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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
   FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to Commission file numbers 1-12080 and 0-28226   POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.  Georgia
Georgia
    
    58-1550675
58-2053632(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer
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: 39,766,445 shares of common stock outstanding as of May 5, 2004.




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POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P. INDEX PagePart I FINANCIAL INFORMATIONItem 1 Financial StatementsPOST PROPERTIES, INC.Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003
    
    
    1Consolidated Statements of Operations for the three months ended March
31, 2004 and 2003
    
    
    2Consolidated Statement of Shareholders Equity and Accumulated Earnings
for the three months ended March 31, 2004
    
    
    3Consolidated Statements of Cash Flows for the three months ended March
31, 2004 and 2003
    
    
    4Notes to Consolidated Financial Statements
    
    
    5POST APARTMENT HOMES, L.P.Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003
    
    
    15Consolidated Statements of Operations for the three months ended March
31, 2004 and 2003
    
    
    16Consolidated Statement of Partners Equity for the three months ended
March 31, 2004
    
    
    17Consolidated Statements of Cash Flows for the three months ended March
31, 2004 and 2003
    
    
    18Notes to Consolidated Financial Statements
    
    
    19Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    29Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    44Item 4 Controls and Procedures
    
    
    45Part II OTHER INFORMATION
    
    
    46Item 1 Legal Proceedings
    
    
    46Item 2 Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    46Item 3 Defaults Upon Senior Securities
    
    
    46Item 4 Submission of Matters to a Vote of Security Holders
    
    
    46Item 5 Other Information
    
    
    46Item 6 Exhibits and Reports on Form 8-K
    
    
    47Signatures
    
    
    48Exhibit Index
    
    
    50EX-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)
 March 31,
    
    December 31,2004
    
    2003(Unaudited)AssetsReal estate assetsLand
    
    $
    254,000
    
    
    $
    254,000Building and improvements
    
    
    1,884,387
    
    
    
    1,883,582Furniture, fixtures and equipment
    
    
    215,671
    
    
    
    214,002Construction in progress
    
    
    13,657
    
    
    
    12,946Land held for future development
    
    
    13,375
    
    
    
    11,9942,381,090
    
    
    
    2,376,524Less: accumulated depreciation
    
    
    (453,077
    )
    
    
    (432,157
    )Assets held for sale, net of accumulated depreciation of $69,822 and
$74,614 at March 31, 2004 and December 31, 2003 respectively
    
    
    122,409
    
    
    
    145,238Total real estate assets
    
    
    2,050,422
    
    
    
    2,089,605Investments in and advances to unconsolidated real estate entities
    
    
    22,763
    
    
    
    74,786Cash and cash equivalents
    
    
    16,947
    
    
    
    1,334Restricted cash
    
    
    2,091
    
    
    
    2,065Deferred charges, net
    
    
    15,443
    
    
    
    12,285Other assets
    
    
    57,778
    
    
    
    35,376Total assets
    
    $
    2,165,444
    
    
    $
    2,215,451Liabilities and shareholders equityIndebtedness, including $119,085 of debt secured by assets held for sale
at March 31, 2004 and December 31, 2003
    
    $
    1,198,629
    
    
    $
    1,186,322Accrued interest payable
    
    
    12,681
    
    
    
    6,923Dividend and distribution payable
    
    
    19,582
    
    
    
    19,509Accounts payable and accrued expenses
    
    
    65,144
    
    
    
    65,872Security deposits and prepaid rents
    
    
    7,824
    
    
    
    7,890Total liabilities
    
    
    1,303,860
    
    
    
    1,286,516Minority interest of preferred unitholders in Operating Partnership
    
    
    70,000
    
    
    
    70,000Minority interest of common unitholders in Operating Partnership
    
    
    47,287
    
    
    
    62,409Shareholders equityPreferred stock, $.01 par value, 20,000,000 authorized:8 1/2% Series A Cumulative Redeemable Shares, liquidation preference
$50 per share, 900,000 shares issued and outstanding
    
    
    9
    
    
    
    97 5/8% Series B Cumulative Redeemable Shares, liquidation preference
$25 per share, 2,000,000 shares issued and outstanding
    
    
    20
    
    
    
    207 5/8% Series C Cumulative Redeemable Shares, liquidation preference
$25 per share, 2,000,000 shares issued and outstanding
    
    
    
    
    
    
    20Common stock, $.01 par value, 100,000,000 authorized:39,676,204 and 39,676,204 shares issued, 39,612,855 and 38,686,315
shares outstanding at March 31, 2004 and December 31, 2003 respectively.
    
    
    396
    
    
    
    396Additional paid-in capital
    
    
    765,304
    
    
    
    849,632Accumulated earnings
    
    
    
    
    
    
    Accumulated other comprehensive income (loss)
    
    
    (14,451
    )
    
    
    (12,362
    )Deferred compensation
    
    
    (4,746
    )
    
    
    (4,424
    )746,532
    
    
    
    833,291Less common stock in treasury, at cost, 63,349 and 989,889 shares at
March 31, 2004 and December 31, 2003, respectively
    
    
    (2,235
    )
    
    
    (36,765
    )Total shareholders equity
    
    
    744,297
    
    
    
    796,526Total liabilities and shareholders equity
    
    $
    2,165,444
    
    
    $
    2,215,451
 The accompanying notes are an integral part of these consolidated financial statements. -1-




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POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)
(Unaudited) Three months endedMarch 31,2004
    
    2003RevenuesRental
    
    $
    71,247
    
    
    $
    68,865Other property revenues
    
    
    4,145
    
    
    
    3,960Other
    
    
    76
    
    
    
    130Total revenues
    
    
    75,468
    
    
    
    72,955ExpensesProperty operating and maintenance (exclusive of items shown separately below)
    
    
    33,185
    
    
    
    31,290Depreciation
    
    
    21,186
    
    
    
    20,290General and administrative
    
    
    4,642
    
    
    
    3,624Development costs and other
    
    
    535
    
    
    
    567Severance charges
    
    
    
    
    
    
    19,712Total expenses
    
    
    59,548
    
    
    
    75,483Operating income (loss)
    
    
    15,920
    
    
    
    (2,528
    )Interest income
    
    
    180
    
    
    
    234Interest expense
    
    
    (16,281
    )
    
    
    (15,629
    )Amortization of deferred financing costs
    
    
    (1,116
    )
    
    
    (788
    )Equity in income (losses) of unconsolidated real estate entities
    
    
    216
    
    
    
    (393
    )Minority interest in consolidated property partnerships
    
    
    272
    
    
    
    334Minority interest of preferred unitholders
    
    
    (1,400
    )
    
    
    (1,400
    )Minority interest of common unitholders
    
    
    473
    
    
    
    2,623Loss from continuing operations
    
    
    (1,736
    )
    
    
    (17,547
    )Discontinued operationsIncome (loss) from discontinued operations, net of minority interest
    
    
    3,638
    
    
    
    (9,132
    )Gains on property sales, net of minority interest
    
    
    1,509
    
    
    
    6,091Income (loss) from discontinued operations
    
    
    5,147
    
    
    
    (3,041
    )Net income (loss)
    
    
    3,411
    
    
    
    (20,588
    )Dividends to preferred shareholders
    
    
    (2,597
    )
    
    
    (2,862
    )Redemption costs on preferred stock
    
    
    (1,716
    )
    
    
    Net loss available to common shareholders
    
    $
    (902
    )
    
    $
    (23,450
    )Per common share data  BasicLoss from continuing operations (net of preferred dividends
and redemption costs)
    
    $
    (0.15
    )
    
    $
    (0.55
    )Income (loss) from discontinued operations
    
    
    0.13
    
    
    
    (0.08
    )Net loss available to common shareholders
    
    $
    (0.02
    )
    
    $
    (0.63
    )Dividends declared
    
    $
    0.45
    
    
    $
    0.45Weighted average common shares outstanding  basic
    
    
    39,382
    
    
    
    37,262Weighted average common shares and units outstanding  basic
    
    
    42,461
    
    
    
    42,049Per common share data  DilutedLoss from continuing operations (net of preferred dividends
and redemption costs)
    
    $
    (0.15
    )
    
    $
    (0.55
    )Income (loss) from discontinued operations
    
    
    0.13
    
    
    
    (0.08
    )Net loss available to common shareholders
    
    $
    (0.02
    )
    
    $
    (0.63
    )Dividends declared
    
    $
    0.45
    
    
    $
    0.45Weighted average common shares outstanding  diluted
    
    
    39,382
    
    
    
    37,262Weighted average common shares and units outstanding  diluted
    
    
    42,461
    
    
    
    42,049
 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)
(Unaudited) AccumulatedAdditional
    
    
    
    
    
    OtherPreferred
    
    Common
    
    Paid-in
    
    Accumulated
    
    Comprehensive
    
    Deferred
    
    TreasuryStock
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Compensation
    
    Stock
    
    TotalShareholders Equity and Accumulated Earnings,
December 31, 2003
    
    $
    49
    
    
    $
    396
    
    
    $
    849,632
    
    
    $
    
    
    
    $
    (12,362
    )
    
    $
    (4,424
    )
    
    $
    (36,765
    )
    
    $
    796,526Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,411Net change in derivative value, net of
minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,089
    )
    
    
    
    
    
    
    
    
    
    
    (2,089
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,322Proceeds from employee stock purchase and
stock option plans
    
    
    
    
    
    
    
    
    
    
    (913
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,772
    
    
    
    2,859Adjustment for minority interest of
unitholders in Operating Partnership upon
conversion of units into common shares and at
dates of capital transactions
    
    
    
    
    
    
    
    
    
    
    (16,348
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,947
    
    
    
    13,599Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    140
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140Restricted stock issuances, net of forfeitures.
    
    
    
    
    
    
    
    
    
    
    (214
    )
    
    
    
    
    
    
    
    
    
    
    (597
    )
    
    
    811
    
    
    
    Redemption of preferred stock
    
    
    (20
    )
    
    
    
    
    
    
    (49,980
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275
    
    
    
    
    
    
    
    275Dividends to preferred shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,597
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,597
    )Dividends to common shareholders
    
    
    
    
    
    
    
    
    
    
    (17,013
    )
    
    
    (814
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,827
    )Shareholders Equity and Accumulated Earnings,
March 31, 2004
    
    $
    29
    
    
    $
    396
    
    
    $
    765,304
    
    
    $
    
    
    
    $
    (14,451
    )
    
    $
    (4,746
    )
    
    $
    (2,235
    )
    
    $
    744,297
 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)
 Three months endedMarch 31,2004
    
    2003Cash Flows From Operating ActivitiesNet income (loss)
    
    $
    3,411
    
    
    $
    (20,588
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation
    
    
    21,186
    
    
    
    23,194Amortization of deferred financing costs
    
    
    1,116
    
    
    
    788Minority interest of preferred unitholders in Operating Partnership
    
    
    1,400
    
    
    
    1,400Minority interest of common unitholders in Operating Partnership
    
    
    (473
    )
    
    
    (2,623
    )Minority interest in discontinued operations
    
    
    402
    
    
    
    (391
    )Gains on properties held for sale and sold  discontinued operations
    
    
    (1,627
    )
    
    
    (6,875
    )Severance charges
    
    
    
    
    
    
    19,712Asset impairment charge
    
    
    
    
    
    
    14,118Equity in losses (income) of unconsolidated entities
    
    
    (181
    )
    
    
    393Stock-based compensation
    
    
    415
    
    
    
    139Changes in assets, (increase) decrease in:Restricted cash
    
    
    (26
    )
    
    
    (74
    )Other assets
    
    
    (883
    )
    
    
    (2,495
    )Deferred charges
    
    
    (298
    )
    
    
    (936
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    5,758
    
    
    
    7,456Accounts payable and accrued expenses
    
    
    (2,748
    )
    
    
    (6,226
    )Security deposits and prepaid rents
    
    
    (66
    )
    
    
    (295
    )Net cash provided by operating activities
    
    
    27,386
    
    
    
    26,697Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (67
    )
    
    
    (13,774
    )Net proceeds from property sales
    
    
    2,279
    
    
    
    38,262Capitalized interest
    
    
    (239
    )
    
    
    (1,869
    )Recurring capital expenditures
    
    
    (2,422
    )
    
    
    (1,462
    )Corporate additions and improvements
    
    
    (134
    )
    
    
    (208
    )Non-recurring capital expenditures
    
    
    (1,244
    )
    
    
    (958
    )Revenue generating capital expenditures
    
    
    (26
    )
    
    
    (89
    )Distributions and repayment of advances received from unconsolidated entities
    
    
    52,156
    
    
    
    17,902Net cash provided by investing activities
    
    
    50,303
    
    
    
    37,804Cash Flows From Financing ActivitiesProceeds from notes payable
    
    
    35,000
    
    
    
    Payments on notes payable
    
    
    (683
    )
    
    
    (659
    )Payments of financing costs
    
    
    (4,202
    )
    
    
    Lines of credit proceeds (repayments), net
    
    
    (22,010
    )
    
    
    (29,630
    )Redemption of preferred stock
    
    
    (50,000
    )
    
    
    Proceeds from employee stock purchase and stock option plans
    
    
    2,859
    
    
    
    263Distributions to preferred unitholders
    
    
    (1,400
    )
    
    
    (1,400
    )Distributions to common unitholders
    
    
    (1,652
    )
    
    
    (3,767
    )Dividends paid to preferred shareholders
    
    
    (2,597
    )
    
    
    (2,862
    )Dividends paid to common shareholders
    
    
    (17,391
    )
    
    
    (29,025
    )Net cash used in financing activities
    
    
    (62,076
    )
    
    
    (67,080
    )Net increase (decrease) in cash and cash equivalents
    
    
    15,613
    
    
    
    (2,579
    )Cash and cash equivalents, beginning of period
    
    
    1,334
    
    
    
    6,390Cash and cash equivalents, end of period
    
    $
    16,947
    
    
    $
    3,811
 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
(Unaudited, in thousands, except per share and apartment unit data)   1.
    
    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES  Organization  Post Properties, Inc. and its subsidiaries develop, own and manage upscale
multifamily apartment communities in selected markets in the United States.
As used herein, the term Company includes Post Properties, Inc. and its
subsidiaries, including Post Apartment Homes, L.P. (the Operating
Partnership), unless the context indicates otherwise. The Company, through
its wholly-owned subsidiaries, is the general partner and owns a majority
interest in the Operating Partnership which, through its subsidiaries,
conducts substantially all of the on-going operations of the Company. At
March 31, 2004, the Company owned 27,683 apartment units in 71 apartment
communities, including 666 apartment units in three apartment communities
held in unconsolidated entities. At March 31, 2004, approximately 54.2%,
17.4% and 8.0% (on a unit basis) of the Companys communities were located in
the Atlanta, Dallas and Tampa metropolitan areas, respectively.The Company has elected to qualify and operate as a self-administrated and
self-managed real estate investment trust (REIT) for federal income tax
purposes. A REIT is a legal entity which holds real estate interests and
through payments of dividends to shareholders, in practical effect, is not
subject to federal income taxes at the corporate level.As of March 31, 2004, the Company had outstanding 39,613 shares of common
stock and owned the same number of units of common limited partnership
interests (Common Units) in the Operating Partnership, representing 93.3%
ownership interest in the Operating Partnership. Common Units held by persons
(including two directors of the Company) other than the Company totaled 2,865
as of March 31, 2004 and represented a 6.7% 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 92.8% and 88.6% for the three months ended March 31, 2004 and
2003, respectively.  Basis of Presentation  The 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 month period ended March 31, 2004
are not necessarily indicative of the results that may be expected for the
full year. These financial statements should be read in conjunction with the
Companys audited financial statements and notes thereto included in its
Annual Report on Form 10-K for the year ended December 31, 2003. Certain
2003 amounts have been reclassified to conform to the current years
financial statement presentation.  Revenue Recognition  Residential properties are leased under operating leases with terms of
generally one year or less. Rental revenues from
residential leases are recognized on the straight-line method over the approximate
life of the leases, which is generally one year. The recognition of
rental revenues from residential leases when earned has historically
not been materially different from rental revenues recognized on a
straight-line basis.Under the terms of residential leases, the residents of the Companys
residential communities are obligated to reimburse the Company for certain
utility usage, water and electricity (at selected properties), where the
Company is the primary obligor to the public utility entity.
These utility reimbursements from residents are reflected as
other property revenues in the consolidated statements of operations. -5-




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POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)   Stock-based Compensation  Effective January 1, 2003, the Company accounts for stock-based compensation
under the fair value method prescribed by Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. In
adopting SFAS No. 123, the Company used the prospective method prescribed in
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. In periods prior to January 1, 2003, the Company accounted for
stock-based compensation under the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued
to Employees.The following table reflects the effect on the 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 31,2004
    
    2003Net loss available to common shareholdersAs reported
    
    $
    (902
    )
    
    $
    (23,450
    )Stock-based compensation included in net income as reported, net of minority interest
    
    
    385
    
    
    
    123Stock-based compensation determined under the fair value method for all awards, net
of minority interest
    
    
    (405
    )
    
    
    (178
    )Pro forma
    
    $
    (922
    )
    
    $
    (23,505
    )Net loss per common share  basicAs reported
    
    $
    (0.02
    )
    
    $
    (0.63
    )Pro forma
    
    $
    (0.02
    )
    
    $
    (0.63
    )Net loss per common share  dilutedAs reported
    
    $
    (0.02
    )
    
    $
    (0.63
    )Pro forma
    
    $
    (0.02
    )
    
    $
    (0.63
    )
  New Accounting Pronouncements  In 2003, the Financial Accounting Standards Board issued several new
accounting pronouncements and the pronouncements with a potential impact on
the Company in 2004 are discussed below.FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51 was originally issued in January 2003 and
subsequently revised and restated in December 2003 through FASB
Interpretation No. 46  Revised (together these pronouncements are referred
to as FIN No. 46). FIN No. 46 requires consolidation of all legal entities
in which the enterprise holds contractual, ownership or other monetary
interests that change with changes in the entitys net asset value (such
entities being designated as variable interest entities) where the enterprise
is deemed the primary beneficiary. The consolidation provisions of FIN No.
46 were generally applicable as of December 31, 2003 for all variable
interest entities created after January 31, 2003. For special purpose
entities, as defined, created prior to February 1, 2003, the consolidation
provisions of FIN No. 46 were generally applicable as of December 31, 2003.
For other variable interest entities created prior to February 1, 2003 where
the Company is deemed to be the primary beneficiary, consolidation of such
entities will be required for the interim period ending March 31, 2004. The
Company currently does not have any interests in special purpose entities or
other variable interest entities and FIN No. 46 did not have a significant
effect on its results of operations or financial position. -6-




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POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)   2.
    
