 47,144 | |||||||||||||||
Distributions to preferred unitholders |
(5,728 | ) | | | | (5,728 | ) | |||||||||||||
Distributions to common unitholders |
| (593 | ) | (58,737 | ) | | (59,330 | ) | ||||||||||||
Equity-based compensation |
| 21 | 2,108 | | 2,129 | |||||||||||||||
Partners Equity, September 30, 2006 |
$ | 95,000 | $ | 10,120 | $ | 846,808 | $ | (4,177 | ) | $ | 947,751 | |||||||||
-23-
Nine months ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Cash Flows From Operating Activities |
||||||||
Net income |
$ | 55,588 | $ | 143,950 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
51,740 | 57,896 | ||||||
Amortization of deferred financing costs |
2,651 | 3,707 | ||||||
Minority interest in consolidated entities |
177 | (212 | ) | |||||
Gains on sales of real estate assets |
(38,983 | ) | (139,658 | ) | ||||
Other income |
(1,719 | ) | (5,267 | ) | ||||
Equity in income of unconsolidated entities |
(1,251 | ) | (1,294 | ) | ||||
Distributions of earnings of unconsolidated entities |
1,775 | 1,604 | ||||||
Deferred compensation |
465 | | ||||||
Equity-based compensation |
2,129 | 1,693 | ||||||
Loss on early extinguishment of debt |
123 | 3,220 | ||||||
Changes in assets, (increase) decrease in: |
||||||||
Other assets |
(2,532 | ) | 2,906 | |||||
Deferred charges |
(114 | ) | (253 | ) | ||||
Changes in liabilities, increase (decrease) in: |
||||||||
Accrued interest payable |
9,370 | 4,103 | ||||||
Accounts payable and accrued expenses |
2,538 | 11,221 | ||||||
Security deposits and prepaid rents |
488 | 32 | ||||||
Net cash provided by operating activities |
82,445 | 83,648 | ||||||
Cash Flows From Investing Activities |
||||||||
Construction and acquisition of real estate assets, net of payables |
(185,053 | ) | (101,228 | ) | ||||
Net proceeds from sales of real estate assets |
111,471 | 193,306 | ||||||
Proceeds from sale of other investments |
898 | 5,267 | ||||||
Capitalized interest |
(7,061 | ) | (1,553 | ) | ||||
Annually recurring capital expenditures |
(9,143 | ) | (7,172 | ) | ||||
Periodically recurring capital expenditures |
(4,446 | ) | (2,636 | ) | ||||
Community rehabilitation and other revenue generating capital expenditures |
(6,490 | ) | | |||||
Corporate additions and improvements |
(2,923 | ) | (1,155 | ) | ||||
Distributions from (investments in and advances to) unconsolidated entities |
(3,384 | ) | (10,154 | ) | ||||
Note receivable collections |
1,234 | | ||||||
Net cash (used in) provided by investing activities |
(104,897 | ) | 74,675 | |||||
Cash Flows From Financing Activities |
||||||||
Payments on indebtedness |
(55,142 | ) | (216,779 | ) | ||||
Proceeds from indebtedness |
190,000 | 100,000 | ||||||
Lines of credit proceeds (repayments), net |
(92,426 | ) | 26,846 | |||||
Payments of financing costs |
(3,960 | ) | (1,176 | ) | ||||
Redemption of common units |
| (24,466 | ) | |||||
Contributions from the Company related to employee stock
purchase and stock option plans |
46,679 | 23,301 | ||||||
Capital contributions (distributions) of minority interests |
(1,183 | ) | 283 | |||||
Distributions to common unitholders |
(58,721 | ) | (57,392 | ) | ||||
Distributions to preferred unitholders |
(3,819 | ) | (5,728 | ) | ||||
Net cash provided by (used in) financing activities |
21,428 | (155,111 | ) | |||||
Net (decrease) increase in cash and cash equivalents |
(1,024 | ) | 3,212 | |||||
Cash and cash equivalents, beginning of period |
6,410 | 123 | ||||||
Cash and cash equivalents, end of period |
$ | 5,386 | $ | 3,335 | ||||
-24-
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 September 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 98.4% and 94.9% for the three months ended and 98.0% and 94.5% for the nine months ended September 30, 2006 and 2005, respectively. At September 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 October 31, 2006, the Operating Partnership owned 22,389 apartment units in 63 apartment communities, including 545 apartment units in two apartment communities held in unconsolidated entities, 1,031 apartment units currently under construction in four communities (including the expansion of one community) and 150 apartment homes in lease-up. 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 September 30, 2006, approximately 46.6%, 18.5%, 10.9% and 9.5% (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 nine months ended September 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 and development 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. |
-25-
-26-
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. | ||
In periods from January 1, 2003 through December 31, 2005, the Operating Partnership accounted for stock-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. 04-5 (EITF No. 04-5), 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. 04-5 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. 04-5 became effective on September 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. 04-5 on January 1, 2006 for all existing partnerships and limited liability companies and the adoption did not have a material impact on the Operating Partnerships financial position or results of operations. | ||
Financial Accounting Standard Board (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. | ||
