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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
   FORM 10-Q þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR oTRANSITION 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
    
    þ
    
    No
    
    oPost Apartment Homes, L.P.
    
    Yes
    
    þ
    
    No
    
    o
 Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of
the Exchange Act). Post Properties, Inc.
    
    Yes
    
    þ
    
    No
    
    oPost Apartment Homes, L.P.
    
    Yes
    
    þ
    
    No
    
    o
   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: 39,867,454 shares of common stock outstanding as of May 2, 2004 (excluding treasury stock).




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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 March 31, 2005 and December 31, 2004
    
    
    1Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004
    
    
    2Consolidated Statement of Shareholders Equity and Accumulated Earnings for the three months ended March 31, 2005
    
    
    3Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004
    
    
    4Notes to Consolidated Financial Statements
    
    
    5POST APARTMENT HOMES, L.P.Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004
    
    
    16Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004
    
    
    17Consolidated Statement of Partners Equity for the three months ended March 31, 2005
    
    
    18Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004
    
    
    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
    
    
    43Item 4 Controls and Procedures
    
    
    43Part II OTHER INFORMATION
    
    
    44Item 1 Legal Proceedings
    
    
    44Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3 Defaults Upon Senior Securities
    
    
    45Item 4 Submission of Matters to a Vote of Security Holders
    
    
    45Item 5 Other Information
    
    
    45Item 6 Exhibits
    
    
    46Signatures
    
    
    47Exhibit Index
    
    
    49EX-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 per share data)
 March 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)AssetsReal estate assetsLand
    
    $
    263,766
    
    
    $
    266,520Building and improvements
    
    
    1,792,120
    
    
    
    1,887,514Furniture, fixtures and equipment
    
    
    204,538
    
    
    
    214,954Construction in progress
    
    
    26,647
    
    
    
    19,527Land held for future development
    
    
    24,268
    
    
    
    18,9102,311,339
    
    
    
    2,407,425Less: accumulated depreciation
    
    
    (470,721
    )
    
    
    (498,367
    )Assets held for sale, net of accumulated depreciation of $69,537 and
$26,332 at March 31, 2005 and December 31, 2004, respectively
    
    
    133,160
    
    
    
    68,661Total real estate assets
    
    
    1,973,778
    
    
    
    1,977,719Investments in and advances to unconsolidated real estate entities
    
    
    37,814
    
    
    
    21,320Cash and cash equivalents
    
    
    2,935
    
    
    
    123Restricted cash
    
    
    5,246
    
    
    
    1,844Deferred charges, net
    
    
    14,290
    
    
    
    15,574Other assets
    
    
    38,365
    
    
    
    37,262Total assets
    
    $
    2,072,428
    
    
    $
    2,053,842Liabilities and shareholders equityNotes payable, including $81,560 and $34,060 of debt secured by assets
held for sale at March 31, 2005 and December 31, 2004, respectively
    
    $
    1,161,240
    
    
    $
    1,129,478Accounts payable and accrued expenses
    
    
    56,803
    
    
    
    58,837Dividend and distribution payable
    
    
    19,122
    
    
    
    19,203Accrued interest payable
    
    
    12,147
    
    
    
    7,677Security deposits and prepaid rents
    
    
    10,691
    
    
    
    7,236Total liabilities
    
    
    1,260,003
    
    
    
    1,222,431Minority interest of common unitholders in Operating Partnership
    
    
    41,147
    
    
    
    43,341Commitments and contingenciesShareholders equityPreferred stock, $.01 par value, 20,000 authorized:8 1/2 % Series A Cumulative Redeemable Shares, liquidation preference $50 per share, 900 shares issued and outstanding
    
    
    9
    
    
    
    97 5/8 % Series B Cumulative Redeemable Shares, liquidation preference $25 per share, 2,000 shares issued and outstanding
    
    
    20
    
    
    
    20Common stock, $.01 par value, 100,000 authorized:40,372 and 40,164 shares issued, 40,069 and 40,164 shares outstanding at March 31, 2005 and December 31, 2004, respectively
    
    
    403
    
    
    
    401Additional paid-in capital
    
    
    780,956
    
    
    
    775,221Accumulated earnings
    
    
    9,812
    
    
    
    25,075Accumulated other comprehensive loss
    
    
    (6,002
    )
    
    
    (8,668
    )Deferred compensation
    
    
    (4,401
    )
    
    
    (3,988
    )780,797
    
    
    
    788,070Less common stock in treasury, at cost, 303 and 0 shares
at March 31, 2005 and December 31, 2004, respectively
    
    
    (9,519
    )
    
    
    Total shareholders equity
    
    
    771,278
    
    
    
    788,070Total liabilities and shareholders equity
    
    $
    2,072,428
    
    
    $
    2,053,842
 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 endedMarch 31,2005
    
    
    2004RevenuesRental
    
    $
    67,727
    
    
    $
    64,952Other property revenues
    
    
    3,782
    
    
    
    3,658Other
    
    
    71
    
    
    
    76Total revenues
    
    
    71,580
    
    
    
    68,686ExpensesProperty operating and maintenance (exclusive of items shown separately below)
    
    
    32,793
    
    
    
    30,472Depreciation
    
    
    19,532
    
    
    
    19,621General and administrative
    
    
    5,295
    
    
    
    4,642Development costs and other
    
    
    1,097
    
    
    
    535Total expenses
    
    
    58,717
    
    
    
    55,270Operating Income
    
    
    12,863
    
    
    
    13,416Interest income
    
    
    165
    
    
    
    180Interest expense
    
    
    (15,679
    )
    
    
    (15,421
    )Amortization of deferred financing costs
    
    
    (1,688
    )
    
    
    (1,116
    )Equity in income of unconsolidated real estate entities
    
    
    147
    
    
    
    216Gain on sale of technology investment
    
    
    5,267
    
    
    
    Minority interest in consolidated property partnerships
    
    
    113
    
    
    
    183Minority interest of preferred unitholders
    
    
    
    
    
    
    (1,400
    )Minority interest of common unitholders
    
    
    42
    
    
    
    599Income (loss) from continuing operations
    
    
    1,230
    
    
    
    (3,343
    )Discontinued operationsIncome from discontinued operations, net of minority interest
    
    
    3,109
    
    
    
    5,245Gains on sales of real estate assets, net of minority interest
    
    
    337
    
    
    
    1,509Income from discontinued operations
    
    
    3,446
    
    
    
    6,754Net income
    
    
    4,676
    
    
    
    3,411Dividends to preferred shareholders
    
    
    (1,909
    )
    
    
    (2,597
    )Redemption costs on preferred stock
    
    
    
    
    
    
    (1,716
    )Net income (loss) available to common shareholders
    
    $
    2,767
    
    
    $
    (902
    )Per common share data  BasicLoss from continuing operations (net of preferred dividends
and redemption costs)
    
    $
    (0.02
    )
    
    $
    (0.19
    )Income from discontinued operations
    
    
    0.09
    
    
    
    0.17Net income (loss) available to common shareholders
    
    $
    0.07
    
    
    $
    (0.02
    )Weighted average common shares outstanding  basic
    
    
    40,167
    
    
    
    39,382Per common share data  DilutedLoss from continuing operations (net of preferred dividends
and redemption costs)
    
    $
    (0.02
    )
    
    $
    (0.19
    )Income from discontinued operations
    
    
    0.09
    
    
    
    0.17Net income (loss) available to common shareholders
    
    $
    0.07
    
    
    $
    (0.02
    )Weighted average common shares outstanding  diluted
    
    
    40,167
    
    
    
    39,382Dividends declared
    
    $
    0.45
    
    
    $
    0.45
 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, except per share data)
 Additional
    
    
    
    
    
    
    Accumulated OtherPreferred
    
    
    Common
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Deferred
    
    
    TreasuryStock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Compensation
    
    
    Stock
    
    
    TotalShareholders Equity and Accumulated Earnings,
December 31, 2004
    
    $
    29
    
    
    $
    401
    
    
    $
    775,221
    
    
    $
    25,075
    
    
    $
    (8,668
    )
    
    $
    (3,988
    )
    
    $
    
    
    
    $
    788,070Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,676Net change in derivative value, net of
minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,666
    
    
    
    
    
    
    
    
    
    
    
    2,666Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,342Proceeds from employee stock purchase and
stock option plans
    
    
    
    
    
    
    2
    
    
    
    3,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,037Adjustment for minority interest of
unitholders in Operating Partnership upon
conversion of units into common shares and at
dates of capital transactions
    
    
    
    
    
    
    
    
    
    
    1,442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,442Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160Restricted stock issuances, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    1,098
    
    
    
    
    
    
    
    
    
    
    
    (707
    )
    
    
    (391
    )
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294
    
    
    
    
    
    
    
    294Treasury stock acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,128
    )
    
    
    (9,128
    )Dividends to preferred shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,909
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,909
    )Dividends to common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,030
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,030
    )Shareholders Equity and Accumulated Earnings,
March 31, 2005
    
    $
    29
    
    
    $
    403
    
    
    $
    780,956
    
    
    $
    9,812
    
    
    $
    (6,002
    )
    
    $
    (4,401
    )
    
    $
    (9,519
    )
    
    $
    771,278
 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, except per share data)
 Three months endedMarch 31,2005
    
    
    2004Cash Flows From Operating ActivitiesNet income
    
    $
    4,676
    
    
    $
    3,411Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    19,532
    
    
    
    21,186Amortization of deferred financing costs
    
    
    1,688
    
    
    
    1,116Minority interest of preferred unitholders in Operating Partnership
    
    
    
    
    
    
    1,400Minority interest of common unitholders in Operating Partnership
    
    
    (42
    )
    
    
    (599
    )Minority interest in discontinued operations
    
    
    210
    
    
    
    528Gains on sales of real estate assets  discontinued operations
    
    
    (358
    )
    
    
    (1,627
    )Gain on sale of technology investment
    
    
    (5,267
    )
    
    
    Equity in income of unconsolidated entities, net of distributions of accumulated earnings
    
    
    
    
    
    
    (181
    )Stock-based compensation
    
    
    464
    
    
    
    415Changes in assets, (increase) decrease in:Restricted cash
    
    
    (3,402
    )
    
    
    (26
    )Other assets
    
    
    (1,539
    )
    
    
    (883
    )Deferred charges
    
    
    (152
    )
    
    
    (298
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    4,470
    
    
    
    5,758Accounts payable and accrued expenses
    
    
    (112
    )
    
    
    (1,242
    )Security deposits and prepaid rents
    
    
    3,455
    
    
    
    (66
    )Net cash provided by operating activities
    
    
    23,623
    
    
    
    28,892Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (13,583
    )
    
    
    (67
    )Net proceeds from sales of real estate assets
    
    
    3,296
    
    
    
    2,279Proceeds from sale of technology investment
    
    
    5,267
    
    
    
    Capitalized interest
    
    
    (367
    )
    
    
    (239
    )Recurring capital expenditures
    
    
    (1,958
    )
    
    
    (2,422
    )Non-recurring capital expenditures
    
    
    (902
    )
    
    
    (1,244
    )Revenue generating capital expenditures
    
    
    
    
    
    
    (26
    )Corporate additions and improvements
    
    
    (701
    )
    
    
    (134
    )Distributions from (investments in and advances to) unconsolidated entities
    
    
    (16,538
    )
    
    
    52,156Capital contributions of minority interests
    
    
    900
    
    
    
    Capital distributions to minority interests
    
    
    (617
    )
    
    
    (1,506
    )Net cash provided by (used in) investing activities
    
    
    (25,203
    )
    
    
    48,797Cash Flows From Financing ActivitiesPayments on indebtedness
    
    
    (126,130
    )
    
    
    (683
    )Proceeds from indebtedness
    
    
    
    
    
    
    35,000Payments of financing costs
    
    
    (168
    )
    
    
    (4,202
    )Lines of credit proceeds (repayments), net
    
    
    157,892
    
    
    
    (22,010
    )Treasury stock acquisitions
    
    
    (9,128
    )
    
    
    Redemption of preferred stock
    
    
    
    
    
    
    (50,000
    )Proceeds from employee stock purchase and stock option plans
    
    
    3,037
    
    
    
    2,859Distributions to preferred unitholders
    
    
    
    
    
    
    (1,400
    )Distributions to common unitholders
    
    
    (1,125
    )
    
    
    (1,652
    )Dividends paid to preferred shareholders
    
    
    (1,909
    )
    
    
    (2,597
    )Dividends paid to common shareholders
    
    
    (18,077
    )
    
    
    (17,391
    )Net cash provided by (used in) financing activities
    
    
    4,392
    
    
    
    (62,076
    )Net increase in cash and cash equivalents
    
    
    2,812
    
    
    
    15,613Cash and cash equivalents, beginning of period
    
    
    123
    
    
    
    1,334Cash and cash equivalents, end of period
    
    $
    2,935
    
    
    $
    16,947
 The accompanying notes are an integral part of these consolidated financial statements. -4-




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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 March 31, 2005, the Company owned 24,523 apartment units in 63
apartment communities, including 545 apartment units in two apartment communities held in
unconsolidated entities and including 205 apartment units currently under development in one
community. The Company is also developing 145 for-sale condominium units and is converting 382
apartment units in three communities (including one in an unconsolidated entity) into for-sale
condominium units through a taxable REIT subsidiary. At March 31, 2005, approximately 51.9%,
17.4%, 8.6% and 8.1% (on a unit basis) of the Companys operating communities were located in
the Atlanta, Dallas, Tampa and greater Washington, D.C. 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 March 31, 2005, the Company had outstanding 40,069 shares of common stock and owned the
same number of units of common limited partnership interests (Common Units) in the Operating
Partnership, representing 94.3% ownership interest in the Operating Partnership. Common Units
held by persons other than the Company totaled 2,425 as of March 31, 2005 and represented a 5.7%
common minority interest in the Operating Partnership. Each Common Unit may be redeemed by the
holder thereof for either one share of Company common stock or cash equal to the fair market
value thereof at the time of redemption, at the option of the Company. The Companys weighted
average common ownership interest in the Operating Partnership was 94.3% and 92.8% for the three
months March 31, 2005 and 2004, 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 months ended March 31,
2005 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, 2004. Certain 2004 amounts have been reclassified to conform to the current years
financial statement presentation.Revenue RecognitionSales and the associated gains or losses of real estate assets and for-sale condominiums are
recognized in accordance with the provisions of SFAS No. 66, Accounting for Sales of Real
Estate. For condominium conversion projects, sales and the associated gains for individual
condominium units are recognized upon the closing of the sale transactions, as all conditions
for full profit recognition have been met. In accordance with SFAS No. 144, Accounting for the
Impairment and Disposal of Long-Lived Assets, gains on sales of condominium units at
condominium conversion projects are included in discontinued operations. -5-




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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  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.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 endedMarch 31,2005
    
    
    2004Net income (loss) available to common shareholdersAs reported
    
    $
    2,767
    
    
    $
    (902
    )Stock-based compensation included in net
income as reported, net of minority interest
    
    
    438
    
    
    
    385Stock-based compensation determined under the
fair value method for all awards, net of
minority interest
    
    
    (436
    )
    
    
    (405
    )Pro forma
    
    $
    2,769
    
    
    $
    (922
    )Net income (loss) per common share  basicAs reported
    
    $
    0.07
    
    
    $
    (0.02
    )Pro forma
    
    $
    0.07
    
    
    $
    (0.02
    )Net income (loss) per common share  dilutedAs reported
    
    $
    0.07
    
    
    $
    (0.02
    )Pro forma
    
    $
    0.07
    
    
    $
    (0.02
    )
  SFAS No. 123R, Share-Based Payment, was issued in December 2004. SFAS No. 123R revises
SFAS No. 123, Accounting for Stock-Based Compensation and requires companies to expense the
fair value of employee stock options and other forms of stock-based compensation. SFAS No. 123R
also supersedes the provisions of APB No. 25. The provisions of SFAS No. 123R will be effective
for the Company as of January 1, 2006. The Company plans to adopt the provisions of SFAS No.
123R in the first quarter of 2006 and is currently evaluating the alternative methods of
adoption. Since the Company elected to apply the provisions of SFAS No. 123 on January 1, 2003,
the adoption of SFAS No. 123R is not expected to have a significant impact on the Companys
financial position or results of operations.Long-term Ground LeasesThe Company is party to six long-term ground leases associated with land underlying certain of
the Companys operating communities. The ground leases generally provide for future increases
in minimum lease payments tied to an inflation index or contain stated rent increases that
generally compensate for the impact of inflation. Beginning in 2005, the Company recognizes ground lease expense
on the straight-line method over the life of the ground leases for all ground leases with stated
rent increases. The recognition of ground lease expense as incurred has historically not been
materially different than recognizing ground lease expense on a straight-line basis. -6-




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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  2.
    INDEBTEDNESSAt March 31, 2005 and December 31, 2004, the Companys indebtedness consisted of the following: Maturity
    
    
    March 31,
    
    
    December 31,Description
    
    Payment Terms
    
    Interest Rate
    
    
    Date
    
    
    2005
    
    
    2004Unsecured NotesSenior Notes
    
    Int.
    
