##### 



---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


---

FORM 10-Q


[X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2003OR[  ]
    
    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

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POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.


(Exact name of registrant as specified in its charter)


Georgia
    
    58-1550675Georgia
    
    58-2053632(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)


4401 Northside Parkway, Suite 800, Atlanta, Georgia 30327
(Address of principal executive offices  zip code)

(404) 846-5000
(Registrants telephone number, including area code)

Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.

Post Properties, Inc.
    
    Yes
    
    [X]
    
    No
    
    [  ]Post Apartment Homes, L.P.
    
    Yes
    
    [X]
    
    No
    
    [  ]


Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Post Properties, Inc.
    
    Yes
    
    [X]
    
    No
    
    [  ]Post Apartment Homes, L.P.
    
    Yes
    
    [X]
    
    No
    
    [  ]




---

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes of
common stock as of the latest practicable date:

37,783,328 shares of common stock outstanding as of August 8, 2003 (excluding treasury stock).

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##### 



POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.

INDEX

PagePart I
    
    FINANCIAL INFORMATIONItem 1
    
    Financial StatementsPOST PROPERTIES, INC.Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002
    
    
    1Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002
    
    
    2Consolidated Statement of Shareholders Equity and Accumulated Earnings
for the six months ended June 30, 2003
    
    
    3Consolidated Statements of Cash Flows for the six months ended June 30,
2003 and 2002
    
    
    4Notes to Consolidated Financial Statements
    
    
    5POST APARTMENT HOMES, L.P.Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002
    
    
    16Consolidated Statements of Operations for the three and six months ended
June 30, 2003 and 2002
    
    
    17Consolidated Statement of Partners Equity for the six months ended June
30, 2003
    
    
    18Consolidated Statements of Cash Flows for the six months ended June 30,
2003 and 2002
    
    
    19Notes to Consolidated Financial Statements
    
    
    20Item 2
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    50Item 4
    
    Controls and Procedures
    
    
    51Part II
    
    OTHER INFORMATION
    
    
    52Item 1
    
    Legal Proceedings
    
    
    52Item 2
    
    Changes in Securities and Use of Proceeds
    
    
    52Item 3
    
    Defaults Upon Senior Securities
    
    
    52Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    53Item 5
    
    Other Information
    
    
    53Item 6
    
    Exhibits and Reports on Form 8-K
    
    
    54Signatures
    
    
    55Exhibit Index
    
    
    57






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##### 



POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS(In thousands)

June 30,
    
    December 31,2003
    
    2002(Unaudited)AssetsReal estate assetsLand
    
    $
    286,757
    
    
    $
    273,058Building and improvements
    
    
    2,033,983
    
    
    
    1,976,809Furniture, fixtures and equipment
    
    
    244,985
    
    
    
    246,634Construction in progress
    
    
    33,784
    
    
    
    92,945Investments in and advances to unconsolidated real estate entities
    
    
    100,356
    
    
    
    182,285Land held for future development
    
    
    24,299
    
    
    
    24,8792,724,164
    
    
    
    2,796,610Less: accumulated depreciation
    
    
    (470,307
    )
    
    
    (426,136
    )Assets held for sale
    
    
    10,705
    
    
    
    73,061Total real estate assets
    
    
    2,264,562
    
    
    
    2,443,535Cash and cash equivalents
    
    
    4,302
    
    
    
    6,390Restricted cash
    
    
    1,707
    
    
    
    1,369Deferred charges, net
    
    
    14,235
    
    
    
    15,584Other assets
    
    
    40,126
    
    
    
    41,273Total assets
    
    $
    2,324,932
    
    
    $
    2,508,151Liabilities and shareholders equityNotes payable
    
    $
    1,259,926
    
    
    $
    1,414,555Accrued interest payable
    
    
    8,874
    
    
    
    8,994Dividend and distribution payable
    
    
    19,406
    
    
    
    33,252Accounts payable and accrued expenses
    
    
    73,504
    
    
    
    49,124Security deposits and prepaid rents
    
    
    8,073
    
    
    
    8,250Total liabilities
    
    
    1,369,783
    
    
    