    INDEBTEDNESS  At March 31, 2004 and December 31, 2003, the Companys indebtedness consisted
of the following: Payment
    
    
    
    
    
    Maturity
    
    March 31,
    
    December 31,Description
    
    Terms
    
    Interest Rate
    
    Date (1)
    
    2004
    
    2003Unsecured NotesSenior Notes
    
    Int.
    
    
    6.11% - 7.70
    %
    
    2006-2010
    
    $
    285,000
    
    
    $
    285,000Medium Term Notes
    
    Int.
    
    
    6.69% - 8.12
    %(2)
    
    2004-2015
    
    
    323,000
    
    
    
    323,000608,000
    
    
    
    608,000Unsecured Lines of Credit & OtherSyndicated Line of Credit
    
    N/A
    
    LIBOR + 0.90
    % (3)
    
    2007
    
    
    50,000
    
    
    
    60,000Cash Management Line
    
    N/A
    
    LIBOR + 0.75
    %
    
    2004
    
    
    
    
    
    
    12,01050,000
    
    
    
    72,010Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int.
    
    
    6.975
    % (4)
    
    2029
    
    
    99,800
    
    
    
    99,800Other
    
    Prin. and Int.
    
    
    4.27% - 7.69
    %
    
    2007-2013
    
    
    226,449
    
    
    
    192,132326,249
    
    
    
    291,932Tax Exempt Floating RateBonds (Secured)
    
    Int.
    
    
    0.95
    % (5)
    
    2025
    
    
    214,380
    
    
    
    214,380Total
    
    
    
    
    
    
    
    
    
    $
    1,198,629
    
    
    $
    1,186,322
   (1)
    
    All outstanding indebtedness can be prepaid at any time, subject to
certain prepayment penalties.(2)
    
    Includes $100,000 of Mandatory Par Put Remarketed Securities
(MOPPRS). The annual interest rate on these securities to March
2005 is 6.85%. The MOPPRS mature in March 2015, but are subject to
mandatory tender for remarketing in March 2005. In March 2005, if the
remarking dealer elects not to remarket the MOPPRS, the Company is
required to redeem the MOPPRS at par. If the remarketing dealer elects
to remarket the securities in March 2005, the interest rate on the
MOPPRS will be established at a rate of 5.715% plus the Companys
applicable credit spread for the Companys securities with similar
maturities. The MOPPRS may be redeemed, at the Companys option,
immediately prior to their remarketing in March 2005 at an optional
redemption price equal to the outstanding principal balance plus a
prepayment penalty (generally equivalent to the make-whole amount
necessary to compensate for the amount by which the base rate of
5.715% exceeds the then-existing 10-year treasury rate).(3)
    
    Represents stated rate. At March 31, 2004, the average interest
rate was 1.99%.(4)
    
    Interest rate is fixed at 6.975%, inclusive of credit enhancement
and other fees, to 2009 through an interest rate swap arrangement.(5)
    
    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, 2004 before
credit enhancements. The Company has outstanding interest rate cap
arrangements that limit the Companys exposure to increases in the
base interest rate to 5%. At March 31, 2004 and December 31, 2003,
approximately $119,085 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 2004
    
    $
    26,4112005
    
    
    204,402
    (2)2006
    
    
    79,7322007
    
    
    112,1782008
    
    
    4,014Thereafter
    
    
    721,892
    (2)$
    1,148,629
   (1)
    
    Excludes outstanding balances of
$50,000 on lines of credit discussed below.(2)
    
    Aggregate debt maturities for years
ended in 2009 and thereafter include $100,000 of
Mandatory Par Put Remarketed Securities
(MOPPRS). The MOPPRS mature in March 2015, but
are subject to mandatory tender for remarketing
in March 2005. In March 2005, if the remarketing
dealer elects not to remarket the MOPPRS, the
Company is required to redeem the MOPPRS at par.
If the remarketing dealer elects to remarket the
securities in March 2005, the interest rate on
the MOPPRS will be established at a rate of
5.715% plus the Companys applicable credit
spread for Company securities with similar
maturities. The MOPPRS may be redeemed, at the
Companys option, immediately prior to their
remarketing in March 2005 at an optional
redemption price equal to the outstanding
principal balance plus a prepayment penalty.  New debt issuances and retirements  In March 2004, the Company closed a $35,000 secured, fixed rate mortgage note
payable obtained by a consolidated real estate entity. The note bears
interest at 4.27%, requires monthly interest only payments through March 2007
and monthly principal and interest payments based on a 30-year amortization
schedule from April 2007 through the note maturity date in March 2009.  Upon their maturity on April 1, 2004, the Company repaid $13,000 of its 7.30%
medium term, unsecured notes, using its available cash balances and
borrowings under its unsecured lines of credit. -7-




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POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)   Unsecured Lines of Credit  In January 2004, the Company refinanced its previous revolving line of credit
with a new $350,000 three-year unsecured revolving line of credit (the
Revolver) that matures in January 2007. The Revolver currently has a
stated interest rate of LIBOR plus 0.90% or the prime rate and was provided
by a syndicate of nine banks led by Wachovia Bank, N.A. Additionally, the
Revolver requires the payment of annual facility fees equal to 0.20% of the
aggregate loan commitment. The Revolver provides for the interest rate and
facility fee rate to be adjusted up or down based on changes in the credit
ratings on the Companys senior unsecured debt. The rates under the Revolver
are based on the lower of the Companys unsecured debt ratings in instances
where the Company has split unsecured debt ratings. The Revolver also
includes a money market competitive bid option for short-term funds up to
$175,000 at rates generally below the stated line rate. The credit agreement
for the Revolver contains customary representations, covenants and events of
default, including fixed charge coverage and maximum leverage ratios as well
as covenants which restrict the ability of the Operating Partnership to make
distributions, in excess of stated amounts, which in turn restrict the
discretion of the Company to declare and pay dividends. In general, during
any fiscal year the Operating Partnership may only distribute up to 100% of
the Operating Partnerships consolidated income available for distribution
(as defined in the credit agreement) exclusive of distributions of up to
$15,000 of capital gains for such year. The credit agreement contains
exceptions to these limitations to allow the Operating Partnership to make
distributions necessary to allow the Company to maintain its status as a
REIT. The Company does not anticipate that these ratios and covenants will
adversely affect the ability of the Operating Partnership to borrow money or
make distributions, or the Company to declare dividends, at the Companys
current dividend level. The Revolver matures in January 2007. At March 31,
2004, the Company had issued letters of credit to third parties totaling
$1,828 under this facility.Additionally, the Company has a $20,000 unsecured line of credit with
Wachovia Bank, N.A. (the Cash Management Line), which was scheduled to
mature on April 30, 2004. In April 2004, the Company renewed this line of
credit for maturity, pricing and terms, including debt covenants,
substantially consistent with those of the Revolver. The Cash Management
line currently has a stated interest rate of LIBOR plus 0.90% mirroring the
pricing structure of the Revolver and requires the payment of an annual
facility fee equal to 0.125% of the average annual unused portion of the loan
commitment.3.
    
    INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIESAt March 31, 2004, the Company holds investments in three individual limited
liability companies (the Property LLCs) with an institutional investor.
Each Property LLC owns a newly developed apartment community. At March 31,
2004, each of the apartment communities had achieved stabilized occupancy.
The Company holds a 35% equity interest in the Property LLCs. The initial
development costs of the apartment communities were funded through member
equity contributions proportionate to the members ownership interests and
through construction financing provided by the Company.The Company accounts for its investments in these Property LLCs using the
equity method of accounting. The excess of the Companys investment over its
equity in the underlying net assets of the Property LLCs was approximately
$6,713 at March 31, 2004. This excess investment is being amortized as a
reduction to earnings on a straight-line basis over the lives of the related
assets. The Company provides real estate services (development, construction
and property management) to the Property LLCs for which it earns fees. -8-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)   The operating results of the Company include its proportionate share of net
income (loss) from the investments in the Property LLCs. A summary of
financial information for the Property LLCs in the aggregate is as follows: March 31,
    
    December 31,Balance Sheet Data
    
    2004
    
    2003Real estate assets, net of accumulated depreciation of $6,889 and $5,939, respectively
    
    $
    126,652
    
    
    $
    127,513Cash and other
    
    
    4,830
    
    
    
    2,516Total assets
    
    $
    131,482
    
    
    $
    130,029Mortgage notes payable
    
    $
    83,691
    
    
    $
    33,763Construction notes payable to Company (1)
    
    
    
    
    
    
    53,769Other liabilities
    
    
    1,817
    
    
    
    1,742Total liabilities
    
    
    85,508
    
    
    
    89,274Members equity
    
    
    45,974
    
    
    
    40,755Total liabilities and members equity
    
    $
    131,482
    
    
    $
    130,029Companys equity investment
    
    $
    22,763
    
    
    $
    21,017Companys share of notes payable
    
    $
    29,292
    
    
    $
    30,636
  (1)
    
    All of the Companys construction financing to
these unconsolidated real estate entities is
included in the Companys outstanding debt and total
assets. At December 31, 2003, the venture partners
share of the construction loans was $34,950. All
construction financing has been refinanced with
permanent loans from unaffiliated entities as of
March 31, 2004. Three months endedMarch 31,Income Statement Data
    
    2004
    
    2003RevenueRental
    
    $
    3,248
    
    
    $
    1,689Other
    
    
    208
    
    
    
    135Total revenues
    
    
    3,456
    
    
    
    1,824ExpensesProperty operating and maintenance
    
    
    1,217
    
    
    
    1,260Depreciation and amortization
    
    
    937
    
    
    
    895Amortization of deferred loan costs
    
    
    13
    
    
    
    Interest
    
    
    773
    
    
    
    708Total expenses
    
    
    2,940
    
    
    
    2,863Income (loss) from continuing operations.
    
    
    516
    
    
    
    (1,039
    )Loss from discontinued operations
    
    
    
    
    
    
    (85
    )Net income (loss)
    
    $
    516
    
    
    $
    (1,124
    )Companys share of net income (loss)
    
    $
    216
    
    
    $
    (393
    )
  The loss from discontinued operations represents the operating results of an
apartment community (held by a fourth Property LLC) that was sold in June
2003.In March 2004, one of the Property LLCs repaid its outstanding construction
note payable to the Company of $53,916 through the proceeds from a
third-party non-recourse permanent mortgage note totaling $50,000 and from
member equity contributions. The mortgage note bears interest at 4.13%,
requires monthly interest payments and annual principal payment of $1 through
2009. Thereafter, the note requires monthly principal and interest payments
based on a 25-year amortization schedule and matures in April 2034. The note
is callable by the lender in May 2009 and on each successive fifth year
anniversary of the note thereafter. The note is prepayable without penalty
in May 2008. The additional mortgage notes payable bear interest at rates
ranging from 4.04% to 4.28% and mature in 2008.As part of the development and construction services agreements entered into
between the Company and the Property LLCs, the Company guaranteed the maximum
total amount for certain construction cost categories subject to aggregate
limits. The Companys remaining maximum exposure for the fourth Property LLC
totals approximately $5,200. The Company does not currently expect to be
required to fund any guarantees relating to this Property LLC. -9-




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POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)   4.
    
    REAL ESTATE ASSETS HELD FOR SALE / DISCONTINUED OPERATIONSThe Company classifies real estate assets as held for sale after the approval
of its internal investment committee and after the Company has commenced an
active program to sell the assets. At March 31, 2004, the Company had eight
apartment communities, containing 3,942 units, and certain tracts of land
classified as held for sale. These real estate assets are reflected in the
accompanying consolidated balance sheet at $122,409, which represents the
lower of depreciated cost or fair value less costs to sell. The company
expects the sale of these assets to occur in the next twelve months.Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the operating results of real estate assets designated as held for
sale are included in discontinued operations in the consolidated statement of
operations for all periods presented. Additionally, all subsequent gains or
additional losses on the sale of these assets are included in discontinued
operations.For the three months ended March 31, 2004, income from discontinued
operations included the results of operations of the eight communities,
containing 3,942 units, classified as held for sale at March 31, 2004 and the
results of operations of one community sold in 2004 through its sale date.
For the three months ended March 31, 2003, income from discontinued
operations included the results of operations of all communities classified
as held for sale at March 31, 3004, the one community sold in 2004 and the
results of operations of four communities sold in 2003 through the earlier of
March 31, 2003 or their sale dates.The revenues and expenses of these communities for the three months ended
March 31, 2004 and 2003 were as follows: Three months endedMarch 31,2004
    
    2003RevenuesRental
    
    $
    7,932
    
    
    $
    12,170Other
    
    
    698
    
    
    
    833Total revenues
    
    
    8,630
    
    
    
    13,003ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    3,785
    
    
    
    5,082Depreciation
    
    
    
    
    
    
    2,438Interest
    
    
    923
    
    
    
    1,671Asset impairment charge
    
    
    
    
    
    
    14,118Total expenses
    
    
    4,708
    
    
    
    23,309Income (loss) from discontinued operations
before minority interest
    
    
    3,922
    
    
    
    (10,306
    )Minority interest
    
    
    (284
    )
    
    
    1,174Income (loss) from discontinued operations
    
    $
    3,638
    
    
    $
    (9,132
    )
  In the first quarter of 2003, the Company recorded an asset impairment charge
to write-down the cost of the Companys apartment community located in
Phoenix, Arizona to its estimated fair value. This impairment loss,
originally reflected in continuing operations, was reclassified to
discontinued operations to reflect the designation of this community as held
for sale during the third quarter of 2003 and the final sale of the community
in the fourth quarter of 2003.  For the three months ended March 31, 2004, the Company recognized net 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. The $21,700 held by
the third party intermediary is included in other assets in the accompanying
consolidated balance sheet. For the three months ended March 31, 2003, the
Company recognized net gains from discontinued operations of $7,981 ($7,072
net of minority interest), on the sale of one community, containing 239
apartment units, reduced by losses of $1,106 ($981 net of minority interest)
resulting from losses on the sale of certain land parcels and additional
reserves to write-down to fair value certain other land parcels previously
classified as held for sale at December 31, 2002. -10-




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POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)   5.
    
    SHAREHOLDERS EQUITYPreferred StockOn March 5, 2004, the Company redeemed its 7 5/8% series C cumulative
redeemable preferred stock (Series C Preferred Stock) for $25.00 per share
(an aggregate of $50,000), plus accrued and unpaid dividends through March 5,
2004. In connection with the issuance of the Series C Preferred Stock in
1998, the Company incurred $1,716 in issuance costs and recorded such costs
as a reduction of shareholders equity. The redemption price of the Series C
Preferred Stock exceeds the related carrying value by the $1,716 of issuance
costs. In connection with the redemption, in accordance with generally
accepted accounting principles, the Company reflected the $1,716 of issuance
costs as a reduction of earnings in arriving at net income available to
common shareholders.Computation of Earnings Per Common ShareFor the three months ended March 31, 2004 and 2003, a reconciliation of the
numerator and denominator used in the computation of basic and diluted income
from continuing operations per common share is as follows: Three months endedMarch 31,2004
    
    2003Loss from continuing operations available to common shareholders (numerator):Loss from continuing operations
    
    $
    (1,736
    )
    
    $
    (17,547
    )Less: Preferred stock dividends
    
    
    (2,597
    )
    
    
    (2,862
    )Less: Preferred stock redemption costs
    
    
    (1,716
    )
    
    
    Loss from continuing operations available to common shareholders
    
    $
    (6,049
    )
    
    $
    (20,409
    )Common shares (denominator):Weighted average shares outstanding  basic
    
    
    39,382
    
    
    
    37,262Incremental shares from assumed conversion of stock options
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    39,382
    
    
    
    37,262
   (1)
    
    For the three months ended March 31, 2004, the potential
dilution from the Companys outstanding stock options of 55
shares was antidilutive to the loss from continuing operations
per share calculation. As such, the amounts were excluded from
weighted average shares for the period.  At March 31, 2004 and 2003, stock options to purchase 4,813 and 4,237 shares
of common stock, respectively, were excluded from the computation of diluted
earnings per common share as these stock options were antidilutive.6.
    