    
    5.125% - 7.70
    %
    
    
    
    
    
    
    2006-2011
    
    
    $
    385,000
    
    
    $
    385,000Medium Term Notes
    
    Int.
    
    
    6.78% - 8.125
    %
    
    
    
    
    
    
    2005
    
    
    
    87,043
    
    
    
    212,043472,043
    
    
    
    597,043Unsecured Lines of Credit & OtherSyndicated Line of Credit
    
    N/A
    
    LIBOR + 0.75%(1)
    
    
    
    
    
    
    2007
    
    
    
    195,000
    
    
    
    40,000Cash Management Line
    
    N/A
    
    LIBOR + 0.75
    %
    
    
    
    
    
    
    2007
    
    
    
    13,640
    
    
    
    10,748208,640
    
    
    
    50,748Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int.
    
    
    6.975
    %(2)
    
    
    
    
    
    
    2029
    
    
    
    98,500
    
    
    
    98,500Other
    
    Prin. and Int.
    
    
    4.27% - 7.69
    %
    
    
    
    
    
    
    2007-2013
    
    
    
    272,002
    
    
    
    273,132370,502
    
    
    
    371,632Tax Exempt Floating Rate
Bonds (Secured)
    
    Int.
    
    
    2.29
    %(3)
    
    
    
    
    
    
    2025
    
    
    
    110,055
    
    
    
    110,055Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,161,240
    
    
    $
    1,129,478
   (1)
    
    Represents stated rate. At March 31, 2005, the weighted average interest rate was
3.41%.(2)
    
    Interest rate is fixed at 6.975%, inclusive of credit enhancement and other fees, to
2009 through an interest rate swap arrangement.(3)
    
    FNMA credit enhanced bond indebtedness. Interest based on FNMA AAA tax exempt rate
plus credit enhancement and other fees of 0.639%. Interest rate represents the rate at
March 31, 2005 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 March 31, 2005 and December 31, 2004, approximately $81,560 and $34,060,
respectively, of this debt was secured by assets held for sale.  Debt maturitiesThe aggregate maturities of the Companys indebtedness are as follows (1): Remainder of 2005
    
    $
    91,9892006
    
    
    82,4692007
    
    
    368,633
    (2)2008
    
    
    7,5562009
    
    
    79,001Thereafter
    
    
    531,592$
    1,161,240
   (1)
    
    Aggregate maturities of debt for the years presented
include repayments of tax-exempt debt of $0 in 2005, $500
in 2006, $1,200 in 2007, $2,200 in 2008 and $2,400 in 2009
relating to three apartment communities expected to be sold
in 2005, and include $200 in 2005, $700 in 2006, $600 in
2007, $800 in 2008 and $700 in 2009 relating to two
apartment communities held for investment. The principal
repayments relate to certain principal reserve requirements
under the applicable debt arrangements commencing in July
2005. The Company expects to either retire the debt upon
sale of the communities or refinance the debt to defer
these principal reserve requirements in 2005, however,
there can be no assurance that it will be able to do so.(2)
    
    Includes outstanding balances on lines
of credit totaling $208,640.  Debt issuances and retirementsUpon their maturity in February 2005, the Company repaid $25,000 of its 7.28% medium term,
unsecured notes, from available borrowings under its unsecured lines of credit. In March 2005,
the Company repaid the $100,000 outstanding principal balance under its 6.85% Mandatory Par Put
Remarketed Securities (MOPPRS) debt arrangement.Unsecured Lines of CreditThe Company utilizes a $350,000 syndicated unsecured revolving line of credit (the Revolver)
that matures in January 2007 for its short-term financing needs. The Revolver has a current
stated interest rate of LIBOR plus 0.75% 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 currently equal to 0.15% of the aggregate loan commitment. The Revolver provides
for the interest rate and facility fee rate to be adjusted up or down based on changes in the
credit ratings on the Companys senior unsecured debt. The rates under the Revolver are based
on the higher 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 -7-




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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  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. At March 31, 2005, the Company had issued
letters of credit to third parties totaling $1,972 under this facility.Additionally, the Company has a $20,000 unsecured line of credit with Wachovia Bank, N.A. (the
Cash Management Line). The Cash Management line matures in January 2007 and carries pricing
and terms, including debt covenants, substantially consistent with those of the Revolver.  3.
    INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIESAt March 31, 2005, the Company held investments in three individual limited liability companies
(the Property LLCs) with an institutional investor. Each Property LLC owns a single apartment
community. In March 2005, one of the Property LLCs elected to convert its apartment community
into for-sale condominiums. The Company holds a 35% equity interest in the Property LLCs.The Company accounts for its investments in these Property LLCs using the equity method of
accounting. The excess of the Companys investment over its equity in the underlying net assets
of the Property LLCs was approximately $6,540 at March 31, 2005. This excess investment related
to Property LLCs holding apartment communities is being amortized as a reduction to earnings on
a straight-line basis over the lives of the related assets. The excess investment related to
the Property LLC holding the condominium conversion community will be recognized as additional
costs as the underlying condominiums are sold. The Company provides real estate services
(development, construction and property management) to the Property LLCs for which it earns
fees.The operating results of the Company include its share of net income from the
investments in the Property LLCs. A summary of financial information for the Property LLCs in
the aggregate is as follows: March 31,
    
    
    December 31,Balance Sheet Data
    
    2005
    
    
    2004Real estate assets, net of accumulated depreciation of
$6,428 and $9,712, respectively
    
    $
    97,831
    
    
    $
    124,072Assets held for sale, net
    
    
    25,845
    
    
    
    Cash and other
    
    
    2,599
    
    
    
    2,797Total assets
    
    $
    126,275
    
    
    $
    126,869Mortgage notes payable
    
    $
    67,000
    
    
    $
    83,468Mortgage notes payable to Company
    
    
    16,995
    
    
    
    Other liabilities
    
    
    1,529
    
    
    
    1,296Total liabilities
    
    
    85,524
    
    
    
    84,764Members equity
    
    
    40,751
    
    
    
    42,105Total liabilities and members equity
    
    $
    126,275
    
    
    $
    126,869Companys equity investment
    
    $
    20,819
    
    
    $
    21,320
 -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) 
 Three months endedMarch 31,Income Statement Data
    
    2005
    
    
    2004RevenueRental
    
    $
    2,640
    
    
    $
    2,564Other property revenues
    
    
    185
    
    
    
    176Total revenues
    
    
    2,825
    
    
    
    2,740ExpensesProperty operating and maintenance
    
    
    910
    
    
    
    903Depreciation and amortization
    
    
    653
    
    
    
    629Interest
    
    
    688
    
    
    
    594Total expenses
    
    
    2,251
    
    
    
    2,126Income from continuing operations
    
    
    574
    
    
    
    614Discontinued OperationsLoss from discontinued operations
    
    
    (117
    )
    
    
    (98
    )Loss on early extinguishment of debt
    
    
    (273
    )
    
    
    Loss from discontinued operations
    
    
    (390
    )
    
    
    (98
    )Net income
    
    $
    184
    
    
    $
    516Companys share of net income
    
    $
    147
    
    
    $
    216
  At March 31, 2005, 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 note payable totaling $17,000 bears
interest at a rate of 4.04% and matures in 2008.In March 2005, one of the Property LLCs elected to convert its apartment community into for-sale
condominiums. As a result of its decision to sell the community through the condominium
conversion process, the Property LLC prepaid its third party mortgage note payable of $16,392
through secured borrowings from the Company. The Property LLC incurred debt prepayment costs
and expenses associated with the write-off of unamortized deferred financing costs totaling $273
in March 2005. The mortgage note payable to the Company has a fixed rate component ($16,392)
bearing interest at 4.28% and a variable rate component bearing interest at LIBOR plus 1.90%.
This note is repayable from the proceeds of condominium sales and matures in February 2008.4.
    REAL ESTATE DISPOSITION ACTIVITYThe Company classifies real estate assets as held for sale after the approval of its investment
committee and after the Company has commenced an active program to sell the assets. At March
31, 2005, the Company had eight apartment communities, originally containing 3,308 units, and
certain tracts of land classified as held for sale. Two of the communities, originally
containing 261 units, held for sale at March 31, 2005 are being converted into condominiums.
These real estate assets are reflected in the accompanying consolidated balance sheet at
$133,160, which represents the lower of their 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,
gains or losses on the sale of these assets are included in discontinued operations. For the
three months ended March 31, 2005, income from discontinued operations included the results of
operations of eight communities, originally containing 3,308 units, classified as held for sale
at March 31, 2005. Two of the communities, originally containing 261 units, held for sale at
March 31, 2005 are being converted into condominiums. For the three months ended March 31,
2004, income from discontinued operations included the results of operations of the communities
classified as held for sale at March 31, 2005 and eight communities sold in 2004 through the
earlier of March 31, 2004 or their sale dates. -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) 
  The revenues and expenses of these communities for the three months ended March 31, 2005 and
2004 were as follows: Three months endedMarch 31,2005
    
    
    2004RevenuesRental
    
    $
    6,984
    
    
    $
    14,305Other property revenues
    
    
    632
    
    
    
    1,216Total revenues
    
    
    7,616
    
    
    
    15,521ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    3,260
    
    
    
    6,607Depreciation
    
    
    
    
    
    
    1,565Interest
    
    
    1,044
    
    
    
    1,783Minority interest in consolidated property partnerships
    
    
    14
    
    
    
    (89
    )Total expenses
    
    
    4,318
    
    
    
    9,866Income from discontinued operations
before minority interest
    
    
    3,298
    
    
    
    5,655Minority interest
    
    
    (189
    )
    
    
    (410
    )Income from discontinued operations
    
    $
    3,109
    
    
    $
    5,245
  For the three months ended March 31, 2005, gains on sales of real estate assets represents
the net profits of $358 ($337 net of minority interest) from condominium sales at the Companys
condominium conversion communities. A summary of revenues and costs and expenses of condominium
activities for the three months ended March 31, 2005 was as follows: Condominium revenues, net
    
    $
    3,296Condominium costs and expenses
    
    
    (2,938
    )Gains on condominium sales
    
    $
    358
  For the three months ended March 31, 2004, the Company recognized gains from discontinued
operations of $1,627 ($1,509 net of minority interest) from the sale of one community containing
398 units and certain land parcels. These sales generated net proceeds of approximately
$23,979, of which approximately $21,700 was held by a third party intermediary at March 31, 2004
under a qualified tax deferred exchange program.  Subsequent to March 31, 2005, the Company sold four of the apartment communities held for sale
as of the end of the first quarter, containing 1,102 units, for aggregate gross proceeds of
approximately $86,750, including the assumption of approximately $34,060 of tax-exempt secured
debt. In connection with the assumption of this tax-exempt debt, the Company expects to record
a loss on early extinguishment of debt of approximately $1,300 relating to the write-off of
unamortized deferred financing costs and the termination of related interest rate cap
arrangements.  5.
    SHAREHOLDERS EQUITYCommon Stock PurchasesIn the three months ended March 31, 2005, the Company repurchased approximately 286 shares of
its common stock at an aggregate cost of $9,046 under a 10b5-1 stock
repurchase plan. These shares were purchased under a board of directors approved plan which provides for aggregate
common or preferred stock repurchases of up to $200,000 through December 31, 2006. In addition,
the Company received approximately 2 shares of common stock at an aggregate cost of $82 from
certain employees through the surrender of such shares to satisfy tax withholding obligations
under the Companys existing stock compensation plans.Subsequent to quarter-end through April 30, 2005, the Company repurchased approximately 206
shares of common stock at an aggregate cost of $6,348 under a 10b5-1 stock repurchase plan. -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) 
  Computation of Earnings Per Common ShareFor the three months ended March 31, 2005 and 2004, 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 endedMarch 31,2005
    
    
    2004Income (loss) from continuing operations available to common
shareholders (numerator):Income (loss) from continuing operations
    
    $
    1,230
    
    
    $
    (3,343
    )Less: Preferred stock dividends
    
    
    (1,909
    )
    
    
    (2,597
    )Less: Preferred stock redemption costs
    
    
    
    
    
    
    (1,716
    )Loss from continuing operations available to common shareholders
    
    $
    (679
    )
    
    $
    (7,656
    )Common shares (denominator):Weighted average shares outstanding  basic
    
    
    40,167
    
    
    
    39,382Incremental shares from assumed conversion of stock options (1)
    
    
    
    
    
    
    Weighted average shares outstanding  diluted (1)
    
    
    40,167
    
    
    
    39,382
   (1)
    
    For the three months ended March 31, 2005 and 2004, the potential
dilution from the Companys outstanding stock options of 219 and 55
shares, respectively, were antidilutive to the loss from continuing
operations per share calculation. As such, the amounts were excluded
from weighted average shares for the period.  At March 31, 2005 and 2004, stock options to purchase 4,570 and 4,813 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 INSTRUMENTS  At March 31, 2005, the Company had an outstanding interest rate swap agreement with a notional
value of approximately $98,500 with a maturity date in 2009. The interest rate swap agreement
is included on the accompanying consolidated balance sheet at fair value. The Company records
the changes in the fair value of this cash flow hedge as a change in accumulated other
comprehensive income (loss), a shareholders equity account, in the accompanying consolidated
balance sheet.At March 31, 2005, 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 aggregating $110,055 at March 31, 2005. 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 sheet at fair value. At
March 31, 2005, the difference between the amortized costs of the interest rate cap arrangements
and their fair value of $70 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.A summary of comprehensive income for the three months ended March 31, 2005 and 2004 is as
follows: Three months endedMarch 31,2005
    
    
    2004Net income
    
    $
    4,676
    
    
    $
    3,411Change in derivative values.
    
