##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 
 FORM 10-Q
 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR [   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from        to Commission file numbers 1-12080 and 0-28226 
 POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.  Georgia
    
    58-1550675Georgia
    
    58-2053632(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 4401 Northside Parkway, Suite 800, Atlanta, Georgia 30327
(Address of principal executive offices  zip code) (404) 846-5000
(Registrants telephone number, including area code) Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Post Properties, Inc.
    
    Yes
    
    [X]
    
    No
    
    [   ]Post Apartment Homes, L.P.
    
    Yes
    
    [X]
    
    No
    
    [   ]
 Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act). Post Properties, Inc.
    
    Yes
    
    [X]
    
    No
    
    [   ]Post Apartment Homes, L.P.
    
    Yes
    
    [X]
    
    No
    
    [   ]
   APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of
common stock as of the latest practicable date: 39,924,907 shares of common stock outstanding as of August 4, 2004.




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POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P. INDEX PagePart I
    
    
    
    FINANCIAL INFORMATIONItem 1
    
    Financial StatementsPOST PROPERTIES, INC.Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003
    
    
    1Consolidated Statements of Operations for the three and six months ended
June 30, 2004 and 2003
    
    
    2Consolidated Statement of Shareholders Equity and Accumulated Earnings
for the six months ended June 30, 2004
    
    
    3Consolidated Statements of Cash Flows for the six months ended June 30,
2004 and 2003
    
    
    4Notes to Consolidated Financial Statements
    
    
    5POST APARTMENT HOMES, L.P.Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003
    
    
    16Consolidated Statements of Operations for the three and six months ended
June 30, 2004 and 2003
    
    
    17Consolidated Statement of Partners Equity for the six months ended June
30, 2004
    
    
    18Consolidated Statements of Cash Flows for the six months ended June 30,
2004 and 2003
    
    
    19Notes to Consolidated Financial Statements
    
    
    20Item 2
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    31Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    47Item 4
    
    Controls and Procedures
    
    
    48Part II
    
    
    
    OTHER INFORMATION
    
    
    49Item 1
    
    Legal Proceedings
    
    
    49Item 2
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
    
    
    49Item 3
    
    Defaults Upon Senior Securities
    
    
    49Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    50Item 5
    
    Other Information
    
    
    50Item 6
    
    Exhibits and Reports on Form 8-K
    
    
    51Signatures
    
    
    52Exhibit Index
    
    
    54EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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POST PROPERTIES, INC. 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
 June 30,
    
    December 31,2004
    
    2003(Unaudited)AssetsReal estate assetsLand
    
    $
    274,000
    
    
    $
    254,000Building and improvements
    
    
    1,948,854
    
    
    
    1,883,582Furniture, fixtures and equipment
    
    
    219,450
    
    
    
    214,002Construction in progress
    
    
    14,851
    
    
    
    12,946Land held for future development
    
    
    13,384
    
    
    
    11,9942,470,539
    
    
    
    2,376,524Less: accumulated depreciation
    
    
    (474,016
    )
    
    
    (432,157
    )Assets held for sale, net of accumulated depreciation of $7,836 and
$74,614 at June 30, 2004 and December 31, 2003, respectively
    
    
    16,977
    
    
    
    145,238Total real estate assets
    
    
    2,013,500
    
    
    
    2,089,605Investments in and advances to unconsolidated real estate entities
    
    
    22,165
    
    
    
    74,786Cash and cash equivalents
    
    
    55,291
    
    
    
    1,334Restricted cash
    
    
    2,085
    
    
    
    2,065Deferred charges, net
    
    
    11,504
    
    
    
    12,285Other assets
    
    
    36,766
    
    
    
    35,376Total assets
    
    $
    2,141,311
    
    
    $
    2,215,451Liabilities and shareholders equityNotes payable, including $14,760 and $119,085 of debt secured by assets
held for sale at June 30, 2004 and December 31, 2003, respectively
    
    $
    1,080,327
    
    
    $
    1,186,322Accrued interest payable
    
    
    6,889
    


    
    
    6,923Dividend and distribution payable
    
    
    19,582
    
    
    
    19,509Accounts payable and accrued expenses
    
    
    71,700
    
    
    
    65,872Security deposits and prepaid rents
    
    
    7,324
    
    
    
    7,890Total liabilities
    
    
    1,185,822
    
    
    
    1,286,516Minority interest of preferred unitholders in Operating Partnership
    
    
    70,000
    
    
    
    70,000Minority interest of common unitholders in Operating Partnership
    
    
    47,968
    
    
    
    62,409Shareholders equityPreferred stock, $.01 par value, 20,000,000 authorized:8 1/2% Series A Cumulative Redeemable Shares, liquidation preference
$50 per share, 900,000 shares issued and outstanding
    
    
    9
    
    
    
    97 5/8% Series B Cumulative Redeemable Shares, liquidation preference
$25 per share, 2,000,000 shares issued and outstanding
    
    
    20
    
    
    
    207 5/8% Series C Cumulative Redeemable Shares, liquidation preference
$25 per share, 2,000,000 shares issued and outstanding
    
    
    
    
    
    
    20Common stock, $.01 par value, 100,000,000 authorized:39,917,075 and 39,676,204 shares issued, 39,917,075 and 38,686,315
shares outstanding at June 30, 2004 and December 31, 2003,
respectively
    
    
    399
    
    
    
    396Additional paid-in capital
    
    
    769,007
    
    
    
    849,632Accumulated earnings
    
    
    81,236
    
    
    
    Accumulated other comprehensive income
    
    
    (8,679
    )
    
    
    (12,362
    )Deferred compensation
    
    
    (4,471
    )
    
    
    (4,424
    )837,521
    
    
    
    833,291Less common stock in treasury, at cost, 989,889 shares
at December 31, 2003
    
    
    
    
    
    
    (36,765
    )Total shareholders equity
    
    
    837,521
    
    
    
    796,526Total liabilities and shareholders equity
    
    $
    2,141,311
    
    
    $
    2,215,451
 The accompanying notes are an integral part of these consolidated financial statements. -1-




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POST PROPERTIES, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003RevenuesRental
    
    $
    72,180
    
    
    $
    69,479
    
    
    $
    143,428
    
    
    $
    138,344Other property revenues
    
    
    4,510
    
    
    
    4,124
    
    
    
    8,685
    
    
    
    8,111Other
    
    
    45
    
    
    
    147
    
    
    
    122
    
    
    
    277Total revenues
    
    
    76,735
    
    
    
    73,750
    
    
    
    152,235
    
    
    
    146,732ExpensesProperty operating and maintenance (exclusive of items shown
separately below)
    
    
    33,388
    
    
    
    32,097
    
    
    
    66,605
    
    
    
    63,341Depreciation
    
    
    21,177
    
    
    
    20,253
    
    
    
    42,363
    
    
    
    40,542General and administrative
    
    
    5,477
    
    
    
    3,342
    
    
    
    10,119
    
    
    
    6,967Development costs and other
    
    
    381
    
    
    
    
    
    
    
    916
    
    
    
    567Proxy contest and related costs
    
    
    
    
    
    
    5,231
    
    
    
    
    
    
    
    5,231Severance charges
    
    
    
    
    
    
    1,795
    
    
    
    
    
    
    
    21,506Total expenses
    
    
    60,423
    
    
    
    62,718
    
    
    
    120,003
    
    
    
    138,154Operating Income
    
    
    16,312

    
    
    
    11,032
    
    
    
    32,232
    
    
    
    8,578Interest income
    
    
    213
    
    
    
    251
    
    
    
    392
    
    
    
    485Interest expense
    
    
    (16,726
    )
    
    
    (16,250
    )
    
    
    (33,007
    )
    
    
    (31,879
    )Amortization of deferred financing costs
    
    
    (1,092
    )
    
    
    (968
    )
    
    
    (2,208
    )
    
    
    (1,756
    )Equity in income of unconsolidated real estate entities
    
    
    207
    
    
    
    8,103
    
    
    
    422
    
    
    
    7,710Minority interest in consolidated property partnerships
    
    
    303
    
    
    
    349
    
    
    
    575
    
    
    
    682Minority interest of preferred unitholders
    
    
    (1,400
    )
    
    
    (1,400
    )
    
    
    (2,800
    )
    
    
    (2,800
    )Minority interest of common unitholders
    
    
    246
    
    
    
    164
    
    
    
    719
    
    
    
    2,778Income (loss) from continuing operations
    
    
    (1,937
    )
    
    
    1,281
    
    
    
    (3,675
    )
    
    
    (16,202
    )Discontinued operationsIncome (loss) from discontinued operations, net
of minority interest
    
    
    2,366
    
    
    
    2,694
    
    
    
    6,004
    
    
    
    (6,501
    )Loss on early extinguishment of indebtedness associated with
property sales, net of minority interest
    
    
    (3,849
    )
    
    
    
    
    
    
    (3,849
    )
    
    
    Gains on property sales, net of minority interest
    
    
    104,530
    
    
    
    23,714
    
    
    
    106,039
    
    
    
    29,805Income from discontinued operations
    
    
    103,047
    
    
    
    26,408
    
    
    
    108,194
    
    
    
    23,304Net income
    
    
    101,110
    
    
    
    27,689
    
    
    
    104,519
    
    
    
    7,102Dividends to preferred shareholders
    
    
    (1,909
    )
    
    
    (2,862
    )
    
    
    (4,507
    )
    
    
    (5,725
    )Redemption costs on preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,716
    )
    
    
    Net income available to common shareholders
    
    $
    99,201
    
    
    $
    24,827
    
    
    $
    98,296
    
    
    $
    1,377Per
common share data - BasicLoss from continuing operations (net of preferred dividends
and redemption costs)
    
    $
    (0.10
    )
    
    $
    (0.04
    )
    
    $
    (0.25
    )
    
    $
    (0.58
    )Income from discontinued operations
    
    
    2.59
    
    
    
    0.70
    
    
    
    2.73
    
    
    
    0.62Net income available to common shareholders
    
    $
    2.49
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.04Dividends declared
    
    $
    0.45
    
    
    $
    0.45
    
    
    $
    0.90
    
    
    $
    0.90Weighted average common shares outstanding  basic
    
    
    39,807
    
    
    
    37,460
    
    
    
    39,595
    
    
    
    37,361Weighted average common shares and units outstanding  basic
    
    
    42,478
    
    
    
    42,066
    
    
    
    42,469
    
    
    
    42,058Per
common share data - DilutedLoss from continuing operations (net of preferred dividends
and redemption costs)
    
    $
    (0.10
    )
    
    $
    (0.04
    )
    
    $
    (0.25
    )
    
    $
    (0.58
    )Income from discontinued operations
    
    
    2.59
    
    
    
    0.70
    
    
    
    2.73
    
    
    
    0.62Net income available to common shareholders
    
    $
    2.49
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.04Dividends declared
    
    $
    0.45
    
    
    $
    0.45
    
    
    $
    0.90
    
    
    $
    0.90Weighted average common shares outstanding  diluted
    
    
    39,807
    
    
    
    37,467
    
    
    
    39,595
    
    
    
    37,362Weighted average common shares and units outstanding 
diluted
    
    
    42,478
    
    
    
    42,074
    
    
    
    42,469
    
    
    
    42,058
 The accompanying notes are an integral part of these consolidated financial statements. -2-




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POST PROPERTIES, INC. 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
 ACCUMULATED EARNINGS
 (In thousands)
  AccumulatedAdditional
    
    
    
    
    
    OtherPreferred
    
    Common
    
    Paid-in
    
    Accumulated
    
    Comprehensive
    
    Deferred
    
    TreasuryStock
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Compensation
    
    Stock
    
    TotalShareholders Equity and Accumulated Earnings,
December 31, 2003
    
    $
    49
    
    
    $
    396
    
    
    $
    849,632
    
    
    $
    
    
    
    $
    (12,362
    )
    
    $
    (4,424
    )
    
    $
    (36,765
    )
    
    $
    796,526Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,519Net change in derivative value, net of
minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,683
    
    
    
    
    
    
    
    
    
    
    
    3,683Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,202Proceeds from employee stock purchase and
stock option plans
    
    
    
    
    
    
    3
    
    
    
    (885
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,727
    
    
    
    2,845Adjustment for minority interest of
unitholders in Operating Partnership upon
conversion of units into common shares and at
dates of capital transactions
    
    
    
    
    
    
    
    
    
    
    (12,822
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,226
    
    
    
    19,404Redemption of preferred stock
    
    
    (20
    )
    
    
    
    
    
    
    (49,980
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    290Restricted stock issuances, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    (216
    )
    
    
    
    
    
    
    
    
    
    
    (596
    )
    
    
    812
    
    
    

    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    549
    
    
    
    
    
    
    
    549Dividends to preferred shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,507
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,507
    )Dividends to common shareholders
    
    
    
    
    
    
    
    
    
    
    (17,012
    )
    
    
    (18,776
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,788
    )Shareholders Equity and Accumulated Earnings,
June 30, 2004
    
    $
    29
    
    
    $
    399
    
    
    $
    769,007
    
    
    $
    81,236
    
    
    $
    (8,679
    )
    
    $
    (4,471
    )
    
    $
    
    
    
    $
    837,521
 The accompanying notes are an integral part of these consolidated financial statements. -3-




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POST PROPERTIES, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
  Six months endedJune 30,2004
    
    2003Cash Flows From Operating ActivitiesNet income
    
    $
    104,519
    
    
    $
    7,102Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    42,363
    
    
    
    46,114Amortization of deferred financing costs
    
    
    2,208
    
    
    
    1,756Minority interest of preferred unitholders in Operating Partnership
    
    
    2,800
    
    
    
    2,800Minority interest of common unitholders in Operating Partnership
    
    
    (719
    )
    
    
    (2,778
    )Minority interest in discontinued operations
    
    
    7,856
    
    
    
    2,847Gains on properties sold  discontinued operations
    
    
    (113,739
    )
    
    
    (33,504
    )Asset impairment charge
    
    
    626
    
    
    
    14,118Equity in income of unconsolidated entities
    
    
    (352
    )
    
    
    (7,710
    )Stock-based compensation
    
    
    865
    
    
    
    120Cost of early debt extinguishment
    
    
    4,128
    
    
    
    Changes in assets, (increase) decrease in:Restricted cash
    
    
    (20
    )
    
    
    (338
    )Other assets
    
    
    (1,835
    )
    
    
    1,540Deferred charges
    
    
    1,361
    
    
    
    (1,463
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    (34
    )
    
    
    (120
    )Accounts payable and accrued expenses
    
    
    6,943
    
    
    
    23,315Security deposits and prepaid rents
    
    
    (566
    )
    
    
    (177
    )Net cash provided by operating activities
    
    
    56,404
    
    
    
    53,622Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (37,163
    )
    
    
    (18,939
    )Net proceeds from property sales
    
    
    138,637
    
    
    
    98,711Capitalized interest
    
    
    (500
    )
    
    
    (3,113
    )Recurring capital expenditures
    
    
    (5,193
    )
    
    
    (3,986
    )Corporate additions and improvements
    
    
    (287
    )
    
    
    (339
    )Non-recurring capital expenditures
    
    
    (2,546
    )
    
    
    (2,176
    )Revenue generating capital expenditures
    
    
    (26
    )
    
    
    (732
    )Distributions and repayment of advances received from unconsolidated entities
    
    
    52,877
    
    
    
    89,471Net cash provided by investing activities
    
    
    145,799
    
    
    
    158,897Cash Flows From Financing ActivitiesProceeds from notes payable
    
    
    35,000
    
    
    
    Payments on notes payable
    
    
    (14,354
    )
    
    
    (1,278
    )Payments of financing costs
    
    
    (4,262
    )
    
    
    Lines of credit proceeds (repayments), net
    
    
    (72,010
    )
    
    
    (153,351
    )Redemption of preferred stock
    
    
    (50,000
    )
    
    
    Proceeds from employee stock purchase and stock option plans
    
    
    2,845
    
    
    
    266Distributions to preferred unitholders
    
    
    (2,800
    )
    
    
    (2,800
    )Distributions to common unitholders
    
    
    (2,942
    )
    
    
    (5,896
    )Dividends paid to preferred shareholders
    
    
    (4,507
    )
    
    
    (5,725
    )Dividends paid to common shareholders
    
    
    (35,216
    )
    
    
    (45,823
    )Net cash used in financing activities
    
    
    (148,246
    )
    
    
    (214,607
    )Net increase (decrease) in cash and cash equivalents
    
    
    53,957
    
    
    
    (2,088
    )Cash and cash equivalents, beginning of period
    
    
    1,334
    
    
    
    6,390Cash and cash equivalents, end of period
    
    $
    55,291
    
    
    $
    4,302
 The accompanying notes are an integral part of these consolidated financial statements. -4-




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##### Table of Contents



POST PROPERTIES INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   1.
    
    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIESOrganizationPost Properties, Inc. and its subsidiaries develop, own and manage upscale
multifamily apartment communities in selected markets in the United States.
As used herein, the term Company includes Post Properties, Inc. and its
subsidiaries, including Post Apartment Homes, L.P. (the Operating
Partnership), unless the context indicates otherwise. The Company, through
its wholly-owned subsidiaries, is the general partner and owns a majority
interest in the Operating Partnership which, through its subsidiaries,
conducts substantially all of the on-going operations of the Company. At
June 30, 2004, the Company owned 24,700 apartment units in 65 apartment
communities, including 666 apartment units in three apartment communities
held in unconsolidated entities. At June 30, 2004, approximately 51.6%,
17.6% and 9.0% (on a unit basis) of the Companys communities were located in
the Atlanta, Dallas 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.As of June 30, 2004, the Company had outstanding 39,917 shares of common
stock and owned the same number of units of common limited partnership
interests (Common Units) in the Operating Partnership, representing 94.0%
ownership interest in the Operating Partnership. Common Units held by persons
(including one director of the Company) other than the Company totaled 2,560
as of June 30, 2004 and represented a 6.0% 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
Companys weighted average common ownership interest in the Operating
Partnership was 93.7% and 89.0% for the three months and 93.2% and 88.8% for
the six months ended June 30, 2004 and 2003, respectively.Basis of PresentationThe accompanying unaudited financial statements have been prepared by the
Companys management in accordance with generally accepted accounting
principles for interim financial information and applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the three and six month periods ended June 30,
2004 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 Companys audited financial statements and notes thereto included in its
Annual Report on Form 10-K for the year ended December 31, 2003. Certain
2003 amounts have been reclassified to conform to the current years
financial statement presentation.Revenue RecognitionResidential properties are leased under operating leases with terms of
generally one year or less. Rental revenues from residential leases are
recognized on the straight-line method over the approximate life of the
leases, which is generally one year. The recognition of rental revenues from
residential leases when earned has historically not been materially different
from rental revenues recognized on a straight-line basis.Under the terms of residential leases, the residents of the Companys
residential communities are obligated to reimburse the Company for certain
utility usage, water and electricity (at selected properties), where the
Company is the primary obligor to the public utility entity. These utility
reimbursements from residents are reflected as other property revenues in the
consolidated statements of operations. -5-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  Apartment Community AcquisitionsIn accordance with the provisions of Statement of Financial Accounting
Standards (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 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 CompensationEffective January 1, 2003, the Company accounts for stock-based compensation
under the fair value method prescribed by SFAS No. 123, Accounting for
Stock-Based Compensation. In adopting SFAS No. 123, the Company used the
prospective method prescribed in SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. In periods prior to January 1,
2003, the Company accounted for stock-based compensation under the intrinsic
value method prescribed by Accounting Principles Board (APB) Opinion 25,
Accounting for Stock Issued to Employees.The following table reflects the effect on the Companys net income and
earnings per common share had the fair value method of accounting under SFAS
No. 123 been applied to all stock awards for each period. Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income available to common shareholdersAs reported
    
    $
    99,201
    
    
    $
    24,827
    
    
    $
    98,296
    
    
    $
    1,377Stock-based compensation included in
net income as reported, net of
minority interest
    
    
    420
    
    
    
    296
    
    
    
    805
    
    
    
    441Stock-based compensation determined
under the fair value method for all
awards, net of minority interest
    
    
    (434
    )
    
    
    (317
    )
    
    
    (839
    )
    
    
    (517
    )Pro forma
    
    $
    99,187
    
    
    $
    24,806
    
    
    $
    98,262
    
    
    $
    1,301Net income
per common share - basicAs reported
    
    $
    2.49
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.04Pro forma
    
    $
    2.49
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.03Net income
per common share - dilutedAs reported
    
    $
    2.49
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.04Pro forma
    
    $
    2.49
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.03
 -6-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  2.
    
    INDEBTEDNESSAt June 30, 2004 and December 31, 2003, the Companys indebtedness consisted
of the following: Payment
    
    
    
    
    
    Maturity
    
    June 30,
    
    December 31,Description
    
    Terms
    
    Interest Rate
    
    Date
    
    2004
    

    2003Unsecured NotesSenior Notes
    
    Int.
    
    
    6.11% - 7.70
    %
    
    
    2006-2010
    
    
    $
    285,000
    
    
    $
    285,000Medium Term Notes
    
    Int.
    
    
    6.69% - 8.12
    %(1)
    
    
    2004-2015
    
    
    
    310,000
    
    
    
    323,000595,000
    
    
    
    608,000Unsecured Lines of Credit & OtherSyndicated Line of Credit
    
    
    N/A
    
    
    LIBOR + 0.90%(2)
    
    
    2007
    
    
    
    
    
    
    
    60,000Cash Management Line
    
    
    N/A
    
    
    LIBOR + 0.90%
    
    
    2007
    
    
    
    
    
    
    
    12,010
    
    
    
    72,010Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int.
    
    
    6.975
    %(3)
    
    
    2029
    
    
    
    99,800
    
    
    
    99,800Other
    
    Prin. and Int.
    
    
    4.27% - 7.69
    %
    
    
    2007-2013
    
    
    
    275,472
    
    
    
    192,132375,272
    
    
    
    291,932Tax Exempt Floating RateBonds (Secured)
    
    Int.
    