    DERIVATIVE FINANCIAL INSTRUMENTSAt March 31, 2004 and 2003, the Company had outstanding interest rate swap
agreements with a notional value of $129,000 with maturity dates ranging from
2005 to 2009. The interest rate swap agreements are included on the
accompanying consolidated balance sheet at fair value. The Company recorded
unrealized net losses of $1,631, net of minority interest, and unrealized net
gains of $172, net of minority interest, for the three months ended March 31,
2004 and 2003 respectively, on these cash flow hedges as decreases and
increases in accumulated other comprehensive income, a shareholders equity
account, in the accompanying consolidated balance sheet.At March 31, 2004 and 2003, the Company had outstanding interest rate cap
agreements with two financial institutions. These interest rate cap
agreements are cash flow hedges that provide a fixed interest ceiling at 5%
for the Companys variable rate, tax exempt borrowings. The Company is
required to maintain the interest rate exposure protection under the terms of
the financing arrangements. The interest rate cap arrangements are included
on the accompanying balance sheet at fair value. At March 31, 2004, the
difference of $1,678, net of minority interest, between the amortized costs
of the interest rate cap arrangements of $2,720 and their fair value of $912
is included in accumulated other comprehensive income (loss), a shareholders equity
account. The $2,720 cost of the arrangements is being amortized as
additional expense over their five-year term in accordance with SFAS No. 133,
as amended.Comprehensive income for the three months ended March 31, 2004 totaled
$1,322, as summarized on the consolidated statement of shareholders equity
and accumulated earnings. The comprehensive loss for the three months ended
March 31, 2003 totaled a loss of $21,016 and consisted of a net loss of
$20,588 less the net change in the value of the derivatives discussed above
of ($428). -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 three 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 March 31, 2004. The segment information for the three months
ended March 31, 2003 has been adjusted due to the restatement impact of
reclassifying the operating results of the assets designated as held for sale
in 2003 to discontinued operations under SFAS No. 144 (see note 4).  
    
    Fully stabilized communities  those apartment communities which have
been stabilized (the earlier of the point at which a property reaches
95% occupancy or one year after completion of construction) for both the
current and prior year.
    
    Communities stabilized during 2003  communities which reached
stabilized occupancy in the prior year.
    
    Development and lease-up communities  those communities that are in
lease-up but were not stabilized by the beginning of the current year,
including communities that stabilized during the current year.  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 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 (loss) is the most directly comparable GAAP measure to
net operating income. -12-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)   Segment InformationThe following table reflects each segments contribution to consolidated
revenues and property NOI together with a reconciliation of segment
contribution to property NOI income from continuing operations. Additionally,
substantially all of the Companys assets relate to the Companys property
rental operations. Asset cost, depreciation and amortization by segment are
not presented because such information at the segment level is not reported
internally. Three months endedMarch 31,2004
    
    2003RevenuesFully stabilized communities
    
    $
    64,709
    
    
    $
    64,944Communities stabilized during 2003
    
    
    3,955
    
    
    
    3,452Development and lease-up communities
    
    
    1,714
    
    
    
    3Other property segments
    
    
    5,014
    
    
    
    4,426Other
    
    
    76
    
    
    
    130Consolidated revenues
    
    $
    75,468
    
    
    $
    72,955Contribution to NOIFully stabilized communities
    
    $
    39,435
    
    
    $
    41,063Communities stabilized during 2003
    
    
    2,526
    
    
    
    1,955Development and lease-up communities
    
    
    1,240
    
    
    
    (261
    )Other property segments
    
    
    (994
    )
    
    
    (1,222
    )Consolidated property net operating income
    
    
    42,207
    
    
    
    41,535Interest income
    
    
    180
    
    
    
    234Other revenue
    
    
    76
    
    
    
    130Minority interest in consolidated property partnerships
    
    
    272
    
    
    
    334Depreciation
    
    
    (21,186
    )
    
    
    (20,290
    )Interest expense
    
    
    (16,281
    )
    
    
    (15,629
    )Amortization of deferred loan costs
    
    
    (1,116
    )
    
    
    (788
    )General and administrative
    
    
    (4,642
    )
    
    
    (3,624
    )Development costs and other
    
    
    (535
    )
    
    
    (567
    )Severance charges
    
    
    
    
    
    
    (19,712
    )Equity in income (losses) of unconsolidated real estate entities.
    
    
    216
    
    
    
    (393
    )Minority interest of preferred unitholders
    
    
    (1,400
    )
    
    
    (1,400
    )Minority interest of common unitholders
    
    
    473
    
    
    
    2,623Loss from continuing operations
    
    
    (1,736
    )
    
    
    (17,547
    )Income (loss) from discontinued operations
    
    
    5,147
    
    
    
    (3,041
    )Net income (loss)
    
    $
    3,411
    
    
    $
    (20,588
    )
  8.
    
    SEVERANCE CHARGESIn the first quarter of 2003, the Company recorded severance charges of
$19,712 ($17,467 net of minority interest) relating to the change in roles
from executive to non-executive status of the Companys former chairman and
vice-chairman of the board of directors. The severance charges represented
the discounted present value of the estimated payments to be made to the
former chairman and vice-chairman under their existing employment
arrangements.The following table summarizes the activity relating to aggregate severance
charges for the three month period ended March 31, 2004: Accrued severance charges, December 31, 2003.
    
    $
    19,171Payments for period
    
    
    (747
    )Interest accretion
    
    
    251Accrued severance charges, March 31, 2004
    
    $
    18,675
  Substantially all of these remaining amounts will be paid over the remaining
terms of the former executives employment contracts (9 to 12 years). -13-




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##### Table of Contents



POST PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)   9.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONNon-cash investing and financing activities for the three months ended March
31, 2004 and 2003 were as follows: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).During the three months ended March 31, 2004, the Companys derivative
financial instruments (see note 6) 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, 2003, the Companys derivative financial instruments
increased in value causing an increase in accounts payable and accrued
expenses and a corresponding decrease in shareholders equity of $428, net of
minority interest.During the three months ended March 31, 2004 and 2003, holders of 802,836 and
97,772, respectively, units 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 dilutive 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 $13,599 and $1,801 for the three months ended March
31, 2004 and 2003, respectively.The Operating Partnership committed to distribute $19,116 and $18,932 for the
quarters ended March 31, 2004 and 2003, respectively. As a result, the
Company declared dividends of $17,827 and $16,803 for the quarters ended
March 31, 2004 and 2003, respectively. The remaining distributions from the
Operating Partnership in the amount of $1,289 and $2,129 for the quarters
ended March 31, 2004 and 2003, respectively, are distributed to minority
interest unitholders in the Operating Partnership.10.
    
    STOCK-BASED COMPENSATION PLANDuring the three months ended March 31, 2004, the Company granted
approximately 24 shares of restricted stock to company officers and
directors, of which approximately 7 shares were granted to the Companys
non-executive Chairman of the Board. The restricted shares vest ratably over
three years. The total value of the restricted share grants of $662 for the
three months ended March 31, 2004 was initially reflected in shareholders
equity as additional paid in capital and as deferred compensation, a contra
shareholders equity account. Such deferred compensation is amortized
ratably into compensation expense over the three year vesting period.Additionally, in the three months ended March 31, 2004, the Company granted
stock options to purchase approximately 261 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 costs of stock options over their three year
vesting periods.11.
    
    LEGAL PROCEEDINGSOn May 5, 2003, the Company received notice that a shareholder derivative and
purported class action lawsuit was filed against members of the board of
directors of the Company and the Company as a nominal defendant. This
complaint was filed in the Superior Court of Fulton County, Atlanta, Georgia
on May 2, 2003 and alleges various breaches of fiduciary duties by the board
of directors of the Company and seeks, among other relief, the disclosure of
certain information by the defendants. This complaint also seeks to compel
the defendants to undertake various actions to facilitate a sale of the
Company. On May 7, 2003, the plaintiff made a request for voluntary expedited
discovery. On May 13, 2003, the Company received notice that a shareholder
derivative and purported class action lawsuit was filed against certain
members of the board of directors of the Company and against the Company as a
nominal defendant. The complaint was filed in the Superior Court of Fulton
County, Atlanta, Georgia on May 12, 2003 and alleges breaches of fiduciary
duties, abuse of control and corporate waste by the defendants. The
plaintiff seeks monetary damages and, as appropriate, injunctive relief.
These lawsuits are expected to be settled in 2004. The estimated legal and
settlement costs, not covered by insurance, associated with the expected
resolution of the lawsuits were recorded in the second quarter of 2003 as a
component of a proxy and related costs charge.The Company is involved in various other legal proceedings incidental to its
business from time to time, most of which are expected to be covered by
liability insurance. Management of the Company believes that any resolution
of pending proceedings or liability to the Company, which may arise as a
result of these proceedings, will not have a material adverse effect on the
Companys results of operations or financial position. -14-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands) March 31,
    
    December 31,2004
    
    2003(Unaudited)AssetsReal estate assetsLand
    
    $
    254,000
    
    
    $
    254,000Buildings and improvements
    
    
    1,884,387
    
    
    
    1,883,582Furniture, fixtures and equipment
    
    
    215,671
    
    
    
    214,002Construction in progress
    
    
    13,657
    
    
    
    12,946Land held for future development
    
    
    13,375
    
    
    
    11,9942,381,090
    
    
    
    2,376,524Less: accumulated depreciation
    
    
    (453,077
    )
    
    
    (432,157
    )Assets held for sale net of accumulated depreciation of $69,822 and $74,614 at
March 31, 2004 and December 31, 2003, respectively
    
    
    122,409
    
    
    
    145,238Total real estate assets
    
    
    2,050,422
    
    
    
    2,089,605Investments in and advances to unconsolidated real estate entities
    
    
    22,763
    
    
    
    74,786Cash and cash equivalents
    
    
    16,947
    
    
    
    1,334Restricted cash
    
    
    2,091
    
    
    
    2,065Deferred charges, net
    
    
    15,443
    
    
    
    12,285Other assets
    
    
    57,778
    
    
    
    35,376Total assets
    
    $
    2,165,444
    
    
    $
    2,215,451Liabilities and partners equityIndebtedness, including $119,085 of debt secured by assets held for sale
at March 31, 2004 and December 31, 2003
    
    $
    1,198,629
    
    
    $
    1,186,322Accrued interest payable
    
    
    12,681
    
    
    
    65,872Distribution payable
    
    
    19,582
    
    
    
    19,509Accounts payable and accrued expenses
    
    
    65,144
    
    
    
    6,923Security deposits and prepaid rents
    
    
    7,824
    
    
    
    7,890Total liabilities
    
    
    1,303,860
    
    
    
    1,286,516Commitments and contingenciesPartners equityPreferred units
    
    
    165,000
    
    
    
    215,000Common unitsGeneral partner
    
    
    8,313
    
    
    
    8,464Limited partners
    
    
    704,670
    
    
    
    719,618Accumulated other comprehensive income (loss)
    
    
    (16,399
    )
    
    
    (14,147
    )Total partners equity
    
    
    861,584
    
    
    
    928,935Total liabilities and partners equity
    
    $
    2,165,444
    
    
    $
    2,215,451
 The accompanying notes are an integral part of these consolidated financial statements. -15-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited) Three months endedMarch 31,2004
    
    2003RevenuesRental
    
    $
    71,247
    
    
    $
    68,865Other property fees
    
    
    4,145
    
    
    
    3,960Other
    
    
    76
    
    
    
    130Total revenues
    
    
    75,468
    
    
    
    72,955ExpensesProperty operating and maintenance (exclusive of items shown separately below).
    
    
    33,185
    
    
    
    31,290Depreciation
    
    
    21,186
    
    
    
    20,290General and administrative
    
    
    4,642
    
    
    
    3,624Development costs and other
    
    
    535
    
    
    
    567Severance charges
    
    
    
    
    
    
    19,712Total expenses
    
    
    59,548
    
    
    
    75,483Operating
income (loss)
    
    
    15,920
    
    
    
    (2,528
    )Interest income
    
    
    180
    
    
    
    234Interest expense
    
    
    (16,281
    )
    
    
    (15,629
    )Amortization of deferred financing costs
    
    
    (1,116
    )
    
    
    (788
    )Equity in income (losses) of unconsolidated real estate entities
    
    
    216
    
    
    
    (393
    )Minority interest in consolidated property partnerships
    
    
    272
    
    
    
    334Loss from continuing operations
    
    
    (809
    )
    
    
    (18,770
    )Discontinued operationsIncome (loss) from discontinued operations
    
    
    3,922
    
    
    
    (10,306
    )Gains on property sales
    
    
    1,627
    
    
    
    6,873Income (loss) from discontinued operations
    
    
    5,549
    
    
    
    (3,433
    )Net income (loss)
    
    
    4,740
    
    
    
    (22,203
    )Distributions to preferred unitholders
    
    
    (3,997
    )
    
    
    (4,262
    )Redemption costs on preferred units
    
    
    (1,716
    )
    
    
    Net loss available to common unitholders
    
    $
    (973
    )
    
    $
    (26,465
    )Per
common unit data  BasicLoss from continuing operations (net of preferred distributions
and redemption costs)
    
    $
    (0.15
    )
    
    $
    (0.55
    )Income (loss) from discontinued operations
    
    
    0.13
    
    
    
    (0.08
    )Net loss available to common unitholders
    
    $
    (0.02
    )
    
    $
    (0.63
    )Distributions declared
    
    $
    0.45
    
    
    $
    0.45Weighted average common units outstanding  basic
    
    
    42,461
    
    
    
    42,049Per
common unit data  DilutedLoss from continuing operations (net of preferred distributions
and redemption costs)
    
    $
    (0.15
    )
    
    $
    (0.55
    )Income (loss) from discontinued operations
    
    
    0.13
    
    
    
    (0.08
    )Net loss available to common unitholders
    
    $
    (0.02
    )
    
    $
    (0.63
    )Distributions declared
    
    $
    0.45
    
    
    $
    0.45Weighted average common units outstanding  diluted
    
    
    42,461
    
    
    
    42,049
 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 PARTNERS EQUITY(In thousands)
(Unaudited) Common Units
    
    AccumulatedOtherPreferred
    
    General
    
    Limited
    
    ComprehensiveUnits
    
    Partner
    
    Partners
    
    Income (Loss)
    
    TotalPartners Equity, December 31, 2003
    
    $
    215,000
    
    
    $
    8,464
    
    
    $
    719,618
    
    
    $
    (14,147
    )
    
    $
    928,935Comprehensive incomeNet income
    
    
    3,997
    
    
    
    7
    
    
    
    736
    
    
    
    
    
    
    
    4,740Net change in derivative value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,252
    )
    
    
    (2,252
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,488Contributions from the Company related
to employee stock purchase and stock
option plans
    
    
    
    
    
    
    29
    
    
    
    2,830
    
    
    
    
    
    
    
    2,859Stock-based compensation
    
    
    
    
    
    
    1
    
    
    
    139
    
    
    
    
    
    
    
    140Distributions to preferred Unitholders.
    