    
    2,666
    
    
    
    (2,089
    )Comprehensive income
    
    $
    7,342
    
    
    $
    1,322
 -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) 
  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 months ended March 31, 2004 has been adjusted due to the restatement impact of
reclassifying the operating results of the assets designated as held for sale in 2004 and 2005
to discontinued operations under SFAS No. 144 (see note 4).  
    Fully stabilized communities  those apartment communities which have been stabilized
(the earlier of the point at which a property reaches 95% occupancy or one year after
completion of construction) for both the current and prior year.
    Communities stabilized during 2004  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. The Company has no communities in the development or lease-up
stage for the periods presented.
    Acquired communities  those communities acquired in the current or prior year.  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. -12-




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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  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 to net income.
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 endedMarch 31,2005
    
    
    2004RevenuesFully stabilized communities
    
    $
    62,413
    
    
    $
    61,863Communities stabilized during 2004
    
    
    1,761
    
    
    
    1,716Acquired communities
    
    
    2,085
    
    
    
    Other property segments
    
    
    5,250
    
    
    
    5,031Other
    
    
    71
    
    
    
    76Consolidated revenues
    
    $
    71,580
    
    
    $
    68,686Contribution to NOIFully stabilized communities
    
    $
    37,569
    
    
    $
    37,903Communities stabilized during 2004
    
    
    1,212
    
    
    
    1,242Acquired communities
    
    
    1,336
    
    
    
    Other
    
    
    (1,401
    )
    
    
    (1,007
    )Consolidated property net operating income
    
    
    38,716
    
    
    
    38,138Interest income
    
    
    165
    
    
    
    180Other revenue
    
    
    71
    
    
    
    76Minority interest in consolidated property partnerships
    
    
    113
    
    
    
    183Depreciation
    
    
    (19,532
    )
    
    
    (19,621
    )Interest expense
    
    
    (15,679
    )
    
    
    (15,421
    )Amortization of deferred financing costs
    
    
    (1,688
    )
    
    
    (1,116
    )General and administrative
    
    
    (5,295
    )
    
    
    (4,642
    )Development costs and other
    
    
    (1,097
    )
    
    
    (535
    )Equity in income of unconsolidated real estate entities
    
    
    147
    
    
    
    216Gain on sale of technology investment
    
    
    5,267
    
    
    
    Minority interest of preferred unitholders
    
    
    
    
    
    
    (1,400
    )Minority interest of common unitholders
    
    
    42
    
    
    
    599Income (loss) from continuing operations
    
    
    1,230
    
    
    
    (3,343
    )Income from discontinued operations
    
    
    3,446
    
    
    
    6,754Net income
    
    $
    4,676
    
    
    $
    3,411
 -13-




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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  8.
    SEVERANCE COSTSIn prior years, the Company recorded severance charges associated with the departure of certain
executive officers of the Company. Under certain of these arrangements, the Company is required
to make certain payments and provide specified benefits through 2013 and 2016, respectively.
The following table summarizes the activity relating to aggregate severance charges for the
three months ended March 31, 2005 and 2004: Three months endedMarch 31,2005
    
    
    2004Accrued severance charges, beginning of period
    
    $
    15,317
    
    
    $
    19,171Payments for period
    
    
    (442
    )
    
    
    (747
    )Interest accretion
    
    
    226
    
    
    
    251Accrued severance charges, end of period
    
    $
    15,101
    
    
    $
    18,675
  9.
    SUPPLEMENTAL CASH FLOW INFORMATION  Interest paid (including capitalized amounts of $367 and $239
for the three months ended March 31, 2005 and 2004, respectively)
aggregated $12,618 and $11,458 for the three months ended March 31,
2005 and 2004, respectively.Non-cash investing and financing activities for the three months ended March 31, 2005 and 2004
were as follows:During the three months ended March 31, 2005, 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 $2,666, net of minority interest. During
the three months ended March 31, 2004, 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 $2,089, net of minority interest.During the three months ended March 31, 2005 and 2004, holders of 75 and 803 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 $1,442 and $13,599 for the three months
ended March 31, 2005 and 2004, respectively.The Operating Partnership committed to distribute $19,122 and $19,116 for the quarters ended
March 31, 2005 and 2004, respectively. As a result, the Company declared dividends of $18,030
and $17,827 for the quarters ended March 31, 2005 and 2004, respectively. The remaining
distributions from the Operating Partnership in the amount of $1,091 and $1,289 for the quarters
ended March 31, 2005 and 2004, respectively, are distributed to minority interest unitholders in
the Operating Partnership.In the three months ended March 31, 2004, the net proceeds from an apartment community sale
totaling $21,700 were held by a third party intermediary under a qualified tax deferred exchange
program. The $21,700 was included in other assets on the consolidated balance sheet. This
transaction was excluded from the statement of cash flows as a non-cash transaction (see note
4).10.
    STOCK-BASED COMPENSATION PLANDuring the three months ended March 31, 2005, the Company granted approximately 31 shares of
restricted stock to Company officers and directors, of which approximately 6 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 $1,098 for the three months,
ended March 31, 2005 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 months ended March 31, 2005, the Company granted stock options to
purchase approximately 254 shares, 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 value of stock options over their three year
vesting periods. -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) 
  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 alleged, among other things, breaches of fiduciary duties, fraud, corporate waste,
withholding certain documents from shareholder inspection and certain securities laws claims.
The complaint requested various types of relief, such as injunctive relief and damages and
demanded production of certain Company records. Because the Company believed the allegations
were wholly without merit, the Company moved to dismiss the litigation. On April 20, 2005, the
court entered an order dismissing all claims without prejudice, save a claim seeking
production of certain Company records, which was remanded to the Superior Court of Fulton
County. To the extent that the litigation continues, the Company plans to contest it
vigorously.On May 5, 2003, the Company received notice that a shareholder derivative and purported class
action lawsuit was filed against members of the board of directors of the Company and the
Company as a nominal defendant. This complaint was filed in the Superior Court of Fulton County,
Atlanta, Georgia on May 2, 2003 and alleged various breaches of fiduciary duties by the board of
directors of the Company and sought, among other relief, the disclosure of certain information
by the defendants. This complaint also sought to compel the defendants to undertake various
actions to facilitate a sale of the Company. On May 7, 2003, the plaintiff made a request for
voluntary expedited discovery. On May 13, 2003, the Company received notice that a similar
shareholder derivative and purported class action lawsuit was filed against certain members of
the board of directors of the Company and against the Company as a nominal defendant. The
complaint was filed in the Superior Court of Fulton County, Atlanta, Georgia on May 12, 2003 and
alleged breaches of fiduciary duties, abuse of control and corporate waste by the defendants.
The plaintiff sought monetary damages and, as appropriate, injunctive relief. These lawsuits
were settled, and in October 2004, the Superior Court of Fulton County entered an order
approving the settlement and related orders dismissing the litigation. The estimated legal and
settlement costs, not covered by insurance, associated with the expected resolution of the
lawsuits were recorded in the second quarter of 2003 as a component of a proxy contest and
related costs charge. An alleged Company shareholder, who had filed a separate purported
derivative and direct action against the Company and certain of its
officers and directors (which is described in the paragraph above), has
appealed from the Superior Courts orders approving the settlement, overruling the shareholders
objection to the settlement denying the
shareholders motion to intervene, and dismissing the litigation with prejudice. The Company is
contesting the alleged shareholders appeal vigorously.The Company is involved in various other legal proceedings incidental to its business from time
to time, most of which are expected to be covered by liability or other insurance. Management of
the Company believes that any resolution of pending proceedings or liability to the Company
which may arise as a result of these proceedings will not have a material adverse effect on the
Companys results of operations or financial position.  12.
    SALE OF TECHNOLOGY INVESTMENTIn February 2005, the Company sold its investment in Rent.com, a privately-held internet leasing
company, and recognized a gain of $5,267. -15-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 CONSOLIDATED BALANCE SHEETS  (In thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)AssetsReal estate assetsLand
    
    $
    263,766
    
    
    $
    266,520Building and improvements
    
    
    1,792,120
    
    
    
    1,887,514Furniture, fixtures and equipment
    
    
    204,538
    
    
    
    214,954Construction in progress
    
    
    26,647
    
    
    
    19,527Land held for future development
    
    
    24,268
    
    
    
    18,9102,311,399
    
    
    
    2,407,425Less: accumulated depreciation
    
    
    (470,721
    )
    
    
    (498,367
    )Assets held for sale, net of accumulated depreciation of $69,537 and
$26,332 at March 31, 2005 and December 31, 2004, respectively
    
    
    133,160
    
    
    
    68,661Total real estate assets
    
    
    1,973,778
    
    
    
    1,977,719Investments in and advances to unconsolidated entities
    
    
    37,814
    
    
    
    21,320Cash and cash equivalents
    
    
    2,935
    
    
    
    123Restricted cash
    
    
    5,246
    
    
    
    1,844Deferred charges, net
    
    
    14,290
    
    
    
    15,574Other assets
    
    
    38,365
    
    
    
    37,262Total assets
    
    $
    2,072,428
    
    
    $
    2,053,842Liabilities and partners equityNotes payable, including $81,560 and $34,060 of debt secured by assets
held for sale at March 31, 2005 and December 31, 2004, respectively
    
    $
    1,161,240
    
    
    $
    1,129,478Accounts payable and accrued expenses
    
    
    56,803
    
    
    
    58,837Distribution payable
    
    
    19,122
    
    
    
    19,203Accrued interest payable
    
    
    12,147
    
    
    
    7,677Security deposits and prepaid rents
    
    
    10,691
    
    
    
    7,236Total liabilities
    
    
    1,260,003
    
    
    
    1,222,431Commitments and contingenciesPartners equityPreferred units
    
    
    95,000
    
    
    
    95,000Common unitsGeneral partner
    
    
    8,546
    

    
    
    8,673Limited partners
    
    
    716,253
    
    
    
    737,940Accumulated other comprehensive loss
    
    
    (7,374
    )
    
    
    (10,202
    )Total partners equity
    
    
    812,425
    
    
    
    831,411Total liabilities and partners equity
    
    $
    2,072,428
    
    
    $
    2,053,842
 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 endedMarch 31,2005
    
    
    2004RevenuesRental
    
    $
    67,727
    
    
    $
    64,952Other property revenues
    
    
    3,782
    
    
    
    3,658Other
    
    
    71
    
    
    
    76Total revenues
    
    
    71,580
    
    
    
    68,686ExpensesProperty operating and maintenance (exclusive of items shown separately below)
    
    
    32,793
    
    
    
    30,472Depreciation
    
    
    19,532
    
    
    
    19,621General and administrative
    
    
    5,295
    
    
    
    4,642Development costs and other
    
    
    1,097
    
    
    
    535Total expenses
    
    
    58,717
    
    
    
    55,270Operating Income
    
    
    12,863
    
    
    
    13,416Interest income
    
    
    165
    
    
    
    180Interest expense
    
    
    (15,679
    )
    
    
    (15,421
    )Amortization of deferred financing costs
    
    
    (1,688
    )
    
    
    (1,116
    )Equity in income of unconsolidated real estate entities
    
    
    147
    
    
    
    216Gain on sale of technology investment
    
    
    5,267
    
    
    
    Minority interest in consolidated property partnerships
    
    
    113
    
    
    
    183Income (loss) from continuing operations
    
    
    1,188
    
    
    
    (2,542
    )Discontinued operationsIncome from discontinued operations
    
    
    3,298
    
    
    
    5,655Gains on sales of real estate assets
    
    
    358
    
    
    
    1,627Income from discontinued operations
    
    
    3,656
    
    
    
    7,282Net income
    
    
    4,844
    
    
    
    4,740Distributions to preferred unitholders
    
    
    (1,909
    )
    
    
    (3,997
    )Redemption costs on preferred units
    
    
    
    
    
    
    (1,716
    )Net income (loss) available to common unitholders
    
    $
    2,935
    
    
    $
    (973
    )Per common unit data  BasicLoss from continuing operations (net of preferred distributions and redemption
costs)
    
    $
    (0.02
    )
    
    $
    (0.19
    )Income from discontinued operations
    
    
    0.09
    
    
    
    0.17Net income (loss) available to common unitholders
    
    $
    0.07
    
    
    $
    (0.02
    )Weighted average common units outstanding  basic
    
    
    42,614
    
    
    
    42,461Per common unit data  DilutedLoss from continuing operations (net of preferred distributions and redemption
costs)
    
    $
    (0.02
    )
    
    $
    (0.19
    )Income from discontinued operations
    
    
    0.09
    
    
    
    0.17Net income (loss) available to common unitholders
    
    $
    0.07
    
    
    $
    (0.02
    )Weighted average common units outstanding  diluted
    
    
    42,614
    
    
    
    42,461Distributions declared
    
    $
    0.45
    
    
    $
    0.45
 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)
 Common Units
    
    
    Accumulated OtherPreferred
    
    
    General
    
    
    Limited
    
    
    ComprehensiveUnits
    
    
    Partner
    
    
    Partners
    
    
    Income (Loss)
    
    
    TotalPartners Equity, December 31, 2004
    
    $
    95,000
    
    
    $
    8,673
    
    
    $
    737,940
    
    
    $
    (10,202
    )
    
    $
    831,411Comprehensive incomeNet income
    
    
    1,909
    
    
    
    29
    
    
    
    2,906
    
    
    
    
    
    
    
    4,844Net change in derivative value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,828
    
    
    
    2,828Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,672Contributions from the Company related
to employee stock purchase and stock
option plans
    
    
    
    
    
    
    30
    
    
    
    3,007
    
    
    
    
    
    
    
    3,037Purchase of common units
    
    
    
    
    
    
    
    
    
    
    (9,128
    )
    
    
    
    
    
    
    (9,128
    )Stock-based compensation
    
    
    
    
    
    
    2
    
    
    
    168
    
    
    
    
    
    
    
    170Distributions to preferred Unitholders
    
    
    (1,909
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,909
    )Distributions to common Unitholders
    