    
    1.05
    %(4)
    
    
    2025
    
    
    
    110,055
    
    
    
    214,380Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,080,327
    
    
    $
    1,186,322
  (1)
    
    Includes $100,000 of Mandatory Par Put Remarketed Securities
(MOPPRS). The annual interest rate on these securities to March
2005 is 6.85%. The MOPPRS mature in March 2015, but are subject to
mandatory tender for remarketing in March 2005. In March 2005, if the
remarketing dealer elects not to remarket the MOPPRS, the Company is
required to redeem the MOPPRS at par. If the remarketing dealer
elects to remarket the securities in March 2005, the interest rate on
the MOPPRS will be established at a rate of 5.715% plus the Companys
applicable credit spread for the Companys securities with similar
maturities. The MOPPRS may be redeemed, at the Companys option,
immediately prior to their remarketing in March 2005 at an optional
redemption price equal to the outstanding principal balance plus a
prepayment penalty (generally equivalent to the make-whole amount
necessary to compensate for the amount by which the base rate of
5.715% exceeds the then-existing 10-year treasury rate).  (2)
    
    Represents stated rate.  (3)
    
    Interest rate is fixed at 6.975%, inclusive of credit enhancement
and other fees, to 2009 through an interest rate swap arrangement.  (4)
    
    FNMA credit enhanced bond indebtedness. Interest based on FNMA
AAA tax exempt rate plus credit enhancement and other fees of
0.639%. Interest rate represents the rate at June 30, 2004 before
credit enhancements. The Company has outstanding interest rate cap
arrangements that limit the Companys exposure to increases in the
base interest rate to 5%. At June 30, 2004 and December 31, 2003,
approximately $14,760 and $119,085, respectively, of this debt was
secured by assets held for sale.  Debt maturitiesThe aggregate maturities of the Companys indebtedness are as follows: Remainder of 2004
    
    $
    13,4112005
    
    
    205,799
    (1)2006
    
    
    81,2082007
    
    
    158,3272008
    
    
    4,014Thereafter
    
    
    617,568
    (1)$
    1,080,327
  (1)
    
    Aggregate debt maturities for
years ended in 2009 and thereafter include
$100,000 of Mandatory Par Put Remarketed
Securities (MOPPRS). The MOPPRS mature in
March 2015, but are subject to mandatory
tender for remarketing in March 2005. In
March 2005, if the remarketing dealer elects
not to remarket the MOPPRS, the Company is
required to redeem the MOPPRS at par. If the
remarketing dealer elects to remarket the
securities in March 2005, the interest rate on
the MOPPRS will be established at a rate of
5.715% plus the Companys applicable credit
spread for Company securities with similar
maturities. The MOPPRS may be redeemed, at
the Companys option, immediately prior to
their remarketing in March 2005 at an optional
redemption price equal to the outstanding
principal balance plus a prepayment penalty.  New debt issuances and retirementsIn conjunction with an apartment community acquisition (see note 4) in June
2004, the Company assumed a secured, fixed rate mortgage note payable. The
mortgage note was valued at $49,694 yielding an effective interest rate of
4.7%. The mortgage note requires monthly principal and interest payments and
matures in 2007.In June 2004, the Company sold certain apartment communities subject to the
assumption of $104,325 of tax exempt mortgage indebtedness (see note 4). As
a result of this debt assumption, the Company recorded a loss on early
extinguishment of debt of $4,128 ($3,849 net of minority interest) related to
the write-off of deferred loan costs of $3,187 ($2,972 net of minority
interest) relating to such assumed indebtedness and the realization of a $941
($877 net of minority interest) loss in connection with the termination of
related interest rate cap agreements that were used as cash flow hedges of
assumed debt. -7-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  In March 2004, the Company closed a $35,000 secured, fixed rate mortgage note
payable obtained by a consolidated real estate entity. The note bears
interest at 4.27%, requires monthly interest only payments through March 2007
and monthly principal and interest payments based on a 30-year amortization
schedule from April 2007 through the note maturity date in March 2009.Upon their maturity in April 2004, the Company repaid $13,000 of its 7.30%
medium term, unsecured notes, using its available cash balances and
borrowings under its unsecured lines of credit.Unsecured Lines of CreditIn January 2004, the Company refinanced its previous revolving line of credit
with a new $350,000 three-year unsecured revolving line of credit (the
Revolver) that matures in January 2007. The Revolver currently has a
stated interest rate of LIBOR plus 0.90% or the prime rate and was provided
by a syndicate of nine banks led by Wachovia Bank, N.A. Additionally, the
Revolver requires the payment of annual facility fees equal to 0.20% 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 Companys senior unsecured debt. The rates under the Revolver
are based on the lower of the Companys unsecured debt ratings in instances
where the Company has split unsecured debt ratings. The Revolver also
includes a money market competitive bid option for short-term funds up to
$175,000 at rates generally below the stated line rate. The credit agreement
for the Revolver contains customary representations, covenants and events of
default, including fixed charge coverage and maximum leverage ratios as well
as covenants which restrict the ability of the Operating Partnership to make
distributions, in excess of stated amounts, which in turn restrict the
discretion of the Company to declare and pay dividends. In general, during
any fiscal year the Operating Partnership may only distribute up to 100% of
the Operating Partnerships consolidated income available for distribution
(as defined in the credit agreement) exclusive of distributions of up to
$15,000 of capital gains for such year. The credit agreement contains
exceptions to these limitations to allow the Operating Partnership to make
distributions necessary to allow the Company to maintain its status as a
REIT. The Company does not anticipate that these ratios and covenants will
adversely affect the ability of the Operating Partnership to borrow money or
make distributions, or the Company to declare dividends, at the Companys
current dividend level. The Revolver matures in January 2007. At June 30,
2004, the Company had issued letters of credit to third parties totaling
$1,828 under this facility.Additionally, the Company has a $20,000 unsecured line of credit with
Wachovia Bank, N.A. (the Cash Management Line), which was scheduled to
mature on April 30, 2004. In April 2004, the Company renewed this line of
credit with maturity, pricing and terms, including debt covenants,
substantially consistent with those of the Revolver. The Cash Management
line currently has a stated interest rate of LIBOR plus 0.90% mirroring the
pricing structure of the Revolver and requires the payment of an annual
facility fee equal to 0.125% of the average annual unused portion of the loan
commitment.3.
    
    INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIESAt June 30, 2004, the Company held investments in three individual limited
liability companies (the Property LLCs) with an institutional investor.
Each Property LLC owns a newly developed apartment community. At June 30,
2004, each of the apartment communities had achieved stabilized occupancy.
The Company holds a 35% equity interest in the Property LLCs. The initial
development costs of the apartment communities were funded through member
equity contributions proportionate to the members ownership interests and
through construction financing provided by the Company.The Company accounts for its investments in these Property LLCs using the
equity method of accounting. The excess of the Companys investment over its
equity in the underlying net assets of the Property LLCs was approximately
$6,666 at June 30, 2004. This excess investment is being amortized as a
reduction to earnings on a straight-line basis over the lives of the related
assets. The Company provides real estate services (development, construction
and property management) to the Property LLCs for which it earns fees. -8-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  The operating results of the Company include its proportionate share of net
income (loss) from the investments in the Property LLCs. A summary of
financial information for the Property LLCs in the aggregate is as follows: June 30,
    
    December 31,Balance Sheet Data
    
    2004
    
    2003Real estate assets, net of accumulated depreciation of
$7,806 and $5,939, respectively
    
    $
    125,751
    
    
    $
    127,513Cash and other
    
    
    4,177
    
    
    
    2,516Total assets
    
    $
    129,928
    
    
    $
    130,029Mortgage notes payable
    
    $
    83,617
    
    
    $
    33,763Construction notes payable to Company (1)
    
    
    
    
    
    
    53,769Other liabilities
    
    
    1,824
    
    
    
    1,742Total liabilities
    
    
    85,441
    
    
    
    89,274Members equity
    
    
    44,487
    
    
    
    40,755Total liabilities and members equity
    
    $
    129,928
    
    
    $
    130,029Companys equity investment
    
    $
    22,165
    
    
    $
    21,017Companys share of notes payable
    
    $
    29,266
    
    
    $
    30,636
  (1)
    
    All of the Companys construction financing to
these unconsolidated real estate entities is included
in the Companys outstanding debt and total assets.
At December 31, 2003, the venture partners share of
the construction loans was $34,950. All construction
financing previously provided by the Company was
refinanced with permanent loans from unaffiliated
entities in early 2004. Three months ended
    
    Six months endedJune 30,
    
    June 30,Income Statement Data
    
    2004
    
    2003
    
    2004
    
    2003RevenueRental
    
    $
    3,290
    
    
    $
    2,107
    
    
    $
    6,538
    
    
    $
    3,796Other
    
    
    259
    
    
    
    125
    
    
    
    471
    
    
    
    227Total revenues
    
    
    3,549
    
    
    
    2,232
    
    
    
    7,009
    
    
    
    4,023ExpensesProperty operating and maintenance
    
    
    1,224
    
    
    
    1,209
    
    
    
    2,445
    
    
    
    2,436Depreciation and amortization
    
    
    970
    
    
    
    949
    
    
    
    1,920
    
    
    
    1,844Interest
    
    
    866
    
    
    
    810
    
    
    
    1,639
    
    
    
    1,518Total expenses
    
    
    3,060
    
    
    
    2,968
    
    
    
    6,004
    
    
    
    5,798Income (loss) from continuing operations
    
    
    489
    
    
    
    (736
    )
    
    
    1,005
    
    
    
    (1,775
    )Discontinued OperationsLoss from discontinued operations
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    (188
    )Gain on property sales
    
    
    
    
    
    
    26,179
    
    
    
    
    
    
    
    26,179Income from discontinued operations
    
    
    
    
    
    
    26,076
    
    
    
    
    
    
    
    25,991Net income
    
    $
    489
    
    
    $
    25,340
    
    
    $
    1,005
    
    
    $
    24,216Companys share of net income
    
    $
    171
    
    
    $
    11,899
    
    
    $
    352
    
    
    $
    11,505
  The income from discontinued operations represents the operating results and
the gain on sale of an apartment community (held by a fourth Property LLC)
that was sold in June 2003.At June 30, 2004, mortgage notes payable include a $50,000 mortgage note that
bears interest at 4.13%, requires monthly interest payments and annual
principal payment of $1 through 2009. Thereafter, the note requires monthly
principal and interest payments based on a 25-year amortization schedule and
matures in April 2034. The note is callable by the lender in May 2009 and on
each successive fifth year anniversary of the note thereafter. The note is
prepayable without penalty in May 2008. The additional mortgage notes
payable bear interest at rates ranging from 4.04% to 4.28% and mature in
2008. -9-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  4.
    
    REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITYAcquisition ActivityIn June 2004, the Company acquired a 499-unit apartment community located in
suburban Washington, D.C. for approximately $85,814, including the assumption
of mortgage indebtedness and closing costs. Additionally, the Company plans
to spend up to approximately $2,000 to improve the community. The assumed
mortgage note payable was valued at $49,694 yielding an effective interest
rate of 4.7%. The mortgage note requires monthly principal and interest
payments and matures in 2007.The purchase price of this community was preliminarily allocated to the assets
acquired and the liabilities assumed based on their estimated fair values.Disposition ActivityThe Company classifies real estate assets as held for sale after the approval
of its internal investment committee and after the Company has commenced an
active program to sell the assets. At June 30, 2004, the Company had one
apartment community, containing 460 units, and certain tracts of land
classified as held for sale. These real estate assets are reflected in the
accompanying consolidated balance sheet at $16,977, which represents the
lower of depreciated cost or fair value less costs to sell.Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the operating results of real estate assets designated as held for
sale are included in discontinued operations in the consolidated statement of
operations for all periods presented. Additionally, all subsequent gains or
additional losses on the sale of these assets are included in discontinued
operations.For the three and six months ended June 30, 2004, income from discontinued
operations included the results of operations of one community, containing
460 units, classified as held for sale at June 30, 2004 and the results of
operations of eight communities sold in 2004 through their sale dates. For
the three and six months ended June 30, 2003, income from discontinued
operations included the results of operations of the community classified as
held for sale at June 30, 2004, the eight communities sold in 2004 and the
results of operations of four communities sold in 2003 through the earlier of
June 30, 2003 or their sale dates.The revenues and expenses of these communities for the three and six months
ended June 30, 2004 and 2003 were as follows: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003RevenuesRental
    
    $
    6,767
    
    
    $
    10,750
    
    
    $
    14,699
    
    
    $
    22,920Other
    
    
    665
    
    
    
    853
    
    
    
    1,363
    
    
    
    1,685Total revenues
    
    
    7,432
    
    
    
    11,603
    
    
    
    16,062
    
    
    
    24,605ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    3,519
    
    
    
    4,808
    
    
    
    7,304
    
    
    
    9,960Depreciation
    
    
    
    
    
    
    2,229
    
    
    
    
    
    
    
    4,667Interest
    
    
    769
    
    
    
    1,542
    
    
    
    1,692
    
    
    
    3,213Asset impairment charge
    
    
    626
    
    
    
    
    
    
    
    626
    
    
    
    14,118Total expenses
    
    
    4,914
    
    
    
    8,579
    
    
    
    9,622
    
    
    
    31,958Income (loss) from discontinued operations
before minority interest
    
    
    2,518
    
    
    
    3,024
    
    
    
    6,440
    
    
    
    (7,353
    )Minority interest
    
    
    (152
    )
    
    
    (330
    )
    
    
    (436
    )
    
    
    852Income (loss) from discontinued operations
    
    $
    2,366
    
    
    $
    2,694
    
    
    $
    6,004
    
    
    $
    (6,501
    )
  In the second quarter of 2004, the Company recorded an asset impairment loss
of $626 to write-down the cost of an apartment community, located in Dallas,
Texas, to its realized value. In the third quarter of 2003, the Company
recorded a $3,344 asset impairment charge to write-down this asset to its
estimated fair value at the date the asset was classified as held for sale.
In the first quarter of 2003, the Company recorded an asset impairment charge
to write-down the cost of the Companys apartment community located in
Phoenix, Arizona to its estimated fair value. This impairment loss,
originally reflected in continuing operations, was reclassified to
discontinued operations to reflect the designation of this community as held
for sale during the third quarter of 2003 and the final sale of the community
in the fourth quarter of 2003. -10-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  For the three months ended June 30, 2004, the Company recognized net gains
from discontinued operations of $112,112 ($104,530 net of minority interest)
from the sale of seven communities containing 3,482 units. These sales
generated net proceeds of approximately $218,982, including $104,325 of tax
exempt mortgage indebtedness assumed by the purchasers. For the six months
ended June 30, 2004, the Company recognized net gains from discontinued
operations of $113,739 ($106,039 net of minority interest) from the sale of
eight communities containing 3,880 units and certain land parcels. Theses
sales generated net proceeds of approximately $242,962, including debt
assumed by the purchasers of $104,325.For the three months ended June 30, 2003, the Company recognized net gains
from discontinued operations of $26,630 ($23,714 net of minority interest),
from the sale of one community, containing 770 apartment units and certain
land parcels. For the six months ended June 30, 2003, the Company recognized
net gains from discontinued operations of $33,504 ($29,805 net of minority
interest) from the sale of two communities containing 1,009 units and certain
land parcels.5.
    
    SHAREHOLDERS EQUITYPreferred StockOn March 5, 2004, the Company redeemed its 7 5/8% Series C cumulative
redeemable preferred stock (Series C Preferred Stock) for $25.00 per share
(an aggregate of $50,000), plus accrued and unpaid dividends through March 5,
2004. In connection with the issuance of the Series C Preferred Stock in
1998, the Company incurred $1,716 in issuance costs and recorded such costs
as a reduction of shareholders equity. The redemption price of the Series C
Preferred Stock exceeded the related carrying value by the $1,716 of issuance
costs. In connection with the redemption, in accordance with generally
accepted accounting principles, the Company reflected the $1,716 of issuance
costs as a reduction of earnings in arriving at net income available to
common shareholders for the six months ended June 30, 2004.Computation of Earnings Per Common ShareFor the three and six months ended June 30, 2004 and 2003, a reconciliation
of the numerator and denominator used in the computation of basic and diluted
income from continuing operations per common share is as follows: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Income (loss) from continuing operations available to common
shareholders (numerator):Income (loss) from continuing operations
    
    $
    (1,937
    )
    
    $
    1,281
    
    
    $
    (3,675
    )
    
    $
    (16,202
    )Less: Preferred stock dividends
    
    
    (1,909
    )
    
    
    (2,862
    )
    
    
    (4,507
    )
    
    
    (5,725
    )Less: Preferred stock redemption costs
    
    
    
    
    
    
    
    
    
    
    (1,716
    )
    
    
    Loss from continuing operations available to common shareholders
    
    $
    (3,846
    )
    
    $
    (1,581
    )
    
    $
    (9,898
    )
    
    $
    (21,927
    )Common shares (denominator):Weighted
average shares outstanding - basic
    
    
    39,807
    
    
    
    37,460
    
    
    
    39,595
    
    
    
    37,361Incremental shares from assumed conversion of stock options
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    1Weighted
average shares outstanding - diluted
    
    
    39,807
    
    
    
    37,467
    
    
    
    39,595
    
    
    
    37,362
  For the three and six months ended June 30, 2004, the potential
dilution from the Companys outstanding stock options of 46 and 51
shares, respectively, was antidilutive to the loss from continuing
operations per share calculation. As such, the amounts were excluded
from weighted average shares for the period.At June 30, 2004 and 2003, stock options to purchase 4,800 and 4,436 shares
of common stock, respectively, were excluded from the computation of diluted
earnings per common share as these stock options were antidilutive.6.
    
    DERIVATIVE FINANCIAL INSTRUMENTSAt June 30, 2004 and 2003, the Company had outstanding interest rate swap
agreements with a notional value of $129,000 with maturity dates ranging from
2005 to 2009. The interest rate swap agreements are included on the
accompanying consolidated balance sheet at fair value. The Company records
the changes in the fair value of these cash flow hedges as changes in
accumulated other comprehensive income, a shareholders equity account, in
the accompanying consolidated balance sheet.At June 30, 2004, the Company had outstanding interest rate cap agreements
with two financial institutions with a notional value of $110,055. These
interest rate cap agreements are cash flow hedges that provide a fixed
interest ceiling at 5% for the Companys variable rate, tax exempt
borrowings. The Company is required to maintain the interest rate exposure
protection under the terms of the financing arrangements. The interest rate
cap arrangements are included on the accompanying balance -11-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  sheet at fair value. At June 30, 2004, the difference between the amortized
costs of the interest rate cap arrangements and their fair value of $268 is
included in accumulated other comprehensive income (loss), a shareholders
equity account. The original cost of $1,396 of the arrangements is being
amortized as additional expense over their five-year term.In June 2004, in connection with the sale of five properties discussed in
note 4 above, the Company sold its interest in interest rate cap agreements
with a notional value of $104,325 for aggregate proceeds of $379 and realized
a loss of $941 ($877 net of minority interest) that was included in the loss
on early extinguishment of indebtedness on the accompanying statement of
operations. The unrealized loss on these interest rate cap agreements was
previously reflected in accumulated other comprehensive income, a
shareholders equity account. These interest rate cap agreements were sold
as the underlying hedged indebtedness was assumed by the purchaser in
connection with the sale of the related assets.A summary of comprehensive income for the three and six months ended June 30,
2004 and 2003 is as follows: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    101,110
    
    
    $
    27,689
    
    
    $
    104,519
    
    
    $
    7,102Change in derivative values
    
    
    5,770
    
    
    
    (2,344
    )
    
    
    3,683
    
    
    
    (2,772
    )Comprehensive income
    
    $
    106,880
    
    
    $
    25,345
    
    
    $
    108,202
    
    
    $
    4,330
  7.
    
    SEGMENT INFORMATIONSegment DescriptionIn 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 Companys chief operating decision makers to
manage the business.The Companys chief operating decision makers focus on the Companys primary
sources of income from apartment community rental operations. Apartment
community rental operations are broken down into four segments based on the
various stages in the apartment community ownership lifecycle. These segments
are described below. All commercial properties and other ancillary service
and support operations are aggregated in the line item other in the
accompanying segment information. The segment information presented below
reflects the segment categories based on the lifecycle status of each
community as of January 1, 2004. The segment information for the three and
six months ended June 30, 2003 has been adjusted due to the restatement
impact of reclassifying the operating results of the assets designated as
held for sale in 2003 to discontinued operations under SFAS No. 144 (see note
4).  
    
    Fully stabilized communities  those apartment communities which have
been stabilized (the earlier of the point at which a property reaches
95% occupancy or one year after completion of construction) for both the
current and prior year.
    
    Communities stabilized during 2003  communities which reached
stabilized occupancy in the prior year.
    
    Development and lease-up communities  those communities that are in
lease-up but were not stabilized by the beginning of the current year,
including communities that stabilized during the current year.
    