    
    (3,997
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,997
    )Distributions to common Unitholders
    
    
    
    
    
    
    (191
    )
    
    
    (18,925
    )
    
    
    
    
    
    
    (19,116
    )Redemption of preferred units
    
    
    (50,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )Contributions from the Company related
to shares issued for restricted stock,
net of deferred compensation
    
    
    
    
    
    
    3
    
    
    
    272
    
    
    
    
    
    
    
    275Partners Equity, March 31, 2004
    
    $
    165,000
    
    
    $
    8,313
    
    
    $
    704,670
    
    
    $
    (16,399
    )
    
    $
    861,584
 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 CASH FLOWS(In thousands)
(Unaudited) Three months endedMarch 31,2004
    
    2003Cash Flows From Operating ActivitiesNet income (loss)
    
    $
    4,740
    
    
    $
    (22,203
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation
    
    
    21,186
    
    
    
    23,194Amortization of deferred financing costs
    
    
    1,116
    
    
    
    788Gains on properties held for sale and sold  discontinued operations
    
    
    (1,627
    )
    
    
    (6,873
    )Severance charges
    
    
    
    
    
    
    19,712Asset impairment charge
    
    
    
    
    
    
    14,118Equity in losses (income) of unconsolidated entities
    
    
    (181
    )
    
    
    393Stock-based compensation
    
    
    415
    
    
    
    139Changes in assets, (increase) decrease in:Restricted cash
    
    
    (26
    )
    
    
    (74
    )Other assets
    
    
    (883
    )
    
    
    (2,495
    )Deferred charges
    
    
    (298
    )
    
    
    (936
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    5,758
    
    
    
    7,456Accounts payable and accrued expenses
    
    
    (2,748
    )
    
    
    (6,227
    )Security deposits and prepaid rents
    
    
    (66
    )
    
    
    (295
    )Net cash provided by operating activities
    
    
    27,386
    
    
    
    26,697Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (67
    )
    
    
    (13,774
    )Net proceeds from property sales
    
    
    2,279
    
    
    
    38,262Capitalized interest
    
    
    (239
    )
    
    
    (1,869
    )Recurring capital expenditures
    
    
    (2,422
    )
    
    
    (1,462
    )Corporate additions and improvements
    
    
    (134
    )
    
    
    (208
    )Non-recurring capital expenditures
    
    
    (1,244
    )
    
    
    (958
    )Revenue generating capital expenditures
    
    
    (26
    )
    
    
    (89
    )Distributions and repayment of advances received from unconsolidated entities
    
    
    52,156
    
    
    
    17,902Net cash provided by investing activities
    
    
    50,303
    
    
    
    37,804Cash Flows From Financing ActivitiesProceeds from notes payable
    
    
    35,000
    
    
    
    Payments on notes payable
    
    
    (683
    )
    
    
    (659
    )Payments of financing costs
    
    
    (4,202
    )
    
    
    Lines of credit proceeds (repayments), net
    
    
    (22,010
    )
    
    
    (29,630
    )Redemption of preferred units
    
    
    (50,000
    )
    
    
    Proceeds from employee stock purchase and stock option plans
    
    
    2,859
    
    
    
    263Distributions to preferred unitholders
    
    
    (3,997
    )
    
    
    (4,262
    )Distributions to common unitholders
    
    
    (19,043
    )
    
    
    (32,792
    )Net cash used in financing activities
    
    
    (62,076
    )
    
    
    (67,080
    )Net increase (decrease) in cash and cash equivalents
    
    
    15,613
    
    
    
    (2,579
    )Cash and cash equivalents, beginning of period
    
    
    1,334
    
    
    
    6,390Cash and cash equivalents, end of period
    
    $
    16,947
    
    
    $
    3,811
 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit 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, 2004, the Company owned 93.3% of the common limited partnership
interests (Common Units) in the Operating Partnership and 57.6% of the
preferred limited partnership interests (Preferred Units). The Companys
weighted average common ownership interest in the Operating Partnership was
92.8% and 88.6% for the three months ended March 31, 2004 and 2003,
respectively. At March 31, 2004, Common Units held by persons (including two
directors of the Company) other than the Company represented a 6.7% 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.The Operating Partnership owns 27,683 apartment units in 71 apartment
communities, including 666 apartment units in three apartment
communities held in unconsolidated real estate
entities. At March 31, 2004, approximately 54.2%, 17.4% and 8.0% (on a unit
basis) of the Operating Partnerships communities were located in the
Atlanta, Dallas and Tampa metropolitan areas, respectively.Under the provisions of the limited partnership agreement, as amended,
Operating Partnership net profits, net losses and cash flow (after
allocations to preferred ownership interests) are allocated to the partners
in proportion to their common ownership interests. Cash distributions from
the Operating Partnership shall be, at a minimum, sufficient to enable the
Company to satisfy its annual dividend requirements to maintain its REIT
status under the Code.Basis of PresentationThe accompanying unaudited financial statements have been prepared by the
Operating Partnerships management in accordance with generally accepted
accounting principles for interim financial information and applicable rules
and regulations of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the three month period ended March 31, 2004
are not necessarily indicative of the results that may be expected for the
full year. These financial statements should be read in conjunction with the
Operating Partnerships audited financial statements and notes thereto
included in its Annual Report on Form 10-K for the year ended December 31,
2003. Certain 2003 amounts have been reclassified to conform to the current
years financial statement presentation.Revenue RecognitionResidential properties are leased under operating leases with terms of
generally one year or less. Rental revenues from
residential leases are recognized on the straight-line method over the approximate
life of the leases, which is generally one year. The recognition of
rental revenues from residential leases when earned has historically
not been materially different from rental revenues recognized on a
straight-line basis.Under the terms of residential leases, the residents of the Operating
Partnerships residential communities are obligated to reimburse the
Operating Partnership for certain utility usage, water and electricity (at
selected properties), where the Operating Partnership is the primary obligor
to the public utility entity. These utility
reimbursements from residents are reflected as other property revenues in the
consolidated statements of operations. -19-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)   Equity-based CompensationEffective January 1, 2003, the Company accounts for stock-based compensation
under the fair value method prescribed by Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. In
adopting SFAS No. 123, the Company used the prospective method prescribed in
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. In periods prior to January 1, 2003, the Company accounted for
stock-based compensation under the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued
to Employees.The following table reflects the effect on the Operating Partnerships net
income and earnings per common unit had the fair value method of accounting
under SFAS No. 123 been applied to all stock awards for each period. Three months endedMarch 31,2004
    
    2003Net loss available to common unitholdersAs reported
    
    $
    (973
    )
    
    $
    (26,465
    )Stock-based compensation included in net income as reported
    
    
    415
    
    
    
    139Stock-based compensation determined under the fair value method for all awards.
    
    
    (437
    )
    
    
    (201
    )Pro forma
    
    $
    (995
    )
    
    $
    (26,527
    )Net loss per common unit  basicAs reported
    
    $
    (0.02
    )
    
    $
    (0.63
    )Pro forma
    
    $
    (0.02
    )
    
    $
    (0.63
    )Net loss per common unit  dilutedAs reported
    
    $
    (0.02
    )
    
    $
    (0.63
    )Pro forma
    
    $
    (0.02
    )
    
    $
    (0.63
    )
  New Accounting PronouncementsIn 2003, the Financial Accounting Standards Board issued several new
accounting pronouncements and the pronouncements with a potential impact on
the Operating Partnership in 2004 are discussed below.FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51 was originally issued in January 2003 and
subsequently revised and restated in December 2003 through FASB
Interpretation No. 46  Revised (together these pronouncements are referred
to as FIN No. 46). FIN No. 46 requires consolidation of all legal entities
in which the enterprise holds contractual, ownership or other monetary
interests that change with changes in the entitys net asset value (such
entities being designated as variable interest entities) where the enterprise
is deemed the primary beneficiary. The consolidation provisions of FIN No.
46 were generally applicable as of December 31, 2003 for all variable
interest entities created after January 31, 2003. For special purpose
entities, as defined, created prior to February 1, 2003, the consolidation
provisions of FIN No. 46 were generally applicable as of December 31, 2003.
For other variable interest entities created prior to February 1, 2003 where
the Operating Partnership is deemed to be the primary beneficiary,
consolidation of such entities will be required for the interim period ending
March 31, 2004. The Operating Partnership currently does not have any
interests in special purpose entities or other variable interest entities and
FIN No. 46 did not have a significant effect on its results of operations or
financial position. -20-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)   2.
    
    INDEBTEDNESSAt March 31, 2004 and December 31, 2003, the Operating Partnerships
indebtedness consisted of the following: Payment
    
    
    
    
    
    Maturity
    
    March 31,
    
    December 31,Description
    
    Terms
    
    Interest Rate
    
    Date (1)
    
    2004
    
    2003Unsecured NotesSenior Notes
    
    Int.
    
    
    6.11% - 7.70%
    
    
    
    2006-2010
    
    
    $
    285,000
    
    
    $
    285,000Medium Term Notes
    
    Int.
    
    
    6.69% - 8.12%
    (2)
    
    
    2004-2015
    
    
    
    323,000
    
    
    
    323,000608,000
    
    
    
    608,000Unsecured Lines of Credit & OtherSyndicated Line of Credit
    
    
    N/A
    
    
    
    LIBOR + 0.90%
    (3)
    
    
    2007
    
    
    
    50,000
    
    
    
    60,000Cash Management Line
    
    
    N/A
    
    
    
    LIBOR + 0.75%
    
    
    
    2004
    
    
    
    
    
    
    
    12,01050,000
    
    
    
    72,010Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int.
    
    
    6.975%
    (4)
    
    
    2029
    
    
    
    99,800
    
    
    
    99,800Other
    
    Prin. and Int.
    
    
    4.27% - 7.69%
    
    
    
    2007-2013
    
    
    
    226,449
    
    
    
    192,132326,249
    
    
    
    291,932Tax Exempt Floating Rate
Bonds (Secured)
    
    Int.
    
    
    0.95%
    (5)
    
    
    2025
    
    
    
    214,380
    
    
    
    214,380Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,198,629
    
    
    $
    1,186,322
   (1)
    
    All outstanding indebtedness can be prepaid at any time, subject to
certain prepayment penalties.(2)
    
    Includes $100,000 of Mandatory Par Put Remarketed Securities
(MOPPRS). The annual interest rate on these securities to March
2005 is 6.85%. The MOPPRS mature in March 2015, but are subject to
mandatory tender for remarketing in March 2005. In March 2005, if the
remarking dealer elects not to remarket the MOPPRS, the Operating
Partnership is required to redeem the MOPPRS at par. If the
remarketing dealer elects to remarket the securities in March 2005,
the interest rate on the MOPPRS will be established at a rate of
5.715% plus the Operating Partnerships applicable credit spread for
the Operating Partnerships securities with similar maturities. The
MOPPRS may be redeemed, at the Operating Partnerships option,
immediately prior to their remarketing in March 2005 at an optional
redemption price equal to the outstanding principal balance plus a
prepayment penalty (generally equivalent to the make-whole amount
necessary to compensate for the amount by which the base rate of
5.715% exceeds the then-existing 10-year treasury rate).(3)
    
    Represents stated rate. At March 31, 2004, the average interest
rate was 1.99%.(4)
    
    Interest rate is fixed at 6.975%, inclusive of credit enhancement
and other fees, to 2009 through an interest rate swap arrangement.(5)
    
    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, 2004 before
credit enhancements. The Operating Partnership has outstanding
interest rate cap arrangements that limit the Operating Partnerships
exposure to increases in the base interest rate to 5%. At March 31,
2004 and December 31, 2003, approximately $119,085 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 2004
    
    $
    26,4112005
    
    
    204,402
    (2)2006
    
    
    79,7322007
    
    
    112,1782008
    
    
    4,014Thereafter
    
    
    721,892
    (2)$
    1,148,629
   (1)
    
    Excludes outstanding
balances of $50,000 on lines of credit
discussed below.(2)
    
    Aggregate debt maturities
for years ended in 2009 and thereafter
include $100,000 of Mandatory Par Put
Remarketed Securities (MOPPRS). The
MOPPRS mature in March 2015, but are
subject to mandatory tender for remarketing
in March 2005. In March 2005, if the
remarketing dealer elects not to remarket
the MOPPRS, the Operating Partnership is
required to redeem the MOPPRS at par. If
the remarketing dealer elects to remarket
the securities in March 2005, the interest
rate on the MOPPRS will be established at a
rate of 5.715% plus the Operating
Partnerships applicable credit spread for
Operating Partnership securities with
similar maturities. The MOPPRS may be
redeemed, at the Operating Partnerships
option, immediately prior to their
remarketing in March 2005 at an optional
redemption price equal to the outstanding
principal balance plus a prepayment
penalty. -21-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)   New debt issuances and retirementsIn March 2004, the Operating Partnership closed a $35,000 secured, fixed rate
mortgage note payable obtained by a consolidated real estate entity. The
note bears interest at 4.27%, requires monthly interest only payments through
March 2007 and monthly principal and interest payments based on a 30-year
amortization schedule from April 2007 through the note maturity date in March
2009.Upon their maturity on April 1, 2004, the Operating Partnership repaid
$13,000 of its 7.30% medium term, unsecured notes, using its available cash
balances and borrowings under its unsecured lines of credit.Unsecured Lines of CreditIn January 2004, the Operating Partnership refinanced its previous revolving
line of credit with a new $350,000 three-year unsecured revolving line of
credit (the Revolver) that matures in January 2007. The Revolver currently
has a stated interest rate of LIBOR plus 0.90% or the prime rate and was
provided by a syndicate of nine banks led by Wachovia Bank, N.A.
Additionally, the Revolver requires the payment of annual facility fees equal
to 0.20% of the aggregate loan commitment. The Revolver provides for the
interest rate and facility fee rate to be adjusted up or down based on
changes in the credit ratings on the Operating Partnerships senior unsecured
debt. The rates under the Revolver are based on the lower of the Operating
Partnerships unsecured debt ratings in instances where the Operating
Partnership has split unsecured debt ratings. The Revolver also includes a
money market competitive bid option for short-term funds up to $175,000 at
rates generally below the stated line rate. The credit agreement for the
Revolver contains customary representations, covenants and events of default,
including fixed charge coverage and maximum leverage ratios as well as
covenants which restrict the ability of the Operating Partnership to make
distributions, in excess of stated amounts, which in turn restrict the
discretion of the Company to declare and pay dividends. In general, during
any fiscal year the Operating Partnership may only distribute up to 100% of
the Operating Partnerships consolidated income available for distribution
(as defined in the credit agreement) exclusive of distributions of up to
$15,000 of capital gains for such year. The credit agreement contains
exceptions to these limitations to allow the Operating Partnership to make
distributions necessary to allow the Company to maintain its status as a
REIT. The Operating Partnership does not anticipate that these ratios and
covenants will adversely affect the ability of the Operating Partnership to
borrow money or make distributions, or the Company to declare dividends, at
the Companys current dividend level. The Revolver matures in January 2007.
At March 31, 2004, the Operating Partnership had issued letters of credit to
third parties totaling $1,828 under this facility.Additionally, the Operating Partnership has a $20,000 unsecured line of credit with
Wachovia Bank, N.A. (the Cash Management Line), which was scheduled to
mature on April 30, 2004. In April 2004, the Operating
Partnership renewed this line of
credit for maturity, pricing and terms, including debt covenants,
substantially consistent with those of the Revolver. The Cash Management
line currently has a stated interest rate of LIBOR plus 0.90% mirroring the
pricing structure of the Revolver and requires the payment of an annual
facility fee equal to 0.125% of the average annual unused portion of the loan
commitment.3.
    
    INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIESAt March 31, 2004, the Operating Partnership holds investments in three
individual limited liability companies (the Property LLCs) with an
institutional investor. Each Property LLC owns a newly developed apartment
community. At March 31, 2004, each of the apartment communities had achieved
stabilized occupancy. The Operating Partnership holds a 35% equity interest
in the Property LLCs. The initial development costs of the apartment
communities were funded through member equity contributions proportionate to
the members ownership interests and through construction financing provided
by the Operating Partnership.The Operating Partnership accounts for its investments in these Property LLCs
using the equity method of accounting. The excess of the Operating
Partnerships investment over its equity in the underlying net assets of the
Property LLCs was approximately $6,713 at March 31, 2004. This excess
investment is being amortized as a reduction to earnings on a straight-line
basis over the lives of the related assets. The Operating Partnership
provides real estate services (development, construction and property
management) to the Property LLCs for which it earns fees. -22-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)   The operating results of the Operating Partnership include its proportionate
share of net income (loss) from the investments in the Property LLCs. A
summary of financial information for the Property LLCs in the aggregate is as
follows: March 31,
    
    December 31,Balance Sheet Data
    
    2004
    
    2003Real estate assets, net of accumulated depreciation of $6,889 and $5,939, respectively
    
    $
    126,652
    
    
    $
    127,513Cash and other
    
    
    4,830
    
    
    
    2,516Total assets
    
    $
    131,482
    
    
    $
    130,029Mortgage notes payable
    
    $
    83,691
    
    
    $
    33,763Construction notes payable to Operating Partnership (1)
    
    
    
    
    
    
    53,769Other liabilities
    
    
    1,817
    
    
    
    1,742Total liabilities
    
    
    85,508
    
    
    
    89,274Members equity
    
    
    45,974
    
    
    
    40,755Total liabilities and members equity
    
    $
    131,482
    
    
    $
    130,029Operating Partnerships equity investment
    
    $
    22,763
    
    
    $
    21,017Operating Partnerships share of notes payable
    
    $
    29,292
    
    
    $
    30,636
   (1)
    
    All of the Operating Partnerships
construction financing to these unconsolidated
real estate entities is included in the Operating
Partnerships outstanding debt and total assets.
At December 31, 2003, the venture partners share
of the construction loans was $34,950. All
construction financing has been refinanced with
permanent loans from unaffiliated entities as of
March 31, 2004. Three months endedMarch 31,Income Statement Data
    
    2004
    
    2003RevenueRental
    
    $
    3,248
    
    
    $
    1,689Other
    
    
    208
    
    
    
    135Total revenues
    
    
    3,456
    
    
    
    1,824ExpensesProperty operating and maintenance
    
    
    1,217
    
    
    
    1,260Depreciation and amortization
    
    
    937
    
    
    
    895Amortization of deferred loan costs
    
    
    13
    
    
    
    Interest
    
    
    773
    
    
    
    708Total expenses
    
    
    2,940
    
    
    
    2,863Income (loss) from continuing operations
    
    
    516
    
    
    
    (1,039
    )Loss from discontinued operations
    
    
    
    
    
    
    (85
    )Net income (loss)
    
    $
    516
    
    
    $
    (1,124
    )Operating Partnerships share of net income (loss).
    
    $
    216
    
    
    $
    (393
    )
  The loss from discontinued operations represents the operating results of an
apartment community (held by a fourth Property LLC) that was sold in June
2003.In March 2004, one of the Property LLCs repaid its outstanding construction
note payable to the Operating Partnership of $53,916 through the proceeds
from a third-party non-recourse permanent mortgage note totaling $50,000 and
from member equity contributions. The mortgage note bears interest at 4.13%,
requires monthly interest payments and annual principal payment of $1 through
2009. Thereafter, the note requires monthly principal and interest payments
based on a 25-year amortization schedule and matures in April 2034. The note
is callable by the lender in May 2009 and on each successive fifth year
anniversary of the note thereafter. The note is prepayable without penalty
in May 2008. The additional mortgage notes payable bear interest at rates
ranging from 4.04% to 4.28% and mature in 2008.As part of the development and construction services agreements entered into
between the Operating Partnership and the Property LLCs, the Operating
Partnership guaranteed the maximum total amount for certain construction cost
categories subject to aggregate limits. The Operating Partnerships
remaining maximum exposure for the fourth Property LLC totals approximately
$5,200. The Operating Partnership does not currently expect to be required
to fund any guarantees relating to this Property LLC. -23-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)   4.
    