    1,514,175Minority interest of preferred unitholders in Operating Partnership
    
    
    70,000
    
    
    
    70,000Minority interest of common unitholders in Operating Partnership
    
    
    78,646
    
    
    
    90,277Commitments and contingenciesShareholders equityPreferred stock, $.01 par value, 20,000,000 authorized:81⁄2% 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
    
    
    20
    
    
    
    20Common stock, $.01 par value, 100,000,000 authorized:39,676,204 and 39,676,204 shares issued, 37,656,778 and
37,202,290 shares outstanding at June 30, 2003 and December 31,
2002, respectively
    
    
    396
    
    
    
    396Additional paid-in capital
    
    
    899,635
    
    
    
    940,122Accumulated earnings
    
    
    
    
    
    
    Accumulated other comprehensive income
    
    
    (17,594
    )
    
    
    (14,822
    )Deferred compensation
    
    
    (1,418
    )
    
    
    (639
    )881,068
    
    
    
    925,106Less common stock in treasury, at cost, 2,019,426 shares and
2,473,914 shares at June 30, 2003 and December 31, 2002,
respectively
    
    
    (74,565
    )
    
    
    (91,407
    )Total shareholders equity
    
    
    806,503
    
    
    
    833,699Total liabilities and shareholders equity
    
    $
    2,324,932
    
    
    $
    2,508,151


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 ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002RevenuesRental
    
    $
    79,312
    
    
    $
    77,221
    
    
    $
    158,178
    
    
    $
    156,009Other
    
    
    3,155
    
    
    
    3,464
    
    
    
    6,065
    
    
    
    6,457Interest
    
    
    251
    
    
    
    281
    
    
    
    485
    
    
    
    686Total revenues
    
    
    82,718
    
    
    
    80,966
    
    
    
    164,728
    
    
    
    163,152ExpensesProperty operating and maintenance (exclusive of items shown
separately below)
    
    
    34,611
    
    
    
    32,031
    
    
    
    68,236
    
    
    
    64,882Depreciation
    
    
    22,476
    
    
    
    20,794
    
    
    
    45,204
    
    
    
    40,696Interest
    
    
    17,396
    
    
    
    13,700
    
    
    
    33,957
    
    
    
    26,844Amortization of deferred financing costs
    
    
    968
    
    
    
    569
    
    
    
    1,756
    
    
    
    1,123General and administrative
    
    
    3,342
    
    
    
    3,720
    
    
    
    6,967
    
    
    
    7,486Minority interest in consolidated property partnerships
    
    
    (348
    )
    
    
    (460
    )
    
    
    (682
    )
    
    
    (943
    )Other
    
    
    
    
    
    
    136
    
    
    
    567
    
    
    
    136Severance charges
    
    
    1,795
    
    
    
    
    
    
    
    21,506
    
    
    
    Proxy and related costs
    
    
    5,231
    
    
    
    
    
    
    
    5,231
    
    
    
    Asset impairment charge
    
    
    
    
    
    
    
    
    
    
    14,118
    
    
    
    Total expenses
    
    
    85,471
    
    
    
    70,490
    
    
    
    196,860
    
    
    
    140,224Income (loss) from continuing operations before equity in income
(losses) of unconsolidated entities, gains on property sales and
minority interest
    
    
    (2,753
    )
    
    
    10,476
    
    
    
    (32,132
    )
    
    
    22,928Equity in income (losses) of unconsolidated real estate entities
    
    
    8,101
    
    
    
    (500
    )
    
    
    7,708
    
    
    
    (843
    )Gains on property sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,275Minority interest of preferred unitholders
    
    
    (1,400
    )
    
    
    (1,400
    )
    
    
    (2,800
    )
    
    
    (2,800
    )Minority interest of common unitholders
    
    
    (146
    )
    
    
    (713
    )
    
    
    3,729
    
    
    
    (3,261
    )Income (loss) from continuing operations
    
    
    3,802
    
    
    
    7,863
    
    
    
    (23,495
    )
    
    
    29,299Discontinued operationsIncome from discontinued operations, net of minority interest
    
    
    173
    
    
    
    1,054
    
    
    
    792
    
    
    
    3,358Gains on properties held for sale and sold, net of minority interest
    
    
    23,714
    
    
    