    Acquired communities  those communities acquired in the current or
prior year. -12-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  Segment Performance MeasureManagement uses contribution to consolidated property net operating income
(NOI) as the performance measure for its operating segments. The Company
uses net operating income, including net operating income of stabilized
communities, as an operating measure. Net operating income is defined as
rental and other property revenue from real estate operations less total
property and maintenance expenses from real estate operations (excluding
depreciation and amortization). The Company believes that net operating
income is an important supplemental measure of operating performance for a
REITs operating real estate because it provides a measure of the core
operations, rather than factoring in depreciation and amortization, financing
costs and general and administrative expenses generally incurred at the
corporate level. This measure is particularly useful, in the opinion of the
Company, in evaluating the performance of geographic operations, operating
segment groupings and individual properties. Additionally, the Company
believes that net operating income, as defined, is a widely accepted measure
of comparative operating performance in the real estate investment community.
The Company believes that the line on the Companys consolidated statement
of operations entitled net income is the most directly comparable GAAP
measure to net operating income.Segment InformationThe following table reflects each segments contribution to consolidated
revenues and property NOI together with a reconciliation of segment
contribution to property NOI income from continuing operations. Additionally,
substantially all of the Companys assets relate to the Companys property
rental operations. Asset cost, depreciation and amortization by segment are
not presented because such information at the segment level is not reported
internally. Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003RevenuesFully stabilized communities
    
    $
    65,274
    
    
    $
    64,603
    
    
    $
    129,983
    
    
    $
    129,547Communities stabilized during 2003
    
    
    3,877
    
    
    
    3,706
    
    
    
    7,832
    
    
    
    7,158Development and lease-up communities
    
    
    1,870
    
    
    
    250
    
    
    
    3,585
    
    
    
    253Acquired communities
    
    
    206
    
    
    
    
    
    
    
    206
    
    
    
    Other property segments
    
    
    5,463
    
    
    
    5,044
    
    
    
    10,507
    
    
    
    9,497Other
    
    
    45
    
    
    
    147
    
    
    
    122
    
    
    
    277Consolidated revenues
    
    $
    76,735
    
    
    $
    73,750
    
    
    $
    152,235
    
    
    $
    146,732Contribution to NOIFully stabilized communities
    
    $
    39,699
    
    
    $
    39,986
    
    
    $
    79,134
    
    
    $
    81,049Communities stabilized during 2003
    
    
    2,448
    
    
    
    2,261
    
    
    
    4,974
    
    
    
    4,216Development and lease-up communities
    
    
    1,365
    
    
    
    (227
    )
    
    
    2,605
    
    
    
    (488
    )Acquired communities
    
    
    149
    
    
    
    
    
    
    
    149
    
    
    
    Other property segments
    
    
    (359
    )
    
    

    (514
    )
    
    
    (1,354
    )
    
    
    (1,663
    )Consolidated property net operating income
    
    
    43,302
    
    
    
    41,506
    
    
    
    85,508
    
    
    
    83,114Interest income
    
    
    213
    
    
    
    251
    
    
    
    392
    
    
    
    485Other revenue
    
    
    45
    
    
    
    147
    
    
    
    122
    
    
    
    277Minority interest in consolidated property partnerships
    
    
    303
    
    
    
    349
    
    
    
    575
    
    
    
    682Depreciation
    
    
    (21,177
    )
    
    
    (20,253
    )
    
    
    (42,363
    )
    
    
    (40,542
    )Interest expense
    
    
    (16,726
    )
    
    
    (16,250
    )
    
    
    (33,007
    )
    
    
    (31,879
    )Amortization of deferred loan costs
    
    
    (1,092
    )
    
    
    (968
    )
    
    
    (2,208
    )
    
    
    (1,756
    )General and administrative
    
    
    (5,477
    )
    
    
    (3,342
    )
    
    
    (10,119
    )
    
    
    (6,967
    )Development costs and other
    
    
    (381
    )
    
    
    
    
    
    
    (916
    )
    
    
    (567
    )Proxy contest and related costs
    
    
    
    
    
    
    (5,231
    )
    
    
    
    
    
    
    (5,231
    )Severance charges
    
    
    
    
    
    
    (1,795
    )
    
    
    
    
    
    
    (21,506
    )Equity in
income of unconsolidated real estate entities
    
    
    207
    
    
    
    8,103
    
    
    
    422
    
    
    
    7,710Minority interest of preferred unitholders
    
    
    (1,400
    )
    
    
    (1,400
    )
    
    
    (2,800
    )
    
    
    (2,800
    )Minority interest of common unitholders
    
    
    246
    
    
    
    164
    
    
    
    719
    
    
    
    2,778Income (loss) from continuing operations
    
    
    (1,937
    )
    
    
    1,281
    
    
    
    (3,675
    )
    
    
    (16,202
    )Income from discontinued operations
    
    
    103,047
    
    
    
    26,408
    
    
    
    108,194
    
    
    
    23,304Net income
    
    $
    101,110
    
    
    $
    27,689
    
    
    $
    104,519
    
    
    $
    7,102
 -13-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  8.
    
    SEVERANCE AND PROXY CONTEST CHARGESIn the second quarter of 2003, the Company recorded severance charges of
$1,795 relating to the departure of two executive officers. In the first
quarter of 2003, the Company recorded severance charges of $19,711 ($17,467
net of minority interest) relating to the change in roles from executive to
non-executive status of the Companys former chairman and vice-chairman of
the board of directors. The severance charges represented the discounted
present value of the estimated payments to be made to the former chairman and
vice-chairman under their existing employment arrangements.The following table summarizes the activity relating to aggregate severance
charges for the six months ended June 30, 2004: Accrued severance charges, December 31, 2003
    
    $
    19,171Payments for period
    
    
    (1,665
    )Interest accretion
    
    
    502Accrued severance charges, June 30, 2004
    
    $
    18,008
  Substantially all of these remaining amounts will be paid over the remaining
terms of the former executives employment contracts (9 to 12 years).Proxy contest and related costs of $5,231 represent the legal, advisory and
other expenses associated with the solicitation of proxies from shareholders
resulting from the proxy contest initiated in April 2003 by the Companys
former chairman of the board of directors. Additionally, the $5,231 amount
included legal and resolution costs associated with the settlement of two
derivative and purported class action lawsuits filed against the Company
during the proxy contest. These lawsuits are expected to be settled in
2004.9.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONNon-cash investing and financing activities for the six months ended June 30,
2004 and 2003 were as follows:In June 2004, the Company acquired an apartment community for cash and the
assumption of mortgage indebtedness with an estimated fair value of $49,694.
Also, in June 2004, the Company sold certain apartment communities subject to
$104,325 of mortgage indebtedness assumed by the purchasers. These
transactions involving mortgage indebtedness were excluded from the statement
of cash flows as non-cash transactions (see note 4).During the six months ended June 30, 2004, the Companys derivative financial
instruments (see note 6) increased in value causing a decrease in accounts
payable and accrued expenses and a corresponding increase in shareholders
equity of $3,683, net of minority interest. During the six months ended June
30, 2003, the Companys derivative financial instruments decreased in value
causing an increase in accounts payable and accrued expenses and a
corresponding decrease in shareholders equity of $2,772, net of minority
interest.During the six months ended June 30, 2004 and 2003, holders of 1,107 and 399
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 Companys employee stock purchase and stock option plans and
other capital transactions result in adjustments to minority interest. The
net effect of the conversions and adjustments was a reclassification
decreasing minority interest and increasing shareholders equity in the
amounts of $19,404 and $7,234 for the six months ended June 30, 2004 and
2003, respectively.The Operating Partnership committed to distribute $19,115 and $18,940 for the
quarters ended June 30, 2004 and 2003, respectively. As a result, the Company
declared dividends of $17,963 and $16,946 for the quarters ended June 30,
2004 and 2003, respectively. The remaining distributions from the Operating
Partnership in the amount of $1,152 and $1,994 for the quarters ended June
30, 2004 and 2003, respectively, are distributed to minority interest
unitholders in the Operating Partnership. -14-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  10.
    
    STOCK-BASED COMPENSATION PLANDuring the three and six months ended June 30, 2004, the Company granted
approximately 1 and 24 shares, respectively, of restricted stock to company
officers and directors, of which approximately 7 shares were granted to the
Companys non-executive Chairman of the Board. The restricted shares vest
ratably over three years. The total value of the restricted share grants of
$15 and $677 for the three and six months, respectively, ended June 30, 2004
was initially reflected in shareholders equity as additional paid in capital
and as deferred compensation, a contra shareholders equity account. Such
deferred compensation is amortized ratably into compensation expense over the
three year vesting period.Additionally, in the three and six months ended June 30, 2004, the Company
granted stock options to purchase approximately 10 and 271 shares,
respectively, of Company common stock to Company officers and directors, of
which 50 shares were granted to the Companys non-executive Chairman of the
Board. As discussed in note 1, the Company expenses the estimated costs of
stock options over their three year vesting periods.11.
    
    LEGAL PROCEEDINGSOn 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 Companys 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 alleges, among other things, breaches of fiduciary duties, fraud,
corporate waste, withholding certain documents from shareholder inspection
and certain securities laws claims. The complaint requests various types of
relief, such as injunctive relief and damages and demands production of
certain Company records. The Company believes the allegations are wholly
without merit and intends to defend the suit vigorously. The Company intends
to move to dismiss the litigation.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 alleges various breaches of fiduciary duties by the board
of directors of the Company and seeks, among other relief, the disclosure of
certain information by the defendants. This complaint also seeks 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 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 alleges breaches of fiduciary
duties, abuse of control and corporate waste by the defendants. The
plaintiff seeks monetary damages and, as appropriate, injunctive relief.
These lawsuits are expected to be settled in 2004. The estimated legal and
settlement costs, not covered by insurance, associated with the expected
resolution of the lawsuits were recorded in the second quarter of 2003 as a
component of a proxy contest and related costs charge.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 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
Companys results of operations or financial position. -15-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 CONSOLIDATED BALANCE SHEETS
 (In thousands)
 June 30,
    
    December 31,2004
    
    2003(Unaudited)AssetsReal estate assetsLand
    
    $
    274,000
    
    
    $
    254,000Building and improvements
    
    
    1,948,854
    
    
    
    1,883,582Furniture, fixtures and equipment
    
    
    219,450
    
    
    
    214,002Construction in progress
    
    
    14,851
    
    
    
    12,946Land held for future development
    
    
    13,384
    
    
    
    11,9942,470,539
    
    
    
    2,376,524Less: accumulated depreciation
    
    
    (474,016
    )
    
    
    (432,157
    )Assets held for sale, net of accumulated depreciation of $7,836 and
$74,614 at June 30, 2004 and December 31, 2003 respectively
    
    
    16,977
    
    
    
    145,238Total real estate assets
    
    
    2,013,500
    
    
    
    2,089,605Investments in and advances to unconsolidated entities
    
    
    22,165
    
    
    
    74,786Cash and cash equivalents
    
    
    55,291
    
    
    
    1,334Restricted cash
    
    
    2,085
    
    
    
    2,065Deferred charges, net
    
    
    11,504
    
    
    
    12,285Other assets
    
    
    36,766
    
    
    
    35,376Total assets
    
    $
    2,141,311
    
    
    $
    2,215,451Liabilities and partners equityNotes payable, including $14,760 and $119,085 of debt secured by assets
held for sale at June 30, 2004 and December 31, 2003, respectively
    
    $
    1,080,327
    
    
    $
    1,186,322Accrued interest payable
    
    
    6,889
    
    
    
    6,923Dividend and distribution payable
    
    
    19,582
    
    
    
    19,509Accounts payable and accrued expenses
    
    
    71,700
    
    
    
    65,872Security deposits and prepaid rents
    
    
    7,324
    
    
    
    7,890Total liabilities
    
    
    1,185,822
    
    
    
    1,286,516Commitments and contingenciesPartners equityPreferred units
    
    
    165,000
    
    
    
    215,000Common unitsGeneral partner
    
    
    9,190
    
    
    
    8,464Limited partners
    
    
    791,496
    
    
    
    719,618Accumulated other comprehensive income (loss)
    
    
    (10,197
    )
    
    
    (14,147
    )Total partners equity
    
    
    955,489
    
    
    
    928,935Total liabilities and partners equity
    
    $
    2,141,311
    
    
    $
    2,215,451
 The accompanying notes are an integral part of these consolidated financial statements. -16-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per unit data)
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003RevenuesRental
    
    $
    72,180
    
    
    $
    69,479
    
    
    $
    143,428
    
    
    $
    138,344Other property revenues
    
    
    4,510
    
    
    
    4,124
    
    
    
    8,685
    
    
    
    8,111Other
    
    
    45
    
    
    
    147
    
    
    
    122
    
    
    
    277Total revenues
    
    
    76,735
    
    
    
    73,750
    
    
    
    152,235
    
    
    
    146,732ExpensesProperty operating and maintenance (exclusive of items
shown separately below)
    
    
    33,388
    
    
    
    32,097
    
    
    
    66,605
    
    
    
    63,341Depreciation
    
    
    21,177
    
    
    
    20,253
    
    
    
    42,363
    
    
    
    40,542General and administrative
    
    
    5,477
    
    
    
    3,342
    
    
    
    10,119
    
    
    
    6,967Development costs and other
    
    
    381
    
    
    
    
    
    
    
    916
    
    
    
    567Proxy contest and related costs
    
    
    
    
    
    
    5,231
    
    
    
    
    
    
    
    5,231Severance charges
    
    
    
    
    
    
    1,795
    
    
    
    
    
    
    
    21,506Total expenses
    
    
    60,423
    
    
    
    62,718
    
    
    
    120,003
    
    
    
    138,154Operating Income
    
    
    16,312
    
    
    
    11,032
    
    
    
    32,232
    
    
    
    8,578Interest income
    
    
    213
    
    
    
    251
    
    
    
    392
    
    
    
    485Interest expense
    
    
    (16,726
    )
    
    
    (16,250

    )
    
    
    (33,007
    )
    
    
    (31,879
    )Amortization of deferred financing costs
    
    
    (1,092
    )
    
    
    (968
    )
    
    
    (2,208
    )
    
    
    (1,756
    )Equity in income of unconsolidated real estate entities
    
    
    207
    
    
    
    8,103
    
    
    
    422
    
    
    
    7,710Minority interest in consolidated property partnerships
    
    
    303
    
    
    
    349
    
    
    
    575
    
    
    
    682Income (loss) from continuing operations
    
    
    (783
    )
    
    
    2,517
    
    
    
    (1,594
    )
    
    
    (16,180
    )Discontinued operationsIncome (loss) from discontinued operations
    
    
    2,518
    
    
    
    3,024
    
    
    
    6,440
    
    
    
    (7,353
    )Loss on early extinguishment of indebtedness associated
with property sales
    
    
    (4,128
    )
    
    
    
    
    
    
    (4,128
    )
    
    
    Gains on property sales
    
    
    112,112
    
    
    
    26,630
    
    
    
    113,739
    
    
    
    33,504Income from discontinued operations
    
    
    110,502
    
    
    
    29,654
    
    
    
    116,051
    
    
    
    26,151Net income
    
    
    109,719
    
    
    
    32,171
    
    
    
    114,457
    
    
    
    9,971Distributions to preferred unitholders
    
    
    (3,309
    )
    
    
    (4,262
    )
    
    
    (7,307
    )
    
    
    (8,525
    )Redemption costs on preferred units
    
    
    
    
    
    
    
    
    
    
    (1,716
    )
    
    
    Net income available to common unitholders
    
    $
    106,410
    
    
    $
    27,909
    
    
    $
    105,434
    
    
    $
    1,446Per common unit data  BasicIncome (loss) from continuing operations (net of
preferred distributions and redemption costs)
    
    $
    (0.10
    )
    
    $
    (0.04
    )
    
    $
    (0.25
    )
    
    $
    (0.58
    )Income from discontinued operations
    
    
    2.60
    
    
    
    0.70
    
    
    
    2.73
    
    
    
    0.62Net income available to common unitholders
    
    $
    2.50
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.04Weighted average common units outstanding  basic
    
    
    42,478
    
    
    
    42,066
    
    
    
    42,469
    
    
    
    42,058Per common unit data  DilutedIncome (loss) from continuing operations (net of
preferred distributions and redemption costs)
    
    $
    (0.10
    )
    
    $
    (0.04
    )
    
    $
    (0.25
    )
    
    $
    (0.58
    )Income from discontinued operations
    
    
    2.60
    
    
    
    0.70
    
    
    
    2.73
    
    
    
    0.62Net income available to common unitholders
    
    $
    2.50
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.04Distributions declared
    
    $
    0.45
    
    
    $
    0.45
    
    
    $
    0.90
    
    
    $
    0.90Weighted average common units outstanding  diluted
    
    
    42,478
    
    
    
    42,074
    
    
    
    42,469
    
    
    
    42,058
 The accompanying notes are an integral part of these consolidated financial statements. -17-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 CONSOLIDATED STATEMENTS OF PARTNERS EQUITY
 (In thousands)
  AccumulatedCommon Units

    
    OtherPreferred
    
    General
    
    Limited
    
    ComprehensiveUnits
    
    Partner
    
    Partners
    
    Income (Loss)
    
    TotalPartners Equity, December 31, 2003
    
    $
    215,000
    
    
    $
    8,464
    
    
    $
    719,618
    
    
    $
    (14,147
    )
    
    $
    928,935Comprehensive incomeNet income
    
    
    7,307
    
    
    
    1,072
    
    
    
    106,078
    
    
    
    
    
    
    
    114,457Net change in derivative value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,950
    
    
    
    3,950Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118,407Contributions from the Company related
to employee stock purchase and stock
option plans
    
    
    
    
    
    
    28
    
    
    
    2,817
    
    
    
    
    
    
    
    2,845Stock-based compensation
    
    
    
    
    
    
    3
    
    
    
    287
    
    
    
    
    
    
    
    290Distributions to preferred Unitholders
    
    
    (7,307
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,307
    )Distributions to common Unitholders
    
    
    
    
    
    
    (382
    )
    
    
    (37,848
    )
    
    
    
    
    
    
    (38,230
    )Redemption of preferred units
    
    
    (50,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )Contributions from the Company related
to shares issued for restricted stock,
net of deferred compensation
    
    
    
    
    
    
    5
    
    
    
    544
    
    
    
    
    
    
    
    549Partners Equity, June 30, 2004
    
    $
    165,000
    
    
    $
    9,190
    
    
    $
    791,496
    
    
    $
    (10,197
    )
    
    $
    955,489
 The accompanying notes are an integral part of these consolidated financial statements. -18-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
  Six months endedJune 30,2004
    
    2003Cash Flows From Operating ActivitiesNet income
    
    $
    114,457
    
    
    $
    9,971Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    42,363
    
    
    
    46,114Amortization of deferred financing costs
    
    
    2,208
    
    
    
    1,756Gains on properties sold  discontinued operations
    
    
    (113,739
    )
    
    
    (33,504
    )Asset impairment charge
    
    
    626
    
    
    
    14,118Equity in income of unconsolidated entities
    
    
    (352
    )
    
    
    (7,710
    )Stock-based compensation
    
    
    865
    
    
    
    120Cost of early debt extinguishment
    
    
    4,128
    
    
    
    Changes in assets, (increase) decrease in:Restricted cash
    
    
    (20
    )
    
    
    (338
    )Other assets
    
    
    (1,835
    )
    
    
    1,540Deferred charges
    
    
    1,361
    
    
    
    (1,463
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    (34
    )
    
    
    (120
    )Accounts payable and accrued expenses
    
    
    6,942
    
    
    
    23,315Security deposits and prepaid rents
    
    
    (566
    )
    
    
    (177
    )Net cash provided by operating activities
    
    
    56,404
    
    
    
    53,622Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (37,163
    )
    
    
    (18,939
    )Net proceeds from property sales
    
    
    138,637
    
    
    
    98,711Capitalized interest
    
    
    (500
    )
    
    
    (3,113
    )Recurring capital expenditures
    
    
    (5,193
    )
    
    
    (3,986
    )Corporate additions and improvements
    
    
    (287
    )
    
    
    (339
    )Non-recurring capital expenditures
    
    
    (2,546
    )
    
    
    (2,176
    )Revenue generating capital expenditures
    
    
    (26
    )
    
    
    (732
    )Distributions and repayment of advances received from unconsolidated entities
    
    
    52,877
    
    
    
    89,471Net cash provided by investing activities
    
    
    145,799
    
    
    
    158,897Cash Flows From Financing ActivitiesProceeds from notes payable
    
    
    35,000
    
    
    
    Payments on notes payable
    
    
    (14,354
    )
    
    
    (1,278
    )Payments of financing costs
    
    
    (4,262
    )
    
    
    Lines of credit proceeds (repayments), net
    
    
    (72,010
    )
    
    
    (153,351
    )Redemption of preferred units
    
    
    (50,000
    )
    
    
    Proceeds from employee stock purchase and stock option plans
    
    
    2,845
    
    
    
    266Distributions to preferred unitholders
    
    
    (7,307
    )
    
    
    (8,525
    )Distributions to common unitholders
    
    
    (38,158
    )
    
    
    (51,719
    )Net cash used in financing activities
    
    
    (148,246
    )
    
    
    (214,607
    )Net increase (decrease) in cash and cash equivalents
    
    
    53,957
    
    
    
    (2,088
    )Cash and cash equivalents, beginning of period
    
    
    1,334
    
    
    
    6,390Cash and cash equivalents, end of period
    
    $
    55,291
    
    
    $
    4,302
 The accompanying notes are an integral part of these consolidated financial statements. -19-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   1.
    
    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIESOrganizationPost Apartment Homes, L.P. (the Operating Partnership), a Georgia limited
partnership, and its subsidiaries develop, own and manage upscale
multi-family apartment communities in selected markets in the United States.
Post Properties, Inc. (the Company) through its wholly owned subsidiaries
is the sole general partner, a limited partner and owns a majority interest
in the Operating Partnership. The Operating Partnership, through its
operating divisions and subsidiaries, conducts substantially all of the
on-going operations of Post Properties, Inc., a publicly traded company which
operates as a self-administered and self-managed real estate investment
trust.At June 30, 2004, the Company owned 94.0% of the common limited partnership
interests (Common Units) in the Operating Partnership and 57.6% of the
preferred limited partnership interests (Preferred Units). The Companys
weighted average common ownership interest in the Operating Partnership was
93.2% and 88.8% for the six months ended June 30, 2004 and 2003,
respectively. At June 30, 2004, Common Units held by persons (including one
director of the Company) other than the Company represented a 6.0% 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 Companys 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.The Operating Partnership owns 24,700 apartment units in 65 apartment
communities, including 666 apartment units in three apartment communities
held in unconsolidated real estate entities. At June 30, 2004, approximately
51.6%, 17.6% and 9.0% (on a unit basis) of the Operating Partnerships
communities were located in the Atlanta, Dallas 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 PresentationThe accompanying unaudited financial statements have been prepared by the
Operating Partnerships management in accordance with generally accepted
accounting principles for interim financial information and applicable rules
and regulations of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the three and six month periods ended June 30,
2004 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 Partnerships audited financial statements and notes thereto
included in its Annual Report on Form 10-K for the year ended December 31,
2003. Certain 2003 amounts have been reclassified to conform to the current
years financial statement presentation.Revenue RecognitionResidential properties are leased under operating leases with terms of
generally one year or less. Rental revenues from residential leases are
recognized on the straight-line method over the approximate life of the
leases, which is generally one year. The recognition of rental revenues from
residential leases when earned has historically not been materially different
from rental revenues recognized on a straight-line basis.Under the terms of residential leases, the residents of the Operating
Partnerships residential communities are obligated to reimburse the
Operating Partnership for certain utility usage, water and electricity (at
selected properties), where the Operating Partnership is the primary obligor
to the public utility entity. These utility reimbursements from residents
are reflected as other property revenues in the consolidated statements of
operations. -20-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  Apartment Community AcquisitionsIn accordance with the provisions of Statement of Financial Accounting
Standards (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 depreciated over their estimated useful lives. The
acquired intangible assets, principally above/below market leases, in-place
leases and resident relationships, are reflected in other assets and
amortized over the average remaining lease terms of the acquired leases and
resident relationships (generally 6 months to 18 months).Equity-based CompensationEffective January 1, 2003, the Company accounts for stock-based compensation
under the fair value method prescribed by Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. In
adopting SFAS No. 123, the Company used the prospective method prescribed in
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. In periods prior to January 1, 2003, the Company accounted for
stock-based compensation under the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued
to Employees.The following table reflects the effect on the Operating Partnerships net
income and earnings per common unit had the fair value method of accounting
under SFAS No. 123 been applied to all stock awards for each period. Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income available to common unitholdersAs reported
    
    $
    106,410
    
    
    $
    27,909
    
    
    $
    105,434
    
    
    $
    1,446Stock-based compensation included in net income as reported
    
    
    449
    
    
    
    332
    
    
    
    865
    
    
    
    497Stock-based compensation determined under the fair value
method for all awards
    
    
    (463
    )
    
    
    (355
    )
    
    
    (901
    )
    
    
    (582
    )Pro forma
    
    $
    106,396
    
    
    $
    27,886
    
    
    $
    105,398
    
    
    $
    1,361Net income per common unit  basicAs reported
    
    $
    2.50
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.04Pro forma
    
    $
    2.50
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.03Net income per common unit  dilutedAs reported
    
    $
    2.50
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.04Pro forma
    
    $
    2.50
    
    
    $
    0.66
    
    
    $
    2.48
    
    
    $
    0.03
 -21-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  2.
    