    REAL ESTATE ASSETS HELD FOR SALE / DISCONTINUED OPERATIONSThe Operating Partnership classifies real estate assets as held for sale
after the approval of its internal investment committee and after the
Operating Partnership has commenced an active program to sell the assets. At
March 31, 2004, the Operating Partnership had eight apartment communities,
containing 3,942 units, and certain tracts of land classified as held for
sale. These real estate assets are reflected in the accompanying
consolidated balance sheet at $122,409, which represents the lower of
depreciated cost or fair value less costs to sell. The Operating Partnership
expects the sale of these assets to occur in the next twelve months.Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the operating results of real estate assets designated as held for
sale are included in discontinued operations in the consolidated statement of
operations for all periods presented. Additionally, all subsequent gains or
additional losses on the sale of these assets are included in discontinued
operations.For the three months ended March 31, 2004, income from discontinued
operations included the results of operations of the eight communities,
containing 3,942 units, classified as held for sale at March 31, 2004 and the
results of operations of one community sold in 2004 through its sale date.
For the three months ended March 31, 2003, income from discontinued
operations included the results of operations of all communities classified
as held for sale at March 31, 3004, the one community sold in 2004 and the
results of operations of four communities sold in 2003 through the earlier of
March 31, 2003 or their sale dates.The revenues and expenses of these communities for the three months ended
March 31, 2004 and 2003 were as follows: Three months endedMarch 31,2004
    
    2003RevenuesRental
    
    $
    7,932
    
    
    $
    12,170Other
    
    
    698
    
    
    
    833Total revenues
    
    
    8,630
    
    
    
    13,003ExpensesProperty operating and maintenance
(exclusive of items shown separately below).
    
    
    3,785
    
    
    
    5,082Depreciation
    
    
    
    
    
    
    2,438Interest
    
    
    923
    
    
    
    1,671Asset impairment charge
    
    
    
    
    
    
    14,118Total expenses
    
    
    4,708
    
    
    
    23,309Income (loss) from discontinued operations
    
    $
    3,922
    
    
    $
    (10,306
    )
  In the first quarter of 2003, the Operating Partnership recorded an asset
impairment charge to write-down the cost of the Operating Partnerships
apartment community located in Phoenix, Arizona to its estimated fair value.
This impairment loss, originally reflected in continuing operations, was
reclassified to discontinued operations to reflect the designation of this
community as held for sale during the third quarter of 2003 and the final
sale of the community in the fourth quarter of 2003.For the three months ended March 31, 2004, the Operating Partnership
recognized net 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. The $21,700 held by the third party
intermediary is included in other assets in the accompanying consolidated
balance sheet. For the three months ended March 31, 2003, the Operating
Partnership recognized net gains from discontinued operations of $7,981 on
the sale of one community, containing 239 apartment units, reduced by losses
of $1,106 resulting from losses on the sale of certain land parcels and
additional reserves to write-down to fair value certain other land parcels
previously classified as held for sale at December 31, 2002. -24-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)   5.
    
    PARTNERS EQUITYPreferred UnitsOn March 5, 2004, the Company redeemed its 7 5/8% series C cumulative
redeemable preferred stock (Series C Preferred Stock) for $25.00 per share
(an aggregate of $50,000), plus accrued and unpaid dividends through March 5,
2004. Correspondingly, the Operating Partnership redeemed its 7 5/8% Series
C Cumulative redeemable preferred partnership units (the Series C Preferred
Units) on the same date and under the same terms. In connection with the
issuance of the Series C Preferred Units in 1998, the Operating Partnership
incurred $1,716 in issuance costs and recorded such costs as a reduction of
partners equity. The redemption price of the Series C Preferred Units
exceeds the related carrying value by the $1,716 of issuance costs. In
connection with the redemption, in accordance with generally accepted
accounting principles, the Operating Partnership reflected the $1,716 of
issuance costs as a reduction of earnings in arriving at net income available
to common unitholders.Computations of Earnings Per Common UnitFor the three months ended March 31, 2004 and 2003, a reconciliation of the
numerator and denominator used in the computation of basic and diluted income
from continuing operations per common unit is as follows: Three months endedMarch 31,2004
    
    2003Loss from continuing operations available to common unitholders (numerator):Loss from continuing operations
    
    $
    (809
    )
    
    $
    (18,770
    )Less: Preferred unit distributions
    
    
    (3,997
    )
    
    
    (4,262
    )Less: Preferred unit redemption costs
    
    
    (1,716
    )
    
    
    Loss from continuing operations available to common unitholders
    
    $
    (6,522
    )
    
    $
    (23,032
    )Common units (denominator):Weighted average units outstanding  basic
    
    
    42,461
    
    
    
    42,049Incremental units from assumed conversion of stock options
    
    
    
    
    
    
    Weighted average units outstanding  diluted
    
    
    42,461
    
    
    
    42,049
  At March 31, 2004, stock options to purchase 55 shares of common stock were
excluded from the computation of diluted earnings per common unit as these
stock options were antidilutive.  6.
    
    DERIVATIVE FINANCIAL INSTRUMENTSAt March 31, 2004 and 2003, the Operating Partnership had outstanding
interest rate swap agreements with a notional value of $129,000 with maturity
dates ranging from 2005 to 2009. The interest rate swap agreements are
included on the accompanying consolidated balance sheet at fair value. The
Operating Partnership recorded unrealized net losses of $1,758 and an
unrealized net gain of $194, for the three months ended March 31, 2004 and
2003, respectively, on these cash flow hedges as decreases and increases in
accumulated other comprehensive income, a partners equity account, in the
accompanying consolidated balance sheet.At March 31, 2004 and 2003, the Operating Partnership had outstanding
interest rate cap arrangements with two financial institutions. The interest
rate cap arrangements are cash flow hedges that provide a fixed ceiling at 5%
for the Operating Partnerships variable rate, tax exempt borrowings. The
Operating Partnership is required to maintain the interest rate exposure
protection under the terms of the financing arrangements. The interest rate
cap arrangements are included on the accompanying balance sheet at fair
value. At March 31, 2004, the difference of $1,808 between the amortized
costs of the interest rate cap arrangements of $2,720 and their fair value of
$912 is included in accumulated other comprehensive income (loss), a partners
equity account. The $2,720 cost of the arrangements is being amortized as
additional expense over their five-year term in accordance with SFAS No. 133,
as amended.Comprehensive income for the three months ended March 31, 2004 totaled
$2,488, as summarized on the consolidated statement of partners equity. The
comprehensive loss for the three months ended March 31, 2003 totaled a net
loss of $22,685 and consisted of a net income of $22,203 less the net change
in the value of the derivatives discussed above of ($482). -25-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)   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 three 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 March 31, 2004. The segment information for the three months
ended March 31, 2003 has been adjusted due to the restatement
impact of reclassifying the operating results of the assets
designated as held for sale in 2003 to discontinued operations under
SFAS No. 144 (see note 4).  
    
    Fully stabilized communities  those apartment communities which have
been stabilized (the earlier of the point at which a property reaches
95% occupancy or one year after completion of construction) for both the
current and prior year.
    
    Communities stabilized during 2003  communities which reached
stabilized occupancy in the prior year.
    
    Development and lease-up communities  those communities that are in
lease-up but were not stabilized by the beginning of the current year,
including communities that stabilized during the current year.  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 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. 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
(loss) is the most directly comparable GAAP measure to net operating income. -26-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)   Segment InformationThe following table reflects each segments contribution to consolidated
revenues and property NOI together with a reconciliation of segment
contribution to property NOI income from continuing operations. Additionally,
substantially all of the Operating Partnerships assets relate to the
Operating Partnerships property rental operations. Asset cost, depreciation
and amortization by segment are not presented because such information at the
segment level is not reported internally. Three months endedMarch 31,2004
    
    2003RevenuesFully stabilized communities
    
    $
    64,709
    
    
    $
    64,944Communities stabilized during 2003
    
    
    3,955
    
    
    
    3,452Development and lease-up communities
    
    
    1,714
    
    
    
    3Other property segments
    
    
    5,014
    
    
    
    4,426Other
    
    
    76
    
    
    
    130Consolidated revenues
    
    $
    75,468
    
    
    $
    72,955Contribution to NOIFully stabilized communities
    
    $
    39,435
    
    
    $
    41,063Communities stabilized during 2003
    
    
    2,526
    
    
    
    1,955Development and lease-up communities
    
    
    1,240
    
    
    
    (261
    )Other property segments
    
    
    (994
    )
    
    
    (1,222
    )Consolidated property net operating income
    
    
    42,207
    
    
    
    41,535Interest income
    
    
    180
    
    
    
    234Other revenue
    
    
    76
    
    
    
    130Minority interest in consolidated property partnerships
    
    
    272
    
    
    
    334Depreciation
    
    
    (21,186
    )
    
    
    (20,290
    )Interest expense
    
    
    (16,281
    )
    
    
    (15,629
    )Amortization of deferred loan costs
    
    
    (1,116
    )
    
    
    (788
    )General and administrative
    
    
    (4,642
    )
    
    
    (3,624
    )Development costs and other
    
    
    (535
    )
    
    
    (567
    )Severance charges
    
    
    
    
    
    
    (19,712
    )Equity in income losses of unconsolidated real estate entities
    
    
    216
    
    
    
    (393
    )Loss from continuing operations
    
    
    (809
    )
    
    
    (18,770
    )Income (loss) from discontinued operations
    
    
    5,549
    
    
    
    (3,433
    )Net income (loss)
    
    $
    4,740
    
    
    $
    (22,203
    )
  8.
    
    SEVERANCE CHARGESIn the first quarter of 2003, the Operating Partnership recorded severance
charges of $19,712 relating to the change in roles from executive to
non-executive status of the Companys former chairman and vice-chairman of
the board of directors. The severance charges represented the discounted
present value of the estimated payments to be made to the former chairman and
vice-chairman under their existing employment arrangements.The following table summarizes the activity relating to aggregate severance
charges for the three month period ended March 31, 2004: Accrued severance charges, December 31, 2003
    
    $
    19,171Payments for period
    
    
    (747
    )Interest accretion
    
    
    251Accrued severance charges, March 31, 2004
    
    $
    18,675
  Substantially all of these remaining amounts will be paid over the remaining
terms of the former executives employment contracts (9 to 12 years). -27-




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POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)   9.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONNon-cash investing and financing activities for the three months ended March
31, 2004 and 2003 were as follows: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).During the three months ended March 31, 2004, the Operating Partnerships
derivative financial instruments (see note 6) decreased in value
causing an increase in accounts payable and accrued expenses and a corresponding
decrease in partners equity of $2,252. During the three months ended March
31, 2003, the Operating Partnerships derivative financial instruments
decreased in value causing an increase in accounts payable and accrued
expenses and a corresponding decrease in unitholders equity of
$482.10.
    
    STOCK-BASED COMPENSATION PLANDuring the three months ended March 31, 2004, the Company granted
approximately 24 shares of restricted stock to company officers and
directors, of which approximately 7 shares were granted to the Companys
non-executive Chairman of the Board. The restricted shares vest ratably over
three years. The total value of the restricted share grants of $662 for the
three months ended March 31, 2004 was initially reflected in partners equity
as additional paid in capital reduced by non-amortized deferred compensation
expense. Such deferred compensation is amortized ratably into compensation
expense over the vesting period.Additionally, in the three months ended March 31, 2004, the Company granted
stock options to purchase approximately 261 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
Operating Partnership expenses the estimated costs of stock options over
their three year vesting periods.11.
    
    LEGAL PROCEEDINGSOn 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 alleges various breaches of
fiduciary duties by the board of directors of the Company and seeks, among
other relief, the disclosure of certain information by the defendants. This
complaint also seeks to compel the defendants to undertake various actions to
facilitate a sale of the Operating Partnership. On May 7, 2003, the plaintiff
made a request for voluntary expedited discovery. On May 13, 2003, the
Operating Partnership received notice that a shareholder derivative and
purported class action lawsuit was filed against certain members of the board
of directors of the Company and against the Operating Partnership as a
nominal defendant. The complaint was filed in the Superior Court of Fulton
County, Atlanta, Georgia on May 12, 2003 and alleges breaches of fiduciary
duties, abuse of control and corporate waste by the defendants. The
plaintiff seeks monetary damages and, as appropriate, injunctive relief.
These lawsuits are expected to be settled in 2004. The estimated legal and
settlement costs, not covered by insurance, associated with the expected
resolution of the lawsuits were recorded in the second quarter of 2003 as a
component of a proxy and related costs charge.The Operating Partnership is involved in various other legal proceedings
incidental to its business from time to time, most of which are expected to
be covered by liability insurance. Management of the Operating Partnership
believes that any resolution of pending proceedings or liability to the
Operating Partnership, which may arise as a result of these proceedings, will
not have a material adverse effect on the Operating Partnerships results of
operations or financial position. -28-




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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,
2004, the Company owned 27,683 apartment units in 71 apartment communities,
including 666 apartment units in three communities held in unconsolidated
entities. At March 31, 2004, approximately 54.2%, 17.4% and 8.0% (on a unit
basis) of the Companys communities were located in the Atlanta, Dallas and
Tampa metropolitan area, respectively. The Company has elected to qualify and operate as a self-administrated and
self-managed real estate investment trust (REIT) for federal income tax
purposes. A REIT is a legal entity which holds real estate interests and,
through payments of dividends to shareholders, in practical effect is not
subject to federal income taxes at the corporate level. At March 31, 2004, the Company owned approximately 93.3% of the common limited
partnership interests (Common Units) in the Operating Partnership. Common
Units held by persons (including certain directors) other than the Company
represented a 6.7% common minority interest in the Operating Partnership. As we discussed in our Annual Report on Form 10-K for the year ended December
31, 2003, the multifamily sector been adversely impacted over the past few
years by overall weakness in the U.S. economy and a soft employment market, the
strong single-family housing market caused by historically low mortgage
interest rates and excess multifamily supply. These factors have contributed
to a significant increase in apartment vacancies and, in turn, lower net
effective rents as multifamily apartment owners sought to compete in this
increasingly competitive environment. As a result, multifamily same-store
revenue and net operating income growth have declined, turning negative since
2001 and continuing into 2004. Recently, however, there have been ongoing
signs of stabilization in the Companys markets. As a result of these factors,
revenues and net operating income at the Companys fully stabilized (same
store) communities experienced declines of 0.4% and 4.0% in the three months
ended March 31, 2004 as compared to the same period in 2003. These declines
were smaller than the full year 2003 declines in revenues and net operating
income of 3.4% and 6.1%, respectively. The improved results were driven by
increased average economic occupancy at the Companys fully stabilized (same
store) communities which increased from 90.2% for the three months ended March
31, 2003 to 92.8% for the three months ended March 31, 2004. Sequentially,
revenues for the Companys fully stabilized (same store) communities increased
0.4% in the first quarter of 2004, compared to the fourth quarter of 2003, and
the rate of decline in average monthly rental rates moderated to a decline of
0.5% for the same sequential period. Since year end, the Company
has also continued to move forward on its asset sales
program, selling one 398-unit apartment community in the first quarter of 2004.
The remaining eight apartment communities held for sale at March 31, 2004 are
currently expected to close late in the second quarter or early in the third
quarter of 2004. The Company utilized asset sales proceeds during March and
April 2004 to redeem $50,000 of 7-5/8% preferred stock and
$13,000 of 7.3% debt, respectively. The reinvestment of asset sales proceeds back into
the Companys balance sheet also contributed to the decrease in the Companys
percentage of total debt and preferred equity to undepreciated real estate
assets from 55.2% at March 31, 2003 to 53.2% at March 31, 2004 (see table 1
below). In addition to $119,085 of tax-exempt financing that is currently
expected will be assumed by the buyer of six communities, the Operating
Partnership is also considering utilizing asset sales proceeds expected to be
received later in 2004 to redeem $70,000 of 8% preferred units that first
become callable in September 2004 and $10,000 of 6.7% debt that also
matures in September 2004. The Company currently plans to
utilize the remaining proceeds from asset sales to reinvest in acquisitions that diversify its cash
flow stream and enhance the quality of its portfolio, such as in the greater
Washington, D.C., Tampa and Orlando markets, among others. In the event that
the Company is unable to identify acquisition targets that meet its objectives,
the Company may also consider utilizing sales proceeds to repurchase its common
stock, if the Company could do so at substantial discounts to its estimates of
per-share net asset value. There are no assurances, however, that the Company
will utilize asset sales proceeds for the above purposes. See Liquidity and
Capital Resources later in this section where the Companys asset sales program
is discussed further. -29-




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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)  Finally, during January and April 2004, the Company renewed and refinanced its
$350,000 and $20,000 revolving lines of credit. Both credit facilities
have a three-year term and mature in January 2007. The pricing and terms,
including debt covenants of these facilities also substantially mirror one
another. See Liquidity and Capital Resources later in this section where
discussed further. The Company had $50,000 in combined borrowings under
these credit facilities as of March 31, 2004. Table 1
Computation of the Ratio of Debt and Preferred Shares and Units to
   Undepreciated Real Estate Assets
(adjusted for joint venture partners share of debt) As of March 31,2004
    
    2003Total real estate assets per balance sheet
    
    $
    2,050,422
    
    
    $
    2,210,379Plus:Company share of real estate assets held in unconsolidated entities
    