    16,146
    
    
    
    29,805
    
    
    
    9,425Income from discontinued operations
    
    
    23,887
    
    
    
    17,200
    
    
    
    30,597
    
    
    
    12,783Net income
    
    
    27,689
    
    
    
    25,063
    
    
    
    7,102
    
    
    
    42,082Dividends to preferred shareholders
    
    
    (2,863
    )
    
    
    (2,863
    )
    
    
    (5,725
    )
    
    
    (5,725
    )Net income available to common shareholders
    
    $
    24,826
    
    
    $
    22,200
    
    
    $
    1,377
    
    
    $
    36,357Per common share data  BasicIncome (loss) from continuing operations (net of preferred dividends)
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    (0.78
    )
    
    $
    0.64Income from discontinued operations
    
    
    0.64
    
    
    
    0.47
    
    
    
    0.82
    
    
    
    0.35Net income available to common shareholders
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.04
    
    
    $
    0.99Dividends declared
    
    $
    0.45
    
    
    $
    0.78
    
    
    $
    0.90
    
    
    $
    1.56Weighted average common shares outstanding  basic
    
    
    37,459,530
    
    
    
    36,904,954
    
    
    
    37,361,132
    
    
    
    36,890,139Weighted average common shares and units outstanding  basic
    
    
    42,066,025
    
    
    
    42,023,842
    
    
    
    42,057,716
    
    
    
    42,009,027Per
common share data  DilutedIncome (loss) from continuing operations (net of preferred dividends)
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    (0.78
    )
    
    $
    0.63Income from discontinued operations
    
    
    0.64
    
    
    
    0.47
    
    
    
    0.82
    
    
    
    0.35Net income available to common shareholders
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.04
    
    
    $
    0.98Dividends declared
    
    $
    0.45
    
    
    $
    0.78
    
    
    $
    0.90
    
    
    $
    1.56Weighted average common shares outstanding  diluted
    
    
    37,467,388
    
    
    
    36,981,334
    
    
    
    37,361,902
    
    
    
    36,975,168Weighted average common shares and units outstanding  diluted
    
    
    42,073,883
    
    
    
    42,100,222
    
    
    
    42,058,486
    
    
    
    42,094,056


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
    
    Compensation
    
    Stock
    
    TotalShareholders Equity and Accumulated Earnings,
December 31, 2002
    
    $
    49
    
    
    $
    396
    
    
    $
    940,122
    
    
    $
    
    
    
    $
    (14,822
    )
    
    $
    (639
    )
    
    $
    (91,407
    )
    
    $
    833,699Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,102Net change in derivative value, net of
minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,772
    )
    
    
    
    
    
    
    
    
    
    
    (2,772
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,330Proceeds from Dividend Reinvestment and
Employee Stock Purchase Plans
    
    
    
    
    
    
    
    
    
    
    (14,990
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,256
    
    
    
    266Adjustment for minority interest of
unitholders in Operating Partnership upon
conversion of units into common shares and at
dates of capital transactions
    
    
    
    
    
    
    
    
    
    
    7,234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,234Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120Restricted stock issuances, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    (480
    )
    
    
    
    
    
    
    
    
    
    
    (1,106
    )
    
    
    1,586
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    327
    
    
    
    
    
    
    
    327Dividends to preferred shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,725
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,725
    )Dividends to common shareholders
    
    
    
    
    
    
    
    
    
    
    (32,371
    )
    
    
    (1,377
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,748
    )Shareholders Equity and Accumulated Earnings,
June 30, 2003
    
    $
    49
    
    
    $
    396
    
    
    $
    899,635
    
    
    $
    
    
    
    $
    (17,594
    )
    
    $
    (1,418
    )
    
    $
    (74,565
    )
    
    $
    806,503


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)
(Unaudited)

Six months endedJune 30,2003
    
    2002Cash Flows From Operating ActivitiesNet income
    
    $
    7,102
    
    
    $
    42,082Adjustments to reconcile net income to net cash provided by operating
activities:Gains on property sales  continuing operations
    
    
    
    
    
    
    (13,275
    )Gains on properties held for sale and sold  discontinued operations,
net of minority interest
    