    INDEBTEDNESSAt June 30, 2004 and December 31, 2003, the Operating Partnerships
indebtedness consisted of the following: Payment
    
    
    
    
    
    
    
    June 30,
    
    December 31,Description
    
    Terms
    
    Interest Rate
    
    Maturity Date
    
    2004
    
    2003Unsecured NotesSenior Notes
    
    Int.
    
    
    6.11% - 7.70
    %
    
    2006-2010
    
    $
    285,000
    
    
    $
    285,000Medium Term Notes
    
    Int.
    
    
    6.69% - 8.12
    %(1)
    
    2004-2015
    
    
    310,000
    
    
    
    323,000595,000
    
    
    
    608,000Unsecured Lines of Credit & OtherSyndicated Line of Credit
    
    N/A
    
    LIBOR + 0.90
    % (2)
    
    2007
    
    
    
    
    
    
    60,000Cash Management Line
    
    N/A
    
    LIBOR + 0.90
    %
    
    2007
    
    
    
    
    
    
    12,010
    
    
    
    72,010Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int.
    
    
    6.975
    %(3)
    
    2029
    
    
    99,800
    
    
    
    99,800Other
    
    Prin. and Int.
    
    
    4.27% - 7.69
    %
    
    2007-2013
    
    
    275,472
    
    
    
    192,132375,272
    
    
    
    291,932Tax Exempt Floating Rate
Bonds (Secured)
    
    Int.
    
    
    1.05
    %(4)
    
    2025
    
    
    110,055
    
    
    
    214,380Total
    
    
    
    
    
    
    
    
    
    $
    1,080,327
    
    
    $
    1,186,322
  (1)
    
    Includes $100,000 of Mandatory Par Put Remarketed Securities
(MOPPRS). The annual interest rate on these securities to March
2005 is 6.85%. The MOPPRS mature in March 2015, but are subject to
mandatory tender for remarketing in March 2005. In March 2005, if the
remarketing dealer elects not to remarket the MOPPRS, the Operating
Partnership is required to redeem the MOPPRS at par. If the
remarketing dealer elects to remarket the securities in March 2005,
the interest rate on the MOPPRS will be established at a rate of
5.715% plus the Operating Partnerships applicable credit spread for
the Operating Partnerships securities with similar maturities. The
MOPPRS may be redeemed, at the Operating Partnerships option,
immediately prior to their remarketing in March 2005 at an optional
redemption price equal to the outstanding principal balance plus a
prepayment penalty (generally equivalent to the make-whole amount
necessary to compensate for the amount by which the base rate of
5.715% exceeds the then-existing 10-year treasury rate).(2)
    
    Represents stated rate.(3)
    
    Interest rate is fixed at 6.975%, inclusive of credit enhancement
and other fees, to 2009 through an interest rate swap arrangement.(4)
    
    FNMA credit enhanced bond indebtedness. Interest based on FNMA
AAA tax exempt rate plus credit enhancement and other fees of
0.639%. Interest rate represents the rate at June 30, 2004 before
credit enhancements. The Operating Partnership has outstanding
interest rate cap arrangements that limit the Operating Partnerships
exposure to increases in the base interest rate to 5%. At June 30,
2004 and December 31, 2003, approximately $14,760 and $119,085,
respectively, of this debt was secured by assets held for sale.  Debt maturitiesThe aggregate maturities of the Operating Partnerships indebtedness are as
follows: Remainder of 2004
    
    $
    13,4112005
    
    
    205,799
    (1)2006
    
    
    81,2082007
    
    
    158,3272008
    
    
    4,014Thereafter
    
    
    617,568
    (1)$
    1,080,327
  (1)
    
    Aggregate debt maturities for
years ended in 2009 and thereafter include
$100,000 of Mandatory Par Put Remarketed
Securities (MOPPRS). The MOPPRS mature in
March 2015, but are subject to mandatory tender
for remarketing in March 2005. In March 2005,
if the remarketing dealer elects not to
remarket the MOPPRS, the Operating Partnership
is required to redeem the MOPPRS at par. If
the remarketing dealer elects to remarket the
securities in March 2005, the interest rate on
the MOPPRS will be established at a rate of
5.715% plus the Operating Partnerships
applicable credit spread for Operating
Partnership securities with similar maturities.
The MOPPRS may be redeemed, at the Operating
Partnerships option, immediately prior to
their remarketing in March 2005 at an optional
redemption price equal to the outstanding
principal balance plus a prepayment penalty.  New debt issuances and retirementsIn conjunction with an apartment community acquisition (see note 4) in June
2004, the Operating Partnership assumed a secured, fixed rate mortgage note
payable. The mortgage note was valued at $49,694 yielding an effective
interest rate of 4.7%. The mortgage note requires monthly principal and
interest payments and matures in 2007. -22-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  In June 2004, the Operating Partnership sold certain apartment communities
subject to the assumption of $104,325 of tax exempt mortgage indebtedness
(see note 4). As a result of this debt assumption, the Company recorded a
loss on early extinguishment of debt of $4,128 related to the write-off of
deferred loan costs of $3,187 relating to such assumed indebtedness and the
realization of a $941 loss in connection with the termination of related
interest rate cap agreements that were used as cash flow hedges of assumed
debt.In March 2004, the Operating Partnership closed a $35,000 secured, fixed rate
mortgage note payable obtained by a consolidated real estate entity. The
note bears interest at 4.27%, requires monthly interest only payments through
March 2007 and monthly principal and interest payments based on a 30-year
amortization schedule from April 2007 through the note maturity date in March
2009.Upon their maturity in April 2004, the Operating Partnership repaid $13,000
of its 7.30% medium term, unsecured notes, using its available cash balances
and borrowings under its unsecured lines of credit.Unsecured Lines of CreditIn January 2004, the Operating Partnership refinanced its previous revolving
line of credit with a new $350,000 three-year unsecured revolving line of
credit (the Revolver) that matures in January 2007. The Revolver currently
has a stated interest rate of LIBOR plus 0.90% or the prime rate and was
provided by a syndicate of nine banks led by Wachovia Bank, N.A.
Additionally, the Revolver requires the payment of annual facility fees equal
to 0.20% 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 Partnerships senior unsecured
debt. The rates under the Revolver are based on the lower of the Operating
Partnerships unsecured debt ratings in instances where the Operating
Partnership has split unsecured debt ratings. The Revolver also includes a
money market competitive bid option for short-term funds up to $175,000 at
rates generally below the stated line rate. The credit agreement for the
Revolver contains customary representations, covenants and events of default,
including fixed charge coverage and maximum leverage ratios as well as
covenants which restrict the ability of the Operating Partnership to make
distributions, in excess of stated amounts, which in turn restrict the
discretion of the Company to declare and pay dividends. In general, during
any fiscal year the Operating Partnership may only distribute up to 100% of
the Operating Partnerships consolidated income available for distribution
(as defined in the credit agreement) exclusive of distributions of up to
$15,000 of capital gains for such year. The credit agreement contains
exceptions to these limitations to allow the Operating Partnership to make
distributions necessary to allow the Company to maintain its status as a
REIT. The Operating Partnership does not anticipate that these ratios and
covenants will adversely affect the ability of the Operating Partnership to
borrow money or make distributions, or the Company to declare dividends, at
the Companys current dividend level. The Revolver matures in January 2007.
At June 30, 2004, the Operating Partnership had issued letters of credit to
third parties totaling $1,828 under this facility.Additionally, the Operating Partnership has a $20,000 unsecured line of
credit with Wachovia Bank, N.A. (the Cash Management Line), which was
scheduled to mature on April 30, 2004. In April 2004, the Operating
Partnership renewed this line of credit with maturity, pricing and terms,
including debt covenants, substantially consistent with those of the
Revolver. The Cash Management line currently has a stated interest rate of
LIBOR plus 0.90% mirroring the pricing structure of the Revolver and requires
the payment of an annual facility fee equal to 0.125% of the average annual
unused portion of the loan commitment.3.
    
    INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIESAt June 30, 2004, the Operating Partnership held investments in three
individual limited liability companies (the Property LLCs) with an
institutional investor. Each Property LLC owns a newly developed apartment
community. At June 30, 2004, each of the apartment communities had achieved
stabilized occupancy. The Operating Partnership holds a 35% equity interest
in the Property LLCs. The initial development costs of the apartment
communities were funded through member equity contributions proportionate to
the members ownership interests and through construction financing provided
by the Operating Partnership.The Operating Partnership accounts for its investments in these Property LLCs
using the equity method of accounting. The excess of the Operating
Partnerships investment over its equity in the underlying net assets of the
Property LLCs was approximately $6,666 at June 30, 2004. This excess
investment is being amortized as a reduction to earnings on a straight-line
basis over the lives of the related assets. The Operating Partnership
provides real estate services (development, construction and property
management) to the Property LLCs for which it earns fees. -23-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  The operating results of the Operating Partnership include its proportionate
share of net income (loss) from the investments in the Property LLCs. A
summary of financial information for the Property LLCs in the aggregate is as
follows: June 30,
    
    December 31,Balance Sheet Data
    
    2004
    
    2003Real estate assets, net of accumulated depreciation of
$7,806 and $5,939, respectively
    
    $
    125,751
    
    
    $
    127,513Cash and other
    
    
    4,177
    
    
    
    2,516Total assets
    
    $
    129,928
    
    
    $
    130,029Mortgage notes payable
    
    $
    83,617
    
    
    $
    33,763Construction notes payable to Operating Partnership (1)
    
    
    
    
    
    
    53,769Other liabilities
    
    
    1,824
    
    
    
    1,742Total liabilities
    
    
    85,441
    
    
    
    89,274Members equity
    
    
    44,487
    
    
    
    40,755Total liabilities and members equity
    
    $
    129,928
    
    
    $
    130,029Operating Partnerships equity investment
    
    $
    22,165
    
    
    $
    21,017Operating Partnerships share of notes payable
    
    $
    29,266
    
    
    $
    30,636
  (1)
    
    All of the Operating Partnerships
construction financing to these unconsolidated
real estate entities is included in the
Operating Partnerships outstanding debt and
total assets. At December 31, 2003, the venture
partners share of the construction loans was
$34,950. All construction financing previously
provided by the Operating Partnership was
refinanced with permanent loans from
unaffiliated entities in early 2004. Three months ended
    
    Six months endedJune 30,
    
    June 30,Income Statement Data
    
    2004
    
    2003
    
    2004
    
    2003RevenueRental
    
    $
    3,290
    
    
    $
    2,107
    
    
    $
    6,538
    
    
    $
    3,796Other
    
    
    259
    
    
    
    125
    
    
    
    471
    
    
    
    227Total revenues
    
    
    3,549
    
    
    
    2,232
    
    
    
    7,009
    
    
    
    4,023ExpensesProperty operating and maintenance
    
    
    1,224
    
    
    
    1,209
    
    
    
    2,445
    
    
    
    2,436Depreciation and amortization
    
    
    970
    
    
    
    949
    
    
    
    1,920
    
    
    
    1,844Interest
    
    
    866
    
    
    
    810
    
    
    
    1,639
    
    
    
    1,518Total expenses
    
    
    3,060
    
    
    
    2,968
    
    
    
    6,004
    
    
    
    5,798Income (loss) from continuing operations
    
    
    489
    
    
    
    (736
    )
    
    
    1,005
    
    
    
    (1,775
    )Discontinued OperationsLoss from discontinued operations
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    (188
    )Gain on property sales
    
    
    
    
    
    
    26,179
    
    
    
    
    
    
    
    26,179Income from discontinued operations
    
    
    
    
    
    
    26,076
    
    
    
    
    
    
    
    25,991Net income
    
    $
    489
    
    
    $
    25,340
    
    
    $
    1,005
    
    
    $
    24,216Operating Partnerships share of net income
    
    $
    171
    
    
    $
    11,899
    
    
    $
    352
    
    
    $
    11,505
  The income from discontinued operations represents the operating results and
the gain on sale of an apartment community (held by a fourth Property LLC)
that was sold in June 2003.At June 30, 2004, mortgage notes payable include a $50,000 mortgage note that
bears interest at 4.13%, requires monthly interest payments and annual
principal payment of $1 through 2009. Thereafter, the note requires monthly
principal and interest payments based on a 25-year amortization schedule and
matures in April 2034. The note is callable by the lender in May 2009 and on
each successive fifth year anniversary of the note thereafter. The note is
prepayable without penalty in May 2008. The additional mortgage notes
payable bear interest at rates ranging from 4.04% to 4.28% and mature in
2008. -24-




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POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  4.
    
    REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITYAcquisition ActivityIn June 2004, the Operating Partnership acquired a 499-unit apartment
community located in suburban Washington, D.C. for approximately $85,814,
including the assumption of mortgage indebtedness and closing costs.
Additionally, the Operating Partnership plans to spend up to approximately
$2,000 to improve the community. The assumed mortgage note payable was
valued at $49,694 yielding an effective interest rate of 4.7%. The mortgage
note requires monthly principal and interest payments and matures in 2007.The purchase price of this community was preliminarily allocated to the assets
acquired and the liabilities assumed based on their estimated fair values.Disposition ActivityThe Operating Partnership classifies real estate assets as held for sale
after the approval of its internal investment committee and after the
Operating Partnership has commenced an active program to sell the assets. At
June 30, 2004, the Operating Partnership had one apartment community,
containing 460 units, and certain tracts of land classified as held for sale.
These real estate assets are reflected in the accompanying consolidated
balance sheet at $16,977, which represents the lower of depreciated cost or
fair value less costs to sell.Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the operating results of real estate assets designated as held for
sale are included in discontinued operations in the consolidated statement of
operations for all periods presented. Additionally, all subsequent gains or
additional losses on the sale of these assets are included in discontinued
operations.For the three and six months ended June 30, 2004, income from discontinued
operations included the results of operations of one community, containing
460 units, classified as held for sale at June 30, 2004 and the results of
operations of eight communities sold in 2004 through their sale dates. For
the three and six months ended June 30, 2003, income from discontinued
operations included the results of operations of the community classified as
held for sale at June 30, 2004, the eight communities sold in 2004 and the
results of operations of four communities sold in 2003 through the earlier of
June 30, 2003 or their sale dates.The revenues and expenses of these communities for the three and six months
ended June 30, 2004 and 2003 were as follows: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003RevenuesRental
    
    $
    6,767
    
    
    $
    10,750
    
    
    $
    14,699
    
    
    $
    22,920Other
    
    
    665
    
    
    
    853
    
    
    
    1,363
    
    
    
    1,685Total revenues
    
    
    7,432
    
    
    
    11,603
    
    
    
    16,062
    
    
    
    24,605ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    3,519
    
    
    
    4,808
    
    
    
    7,304
    
    
    
    9,960Depreciation
    
    
    
    
    
    
    2,229
    
    
    
    
    
    
    
    4,667Interest
    
    
    769
    
    
    
    1,542
    
    
    
    1,692
    
    
    
    3,213Asset impairment charge
    
    
    626
    
    
    
    
    
    
    
    626
    
    
    
    14,118Total expenses
    
    
    4,914
    
    
    
    8,579
    
    
    
    9,622
    
    
    
    31,958Income (loss) from discontinued operations
    
    $
    2,518
    
    
    $
    3,024
    
    
    $
    6,440
    
    
    $
    (7,353
    )
  In the second quarter of 2004, the Operating Partnership recorded an asset
impairment loss of $626 to write-down the cost of an apartment community,
located in Dallas, Texas, to its realized value. In the third quarter of
2003, the Operating Partnership recorded a $3,344 asset impairment charge to
write-down this asset to its estimated fair value at the date the asset was
classified as held for sale. In the first quarter of 2003, the Operating
Partnership recorded an asset impairment charge to write-down the cost of the
Operating Partnerships apartment community located in Phoenix, Arizona to
its estimated fair value. This impairment loss, originally reflected in
continuing operations, was reclassified to discontinued operations to reflect
the designation of this community as held for sale during the third quarter
of 2003 and the final sale of the community in the fourth quarter of 2003.  For the three months ended June 30, 2004, the Operating Partnership recognized
net gains from discontinued operations of $112,112 from the sale of seven
communities containing 3,482 units. These sales generated net proceeds of
approximately $218,982, including $104,325 of tax exempt mortgage indebtedness
assumed by the purchasers. For the six months ended June 30, 2004, the
Operating Partnership recognized net gains from discontinued operations of
$113,739 from the sale of eight -25-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  communities containing 3,880 units and certain land parcels. Theses sales
generated net proceeds of approximately $242,962, including debt assumed by
the purchasers of $104,325.For the three months ended June 30, 2003, the Operating Partnership
recognized net gains from discontinued operations of $26,630, from the sale
of one community, containing 770 apartment units and certain land parcels.
For the six months ended June 30, 2003, the Operating Partnership recognized
net gains from discontinued operations of $33,504 from the sale of two
communities containing 1,009 units and certain land parcels.5.
    
    PARTNERS EQUITYPreferred UnitsOn March 5, 2004, the Company redeemed its 7 5/8% Series C cumulative
redeemable preferred stock (Series C Preferred Stock) for $25.00 per share
(an aggregate of $50,000), plus accrued and unpaid dividends through March 5,
2004. Correspondingly, the Operating Partnership redeemed its 7 5/8% Series
C Cumulative redeemable preferred partnership units (the Series C Preferred
Units) on the same date and under the same terms. In connection with the
issuance of the Series C Preferred Units in 1998, the Operating Partnership
incurred $1,716 in issuance costs and recorded such costs as a reduction of
partners equity. The redemption price of the Series C Preferred Units
exceeded the related carrying value by the $1,716 of issuance costs. In
connection with the redemption, in accordance with generally accepted
accounting principles, the Operating Partnership reflected the $1,716 of
issuance costs as a reduction of earnings in arriving at net income available
to common unitholders for the six months ended June 30, 2004.Computations of Earnings Per Common UnitFor the three and six months ended June 30, 2004 and 2003, a reconciliation
of the numerator and denominator used in the computation of basic and diluted
income from continuing operations per common unit is as follows: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Income (loss) from continuing operations available to common
unitholders (numerator):Income (loss) from continuing operations
    
    $
    (783
    )
    
    $
    2,517
    
    
    $
    (1,594
    )
    
    $
    (16,180
    )Less: Preferred unit distributions
    
    
    (3,309
    )
    
    
    (4,262
    )
    
    
    (7,307
    )
    
    
    (8,525
    )Less: Preferred unit redemption costs
    
    
    
    
    
    
    
    
    
    
    (1,716
    )
    
    
    Loss from continuing operations available to common unitholders
    
    $
    (4,092
    )
    
    $
    (1,745
    )
    
    $
    (10,617
    )
    
    $
    (24,705
    )Common units (denominator):Weighted average units outstanding  basic
    
    
    42,478
    
    
    
    42,066
    
    
    
    42,469
    
    
    
    42,058Incremental units from assumed conversion of stock options
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    Weighted average units outstanding  diluted
    
    
    42,478
    
    
    
    42,074
    
    
    
    42,469
    
    
    
    42,058
  For the three and six months ended June 30, 2004, stock options to purchase
46 and 51 shares, respectively, of common stock were excluded from the
computation of diluted earnings per common unit as these stock options were
antidilutive.6.
    
    DERIVATIVE FINANCIAL INSTRUMENTSAt June 30, 2004 and 2003, the Operating Partnership had outstanding interest
rate swap agreements with a notional value of $129,000 with maturity dates
ranging from 2005 to 2009. The interest rate swap agreements are included on
the accompanying consolidated balance sheet at fair value. The Operating
Partnership records the changes in the fair value of these cash flow hedges
as changes in accumulated other comprehensive income, a shareholders equity
account, in the accompanying consolidated balance sheet.At June 30, 2004, the Operating Partnership had outstanding interest rate cap
agreements with two financial institutions with a notional value of $110,055.
These interest rate cap agreements are cash flow hedges that provide a fixed
interest ceiling at 5% for the Operating Partnerships variable rate, tax
exempt borrowings. The Operating Partnership is required to maintain the
interest rate exposure protection under the terms of the financing
arrangements. The interest rate cap arrangements are included on the
accompanying balance sheet at fair value. At June 30, 2004, the difference
between the amortized costs of the interest rate cap arrangements and their
fair value of $268 is included in accumulated other comprehensive income
(loss), a partners equity account. The original cost of $1,396 of the
arrangements is being amortized as additional expense over their five-year
term. -26-




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POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  In June 2004, in connection with the sale of five properties discussed in
note 4 above, the Operating Partnership sold its interest in interest rate
cap agreements with a notional value of $104,325 for aggregate proceeds of
$379 and realized a loss of $941 that was included in the loss on early
extinguishment of indebtedness on the accompanying statement of operations.
The unrealized loss on these interest rate cap agreements was previously
reflected in accumulated other comprehensive income, a shareholders equity
account. These interest rate cap agreements were sold as the underlying
hedged indebtedness was assumed by the purchaser in connection with the sale
of the related assets.A summary of comprehensive income for the three and six months ended June 30,
2004 and 2003 is as follows: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    109,719
    
    
    $
    32,171
    
    
    $
    114,457
    
    
    $
    9,971Change in derivative values
    
    
    6,202
    
    
    
    (2,633
    )
    
    
    3,950
    
    
    
    (3,115
    )Comprehensive income
    
    $
    115,921
    
    
    $
    29,538
    
    
    $
    118,407
    
    
    $
    6,856
  7.
    