    
    
    
    
    
    (191
    )
    
    
    (18,931
    )
    
    
    
    
    
    
    (19,122
    )Contributions from the Company related
to shares issued for restricted stock,
net of deferred compensation
    
    
    
    
    
    
    3
    
    
    
    291
    
    
    
    
    
    
    
    294Partners Equity, March 31, 2005
    
    $
    95,000
    
    
    $
    8,546
    
    
    $
    716,253
    
    
    $
    (7,374
    )
    
    $
    812,425
 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, except per unit data)
  Three months endedMarch 31,2005
    
    
    2004Cash Flows From Operating ActivitiesNet income
    
    $
    4,844
    
    
    $
    4,740Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    19,532
    
    
    
    21,186Amortization of deferred financing costs
    
    
    1,688
    
    
    
    1,116Gains sales of real estate assets  discontinued operations
    
    
    (358
    )
    
    
    (1,627
    )Gain on sale of technology investment
    
    
    (5,267
    )
    
    
    Equity in income of unconsolidated entities, net of distributions of
accumulated earnings
    
    
    
    
    
    
    (181
    )Equity-based compensation
    
    
    464
    
    
    
    415Changes in assets, (increase) decrease in:Restricted cash
    
    
    (3,402
    )
    
    
    (26
    )Other assets
    
    
    (1,539
    )
    
    
    (883
    )Deferred charges
    
    
    (152
    )
    
    
    (298
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    4,470
    
    
    
    5,758Accounts payable and accrued expenses
    
    
    (112
    )
    
    
    (1,242
    )Security deposits and prepaid rents
    
    
    3,455
    
    
    
    (66
    )Net cash provided by operating activities
    
    
    23,623
    
    
    
    28,892Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (13,583
    )
    
    
    (67
    )Net proceeds from sales of real estate assets
    
    
    3,296
    
    
    
    2,279Proceeds from sale of technology investment
    
    
    5,267
    
    
    
    Capitalized interest
    
    
    (367
    )
    
    
    (239
    )Recurring capital expenditures
    
    
    (1,958
    )
    
    
    (2,422
    )Non-recurring capital expenditures
    
    
    (902
    )
    
    
    (1,244
    )Revenue generating capital expenditures
    
    
    
    
    
    
    (26
    )Corporate additions and improvements
    
    
    (701
    )
    
    
    (134
    )Distribution from (investments in and advances to) unconsolidated entities
    
    
    (16,538
    )
    
    
    52,156Capital contribution of minority interests
    
    
    900
    
    
    
    Capital distributions to minority interests
    
    
    (617
    )
    
    
    (1,506
    )Net cash provided by (used in) investing activities
    
    
    (25,203
    )
    
    
    48,797Cash Flows From Financing ActivitiesPayments on notes payable
    
    
    (126,130
    )
    
    
    (683
    )Proceeds from notes payable
    
    
    
    
    
    
    35,000Payments of financing costs
    
    
    (168
    )
    
    
    (4,202
    )Lines of credit proceeds (repayments), net
    
    
    157,892
    
    
    
    (22,010
    )Redemption of preferred units
    
    
    
    
    
    
    (50,000
    )Redemption of common units
    
    
    (9,128
    )
    
    
    Contributions from the Company related to employee stock purchase
and stock option plans
    
    
    3,037
    
    
    
    2,859Distributions to preferred unitholders
    
    
    (1,909
    )
    
    
    (3,997
    )Distributions to common unitholders
    
    
    (19,202
    )
    
    
    (19,043
    )Net cash provided by (used in) financing activities
    
    
    4,392
    
    
    
    (62,076
    )Net increase in cash and cash equivalents
    
    
    2,812
    
    
    
    15,613Cash and cash equivalents, beginning of period
    
    
    123
    
    
    
    1,334Cash and cash equivalents, end of period
    
    $
    2,935
    
    
    $
    16,947
 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
(Unaudited, in thousands, except per share and apartment unit data)
 
  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 March 31, 2005, the Company owned 94.3% of the common limited partnership interests (Common
Units) in the Operating Partnership and 100.0% of the preferred limited partnership interests
(Preferred Units). The Companys weighted average common ownership interest in the Operating
Partnership was 94.3% and 92.8% for the three months ended March 31, 2005 and 2004,
respectively. At March 31, 2005, Common Units held by persons other than the Company
represented a 5.7% ownership interest in the Operating Partnership. Each Common Unit may be
redeemed by the holder thereof for either one share of Company common stock or cash equal to the
fair market value thereof at the time of such redemptions, at the option of the Operating
Partnership. The Operating Partnership presently anticipates that it will cause shares of common
stock to be issued in connection with each such redemption rather than paying cash (as has been
done in all redemptions to date). With each redemption of outstanding Common Units for Company
common stock, the 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.At March 31, 2005, the Operating Partnership owned 24,523 apartment units in 63 apartment
communities, including 545 apartment units in two apartment communities held in unconsolidated
entities and including 205 apartment units currently under development in on community. The
Operating partnership is also developing 145 for-sale condominium units and is converting 382
apartment units in three communities (including one in an unconsolidated entity) into for-sale
condominium units through a taxable REIT subsidiary. At March 31, 2005, approximately 51.9%,
17.4%, 8.6% and 8.1% (on a unit basis) of the Operating Partnerships communities were located
in the Atlanta, Dallas, Tampa and greater Washington, D.C. 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
month period ended March 31, 2005 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, 2004. Certain 2004 amounts have been
reclassified to conform to the current years financial statement presentation.Revenue RecognitionSales and the associated gains or losses of real estate assets and for-sale condominiums are
recognized in accordance with the provisions of SFAS No. 66, Accounting for Sales of Real
Estate. For condominium conversion projects, sales and the associated gains for individual
condominium units are recognized upon the closing of the sale transactions, as all conditions
for full profit recognition have been met. In accordance with SFAS No. 144, Accounting for the
Impairment and Disposal of Long-Lived Assets, gains on sales of condominium units at
condominium conversion projects are included in discontinued operations. -20-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  Equity-based CompensationEffective January 1, 2003, the Operating Partnership 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 Operating Partnership used the prospective method prescribed in SFAS
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure.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 endedMarch 31,2005
    
    
    2004Net income (loss) available to common unitholdersAs reported
    
    $
    2,935
    
    
    $
    (973
    )Stock-based compensation included in net income as reported
    
    
    464
    
    
    
    415Stock-based compensation determined under the fair value method for all awards
    
    
    (463
    )
    
    
    (437
    )Pro forma
    
    $
    2,936
    
    
    $
    (995
    )Net income (loss) per common unit  basicAs reported
    
    $
    0.07
    
    
    $
    (0.02
    )Pro forma
    
    $
    0.07
    
    
    $
    (0.02
    )Net income (loss) per common unit  dilutedAs reported
    
    $
    0.07
    
    
    $
    (0.02
    )Pro forma
    
    $
    0.07
    
    
    $
    (0.02
    )
  SFAS No. 123R, Share-Based Payment, was issued in December 2004. SFAS No. 123R revises
SFAS No. 123, Accounting for Stock-Based Compensation and requires companies to expense the
fair value of employee stock options and other forms of stock-based compensation. SFAS No. 123R
also supersedes the provisions of APB No. 25. The provisions of SFAS No. 123R will be effective
for the Operating Partnership as of January 1, 2006. Beginning
in 2005, the Operating Partnership plans to adopt
the provisions of SFAS No. 123R in the first quarter of 2006 and is currently evaluating the
alternative methods of adoption. Since the Operating Partnership elected to apply the
provisions of SFAS No. 123 on January 1, 2003, the adoption of SFAS No. 123R is not expected to
have a significant impact on the Operating Partnerships financial position or results of
operations.Long-term Ground LeasesThe Operating Partnership is party to six long-term ground leases associated with land
underlying certain of the Operating Partnerships operating communities. The ground leases
generally provide for future increases in minimum lease payments tied to an inflation index or
contain stated rent increases that generally compensate for the impact of inflation. Beginning in 2005, the
Operating Partnership recognizes ground lease expense on the straight-line method over the life
of the ground leases for all ground leases with stated rent increases. The recognition of
ground lease expense as incurred has historically not been materially different than recognizing
ground lease expense on a straight-line basis. -21-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  2.
    INDEBTEDNESSAt March 31, 2005 and December 31, 2004, the Operating Partnerships indebtedness consisted of
the following: Payment
    
    
    
    
    
    
    Maturity
    
    
    March 31,
    
    
    December 31,Description
    
    Terms
    
    
    Interest Rate
    
    
    Date
    
    
    2005
    
    
    2004Unsecured NotesSenior Notes
    
    Int.
    
    
    5.125% - 7.70
    %
    
    
    2006-2011
    
    
    $
    385,000
    
    
    $
    385,000Medium Term Notes
    
    Int.
    
    
    6.78% - 8.125
    %
    
    
    2005
    
    
    
    87,043
    
    
    
    212,043472,043
    
    
    
    597,043Unsecured Lines of Credit &
OtherSyndicated Line of Credit
    
    
    N/A
    
    
    LIBOR + 0.75%(1)
    
    
    2007
    
    
    
    195,000
    
    
    
    40,000Cash Management Line
    
    
    N/A
    
    
    LIBOR + 0.75
    %
    
    
    2007
    
    
    
    13,640
    
    
    
    10,748208,640
    
    
    
    50,748Conventional Fixed Rate
(Secured)FNMA
    
    Prin. and Int.
    
    
    6.975
    %(2)
    
    
    2029
    
    
    
    98,500
    
    
    
    98,500Other
    
    Prin. and Int.
    
    
    4.27% - 7.69
    %
    
    
    2007-2013
    
    
    
    272,002
    
    
    
    273,132370,502
    
    
    
    371,632Tax Exempt Floating Rate
Bonds (Secured)
    
    Int.
    
    
    2.29
    %(3)
    
    
    2025
    
    
    
    110,055
    
    
    
    110,055Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,161,240
    
    
    $
    1,129,478
   (1)
    
    Represents stated rate. At March 31, 2005, the weighted average interest rate was
3.41%.(2)
    
    Interest rate is fixed at 6.975%, inclusive of credit enhancement and other fees, to
2009 through an interest rate swap arrangement.(3)
    
    FNMA credit enhanced bond indebtedness. Interest based on FNMA AAA tax exempt rate
plus credit enhancement and other fees of 0.639%. Interest rate represents the rate at
March 31, 2005 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 March 31, 2005 and December 31, 2004,
approximately $81,560 and $34,060, respectively, of this debt was secured by assets
held for sale.  Debt maturitiesThe aggregate maturities of the Operating Partnerships indebtedness are as follows (1): Remainder of 2005
    
    $
    91,9892006
    
    
    82,4692007
    
    
    368,633
    (2)2008
    
    
    7,5562009
    
    
    79,001Thereafter
    
    
    531,592$
    1,161,240
   (1)
    
    Aggregate maturities of debt for the years presented
include repayments of tax-exempt debt of $0 in 2005, $500
in 2006, $1,200 in 2007, $2,200 in 2008 and $2,400 in
2009 relating to three apartment communities expected to
be sold in 2005, and include $200 in 2005, $700 in 2006,
$600 in 2007, $800 in 2008 and $700 in 2009 relating to
two apartment communities held for investment. The
principal repayments relate to certain principal reserve
requirements under the applicable debt arrangements
commencing in July 2005. The Operating Partnership
expects to either retire the debt upon sale of the
communities or refinance the debt to defer these
principal reserve requirements in 2005, however, there
can be no assurance that it will be able to do so.(2)
    
    Includes outstanding balances on
lines of credit totaling $208,640.  Debt issuances and retirementsUpon their maturity in February 2005, the Operating Partnership repaid $25,000 of its 7.28%
medium term, unsecured notes, from available borrowings under its unsecured lines of credit. In
March 2005, the Operating Partnership repaid the $100,000 outstanding principal balance under
its 6.85% Mandatory Par Put Remarketed Securities (MOPPRS) debt arrangement.Unsecured Lines of CreditThe Operating Partnership utilizes a $350,000 syndicated unsecured revolving line of credit (the
Revolver) that matures in January 2007 for its short-term financing needs. The Revolver has a
current stated interest rate of LIBOR plus 0.75% 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 currently equal to 0.15% of the aggregate loan commitment. The
Revolver provides for the interest rate and facility fee rate to be adjusted up or down based on
changes in the credit ratings on the Operating Partnerships senior unsecured debt. The rates
under the Revolver are based on the higher of the Operating Partnerships unsecured debt ratings -22-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  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. At March 31, 2005, the Operating Partnership had issued letters of
credit to third parties totaling $1,972 under this facility.Additionally, the Operating Partnership has a $20,000 unsecured line of credit with Wachovia
Bank, N.A. (the Cash Management Line). The Cash Management line matures in January 2007 and
carries pricing and terms, including debt covenants, substantially consistent with those of the
Revolver.3.
    INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIESAt March 31, 2005, the Operating Partnership held investments in three individual limited
liability companies (the Property LLCs) with an institutional investor. Each Property LLC
owns a single apartment community. In March 2005, one of the Property LLCs elected to convert
its apartment community into for-sale condominiums. The Operating Partnership holds a 35%
equity interest in the Property LLCs.The Operating Partnership accounts for its investments in these Property LLCs using the equity
method of accounting. The excess of the Operating Partnerships investment over its equity in
the underlying net assets of the Property LLCs was approximately $6,540 at March 31, 2005. This
excess investment related to Property LLCs holding apartment communities is being amortized as a
reduction to earnings on a straight-line basis over the lives of the related assets. The excess
investment related to the Property LLC holding the condominium conversion community will be
recognized as additional costs as the underlying condominiums are sold. The Operating
Partnership provides real estate services (development, construction and property management) to
the Property LLCs for which it earns fees.The operating results of the Operating Partnership include its share of net income
from the investments in the Property LLCs. A summary of financial information for the Property
LLCs in the aggregate is as follows: March 31,
    
    
    December 31,Balance Sheet Data
    
    2005
    
    
    2004Real estate assets, net of accumulated depreciation of
$6,428 and $9,712, respectively
    
    $
    97,831
    
    
    $
    124,072Assets held for sale, net
    
    
    25,845
    
    
    
    Cash and other
    
    
    2,599
    
    
    
    2,797Total assets
    
    $
    126,275
    
    
    $
    126,869Mortgage notes payable
    
    $
    67,000
    
    
    $
    83,468Mortgage notes payable to Operating Partnership
    
    
    16,995
    
    
    
    Other liabilities
    
    
    1,529
    
    
    
    1,296Total liabilities
    
    
    85,524
    
    
    
    84,764Members equity
    
    
    40,751
    
    
    
    42,105Total liabilities and members equity
    
    $
    126,275
    
    
    $
    126,869Operating Partnerships equity investment
    
    $
    20,819
    
    
    $
    21,320
 -23-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
 Three months endedMarch 31,Income Statement Data
    