    
    (29,805
    )
    
    
    (9,425
    )Asset impairment charge
    
    
    14,118
    
    
    
    Minority interest of preferred unitholders in Operating Partnership
    
    
    2,800
    
    
    
    2,800Minority interest of common unitholders in Operating Partnership
    
    
    (3,729
    )
    
    
    3,261Minority interest in discontinued operations
    
    
    99
    
    
    
    467Equity in losses (income) of unconsolidated entities
    
    
    (7,708
    )
    
    
    843Stock-based compensation
    
    
    120
    
    
    
    Depreciation
    
    
    46,114
    
    
    
    42,549Amortization of deferred financing costs
    
    
    1,756
    
    
    
    1,123Changes in assets, (increase) decrease in:Restricted cash
    
    
    (338
    )
    
    
    192Other assets
    
    
    1,540
    
    
    
    (250
    )Deferred charges
    
    
    (1,463
    )
    
    
    (1,629
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    (120
    )
    
    
    (762
    )Accounts payable and accrued expenses
    
    
    23,313
    
    
    
    (5,390
    )Security deposits and prepaid rents
    
    
    (177
    )
    
    
    (440
    )Net cash provided by operating activities
    
    
    53,622
    
    
    
    62,146Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (18,939
    )
    
    
    (87,597
    )Net proceeds from property sales
    
    
    98,711
    
    
    
    140,368Capitalized interest
    
    
    (3,113
    )
    
    
    (8,540
    )Recurring capital expenditures
    
    
    (3,986
    )
    
    
    (4,731
    )Corporate additions and improvements
    
    
    (339
    )
    
    
    (548
    )Non-recurring capital expenditures
    
    
    (2,176
    )
    
    
    (1,264
    )Revenue generating capital expenditures
    
    
    (732
    )
    
    
    (966
    )Distributions from (investment in and advances to) unconsolidated entities
    
    
    89,471
    
    
    
    (22,821
    )Net cash provided by investing activities
    
    
    158,897
    
    
    
    13,901Cash Flows From Financing ActivitiesPayment of financing costs
    
    
    
    
    
    
    (150
    )Proceeds from notes payable
    
    
    
    
    
    
    38,500Payments on notes payable
    
    
    (1,278
    )
    
    
    (21,854
    )Lines of credit proceeds (repayments), net
    
    
    (153,351
    )
    
    
    (14,849
    )Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans
    
    
    266
    
    
    
    1,025Distributions to preferred unitholders
    
    
    (2,800
    )
    
    
    (2,800
    )Distributions to common unitholders
    
    
    (5,896
    )
    
    
    (7,986
    )Dividends paid to preferred shareholders
    
    
    (5,725
    )
    
    
    (5,725
    )Dividends paid to common shareholders
    
    
    (45,823
    )
    
    
    (57,484
    )Net cash used in financing activities
    
    
    (214,607
    )
    
    
    (71,323
    )Net increase (decrease) in cash and cash equivalents
    
    
    (2,088
    )
    
    
    4,724Cash and cash equivalents, beginning of period
    
    
    6,390
    
    
    
    4,803Cash and cash equivalents, end of period
    
    $
    4,302
    
    
    $
    9,527


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
(Dollars in thousands, except per share 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. The
Company owns 28,917 apartment units in 78 apartment communities, including
468 apartment units in two apartment communities under development and
lease-up. At June 30, 2003, approximately 51.9%, 19.6% and 7.7% (on a unit
basis) of the Companys communities were located in the Atlanta, Dallas and
Tampa metropolitan areas, respectively.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company has elected to qualify and operate as a self-administrated and
self-managed real estate investment trust (REIT) for federal income tax
purposes. A REIT is a legal entity which holds real estate interests and,
through payments of dividends to shareholders, in practical effect is not
subject to federal income taxes at the corporate level.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As of June 30, 2003, the Company had outstanding 37,656,778 shares of common
stock and owned the same number of units of common limited partnership
interests (Common Units) in the Operating Partnership, representing an
89.5% ownership interest in the Operating Partnership. Common Units held by
persons (including three directors of the Company) other than the Company
totaled 4,430,328 as of June 30, 2003 and represented a 10.5% 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 89.0% and 87.8% for the three months and 88.8% and
87.8% for the six months ended June 30, 2003 and 2002, 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 and six month periods ended June 30,
2003 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, 2002. Certain
2002 amounts have been reclassified to conform to the current years
financial statement presentation.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Stock-based Compensation
| |  | ------------------------