    SEGMENT INFORMATIONSegment DescriptionIn 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
Partnerships chief operating decision makers to manage the business.The Operating Partnerships chief operating decision makers focus on the
Operating Partnerships primary sources of income from apartment community
rental operations. Apartment community rental operations are broken down
into four segments based on the various stages in the apartment community
ownership lifecycle. These segments are described below. All commercial
properties and other ancillary service and support operations are aggregated
in the line item other in the accompanying segment information. The
segment information presented below reflects the segment categories based on
the lifecycle status of each community as of January 1, 2004. The segment
information for the three and six months ended June 30, 2003 has been
adjusted due to the restatement impact of reclassifying the operating results
of the assets designated as held for sale in 2003 to discontinued operations
under SFAS No. 144 (see note 4).  
    
    Fully stabilized communities  those apartment communities which have
been stabilized (the earlier of the point at which a property reaches
95% occupancy or one year after completion of construction) for both the
current and prior year.
    
    Communities stabilized during 2003  communities which reached
stabilized occupancy in the prior year.
    
    Development and lease-up communities  those communities that are in
lease-up but were not stabilized by the beginning of the current year,
including communities that stabilized during the current year.
    
    Acquired communities  those communities acquired in the current or
prior year. -27-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  Segment Performance MeasureManagement uses contribution to consolidated property net operating income
(NOI) as the performance measure for its operating segments. The Operating
Partnership uses net operating income, including net operating income of
stabilized communities, as an operating measure. Net operating income is
defined as rental and other property revenue from real estate operations less
total property and maintenance expenses from real estate operations
(excluding depreciation and amortization). The Operating Partnership
believes that net operating income is an important supplemental measure of
operating performance for a REITs operating real estate because it provides
a measure of the core operations, rather than factoring in depreciation and
amortization, financing costs and general and administrative expenses
generally incurred at the corporate level. This measure is particularly
useful, in the opinion of the Operating Partnership, in evaluating the
performance of geographic operations, operating segment groupings and
individual properties. Additionally, the Operating Partnership believes that
net operating income, as defined, is a widely accepted measure of comparative
operating performance in the real estate investment community. The Operating
Partnership believes that the line on the Operating Partnerships
consolidated statement of operations entitled net income is the most
directly comparable GAAP measure to net operating income.Segment InformationThe following table reflects each segments contribution to consolidated
revenues and property NOI together with a reconciliation of segment
contribution to property NOI income from continuing operations. Additionally,
substantially all of the Operating Partnerships assets relate to the
Operating Partnerships property rental operations. Asset cost, depreciation
and amortization by segment are not presented because such information at the
segment level is not reported internally. Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003RevenuesFully stabilized communities
    
    $
    65,274
    
    
    $
    64,603
    
    
    $
    129,983
    
    
    $
    129,547Communities stabilized during 2003
    
    
    3,877
    
    
    
    3,706
    
    
    
    7,832
    
    
    
    7,158Development and lease-up communities
    
    
    1,870
    
    
    
    (250
    )
    
    
    3,585
    
    
    
    253Acquired communities
    
    
    206
    
    
    
    
    
    
    
    206
    
    
    
    Other property segments
    
    
    5,463
    
    
    
    5,044
    
    
    
    10,507
    
    
    
    9,497Other
    
    
    45
    
    
    
    147
    
    
    
    122
    
    
    
    277Consolidated revenues
    
    $
    76,735
    
    
    $
    73,750
    
    
    $
    152,235
    
    
    $
    146,732Contribution to NOIFully stabilized communities
    
    $
    39,699
    
    
    $
    39,986
    
    
    $
    79,134
    
    
    $
    81,049Communities stabilized during 2003
    
    
    2,448
    
    
    
    2,261
    
    
    
    4,974
    
    
    
    4,216Development and lease-up communities
    
    
    1,365
    
    
    
    (227
    )
    
    
    2,605
    
    
    
    (488
    )Acquired communities
    
    
    149
    
    
    
    
    
    
    
    149
    
    
    
    Other property segments
    
    
    (359
    )
    
    
    (514
    )
    
    
    (1,354
    )
    
    
    (1,663
    )Consolidated property net operating income
    
    
    43,302
    
    
    
    41,506
    
    
    
    85,508
    
    
    
    83,114Interest income
    
    
    213
    
    
    
    251
    
    
    
    392
    
    
    
    485Other revenue
    
    
    45
    
    
    
    147
    
    
    
    122
    
    
    
    277Minority interest in consolidated property partnerships
    
    
    303
    
    
    
    349
    
    
    
    575
    
    
    
    682Depreciation
    
    
    (21,177
    )
    
    
    (20,253
    )
    
    
    (42,363
    )
    
    
    (40,542
    )Interest expense
    
    
    (16,726
    )
    
    
    (16,250
    )
    
    
    (33,007
    )
    
    
    (31,879
    )Amortization of deferred loan costs
    
    
    (1,092
    )
    
    
    (968
    )
    
    
    (2,208
    )
    
    
    (1,756
    )General and administrative
    
    
    (5,477
    )
    
    
    (3,342
    )
    
    
    (10,119
    )
    
    
    (6,967
    )Development costs and other
    
    
    (381
    )
    
    
    
    
    
    
    (916
    )
    
    
    (567
    )Severance charges
    
    
    
    
    
    
    (1,795
    )
    
    
    
    
    
    
    (21,506
    )Proxy contest and related costs
    
    
    
    
    
    
    (5,231
    )
    
    
    
    
    
    
    (5,231
    )Equity in income of unconsolidated real estate entities
    
    
    207
    
    
    
    8,103
    
    
    
    422
    
    
    
    7,710Income (loss) from continuing operations
    
    
    (783
    )
    
    
    2,517
    
    
    
    (1,594
    )
    
    
    (16,180
    )Income from discontinued operations
    
    
    110,502
    
    
    
    29,654
    
    
    
    116,051
    
    
    
    26,151Net income
    
    $
    109,719
    
    
    $
    32,171
    
    
    $
    114,457
    
    
    $
    9,971
 -28-




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POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  8.
    
    SEVERANCE AND PROXY CONTEST CHARGESIn the second quarter of 2003, the Operating Partnership recorded severance
charges of $1,795 relating to the departure of two executive officers. In
the first quarter of 2003, the Operating Partnership recorded severance
charges of $19,711 relating to the change in roles from executive to
non-executive status of the Companys former chairman and vice-chairman of
the board of directors. The severance charges represented the discounted
present value of the estimated payments to be made to the former chairman and
vice-chairman under their existing employment arrangements.The following table summarizes the activity relating to aggregate severance
charges for the six months ended June 30, 2004: Accrued severance charges, December 31, 2003
    
    $
    19,171Payments for period
    
    
    (1,665
    )Interest accretion
    
    
    502Accrued severance charges, June 30, 2004
    
    $
    18,008
  Substantially all of these remaining amounts will be paid over the remaining
terms of the former executives employment contracts (9 to 12 years).Proxy contest and related costs of $5,231 represent the legal, advisory and
other expenses associated with the solicitation of proxies from shareholders
resulting from the proxy contest initiated in April 2003 by the Companys
former chairman of the board of directors. Additionally, the $5,231 amount
included legal and resolution costs associated with the settlement of two
derivative and purported class action lawsuits filed against the Company
during the proxy contest. These lawsuits are expected to be settled in
2004.9.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONNon-cash investing and financing activities for the six months ended June 30,
2004 and 2003 were as follows:In June 2004, the Operating Partnership acquired an apartment community for
cash and the assumption of mortgage indebtedness with an estimated fair value
of $49,694. Also, in June 2004, the Operating Partnership sold certain
apartment communities subject to $104,325 of mortgage indebtedness assumed by
the purchasers. These transactions involving mortgage indebtedness were
excluded from the statement of cash flows as non-cash transactions (see note
4).During the six months ended June 30, 2004, the Operating Partnerships
derivative financial instruments (see note 6) increased in value causing a
decrease in accounts payable and accrued expenses and a corresponding
increase in partners equity of $3,950. During the six months ended June 30,
2003, the Operating Partnerships derivative financial instruments decreased
in value causing an increase in accounts payable and accrued expenses and a
corresponding decrease in unitholders equity of $3,115.10.
    
    STOCK-BASED COMPENSATION PLANDuring the three and six months ended June 30, 2004, the Company granted
approximately 1 and 24 shares, respectively, of restricted stock to company
officers and directors, of which approximately 7 shares were granted to the
Companys non-executive Chairman of the Board. The restricted shares vest
ratably over three years. The total value of the restricted share grants of
$15 and $677 for the three and six months, respectively, ended June 30, 2004
was initially reflected in partners equity as additional paid in capital
reduced by non-amortized deferred compensation expense. Such deferred
compensation is amortized ratably into compensation expense over the three
year vesting period.Additionally, in the three and six months ended June 30, 2004, the Company
granted stock options to purchase approximately 10 and 271 shares,
respectively, of Company common stock to Operating Partnership officers and
directors, of which 50 shares were granted to the Companys non-executive
Chairman of the Board. As discussed in note 1, the Operating Partnership
expenses the estimated costs of stock options over their three year vesting
periods. -29-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  11.
    
    LEGAL PROCEEDINGSOn 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 Companys 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 alleges, among other things, breaches of fiduciary duties, fraud,
corporate waste, withholding certain documents from shareholder inspection
and certain securities laws claims. The complaint requests various types of
relief, such as injunctive relief and damages and demands production of
certain Company records. The Company believes the allegations are wholly
without merit and intends to defend the suit vigorously. The Company intends
to move to dismiss the litigation.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 alleges various breaches of fiduciary duties by the board
of directors of the Company and seeks, among other relief, the disclosure of
certain information by the defendants. This complaint also seeks 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 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 alleges breaches of fiduciary
duties, abuse of control and corporate waste by the defendants. The
plaintiff seeks monetary damages and, as appropriate, injunctive relief.
These lawsuits are expected to be settled in 2004. The estimated legal and
settlement costs, not covered by insurance, associated with the expected
resolution of the lawsuits were recorded in the second quarter of 2003 as a
component of a proxy contest and related costs charge.The Operating Partnership is involved in various other legal proceedings
incidental to its business from time to time, most of which are expected to
be covered by liability insurance. Management of the Operating Partnership
believes that any resolution of pending proceedings or liability to the
Operating Partnership, which may arise as a result of these proceedings, will
not have a material adverse effect on the Operating Partnerships results of
operations or financial position. -30-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Company Overview Post Properties, Inc. and its subsidiaries develop, own and manage upscale
multifamily apartment communities in selected markets in the United States. As
used in this report, the term Company includes Post Properties, Inc. and its
subsidiaries, including Post Apartment Homes, L.P. (the Operating
Partnership), unless the context indicates otherwise. The Company, through
its wholly-owned subsidiaries is the general partner and owns a majority
interest in the Operating Partnership which, through its subsidiaries, conducts
substantially all of the on-going operations of the Company. At June 30, 2004,
the Company owned 24,700 apartment units in 65 apartment communities, including
666 apartment units in three communities held in unconsolidated entities. At
June 30, 2004, approximately 51.6%, 17.6% and 9.0% (on a unit basis) of the
Companys communities were located in the Atlanta, Dallas and Tampa
metropolitan area, respectively. The Company has elected to qualify and operate as a self-administrated and
self-managed real estate investment trust (REIT) for federal income tax
purposes. A REIT is a legal entity which holds real estate interests and,
through payments of dividends to shareholders, in practical effect is not
subject to federal income taxes at the corporate level. At June 30, 2004, the Company owned approximately 94.0% of the common limited
partnership interests (Common Units) in the Operating Partnership. Common
Units held by persons (including certain directors) other than the Company
represented a 6.0% common minority interest in the Operating Partnership. As discussed in the Companys Annual Report on Form 10-K for the year ended
December 31, 2003, the multifamily sector had been adversely impacted over the past
few years by overall weakness in the U.S. economy and a soft employment market,
the strong single-family housing market caused by historically low mortgage
interest rates and excess multifamily supply. These factors led to a
significant increase in apartment vacancies and, in turn, lower net effective
rents as multifamily apartment owners sought to compete in this increasingly
competitive environment. As a result, multifamily same-store revenue and net
operating income growth have declined, turning negative since 2001 and
continuing into the first quarter of 2004. In the second quarter of 2004,
however, there have been ongoing signs of stabilization in the Companys
markets. As a result, revenues at the Companys fully stabilized (same store)
communities increased 1.0% in the three months ended June 30, 2004 as compared
to the same period in 2003. This is the first year-over-year quarterly
increase in same store revenues in nearly three years. Net operating income
from these properties continued to show a decline over 2003, but the
year-over-year decline lowered from 4.0% in the first quarter of 2004 to 0.7%
in the second quarter of 2004. These net operating income declines were
smaller than the full year 2003 decline of 6.1%. The improved revenues and net
operating income were driven by increased average economic occupancy at the
Companys fully stabilized (same store) communities which increased from 91.5%
for the three months ended June 30, 2003 to 93.6% for the three months ended
June 30, 2004. Sequentially, revenues for the Companys fully stabilized (same
store) communities increased 0.9% in the second quarter of 2004, compared to
the first quarter of 2004, and the rate of decline in average monthly rental
rates moderated to a decline of 0.3% for the same sequential period. During the second quarter of 2004, the Company also substantially completed the
asset sales program it had announced at the end of 2003, selling seven
apartment communities, containing 3,482 units. The communities were sold for
net proceeds totaling $218,982, including $104,325 of tax-exempt financing
securing five of the communities that was assumed by the buyer. The Company
has one remaining apartment community held for sale at June 30, 2004 that is
currently expected to close in the third quarter of 2004, subject to customary
closing considerations. There can be no assurance, however, that this
transaction will close. The Company utilized the net proceeds from these asset
sales to acquire a 499-unit apartment community in suburban Washington, D.C.
and expects to use a portion of the proceeds to redeem its 8.0% Series D
preferred units totaling $70,000 on September 3, 2004, and its 6.69% medium
term notes totaling $10,000 that mature later in September 2004. The
reinvestment of asset sales proceeds back into the Companys balance sheet
contributed to the decrease in the Companys percentage of total debt and
preferred equity to undepreciated real estate assets from 53.2% at June 30,
2003 to 50.1% at June 30, 2004 (see table 1 below). The Company may utilize net
proceeds from asset sales to reinvest in acquisitions that diversify its cash
flow stream and enhance the quality of its portfolio, such as in the greater
Washington, D.C., Tampa and Orlando markets, among others. In the event that
the Company is unable to identify acquisition targets that meet its objectives,
however, the Company may also consider utilizing sales proceeds to repurchase
its common stock, if the Company could do so at prices that are attractive
relative to its estimates of per-share net asset value. There can be no
assurance, however, that the Company will utilize asset sales proceeds for the
above purposes. See Liquidity and Capital Resources later in this section
where the Companys asset sales program is discussed further. -31-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) In April 2004, the Company renewed and refinanced its $20,000 cash management
line of credit. This credit facility and our primary $350,000 revolving credit
facility have three-year terms and mature in January 2007. The pricing and
terms, including debt covenants of these facilities also substantially mirror
one another. See Liquidity and Capital Resources later in this section where
discussed further. The Company had no outstanding balances under these credit
facilities as of June 30, 2004 and has available cash and cash equivalents of
$55,291.  Table 1Computation of the Ratio of Debt and Preferred Shares and Units to
Undepreciated Real Estate Assets
(adjusted for joint venture partners share of debt) 2004
    
    2003Total real estate assets per balance sheet
    
    $
    2,013,500
    
    
    $
    2,164,206Plus:Company share of real estate assets held in unconsolidated entities
    
    
    44,013
    
    
    
    45,124Company share of accumulated depreciation  assets held in unconsolidated entities
    
    
    2,732
    
    
    
    1,407Accumulated depreciation per balance sheet
    
    
    474,016
    
    
    
    470,307Accumulated depreciation on assets held for sale
    
    
    7,836
    
    
    
    Total undepreciated real estate assets (A)
    
    $
    2,542,097
    
    
    $
    2,681,044Total debt per balance sheet
    
    $
    1,080,327
    
    
    $
    1,259,926Plus:Company share of debt held in unconsolidated entities
    
    
    29,266
    
    
    
    5,917Preferred shares at liquidation value
    
    
    95,000
    
    
    
    145,000Preferred units at liquidation value
    
    
    70,000
    
    
    
    70,000Less:Joint venture partners share of construction debt to the Company
    
    
    
    
    
    
    (54,051
    )Total debt and preferred equity (adjusted for joint venture partners share of debt) (B)
    
    $
    1,274,593
    
    
    $
    1,426,792Total debt and preferred equity as a % of undepreciated assets (adjusted for joint
venture partners share of debt) (B÷A)
    
    
    50.1
    %
    
    
    53.2
    %
  The Company uses the above ratio as a supplemental measure of
liquidity. The ratio is presented because it is an indicator
of the degree of debt and preferred equity used by the Company
to finance its business. The degree of leverage used by the
Company could affect the Companys ability to obtain additional
financing for working capital, capital expenditures,
acquisitions, development or other general corporate purposes.
The Company also believes this measure is used by the
investment and analyst communities to better understand the
Companys liquidity. The following discussion should be read in conjunction with the accompanying
consolidated financial statements appearing elsewhere in this report. This
discussion is combined for the Company and the Operating Partnership as their
results of operations and the financial condition are substantially the same
except for the effect of the 6.0% common minority interest in the Operating
Partnership. See the summary financial information in the section below
titled, Results of Operations. Disclosure Regarding Forward-Looking Statements Certain statements made in this report, and other written or oral statements
made by or on behalf of the Company, may constitute forward-looking
statements within the meaning of the federal securities laws. In addition, the
Company, or the executive officers on the Companys behalf, may from time to
time make forward-looking statements in reports and other documents the Company
files with the Securities and Exchange Commission or in connection with oral
statements made to the press, potential investors or others. Statements
regarding future events and developments and the Companys future performance,
as well as managements expectations, beliefs, plans, estimates or projections
relating to the future, are forward-looking statements within the meaning of
these laws. Forward-looking statements include statements preceded by, followed
by or that include the words believes, expects, anticipates, plans,
estimates, or similar expressions. Examples of such statements in this report
include the Companys expectations with regard to: anticipated apartment
community sales in 2004 (including the estimated proceeds, estimated gains on
sales and the use of proceeds from such sales), property net operating income
for 2004, occupancy levels and rental rates, operating expenses, stabilized
community revenues in excess of specified expenses, accounting recognition and
measurement of guarantees, debt maturities and financing needs, dividend
payments, its ability to meet new construction, development and other long-term
liquidity requirements, and its ability to execute future asset sales.
Forward-looking statements are only predictions and are not guarantees of
performance. These statements are based on beliefs and assumptions of the
Companys management, which in turn are based on currently available
information. Important assumptions relating to the forward-looking statements
include, among others, assumptions regarding the market for the Companys
apartment communities held for sale, demand for apartments in the markets in -32-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) which it operates, competitive conditions and general economic conditions.
These assumptions could prove inaccurate. The forward-looking statements also
involve risks and uncertainties, which could cause actual results to differ
materially from those contained in any forward-looking statement. Many of these
factors are beyond the Companys ability to control or predict. Such factors
include, but are not limited to, the following:  
    
    The success of the Companys business strategies described on pages 2-3 in the Companys Annual Report on Form 10-K for the
year ended December 31, 2003;
    
    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 Companys markets and the effect on occupancy and rental rates;
    
    The impact of competition on the Companys business, including competition for residents and development locations;
    
    The Companys ability to obtain financing or self-fund the development of additional apartment communities;
    
    The uncertainties associated with the Companys real estate development, including actual costs exceeding the Companys
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;
    
    Conditions affecting ownership of residential real estate and general conditions in the multifamily residential real estate
market;
    
    The effects of changes in accounting policies and other regulatory matters detailed in the Companys filings with the
Securities and Exchange Commission and uncertainties of litigation;
    
    The Companys ability to continue to qualify as a REIT under the Internal Revenue Code; and
    