Staff Accounting Bulletin No. 108 (SAB 108) was issued by the Securities and Exchange Commission in September 2006. SAB 108 provides additional guidance on the quantification and consideration of the financial statement materiality of cumulative unadjusted misstatements in both current and future financial statements. SAB 108 also provides guidance on the proper accounting and reporting for the correction of immaterial unadjusted misstatements determined to be material in subsequent accounting periods. SAB 108 generally requires prior period financial statements to be revised; however, for immaterial prior year revisions previously filed Exchange Act reports would not be required to be amended. SAB 108 is effective for the Operating Partnership for its fiscal year ending December 31, 2006. The Operating Partnership is currently assessing the impact of SAB 108 on its consolidated financial statements and plans to adopt SAB 108 in the fourth quarter of 2006. As previously disclosed in the Operating Partnerships consolidated financial statements for the years ended December 31, 2006 and 2005, the Operating Partnership began accounting for certain ground leases with scheduled rent increases on a straight-line basis effective January 1, 2005. The cumulative unadjusted misstatement related to the Operating Partnerships accounting for ground lease expense as incurred in years prior to 2005 was determined to be immaterial to the Operating Partnerships financial statements. The Operating Partnership plans to record a cumulative adjusting entry in its December 31, 2006 consolidated financial statements to correct this cumulative misstatement resulting in an increase in consolidated real estate assets of approximately $3,800, an increase in consolidated liabilities of approximately $8,800 and a decrease in consolidated equity of approximately $5,000. | ||
The Emerging Issues Task Force reached a consensus on EITF No. 06-8 (EITF No. 06-8), Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums, in September 2006. EITF No. 06-8 provides additional guidance on whether the seller of a condominium unit is required to evaluate the buyers continuing investment under SFAS No. 66 in order to recognize profit from the sale under the percentage of completion method. The EITF concluded that both the buyers initial and continuing investment must meet the criteria in SFAS No. 66 in order for condominium sale profits to be recognized under the percentage of completion method. Sales of condominiums not meeting the continuing investment test must be accounted for under the deposit method. This consensus must be ratified by the FASB after a comment period. As discussed under the Operating Partnerships revenue recognition accounting policy, the Operating Partnership accounts for condominium sales on the deposit method using similar criteria to those stated in EITF No. 06-8 in addition to the other criteria of SFAS No. 66. If ratified, EITF No. 06-8 is effective January 1, 2008 for calendar year companies. |
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Statement of Financial Accounting Standards No. 157 (SFAS No. 157), Fair Value Measurements, was issued in September 2006. SFAS No. 157 provides one definition of fair value and establishes a framework for measuring fair value. SFAS No. 157 does not require any additional financial statement items to be measured at fair value. Instead, the FASB clarified fair value measurements for existing financial statement items in an effort to eliminate inconsistencies among companies in the application of fair value under generally accepted accounting principles. Additional disclosure focusing on the inputs used to determine fair value are also required under the new guidance. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and should be applied prospectively. The Operating Partnership is currently assessing the impact that SFAS No. 157 will have on its financial position and results of operations. | ||
2. | INDEBTEDNESS | |
At September 30, 2006 and December 31, 2005, the Operating Partnerships indebtedness consisted of the following: |
Payment | Maturity | September 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 |
||||||||||||||||
Syndicated Line of Credit |
N/A | LIBOR + 0.575 | % (1) | 2010 | | 90,000 | ||||||||||
Cash Management Line |
N/A | LIBOR + 0.575 | % | 2010 | 8,953 | 11,379 | ||||||||||
8,953 | 101,379 | |||||||||||||||
Fixed Rate Secured Notes |
||||||||||||||||
FNMA |
Prin. and Int. | 6.15 | % (2) | 2029 | 95,600 | 97,100 | ||||||||||
Other |
Prin. and Int. | 4.27% - 7.69 | % | 2007-2013 | 306,392 | 268,641 | ||||||||||
401,992 | 365,741 | |||||||||||||||
Tax-Exempt Floating Rate |
||||||||||||||||
Secured Bonds |
Int. | 3.74 | % (3) | 2025 | 28,495 | 28,495 | ||||||||||
Total |
$ | 1,024,440 | $ | 980,615 | ||||||||||||
(1) | Represents stated rate. | |
(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 September 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%. |
Remainder of 2006 |
$ | 26,373 | ||
2007 |
158,828 | |||
2008 |
5,230 | |||
2009 |
76,618 | |||
2010 |
197,981 | (1) | ||
Thereafter |
559,410 | |||
$ | 1,024,440 | |||
(1) | Includes outstanding balances on lines of credit totaling $8,953. The Operating Partnerships lines of credit mature in April 2010. |
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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 August 2006, the Operating Partnership sold the apartment community subject to the assumption of this indebtedness (see note 4). As a result of this debt assumption, the Operating Partnership recorded a loss on early extinguishment of indebtedness of $123 related to the write-off of unamortized deferred financing costs. | ||
In June 2006, the Operating Partnership issued $150,000 of senior unsecured notes. The notes bear interest at 6.30% and mature in September 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 September 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 September 30, 2006, the Operating Partnership had issued letters of credit to third parties totaling $2,280 under this facility. | ||
Additionally, at September 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 | |
Apartment and Condominium Conversion Communities | ||
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. | ||
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 $5,607 at September 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 $228 at September 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. |
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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: |
September 30, | December 31, | |||||||
Balance Sheet Data | 2006 | 2005 | ||||||