| |  | On January 1, 2003, the Company elected to voluntarily change its method of
accounting for stock-based compensation to the fair value method prescribed
by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, using the prospective method prescribed in
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. SFAS No. 148 also amended the disclosure requirements in both
annual and interim financial statements about the method of accounting used
for stock-based compensation and the effect of the method on reported
results. In prior periods, 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Under the prospective method of adoption prescribed by SFAS No. 123 and SFAS
No. 148, the Company will reflect as an expense each period the estimated
cost of stock-based compensation, calculated under the Black-Scholes option
pricing model for stock options, for all stock-based compensation granted
after January 1, 2003. For stock-based compensation granted prior to
December 31, 2002, compensation expense was generally not recognized for
stock options granted at the Companys current stock price on the grant date.
As a result, the Companys general and administrative expenses may not be
comparable between periods. For the three and six months ended June 30,
2003, general and administrative expenses included compensation expense of
$67 and $106, respectively, recognized under the fair value method.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-5-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | 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 for each period.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002Net income available to common shareholdersAs reported
    
    $
    24,826
    
    
    $
    22,200
    
    
    $
    1,377
    
    
    $
    36,357Stock-based compensation included in net income as reported,
net of minority interest
    
    
    67
    
    
    
    
    
    
    
    106
    
    
    
    Stock-based compensation determined under the fair value
method for all awards, net of minority interest
    
    
    (88
    )
    
    
    (127
    )
    
    
    (182
    )
    
    
    (301
    )Pro forma
    
    $
    24,805
    
    
    $
    22,073
    
    
    $
    1,301
    
    
    $
    36,056Net
income per common share  basicAs reported
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.04
    
    
    $
    0.99Pro forma
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.03
    
    
    $
    0.98Net income per common share  dilutedAs reported
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.04
    
    
    $
    0.98Pro forma
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.03
    
    
    $
    0.98




| |  | New Accounting Pronouncements
| |  | -----------------------------



| |  | In 2002 and 2003, the Financial Accounting Standards Board issued several new
accounting pronouncements and the pronouncements with a potential impact on
the Company are discussed below.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections was issued in May 2002.
SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishments of Debt, which provided that gains and losses from early
debt retirements be treated as extraordinary items. Under SFAS No. 145,
gains and losses from early debt retirements will only be treated as
extraordinary items if they meet the criteria for extraordinary items under
APB No. 30. Since the definition of an extraordinary item is more
restrictive under APB No. 30, SFAS No. 145 will generally cause the Company
to treat gains or losses from early debt retirements as part of income before
extraordinary items. This part of SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002 and requires the reclassification of prior
period extraordinary items not meeting the APB No. 30 criteria. The Company
adopted the requirements of SFAS No. 145 on January 1, 2003. The
implementation of the statement had no impact on the Companys results of
operations or financial position in the three and six months ended June 30,
2003. In the second quarter of 2003, the Company reclassified $120, net of
minority interest, of extraordinary items recorded in the second quarter of
2002 from its prior period presentation as extraordinary items to operating
expenses used in the determination of income from continuing operations. The
remaining provisions of SFAS No. 145 are generally not applicable to the
Company.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities was issued in July 2002. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 is effective for exit or disposal activities
initiated after December 31, 2002. The implementation of this Statement did
not have a significant effect on the Companys results of operations or its
financial position.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | FASB Interpretation No. 45 (FIN No. 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others was issued in November 2002. FIN No. 45 clarifies disclosure
requirements to be made by a guarantor in its interim and annual financial
statements regarding its obligations under certain guarantees that it has
issued. Additionally, it clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The disclosure
requirements of FIN No. 45 are effective for interim and annual financial
statements issued after December 15, 2002. The initial recognition and
measurement provisions of FIN No. 45 are applicable for guarantees issued or
modified after December 31, 2002. The Company has implemented the disclosure
requirements of FIN No. 45 effective with its December 31, 2002 financial
statements and adopted the recognition and measurement provisions effective
January 1, 2003. The adoption of the recognition and measurement provisions
of FIN No. 45 did not have a significant impact on the Companys financial
position or results of operations.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-6-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 was issued in January
2003. 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 are
applicable immediately to all variable interest entities created after
January 31, 2003. For 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
September 30, 2003. Information required to be disclosed in 2003 pursuant to
FIN No. 46 includes the nature, purpose, size and activities of all variable
interest entities where it is reasonably possible that such entities will be
required to be consolidated by the Company and the Companys maximum exposure
to loss from these entities. The Company is evaluating its investments in
unconsolidated real estate entities to determine whether they fall within the
definition of variable interest entities. The Company believes that FIN No.
46 will not have a significant effect on its results of operations or
financial position.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, was issued in May 2003.
SFAS No. 150 establishes standards for how an issuer classifies and measures
certain liabilities and equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first quarterly period beginning after June
15, 2003. The Company has not entered into any transactions involving
financial instruments impacted by SFAS No. 150 and believes that the
implementation of SFAS No. 150 in the third quarter of 2003 will not have a
significant effect on the Companys financial position or results of
operations.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | NOTES PAYABLE
|-- |  | -------------