    
    44,329
    
    
    
    69,678Company share of accumulated depreciation  assets held in unconsolidated entities
    
    
    2,411
    
    
    
    1,637Accumulated depreciation per balance sheet
    
    
    453,077
    
    
    
    448,341Accumulated depreciation on assets held for sale
    
    
    69,822
    
    
    
    16,336Total undepreciated real estate assets
    
    $
    2,620,061
    
    
    $
    2,746,371Total debt per balance sheet
    
    $
    1,198,629
    
    
    $
    1,384,266Plus:Company share of debt held in unconsolidated entities
    
    
    29,292
    
    
    
    5,942Preferred shares at liquidation value
    
    
    95,000
    
    
    
    145,000Preferred units at liquidation value
    
    
    70,000
    
    
    
    70,000Less:Joint venture partners share of construction debt to the company
    
    
    
    
    
    
    (90,214
    )Total debt and preferred equity (adjusted for joint venture partners share of debt)
    
    $
    1,392,921
    
    
    $
    1,514,994Total debt and preferred equity as a % of undepreciated assets (adjusted for joint
venture partners share of debt)
    
    
    53.2
    %
    
    
    55.2
    %
  The Company uses the above ratio as a supplemental measure of
liquidity. The ratio is presented because it is an indicator of
the degree of debt and preferred equity used by the Company to
finance its business. The degree of leverage used by the Company
could affect the Companys ability to obtain additional financing
for working capital, capital expenditures, acquisitions,
development or other general corporate purposes. The Company also
believes this measure is used by the investment and analyst
communities to better understand the Companys liquidity. The following discussion should be read in conjunction with the accompanying
consolidated financial statements appearing elsewhere in this report. This
discussion is combined for the Company and the Operating Partnership as their
results of operations and the financial condition are substantially the same
except for the effect of the 6.7% 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 Securities and Exchange Commission or in connection with oral
statements made to the press, potential investors or others. Statements
regarding future events and developments and the Companys future performance,
as well as managements expectations, beliefs, plans, estimates or projections
relating to the future, are forward-looking statements within the meaning of
these laws. Forward-looking statements include statements preceded by, followed
by or that include the words believes, expects, anticipates, plans,
estimates, or similar expressions. Examples of such statements in this report
include the Companys expectations with regard to: anticipated apartment
community sales in 2004 (including the estimated proceeds, estimated gains on
sales and the use of proceeds from such sales), property net operating income
for 2004, occupancy levels and rental rates, operating expenses, stabilized
community revenues in excess of specified expenses, accounting recognition and
measurement of guarantees, debt maturities and financing needs, dividend
payments, its ability to meet new construction, development and other long-term
liquidity requirements, and its ability to execute future asset sales.
Forward-looking statements are only predictions and are not guarantees of
performance. These statements are based on beliefs and assumptions of the
Companys management, which in turn are based on currently available
information. Important assumptions relating to the forward-looking statements
include, among others, assumptions regarding the market for the Companys
apartment communities -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)  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
in the Companys Annual Report on Form 10-K for the year ended December
31, 2003;
    
    Future local and national economic conditions, including changes in job
growth, interest rates, the availability of financing and other
factors;
    
    Demand for apartments in the Companys markets and the effect on
occupancy and rental rates;
    
    The impact of competition on the Companys business, including
competition for residents and development locations;
    
    The Companys ability to obtain financing or self-fund the development
of additional apartment communities;
    
    The uncertainties associated with the Companys real estate
development, including actual costs exceeding the Companys budgets or
development periods exceeding expectations;
    
    Uncertainties associated with the timing and amount of apartment
community sales and the resulting gains/losses associated with such
sales;
    
    Conditions affecting ownership of residential real estate and general
conditions in the multifamily residential real estate market;
    
    The effects of changes in accounting policies and other regulatory
matters detailed in the Companys filings with the Securities and
Exchange Commission and uncertainties of litigation;
    
    The Companys ability to continue to qualify as a REIT under the
Internal Revenue Code; and
    
    Other factors, including the risk factors discussed on pages 8 through
15 in the Companys Annual Report on Form 10-K for the year ended
December 31, 2003. Management believes these forward-looking statements are reasonable; however,
undue reliance should not be placed on any forward-looking statements, which
are based on current expectations. Further, forward-looking statements speak
only as of the date they are made, and management undertakes no obligation to
update publicly any of them in light of new information or future events. Critical Accounting Policies and New Accounting Pronouncements In the preparation of financial statements and in the determination of Company
operating performance, the Company utilizes certain significant accounting
polices. The Companys significant accounting policies are included in the
notes to the Companys audited financial statements included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2003. The
discussion below addresses the implementation and impact of new pronouncements
and accounting policies with an impact on the Company in the three months ended
March 31, 2004. Residential properties are leased under operating leases with terms of
generally one year or less. Rental revenues from
residential leases are recognized on the straight-line method over the approximate
life of the leases, which is generally one year. The recognition of
rental revenues from residential leases when earned has historically
not been materially different from rental revenues recognized on a
straight-line basis. Under the terms of residential leases, the residents of the Companys
residential communities are obligated to reimburse the Company for certain
utility usage, principally water and electric at certain properties, where the
Company is the primary obligor to the public utility entity. These utility reimbursements from residents are reflected as other
property revenues in the consolidated statements of operations. In 2003, the Financial Accounting Standards Board issued several new accounting
pronouncements, and the pronouncements with a potential impact on the Company
in 2004 are discussed below. FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51 was originally issued in January 2003 and
subsequently revised and restated in December 2003 through FASB Interpretation
No. 46  Revised (together these pronouncements are referred to as FIN No.
46). FIN No. 46 requires consolidation of all legal entities in which the
enterprise holds contractual, ownership or other monetary interests that change
with changes in the entitys net asset value (such entities being designated as
variable interest entities) where the enterprise is deemed the primary
beneficiary. The consolidation provisions of FIN No. 46 were generally
applicable as of December 31, 2003 for all variable interest entities created -31-




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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)  after January 31, 2003. For special purpose entities, as defined, created
prior to February 1, 2003, the consolidation provisions of FIN No. 46 were
generally applicable as of December 31, 2003. For other variable interest
entities created prior to February 1, 2003 where the Company is deemed to be
the primary beneficiary, consolidation of such entities will be required for
the interim period ending March 31, 2004. The Company currently does not have
any interests in special purpose entities or other variable interest entities,
and FIN No. 46 did not have a significant effect on its results of operations
or financial position. 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 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, 2004, the Companys portfolio of apartment communities, excluding
three communities held in unconsolidated entities and eight communities held
for sale, consisted of the following: (1) 57 communities that were completed
and stabilized for all of the current and prior year, (2) two communities that
achieved full stabilization during 2003, and (3) one community that was in the
lease-up stage in early 2004. These operating segments exclude the operations
of apartment communities classified as discontinued operations and apartment
communities held in unconsolidated entities for the years presented. The Company has adopted an accounting policy related to communities in the
lease-up stage whereby substantially all operating expenses (including
pre-opening marketing and management and leasing personnel expenses) are
expensed as incurred. During the lease-up phase, the sum of interest expense on
completed units and other operating expenses (including pre-opening marketing
and management and leasing personnel expenses) will initially exceed rental
revenues, resulting in a lease-up deficit, which continues until such time as
rental revenues exceed such expenses. Lease up deficits were $0 and $258 for
the three months ended March 31, 2004 and 2003, respectively. This reduction
in the aggregate lease-up deficits reflects the lease-up and stabilization of
the Companys lease-up communities in late 2003 and early 2004. Currently, all
of the Companys communities have reached stabilized occupancies and the
Company has no communities in the lease-up stage. In order to evaluate the operating performance of its communities for the
comparative years listed below, the Company has presented financial information
which summarizes the rental and other revenues, property operating and
maintenance expenses (excluding depreciation and amortization) and net
operating income on a comparative basis for all of its operating communities
and for its stabilized operating communities. Net operating income is a
supplemental non-GAAP financial measure. The Company believes that the line on
the Companys consolidated statement of operations entitled net income (loss)
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. -32-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  Comparison of Three Months Ended March 31, 2004 to Three Months Ended March 31,
2003 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, 2004 and 2003 is
summarized as follows: Three months endedMarch 31,2004
    
    2003
    
    % ChangeRental and other property revenuesFully stabilized communities (1)
    
    $
    64,709
    
    
    $
    64,944
    
    
    
    (0.4
    )%Communities stabilized in 2003
    
    
    3,955
    
    
    
    3,452
    
    
    
    14.6
    %Lease-up communities (2)
    
    
    1,714
    
    
    
    3
    
    
    
    N/AOther property segments (3)
    
    
    5,014
    
    
    
    4,426
    
    
    
    13.3
    %$
    75,392
    
    
    
    72,825
    
    
    
    3.5
    %Property operating and maintenance expenses
(exclusive of depreciation and amortization)Fully stabilized communities (1)
    
    
    25,274
    
    
    
    23,881
    
    
    
    5.8
    %Communities stabilized in 2003
    
    
    1,429
    
    
    
    1,497
    
    
    
    (4.5
    )%Lease-up communities (2)
    
    
    474
    
    
    
    265
    
    
    
    78.9
    %Other expense (4)
    
    
    6,008
    
    
    
    5,647
    
    
    
    6.4
    %33,185
    
    
    
    31,290
    
    
    
    6.1
    %Property net operating income(5)
    
    $
    42,207
    
    
    $
    41,535
    
    
    
    1.6
    %Capital ExpendituresRecurring capital expenditures: (6)(7)Carpet
    
    $
    703
    
    
    $
    448
    
    
    
    56.9
    %Other
    
    
    1,394
    
    
    
    628
    
    
    
    122.0
    %Total
    
    $
    2,097
    
    
    $
    1,076
    
    
    
    94.9
    %Non-recurring capital expenditures
    
    $
    1,238
    
    
    $
    704
    
    
    
    75.6
    %Average apartment units in service
    
    
    23,075
    
    
    
    23,075
   (1)
    
    Communities which reached stabilization prior to January
1, 2003.(2)
    
    Communities in the construction, development or
lease-up stage during 2003 and, therefore, not considered
fully stabilized for all of the periods presented.(3)
    
    Other revenue includes revenue from commercial
properties, from furnished apartment rentals above the
unfurnished rental rates and any property revenue not directly
related to property operations. Other property segment
revenues exclude other corporate revenues of $76 and $130 for
the three months ended March 31, 2004 and 2003, 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 (loss) is detailed below. Three months endedMarch 31,2004
    
    2003Property net operating income
    
    $
    42,207
    
    
    $
    41,535Interest income
    
    
    180
    
    
    
    234Other revenue
    
    
    76
    
    
    
    130Minority interest in consolidated property partnerships
    
    
    272
    
    
    
    334Depreciation
    
    
    (21,186
    )
    
    
    (20,290
    )Interest expense
    
    
    (16,281
    )
    
    
    (15,629
    )Amortization of deferred loan costs
    
    
    (1,116
    )
    
    
    (788
    )General and administrative
    
    
    (4,642
    )
    
    
    (3,624
    )Development costs and other
    
    
    (535
    )
    
    
    (567
    )Severance charges
    
    
    
    
    
    
    (19,712
    )Equity in income losses of unconsolidated real estate entities
    
    
    216
    
    
    
    (393
    )Minority
interest of preferred unitholders
    
    
    (1,400)
    
    
    
    (1,400
    )Minority
interest of common unitholders
    
    
    473
    
    
    
    2,623Loss from continuing operations
    
    
    (1,736
    )
    
    
    (17,547
    )Income (loss) from discontinued operations
    
    
    5,147
    
    
    
    (3,041
    )Net income (loss)
    
    $
    3,411
    
    
    $
    (20,588
    )
  (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. -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)  Three months endedMarch 31,2004
    
    2003Recurring capital expendituresContinuing operations
    
    $
    2,097
    
    
    $
    1,076Discontinued operations
    
    
    325
    
    
    
    386Total recurring capital expenditures per statements of cash flows
    
    $
    2,422
    
    
    $
    1,462Non-recurring capital expendituresContinuing operations
    
    $
    1,238
    
    
    $
    704Discontinued operations
    
    
    6
    
    
    
    254Total non-recurring capital expenditures per statements of cash flows
    
    $
    1,244
    
    
    $
    958
 The Operating Partnership reported a net loss available to common unitholders
of $973 and $26,465 for the three months ended March 31, 2004 and 2003,
respectively, and the Company reported a net loss available to common
shareholders of $902 and $23,450 for the three months ended March 31, 2004 and
2003, respectively. The reduced net loss between periods primarily reflected
the impact of two separate, non-cash charges totaling $33,830 ($29,997 net of
minority interest) recorded in the three months ended March 31, 2003. The
first charge totaling $19,712 ($17,467 net of minority interest) was a
severance charge related to the change in roles from executive to non-executive
status of the Companys former chairman and vice chairman of the board of
directors. The second charge in 2003 totaling $14,118 ($12,510 net of minority
interest) was an asset impairment loss discussed in the discontinued operations
section below. Other than the impact of these charges, the remaining decline
resulted primarily from reduced gains on property sales between periods of
$4,582, net of minority interest, and a decrease in the operating performance
of the Companys stabilized communities. The impact of these items is
discussed below. Rental and other revenues from property operations increased $2,567 or 3.5%
from 2003 to 2004 primarily due to increased revenues from the Companys newly
stabilized and lease-up communities of $2,214 or 64.1% offset by the revenue
decline of $235 or 0.4% from fully stabilized communities discussed further
below. The revenue increase from communities stabilized in 2003 reflects full
year stabilized operating performance in 2004 compared to a partial lease-up
period in 2003. The revenue increase from lease-up communities in 2004
reflects the increased occupancy of one community between periods as this
community continued its initial lease-up. Property operating and maintenance
expenses (exclusive of depreciation and amortization) increased $1,895 or 6.1%
primarily due to an increase in property operating and maintenance expenses
(excluding depreciation and amortization) for fully stabilized communities of
$1,393 or 5.8% between periods (see discussion below) and increases in expenses
of $209 from a lease-up community as these expenses increased as property
occupancy levels increased towards stabilized occupancy levels and as the
lease-up property was placed in service. For the three months ended March 31, 2004, the Company recognized net 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. The
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. For the three months ended March 31,
2003, the Company recognized net gains from discontinued operations of $7,981
($7,072 net of minority interest), on the sale of one community, containing 239
apartment units, reduced by losses of $1,107 ($981 net of minority interest)
resulting from losses on the sale of certain land parcels and additional
reserves to write-down to fair value certain other land parcels previously
classified as held for sale. These sales generated net proceeds of
approximately $38,262. Depreciation expense increased $896, or 4.4% from 2003 to 2004 primarily due to
increased depreciation on newly stabilized and lease-up properties, as these
properties were placed in service, during mid to late 2003. Interest expense increased $652 or 4.2% from 2003 to 2004 primarily due to a
$1,630 reduction in capitalized interest to development properties between
years as the Companys development pipeline transitioned to operating
properties in 2003. Adjusted for the impact of capitalized interest, the
remaining decrease in interest expense from continuing operations results from
lower outstanding debt levels between years as the Company used the proceeds
from asset sales to reduce outstanding debt. General and administrative expenses increased $1,018, or 28.1%, from 2003 to
2004 primarily due to higher expenses related to the amortization of incentive
stock compensation awards, directors and officers insurance and legal, audit
and corporate governance expenses. Development costs and other decreased $32 or 5.6% from 2003 to 2004.
Development costs and other expenses of $535 in 2004 consisted of development
personnel and associated costs and land carry expenses not allocable to
development projects. -34-




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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)  Development costs and other expenses of $567 in 2003 consisted of legal
expenses of $373 relating to board of directors governance and transition
matters, the settlement cost of $100 relating to the bankruptcy of a former
technology investment and losses of $94 on the disposal of the Companys
partial ownership interest in a corporate aircraft. The Company recorded severance charges of $19,712 in 2003. These charges and a
summary of the activity relating to accrued severance charges for the first
quarter of 2004 are summarized in more detail in note 8 to the consolidated
financial statements. No such charges were recorded in 2004. Equity in income (losses) of unconsolidated real estate entities increased from
a loss of $393 in 2003 to income of $216 in 2004. This increase was primarily
due to the lease-up of one of the apartment communities held in an
unconsolidated entity in 2003 and 2004. In the first quarter of 2003, this
community was beginning its initial lease-up and, in the first quarter of 2004,
the community was substantially leased. See note 4 to the consolidated
financial statements for a summary of the operating results of the Companys
unconsolidated entities. Recurring and nonrecurring capital expenditures from continuing operations
increased $1,555 or 87.4% from 2003 to 2004 primarily due to the Companys
emphasis on maintaining the quality and competitive position of its apartment
communities in 2004. The increase in nonrecurring capital expenditures of $534
or 75.9% in 2004 primarily reflected a special project to prevent water
infiltration at one property located in Tampa, FL as well as other structural
projects at a property in Dallas, TX. -35-