Real estate assets, net of accumulated depreciation of
$10,289 and $8,349, respectively |
$ | 94,309 | $ | 96,000 | ||||
Assets held for sale, net (1) |
6,431 | 17,715 | ||||||
Cash and other |
5,760 | 1,770 | ||||||
Total assets |
$ | 106,500 | $ | 115,485 | ||||
Mortgage notes payable |
$ | 66,998 | $ | 66,999 | ||||
Mortgage notes payable to Operating Partnership |
| 5,967 | ||||||
Other liabilities |
1,053 | 996 | ||||||
Total liabilities |
68,051 | 73,962 | ||||||
Members equity |
38,449 | 41,523 | ||||||
Total liabilities and members equity |
$ | 106,500 | $ | 115,485 | ||||
Operating Partnerships equity investment |
$ | 19,074 | $ | 20,647 | ||||
(1) | Includes one community, originally containing 121 units, being converted into condominiums. |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues |
||||||||||||||||
Rental |
$ | 2,900 | $ | 2,720 | $ | 8,624 | $ | 8,081 | ||||||||
Other property revenues |
208 | 231 | 610 | 645 | ||||||||||||
Total revenues |
3,108 | 2,951 | 9,234 | 8,726 | ||||||||||||
Expenses |
||||||||||||||||
Property operating and maintenance |
964 | 877 | 2,877 | 2,676 | ||||||||||||
Depreciation and amortization |
665 | 656 | 1,985 | 1,963 | ||||||||||||
Interest |
688 | 688 | 2,064 | 2,064 | ||||||||||||
Total expenses |
2,317 | 2,221 | 6,926 | 6,703 | ||||||||||||
Income from continuing operations |
791 | 730 | 2,308 | 2,023 | ||||||||||||
Discontinued operations |
||||||||||||||||
Loss from discontinued operations |
(75 | ) | (23 | ) | (359 | ) | (119 | ) | ||||||||
Gains on sales of real estate assets, net |
997 | 994 | 1,897 | 1,849 | ||||||||||||
Loss on early extinguishment of debt |
| | | (273 | ) | |||||||||||
Income from discontinued operations |
922 | 971 | 1,538 | 1,457 | ||||||||||||
Net income |
$ | 1,713 | $ | 1,701 | $ | 3,846 | $ | 3,480 | ||||||||
Operating Partnerships share of net income |
$ | 527 | $ | 592 | $ | 1,251 | $ | 1,294 | ||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Condominium revenue |
$ | 7,289 | $ | 4,769 | $ | 16,513 | $ | 9,191 | ||||||||
Condominium costs and expenses |
(6,292 | ) | (3,775 | ) | (14,616 | ) | (7,342 | ) | ||||||||
Gains on condominium sales, net |
$ | 997 | $ | 994 | $ | 1,897 | $ | 1,849 | ||||||||
At September 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 |
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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 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 second quarter of 2006, the mortgage note payable was retired from the proceeds of condominium sales. | ||
Land Entities | ||
At September 30, 2006, the Operating Partnership holds a 50% equity interest in a limited liability company whose sole investment consists of a partnership interest in an entity (the Land Partnership) which holds land for future development. At September 30, 2006, the Land Partnership had total assets of $24,985, principally land held for future development, total liabilities of $13,171 (including a secured note payable of $12,000 to the Operating Partnership) and total equity of $11,814 (including the Operating Partnerships equity investment of $3,391). | ||
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 (see note 3) 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. | ||
In October 2006, the Operating Partnership acquired a 150-unit apartment community in Tampa, Florida for approximately $23,800, including closing costs. At the time of acquisition, the community was undergoing an extensive renovation program and was predominantly vacant. The Operating Partnership plans to spend up to approximately $2,000 to complete the renovation of the community. Leasing of the renovated apartment units will commence upon the completion of the units. | ||
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 September 30, 2006, the Operating Partnership had three apartment communities, containing 826 units, and one condominium conversion community, originally containing 127 units and several land parcels classified as held for sale. These real estate assets are reflected in the accompanying consolidated balance sheet at $33,944, which represents the lower of their depreciated cost or fair value less costs to sell. At September 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 $31,481. |
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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 and such costs are included in condominium expenses in the table below. A summary of revenues and costs and expenses of condominium activities included in continuing operations for the three and nine months ended September 30, 2006 and 2005 was as follows: |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Condominium revenues |
$ | 6,778 | $ | | $ | 25,241 | $ | | ||||||||
Condominium costs and expenses |
(5,167 | ) | (99 | ) | (15,219 | ) | (368 | ) | ||||||||
Gains (losses) on sales of condominiums, net |
$ | 1,611 | $ | (99 | ) | $ | 10,022 | $ | (368 | ) | ||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues |
||||||||||||||||
Rental |
$ | 2,806 | $ | 5,086 | $ | 10,355 | $ | 24,129 | ||||||||
Other property revenues |
324 | 652 | 1,128 | 2,430 | ||||||||||||
Total revenues |
3,130 | 5,738 | 11,483 | 26,559 | ||||||||||||
Expenses |
||||||||||||||||
Property operating and maintenance (exclusive of items shown
separately below) |
1,258 | 2,569 | 4,304 | 11,554 | ||||||||||||
Depreciation |
286 | 1,454 | 1,639 | 4,359 | ||||||||||||
Interest |
582 | 1,026 | 2,394 | 4,741 | ||||||||||||
Minority interest in consolidated property partnerships |
| | | 14 | ||||||||||||
Total expenses |
2,126 | 5,049 | 8,337 | 20,668 | ||||||||||||
Income from discontinued property operations |
$ | 1,004 | $ | 689 | $ | 3,146 | $ | 5,891 | ||||||||
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Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Condominium revenues |
$ | 504 | $ | 11,911 | $ | 7,022 | $ | 50,016 | ||||||||
Condominium costs and expenses |
(558 | ) | (9,537 | ) | (6,685 | ) | (34,130 | ) | ||||||||