| |  | At June 30, 2003 and December 31, 2002, the Companys indebtedness consisted
of the following:
| |  | ----------------------------------------------------------------------------------------------

Payment
    
    
    
    
    
    Maturity
    
    June 30,
    
    December 31,Description
    
    Terms
    
    Interest Rate
    
    Date (1)
    
    2003
    
    2002Unsecured NotesSenior Notes
    
    Int
    
    
    6.11% - 7.70
    %
    
    2003-2010
    
    $
    385,000
    
    
    $
    385,000Medium Term Notes
    
    Int
    
    
    6.69% - 8.12
    %(2)
    
    2004-2015
    
    
    323,000
    
    
    
    323,000708,000
    
    
    
    708,000Unsecured Lines of Credit & OtherRevolver
    
    N/A
    
    
    LIBOR + 0.85
    %(3)
    
    2004
    
    
    30,000
    
    
    
    185,000Cash Management Line
    
    N/A
    
    
    LIBOR + 0.75
    %
    
    2004
    
    
    13,017
    
    
    
    11,36943,017
    
    
    
    196,369Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int
    
    
    6.975
    %(4)
    
    2029
    
    
    101,100
    
    
    
    101,100Other
    
    Prin. and Int
    
    
    5.50% - 7.69
    %
    
    2007-2013
    
    
    193,429
    
    
    
    194,706294,529
    
    
    
    295,806Tax Exempt Floating Rate
Bonds (Secured)
    
    Int
    
    
    1.00
    %(5)
    
    2025
    
    
    214,380
    
    
    
    214,380Total
    
    
    
    
    
    
    
    
    
    $
    1,259,926
    
    
    $
    1,414,555




|(1) |  | All outstanding indebtedness can be prepaid at any time, subject to
certain prepayment penalties.                                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Contains $100,000 of Mandatory Par Put Remarketed Securities. The
annual interest rate on these securities to 2005 (the Remarketing
Date) is 6.85%. On the Remarketing Date, they are subject to
mandatory tender for remarketing.                                                                                                                            
|   
|(3) |  | Represents stated rate. At June 30, 2003, the average interest
rate was 2.11%.                                                                                                                                                                                                                                                                                  
|   
|(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 June 30, 2003 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%.

Debt maturities

The aggregate maturities of the Companys indebtedness are as follows (1):

Remainder of 2003
    
    $
    102,5312004
    
    
    27,0942005
    
    
    204,4022006
    
    
    79,7322007
    
    
    112,178Thereafter
    
    
    690,972$
    1,216,909


(1)    Excludes outstanding balances on lines of credit of $43,017 discussed below.