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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 The Company defines fully stabilized communities as those which have reached
stabilization prior to the beginning of the previous year. For the 2004 to
2003 comparison, fully stabilized communities are defined as those communities
which reached stabilization prior to January 1, 2003. This portfolio
consisted of 57 communities with 21,954 units, including 27 communities with
11,886 units (54.1%) located in Atlanta, Georgia, 16 communities with 4,353
units (19.8%) located in Dallas, Texas, three communities with 1,439 units
(6.6%) located in Tampa, Florida, three communities with 1,204 units (5.5%)
located in Washington, DC, three communities with 1,065 units (4.9%) located in
Charlotte, North Carolina and five communities with 2,007 units (9.1%) located
in other markets. The operating performance and capital expenditures of these
communities is summarized as follows: Three months endedMarch 31,2004
    
    2003
    
    % ChangeRental and other revenues
    
    $
    64,709
    
    
    $
    64,944
    
    
    
    (0.4
    )%Property operating and maintenance expenses
(excluding depreciation and amortization)
    
    
    25,274
    
    
    
    23,881
    
    
    
    5.8
    %Same store net operating income (1)
    
    $
    39,435
    
    
    $
    41,063
    
    
    
    (4.0
    )%Capital expenditures (2)RecurringCarpet
    
    $
    696
    
    
    $
    432
    
    
    
    61.1
    %Other
    
    
    1,338
    
    
    
    576
    
    
    
    132.3
    %Total recurring
    
    
    2,034
    
    
    
    1,008
    
    
    
    101.8
    %Non-recurring
    
    
    1,148
    
    
    
    435
    
    
    
    163.9
    %Total capital expenditures (A)
    
    $
    3,182
    
    
    $
    1,443
    
    
    
    120.5
    %Total capital expenditures per unit (A÷21,954 units)
    
    $
    145
    
    
    $
    66
    
    
    
    119.7
    %Average monthly rental rate per unit (3)
    
    $
    988
    
    
    $
    1,034
    
    
    
    (4.4
    )%Average economic occupancy (4)
    
    
    92.8
    %
    
    
    90.2
    %
    
    
    2.6
    %
   (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 (loss).(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 31,2004
    
    2003Recurring capital expenditures by operating segmentSame store
    
    $
    2,034
    
    
    $
    1,008Partially stabilized
    
    
    49
    
    
    
    10Construction and lease-up
    
    
    7
    
    
    
    Other property segments
    
    
    332
    
    
    
    444Total recurring capital expenditures per statements of cash flows
    
    $
    2,422
    
    
    $
    1,462Non-recurring capital expenditures by operating segmentSame store
    
    $
    1,148
    
    
    $
    435Partially stabilized
    
    
    19
    
    
    
    4Construction and lease-up
    
    
    
    
    
    
    Other property segments
    
    
    77
    
    
    
    519Total non-recurring capital expenditures per statements of cash flows
    
    $
    1,244
    
    
    $
    958
  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 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.(4)
    
    Average economic occupancy is defined as gross
potential rent less vacancy losses, model expenses and bad
debt expenses divided by gross potential rent for the period,
expressed as a percentage. Gross potential rent is defined
as the sum of the gross actual rental rates for leased units
and the anticipated rental rates for unoccupied units. The
calculation of average economic occupancy does not include a
deduction for concessions and employee discounts. Average
economic occupancy including these amounts would have been
92.7% and 89.2% for the three months ended March 31, 2004 and
2003, respectively. For the three months ended March 31,
2004 and 2003, net concessions were $49 and $722,
respectively, and employee discounts were $117 and $146,
respectively. -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)  Rental and other revenues decreased $235 or 0.4% from 2003 to 2004. This
decrease resulted from a 4.4% decline in the average monthly rental rate per
apartment unit offset by increased occupancy levels in 2004. The decline in
average rental rates resulted in a revenue decrease of approximately $3,074
between years. The aggregate decline in revenues related to other property
fees totaled approximately $88. These declines were offset by lower up-front
rental concessions of $673 and lower vacancy losses of $2,254, resulting from
an increase in average economic occupancy of the portfolio from 90.2% in 2003
to 92.8% in 2004. These declines in rental rates in 2004 reflect the effect of
the soft economy on the Companys primary markets coupled with a continuing
over supply of new apartment units. This trend was especially true for the
Companys largest markets, Atlanta, Georgia which experienced rental and other
revenue declines of $580 between years. In mid 2003 and 2004, the Company modified its leasing strategy to focus on
retaining higher average occupancy levels as reflected above. This strategy
resulted in continued year over year reductions in the average rental rate per
apartment unit between periods and an overall decline in year over year total
rental and other revenues between years (0.4% in 2004 compared to 4.6% in
2003). In periods prior to mid 2003, the Companys leasing strategy focused
more on maintaining average monthly rental rates than on retaining occupancy.
The Company believed this strategy change was necessary to maximize its
operating results under the market conditions existing in 2003 and early 2004,
to operate the Companys communities more efficiently at higher occupancy
levels and to be in a better position to increase rental rates as market
conditions improve in future periods. Property operating and maintenance expenses (exclusive of depreciation and
amortization) increased $1,393 or 5.8% from 2003 to 2004. Increased personnel
expenses of $588 or 10.6%, increased property tax expenses of $284 or 3.6%,
increased repairs and maintenance expenses of $285 or 11.9%, and increased
utility expenses of $375 or 12.7% were offset by decreased insurance expenses
of $134 or 9.5%. Personnel expenses increased due to annual salary increases,
increased bonus expenses and increased health insurance expenses in 2004.
Property tax expense increases of 3.6% primarily reflect estimated increases
for 2004 taxes. The increase in repairs and maintenance expenses primarily
reflects increased exterior painting and exterior repairs between periods.
Utility expenses increased primarily due to higher water and sewer rates in
Atlanta, GA. Insurance expenses decreased due to lower insurance rates for the
2004 insurance renewal period. 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, 2004, income from discontinued operations
included the results of operations of eight communities, containing 3,942
units, classified as held for sale at March 31, 2004 and the results of
operations of one community sold in 2004 through its date. For the three
months ended March 31, 2003, income from discontinued operations included the
results of operations of all communities classified as held for sale at March
31, 2004, one community sold in 2004 and the results of operations of four
communities sold in 2003 through the earlier of March 31, 2003 or their sale
dates. The revenues and expenses of discontinued operations are summarized in
note 4 to the consolidated financial statements. Income from discontinued
operations increased from a loss of $9,132, net of minority interest, in 2003
to income of $3,638, net of minority interest, in 2004. This increase was
primarily due to a $14,118 ($12,510 net of minority interest) impairment loss
taken on one of the companys apartment communities in 2003. The gains on
property sales between periods reflect the timing and size of the communities
sold. These gains are discussed in note 4 to the consolidated financial
statements. As discussed under Liquidity and Capital Resources, the Company expects to
continue to sell real estate assets in future periods as part of its overall
investment, disposition and acquisition strategy. As such, the Company may
continue to have additional assets classified as held for sale, however, the
timing and amount of such asset sales and their impact on the aggregate
revenues and expenses included in discontinued operations will vary from period
to period. -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)  Outlook In the second quarter of 2004 management expects a flat to modest increase in
rental and other revenues from fully stabilized communities compared to 2003.
This flat to modest increase in revenues reflects smaller year over year
reductions in average monthly rents offset by expected higher average
occupancies in the second quarter of 2004. In the second quarter of 2004,
management expects modest increases in fully stabilized community operating
expenses primarily driven by projected increases in property taxes and
personnel expenses offset somewhat by lower insurance expenses. Lower
insurance expenses reflect reduced insurance rates resulting from more stable
insurance markets in the 2004 renewal period. In light of the expectation of
flat to modest increases in revenues and modestly higher operating expenses for
the second quarter of 2004, management expects stabilized community net
operating income to continue to show modest year over year declines when
compared to 2003. For the second quarter of 2004, management expects same store property net
operating income to be somewhat higher as compared to the first quarter of
2004, driven primarily by higher rental and other revenues from occupancy gains
as leasing efforts are anticipated to be improved in the spring leasing season.
In addition, operating expenses are expected to be flat to modestly higher,
due to seasonally higher promotional and turnover costs in the second quarter
of 2004. The Company also expects lower net income as a result of dilution
from the assets sold in the first quarter of 2004. During the second quarter of 2004, management currently expects to sell eight
apartment communities held for sale at March 31, 2004. These sales are
currently expected to generate accounting gains of approximately $128,000 to
$130,000 during the second quarter of 2004. Certain of these properties are
encumbered by $119,085 of tax-exempt bond indebtedness which is expected to be
assumed by the buyer. Consequently, the timing of the closing of these sales
is subject to obtaining the requisite approval of the municipal bond
authorities where the properties are located. For this and other
reasons, these
sales may not close until early in the third quarter of 2004. As such, the
timing of the gain (loss) recognition relating to these sales would be
similarly impacted. The expected gross proceeds from these sales of $248,000
to $250,000 are intended to be used for various corporate purposes, which may
include preferred equity redemption (see discussion below), debt reductions and
common equity repurchases intended to maintain the strength of the Companys
balance sheet, combined with reinvestment in developments and acquisitions that
enhance the diversification of the Companys cash flow stream and the quality
of its portfolio. The retirement of outstanding debt in the second quarter of
2004 and the redemption of outstanding preferred equity in the second half of
2004 are expected to result in additional expenses associated with the write
off of unamortized issuance and loan costs, as well as the termination of
related derivative interest rate hedges and prepayment premiums, if any (see
discussion below). As the timing of the sales and the resulting reduction in
property net operating income may not coincide with the reinvestment of the
proceeds in similar yielding assets or financing cost reductions, the Companys
overall net income will be somewhat diluted in the second half of 2004 until
such reinvestments or similar financing cost reductions occur. Management expects interest expense for the full year of 2004 to be lower than
in 2003 due generally to lower average debt levels between years. Management
expects general and administrative expenses and development costs and other
expenses to increase for the full year of 2004 resulting from the increased
amortization of prior year restricted stock and stock option awards, generally
higher legal and professional costs related to Sarbanes-Oxley and corporate
governance compliance and the expensing of a larger portion of previously
capitalized development personnel and related costs. For the remaining
quarters of 2004, management expects general and administrative costs will be
generally consistent with levels recognized in the first quarter of 2004. The
Company has retained certain development personnel into 2004 as it assessed the
timing, nature and location of its future development efforts. The Company
expects to start the development of new projects later in 2004 and, as
previously discussed, the Company has one project in the predevelopment stage
with an expected construction start date in 2004. To the extent new
developments commence in 2004, the Company expects to capitalize development
personnel and related costs to such projects. Liquidity and Capital Resources The discussion in this Liquidity and Capital Resources section is the same for
the Company and the Operating Partnership, except that all indebtedness
discussed herein has been incurred by the Operating Partnership. The Companys net cash provided by operating activities increased from $26,697
in 2003 to $27,386 in 2004 primarily due to favorable changes in the working
capital components (primarily the reduction in payables between periods)
included in operating activities offset by the weaker operating performance of
the Companys fully stabilized properties and reduced earnings from the
dilutive impact of the Companys asset sale and capital recycling program. As
noted above, the Company expects cash flows from operating activities to show
declines for the full year of 2004 compared to 2003 primarily driven by the
modestly weaker performance of the Companys fully stabilized properties and
the continued dilutive cash flow impact from asset sales. -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)  Net cash provided by investing activities increased from $37,804 in 2003 to
$50,303 in 2004 primarily due to reduced development and construction
expenditures in 2004 and the net repayment of construction loan advances from
unconsolidated entities in 2003, partially offset by reduced proceeds from
wholly-owned asset sales between periods. The reduction in development and
construction expenditures was a planned strategy in 2003 and 2004 to reduce the
Companys development pipeline due to difficult market conditions (lower market
rental rates and an over supply of apartment communities) in the Companys
primary markets. All prior year development projects are substantially
complete and the Company has one new project in the predevelopment stage with
an expected construction start later in 2004. Net cash used in financing activities decreased from $67,080 in 2003 to $62,076
in 2004 primarily due to increased borrowings in 2004 offset by lower cash
dividend payments between periods. In the first quarter of 2004, the Company
closed a $35,000 mortgage loan in a consolidated joint venture to take
advantage of the low interest rate environment. Since 1993, the Company has elected to be taxed as a real estate investment
trust (REIT) under the Internal Revenue Code of 1986, as amended (the
Code). Management currently intends to continue operating the Company as a
REIT in 2004. As a REIT, the Company is subject to a number of organizational
and operating requirements, including a requirement to distribute 90% of its
taxable income to its shareholders. As a REIT, the Company generally will not
be subject to federal income taxes on its taxable income. Generally, the Companys objective is to meet its short-term liquidity
requirement of funding the payment of its current level of quarterly preferred
and common dividends to shareholders through its net cash flows provided by
operating activities, less its annual recurring and nonrecurring property and
corporate capital expenditures. These operating capital expenditures are the
capital expenditures necessary to maintain the earnings capacity of the
Companys operating assets over time. For the three months ended March 31, 2004, the Companys net cash flow from
operations, reduced by operating capital expenditures, was sufficient to fully
fund the Companys current level of dividend payments to common and preferred
shareholders. Cash flows from operations, reduced by operating capital
expenditures, would have been lower than the quarterly dividend requirements,
exclusive of the favorable change in working capital items impacting operating
cash flows for the period. These working capital items fluctuate from quarter
to quarter, primarily due to the timing of payments of interest and operating
payables. As discussed below, the Company expects its operating cash flows,
less operating capital expenditures, to be less than its dividend requirements
for the full year of 2004. The Companys net cash flow from operations
continues to be sufficient to meet the dividend requirements necessary to
maintain its REIT status under the Code. For full year of 2004, management of the Company currently expects to maintain
its current quarterly dividend payment rate to common shareholders of $0.45 per
share. At this dividend rate, the Company currently expects that net cash
flows from operations reduced by annual operating capital expenditures will not
be sufficient to fund the dividend payments to common and preferred
shareholders by approximately $10,000 to $15,000. The Company intends to use
primarily the proceeds from 2004 asset sales to fund the additional cash flow
necessary to fully fund the dividend payments to common shareholders. The
factors leading to this net operating cash flow shortfall are the continuing
soft market conditions for the Companys operating properties 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. Management expects the Company to meet its future construction and development
and certain of its other long-term liquidity requirements, including maturities
of long-term debt and lines of credit and possible land and property
acquisitions through the selective sale of operating properties and through
long-term secured and unsecured borrowings. Management believes the Company
has adequate borrowing capacity and access to real estate sales markets to fund
these requirements. The capacity under the Companys lines of credit (see
below) was created primarily through proceeds from property sales and from the
repayment of construction advances to unconsolidated entities. Additionally,
in prior years the Company has utilized equity joint ventures as a means of
raising capital and reducing the size and exposure of its development property
pipeline. The Company may continue to use joint venture arrangements in future
periods as a source of capital, to reduce its market concentrations in certain
markets and to reduce its exposure to certain risks of its future development
pipeline. As previously discussed, the Company intends to use the proceeds from the sale
of operating properties and availability under its unsecured revolving line of
credit as the primary source of capital to fund its current and future
development and acquisition expenditures. The Company began an asset sale and
capital recycling program in 2000 as the primary means to fund its on-going
community development program. Total funds raised in 2004, 2003 and 2002 were
$2,279 (excluding approximately $21,700 held by an intermediary under a
qualified tax deferred program), $163,560 and $182,216, respectively.
Additionally in 2003, the Company received net proceeds of approximately
$75,000 (including the repayment of the construction loan from the venture) -39-




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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)  from the sale of one apartment community held in an unconsolidated entity. A
more detailed discussion of the assets sales is included in note 4 to the
consolidated financial statements As of December 31, 2003, the Company was actively marketing to sell nine
apartment communities containing 4,340 units. In the first quarter of 2004,
the Company sold one of these apartment communities, containing 398 apartment
units, for net proceeds of approximately $22.0 million, including amounts held
by an intermediary under a qualified tax deferred exchange program. The
remaining eight communities, containing 3,942 apartment units, are currently
expected to generate gross sales proceeds totaling approximately $248,000 to
$250,000. The sales of the eight communities are expected to occur in the late
second quarter or early third quarter of 2004. The eight communities are
located in Atlanta, Georgia, Dallas, Texas, and Orlando, Florida. The proceeds
from these sales are intended to be used for various corporate purposes and may
be used to fund future development expenditures, future property acquisitions,
future debt reduction and to opportunistically repurchase the Companys
preferred equity (see discussion below) and common stock. These sales are also
expected to generate capital gains for tax purposes in 2004 of approximately
$100,000. 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.
These sales are part of the Companys plans to focus its operations in fewer
markets, maintain the low average age and high quality of the portfolio and
reduce the Companys market concentrations in Atlanta, Georgia and Dallas,
Texas. In connection with the sale of six of the properties discussed above,
the Company expects that the purchaser will acquire those properties subject to
a combined total of approximately $119,000 of tax-exempt mortgage debt. In
connection with the assumption of this tax-exempt mortgage debt, the Company
expects to record expenses of approximately $3,000 in connection with the
write-off of related unamortized deferred loan costs and the termination of
related interest rate cap agreements in 2004. On March 5, 2004, the Company redeemed its 7 5/8% series C cumulative
redeemable preferred stock (Series C Preferred Stock) for $25.00 per share
(an aggregate of $50,000), plus accrued and unpaid dividends through March 5,
2004. In addition to the redemption of its Series C Preferred Stock, the
Company is considering redeeming its $70,000 Series D Cumulative Redeemable
Preferred Units, which become callable on September 3, 2004, with expected
proceeds from the asset sales discussed above, although there are no assurances
that the Company will do so. At March 31, 2004, the Company had available credit facility borrowing capacity
of approximately $320,000 under its line of credit facilities. The Companys
primary credit facility with total capacity of $350,000 and its $20,000 cash
management facility mature in January 2007. Management believes it will have
adequate capacity under its facilities to execute its 2004 business plan and
meet its short-term liquidity requirements without a significant level of
additional asset sales (other than those asset sales discussed above) or other
secured and unsecured debt financings. In January 2004, the Company refinanced its primary revolving line of credit
with a new $350,000 three-year unsecured revolving line of credit (the
Revolver). The Revolver has a stated interest rate of LIBOR plus 0.90% or
the prime rate and was provided by a syndicate of nine banks led by Wachovia
Bank, N.A. Additionally, the Revolver requires the payment of annual facility
fees equal to 0.20% of the aggregate loan commitment. The Revolver provides
for the interest rate and facility fee rate to be adjusted up or down based on
changes in the credit ratings on the Companys senior unsecured debt. The
rates under the Revolver are based on the lower of the Companys unsecured debt
ratings in instances where the Company has split unsecured debt ratings. 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,
2004 is included in note 2 to the consolidated financial
statements. A discussion of new secured and unsecured debt issuances and retirements during
the period is discussed below. In March 2004, the Company closed a $35,000 secured, fixed rate mortgage note
payable in a consolidated real estate entity. The note bears interest at
4.27%, requires monthly interest only payments through March 2007 and monthly
principal and interest payments based on a 30-year amortization schedule from
April 2007 through the note maturity date in March 2009. Additionally, in March 2004, one of the Companys unconsolidated entities
repaid its outstanding construction note payable to the Company of $53,916
through the proceeds from a third-party non-recourse permanent mortgage note
totaling $50,000 and from member equity contributions. The mortgage note bears
interest at 4.13%, requires monthly interest payments and annual principal
payment of $1 through 2009. Thereafter, the note requires monthly principal
and interest payments based on a 25-year -40-