Gains (losses) on condominium sales, before income taxes |
(54 | ) | 2,374 | 337 | 15,886 | |||||||||||
Provision for income taxes |
| (270 | ) | | (653 | ) | ||||||||||
Gains (losses) on condominium sales, net of income taxes |
$ | (54 | ) | $ | 2,104 | $ | 337 | $ | 15,233 | |||||||
5. | PARTNERS EQUITY | |
Computations of Earnings Per Common Unit | ||
For the nine months ended September 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 | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Income from continuing operations available to common
unitholders (numerator): |
||||||||||||||||
Income from continuing operations |
$ | 7,518 | $ | 1,584 | $ | 24,108 | $ | 1,621 | ||||||||
Less: Preferred unit distributions |
(1,909 | ) | (1,909 | ) | (5,728 | ) | (5,728 | ) | ||||||||
Income from continuing operations available to
common unitholders |
$ | 5,609 | $ | (325 | ) | $ | 18,380 | $ | (4,107 | ) | ||||||
Common units (denominator): |
||||||||||||||||
Weighted average units outstanding basic |
43,845 | 42,536 | 43,492 | 42,492 | ||||||||||||
Dilutive units from stock options and awards |
818 | | 771 | | ||||||||||||
Weighted average units outstanding diluted |
44,663 | 42,536 | 44,263 | 42,492 | ||||||||||||
For the three and nine months ended September 30, 2006, there were no antidilutive securities. For the three and nine months ended September 30, 2005, stock options to purchase 3,933 shares of common stock were excluded from the computation of diluted earnings per common unit as these stock options and awards were antidilutive. | ||
6. | DERIVATIVE FINANCIAL INSTRUMENTS | |
At September 30, 2006, the Operating Partnership had an outstanding interest rate swap agreement with a notional value of approximately $95,510 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 was terminated through a $2,448 termination payment to the swap counterparty. |
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At September 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 September 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 September 30, 2006, the difference between the amortized costs of the interest rate cap arrangement and its fair value of $0 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 nine months ended September 30, 2006 and 2005 is as follows: |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net income |
$ | 36,465 | $ | 77,245 | $ | 55,588 | $ | 143,950 | ||||||||
Change in derivatives (1) |
(1,069 | ) | 2,823 | 175 | 4,763 | |||||||||||
Comprehensive income |
$ | 35,396 | $ | 80,068 | $ | 55,763 | $ | 148,713 | ||||||||
(1) | In the three and nine months ended September 30, 2006, the change in derivatives balance includes an adjustment of $281 and $834, respectively, for amortized swap costs included in net income. |
7. | SEGMENT INFORMATION | |
Segment Description | ||
In accordance with SFAS No. 131, Disclosure About the Segments of an Enterprise and Related Information, the Operating Partnership presents segment information based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. The segment information is prepared on 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 three and nine months ended September 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. | ||
| 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. |
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Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues |
||||||||||||||||
Fully stabilized communities |
$ | 64,350 | $ | 60,931 | $ | 188,565 | $ | 178,661 | ||||||||
Development, rehabilitation and lease-up communities |
2,202 | 2,653 | 7,168 | 7,806 | ||||||||||||
Condominium conversion communities |
428 | 1,520 | 2,334 | 4,427 | ||||||||||||
Acquired communities |
3,664 | 1,005 | 7,008 | 1,311 | ||||||||||||
Other property segments |
6,181 | 5,727 | 18,070 | 16,275 | ||||||||||||
Other |
49 | 64 | 200 | 196 | ||||||||||||
Consolidated revenues |
$ | 76,874 | $ | 71,900 | $ | 223,345 | $ | 208,676 | ||||||||
Contribution to NOI |
||||||||||||||||
Fully stabilized communities |
$ | 39,377 | $ | 37,392 | $ | 116,044 | $ | 109,295 | ||||||||
Development, rehabilitation and lease-up communities |
821 | 1,543 | 3,598 | 4,422 | ||||||||||||
Condominium conversion communities |
(72 | ) | 990 | 849 | 2,868 | |||||||||||
Acquired communities |
2,129 | 625 | 3,876 | 854 | ||||||||||||
Other |
(1,220 | ) | (1,733 | ) | (4,066 | ) | (5,791 | ) | ||||||||
Consolidated property net operating income |
41,035 | 38,817 | 120,301 | 111,648 | ||||||||||||
Interest income |
175 | 229 | 413 | 583 | ||||||||||||
Other revenues |
49 | 64 | 200 | 196 | ||||||||||||
Minority interest in consolidated property partnerships |
(85 | ) | 34 | (177 | ) | 212 | ||||||||||
Depreciation |
(16,966 | ) | (17,496 | ) | (50,101 | ) | (53,539 | ) | ||||||||
Interest expense |
(13,609 | ) | (13,676 | ) | (40,281 | ) | (42,722 | ) | ||||||||
Amortization of deferred financing costs |
(882 | ) | (990 | ) | (2,651 | ) | (3,707 | ) | ||||||||
General and administrative |
(4,406 | ) | (4,558 | ) | (13,464 | ) | (13,506 | ) | ||||||||
Investment, development and other expenses |
(1,332 | ) | (1,333 | ) | (4,500 | ) | (3,737 | ) | ||||||||
Gains (losses) on sales of condominiums, net |
1,611 | (99 | ) | 10,022 | (368 | ) | ||||||||||
Equity in income of unconsolidated real estate entities |
527 | 592 | 1,251 | 1,294 | ||||||||||||
Other income |
1,401 | | 3,095 | 5,267 | ||||||||||||
Income from continuing operations |
7,518 | 1,584 | 24,108 | 1,621 | ||||||||||||
Income from discontinued operations |
28,947 | 75,661 | 31,480 | 142,329 | ||||||||||||
Net income |
$ | 36,465 | $ | 77,245 | $ | 55,588 | $ | 143,950 | ||||||||
8. | SEVERANCE COSTS | |
In prior years, the Operating Partnership recorded severance charges associated with the departure of certain executive officers of the Operating Partnership. Under certain of these arrangements, the Operating Partnership is required to make certain payments and provide specified benefits through 2013 and 2016. The following table summarizes the activity relating to aggregate severance charges for the nine months ended September 30, 2006 and 2005: |