    Other factors, including the risk factors discussed on pages 8 through 15 in the Companys Annual Report on Form 10-K for
the year ended December 31, 2003. Management believes these forward-looking statements are reasonable; however,
undue reliance should not be placed on any forward-looking statements, which
are based on current expectations. Further, forward-looking statements speak
only as of the date they are made, and management undertakes no obligation to
update publicly any of them in light of new information or future events. Critical Accounting Policies In the preparation of financial statements and in the determination of Company
operating performance, the Company utilizes certain significant accounting
polices. The Companys significant accounting policies are included in the
notes to the Companys audited financial statements included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2003. The
discussion below addresses the implementation and impact of accounting policies
with an impact on the Company in the three and six months ended June 30, 2004. Residential properties are leased under operating leases with terms of
generally one year or less. Rental revenues from residential leases are
recognized on the straight-line method over the approximate life of the leases,
which is generally one year. The recognition of rental revenues from
residential leases when earned has historically not been materially different
from rental revenues recognized on a straight-line basis. Under the terms of
residential leases, the residents of the Companys residential communities are
obligated to reimburse the Company for certain utility usage, principally water
and electric at certain properties, where the Company is the primary obligor to
the public utility entity. These utility reimbursements from residents are
reflected as other property revenues in the consolidated statements of
operations. In accordance with the provisions of Statement of Financial Accounting
Standards (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
furnitures fixed and equipment, are reflected in real estate assets and
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). -33-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) Results of Operations The following discussion of results of operations should be read in conjunction
with the consolidated statements of operations and the community
operations/segment performance information included below. The Companys revenues and earnings are generated primarily from the operation
of its apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. The Company generally
considers a development community to have achieved stabilized occupancy on the
earlier to occur of (1) attainment of 95% physical occupancy on the first day
of any month or (2) one year after completion of construction. At June 30, 2004, the Companys portfolio of apartment communities, excluding
three communities held in unconsolidated entities and one community held for
sale, consisted of the following: (1) 57 communities that were completed and
stabilized for all of the current and prior year, (2) two communities that
achieved full stabilization during 2003, (3) one community that was in the
lease-up stage in early 2004, and (4) one community that was acquired in 2004.
These operating segments exclude the operations of apartment communities
classified as discontinued operations and apartment communities held in
unconsolidated entities for the years presented. The Company has adopted an accounting policy related to communities in the
lease-up stage whereby substantially all operating expenses (including
pre-opening marketing and management and leasing personnel expenses) are
expensed as incurred. During the lease-up phase of a development community, the
sum of interest expense on completed units and other operating expenses
(including pre-opening marketing and management and leasing personnel expenses)
will initially exceed rental revenues, resulting in a lease-up deficit, which
continues until such time as rental revenues exceed such expenses. Lease up
deficits were $0 and $703 for the three months ended June 30, 2004 and 2003,
respectively, and $0 and $961 for the six months ended June 30, 2004 and 2003,
respectively. This reduction in the aggregate lease-up deficits reflects the
lease-up and stabilization of the Companys lease-up communities in late 2003
and early 2004. Currently, all of the Companys communities have reached
stabilized occupancy and the Company has no community in the lease-up stage. In order to evaluate the operating performance of its communities for the
comparative years listed below, the Company has presented financial information
which summarizes the rental and other revenues, property operating and
maintenance expenses (excluding depreciation and amortization) and net
operating income on a comparative basis for all of its operating communities
and for its stabilized operating communities. Net operating income is a
supplemental non-GAAP financial measure. The Company believes that the line on
the Companys consolidated statement of operations entitled net income is the
most directly comparable GAAP measure to net operating income. See note 7 to
the consolidated financial statements for a reconciliation of net operating
income to GAAP net income. The Company believes that net operating income is
an important supplemental measure of operating performance for a REITs
operating real estate because it provides a measure of the core operations,
rather than factoring in depreciation and amortization, financing costs and
general and administrative expenses. This measure is particularly useful, in
the opinion of the Company, in evaluating the performance of geographic
operations, operating segment groupings and individual properties.
Additionally, the Company believes that net operating income, as defined, is a
widely accepted measure of comparative operating performance in the real estate
investment community. -34-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) All Operating Communities The operating performance and capital expenditures from continuing operations
for all of the Companys apartment communities and other commercial properties
summarized by segment for the three and six months ended June 30, 2004 and 2003
is summarized as follows: Three months ended
    
    
    
    
    
    Six months endedJune 30,
    
    
    
    
    
    June 30,2004
    
    2003
    
    % Change
    
    2004
    
    2003
    
    % ChangeRental and other property revenuesFully stabilized communities (1)
    
    $
    65,274
    
    
    $
    64,603
    
    
    
    1.0
    %
    
    $
    129,983
    
    
    $
    129,547
    
    
    
    0.3
    %Communities stabilized in 2003
    
    
    3,877
    
    
    
    3,706
    
    
    
    4.6
    %
    
    
    7,832
    
    
    
    7,158
    
    
    
    9.4
    %Lease-up communities (2)
    
    
    1,870
    
    
    
    250
    
    
    
    648.0
    %
    
    
    3,585
    
    
    
    253
    
    
    
    1317.0
    %Acquired communities (3)
    
    
    206
    
    
    
    
    
    
    
    
    
    
    
    206
    
    
    
    Other property segments (4)
    
    
    5,463
    
    
    
    5,044
    
    
    
    8.3
    %
    
    
    10,507
    
    
    
    9,497
    
    
    
    10.6
    %76,690
    
    
    
    73,603
    
    
    
    4.2
    %
    
    
    152,113
    
    
    
    146,455
    
    
    
    3.9
    %Property operating and maintenance
expenses (exclusive of depreciation
and amortization)Fully stabilized communities (1)
    
    
    25,575
    
    
    
    24,617
    
    
    
    3.9
    %
    
    
    50,849
    
    
    
    48,498
    
    
    
    4.8
    %Communities stabilized in 2003
    
    
    1,429
    
    
    
    1,445
    
    
    
    (1.1
    )%
    
    
    2,858
    
    
    
    2,942
    
    
    
    (2.9
    )%Lease-up communities (2)
    
    
    505
    
    
    
    477
    
    
    
    5.9
    %
    
    
    980
    
    
    
    741
    
    
    
    32.3
    %Acquired communities (3)
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    Other expense (5)
    
    
    5,822
    
    
    
    5,558
    
    
    
    4.7
    %
    
    
    11,861
    
    
    
    11,160
    
    
    
    6.3
    %33,388
    
    
    
    32,097
    
    
    
    4.0
    %
    
    
    66,605
    
    
    
    63,341
    
    
    
    5.2
    %Property net operating income(6)
    
    $
    43,302
    
    
    $
    41,506
    
    
    
    4.3
    %
    
    $
    85,508
    
    
    $
    83,114
    
    
    
    2.9
    %Capital ExpendituresRecurring capital expenditures: (7)(8)Carpet
    
    $
    658
    
    
    $
    609
    
    
    
    8.0
    %
    
    $
    1,361
    
    
    $
    1,057
    
    
    
    28.8
    %Other
    
    
    1,834
    
    
    
    1,330
    
    
    
    37.9
    %
    
    
    3,228
    
    
    
    1,958
    
    
    
    64.9
    %Total
    
    $
    2,492
    
    
    $
    1,939
    
    
    
    28.5
    %
    
    $
    4,589
    
    
    $
    3,015
    
    
    
    52.2
    %Non-recurring capital expenditures
    
    $
    1,296
    
    
    $
    1,144
    
    
    
    13.3
    %
    
    $
    2,534
    
    
    $
    1,848
    
    
    
    37.1
    %Average apartment units in service
    
    
    23,125
    
    
    
    23,075
    
    
    
    0.2
    %
    
    
    23,100
    
    
    
    23,075
    
    
    
    0.1
    %
  (1)
    
    Communities which reached stabilization prior to January
1, 2003.(2)
    
    Communities in the construction, development or
lease-up stage during 2003 and, therefore, not considered
fully stabilized for all of the periods presented.(3)
    
    Communities acquired subsequent to January 1, 2003.(4)
    
    Other revenue includes revenue from commercial
properties, from furnished apartment rentals above the
unfurnished rental rates and any property revenue not directly
related to property operations. Other property segment
revenues exclude other corporate revenues of $45 and $147 for
the three months and $122 and $277 for the six months ended
June 30, 2004 and 2003, respectively.(5)
    
    Other expenses includes certain indirect central office
operating expenses related to management, grounds maintenance,
and costs associated with commercial properties and furnished
apartment rentals.(6)
    
    A reconciliation of property net operating income to GAAP
net income is detailed below. Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Property net operating income
    
    $
    43,302
    
    
    $
    41,506
    
    
    $
    85,508
    
    
    $
    83,114Interest income
    
    
    213
    
    
    
    251
    
    
    
    392
    
    
    
    485Other revenue
    
    
    45
    
    
    
    147
    
    
    
    122
    
    
    
    277Minority interest in consolidated property partnerships
    
    
    303
    
    
    
    349
    
    
    
    575
    
    
    
    682Depreciation
    
    
    (21,177
    )
    
    
    (20,253
    )
    
    
    (42,363
    )
    
    
    (40,542
    )Interest expense
    
    
    (16,726
    )
    
    
    (16,250
    )
    
    
    (33,007
    )
    
    
    (31,879
    )Amortization of deferred loan costs
    
    
    (1,092
    )
    
    
    (968
    )
    
    
    (2,208
    )
    
    
    (1,756
    )General and administrative
    
    
    (5,477
    )
    
    
    (3,342
    )
    
    
    (10,119
    )
    
    
    (6,967
    )Development costs and other
    
    
    (381
    )
    
    
    
    
    
    
    (916
    )
    
    
    (567
    )Proxy contest and related costs
    
    
    
    
    
    
    (5,231
    )
    
    
    
    
    
    
    (5,231
    )Severance charges
    
    
    
    
    
    
    (1,795
    )
    
    
    
    
    
    
    (21,506
    )Equity in income of unconsolidated real estate entities
    
    
    207
    
    
    
    8,103
    
    
    
    422
    
    
    
    7,710Minority interest of preferred unitholders
    
    
    (1,400
    )
    
    
    (1,400
    )
    
    
    (2,800
    )
    
    
    (2,800
    )Minority interest of common unitholders
    
    
    246
    
    
    
    164
    
    
    
    719
    
    
    
    2,778Income (loss) from continuing operations
    
    
    (1,937
    )
    
    
    1,281
    
    
    
    (3,675
    )
    
    
    (16,202
    )Income from discontinued operations
    
    
    103,047
    
    
    
    26,408
    
    
    
    108,194
    
    
    
    23,304Net income
    
    $
    101,110
    
    
    $
    27,689
    
    
    $
    104,519
    
    
    $
    7,102
  (7)
    
    In addition to those expenses which relate to property
operations, the Company incurs recurring and non-recurring
expenditures relating to acquiring and developing new assets,
materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset,
all of which are -35-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  capitalized. Recurring capital expenditures are those that are
generally expected to be incurred on an annual basis. Non-recurring
capital expenditures are those that generally occur less frequently
than on an annual basis.(8)
    
    A reconciliation of property capital expenditures from
continuing operations to total recurring and non-recurring
capital expenditures as presented in the consolidated
statements of cash flows under GAAP is detailed below. Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Recurring capital expendituresContinuing operations
    
    $
    2,492
    
    
    $
    1,939
    
    
    $
    4,589
    
    
    $
    3,015Discontinued operations
    
    
    279
    
    
    
    585
    
    
    
    604
    
    
    
    971Total recurring capital
expenditures per statements of
cash flows
    
    $
    2,771
    
    
    $
    2,524
    
    
    $
    5,193
    
    
    $
    3,986Non-recurring capital expendituresContinuing operations
    
    $
    1,296
    
    
    $
    1,144
    
    
    $
    2,534
    
    
    $
    1,848Discontinued operations
    
    
    6
    
    
    
    74
    
    
    
    12
    
    
    
    328Total non-recurring capital
expenditures per statements of
cash flows
    
    $
    1,302
    
    
    $
    1,218
    
    
    $
    2,546
    
    
    $
    2,176
 Stabilized Communities The Company defines fully stabilized communities as those which have reached
stabilization prior to the beginning of the previous year. For the 2004 to
2003 comparison, fully stabilized communities are defined as those communities
which reached stabilization prior to January 1, 2003. This portfolio
consisted of 57 communities with 21,954 units, including 27 communities with
11,886 units (54.1%) located in Atlanta, Georgia, 16 communities with 4,353
units (19.8%) located in Dallas, Texas, three communities with 1,439 units
(6.6%) located in Tampa, Florida, three communities with 1,204 units (5.5%)
located in Washington, DC, three communities with 1,065 units (4.9%) located in
Charlotte, North Carolina and five communities with 2,007 units (9.1%) located
in other markets. The operating performance and capital expenditures of these
communities is summarized as follows: Three months ended
    
    
    
    
    
    Six months endedJune 30,
    
    
    
    
    
    June 30,2004
    
    2003
    
    % Change
    
    2004
    
    2003
    
    % ChangeRental and other revenues
    
    $
    65,274
    
    
    $
    64,603
    
    
    
    1.0
    %
    
    $
    129,983
    
    
    $
    129,547
    
    
    
    0.3
    %Property operating and maintenance
expenses (excluding depreciation and
amortization)
    
    
    25,575
    
    
    
    24,617
    
    
    
    3.9
    %
    
    
    50,849
    
    
    
    48,498
    
    
    
    4.8
    %Same store net operating income (1)
    
    
    39,699
    
    
    
    39,986
    
    
    
    (0.7
    )%
    
    
    79,134
    
    
    
    81,049
    
    
    
    (2.4
    )%Capital expenditures (2)RecurringCarpet
    
    
    649
    
    
    
    556
    
    
    
    16.7
    %
    
    
    1,345
    
    
    
    988
    
    
    
    36.1
    %Other
    
    
    1,788
    
    
    
    1,361
    
    
    
    31.4
    %
    
    
    3,126
    
    
    
    1,937
    
    
    
    61.4
    %Total recurring
    
    
    2,437
    
    
    
    1,917
    
    
    
    27.1
    %
    
    
    4,471
    
    
    
    2,925
    
    
    
    52.9
    %Non-recurring
    
    
    1,048
    
    
    
    899
    
    
    
    16.6
    %
    
    
    2,196
    
    
    
    1,334
    
    
    
    64.6
    %Total capital expenditures (A)
    
    
    3,485
    
    
    
    2,816
    
    
    
    23.8
    %
    
    
    6,667
    
    
    
    4,259
    
    
    
    56.5
    %Total capital expenditures per unit
(A÷21,954 units)
    
    $
    159
    
    
    $
    128
    
    
    
    24.2
    %
    
    $
    304
    
    
    $
    194
    
    
    
    56.7
    %Average economic occupancy (3)
    
    
    93.6
    %
    
    
    91.5
    %
    
    
    2.1
    %
    
    
    93.2
    %
    
    
    90.9
    %
    
    
    2.3
    %Average monthly rental rate per unit (4)
    
    $
    985
    
    
    $
    1,017
    
    
    
    (3.1
    )%
    
    $
    986
    
    
    $
    1,026
    
    
    
    (3.9
    )%
  (1)
    
    Net operating income of stabilized communities is a
supplemental non-GAAP financial measure. See note 7 to the
consolidated financial statements for a reconciliation of net
operating income for stabilized communities to GAAP net
income. -36-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  (2)
    
    A reconciliation of these segment components of
property capital expenditures to total recurring and
non-recurring capital expenditures as presented in the
consolidated statements of cash flows prepared under GAAP is
detailed below. Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Recurring capital
expenditures by operating segmentSame store
    
    $
    2,437
    
    
    $
    1,917
    
    
    $
    4,471
    
    
    $
    2,925Partially stabilized
    
    
    38
    
    
    
    17
    
    
    
    87
    
    
    
    26Construction and lease-up
    
    
    5
    
    
    
    
    
    
    
    12
    
    
    
    Other segments
    
    
    291
    
    
    
    590
    
    
    
    623
    
    
    
    1,035Total recurring capital
expenditures per
statements of cash flows
    
    $
    2,771
    
    
    $
    2,524
    
    
    $
    5,193
    
    
    $
    3,986Non-recurring capital
expenditures by operating
segmentSame store
    
    $
    1,048
    
    
    $
    899
    
    
    $
    2,196
    
    
    $
    1,334Partially stabilized
    
    
    163
    
    
    
    3
    
    
    
    182
    
    
    
    7Construction and lease-up
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other segments
    
    
    91
    
    
    
    316
    
    
    
    168
    
    
    
    835Total non-recurring
capital expenditures per
statements of cash flows
    
    $
    1,302
    
    
    $
    1,218
    
    
    $
    2,546
    
    
    $
    2,176
  The Company uses same store recurring and non-recurring capital
expenditures as cash flow measures. Same store recurring and
non-recurring capital expenditures are supplemental non-GAAP
financial measures. The Company believes that same store
recurring and non-recurring capital expenditures are important
indicators of the costs incurred by the Company in maintaining
same store communities. The corresponding GAAP measures include
information with respect to the Companys other operating
segments consisting of communities stabilized in the prior year,
lease-up communities, and sold communities in addition to same
store information. Therefore, the Company believes that the
Companys presentation of same store recurring and non-recurring
capital expenditures is necessary to demonstrate same store
replacement costs over time. The Company believes that the most
directly comparable GAAP measure to same store recurring and
non-recurring capital expenditures are the lines on the Companys
consolidated statements of cash flows entitled recurring capital
expenditures and non-recurring capital expenditures.(3)
    
    Average economic occupancy is defined as gross
potential rent less vacancy losses, model expenses and bad
debt expenses divided by gross potential rent for the period,
expressed as a percentage. Gross potential rent is defined as
the sum of the gross actual rental rates for leased units and
the anticipated rental rates for unoccupied units. The
calculation of average economic occupancy does not include a
deduction for concessions and employee discounts. Average
economic occupancy including these amounts would have been
93.2% and 89.7% for the three months and 92.9% and 89.3% for
the six months ended June 30, 2004 and 2003, respectively.
For the three months ended June 30, 2004 and 2003, net
concessions were $125 and $1,041, respectively, and employee
discounts were $114 and $144, respectively. For the six
months ended June 30, 2004 and 2003, net concessions were $174
and $1,764, respectively, and employee discounts were $231 and
$290, respectively.(4)
    