    2005
    
    
    2004RevenueRental
    
    $
    2,640
    
    
    $
    2,564Other property revenues
    
    
    185
    
    
    
    176Total revenues
    
    
    2,825
    
    
    
    2,740ExpensesProperty operating and maintenance
    
    
    910
    
    
    
    903Depreciation and amortization
    
    
    653
    
    
    
    629Interest
    
    
    688
    
    
    
    594Total expenses
    
    
    2,251
    
    
    
    2,126Income from continuing operations
    
    
    574
    
    
    
    614Discontinued OperationsLoss from discontinued operations
    
    
    (117
    )
    
    
    (98
    )Loss on early extinguishment of debt
    
    
    (273
    )
    
    
    Loss from discontinued operations
    
    
    (390
    )
    
    
    (98
    )Net income
    
    $
    184
    
    
    $
    516Operating Partnerships share of net income
    
    $
    147
    
    
    $
    216
  At March 31, 2005, 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 note payable totaling $17,000 bears
interest at a rate of 4.04% and matures in 2008.In March 2005, one of the Property LLCs elected to convert its apartment community into for-sale
condominiums. As a result of its decision to sell the community through the condominium
conversion process, the Property LLC prepaid its third party mortgage note payable of $16,392
through secured borrowings from the Operating Partnership. The Property LLC incurred debt
prepayment costs and expenses associated with the write-off of unamortized deferred financing
costs totaling $273 in March 2005. The mortgage note payable to the Operating Partnership has a
fixed rate component ($16,392) bearing interest at 4.28% and a variable rate component bearing
interest at LIBOR plus 1.90%. This note is repayable from the proceeds of condominium sales and
matures in February 2008.4.
    REAL ESTATE DISPOSITION ACTIVITYThe Operating Partnership classifies real estate assets as held for sale after the approval of
its investment committee and after the Operating Partnership has commenced an active program to
sell the assets. At March 31, 2005, the Operating Partnership had eight apartment communities,
originally containing 3,308 units, and certain tracts of land classified as held for sale. Two
of the communities, originally containing 261 units, held for sale at March 31, 2005 are being
converted into condominiums. These real estate assets are reflected in the accompanying
consolidated balance sheet at $133,160, which represents the lower of their 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,
gains or losses on the sale of these assets are included in discontinued operations. For the
three months ended March 31, 2005, income from discontinued operations included the results of
operations of eight communities, originally containing 3,308 units, classified as held for sale
at March 31, 2005. Two of the communities, originally containing 261 units, held for sale at
March 31, 2005 are being converted into condominiums. For the three months ended March 31,
2004, income from discontinued operations included the results of operations of the communities
classified as held for sale at March 31, 2005 and eight communities sold in 2004 through the
earlier of March 31, 2004 or their sale dates. -24-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  The revenues and expenses of these communities for the three months ended March 31, 2005 and
2004 were as follows: Three months endedMarch 31,2005
    
    
    2004RevenuesRental
    
    $
    6,984
    
    
    $
    14,305Other property revenues
    
    
    632
    
    
    
    1,216Total revenues
    
    
    7,616
    
    
    
    15,521ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    3,260
    
    
    
    6,607Depreciation
    
    
    
    
    
    
    1,565Interest
    
    
    1,044
    
    
    
    1,783Minority interest in consolidated property partnerships
    
    
    14
    
    
    
    (89
    )Total expenses
    
    
    4,318
    
    
    
    9,866Income from discontinued operations
    
    $
    3,298
    
    
    $
    5,655
  For the three months ended March 31, 2005, gains on sales of real estate assets represents
the net profits of $358 from condominium sales at the Operating Partnerships condominium
conversion communities. A summary of revenues and costs and expenses of condominium activities
for the three months ended March 31, 2005 was as follows: Condominium revenues, net
    
    $
    3,296Condominium costs and expenses
    
    
    (2,938
    )Gains on condominium sales
    
    $
    358
  For the three months ended March 31, 2004, the Operating Partnership recognized gains from
discontinued operations of $1,627 from the sale of one community containing 398 units and
certain land parcels. These sales generated net proceeds of approximately $23,979, of which
approximately $21,700 was held by a third party intermediary at March 31, 2004 under a qualified
tax deferred exchange program.Subsequent to March 31, 2005, the Operating Partnership sold four of the apartment communities
held for sale as of the end of the first quarter, containing 1,102 units, for aggregate gross
proceeds of approximately $86,750, including the assumption of approximately $34,060 of
tax-exempt secured debt. In connection with the assumption of this tax-exempt debt, the
Operating Partnership expects to record a loss on early extinguishment of debt of approximately
$1,300 relating to the write-off of unamortized deferred financing costs and the termination of
related interest rate cap arrangements.5.
    PARTNERS EQUITYCommon Unit PurchasesIn the three months ended March 31, 2005, the Company repurchased approximately 286 shares of
its common stock at an aggregate cost of $9,046 under a 10b5-1 stock purchase plan. These shares were purchased under a board of directors approved plan which provides for aggregate
common or preferred stock repurchases of up to $200,000 through December 31, 2006. In addition,
the Company received approximately 2 shares of common stock at an aggregate cost of $82 from
certain employees through the surrender of such shares to satisfy tax withholding obligations
under the Companys existing stock compensation plans. Correspondingly, the Operating
Partnership repurchased the same number of common units at an aggregate cost of $9,128.Subsequent to quarter-end through April 30, 2005, the Company repurchased approximately 206
shares of common stock at an aggregate cost of approximately $6,348 under a 10b5-1 stock
purchase plan. Correspondingly, the Operating Partnership repurchased the same number of common
units at an aggregate cost of $6,348. -25-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  Computations of Earnings Per Common UnitFor the three months ended March 31, 2005 and 2004, 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 endedMarch 31,2005
    
    
    2004Loss from continuing operations available to common unitholders (numerator):Income (loss) from continuing operations
    
    $
    1,118
    
    
    $
    (2,542
    )Less: Preferred unit distributions
    
    
    (1,909
    )
    
    
    (3,997
    )Less: Preferred unit redemption costs
    
    
    
    
    
    
    (1,716
    )Loss from continuing operations available to common unitholders
    
    $
    (791
    )
    
    $
    (8,255
    )Common units (denominator):Weighted average units outstanding  basic
    
    
    42,614
    
    
    
    42,461Incremental units from assumed conversion of stock options (1)
    

    
    
    
    
    
    Weighted average units outstanding  diluted (1)
    
    
    42,614
    
    
    
    42,461
   (1)
    
    For the three months ended March 31, 2005 and 2004, the
potential dilution from the Companys outstanding stock
options of 219 and 55 shares, respectively, were antidilutive
to the loss from continuing operations per unit calculation.
As such, the amounts were excluded from weighted average
units for the period.  6.
    DERIVATIVE FINANCIAL INSTRUMENTSAt March 31, 2005, the Operating Partnership had an outstanding interest rate swap agreement
with a notional value of approximately $98,500 with a maturity date in 2009. The interest rate
swap agreement is included on the accompanying consolidated balance sheet at fair value. The
Operating Partnership records the changes in the fair value of this cash flow hedge as a change
in accumulated other comprehensive income (loss), a partners equity account, in the
accompanying consolidated balance sheet.At March 31, 2005, 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 aggregating $110,055 at March 31, 2005. 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 March 31, 2005, the difference between the
amortized costs of the interest rate cap arrangements and their fair value of $70 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.A summary of comprehensive income for the three months ended March 31, 2005 and 2004 is as
follows: Three months endedMarch 31,2005
    
    
    2004Net income
    
    $
    4,844
    
    
    $
    4,740Change in derivative values
    
    
    2,828
    
    
    
    (2,252
    )Comprehensive income
    
    $
    7,672
    
    
    $
    2,488
 -26-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  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 months ended March 31, 2004 has been adjusted due
to the restatement impact of reclassifying the operating results of the assets designated as
held for sale in 2004 and 2005 to discontinued operations under SFAS No. 144 (see note 4).  
    Fully stabilized communities  those apartment communities which have been stabilized
(the earlier of the point at which a property reaches 95% occupancy or one year after
completion of construction) for both the current and prior year.
    Communities stabilized during 2004  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. The Operating Partnership has no communities in the development
or lease-up stage for the periods presented.
    Acquired communities  those communities acquired in the current or prior year.  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. -27-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  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 to net income.
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 endedMarch 31,2005
    
    
    2004RevenuesFully stabilized communities
    
    $
    62,413
    
    
    $
    61,863Communities stabilized during 2003
    
    
    1,761
    
    
    
    1,716Acquired communities
    
    
    2,085
    
    
    
    Other property segments
    
    
    5,250
    
    
    
    5,031Other
    
    
    71
    
    
    
    76Consolidated revenues
    
    $
    71,580
    
    
    $
    68,686Contribution to NOIFully stabilized communities
    
    $
    37,569
    
    
    $
    37,903Communities stabilized during 2003
    
    
    1,212
    
    
    
    1,242Acquired communities
    
    
    1,336
    
    
    
    Other
    
    
    (1,401
    )
    
    
    (1,007
    )Consolidated property net operating income
    
    
    38,716
    
    
    
    38,138Interest income
    
    
    165
    
    
    
    180Other revenue
    
    
    71
    
    
    
    76Minority interest in consolidated property partnerships
    
    
    113
    
    
    
    183Depreciation
    
    
    (19,532
    )
    
    
    (19,621
    )Interest expense
    
    
    (15,679
    )
    
    
    (15,421
    )Amortization of deferred financing costs
    
    
    (1,688
    )
    
    
    (1,116
    )General and administrative
    
    
    (5,295
    )
    
    
    (4,642
    )Development costs and other
    
    
    (1,097
    )
    
    
    (535
    )Equity in income of unconsolidated real estate entities
    
    
    147
    
    
    
    216Gain on sale of technology investment
    
    
    5,267
    
    
    
    Income (loss) from continuing operations
    
    
    1,188
    
    
    
    (2,542
    )Income from discontinued operations
    
    
    3,656
    
    
    
    7,282Net income
    
    $
    4,844
    
    
    $
    4,740
 -28-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  8.
    SEVERANCE COSTSIn prior years, the Operating Partnership recorded severance charges associated with the
departure of certain executive officers of the Company. Under certain of these arrangements,
the Operating Partnership is required to make certain payments and provide specified benefits
through 2013 and 2016, respectively. The following table summarizes the activity relating to
aggregate severance charges for the three months ended March 31, 2005 and 2004: Three months endedMarch 31,2005
    
    
    2004Accrued severance charges, beginning of period
    
    $
    15,317
    
    
    $
    19,171Payments for period
    
    
    (442
    )
    
    
    (747
    )Interest accretion
    
    
    226
    
    
    
    251Accrued severance charges, end of period
    
    $
    15,101
    
    
    $
    18,675
  9.
    SUPPLEMENTAL CASH FLOW INFORMATIONInterest paid (including capitalized amounts of $367 and $239
for the three months ended March 31, 2005 and 2004, respectively)
aggregated $12,618 and $11,458 for the three months ended March 31,
2005 and 2004, respectively.Non-cash investing and financing activities for the three months ended March 31, 2005 and 2004
were as follows:During the three months ended March 31, 2005, 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 $2,828. During the three months
ended March 31, 2004, the Operating Partnerships derivative financial instruments decreased in
value causing an increase in accounts payable and accrued expenses and a corresponding decrease
in partners equity of $2,252.In the three months ended March 31, 2004, the net proceeds from an apartment community sale
totaling $21,700 were held by a third party intermediary under a qualified tax deferred exchange
program. The $21,700 was included in other assets on the consolidated balance sheet. This
transaction was excluded from the statement of cash flows as a non-cash transaction (see note
4).10.
    STOCK-BASED COMPENSATION PLANDuring the three months ended March 31, 2005, the Company granted approximately 31 shares of
restricted stock to Company officers and directors, of which approximately 6 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 $1,098 for the three months,
ended March 31, 2005 was initially reflected in partners equity 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 months ended March 31, 2005, the Company granted stock options to
purchase approximately 254 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 value 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 Operating Partnership,
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 alleged, among other things, breaches of fiduciary duties, fraud,
corporate waste, withholding certain documents from shareholder inspection and certain
securities laws claims. The complaint requested various types of relief, such as injunctive
relief and damages and demanded production of certain Operating Partnership records. Because
the Operating Partnership believed the allegations were wholly without merit, the Operating
Partnership moved to dismiss the litigation. On April 20, 2005, the court entered an order
dismissing all claims without prejudice, save a claim seeking production of certain Operating
Partnership records, which was remanded to the Superior Court of Fulton County. To the extent
that the litigation continues, the Operating Partnership plans to contest it vigorously. -29-




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##### Table of Contents



POST APARTMENT HOMES, L.P..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data) 
  On May 5, 2003, the Operating Partnership 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 Operating Partnership as a nominal defendant. This complaint was filed in the
Superior Court of Fulton County, Atlanta, Georgia on May 2, 2003 and alleged various breaches of
fiduciary duties by the board of directors of the Company and sought, among other relief, the
disclosure of certain information by the defendants. This complaint also sought to compel the
defendants to undertake various actions to facilitate a sale of the Company. On May 7, 2003, the
plaintiff made a request for voluntary expedited discovery. On May 13, 2003, the Operating
Partnership received notice that a similar shareholder derivative and purported class action
lawsuit was filed against certain members of the board of directors of the Company and against
the Operating Partnership as a nominal defendant. The complaint was filed in the Superior Court
of Fulton County, Atlanta, Georgia on May 12, 2003 and alleged breaches of fiduciary duties,
abuse of control and corporate waste by the defendants. The plaintiff sought monetary damages
and, as appropriate, injunctive relief. These lawsuits were settled, and in October 2004, the
Superior Court of Fulton County entered an order approving the settlement and related orders
dismissing the litigation. The estimated legal and settlement costs, not covered by insurance,
associated with the expected resolution of the lawsuits were recorded in the second quarter of
2003 as a component of a proxy contest and related costs charge. An alleged Company shareholder,
who had filed a separate purported derivative and direct action against the Operating
Partnership and certain of its officers and directors (which
is described in the paragraph above), has appealed from the Superior Courts
orders approving the settlement, overruling the shareholders objection to the settlement denying the shareholders motion to intervene, and
dismissing the litigation with prejudice. The Operating Partnership
is contesting the alleged
shareholders appeal vigorously.The Operating Partnership is involved in various other legal proceedings incidental to its
business from time to time, most of which are expected to be covered by liability or other
insurance. Management of the Operating Partnership believes that any resolution of pending
proceedings or liability to the Operating Partnership which may arise as a result of these
proceedings will not have a material adverse effect on the Operating Partnerships results of
operations or financial position.12.
    SALE OF TECHNOLOGY INVESTMENTIn February 2005, the Operating Partnership sold its investment in Rent.com, a privately-held
internet leasing company, and recognized a gain of $5,267. -30-