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Nine months ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Accrued severance charges, beginning of period |
$ | 14,325 | $ | 15,317 | ||||
Payments for period |
(2,372 | ) | (2,095 | ) | ||||
Interest accretion |
636 | 679 | ||||||
Accrued severance charges, end of period |
$ | 12,589 | $ | 13,901 | ||||
9. | SUPPLEMENTAL CASH FLOW INFORMATION | |
Interest paid (including capitalized amounts of $7,061 and $1,553 for the nine months ended September 30, 2006 and 2005, respectively), aggregated $40,315 and $45,288 for the nine months ended September 30, 2006 and 2005, respectively. | ||
Non-cash investing and financing activities for the nine months ended September 30, 2006 and 2005 were as follows: | ||
During the nine months ended September 30, 2006, the Operating Partnership sold an apartment community subject to $40,000 of mortgage debt assumed by the purchaser. During the nine months ended September 30, 2005, the Operating Partnership sold three apartment communities subject to $81,560 of mortgage indebtedness assumed by the purchasers. This mortgage debt assumed by the purchasers was excluded from the cash flow statements as a non-cash transactions (see note 4). | ||
In July 2006 the Operating Partnership acquired an apartment community for cash and the assumption of mortgage indebtedness totaling $41,394. The mortgage debt assumed by the Operating Partnership was excluded from the statement of cash flows as a non-cash transaction (see note 4). | ||
During the nine months ended September 30, 2006, the Operating Partnership amortized approximately $834 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 nine months ended September 30, 2006, the Operating Partnerships derivative financial instruments, accounted for as cash flow hedges, decreased in value causing an increase in accounts payable and accrued expenses and a corresponding decrease in partners equity of $660. During the nine months ended September 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 $4,763. | ||
The Operating Partnership committed to distribute $21,774 and $19,190 for the quarters ended September 30, 2006 and 2005, respectively. These distributions were not reflected in the statement of cash flows as of September 30, 2006 and 2005. | ||
10. | EQUITY-BASED COMPENSATION PLANS | |
Equity Compensation Plans | ||
As the primary operating subsidiary of the Company, the Operating Partnership participates in and bears the compensation expenses associated with the Companys stock-based compensation plans. The information discussed below relating to the Companys stock-based compensation plans is also applicable for the Operating Partnership. Effective January 1, 2006, the 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 nine months ended September 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. |
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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 September 30, 2006, stock options outstanding under the 2003 Stock Plan and the Companys previous stock plan totaled 2,525. | ||
Compensation costs for stock options have 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: |
Nine months ended | ||||
September 30, 2006 | ||||
Dividend yield |
4.5 | % | ||
Expected volatility |
17.5 | % | ||
Risk-free interest rate |
4.3 | % | ||
Expected option term (years) |
5.0 |
Nine months ended | ||||||||
September 30, 2006 | ||||||||
Weighted Average | ||||||||
Shares | Exercise Price | |||||||
Options outstanding, beginning of period |
3,534 | $ | 34 | |||||
Granted |
291 | 40 | ||||||
Exercised |
(1,299 | ) | 36 | |||||
Forfeited |
(1 | ) | 37 | |||||
Options outstanding, end of period |
2,525 | 33 | ||||||
Options exercisable, end of period |
1,595 | 33 | ||||||
Weighted-average fair value of options granted during the period |
$ | 4.80 | ||||||
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Weighted Average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Unvested shares, beginning or period |
140 | $ | 28 | |||||
Granted |
39 | 40 | ||||||
Vested |
(23 | ) | 27 | |||||
Forfeited |
| | ||||||
Unvested shares, end of period |
156 | $ | 31 | |||||
At September 30, 2006, there was $3,675 of unrecognized compensation cost related to restricted stock. This cost is expected to be recognized over a weighted average period of 3.0 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 $40 and $141 for the three and nine months ended September 30, 2006, respectively. | ||
11. | INCOME TAXES | |
Income or losses of the Operating Partnership are allocated to the partners of the Operating Partnership for inclusion in their respective income tax returns. Accordingly, no provisions or benefit for income taxes has been made in the accompanying financial statements. The Company 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 nine months ended September 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 $700. 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 three and nine months ended September 30, 2006. The tax benefits associated with such income tax net operating loss carryforwards may be recognized in future periods should the TRSs |
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-40-
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| 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. |
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Three months ended | Nine months ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2006 | 2005 | % Change | 2006 | 2005 | % Change | |||||||||||||||||||
Rental and other property revenues |
||||||||||||||||||||||||
Fully stabilized communities (1) |
$ | 64,350 | $ | 60,931 | 5.6 | % | $ | 188,565 | $ | 178,661 | 5.5 | % | ||||||||||||
Development, rehabilitation and
lease-up communities |