    Average monthly rental rate is defined as the average
of the gross actual rental rates for leased units and the
average of the anticipated rental rates for unoccupied units,
divided by total units. Comparison of Three Months Ended June 30, 2004 to Three Months Ended June 30,
2003 The Operating Partnership reported net income available to common unitholders
of $106,410 and $27,909 for the three months ended June 30, 2004 and 2003,
respectively, and the Company reported net income available to common
shareholders of $99,201 and $24,827 for the three months ended June 30, 2004
and 2003, respectively. The significant increase in net income between periods
primarily reflects the increased gains on property sales between periods. In
the second quarter of 2004, the Company sold seven communities with gains
totaling $112,112 ($104,530 net of minority interest) compared to the sale of
one community and certain land parcels with gains of $26,630 ($23,714 net of
minority interest) and the Companys share of the gain on the sale of an
apartment community held in an unconsolidated entity of $8,395 ($7,472 net of
minority interest) in the second quarter of 2003. These gains were partially
offset by a loss of $4,128 ($3,849 net of minority interest) from the early
extinguishment of debt associated with the 2004 apartment sales. Net income in
the second quarter of 2003 was negatively impacted by two separate accounting
charges (severance and proxy contest) totaling $7,026 ($6,257 net of minority
interest). These charges are discussed in more detail below. Other than the
impact of these items, the operating performance of the Companys properties
improved over 2003 as reflected in increased revenues and net operating income
offset by increased general and administrative expenses. The impact of these
items is discussed below. Rental and other revenues from property operations increased $3,087 or 4.2%
from 2003 to 2004 primarily due to increased revenues from the Companys fully
stabilized and lease-up communities of $2,291 or 3.5%. The revenue increase of
1.0% from fully stabilized communities is discussed further below. The revenue
increase from lease-up communities in 2004 reflects the increased occupancy of
one community between periods as this community was in initial lease-up in
2003. Property operating and maintenance expenses (exclusive of depreciation
and amortization) increased $1,291 or 4.0% primarily due to an increase in
property operating and maintenance expenses (excluding depreciation and
amortization) for fully stabilized communities of $958 or 3.9% between periods
(see discussion below). -37-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) For the three months ended June 30, 2004, the Company recognized net gains from
discontinued operations of $112,112 ($104,530 net of minority interest) from
the sale of seven communities containing 3,482 units. The sales generated net
proceeds of approximately $218,983, including $104,325 of tax-exempt debt
assumed by the purchasers. For the three months ended June 30, 2003, the
Company recognized net gains from discontinued operations of $26,630 ($23,714
net of minority interest), on the sale of one community, containing 770
apartment units, and certain land parcels. These sales generated net proceeds
of approximately $60,449. Depreciation expense increased $924, or 4.6% from 2003 to 2004 primarily due to
increased depreciation on newly stabilized and lease-up properties, as these
properties were placed in service, during mid to late 2003. General and administrative expenses increased $2,135, or 63.9%, from 2003 to
2004 primarily due to higher expenses related to the amortization of incentive
stock compensation awards, directors and officers insurance and legal, audit
and corporate governance expenses. The increase in audit and corporate
governance expense reflects the impact of the Sarbanes/Oxley regulations and a
portion of the legal expense increase of approximately $700 during the second
quarter of 2004 related to the additional costs associated with a shareholder
proposal, shareholder litigation and other matters. In 2004, development costs and other expenses of $381 consisted of development
personnel and associated costs and land carry expenses not allocable to
development projects. The Company recorded severance and proxy contest charges of $1,795 and $5,231,
respectively in 2003. These charges and a summary of the activity relating to
accrued severance charges in 2004 are summarized in more detail in note 8 to
the consolidated financial statements. No such charges were recorded in 2004. Interest expense increased $476 or 2.9% from 2003 to 2004 primarily due to a
$983 reduction in capitalized interest to development properties between years
as the Companys development pipeline transitioned to operating properties in
2003 and early 2004. Adjusted for the impact of capitalized interest, the
resulting decrease in interest expense from continuing operations results from
lower outstanding debt levels between years as the Company used the proceeds
from asset sales to reduce outstanding debt. Equity in income of unconsolidated real estate entities decreased $7,896 or
97.4% from 2003 to 2004. This decrease was primarily due to the recognition of
the Companys share of a gain totaling $8,395 resulting from the sale of an
apartment community by one of its equity method limited liability companies in
2003. Excluding the impact of this gain, the net income of the unconsolidated
entities improved in 2004 primarily due to the completed lease-up of one
community held by the entities. See note 4 to the consolidated financial
statements for a summary of the operating results of the Companys
unconsolidated entities. Recurring and nonrecurring capital expenditures from continuing operations
increased $705 or 22.9% from 2003 to 2004. The increase in nonrecurring
capital expenditures of $152 or 13.3% in 2004 primarily reflected the capital
costs of structural projects at a property in Dallas, Texas. Stabilized Communities Rental and other revenues increased $671 or 1.0% from 2003 to 2004. This
increase resulted from an increase in average economic occupancy of the
portfolio from 91.5% in 2003 to 93.6% in 2004 offset somewhat by a 3.1% decline
in the average monthly rental rate per apartment unit. These
occupancy increases resulted in lower upfront net rental concessions
of $917 and lower vacancy losses of $1,393. Other property fees
also increased by $512. The decline in average rental rates resulted in a
revenue decrease of approximately $2,151 between years. Overall, the improving
performance of the operating portfolio reflects improving market conditions in
most of the Companys markets resulting from increased economic activity as
well as an advancing job market. In mid 2003 and 2004, the Company modified its leasing strategy to focus on
retaining higher average occupancy levels as reflected above. This strategy
resulted in continued year over year reductions in the average rental rate per
apartment unit between periods, but has resulted in increases in year over year
total rental and other revenues between years (1.0% in 2004). In periods prior
to mid 2003, the Companys leasing strategy focused more on maintaining average
monthly rental rates than on retaining occupancy. The Company believed this
strategy change was necessary to maximize its operating results under the
market conditions existing in 2003 and early 2004, to operate the Companys
communities more efficiently at higher occupancy levels in 2004 and to be in a
better position to increase rental rates as market conditions improve in future
periods. Property operating and maintenance expenses (exclusive of depreciation and
amortization) increased $958 or 3.9% from 2003 to 2004. Increased personnel
expenses of $412 or 7.3%, increased property tax expenses of $536 or 6.7% and
increased utility expenses of $232 or 7.9% were offset by decreased insurance
expenses of $135 or 9.7%. Personnel expenses increased due to annual salary
increases, increased bonus expenses and increased health insurance expenses in
2004. Property tax expense increased $536, or 6.7%, during the second quarter
of 2004, as compared the prior year quarter. This was up from the
year-over-year quarterly increase of $284, or 3.6%, reported in the first
quarter of 2004. This increase was due primarily to increased accruals for
estimated property taxes -38-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) in
our Dallas portfolio, offset in part by property tax savings of $147
realized during the quarter relating to prior years. Initial property tax
valuations in Dallas for 2004 were higher than the Company had anticipated, as
taxing authorities aggressively lowered cap rate assumptions in determining
property valuations. The Company continues to work with its property tax
consultants to mitigate the impact of these valuations. However, there can be
no assurance that the Company will be successful in these efforts. As a
result, the Company increased its accruals for estimated property taxes for the
second quarter of 2004 as well as for the second half of 2004. Utility
expenses increased primarily due to higher water and sewer rates in Atlanta,
Georgia. Insurance expenses decreased due to lower insurance rates for the 2004
insurance renewal period. Comparison of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2003 The Operating Partnership reported net income available to common unitholders
of $105,434 and $1,446 for the six months ended June 30, 2004 and 2003,
respectively, and the Company reported net income available to common
shareholders of $98,296 and $1,377 for the six months ended June 30, 2004 and
2003, respectively. The significant increase in net income between periods
primarily reflects the increased gains on property sales between periods. In
the six months ended June 30, 2004, the Company sold eight communities with
gains totaling $113,739 ($106,039 net of minority interest) compared to the
sale of two communities and certain land parcels with gains of $33,504 ($29,805
net of minority interest) and the Companys share of the gain on the sale of an
apartment community held in an unconsolidated entity of $8,395 ($7,472 net of
minority interest) in the first half of 2003. These gains were partially
offset by a loss of $4,128 ($3,849 net of minority interest) from the early
extinguishment of debt associated with the 2004 apartment sales. Net income in
the first half of 2003 was negatively impacted by accounting charges (severance
and proxy contest) totaling $26,737 ($23,723 net of minority interest). These
charges are discussed in more detail below. In addition, in 2003, the Company
recorded a $14,118 ($12,510 net of minority interest) asset impairment charge
to write-down the cost of an apartment community in Phoenix, Arizona to its
estimated fair value. Other than the impact of these items, the operating
performance of the Companys properties improved over 2003 as reflected in
increased revenues and net operating income offset by increased general and
administrative expenses. The impact of these items is discussed below. Rental and other revenues from property operations increased $5,658 or 3.9%
from 2003 to 2004 primarily due to increased revenues from the Companys
communities stabilized in 2003 and lease-up communities of $4,006 or 54.1%.
The revenue increase from communities stabilized in 2003 reflects full year
stabilized operating performance in 2004 compared to a partial lease-up period
in 2003. The revenue increase from lease-up communities in 2004 reflects the
increased occupancy of one community between periods as this community was in
initial lease-up in 2003. Property operating and maintenance expenses
(exclusive of depreciation and amortization) increased $3,264 or 5.2% primarily
due to an increase in property operating and maintenance expenses (excluding
depreciation and amortization) for fully stabilized communities of $2,351 or
4.8% between periods (see discussion below) and increases in expenses of $239
or 32.3% from a lease-up community as these expenses increased as property
occupancy levels increased towards stabilized occupancy levels and as the
lease-up property was placed in service. For the six months ended June 30, 2004, the Company recognized net gains from
discontinued operations of $113,739 ($106,039 net of minority interest) from
the sale of eight communities containing 3,880 units and certain land parcels.
The sales generated net proceeds of approximately $242,962, including $104,325
of tax-exempt debt assumed by the purchasers. For the six months ended June
30, 2003, the Company recognized net gains from discontinued operations of
$33,504 ($29,805 net of minority interest), on the sale of two communities,
containing 1,009 apartment units and certain land parcels. These sales
generated net proceeds of approximately $98,711. Depreciation expense increased $1,821, or 4.5% from 2003 to 2004 primarily due
to increased depreciation on newly stabilized and lease-up properties, as these
properties were placed in service, during mid to late 2003. Interest expense increased $1,128 or 3.5% from 2003 to 2004 primarily due to a
$2,613 reduction in capitalized interest to development properties between
years as the Companys development pipeline transitioned to operating
properties in 2003. Adjusted for the impact of capitalized interest, the
resulting decrease in interest expense from continuing operations results from
lower outstanding debt levels between years as the Company used the proceeds
from asset sales to reduce outstanding debt. General and administrative expenses increased $3,152, or 45.2%, from 2003 to
2004 primarily due to higher expenses related to the amortization of incentive
stock compensation awards, directors and officers insurance and legal, audit
and corporate governance expenses. The increase in audit and corporate
governance expense reflects the impact of the Sarbanes/Oxley regulations and a
portion of the legal expense increase of approximately $877 during the first
half of 2004 related to the additional costs associated with a shareholder
proposal, shareholder litigation and other matters. Development costs and other increased $349 or 61.6% from 2003 to 2004.
Development costs and other expenses of $916 in 2004 consisted of development
personnel and associated costs and land carry expenses not allocable to
development projects. Development -39-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) costs and other expenses of $567 in 2003 consisted of legal expenses of $373
relating to board of directors governance and transition matters, the
settlement cost of $100 relating to the bankruptcy of a former technology
investment and losses of $94 on the disposal of the Companys partial ownership
interest in a corporate aircraft. The Company recorded severance and proxy contest charges of $21,506 and $5,231,
respectively in 2003. These charges and a summary of the activity relating to
accrued severance charges for the six months ended June 30, 2004 are summarized
in more detail in note 8 to the consolidated financial statements. No such
charges were recorded in 2004. Equity in income of unconsolidated real estate entities decreased $7,288 or
94.5% from 2003 to 2004. This decrease was primarily due to the recognition of
the Companys share of a gain totaling $8,395 resulting from the sale of an
apartment community by one of its equity method limited liability companies in
2003. Excluding the impact of this gain, the net income of the unconsolidated
entities improved in 2004 primarily due to the completed lease-up of one
community held by the entities. See note 3 to the consolidated financial
statements for a summary of the operating results of the Companys
unconsolidated entities. Recurring and nonrecurring capital expenditures from continuing operations
increased $2,260 or 46.5% from 2003 to 2004 primarily due to the
timing of capital expenditures between years. For the full year of
2004, capital expenditures are expected to be modestly higher than
2003. The increase in nonrecurring capital expenditures of $686
or 37.1% in 2004 primarily reflected a special project to prevent water
infiltration at one property located in Tampa, Florida as well as other
structural projects at properties in Dallas, Texas. Stabilized Communities Rental and other revenues increased $436 or 0.3% from 2003 to 2004. This
increase resulted from increased average occupancy levels in 2004 offset
somewhat by a 3.9% decline in the average monthly rental rate per apartment
unit. These increases in the average economic occupancy of the portfolio from
90.9% in 2003 to 93.2% in 2004 resulted in lower up-front net rental
concessions of $1,590 and lower vacancy losses of $3,648 in 2004. Other
property fees also increased $424. The decline in average rental rates
resulted in a revenue decrease of approximately $5,225 between years. Overall,
the improving performance of the operating portfolio reflects improving market
conditions in most of the Companys markets resulting from increased economic
activity as well as an advancing job market. In mid 2003 and 2004, the Company modified its leasing strategy to focus on
retaining higher average occupancy levels as reflected above. This strategy
resulted in continued year over year reductions in the average rental rate per
apartment unit between periods, but has resulted in increases in year over year
total rental and other revenues between years (0.3% in 2004). In periods prior
to mid 2003, the Companys leasing strategy focused more on maintaining average
monthly rental rates than on retaining occupancy. The Company believed this
strategy change was necessary to maximize its operating results under the
market conditions existing in 2003 and early 2004, to operate the Companys
communities more efficiently at higher occupancy levels and to be in a better
position to increase rental rates as market conditions improve in future
periods. Property operating and maintenance expenses (exclusive of depreciation and
amortization) increased $2,351 or 4.8% from 2003 to 2004. Increased personnel
expenses of $999 or 9.0%, increased property tax expenses of $819 or 5.1%,
increased repairs and maintenance expenses of $355 or 6.8%, and increased
utility expenses of $607 or 10.3% were offset by decreased insurance expenses
of $269 or 9.6%. Personnel expenses increased due to annual salary increases,
increased bonus expenses and increased health insurance expenses in 2004.
Property tax expense increased $819, or 5.1%, during the first half of 2004, as
compared to the first half of the prior year. As discussed above, this
increase was due to increased accruals for estimated property taxes for 2004
and was also impacted by higher estimates for 2004 property taxes in Dallas
than had been projected. Initial property tax valuations in Dallas for 2004
were higher than the Company had anticipated, as taxing authorities
aggressively lowered cap rate assumptions in determining property valuations.
The Company continues to work with its property tax consultants to mitigate the
impact of these valuations. However, there can be no assurance that the
Company will be successful in these efforts. As a result, the Company
increased its accruals for estimated property taxes for the second quarter of
2004 as well as for the second half of 2004. The increase in repairs and
maintenance expenses primarily reflects increased exterior painting and
exterior repairs between periods. Utility expenses increased primarily due to
higher water and sewer rates in Atlanta, Georgia. Insurance expenses decreased
due to lower insurance rates for the 2004 insurance renewal period. -40-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) Discontinued Operations In accordance with SFAS No. 144, the operating results and gains and losses on
property sales of real estate assets designated as held for sale are included
in discontinued operations in the consolidated statement of operations. For
the three and six months ended June 30, 2004, income from discontinued
operations included the results of operations of one community, containing 460
units, classified as held for sale at June 30, 2004 and the results of
operations of eight communities sold in 2004 through their sale dates. For the
three and six months ended June 30, 2003, income from discontinued operations
included the results of operations of one community classified as held for
sale at June 30, 2004, eight communities sold in 2004 and the results of
operations of four communities sold in 2003 through the earlier of June 30,
2003 or their sale dates. The revenues and expenses of discontinued operations
are summarized in note 4 to the consolidated financial statements. For the six
months ended, income from discontinued operations increased from a loss of
$6,501, net of minority interest, in 2003 to income of $6,004, net of minority
interest, in 2004. This increase was primarily due to a $14,118 ($12,510 net
of minority interest) impairment loss taken on one of the companys apartment
communities in 2003 partially offset by a $626 ($584 net of minority interest)
asset impairment loss in the second quarter of 2004 to write-down the cost of
an apartment community located in Dallas, Texas to its realized value. The
gains on property sales between periods reflect the timing and size of the
communities sold. These gains are discussed in note 4 to the consolidated
financial statements. As discussed under Liquidity and Capital Resources, the Company expects to
continue to sell real estate assets in future periods as part of its overall
investment, disposition and acquisition strategy. As such, the Company may
continue to have additional assets classified as held for sale, however, the
timing and amount of such asset sales and their impact on the aggregate
revenues and expenses included in discontinued operations will vary from period
to period. Outlook Certain statements made below may constitute forward-looking statements
within the meaning of the federal securities laws, and are based on current
apartment market and general economic conditions and other risks as outlined in
the section titled Disclosure Regarding Forward-Looking Statement above. The outlook for the Companys core markets is for continued gradual
improvement, with favorable projections for job growth, increased absorption
and reduced supply. This is reflected in the year-over-year, same store
quarterly revenue growth that the Company achieved in the second quarter of
2004 in most of its major markets as well as in the continued moderation in the
decline in average rents, reduced levels of concessions and improved economic
occupancy. The Company anticipates that average rents will turn modestly positive for the
second half of 2004 and, in turn, anticipates that same store operating
revenues and same store net operating income will be modestly higher than in
the first half of the year. The Company also anticipates that net operating
income in the second half of 2004 will benefit from the one apartment community
acquired in June 2004 (see note 4 to the accompanying financial statements).
However, the Company anticipates that the above-described increases in net
operating income in the second half of 2004 will be more than offset by the
dilutive impact of its asset sales program, including the sales of one
apartment community in the first quarter of 2004, seven communities in the
second quarter of 2004 and the forecasted sale of one apartment community
during the third quarter of 2004. These communities and their operating
results are reflected as discontinued operations in the Companys consolidated
financial statements included herein (see note 4 to the accompanying financial
statements). The Company expects to utilize available cash and cash equivalents and capacity
under its revolving line of credit to redeem its $70,000, 8.0% Series D
preferred units on September 3, 2004 and to repay its $10,000, 6.69% medium
term notes that mature later in September 2004. As a result, the related
preferred distributions and interest expense are expected to decrease in the
second half of 2004, partly offsetting the dilutive impact of the Companys
asset sales program discussed above. These transactions are expect to result
in net non-cash charges of approximately $2,500 in the third quarter of 2004
relating to preferred unit redemption costs and the write-off of unamortized
deferred loan costs and related interest rate hedge costs relating to debt
expected to be assumed in connection with a forecasted sale. The Company is also anticipating higher short-term interest rates and continued
higher than normal general and administrative costs. Although general and
administrative costs in the third and fourth quarters are anticipated to be
modestly lower than in the second quarter of 2004, they are still anticipated
to be moderately higher than in the first quarter due to increased legal
expenses associated with shareholder litigation and other matters as well as
increased legal and other professional expenses relating to implementation of
the Sarbanes-Oxley Act. -41-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) Liquidity and Capital Resources The discussion in this Liquidity and Capital Resources section is the same for
the Company and the Operating Partnership, except that all indebtedness
discussed herein has been incurred by the Operating Partnership. The Companys net cash provided by operating activities increased from $53,622
in 2003 to $56,404 in 2004 primarily due to favorable changes in the working
capital components (primarily the reduction in payables between periods)
included in operating activities offset by somewhat reduced operating
performance of the Companys fully stabilized properties and the reduced
earnings from the dilutive impact of the Companys asset sales program. The
Company expects cash flows from operating activities to show declines for the
full year of 2004 compared to 2003 primarily driven by the dilutive cash flow
impact from asset sales. Net cash provided by investing activities decreased from $158,897 in 2003 to
$145,799 in 2004 primarily due to a reduced net repayment of construction loan
advances from unconsolidated entities in 2003 and increased investment in an
acquisition property in 2004, partially offset by increased proceeds from
wholly-owned asset sales between periods. Net cash used in financing activities decreased from $214,607 in 2003 to
$148,246 in 2004 primarily due to increased borrowings in 2004, reduced
repayments of indebtedness in 2004 and lower cash dividend payments between
periods. In the first quarter of 2004, the Company closed a $35,000 mortgage
loan in a consolidated joint venture. Since 1993, the Company has elected to be taxed as a real estate investment
trust (REIT) under the Internal Revenue Code of 1986, as amended (the
Code). Management currently intends to continue operating the Company as a
REIT in 2004. As a REIT, the Company is subject to a number of organizational
and operating requirements, including a requirement to distribute 90% of its
taxable income to its shareholders. As a REIT, the Company generally will not
be subject to federal income taxes on its taxable income. Generally, the Companys objective is to meet its short-term liquidity
requirement of funding the payment of its current level of quarterly preferred
and common dividends to shareholders through its net cash flows provided by
operating activities, less its annual recurring and nonrecurring property and
corporate capital expenditures. These operating capital expenditures are the
capital expenditures necessary to maintain the earnings capacity of the
Companys operating assets over time. For the six months ended June 30, 2004, the Companys net cash flow from
operations, reduced by operating capital expenditures, was sufficient to fully
fund the Companys current level of dividend payments to common and preferred
shareholders. Cash flows from operations, reduced by operating capital
expenditures, would have been lower than the quarterly dividend requirements,
exclusive of the favorable change in working capital items impacting operating
cash flows for the period. These working capital items fluctuate from period
to period, primarily due to the timing of payments of interest, property taxes
and operating payables. As discussed below, the Company expects its operating
cash flows, less operating capital expenditures, to be less than its dividend
requirements for the full year of 2004. The Companys net cash flow from
operations and proceeds from asset sales continue to be sufficient to meet the
dividend requirements necessary to maintain its REIT status under the Code. For full year of 2004, management of the Company currently expects to maintain
its current quarterly dividend payment rate to common shareholders of $0.45 per
share. At this dividend rate, the Company currently expects that net cash
flows from operations reduced by annual operating capital expenditures will not
be sufficient to fund the dividend payments to common and preferred
shareholders by approximately $10,000 to $15,000. The Company intends to use
primarily the proceeds from 2004 asset sales to fund the additional cash flow
necessary to fully fund the dividend payments to common shareholders. The
factors leading to this net operating cash flow shortfall are the soft market
conditions for the Companys operating properties over the last few years and
the short-term negative cash flow impact of sales of operating properties
(discussed below) prior to the reinvestment of such proceeds. The Companys
board of directors, however, will continue to review the dividend quarterly. The Company generally expects to utilize net cash flow from operations,
available cash and cash equivalents and available capacity under its revolving
lines of credit to fund its short-term liquidity requirements, including
capital expenditures, development and construction expenditures, land
acquisitions, dividends and distributions on its common and preferred equity,
redemption of its preferred units and its debt service requirements. Available
cash and cash equivalents and capacity under the revolving lines of credit as
of June 30, 2004 were created primarily through the Companys asset sales
program. The Company generally expects to fund its long-term liquidity
requirements, including maturities of long-term debt and acquisition and
development activities, through long-term unsecured and secured borrowings,
through additional sales of selective operating properties, and possibly
through equity or leveraged joint venture arrangements. The Company may also
continue to use joint venture arrangements in future periods to reduce its
market concentrations in certain markets, build critical mass in other markets
and to reduce its exposure to certain risks of its future development
activities. -42-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) As previously discussed, the Company intends to use the proceeds from the sale
of operating properties and availability under its unsecured revolving line of
credit as the primary source of capital to fund its current and future
development and acquisition expenditures. The Company began an asset sale and
capital recycling program in 2000 as the primary means to fund its on-going
community development program. Total net sales proceeds raised in 2004, 2003
and 2002 were $242,962 (including $104,325 of debt assumed), $163,560 and
$182,216, respectively. Additionally in 2003, the Company received net
proceeds of approximately $75,000 (including the repayment of the construction
loan from the venture) from the sale of one apartment community held in an
unconsolidated entity. A more detailed discussion of the assets sales is
included in note 4 to the consolidated financial statements In the first half of 2004, the Company sold eight apartment communities,
containing 3,880 units, as part of an asset sales program designed to focus its
operations in fewer markets, maintain the low average age and high quality of
the portfolio and reduce the Companys market concentrations in Atlanta,
Georgia and Dallas, Texas. At June 30, 2004, the Company had one additional
community located in Atlanta, Georgia under contract and expected to close in
the third quarter of 2004. The sale is expected to generate gross proceeds of
approximately $28,000, including the assumption of $14,760 of tax-exempt debt
by the buyer. There can be no assurance, however, that this transaction will
close. These sales are expected to generate significant capital gains for tax
purposes in 2004. Realized capital gains must generally be distributed to
shareholders, in the form of dividends, in order to avoid the payment of income
taxes at the corporate level. The Company expects to be able to use its
regular quarterly dividend of $0.45 per share, as well as other tax planning
strategies, to pay out or otherwise mitigate the impact of these capital gains. In the second quarter of 2004, the Company used a portion of the proceeds from
these sales to acquire an apartment community in suburban Washington, D.C. (see
note 4 to the consolidated financial statements) and to repay its 7.30% medium
term notes totaling $13,000 upon their maturity in April 2004. The remaining
proceeds were used to pay down line of credit borrowings and to fund short-term
investments to be used as discussed below. The Company expects to use a portion of the proceeds from its asset sales
program in the second half of the year to redeem its $70,000 8.0% Series D
preferred units on September 3, 2004 and to repay its 6.69% medium term notes
totaling $10,000, which mature on September 22, 2004. Additionally, the
Company may utilize these proceeds to fund future development activity, future
property acquisition, future debt reductions and to repurchase its common stock
if the Company can do so at prices that are attractive relative to its
estimates of per-share net asset value. There can be no assurance, however,
that the Company will utilize asset sale proceeds for the above purposes. At June 30, 2004, the Company had zero outstanding under its $370,000
combined line of credit facilities and additional cash and cash equivalents of
$55,291. The Companys primary credit facility, with total capacity of
$350,000 and its $20,000 cash management facility, mature in January 2007.
Management believes it will have adequate capacity under its facilities to
execute its 2004 business plan and meet its short-term liquidity requirements
without a significant level of additional asset sales (other than the remaining
asset sale discussed above) or other secured and unsecured debt financings. A
further discussion of the terms of the Companys line of credit agreements is
included in note 2 to the consolidated financial statements. Long-term Debt Issuances and Retirements A summary of the Companys outstanding debt and debt maturities at June 30,
2004 is included in note 2 to the consolidated financial statements. A
discussion of changes in secured and unsecured debt during the first half of
2004 is discussed below. In March 2004, the Company closed a $35,000 secured, fixed rate mortgage note
payable in a consolidated real estate entity. The note bears interest at
4.27%, requires monthly interest only payments through March 2007 and monthly
principal and interest payments based on a 30-year amortization schedule from
April 2007 through the note maturity date in March 2009. Additionally, in March 2004, one of the Companys unconsolidated entities
repaid its outstanding construction note payable to the Company of $53,916
through the proceeds from a third-party non-recourse permanent mortgage note
totaling $50,000 and from member equity contributions. The mortgage note bears
interest at 4.13%, requires monthly interest payments and annual principal
payment of $1 through 2009. Thereafter, the note requires monthly principal
and interest payments based on a 25-year amortization schedule and matures in
April 2034. The note is callable by the lender in May 2009 and on each
successive fifth year anniversary of the note thereafter. The note is
prepayable without penalty in May 2008. Upon their maturity on April 1, 2004, the Company repaid $13,000 of its 7.30%
medium term, unsecured notes, using its available cash balances and borrowings
under its unsecured lines of credit. -43-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) In conjunction with an apartment community acquisition (see note 4) in June 30,
2004, the Company assumed a secured, fixed rate mortgage note payable. The
mortgage note was valued at $49,694 yielding an effective interest rate of
4.7%. The mortgage note requires monthly principal and interest payments and
matures in 2007. Also in June 2004, the Company sold certain apartment
communities subject to the assumption of $104,325 of tax exempt mortgage
indebtedness (see note 4). Stock Repurchase Program In the fourth quarter of 2003, the Companys board of directors adopted a new
stock repurchase program under which the Company may repurchase up to $200,000
of common stock or preferred stock at market prices from time to time through
December 31, 2004. In the first quarter of 2004, the Company acquired $50,000
of preferred stock. In the second quarter of 2004, the Company did not acquire
shares of common or preferred stock under this program. However, the Company
expects to utilize asset sales proceeds to redeem its Series D preferred units totaling
$70 million under this program on September 3, 2004. The Company may also
utilize proceeds from its asset sale program to repurchase its common stock at
appropriate times, if it could do so at prices that are attractive relative to
its estimates of per share net asset value. There can be no
assurance, however, that the Company will utilize asset sales proceeds
for this purpose. Under a 10b5-1 plan that the Company initiated at the end of the second quarter
of 2004, the Company used asset sales proceeds to acquire $2,268 of common
stock in the third quarter (through August 5, 2004) under this program. The
10b5-1 plan expired on August 6, 2004. Capitalization of Fixed Assets and Community Improvements The Company has a policy of capitalizing those expenditures relating to the
acquisition of new assets and the development and construction of new apartment
communities. In addition, the Company capitalizes expenditures that enhance
the value of existing assets and expenditures that substantially extend the
life of existing assets. All other expenditures necessary to maintain a
community in ordinary operating condition are expensed as incurred.
Additionally, for new development communities, carpet, vinyl and blind
replacements are expensed as incurred during the first five years (which
corresponds to the estimated depreciable life of these assets) after
construction completion. Thereafter, these replacements are capitalized.
Further, the Company expenses as incurred all interior and exterior painting of
communities. The Company capitalizes interest, real estate taxes, and certain internal
personnel and associated costs related to apartment communities under
development and construction. The incremental personnel and associated costs
are capitalized to the projects under development based upon the effort
identifiable with such projects. The Company treats each unit in an apartment
community separately for cost accumulation, capitalization and expense
recognition purposes. Prior to the commencement of leasing activities,
interest and other construction costs are capitalized and included in
construction in progress. The Company ceases the capitalization of such costs
as the residential units in a community become substantially complete and
available for occupancy. This practice results in a proration of these costs
between amounts that are capitalized and expensed as the residential units in a
development community become available for occupancy. In addition, prior to
the completion of units, the Company expenses as incurred substantially all
operating expenses (including pre-opening marketing expenses) of such
communities. Acquisition of assets and community improvement and other capitalized
expenditures for the three and six months ended June 30, 2004 and 2003 are
summarized as follows: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003New
community development and acquisition activity (1)
    