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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 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 March 31, 2005, the Company owned 24,523 apartment units in 63 apartment
communities, including 545 apartment units in two communities held in unconsolidated entities and
including 205 apartment units currently under development. The Company is also developing 145
for-sale condominium units and is converting 382 apartment units in three communities (one in an
unconsolidated entity) into for-sale condominium units through a taxable REIT subsidiary. At March
31, 2005, approximately 51.9%, 17.4%, 8.6% and 8.1% (on a unit basis) of the Companys communities
were located in the Atlanta, Dallas, Tampa and greater Washington, D.C. 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 March 31, 2005, the Company owned approximately 94.3% of the common limited partnership
interests (Common Units) in the Operating Partnership. Common Units held by persons other than
the Company represented a 5.7% common minority interest in the Operating Partnership. Over the past several years, the multifamily apartment sector has been adversely impacted by the
supply of multifamily apartments outpacing demand. While the construction of new multifamily
apartments had continued at historical norms due primarily to the availability of capital and the
low interest rate environment, demand for multifamily apartments was adversely impacted by overall
weakness in the economy and the job market, as well as increased rates of homeownership due
primarily to historically low mortgage interest rates. These factors contributed to the Company
reporting declining apartment rental rates, same-store revenue and net operating income since 2001.
Starting in 2004, however, the Company began to experience gradual signs of stabilization in
apartment market fundamentals. In the first quarter of 2005, the Company reported increased
average monthly rental rates on a year over year and sequential basis and reported increases in
average economic occupancy over those same periods. The Companys same store portfolio reported
positive revenue growth on both a year over year and sequential basis, and four out of five of the
Companys largest markets also reported positive revenue growth over those same periods. See
Results of Operations below where the Companys operating results are discussed in more detail. Over the past several years, the Company has also been a net seller of apartment assets in an
effort to exploit opportunities to harvest value and recycle capital through the sale of non-core
assets that no longer met the Companys growth objectives. The Companys asset sales program is
consistent with its strategy of reducing its concentration in Atlanta, Georgia and Dallas, Texas,
building critical mass in fewer markets and leveraging the Post® brand in order to improve
operating efficiencies. The Company has redeployed capital raised from asset sales to strengthen
its balance sheet, through the reduction of high-coupon preferred equity and debt, and to reinvest
in assets that the Company believes demonstrate better growth potential. At March 31, 2005, the Company had six apartment communities, containing 3,047 units, classified as
held for sale (in addition to three communities, including one in an unconsolidated entity, that
are being converted to condominiums). The Company expects to sell these six apartment communities
in the second and third quarters of 2005 for aggregate gross purchase prices of at least $195,000,
including the assumption and/or repayment of approximately $81,560 of tax-exempt secured
indebtedness encumbering three of the communities. Four of the six communities held for sale are
garden-style communities located in Atlanta, Georgia and Dallas, Texas, containing 2,881 units and
with an average age of approximately 18 years. One of the properties held for sale is the Companys
only property located in Nashville, Tennessee. The remaining property held for sale is an urban
redevelopment community located in Dallas, Texas. As of May 3, 2005, the Company had sold four of
the six apartment communities for aggregate gross purchase prices of $86,750, including the
assumption of approximately $34,060 of tax-exempt secured indebtedness. With the sale of the
Companys Post Bennie Dillon property in Nashville, TN, in April 2005, the Company exited that
market and reduced the number of markets in which it operates to nine. -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 2005, the Company, through a taxable REIT subsidiary, commenced the conversion of three existing
apartment communities into for-sale condominium housing units, including one in an unconsolidated
entity. These communities are located in Atlanta, Georgia, Dallas, Texas and Tampa, Florida. The
Company transferred these communities (including its interest in one
unconsolidated entity) to a taxable REIT subsidiary at their aggregate fair value of
approximately $66,000 (including the aggregate fair value of approximately $30,000 relating to its
Post Peachtree property in Atlanta, GA, in which the Companys equity ownership interest is 35%).
The Company began selling for-sale condominium units in the first quarter of 2005. The Company also
launched a new for-sale housing brand, Post Preferred HomesTM, which will serve as the
new unified marketing umbrella for the Companys for-sale ventures, including developing new
communities and converting existing assets into upscale for-sale housing in several key markets. The Company expects to utilize net asset sales proceeds (including net proceeds from sales of
for-sale condominium units) primarily to repay a portion of its debt that matures in 2005. The
Company may also consider utilizing asset sales proceeds to repurchase its common stock, if the
Company is able to do so at prices it considers attractive relative to its estimates of net asset
value per share, or to pay a special dividend to common shareholders depending on the level of
undistributed taxable gains, if any, during 2005. Based on current expectations regarding the
timing of asset sales and related capital reinvestment activities, the Company expects that
disposition activities will result in earnings dilution in 2005, in part, due to the assumption
and/or repayment of low-floater, tax-exempt debt encumbering three of the Atlanta, Georgia
communities held for sale. The timing and amount of these asset sales, and the related capital
reinvestment activities, could significantly impact short-term operating results. There can be no
assurances that these asset sales (including the sale of for-sale condominium units) will close.
See Liquidity and Capital Resources below where the Companys capital activities are discussed in
more detail. 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 5.7% 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 SEC 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
2005 (including the estimated proceeds, estimated gains on sales and the use of proceeds from such
sales), anticipated conversion of apartment communities into condominium units and the related
sales of the for-sale condominium units, net operating income for 2005, occupancy levels and rental
rates, operating expenses, stabilized community net operating income, 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 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 of the
Companys Annual Report on Form 10-K for the year ended December 31, 2004;
    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; -32-




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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) 
  
    Uncertainties associated with the timing and amount of apartment community
sales and the resulting gains/losses associated with such sales;
    Uncertainties associated with the Companys expansion into the condominium
conversion and for-sale housing business;
    Conditions affecting ownership of residential real estate and general
conditions in the multi-family 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 7 through 14 of
the Companys Annual Report on Form 10-K for the year ended December 31, 2004. 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,
2004. The discussion below addresses the implementation and impact of accounting policies with an
impact on the Company in the three months ended March 31, 2005 and in the future periods. SFAS No. 123R, Share-Based Payment, was issued in December 2004. SFAS No. 123R revises SFAS No.
123, Accounting for Stock-Based Compensation and requires companies to expense the fair value of
employee stock options and other forms of stock-based compensation. SFAS No. 123R also supersedes
the provisions of APB No. 25. The provisions of SFAS No. 123R are effective for the Company
beginning on January 1, 2006. The Company plans to adopt the provisions of SFAS No. 123R in the
first quarter of 2006 and is currently evaluating the alternative methods of adoption. Since the
Company elected to apply the provisions of SFAS No. 123 on January 1, 2003, the adoption of SFAS
No. 123R is not expected to have a significant impact on the Companys financial position or
results of operations. Sales and the associated gains or losses of real estate assets and for-sale condominiums are
recognized in accordance with the provisions of SFAS No. 66, Accounting for Sales of Real Estate.
For condominium conversion projects, sales and the associated gains for individual condominium
units are recognized upon the closing of the transactions, as all conditions for full profit
recognition have been met. In accordance with SFAS No. 144,
Accounting for the Impairment and Disposal of Long-Lived Assets,
gains on sales of condominium units at condominium conversion
projects are included in discontinued operations. -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 March 31, 2005, the Companys portfolio of apartment communities, excluding three communities
held in unconsolidated entities (including one community being converted into condominiums) and
eight communities held for sale (including two communities being converted into condominiums),
consisted of the following: (1) 52 communities that were completed and stabilized for all of the
current and prior year, (2) one community that achieved full stabilization during 2004, and (3) one
community that was acquired in 2004. Currently, all of the Companys communities have reached
stabilized occupancy and the Company has no communities in the lease-up stage. These operating
segments exclude the operations of apartment communities classified as discontinued operations and
apartment communities held in unconsolidated entities for the periods presented. In order to evaluate the operating performance of its communities for the comparative years listed
below, the Company has presented financial information which summarizes the rental and other
property revenues, property operating and maintenance expenses (excluding depreciation and
amortization) and net operating income on a comparative basis for all of its operating communities
and for its stabilized operating communities. Net operating income is a supplemental non-GAAP
financial measure. The Company believes that the line on the 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. 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
months ended March 31, 2005 and 2004 is summarized as follows: Three months endedMarch 31,2005
    
    
    2004
    
    
    % ChangeRental and other property revenuesFully stabilized communities (1)
    
    $
    62,413
    
    
    $
    61,863
    
    
    
    0.9
    %Communities stabilized in 2004
    
    
    1,761
    
    
    
    1,716
    
    
    
    2.6
    %Acquired communities (2)
    
    
    2,085
    
    
    
    
    
    
    
    Other property segments (3)
    
    
    5,250
    
    
    
    5,031
    
    
    
    4.3
    %71,509
    
    
    
    68,610
    
    
    
    4.2
    %Property operating and maintenance
expenses (exclusive of
depreciation and amortization)Fully stabilized communities (1)
    
    
    24,844
    
    
    
    23,960
    
    
    
    3.7
    %Communities stabilized in 2004
    
    
    549
    
    
    
    474
    
    
    
    15.8
    %Acquired communities (2)
    
    
    749
    
    
    
    
    
    
    
    Other expense (4)
    
    
    6,651
    
    
    
    6,038
    
    
    
    10.2
    %32,793
    
    
    
    30,472
    
    
    
    7.6
    %Property net operating income(5)
    
    $
    38,716
    
    
    $
    38,138
    
    
    
    1.5
    %Capital Expenditures(6)(7)Recurring capital expenditures:Carpet
    
    $
    642
    
    
    $
    612
    
    
    
    4.99
    %Other
    
    
    1,017
    
    
    
    1,164
    
    
    
    (12.6
    )%Total
    
    $
    1,659
    
    
    $
    1,776
    
    
    
    (6.6
    )%Non-recurring capital expenditures
    
    $
    624
    
    
    $
    1,144
    
    
    
    (45.5
    )%Average apartment units in service
    
    
    20,726
    
    
    
    20,227
 -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) 
   (1)
    
    Communities which reached stabilization prior to January 1, 2004.(2)
    
    Communities acquired subsequent to January 1, 2004.(3)
    
    Other property segment revenues include revenue from commercial properties,
from furnished apartment rentals above the unfurnished rental rates and any
property revenue not directly related to property operations. Other property
segment revenues exclude other corporate revenues of $71 and $76 for the three
months ended March 31, 2005 and 2004, respectively.(4)
    
    Other expenses includes certain indirect central office operating expenses
related to management, grounds maintenance, and costs associated with commercial
properties and furnished apartment rentals.(5)
    
    A reconciliation of property net operating income to GAAP net income is
detailed below. Three months endedMarch 31,2005
    
    
    2004Consolidated property NOI
    
    $
    38,716
    
    
    $
    38,138Add (subtract):Other revenues
    
    
    71
    
    
    
    76Interest income
    
    
    165
    
    
    
    180Minority interest in consolidated property
partnerships
    
    
    113
    
    
    
    183Depreciation
    
    
    (19,532
    )
    
    
    (19,621
    )Interest expense
    
    
    (15,679
    )
    
    
    (15,421
    )Amortization of deferred financing costs
    
    
    (1,688
    )
    
    
    (1,116
    )General and administrative
    
    
    (5,295
    )
    
    
    (4,642
    )Development costs and other expenses
    
    
    (1,097
    )
    
    
    (535
    )Gain on sale of technology investment
    
    
    5,267
    
    
    
    Equity in income of unconsolidated entities
    
    
    147
    
    
    
    216Minority interest of preferred unitholders
    
    
    
    
    
    
    (1,400
    )Minority interest of common unitholders
    
    
    42
    
    
    
    599Income (loss) from continuing operations
    
    
    1,230
    
    
    
    (3,343
    )Income from discontinued operations
    
    
    3,446
    
    
    
    6,754Net income
    
    $
    4,676
    
    
    $
    3,411
  (6)
    
    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
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.(7)
    
    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 endedMarch 31,2005
    
    
    2004Recurring capital expendituresContinuing operations
    
    $
    1,668
    
    
    $
    1,782Discontinued operations
    
    
    290
    
    
    
    640Total recurring capital expenditures per statements of cash flows
    
    $
    1,958
    
    
    $
    2,422Non-recurring capital expendituresContinuing operations
    
    $
    874
    
    
    $
    1,216Discontinued operations
    
    
    28
    
    
    
    28Total non-recurring capital expenditures per statements of cash flows
    
    $
    902
    
    
    $
    1,244
 -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) 
 Stabilized Communities The Company defines fully stabilized communities as those which have reached stabilization prior to
the beginning of the previous year. For the 2005 to 2004 comparison, fully stabilized communities
are defined as those communities which reached stabilization prior to January 1, 2004. This
portfolio consisted of 52 communities with 20,028 units, including 25 communities with 9,672 units
(48.3%) located in Atlanta, Georgia, 13 communities with 3,939 units (19.7%) located in Dallas,
Texas, three communities with 2,089 units (10.4%) located in Tampa, Florida, three communities with
1,204 units (6.0%) located in Washington, DC, three communities with 1,065 units (5.3%) located in
Charlotte, North Carolina and five communities with 2,059 units (10.3%) located in other markets.
The operating performance and capital expenditures of these communities are summarized as follows: Three months endedMarch 31,2005
    
    
    2004
    
    
    % ChangeRental and other revenues
    
    $
    62,413
    
    
    $
    61,863
    
    
    
    0.9
    %Property operating and maintenance expenses (excluding depreciation
and amortization)
    
    
    24,844
    
    
    
    23,960
    
    
    
    3.7
    %Same store net operating income (1)
    
    $
    37,569
    
    
    $
    37,903
    
    
    
    (0.9
    )%Capital expenditures (2)RecurringCarpet
    
    $
    555
    
    
    $
    596
    
    
    
    (6.9
    )%Other
    
    
    1,020
    
    
    
    1,173
    
    
    
    (13.0
    )%Total recurring
    
    
    1,575
    
    
    
    1,769
    
    
    
    (11.0
    )%Non-recurring
    
    
    618
    
    
    
    1,144
    
    
    
    (46.0
    )%Total capital expenditures (A)
    
    $
    2,193
    
    
    $
    2,913
    
    
    
    (24.7
    )%Total capital expenditures per unit (A÷20,028 units)
    
    $
    109
    
    
    $
    145
    
    
    
    (24.8
    )%Average economic occupancy (3)
    
    
    93.5
    %
    
    
    93.0
    %
    
    
    0.5
    %Average monthly rental rate per unit (4)
    
    $
    1,043
    
    
    $
    1,035
    
    
    
    0.8
    %
   (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.(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 endedMarch 31,2005
    
    
    2004Recurring capital expenditures by operating segmentSame store
    
    $
    1,575
    
    
    $
    1,769Stabilized in prior year
    
    
    4
    
    
    
    7Other property segments, including discontinued operations
    
    
    379
    
    
    