2,202 | 2,653 | (17.0 | )% | 7,168 | 7,806 | (8.2 | )% | ||||||||||||||||
Condominium conversion communities (2) |
428 | 1,520 | (71.8 | )% | 2,334 | 4,427 | (47.3 | )% | ||||||||||||||||
Acquired communities (3) |
3,664 | 1,005 | 264.6 | % | 7,008 | 1,311 | 434.6 | % | ||||||||||||||||
Other property segments (4) |
6,181 | 5,727 | 7.9 | % | 18,070 | 16,275 | 11.0 | % | ||||||||||||||||
76,825 | 71,836 | 6.9 | % | 223,145 | 208,480 | 7.0 | % | |||||||||||||||||
Property operating and maintenance
expenses (excluding depreciation
and amortization) |
||||||||||||||||||||||||
Fully stabilized communities (1) |
24,973 | 23,539 | 6.1 | % | 72,521 | 69,366 | 4.5 | % | ||||||||||||||||
Development, rehabilitation and
lease-up communities |
1,381 | 1,110 | 24.4 | % | 3,570 | 3,384 | 5.5 | % | ||||||||||||||||
Condominium conversion communities (2) |
500 | 530 | (5.7 | )% | 1,485 | 1,559 | (4.7 | )% | ||||||||||||||||
Acquired communities (3) |
1,535 | 380 | 303.9 | % | 3,132 | 457 | 585.3 | % | ||||||||||||||||
Other expense (5) |
7,401 | 7,460 | (0.8 | )% | 22,136 | 22,066 | 0.3 | % | ||||||||||||||||
35,790 | 33,019 | 8.4 | % | 102,844 | 96,832 | 6.2 | % | |||||||||||||||||
Property net operating income (6) |
$ | 41,035 | $ | 38,817 | 5.7 | % | $ | 120,301 | $ | 111,648 | 7.8 | % | ||||||||||||
Capital expenditures (7)(8) |
||||||||||||||||||||||||
Annually recurring: |
||||||||||||||||||||||||
Carpet |
$ | 1,331 | $ | 899 | 48.1 | % | $ | 2,993 | $ | 2,279 | 31.3 | % | ||||||||||||
Other |
1,737 | 1,232 | 41.0 | % | 5,723 | 3,795 | 50.8 | % | ||||||||||||||||
Total |
$ | 3,068 | $ | 2,131 | 44.0 | % | $ | 8,716 | $ | 6,074 | 43.5 | % | ||||||||||||
Periodically recurring |
$ | 2,117 | $ | 581 | 264.4 | % | $ | 4,343 | $ | 2,471 | 75.8 | % | ||||||||||||
Average apartment units in service |
20,188 | 19,523 | 3.4 | % | 19,879 | 19,381 | 2.6 | % | ||||||||||||||||
(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 revenues from commercial properties, from furnished apartment rentals above the unfurnished rental rates and any property revenue not directly related to property operations. Other property segment revenues exclude other corporate revenues of $49 and $64 for the three months ended and $200 and $196 for the nine months ended September 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. |
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(6) | A reconciliation of property net operating income to GAAP net income is detailed below. |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Total same store NOI |
$ | 39,377 | $ | 37,392 | $ | 116,044 | $ | 109,295 | ||||||||
Property NOI from other operating segments |
1,658 | 1,425 | 4,257 | 2,353 | ||||||||||||
Consolidated property NOI |
41,035 | 38,817 | 120,301 | 111,648 | ||||||||||||
Add (subtract): |
||||||||||||||||
Interest income |
175 | 229 | 413 | 583 | ||||||||||||
Other revenues |
49 | 64 | 200 | 196 | ||||||||||||
Minority interest in consolidated
property partnerships |
(85 | ) | 34 | (177 | ) | 212 | ||||||||||
Depreciation |
(16,966 | ) | (17,496 | ) | (50,101 | ) | (53,539 | ) | ||||||||
Interest expense |
(13,609 | ) | (13,676 | ) | (40,281 | ) | (42,722 | ) | ||||||||
Amortization of deferred financing costs |
(882 | ) | (990 | ) | (2,651 | ) | (3,707 | ) | ||||||||
General and administrative |
(4,406 | ) | (4,558 | ) | (13,464 | ) | (13,506 | ) | ||||||||
Investment, development and other expenses |
(1,332 | ) | (1,333 | ) | (4,500 | ) | (3,737 | ) | ||||||||
Gains (losses) on sales of condominiums, net |
1,611 | (99 | ) | 10,022 | (368 | ) | ||||||||||
Equity in income of unconsolidated
real estate entities |
527 | 592 | 1,251 | 1,294 | ||||||||||||
Other income |
1,401 | | 3,095 | 5,267 | ||||||||||||
Minority interest of common unitholders |
(87 | ) | 10 | (369 | ) | 226 | ||||||||||
Income from continuing operations |
7,431 | 1,594 | 23,739 | 1,847 | ||||||||||||
Income from discontinued operations |
28,370 | 71,647 | 30,847 | 134,515 | ||||||||||||
Net income |
$ | 35,801 | $ | 73,241 | $ | 54,586 | $ | 136,362 | ||||||||
(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 | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Annually recurring capital expenditures |
||||||||||||||||
Continuing operations |
$ | 3,068 | $ | 2,131 | $ | 8,716 | $ | 6,074 | ||||||||
Discontinued operations |
161 | 219 | 427 | 1,098 | ||||||||||||
Total annually recurring capital expenditures
per statements of cash flows |
$ | 3,229 | $ | 2,350 | $ | 9,143 | $ | 7,172 | ||||||||
Periodically recurring capital expenditures |
||||||||||||||||
Continuing operations |
$ | 2,117 | $ | 581 | $ | 4,343 | $ | 2,471 | ||||||||
Discontinued operations |
7 | 26 | 103 | 165 | ||||||||||||
Total periodically recurring capital expenditures
per statements of cash flows |
$ | 2,124 | $ | 607 | $ | 4,446 | $ | 2,636 | ||||||||
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Three months ended | Nine months ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2006 | 2005 | % Change | 2006 | 2005 | % Change | |||||||||||||||||||
Rental and other revenues |
$ | 64,350 | $ | 60,931 | 5.6 | % | $ | 188,565 | $ | 178,661 | 5.5 | % | ||||||||||||
Property operating and
maintenance expenses
(excluding depreciation and
amortization) |
24,973 | 23,539 | 6.1 | % | 72,521 | 69,366 | 4.5 | % | ||||||||||||||||
Same store net operating income (1) |
$ | 39,377 | $ | 37,392 | 5.3 | % | $ | 116,044 | $ | 109,295 | 6.2 | % | ||||||||||||
Capital expenditures (2) |
||||||||||||||||||||||||
Annually recurring: |
||||||||||||||||||||||||
Carpet |
$ | 1,246 | $ | 806 | 54.6 | % | $ | 2,857 | $ | 2,051 | 39.3 | % | ||||||||||||
Other |
1,623 | 1,103 | 47.1 | % | 5,096 | 3,382 | 50.7 | % | ||||||||||||||||
Total annually recurring |
2,869 | 1,909 | 50.3 | % | 7,953 | 5,433 | 46.4 | % | ||||||||||||||||
Periodically recurring |
600 | 451 | 33.0 | % | 1,851 | 1,504 | 23.1 | % | ||||||||||||||||
Total capital expenditures (A) |
$ | 3,469 | $ | 2,360 | 47.0 | % | $ | 9,804 | $ | 6,937 | 41.3 | % | ||||||||||||