-7-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | Unsecured Lines of Credit
| |  | -------------------------



| |  | The Company utilizes a $320,000 three-year syndicated revolving line of
credit (the Revolver), for its short-term financing needs. At June 30,
2003, the stated interest rate for the Revolver was LIBOR plus 0.85% or prime
minus 0.25%. The Revolver provides for the rate to be adjusted up or down
based on changes in the credit ratings on the Companys senior unsecured
debt. The Revolver also includes a money market competitive bid option for
short-term funds up to $160,000 at rates below the stated line rate. The
credit agreement for the Revolver contains customary representations,
covenants and events of default, including 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 $30,000 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 this covenant will adversely affect the ability of the Operating
Partnership to make distributions, or the Company to declare dividends, at
the Companys current dividend level. The Revolver matures in April 2004,
however, management expects to renew this facility later in 2003.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In July 2003, the Companys unsecured debt rating was downgraded from Baa2 to
Baa3 by Moodys Investor Services, resulting in a split unsecured debt rating
(Standard & Poors rates the Companys unsecured debt at BBB). Under the
terms of the credit agreement, the interest rate on the revolver will remain
at LIBOR plus 0.85% as the interest rate is based on the higher of the
Companys unsecured debt ratings. If Standard & Poors were to lower its
unsecured debt ratings one level, the interest rate on Revolver borrowings
would increase to LIBOR plus 1.10%.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Through April 2003, the Company also had in place an additional $125,000 line
of credit facility for general corporate purposes. This line matured in
April 2003 and was not renewed.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Additionally, the Company has a $20,000 unsecured line of credit with
Wachovia Bank of Georgia, N.A. (the Cash Management Line). The Cash
Management Line bears interest at LIBOR plus 0.75% or prime minus .25% and
matures in April 2004. Management expects to renew this facility at its
maturity. At June 30, 2003, there were letters of credit to third parties
totaling $963.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES
|-- |  | --------------------------------------------------



| |  | At June 30, 2003, 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. The Company
holds a 35% equity interest in the Property LLCs. At June 30, 2003, two of
the apartment communities had achieved stabilized occupancy and one apartment
community was in initial lease-up. The total estimated development cost of
the apartment communities was funded through member equity contributions
proportionate to the members ownership interests and through construction
financing provided by the Company. In June 2003, the underlying apartment
community held by a fourth Property LLC was sold. The financial information
below reflects the gain on property sale and the operating results of this
Property LLC through the sale date. The Company recognized its allocable
share of the gain from the property sale which was approximately $8,395 in
its second quarter operating results. The $8,395 gain is included in the
Companys share of net income (loss) shown in the table below.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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
$6,727 at June 30, 2003. 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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-8-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | The operating results of the Company include its proportionate share of net
income (loss) from the investments in the Property LLCs. A summary of
financial information for the Property LLCs in the aggregate is as follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

June 30,
    
    December 31,2003
    
    2002Real estate assets, net
    
    $
    128,924
    
    
    $
    198,854Cash and other
    
    
    3,324
    
    
    
    2,330Total assets
    
    $
    132,248
    
    
    $
    201,184Mortgage notes payable
    
    $
    16,906
    
    
    $
    Construction notes payable to Company (1)
    
    
    83,155
    
    
    
    160,294Other liabilities
    
    
    2,335
    
    
    
    3,975Total liabilities
    
    
    102,396
    
    
    
    164,269Members equity
    
    
    29,852
    
    
    
    36,915Total liabilities and members equity
    
    $
    132,248
    
    
    $
    201,184Companys equity investment
    
    $
    17,201
    
    
    $
    21,991Companys share of mortgage and construction notes payable
    
    $
    35,022
    
    
    $
    56,103




|(1) |  | All of the Companys construction financing to
these unconsolidated real estate entities is
included in the Companys outstanding debt and real
estate assets. At June 30, 2003 and December 31,
2002, the venture partners share of the
construction loans was $54,051 and $104,191,
respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002RevenuesRental
    
    $
    3,360
    
    
    $
    850
    
    
    $
    6,606
    
    
    $
    1,181Other
    
    
    149
    
    
    
    89
    
    
    
    288
    
    
    
    161Total revenues
    
    
    3,509
    
    
    
    939
    
    
    
    6,894
    
    
    