    646Total recurring capital expenditures per statements of cash flows
    
    $
    1,958
    
    
    $
    2,422Non-recurring capital expenditures by operating segmentSame store
    
    $
    618
    
    
    $
    1,144Stabilized in prior year
    
    
    
    
    
    
    Other property segments, including discontinued operations
    
    
    284
    
    
    
    100Total non-recurring capital expenditures per statements of cash flows
    
    $
    902
    
    
    $
    1,244
  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 net concessions and
employee discounts. Average economic occupancy including these amounts would
have been 92.9% and 92.7% for the three months ended March 31, 2005 and 2004,
respectively. For the three months ended March 31, 2005 and 2004, net
concessions were $270 and $57, respectively, and employee discounts were $110
and $115, 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. -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) 
 Comparison of Three Months Ended March 31, 2005 to Three Months Ended March 31, 2004 The Operating Partnership reported net income available to common unitholders of $2,935 for the
three months ended March 31, 2005 compared to a net loss attributable to common unitholders of $973
for the three months ended March 31, 2004 and the Company reported net income available to common
shareholders of $2,767 for the three months ended March 31, 2005 compared to a net loss
attributable to common shareholders of $902 for the three months ended March 31, 2004. The increase
between periods primarily reflects the gain on sale of a technology investment of $5,267 in 2005
offset somewhat by gains on sales of real estate assets of $1,627 in 2004. The impact of these
items is discussed below. Rental and other revenues from property operations increased $2,899 or 4.2% from 2004 to 2005
primarily due to increased revenues from the Companys acquired and same store communities of
$2,635. The revenue increase from acquired communities reflects the Companys acquisition of one
community in June 2004. The revenue increase from same store communities in 2005 reflects slightly
increased occupancy and modestly higher average rental rates between periods. Property operating
and maintenance expenses (exclusive of depreciation and amortization) increased $2,321 or 7.6%
primarily due to increased corporate property management expenses associated with the Companys
property management software implementation project and increased expenses due to increased
business volume in the Companys corporate apartment business (included in other expenses) as well
as increases in property operating and maintenance expenses (excluding depreciation and
amortization) for acquired communities of $749 and for fully stabilized communities of $884, or
3.7%, between periods (see discussion below). For the three months ended March 31, 2005, gains on sales of real estate assets from
discontinued operations represents the net profits of $358 from condominium sales at the
Companys condominium conversion communities. For the three months ended
March 31, 2004, the Company recognized gains from discontinued operations of $1,627 from the
sale of one community containing 398 units and certain land parcels. These sales
generated net proceeds of approximately $23,979, of which approximately $21,700 was held by a third
party intermediary at March 31, 2004 under a qualified tax deferred exchanged program. Depreciation expense decreased $89, or 0.5% from 2004 to 2005 primarily due to reduced depreciation
resulting from certain furniture and fixtures (with a five year life) at certain properties
becoming fully depreciated in 2004 offset by increased depreciation on a property acquired in June
2004. General and administrative expenses increased $653, or 14.1%, from 2004 to 2005 primarily due to
higher expenses related to legal, audit, and data processing expenses. The increase in legal
expenses of approximately $152 relates to costs associated with shareholder litigation and other
shareholder matters. The increase in audit costs reflects the impact of the final settlement of
prior year audit costs of approximately $90 and the increased data processing expenses reflects
increased costs associated with the implementation of new property management software systems in
2005. Development costs and other expenses increased $562 or 105.1% primarily due to increased personal
and associated costs relating to the addition of new development personnel and to establish
development capabilities in three regional markets in mid to late 2004, approximately $292 of
severance expenses and approximately $110 of expenses associated with marketing the Companys
for-sale condominium product in the Washington D.C. market. Interest expense included in continuing operations increased $258 or 1.7% from 2004 to 2005. The
comparable expense amounts between periods reflect stable average interest rates in the Companys
debt portfolio and consistent outstanding debt levels associated with results from continuing
operations. Interest expense included in discontinued operations decreased from $1,783 in 2004 to
$1,044 in 2005 primarily due to interest expense associated with eight communities sold in 2004. Equity in income of unconsolidated real estate entities decreased $69 from 2004 to 2005. This
decrease was primarily due to the loss on early debt extinguishment of $273 at one of the
unconsolidated entities, as the entity commenced the conversion of its apartment community into
for-sale condominiums. See note 3 to the consolidated financial statements for a summary of the
operating results of the Companys unconsolidated entities. The gain of sale of technology investment in 2005 of
$5,267 represents the gain on sale of the Companys investment in Rent.com, a
privately-held internet leasing company. Recurring and nonrecurring capital expenditures from continuing operations decreased $637 or 21.8%
from 2004 to 2005. The decrease in capital expenditures primarily reflects the impact of some
large special, nonrecurring projects in 2004 related to water infiltration at one property located
in Tampa, FL and other structural projects at a property in Dallas, TX. There were no individually
large special, nonrecurring projects in 2005. -37-




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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) 
 Stabilized Communities Rental and other revenues increased $550 or 0.9% from 2004 to 2005. This increase resulted from an
increase in average economic occupancy of the portfolio from 93.0% in 2004 to 93.5% in 2005 and a
0.8% increase in the average monthly rental rate per apartment unit. These occupancy increases
resulted in lower vacancy losses of $129. The increase in average rental rates resulted in a
revenue increase of approximately $467 between years. Overall, the improving performance of the
operating portfolio reflects gradually improving market conditions in most of the Companys markets
resulting generally from improved economic conditions. With generally stable to modestly
increasing occupancy rates in 2005, the Companys strategy is focused on increasing average rental
rates in 2005 as the Companys markets show general economic improvement. Property operating and maintenance expenses (exclusive of depreciation and amortization) increased
$884 or 3.7% from 2004 to 2005. This increase was primarily due to increased personnel expenses of
$160 or 2.8%, increased property tax expenses of $400 or 5.0% and increased ground rent expenses of
$324 or 95.9%. Personnel expenses increased due to annual salary increases and increased health
insurance expenses in 2005. Property tax expense increased primarily due to estimated increases
for 2005 taxes. The increase in ground rent expense of $324 reflects the Companys decision in
2005 to begin straight-lining long-term ground lease payments associated with leases with stated
rent escalations (the straight-lining of ground rents resulted in $317 of the increase). See a
related discussion in note 1 to the consolidated financial statements. Discontinued Operations In accordance with SFAS No. 144, the operating results and gains and losses on property sales of
real estate assets designated as held for sale are included in discontinued operations in the
consolidated statement of operations. For the three months ended March 31, 2005, income from
discontinued operations included the results of operations of eight communities, containing 3,308
units, classified as held for sale at March 31, 2005. Two of the communities, originally
containing 261 units, are being converted into for-sale condominiums. For the three months ended
March 31, 2004, income from discontinued operations included the results of operations of eight
communities classified as held for sale at March 31, 2005 and the results of operations of eight
communities sold in 2004 through the earlier of March 31, 2004 or their sale dates. The revenues
and expenses of discontinued operations are summarized in note 4 to the consolidated financial
statements. The gains on sales of real estate assets between periods reflect the timing and size
of the communities and for-sale condominiums sold. In the first quarter of 2005, the Company
started closing for-sale condominiums from assets converted into condominiums. The Company
recognized net gains from these sales of $358 ($337 net of minority interest) in the first quarter
of 2005. These gains are discussed in note 4 to the consolidated financial statements. The
Company expects to continue closing for-sale condominium sales in 2005 at three communities (one
held in an unconsolidated entity). As discussed under Liquidity and Capital Resources, the Company expects to continue to sell real
estate assets and also convert certain apartment assets into for-sale condominiums in future
periods as part of its overall investment, disposition and acquisition strategy. As such, the
Company may continue to have additional assets classified as held for sale, however, the timing and
amount of such asset sales and their impact on the aggregate revenues and expenses included in
discontinued operations will vary from period to period. Additionally, should the Company change
its expectations regarding the holding period for certain assets or decide to classify certain
assets as held for sale, this could cause the Company to recognize impairment losses in future
periods if the carrying value of these assets is not deemed recoverable. Outlook Certain statements made below may constitute forward-looking statements within the meaning of the
federal securities laws, and are based on current apartment market and general economic conditions
and other risks as outlined in the section titled Disclosure Regarding Forward-Looking Statements
above. The Companys outlook for the full year of 2005 is based on the expectation that apartment
fundamentals will continue to steadily improve throughout the year. Rental and other revenues from
fully stabilized communities are expected to increase modestly when compared to 2004, primarily
driven by expected rental rate increases. However, operating expenses of fully stabilized
communities are also expected to increase in 2005. The Company expects the primary drivers of this
expense increase will be personnel expenses, property taxes, utility expenses and repairs and
maintenance expenses, which are expected to increase mainly due to increases in exterior painting
between years. Based on these assumptions for 2005, management expects stabilized community net
operating income to increase modestly in 2005. In 2005, management expects to continue to sell apartment communities and had six communities
identified as held for sale, at March 31, 2005. These sales are expected to close in the second
and third quarters of 2005 and are expected to generate accounting gains in -38-




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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) 
 2005. The expected net proceeds from these sales are intended to be used for various corporate
purposes, including repayments of debt maturing in 2005 and possible common stock repurchases.
Additionally, the Company, through a taxable REIT subsidiary, is converting three of its existing
apartment communities (one held in an unconsolidated entity) into for-sale condominium units and
expects to sell those units during 2005 and 2006. The Company expects to realize net accounting
gains in 2005 from these condominium sales. Management expects interest expense in 2005 to be lower than in 2004 due generally to lower average
debt levels between years and the refinancing of maturing public debt at lower rates in 2005.
Management also expects modest declines in general and administrative expenses due primarily to
reductions in estimated costs associated with Sarbanes-Oxley compliance. The Company has one project under construction with a total expected cost of approximately $95,000
and expects to begin additional development projects later in 2005. In 2004, the Company added
additional executive development personnel with the purpose of increasing its development and
investment activities in 2005. The Company expects these additional personnel resources will be
dilutive to earnings in 2005 until the incremental personnel and associated costs can be fully
absorbed by new development and value creation activities. For the second quarter of 2005, management expects to report higher net income compared to the
first quarter of 2005. Net income for the second quarter is expected to be driven by the gains from
real estate asset sales. Additionally, the Company expects increased gains from condominium sales
as closings are anticipated to increase at one condominium conversion property and begin at two
additional condominium conversion properties (including one in an unconsolidated entity).
Management expects same store property net operating income to be somewhat higher when compared to
the first quarter of 2005, primarily driven by modestly higher projected operating revenues, offset
in part by modestly higher projected operating expenses. General and administrative costs are
expected to be relatively flat compared to the first quarter of 2005. 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 decreased from $28,892 in 2004 to $23,623
in 2005 primarily due to reduced earnings from the dilutive impact of
prior year asset sales. The Company expects cash
flows from operating activities to show declines for the full year of 2005 compared to 2004
primarily driven by the dilutive cash flow impact from asset sales. Net cash flows from investing activities decreased from net cash provided by investing activities
of $48,797 in 2004 to net cash used in investing activities of $25,203 in 2005 primarily due to
increased development and land acquisition costs in 2005 (as the Company initiated new development
activities) and additional mortgage advances to unconsolidated entities in 2005 offset somewhat by
the proceeds from the sale of a technology investment in 2005. In 2004, the Company received net
repayments of construction loan advances from unconsolidated entities. Net cash flows from financing activities increased from net cash used in financing activities of
$62,076 in 2004 to net cash provided by financing activities of $4,392 in 2005 primarily due to the
2004 redemption of preferred stock from proceeds of prior period asset sales and from the repayment
of construction loan advances from unconsolidated entities. 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 2005. 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 three months ended March 31, 2005, the Companys net cash flow from operations, reduced by
operating capital expenditures, was not sufficient to fully fund the Companys current level of
dividend payments to common and preferred shareholders by -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) 
 approximately $1,000. Cash flows from operations, reduced by operating capital expenditures, would
have been lower, by approximately $2,720, excluding the favorable change in working capital items
impacting operating cash flows for the period. These working capital items fluctuate from period
to period, primarily due to the timing of payments of interest, property taxes and operating
payables. As discussed below, the Company expects its operating cash flows, less operating capital
expenditures, to be less than its dividend requirements for the full year of 2005. The Companys
net cash flow from operations and proceeds from apartment communities and for-sale condominiums
sales continue to be sufficient to meet the dividend requirements necessary to maintain its REIT
status under the Code. For full year of 2005, 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 $15,000 to $20,000. This forecasted dividend shortfall excludes
incremental gains on condominium sales and gain on sale of technology investment which are included
in cash flows from investing activities. The Company intends to use primarily the proceeds from
2005 apartment community and for-sale condominium 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 and apartment community acquisitions, dividends and distributions on its common and preferred
equity and its debt service requirements. The Company generally expects to fund its long-term
liquidity requirements, including maturities of long-term debt and acquisition and development
activities, through long-term unsecured and secured borrowings, through additional sales of
selective operating properties and for-sale condominiums, and possibly through equity or leveraged
joint venture arrangements. The Company may also continue to use joint venture arrangements in
future periods to reduce its market concentrations in certain markets, build critical mass in other
markets and to reduce its exposure to certain risks of its future development activities. In the three months ended March 31, 2005, the Company sold no apartment communities. In April and
May 2005, the Company sold four communities, containing 1,102 units, for gross proceeds of
approximately $86,750, including the assumption of approximately $34,060 of tax-exempt secured debt
encumbering two of the properties. In addition, in the first quarter of 2005, the Company
generated approximately $3,296 of net proceeds from for-sale condominium sales. The Company
expects to continue to generate cash proceeds from the sale of apartment communities and sale of
condominiums at its condominium conversion projects in 2005. Adjusted for the April and May 2005
sales discussed above, the Company has two additional communities, one of which is located in
Dallas, TX and the other in Atlanta, GA, which are expected to be sold in the second and third
quarters of 2005. These sales are expected to generate significant capital gains for tax purposes
in 2005. 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. The
Company may also consider paying a special dividend to common shareholders depending on the level
of undistributed taxable gains, if any, during 2005. At March 31, 2005, the Company had $208,640 outstanding under its $370,000 combined line of credit
facilities. The Companys credit facilities, mature in January 2007. Management believes it will
have adequate capacity under its facilities to execute its business plan and meet its short-term
liquidity requirements. The Company intends to reduce its outstanding borrowings under its
revolving lines of credit through a combination of permanent financing and asset sales (as
discussed above). 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 March 31, 2005 is included in
note 2 to the consolidated financial statements. A discussion of changes in secured and unsecured
debt during the first three months of 2005 is discussed below. Upon their maturity in February 2005, the Company repaid $25,000 of its 7.28% medium term,
unsecured notes, from available borrowings under its unsecured lines of credit. In March 2005, the
Company repaid its $100,000 outstanding principal balance under the 6.85% Mandatory Par Put
Remarketed Securities (MOPPRS) debt arrangement. -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) 
 Stock Repurchase Program In the fourth quarter of 2004, the Companys board of directors adopted a new stock repurchase
program under which the Company may repurchase up to $200,000 of common or preferred stock at
market prices from time to time until December 31, 2006. In the three months ended March 31, 2005,
the Company repurchased $9,046 of common stock under a 10b5-1 stock purchase plan. In addition,
the Company received approximately 2 shares of common stock at an aggregate cost of $82 from
certain employees through the surrender of such shares to satisfy tax withholding obligations under
the Companys existing stock compensation plans. Subsequent to quarter-end through April 30, 2005, the Company has repurchased an additional $6,348
of its common stock under a 10b5-1 stock purchase plan which expires on May 31, 2005. Capitalization of Fixed Assets and Community Improvements The Company has a policy of capitalizing those expenditures relating to the acquisition of new
assets and the development and construction of new apartment and
condominium communities. In addition, the Company
capitalizes expenditures that enhance the value of existing assets and expenditures that
substantially extend the life of existing assets. All other expenditures necessary to maintain a
community in ordinary operating condition are expensed as incurred. Additionally, for new
development communities, carpet, vinyl and blind replacements are expensed as incurred during the
first five years (which corresponds to the estimated depreciable life of these assets) after
construction completion. Thereafter, these replacements are capitalized. Further, the Company
expenses as incurred all interior and exterior painting of communities. In conjunction with acquisitions of existing communities, it is the Companys policy to provide in
its acquisition budgets adequate funds to complete any deferred maintenance items and to otherwise
make the communities acquired competitive with comparable newly-constructed communities. In some
cases, the Company will provide in its acquisition budgets additional funds to upgrade or otherwise
improve new acquisitions. Such costs are generally capitalized as costs of the acquired
communities, when identified and included as part of an approved capital budget at the time of
acquisition and when incurred during the twelve months subsequent to the acquisition date. The Company capitalizes interest, real estate taxes, and certain internal personnel and associated
costs related to apartment 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. -41-