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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)  amortization schedule and matures in April 2034. The note is callable by the
lender in May 2009 and on each successive fifth year anniversary of the note
thereafter. The note is prepayable without penalty in May 2008. Upon their maturity on April 1, 2004, the Company repaid $13,000 of its 7.30%
medium term, unsecured notes, using its available cash balances and borrowings
under its unsecured lines of credit. Stock Repurchase Program In the fourth quarter of 2003, the Companys board of directors adopted a new
stock repurchase program under which the Company may repurchase up to $200,000
of common stock or preferred stock at market prices from time to time through
December 31, 2004. In the first quarter of 2004, the Company acquired $50,000
of preferred stock in 2004. Management has indicated it will be opportunistic
with respect to additional share repurchases and intends to finance additional
repurchases with asset sale proceeds rather than additional borrowings. Capitalization of Fixed Assets and Community Improvements The Company has a policy of capitalizing those expenditures relating to the
acquisition of new assets and the development and construction of new apartment
communities. In addition, the Company capitalizes expenditures that enhance
the value of existing assets and expenditures that substantially extend the
life of existing assets. All other expenditures necessary to maintain a
community in ordinary operating condition are expensed as incurred.
Additionally, for new development communities, carpet, vinyl and blind
replacements are expensed as incurred during the first five years (which
corresponds to the estimated depreciable life of these assets) after
construction completion. Thereafter, these replacements are capitalized.
Further, the Company expenses as incurred all interior and exterior painting of
communities. The Company capitalizes interest, real estate taxes, and certain internal
personnel and associated costs related to apartment communities under
development and construction. The incremental personnel and associated costs
are capitalized to the projects under development based upon the effort
identifiable with such projects. The Company treats each unit in an apartment
community separately for cost accumulation, capitalization and expense
recognition purposes. Prior to the commencement of leasing activities,
interest and other construction costs are capitalized and included in
construction in progress. The Company ceases the capitalization of such costs
as the residential units in a community become substantially complete and
available for occupancy. This practice results in a proration of these costs
between amounts that are capitalized and expensed as the residential units in a
development community become available for occupancy. In addition, prior to
the completion of units, the Company expenses as incurred substantially all
operating expenses (including pre-opening marketing expenses) of such
communities. Acquisition of assets and community improvement and other capitalized
expenditures for the three months ended March 31, 2004 and 2003 are summarized
as follows: Three months endedMarch 31,2004
    
    2003New community development and acquisition activity(1)
    
    $
    293
    
    
    $
    14,112Non-recurring capital expendituresRevenue generating additions and improvements (2)
    
    
    26
    
    
    
    89Other community additions and improvements (3)
    
    
    1,244
    
    
    
    958Recurring capital expendituresCarpet replacements and other community additions
and improvements (4)
    
    
    2,422
    
    
    
    1,462Corporate additions and improvements
    
    
    134
    
    
    
    208$
    4,119
    
    
    $
    16,829Other DataCapitalized interest
    
    $
    239
    
    
    $
    1,869Capitalized personnel and associated costs (5)
    
    $
    249
    
    
    $
    600
   (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.   -41-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  Inflation Substantially all of the leases at the communities allow, at the time of
renewal, for adjustments in the rent payable thereunder, and thus may enable
the Company to seek increases in rents. The substantial majority of these
leases are for one year or less and the remaining leases are for up to two
years. At the expiration of a lease term, the Companys lease agreements
generally provide that the term will be extended unless either the Company or
the lessee gives at least sixty (60) days written notice of termination. In
addition, the Companys policy generally permits the earlier termination of a
lease by a lessee upon thirty (30) days written notice to the Company and the
payment of an amount equal to two months rent as compensation for early
termination. The short-term nature of these leases generally serves to reduce
the risk to the Company of the adverse effect of inflation. Funds from Operations The Company uses the National Association of Real Estate Investment Trusts
(NAREIT) definition of funds from operations (FFO). FFO is defined by
NAREIT as net income (loss) available to common shareholders determined in
accordance with GAAP, excluding gains (or losses) from extraordinary items and
sales of property, plus depreciation of real estate assets, and after
adjustment for unconsolidated partnerships and joint ventures all determined on
a consistent basis in accordance with GAAP. In October 2003, NAREIT clarified
the definition of FFO to include impairment losses. As such, prior period
presentations of FFO have been restated to conform with the revised NAREIT
definition of FFO. FFO is a supplemental non-GAAP financial measure. FFO
presented herein is not necessarily comparable to FFO presented by other real
estate companies because not all real estate companies use the same definition.
The Companys FFO is comparable to the FFO of real estate companies that use
the current NAREIT definition. The Company also uses FFO as an operating measure. Accounting for real estate
assets using historical cost accounting under GAAP assumes that the value of
real estate assets diminishes predictably over time. NAREIT stated in its
April 2002 White Paper on Funds from Operations since real estate asset values
have historically risen or fallen with market conditions, many industry
investors have considered presentations of operating results for real estate
companies that use historical cost accounting to be insufficient by
themselves. As a result, the concept of FFO was created by NAREIT for the
REIT industry to provide an alternate measure. Since the Company agrees with
the concept of FFO and appreciates the reasons surrounding its creation,
management believes that FFO is an important supplemental measure of operating
performance. In addition, since most equity REITs provide FFO information to
the investment community, the Company believes FFO is a useful supplemental
measure for comparing the Companys results to those of other equity REITs.
The Company believes that the line on the Companys consolidated statement of
operations entitled net income available to common shareholders is the most
directly comparable GAAP measure to FFO. FFO should not be considered as an alternative to net income available to
common shareholders (determined in accordance with GAAP) as an indicator of the
Companys financial performance. While management believes that FFO is an
important supplemental non-GAAP financial measure, management believes it is
also important to stress that FFO should not be considered as an alternative to
cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Companys liquidity. Further, FFO is not necessarily indicative
of sufficient cash flow to fund all of the Companys needs or ability to
service indebtedness or make distributions. -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)  A reconciliation of net income (loss) available to common shareholders to FFO
is provided below. Three months endedMarch 31,2004
    
    2003 (1)Net income (loss) available to common shareholders
    
    $
    (902
    )
    
    $
    (23,450
    )Minority interest of common unitholders  continuing operations
    
    
    (473
    )
    
    
    (2,623
    )Minority interest in discontinued operations (2)
    
    
    402
    
    
    
    (391
    )Gains on property sales  discontinued operations
    
    
    (1,627
    )
    
    
    (6,875
    )Depreciation on wholly-owned real estate assets, net (3)
    
    
    20,039
    
    
    
    21,618Depreciation on real estate assets held in unconsolidated entities
    
    
    327
    
    
    
    466Funds from operations available to common shareholders
    
    $
    17,766
    
    
    $
    (11,255
    )Cash flow provided by (used in):Operating activities
    
    $
    27,386
    
    
    $
    26,697Investing activities
    
    $
    50,303
    
    
    $
    37,804Financing activities
    
    $
    (62,076
    )
    
    $
    (67,080
    )Weighted average shares outstanding  basic
    
    
    39,382
    
    
    
    37,262Weighted average shares and units outstanding  basic
    
    
    42,461
    
    
    
    42,049Weighted average shares outstanding  diluted (4)
    
    
    39,437
    
    
    
    37,262Weighted average shares and units outstanding  diluted (4)
    
    
    42,516
    
    
    
    42,049
   (1)
    
    For the three months ended March 31, 2003, FFO available to
common shareholders has been restated from the prior period
presentation to reflect a reduction of $14,118 for impairment
losses on real estate assets resulting from the NAREIT
modification of the definition of FFO in 2003.(2)
    
    Represents the minority interest in earnings and gains
(losses) on properties held for sale and sold reported as
discontinued operations for the periods presented.(3)
    
    Depreciation on wholly-owned real estate assets is net of
the minority interest portion of depreciation in consolidated
entities.(4)
    
    Diluted weighted average shares and units for the three
months ended March 31, 2004 include 55 shares and units, that
were antidilutive to all income (loss) per share computations
under generally accepted accounting principles. -43-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  
  ITEM 3.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Companys primary market risk exposure is interest rate risk. At March 31,
2004, the Company had $174,800 of variable rate debt tied to LIBOR. In
addition, the Company had $214,380 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 that are sensitive to changes in interest rates. For interest rate
swap and cap arrangements, the table presents notional amounts and weighted
average interest rates by expected contractual maturity dates. Notional amounts
are used to calculate the contractual payments to be exchanged under the
contracts. ExpectedAverage
    
    Average
    
    SettlementInterest Rate Derivatives
    
    Notional Amount
    
    Pay Rate/Cap Rate
    
    Receive Rate
    
    Date
    
    Fair ValueAsset (Liab.)Interest Rate SwapsVariable to fixed
    
    $104,000 amortizing
to $90,270
    
    
    6.04
    %
    
    1 month LIBOR
    
    7/31/09
    
    $
    (13,883
    )Variable to fixed
    
    $
    25,000
    
    
    
    6.53
    %
    
    3 month LIBOR
    
    2/01/05
    
    
    (1,339
    )Interest rate cap
    
    $
    107,190
    
    
    
    5.00
    %
    
    -
    
    2/01/08
    
    
    456Interest rate cap
    
    $
    107,190
    
    
    
    5.00
    %
    
    -
    
    2/01/08
    
    
    456$
    (14,310
    )
 As more fully described in
note 6 to the consolidated financial statements, the
interest rate swap and cap arrangements are carried on the consolidated balance
sheet at the fair value shown above in accordance with SFAS No. 133, as
amended. If interest rates under the Companys floating rate LIBOR-based and
tax-exempt borrowings, in excess of the $99,800 FNMA borrowings and $25,000
medium-term notes effectively converted to fixed rates discussed above,
fluctuated by 1.0%, interest costs to the Company, based on outstanding
borrowings at March 31, 2004, would increase or decrease by approximately
$2,600 on an annualized basis. There have been no material changes in the value of the Companys fixed debt
since December 31, 2003 -44-




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  
 ITEM 4. CONTROLS AND PROCEDURES As required by Securities and Exchange Commission rules, the Company has
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by this quarterly
report. This evaluation was carried out under the supervision and with the
participation of the Companys management, including its principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of the Companys
disclosure controls and procedures are effective. There were no changes to the
Companys internal controls over financial reporting during the period covered
by this report that materially affected, or are reasonably likely to materially
affect, the Companys internal controls over financial reporting subsequent to
the date of their evaluation. Disclosure controls and procedures are the Companys controls and other
procedures that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act are accumulated and communicated to the Companys
management, including its principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. -45-




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##### Table of Contents



PART II. OTHER INFORMATION 
 ITEM 1.LEGAL PROCEEDINGS On May 5, 2003, the Company received notice that a shareholder derivative and
purported class action lawsuit was filed against members of the board of
directors of the Company and the Company as a nominal defendant. This complaint
was filed in the Superior Court of Fulton County, Atlanta, Georgia on May 2,
2003 and alleges various breaches of fiduciary duties by the board of directors
of the Company and seeks, among other relief, the disclosure of certain
information by the defendants. This complaint also seeks to compel the
defendants to undertake various actions to facilitate a sale of the Company. On
May 7, 2003, the plaintiff made a request for voluntary expedited discovery.
This lawsuit is expected to be settled in 2004. On May 13, 2003, the Company received notice that a shareholder derivative and
purported class action lawsuit was filed against certain members of the board
of directors of the Company and against the Company as a nominal defendant.
The complaint was filed in the Superior Court of Fulton County, Atlanta,
Georgia on May 12, 2003 and alleges breaches of fiduciary duties, abuse of
control and corporate waste by the defendants. The plaintiff seeks monetary
damages and, as appropriate, injunctive relief. This lawsuit is expected to be
settled in 2004. The Company is involved in various other legal proceedings incidental to its
business from time to time, most of which are expected to be covered by
liability insurance. Management of the Company believes that any resolution of
pending proceedings or liability to the Company which may arise as a result of
these proceedings will not have a material adverse effect on the Companys
results of operations or financial position. 
 ITEM 2.CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES  (a)
    
    through (d)  None(e)
    
    The following table summarizes the Companys purchases of its
equity securities in the three months ended March 31, 2004 (in
thousands, except per share amounts). Total Number of
    
    Approximate DollarShares Purchased as
    
    Value of SharesPart of Publicly
    
    that May Yet BeTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    Per Share
    
    Programs
    
    Plans or ProgramsJanuary 1, 2004 to
January 31, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    February 1, 2004 to
February 28, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 1, 2004 to
March 31, 2004 (1)
    
    
    2,000
    
    
    
    25.00
    
    
    
    2,000
    
    
    
    150,000
    (2)Total
    
    
    2,000
    
    
    $
    25.00
    
    
    
    2,000
    
    
    $
    150,000
   (1)
    
    On March 5, 2004, the Company redeemed all 2,000
shares of its 7 5/8% series C Cumulative redeemable
preferred stock for $25.00 per share (an aggregate of
$50,000, plus accrued and unpaid dividends through March
5, 2004. The redemption made in accordance with the
redemption provisions of the preferred stock arrangement.(2)
    
    On November 5, 2003, 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, 2004. 
 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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ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K Certain exhibits required by Item 601 of Regulation S-K have been filed with
previous reports (as indicated in the footnotes to this Exhibit Table) and are
incorporated by reference herein. (a
    )
    
    
    
    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).4.1
    (e)
    
    
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2
    (e)
    
    
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.11.1
    (f)
    
    
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    
    
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    
    
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    
    
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906
of the Sarbanes-Oxley Act of 2002.(a)
    
    Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as amended, of
the Company.(b)
    
    Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended December
31, 2002.(c)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter ended March
31, 1999.(d)
    
    Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter ended
September 30, 2003.(e)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the Company.(f)
    
    The information required by this exhibit is included in note 5 to the consolidated financial statements.(b
    )
    
    
    
    Reports on Form 8-K
On February 10, 2004, the Registrants furnished a Form 8-K including the Registrants earnings release
and supplemental financial information package relating to the quarterly period ended December 31,
2003.
 -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, 2004
    
    By       /s/ David P. Stockert
David P. Stockert
President and Chief Executive OfficerMay 10, 2004
    
    By       /s/ Christopher J. Papa
Christopher J. Papa
Executive Vice President and Chief Financial OfficerMay 10, 2004
    
    By       /s/ Arthur J. Quirk
Arthur J. Quirk
Senior 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, 2004
    
    By                 /s/ David P. Stockert
David P. Stockert
President and Chief Executive OfficerMay 10, 2004
    
    By                 /s/ Christopher J. Papa
Christopher J. Papa
Executive Vice President and Chief Financial OfficerMay 10, 2004
    
    By                 /s/ Arthur J. Quirk
Arthur J. Quirk
Senior Vice President and Chief
Accounting Officer
 -49-




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##### Table of Contents



EXHIBIT INDEX 3.1
    (a)
    
    
    
    Articles of Incorporation of the Company.3.2
    (b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.3
    (b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.4
    (b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.5
    (c)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.6
    (d)
    
    
    
    Bylaws of the Company (as Amended and Restated as of November 5, 2003).4.1
    (e)
    
    
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2
    (e)
    
    
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.11.1
    (f)
    
    
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    
    
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    
    
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    
    
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under Section 906
of the Sarbanes-Oxley Act of 2002.(a)
    
    Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as amended, of
the Company.(b)
    
    Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended December
31, 2002.(c)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter ended March
31, 1999.(d)
    
    Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter ended
September 30, 2003.(e)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the Company.(f)
    
    The information required by this exhibit is included in note 5 to the consolidated financial statements.
 -50-