Total capital expenditures per unit
(A ÷ 17,961 units) |
$ | 193 | $ | 131 | 47.0 | % | $ | 546 | $ | 386 | 41.3 | % | ||||||||||||
Average economic occupancy (3) |
94.9 | % | 95.3 | % | (0.4 | )% | 95.1 | % | 94.4 | % | 0.7 | % | ||||||||||||
Average monthly rental rate per unit (4) |
$ | 1,178 | $ | 1,111 | 6.0 | % | $ | 1,151 | $ | 1,102 | 4.4 | % | ||||||||||||
(1) | Net operating income of stabilized communities is a supplemental non-GAAP financial measure. See page 47 for a reconciliation of net operating income for stabilized communities to GAAP net income. | |
(2) | A reconciliation of these segment components of property capital expenditures to total annually recurring and periodically recurring capital expenditures as presented in the consolidated statements of cash flows prepared under GAAP is detailed below. |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Annually recurring capital expenditures by operating segment
Same store |
$ | 2,869 | $ | 1,909 | $ | 7,953 | $ | 5,433 | ||||||||
Construction and lease-up |
21 | 76 | 374 | 347 | ||||||||||||
Condominium conversion communities |
2 | 54 | 2 | 107 | ||||||||||||
Acquired |
131 | 21 | 190 | 36 | ||||||||||||
Other segments |
206 | 290 | 624 | 1,249 | ||||||||||||
Total annually recurring capital expenditures per
statements of cash flows |
$ | 3,229 | $ | 2,350 | $ | 9,143 | $ | 7,172 | ||||||||
Periodically recurring capital expenditures by operating segment
Same store |
$ | 600 | $ | 451 | $ | 1,851 | $ | 1,504 | ||||||||
Construction and lease-up |
212 | 57 | 424 | 293 | ||||||||||||
Condominium conversion communities |
| 22 | | 58 | ||||||||||||
Acquired |
3 | | 12 | 5 | ||||||||||||
Other segments |
1,309 | 77 | 2,159 | 776 | ||||||||||||
Total periodically recurring capital expenditures per
statements of cash flows |
$ | 2,124 | $ | 607 | $ | 4,446 | $ | 2,636 | ||||||||
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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 reduced the average monthly rental rate per unit by less than 1% for the three and nine months ended September 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 94.0% and 94.4% for the three months ended September 30, 2006 and 2005, respectively, and 94.3% and 93.4% for the nine months ended September 30, 2006 and 2005, respectively. For the three months ended September 30, 2006 and 2005, net concessions were $349 and $372, respectively, and employee discounts were $208 and $142, respectively. For the nine months ended September 30, 2006 and 2005, net concessions were $945 and $1,315, respectively, and employee discounts were $554 and $428, 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 increased the computed average economic occupancy amounts by less than 1% for the three and nine months ended September 30, 2006. |
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Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
New community development and acquisition activity (1) |
$ | 93,973 | $ | 11,477 | $ | 238,509 | $ | 104,874 | ||||||||
Periodically recurring capital expenditures |
||||||||||||||||
Community rehabilitation and other revenue
generating improvements (2) |
3,653 | | 6,490 | | ||||||||||||
Other community additions and improvements (3) |
2,124 | 607 | 4,446 | 2,636 | ||||||||||||
Annually recurring capital expenditures |
||||||||||||||||
Carpet replacements and other community additions
and improvements (4) |
3,229 | 2,350 | 9,143 | 7,172 | ||||||||||||
Corporate additions and improvements |
1,940 | 177 | 2,923 | 1,155 | ||||||||||||
$ | 104,919 | $ | 14,611 | $ | 261,511 | $ | 115,837 | |||||||||
Other Data |
||||||||||||||||
Capitalized interest |
$ | 2,923 | $ | 770 | $ | 7,061 | $ | 1,553 | ||||||||
Capitalized development costs and fees (5) |
$ | 612 | $ | 316 | $ | 1,366 | $ | 882 | ||||||||
(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. |
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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 | September 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 | $ | 49.7 | 4Q 2004 | 4Q 2006 | 4Q 2007 | | N/A | N/A | N/A | |||||||||||||||||||||||||||||||
Post Alexander |
Atlanta, GA | 307 | 62.8 | 13.2 | 2Q 2006 | 1Q 2008 | 1Q 2009 | | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||
Post Eastside |
Dallas, TX | 435 | 53.9 | 6.7 | 4Q 2006 | 4Q 2007 | 1Q 2009 | | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||
Post Hyde Park®
(expansion) |
Tampa, FL | 84 | 18.6 | (4) | 4.9 | 4Q 2006 | 1Q 2008 | 4Q 2008 | | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||
Total Apartments |
1,031 | $ | 191.8 | $ | 74.5 | | ||||||||||||||||||||||||||||||||||||||
Condominiums: |
||||||||||||||||||||||||||||||||||||||||||||
The Condominiums at
Carlyle Square (2) |
Alexandria, VA | 145 | $ | 43.7 | $ | 33.7 | 4Q 2004 | 1Q 2007 | N/A | N/A | 4Q 2007 | 91 | | |||||||||||||||||||||||||||||||
Mercer Square |
Dallas, TX | 230 | 17.1 | 6.0 | 2Q 2006 | 3Q 2007 | N/A | N/A | 2Q 2008 | | | |||||||||||||||||||||||||||||||||
Total Condominiums |
230 | $ | 60.8 | $ | 39.7 | 91 | | |||||||||||||||||||||||||||||||||||||
(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 October 23, 2006, the Company has 91 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 calculation represents the aggregate projected unlevered property net operating income to be earned by the apartment communities in their first year of stabilized operations (after deducting a 3% management fee and a $300 per unit capital reserve) divided by aggregate estimated construction costs of the apartment communities. The Company uses property net operating income as a management tool to measure the operating performance of its apartment communities. There can be no assurance that these percentages will be achieved. | |
(4) | Total estimated construction costs for the Post Hyde Park® expansion include the estimated replacement costs of six apartment units at the Companys existing Hyde Park community that are being demolished to accommodate the expansion. |