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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) 
 Acquisition of assets and community development and other capitalized expenditures for the three
months ended March 31, 2005 and 2004 are summarized as follows: Three months endedMarch 31,2005
    
    
    2004New community development and acquisition activity(1)
    
    $
    14,370
    
    
    $
    293Non-recurring capital expendituresRevenue generating additions and improvements (2)
    
    
    
    
    
    
    26Other community additions and improvements (3)
    
    
    902
    
    
    
    1,244Recurring capital expendituresCarpet replacements and other community additions
and improvements (4)
    
    
    1,958
    
    
    
    2,422Corporate additions and improvements
    
    
    701
    
    
    
    134$
    17,931
    
    
    $
    4,119Other DataCapitalized interest
    
    $
    367
    
    
    $
    239Capitalized personnel and associated costs (5)
    
    $
    250
    
    
    $
    249
   (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. Current Development Activity At March 31, 2005, the Company had one community under development containing 350 apartment and
for-sale condominium units. This community is summarized in the table below. Costs
    
    
    
    
    
    
    
    
    
    
    EstimatedEstimated
    
    
    Incurred
    
    
    Quarter of
    
    
    Quarter of
    
    
    Quarter ofNumber of
    
    
    Construction
    
    
    as of
    
    
    Construction
    
    
    First Units
    
    
    StabilizedMetropolitan Area
    
    Units
    
    
    Cost
    
    
    3/31/2005
    
    
    Start
    
    
    Available
    
    
    Occupancy (1)($ in millions)Construction/Lease-up CommunitiesWashington D.C.Post CarlyleTM 
Apartments and condominiums (2)
    
    
    350
    
    
    $
    95
    
    
    $
    27
    
    
    
    4Q 04
    
    
    
    2Q 06
    
    
    
    2Q 07Construction/Lease-up Communities
    
    
    350
    
    
    $
    95
    
    
    $
    27
   (1)
    
    The Company defines stabilized occupancy as the earlier to occur of (i) the
attainment of 95% physical occupancy on the first day of any month or (ii) one year
after completion of construction.(2)
    
    The condominium component of the project, consisting of 145 units, will be
developed through a taxable REIT subsidiary in a majority owned joint venture with a
Washington D.C. based developer. 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. -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) 
 Funds from Operations The Company uses the National Association of Real Estate Investment Trusts (NAREIT) definition of
funds from operations (FFO). FFO is defined by NAREIT as net income available to common
shareholders determined in accordance with GAAP, excluding gains (or losses) from extraordinary
items and sales of depreciable property, plus depreciation of real estate assets, and after
adjustment for unconsolidated partnerships and joint ventures all determined on a consistent basis
in accordance with GAAP. FFO is a supplemental non-GAAP financial measure. FFO presented herein
is not necessarily comparable to FFO presented by other real estate companies because not all real
estate companies use the same definition. The 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. A reconciliation of net income (loss) available to common shareholders to FFO is provided below. Three months endedMarch 31,2005
    
    
    2004Net income (loss) available to common shareholders
    
    $
    2,767
    
    
    $
    (902
    )Minority interest of common unitholders  continuing operations
    
    
    (42
    )
    
    
    (599
    )Minority interest in discontinued operations (1)
    
    
    210
    
    
    
    528Depreciation on wholly-owned real estate assets, net (2)
    
    
    18,749
    
    
    
    20,039Depreciation on real estate assets held in unconsolidated entities
    
    
    297
    
    
    
    327Gains on sales of real estate assets  discontinued operations
    
    
    (358
    )
    
    
    (1,627
    )Incremental gains on condominium sales (4)
    
    
    358
    
    
    
    Funds from operations available to common shareholders(5)
    
    $
    21,981
    
    
    $
    17,766Cash flow provided by (used in):Operating activities
    
    $
    23,623
    
    
    $
    28,892Investing activities
    
    $
    (25,203
    )
    
    $
    48,797Financing activities
    
    $
    4,392
    
    
    $
    (62,076
    )Weighted average shares outstanding  basic
    
    
    40,167
    
    
    
    39,382Weighted average shares and units outstanding  basic
    
    
    42,614
    
    
    
    42,461Weighted average shares outstanding  diluted (3)
    
    
    40,386
    
    
    
    39,437Weighted average shares and units outstanding  diluted (3)
    
    
    42,833
    
    
    
    42,516
   (1)
    
    Represents the minority interest in earnings and gains (losses) on
properties held for sale and sold reported as discontinued operations
for the periods presented.(2)
    
    Depreciation on wholly-owned real estate assets is net of the
minority interest portion of depreciation in consolidated entities.(3)
    
    Diluted weighted average shares and units for the three months ended
March 31, 2005 and 2004 include 219 and 55 shares and units,
respectively, that were antidilutive to all income (loss) per share
computations under generally accepted accounting principles.(4)
    
    The Company expects to recognize incremental
gains on condominium sales in FFO to the extent that net sales
proceeds from the sale of condominium units exceed the greater of
their fair value or net book value as of the date
the property is acquired by its taxable REIT subsidiary.(5)
    
    Funds from operations for the three months ended March 31, 2005
include a gain of $5,267 on the sale of a technology investment. -43-




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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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Companys primary market risk exposure is interest rate risk. At March 31, 2005, the Company
had $307,140 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 March
31, 2005 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 SwapVariable to fixed
    
    $104,000 amortizing
    
    
    6.04
    %
    
    1 month LIBOR
    
    
    7/31/09
    
    
    $
    (6,075
    )to $90,270Interest Rate Cap
    
    $
    14,760
    
    
    
    5.00
    %
    
    
    
    
    
    
    2/01/08
    
    
    
    9Interest Rate Cap
    
    $
    95,295
    
    
    
    5.00
    %
    
    
    
    
    
    
    2/01/08
    
    
    
    61$
    (6,005
    )
 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 $98,500 FNMA borrowings effectively
converted to fixed rates discussed above, fluctuated by 1.0%, interest costs to the Company, based
on outstanding borrowings at March 31, 2005, would increase or decrease by approximately $3,187 on
an annualized basis. There have been no material changes in the value of the Companys fixed debt since December 31,
2004. 
 ITEM 4. CONTROLS AND PROCEDURES As required by Securities and Exchange Commission rules, the Company has evaluated the
effectiveness of the design and operation of its disclosure controls and procedures as of the end
of the period covered by this quarterly report on Form 10-Q. This evaluation was carried out under
the supervision and with the participation of the Companys management, including its principal
executive officer and principal financial officer. Based on this evaluation, these officers have
concluded that the design and operation of the Companys disclosure control and procedures were
effective as of the end of the period covered by this quarterly report on Form 10-Q. Disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 as amended (the Exchange Act)) are the 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 Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions rules and forms. There were no changes to the Companys internal controls over financial reporting (as defined in
Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that
materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting. -44-




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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) 
 
 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
alleged, among other things, breaches of fiduciary duties, fraud, corporate waste, withholding
certain documents from shareholder inspection and certain securities laws claims. The complaint
requested various types of relief, such as injunctive relief and damages and demanded production of
certain Company records. Because the Company believed the allegations were wholly without merit,
the Company moved to dismiss the litigation. On April 20, 2005, the court entered an order
dismissing all claims without prejudice, save a claim seeking production of certain Company
records, which was remanded to the Superior Court of Fulton County. To the extent that the
litigation continues, the Company plans to contest it vigorously. On May 5, 2003, the Company received notice that a shareholder derivative and purported class
action lawsuit was filed against members of the board of directors of the Company and the Company
as a nominal defendant. This complaint was filed in the Superior Court of Fulton County, Atlanta,
Georgia on May 2, 2003 and alleged various breaches of fiduciary duties by the board of directors
of the Company and sought, among other relief, the disclosure of certain information by the
defendants. This complaint also sought to compel the defendants to undertake various actions to
facilitate a sale of the Company. On May 7, 2003, the plaintiff made a request for voluntary
expedited discovery. On May 13, 2003, the Company received notice that a similar shareholder
derivative and purported class action lawsuit was filed against certain members of the board of
directors of the Company and against the Company as a nominal defendant. The complaint was filed in
the Superior Court of Fulton County, Atlanta, Georgia on May 12, 2003 and alleged breaches of
fiduciary duties, abuse of control and corporate waste by the defendants. The plaintiff sought
monetary damages and, as appropriate, injunctive relief. These lawsuits were settled, and in
October 2004, the Superior Court of Fulton County entered an order approving the settlement and
related orders dismissing the litigation. The estimated legal and settlement costs, not covered by
insurance, associated with the expected resolution of the lawsuits were recorded in the second
quarter of 2003 as a component of a proxy contest and related costs charge. An alleged Company
shareholder, who had filed a separate purported derivative and direct action against the Company
and certain of its officers and directors (which is described in the
paragraph above), has appealed from the Superior Courts orders approving
the settlement, overruling the shareholders objection to the settlement denying the shareholders motion to intervene, and dismissing the litigation with
prejudice. The Company is contesting the alleged shareholders appeal vigorously. The Company is involved in various other legal proceedings incidental to its business from time to
time, most of which are expected to be covered by liability or other insurance. Management of the
Company believes that any resolution of pending proceedings or liability to the Company which may
arise as a result of these proceedings will not have a material adverse effect on the Companys
results of operations or financial position. -45-




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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.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  (a)
    through (b)  None(c)
    The following table summarizes the Companys purchases of its equity securities
in the three months ended March 31, 2005 (in thousands, except per share amounts). ApproximateTotal Number of
    
    
    Dollar Value ofShares Purchased
    
    
    Shares that Mayas Part of Publicly
    
    
    Yet Be PurchasedTotal Number of
    
    
    Average Price
    
    
    Announced Plans
    
    
    Under the PlansPeriod
    
    Shares Purchased
    
    
    Paid Per Share
    
    
    or Programs
    
    
    or ProgramsJanuary 1, 2005 to
January 31, 2005
    
    
    146
    (2)
    
    $
    32.16
    
    
    
    144
    
    
    $
    195,384
    (1)February 1, 2005 to
February 28, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 1, 2005 to
March 31, 2005
    
    
    142
    
    
    
    31.18
    
    
    
    142
    
    
    
    190,955
    (1)Total
    
    
    288
    
    
    $
    31.68
    
    
    
    286
    
    
    $
    190,955
   (1)
    
    In the fourth quarter of 2004, the Companys board of directors
approved a stock repurchase program under which the Company may repurchase
up to $200,000 of common or preferred stock through December 31, 2006.(2)
    
    Includes the surrender of approximately 2 shares of common
stock from certain employees to satisfy tax withholding obligations under
the Companys existing stock compensation plans. 
 ITEM 3.DEFAULTS UPON SENIOR SECURITIES None 
 ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 
 ITEM 5.OTHER INFORMATION None -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 6.EXHIBITS 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)
    
    Exhibits3.1(a)
    
    Articles of Incorporation of the Company.3.2(b)
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.3(b)
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.4(b)
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.5(c)
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.6(d)
    
    Bylaws of the Company (as Amended and Restated as of November 5, 2003).3.6(e)
    
    Amendment No.1 to the Amended and Restated Bylaws of the Company4.1(f)
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2(f)
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.11.1(g)
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, 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 and incorporated herein by reference.(b)
    
    Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2002 and incorporated herein by reference.(c)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended March 31, 1999 and incorporated herein by reference.(d)
    
    Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 2003 and incorporated herein by reference.(e)
    
    Filed as Appendix A to the 2004 proxy statement and incorporated herein by reference.(f)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the
Company and incorporated herein by reference.(g)
    
    The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference. -47-




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized. POST PROPERTIES, INC.May 10, 2005
    By
    /s/ David P. StockertDavid P. StockertPresident and Chief Executive Officer May 10, 2005
    By
    /s/ Christopher J. PapaChristopher J. PapaExecutive Vice President and Chief Financial Officer May 10, 2005
    By
    /s/ Arthur J. QuirkArthur J. QuirkSenior Vice President and Chief Accounting Officer -48-




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##### Table of Contents



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 partnerMay 10, 2005
    By
    /s/ David P. StockertDavid P. Stockert
President and Chief Executive Officer May 10, 2005
    By
    /s/ Christopher J. PapaChristopher J. PapaExecutive Vice President and Chief Financial Officer May 10, 2005
    By
    /s/ Arthur J. QuirkArthur J. QuirkSenior Vice President and Chief Accounting Officer -49-




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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).3.6(e)
    
    Amendment No.1 to the Amended and Restated Bylaws of the Company4.1(f)
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2(f)
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.11.1(g)
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, 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 and incorporated herein by reference.(b)
    
    Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2002 and incorporated herein by reference.(c)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended March 31, 1999 and incorporated herein by reference.(d)
    
    Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 2003 and incorporated herein by reference.(e)
    
    Filed as Appendix A to the 2004 proxy statement and incorporated herein by reference.(f)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the
Company and incorporated herein by reference.(g)
    
    The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference. -50-