    $
    37,249
    
    
    $
    5,720
    
    
    $
    37,541
    
    
    $
    19,832Non-recurring capital expendituresRevenue
generating additions and improvements (2)
    
    
    
    
    
    
    643
    
    
    
    26
    
    
    
    732Other
community additions and improvements (3)
    
    
    1,302
    
    
    
    1,218
    
    
    
    2,546
    
    
    
    2,176Recurring capital expendituresCarpet replacements and other community additions
and improvements (4)
    
    
    2,771
    
    
    
    2,524
    
    
    
    5,193
    
    
    
    3,986Corporate additions and improvements
    
    
    153
    
    
    
    131
    
    
    
    287
    
    
    
    339$
    41,475
    
    
    $
    10,236
    
    
    $
    45,593
    
    
    $
    27,065Other DataCapitalized interest
    
    $
    261
    
    
    $
    1,244
    
    
    $
    500
    
    
    $
    3,113Capitalized
personnel and associated costs (5)
    
    $
    250
    
    
    $
    579
    
    
    $
    499
    
    
    $
    1,179
  (1)
    
    Reflects aggregate community development costs,
exclusive of the change in construction payables between
years.  (2)
    
    Represents expenditures for major renovations of
communities, water sub-metering equipment and other upgrade
costs that enhance the rental value of such units.  (3)
    
    Represents property improvement expenditures that
generally occur less frequently than on an annual basis.  (4)
    
    Represents property improvement expenditures of a type
that are expected to be incurred on an annual basis.  (5)
    
    Reflects internal personnel and associated costs
capitalized to construction and development activities. -44-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) Inflation Substantially all of the leases at the communities allow, at the time of
renewal, for adjustments in the rent payable thereunder, and thus may enable
the Company to seek increases in rents. The substantial majority of these
leases are for one year or less and the remaining leases are for up to two
years. At the expiration of a lease term, the Companys lease agreements
generally provide that the term will be extended unless either the Company or
the lessee gives at least sixty (60) days written notice of termination. In
addition, the Companys policy generally permits the earlier termination of a
lease by a lessee upon thirty (30) days written notice to the Company and the
payment of an amount equal to two months rent as compensation for early
termination. The short-term nature of these leases generally serves to reduce
the risk to the Company of the adverse effect of inflation. Funds from Operations The Company uses the National Association of Real Estate Investment Trusts
(NAREIT) definition of funds from operations (FFO). FFO is defined by
NAREIT as net income available to common shareholders determined in accordance
with GAAP, excluding gains (or losses) from extraordinary items and sales of
property, plus depreciation of real estate assets, and after adjustment for
unconsolidated partnerships and joint ventures all determined on a consistent
basis in accordance with GAAP. In October 2003, NAREIT clarified the
definition of FFO to include impairment losses. As such, prior period
presentations of FFO have been restated to conform with the revised NAREIT
definition of FFO. FFO is a supplemental non-GAAP financial measure. FFO
presented herein is not necessarily comparable to FFO presented by other real
estate companies because not all real estate companies use the same definition.
The Companys FFO is comparable to the FFO of real estate companies that use
the current NAREIT definition. The Company also uses FFO as an operating measure. Accounting for real estate
assets using historical cost accounting under GAAP assumes that the value of
real estate assets diminishes predictably over time. NAREIT stated in its
April 2002 White Paper on Funds from Operations since real estate asset values
have historically risen or fallen with market conditions, many industry
investors have considered presentations of operating results for real estate
companies that use historical cost accounting to be insufficient by
themselves. As a result, the concept of FFO was created by NAREIT for the
REIT industry to provide an alternate measure. Since the Company agrees with
the concept of FFO and appreciates the reasons surrounding its creation,
management believes that FFO is an important supplemental measure of operating
performance. In addition, since most equity REITs provide FFO information to
the investment community, the Company believes FFO is a useful supplemental
measure for comparing the Companys results to those of other equity REITs.
The Company believes that the line on the Companys consolidated statement of
operations entitled net income available to common shareholders is the most
directly comparable GAAP measure to FFO. FFO should not be considered as an alternative to net income available to
common shareholders (determined in accordance with GAAP) as an indicator of the
Companys financial performance. While management believes that FFO is an
important supplemental non-GAAP financial measure, management believes it is
also important to stress that FFO should not be considered as an alternative to
cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Companys liquidity. Further, FFO is not necessarily indicative
of sufficient cash flow to fund all of the Companys needs or ability to
service indebtedness or make distributions. -45-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) A reconciliation of net income available to common shareholders to FFO is
provided below. Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003 (1)Net income available to common shareholders
    
    $
    99,201
    
    
    $
    24,827
    
    
    $
    98,296
    
    
    $
    1,377Minority interest of common unitholders  continuing operations
    
    
    (246
    )
    
    
    (164
    )
    
    
    (719
    )
    
    
    (2,778
    )Minority interest in discontinued operations (2)
    
    
    7,455
    
    
    
    3,247
    
    
    
    7,856
    
    
    
    2,847Gains on property sales  discontinued operations
    
    
    (112,112
    )
    
    
    (26,630
    )
    
    
    (113,739
    )
    
    
    (33,504
    )Gains on property sales  unconsolidated entities
    
    
    
    
    
    
    (8,395
    )
    
    
    
    
    
    
    (8,395
    )Depreciation on wholly-owned real estate assets, net (3)
    
    
    20,107
    
    
    
    21,366
    
    
    
    40,145
    
    
    
    42,984Depreciation on real estate assets held in unconsolidated entities
    
    
    331
    
    
    
    439
    
    
    
    663
    
    
    
    904Funds from operations available to common shareholders
    
    $
    14,736
    
    
    $
    14,690
    
    
    $
    32,502
    
    
    $
    3,435Cash flow provided by (used in):Operating activities
    
    $
    29,018
    
    
    $
    26,925
    
    
    $
    56,404
    
    
    $
    53,622Investing activities
    
    $
    95,496
    
    
    $
    121,093
    
    
    $
    145,799
    
    
    $
    158,897Financing activities
    
    $
    (86,170
    )
    
    $
    (147,527
    )
    
    $
    (148,246
    )
    
    $
    (214,607
    )Weighted average shares outstanding  basic
    
    
    39,807
    
    
    
    37,460
    
    
    
    39,595
    
    
    
    37,361Weighted average shares and units outstanding  basic
    
    
    42,478
    
    
    
    42,066
    
    
    
    42,469
    
    
    
    42,058Weighted average shares outstanding  diluted (4)
    
    
    39,853
    
    
    
    37,467
    
    
    
    39,645
    
    
    
    37,362Weighted average shares and units outstanding  diluted (4)
    
    
    42,524
    
    
    
    42,074
    
    
    
    42,520
    
    
    
    42,058
  (1)
    
    For the six months ended June 30, 2003, FFO available to
common shareholders has been restated from the prior period
presentation to reflect a reduction of $14,118 for impairment
losses on real estate assets resulting from the NAREIT
modification of the definition of FFO in 2003.  (2)
    
    Represents the minority interest in earnings and gains
(losses) on properties held for sale and sold reported as
discontinued operations for the periods presented.  (3)
    
    Depreciation on wholly-owned real estate assets is net of the
minority interest portion of depreciation in consolidated
entities.  (4)
    
    Diluted weighted average shares and units for the three and
six months ended June 30, 2004 include 46 and 51 shares and units,
respectively, that were antidilutive to all income (loss) per
share computations under generally accepted accounting principles. -46-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Companys primary market risk exposure is interest rate risk. At June 30,
2004, the Company had $124,800 of variable rate debt tied to LIBOR. In
addition, the Company had $110,055 of variable tax-exempt debt with interest
based on the FNMA AAA tax exempt rate. In addition, the Company has interest
rate risk associated with fixed rate debt at maturity. The discussion in this
section is the same for the Company and the Operating Partnership, except that
all indebtedness described herein has been incurred by the Operating
Partnership. Management has and will continue to manage interest rate risk as follows:  
    
    maintain a conservative ratio of fixed rate, long-term debt to total debt such that
variable rate exposure is kept at an acceptable level;  
    
    fix certain long-term variable rate debt through the use of interest rate swaps or
interest rate caps with appropriately matching maturities;  
    
    use treasury locks where appropriate to fix rates on anticipated debt transactions; and  
    
    take advantage of favorable market conditions for long-term debt and/or equity. Management uses various financial models and advisors to achieve these
objectives. The table below provides information about the Companys derivative financial
instruments at June 30, 2004 that are sensitive to changes in interest rates.
For interest rate swap and cap arrangements, the table presents notional
amounts and weighted average interest rates by expected contractual maturity
dates. Notional amounts are used to calculate the contractual payments to be
exchanged under the contracts. ExpectedAverage
    
    Average
    
    SettlementInterest Rate Derivatives
    
    Notional Amount
    
    Pay Rate/Cap Rate
    
    Receive Rate
    
    Date
    
    Fair ValueAsset (Liab.)Interest Rate SwapsVariable to fixed
    
    $104,000 amortizing
    
    
    6.04
    %
    
    1 month LIBOR
    
    
    7/31/09
    
    
    $
    (8,802
    )to $90,270Variable to fixed
    
    $
    25,000
    
    
    
    6.53
    %
    
    3 month LIBOR
    
    
    2/01/05
    
    
    
    (895
    )Interest rate cap
    
    $
    14,760
    
    
    
    5.00
    %
    
    
    
    
    
    
    2/01/08
    
    
    
    36Interest rate cap
    
    $
    95,295
    
    
    
    5.00
    %
    
    
    
    
    
    
    2/01/08
    
    
    
    232$
    (9,429
    )
 As more fully described in note 6 to the consolidated financial statements, the
interest rate swap and cap arrangements are carried on the consolidated balance
sheet at the fair value shown above in accordance with SFAS No. 133, as
amended. If interest rates under the Companys floating rate LIBOR-based and
tax-exempt borrowings, in excess of the $99,800 FNMA borrowings and $25,000
medium-term notes effectively converted to fixed rates discussed above,
fluctuated by 1.0%, interest costs to the Company, based on outstanding
borrowings at June 30, 2004, would increase or decrease by approximately $1,100
on an annualized basis. There have been no material changes in the value of the Companys fixed debt
since December 31, 2003. -47-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) 
 ITEM 4. CONTROLS AND PROCEDURES As required by Securities and Exchange Commission rules, the Company has
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by this quarterly
report. This evaluation was carried out under the supervision and with the
participation of the Companys management, including its principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that as of the end of the period covered by this
quarterly report on Form 10-Q the design and operation of the Companys
disclosure controls and procedures are effective. There were no changes to the
Companys internal controls over financial reporting during the period covered
by this report that materially affected, or are reasonably likely to materially
affect, the Companys internal controls over financial reporting. Disclosure controls and procedures are the Companys controls and other
procedures that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Companys
management, including its principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. -48-




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PART II. OTHER INFORMATION 
 ITEM 1.LEGAL PROCEEDINGS On May 13, 2004, an alleged Company shareholder filed a purported pro se
derivative and direct action in the Superior Court of Fulton County, Georgia,
against the Company, certain members of the Companys 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 alleges, among other things, breaches of fiduciary duties, fraud,
corporate waste, withholding certain documents from shareholder inspection
and certain securities laws claims. The complaint requests various types of
relief, such as injunctive relief and damages and demands production of certain
Company records. The Company believes the allegations are wholly without merit
and intends to defend the suit vigorously. The Company intends to move to
dismiss the litigation. 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 alleges various breaches of fiduciary duties by the board of directors
of the Company and seeks, among other relief, the disclosure of certain
information by the defendants. This complaint also seeks 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.
This lawsuit is expected to be settled in 2004. On May 13, 2003, the Company received notice that a 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 alleges breaches of fiduciary duties, abuse of
control and corporate waste by the defendants. The plaintiff seeks monetary
damages and, as appropriate, injunctive relief. This lawsuit is expected to be
settled in 2004. 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 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 Companys
results of operations or financial position. 
 ITEM 2.CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES In the fourth quarter of 2003, the Companys board of directors adopted a new
stock repurchase program under which the Company may repurchase up to
$200,000,000 of common stock or preferred stock at market prices from time to
time through December 31, 2004. In the first quarter of 2004,
the Company acquired $50,000 of preferred stock. In the second quarter of 2004, the Company did
not acquire shares of common or preferred stock under this program. However,
the Company expects to utilize asset sales proceeds to redeem its Series D preferred
units totaling $70 million under this program on September 3, 2004. The
Company may also utilize proceeds from its asset sale program to repurchase its
common stock at appropriate times, if it could do so at prices that are
attractive relative to its estimates of per share net asset value.
There can be no assurance, however, that the Company will utilize
asset sales proceeds for this purpose. Under a 10b5-1 plan that the Company initiated at the end of the second quarter
of 2004, the Company used asset sales proceeds to acquire $2,268 of common
stock in the third quarter (through August 5, 2004) under this program. The
10b5-1 plan expired on August 6, 2004. 
 ITEM 3.DEFAULTS UPON SENIOR SECURITIES None -49-




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ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  The Companys annual meeting of shareholders was held May 27, 2004. The
matters subject to a vote of shareholders were the election of directors,
the management proposal to approve the amendment to the Companys Bylaws
to declassify the Board of Directors and a shareholder proposal regarding
shareholder approval of director compensation. At the meeting in person
or by proxy, there were shareholders holding an aggregate of 38,124,827
shares of common stock. The voting results were as follows:Election of DirectorsNominees for Board of Directors For
    
    Withheld
    
    Broker Non-VotesDouglas Crocker III
    
    
    37,475,845
    
    
    
    648,982
    
    
    
    Walter M. Deriso, Jr.
    
    
    37,648,837
    
    
    
    475,990
    
    
    
    Nicholas B. Paumgarten
    
    
    35,152,003
    
    
    
    2,972,824
    
    
    
    
  Based on the vote tabulations listed above, the nominees were elected to
the board of directors.  The following directors terms of office continued after the 2004 annual
meeting of shareholders: Robert C. Goddard, III, David P. Stockert,
Herschel M. Bloom, Russell R. French, Charles E. Rice, Ronald de Waal and
John A. Williams.  Amendment to Declassify the Board of Directors For
    
    Against
    
    Abstain
    
    Broker Non-Votes36,934,218
    
    
    1,100,309
    
    
    
    90,300
    
    
    
    
  Shareholder Proposal Regarding Shareholder Approval of Director
Compensation For
    
    Against
    
    Abstain
    
    Broker Non-Votes3,888,474
    
    
    28,014,713
    
    
    
    250,457
    
    
    
    5,971,183
 
 ITEM 5.OTHER INFORMATION None -50-




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ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K Certain exhibits required by Item 601 of Regulation S-K have been filed with
previous reports (as indicated in the footnotes to this Exhibit Table) and are
incorporated by reference herein.  (a)
    
    Exhibits 3.1(a)
    
    
    
    Articles of Incorporation of the Company.3.2(b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.3(b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.4(b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.5(c)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.6(d)
    
    
    
    Bylaws of the Company (as Amended and Restated as of November 5, 2003).4.1(e)
    
    
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2(e)
    
    
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.10.1(f)
    
    
    
    Redemption agreement between Post Apartment Homes, L.P. and JRC Acquisition Corporation.10.2(f)
    
    
    
    First Amendment to the Redemption Agreement.10.3(f)
    
    
    
    Second Amendment to the Redemption Agreement.10.4(f)
    
    
    
    Third Amendment to the Redemption Agreement.10.5(f)
    
    
    
    Fourth Amendment to the Redemption Agreement.11.1(g)
    
    
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906
of the Sarbanes-Oxley Act of 2002.(a)
    
    Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as amended, of
the Company.(b)
    
    Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended December
31, 2002.(c)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter ended March
31, 1999.(d)
    
    Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter ended
September 30, 2003.(e)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the Company.(f)
    
    Filed as an exhibit to the Current Report on Form 8-K of the Registrants filed July 13, 2004.(g)
    
    The information required by this exhibit is included in note 5 to the consolidated financial statements.(b)
    
    
    
    Reports on Form 8-KOn May 4, 2004, the Registrants furnished a Form 8-K including the Registrants earnings release and
supplemental financial information package relating to the quarterly period ended March 31, 2004.On May 13, 2004 the Registrants filed a Form 8K including additional information relating to the
Companys tax fees.
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. POST PROPERTIES, INC.August 9, 2004
    
    By
    
    /s/ David P. StockertDavid P. StockertPresident and Chief Executive OfficerAugust 9, 2004
    
    By
    
    /s/ Christopher J. PapaChristopher J. PapaExecutive Vice President and Chief Financial OfficerAugust 9, 2004
    
    By
    
    /s/ Arthur J. QuirkArthur J. QuirkSenior Vice President and ChiefAccounting Officer
 -52-




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. POST APARTMENT HOMES, L.P.By: Post GP Holdings, Inc., its sole General PartnerAugust 9, 2004
    
    By
    
    /s/ David P. StockertDavid P. StockertPresident and Chief Executive OfficerAugust 9, 2004
    
    By
    
    /s/ Christopher J. PapaChristopher J. PapaExecutive Vice President and Chief Financial OfficerAugust 9, 2004
    
    By
    
    /s/ Arthur J. QuirkArthur J. QuirkSenior Vice President and Chief Accounting Officer
 -53-




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EXHIBIT INDEX 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).4.1(e)
    
    
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2(e)
    
    
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.10.1(f)
    
    
    
    Redemption agreement between Post Apartment Homes, L.P. and JRC Acquisition Corporation.10.2(f)
    
    
    
    First Amendment to the Redemption Agreement.10.3(f)
    
    
    
    Second Amendment to the Redemption Agreement.10.4(f)
    
    
    
    Third Amendment to the Redemption Agreement.10.5(f)
    
    
    
    Fourth Amendment to the Redemption Agreement.11.1(g)
    
    
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906
of the Sarbanes-Oxley Act of 2002.(a)
    
    Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as amended, of
the Company.(b)
    
    Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended December
31, 2002.(c)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter ended March
31, 1999.(d)
    
    Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter ended
September 30, 2003.(e)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the Company.(f)
    
    Filed as an exhibit to the Current Report on Form 8-K of the Registrants filed July 13, 2004.(g)
    
    The information required by this exhibit is included in note 5 to the consolidated financial statements.
 -54-