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Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net income available to common shareholders |
$ | 33,892 | $ | 71,332 | $ | 48,858 | $ | 130,634 | ||||||||
Minority interest of common unitholders -
continuing operations |
87 | (10 | ) | 369 | (226 | ) | ||||||||||
Minority interest in discontinued operations (1) |
577 | 4,014 | 633 | 7,814 | ||||||||||||
Depreciation on wholly-owned real estate assets, net (2) |
16,673 | 18,199 | 49,930 | 55,584 | ||||||||||||
Depreciation on real estate assets held in
unconsolidated entities |
229 | 224 | 679 | 744 | ||||||||||||
Gains on sales of real estate assets, net of provision for
income taxes |
(29,678 | ) | (76,720 | ) | (38,480 | ) | (139,290 | ) | ||||||||
Incremental gains (losses) on condominium sales, net of
provision for income taxes (3) |
(820 | ) | 1,398 | 1,232 | 7,459 | |||||||||||
Gains on sales of real estate assets unconsolidated
entities |
(174 | ) | (246 | ) | (247 | ) | (445 | ) | ||||||||
Incremental gains (losses) on condominium sales -
unconsolidated entities (3) |
47 | 258 | (44 | ) | 291 | |||||||||||
Funds from operations available to common
shareholders and unitholders (4) |
$ | 20,833 | $ | 18,449 | $ | 62,930 | $ | 62,565 | ||||||||
Cash flow provided by (used in): |
||||||||||||||||
Operating activities |
$ | 30,495 | $ | 33,000 | $ | 82,445 | $ | 83,648 | ||||||||
Investing activities |
$ | 18,783 | $ | 84,291 | $ | (104,897 | ) | $ | 74,675 | |||||||
Financing activities |
$ | (54,435 | ) | $ | (118,125 | ) | $ | 21,428 | $ | (155,111 | ) | |||||
Weighted average shares outstanding basic |
43,137 | 40,372 | 42,616 | 40,157 | ||||||||||||
Weighted average shares and units outstanding basic |
43,845 | 42,536 | 43,492 | 42,492 | ||||||||||||
Weighted average shares outstanding diluted (5) |
43,955 | 40,813 | 43,387 | 40,450 | ||||||||||||
Weighted average shares and units outstanding diluted (5) |
44,663 | 42,977 | 44,263 | 42,785 |
(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) | For the three and nine months ended September 30, 2006, FFO includes final proceeds of $325 relating to the sale of a technology investment and a loss of $123 from the early extinguishment of indebtedness associated with asset sales. Funds from operations for the three and nine months ended September 30, 2005, includes losses of $1,846 and $3,220, respectively, from the early extinguishment of debt associated with asset sales and for the nine months ended September 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 nine months ended September 30, 2005 include 441 and 293 shares and units, respectively. Such diluted securities were antidilutive to the income (loss) computations in the three and nine months ended September 30, 2005 under generally accepted accounting principles. |
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| 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. |
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 to $90,270 | 5.21 | % | 1 month LIBOR | 7/31/09 | $ | (734 | ) | ||||||||||||
Interest Rate Cap |
$ | 28,495 | 5.00 | % | | 2/01/08 | | |||||||||||||
$ | (734 | ) | ||||||||||||||||||
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(a) | through (b) None | ||
(c) | The following table summarizes the Companys purchases of its equity securities in the three months ended September 30, 2006 (in thousands, except per share amounts). |
Total Number of | Approximate Dollar | |||||||||||||||
Shares Purchased as | Value of Shares that | |||||||||||||||
Part of Publicly | May Yet Be Purchased | |||||||||||||||
Total Number of | Average Price Paid | Announced Plans or | Under the Plans or | |||||||||||||
Period | Shares Purchased | Per Share | Programs | Programs (1) | ||||||||||||
July 1, 2006 to
July 31, 2006 |
| $ | | | $ | 165,600 | ||||||||||
August 1, 2006 to
August 31, 2006 |
| | | $ | 165,600 | |||||||||||
September 1, 2006 to
September 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. |
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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 | ||
11.1(g)
|
| Statement Regarding Computation of Per Share Earnings | ||
31.1
|
| Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, 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) | The information required by this exhibit is included in note 5 to the consolidated financial statements and incorporated herein by reference. |
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POST PROPERTIES, INC. | ||||||
November 9, 2006
|
By | /s/ David P. Stockert
|
||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
November 9, 2006
|
By | /s/ Christopher J. Papa | ||||
Executive Vice President and Chief Financial Officer | ||||||
(Principal Financial Officer) | ||||||
November 9, 2006
|
By | /s/ Arthur J. Quirk
|
||||
Senior Vice President and Chief Accounting Officer | ||||||
(Principal Accounting Officer) |
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POST APARTMENT HOMES, L.P. | ||||||
By: | Post GP Holdings, Inc., its sole general partner | |||||
November 9, 2006
|
By | /s/ David P. Stockert
|
||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
November 9, 2006
|
By | /s/ Christopher J. Papa
|
||||
Executive Vice President and Chief Financial Officer | ||||||
(Principal Financial Officer) | ||||||
November 9, 2006
|
By | /s/ Arthur J. Quirk
|
||||
Senior Vice President and Chief Accounting Officer | ||||||
(Principal Accounting Officer) |
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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 | ||
11.1(g)
|
| Statement Regarding Computation of Per Share Earnings | ||
31.1
|
| Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, 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) | The information required by this exhibit is included in note 5 to the consolidated financial statements and incorporated herein by reference. |
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