    1,342ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    1,970
    
    
    
    1,050
    
    
    
    3,989
    
    
    
    1,778Depreciation
    
    
    1,257
    
    
    
    745
    
    
    
    2,590
    
    
    
    1,141Interest
    
    
    1,121
    
    
    
    574
    
    
    
    2,278
    
    
    
    833Total expenses
    
    
    4,348
    
    
    
    2,369
    
    
    
    8,857
    
    
    
    3,752Gain on property sale
    
    
    26,179
    
    
    
    
    
    
    
    26,179
    
    
    
    Net income (loss)
    
    $
    25,340
    
    
    $
    (1,430
    )
    
    $
    24,216
    
    
    $
    (2,410
    )Companys share of net income (loss)
    
    $
    8,101
    
    
    $
    (500
    )
    
    $
    7,708
    
    
    $
    (843
    )




| |  | The operating results for the Property LLCs, summarized in the financial
information above, included the revenues and expenses of the community sold
through its sale date. Total revenues for this community were $1,277 and
$303 for the three months ended June 30, 2003 and 2002, respectively, and
$2,871 and $319 for the six months ended June 30, 2003 and 2002,
respectively. Total expenses were $1,380 and $991 for the three months ended
June 30, 2003 and 2002, respectively, and $3,059 and $1,172 for the six
months ended June 30, 2003 and 2002, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company has committed construction financing to two Property LLCs
totaling $85,491 ($83,155 funded at June 30, 2003). These loans earn
interest at LIBOR plus 1.75% and are secured by the apartment communities.
The loans mature on dates ranging from September 2003 to November 2004 and
are expected to be repaid from the proceeds of permanent project financings.
In the first quarter of 2003, one of the Property LLCs repaid its outstanding
construction note payable to the Company of $24,071 through the proceeds from
a third-party non-recourse permanent mortgage note totaling $17,000 and from
additional member equity contributions. The mortgage note bears interest at
4.28%, requires monthly principal and interest payments based on a 30-year
amortization schedule and matures in March 2008. The Company issued a
limited guarantee and indemnity to the lender regarding certain customary
recourse liabilities and environmental matters up to a maximum potential
exposure of $5,000. The other member of the Property LLC is obligated to
reimburse the Company for up to its 65% share ($3,250) of the maximum
potential exposure under these arrangements.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-9-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | 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 the Property LLC. Additionally,
under theses agreements, the Company is subject to project completion date
requirements, as defined. At June 30, 2003, the Company had met its
remaining completion date requirements and will not be subject to any
additional costs.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | REAL ESTATE ASSETS HELD FOR SALE/DISCONTINUED OPERATIONS
|-- |  | --------------------------------------------------------



| |  | The Company classifies real estate assets as held for sale after the approval
of its internal investment committee and after the Company has commenced an
active program to sell the assets. At June 30, 2003, the Company had
classified multiple tracts of land as held for sale. These real estate
assets are reflected in the accompanying consolidated balance sheet at
$10,705, which represents the lower of 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 subsequent to January 1, 2002 are included in discontinued operations in
the consolidated statement of operations for all periods presented. Also
under the provisions of SFAS No. 144, the reserves, if any, to write down the
carrying value of real estate assets designated and classified as held for
sale after January 1, 2002 are included in discontinued operations. All
subsequent gains or additional losses on the sale of these assets are also
included in discontinued operations. Additionally under SFAS No. 144, any
impairment losses on assets held for continuing use are included in
continuing operations.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For the three months ended June 30, 2003, income from discontinued operations
included the results of operations, through the earlier of community sale
date (if the community was sold between April 1, 2003 and June 30, 2003) or
June 30, 2003, of one apartment community containing 770 units that was
classified as held for sale at December 31, 2002. For the six months ended
June 30, 2003, income from discontinued operations included the results of
operations, through the earlier of the community sale date (if the community
was sold between January 1, 2003 and June 30, 2003) or June 30, 2003 of two
apartment communities containing 1,009 units that were classified as held for
sale at December 31, 2002. For the three and six months ended June 30, 2002,
income from discontinued operations included the results of operations of
eight apartment communities containing 3,134 units and one commercial
property through the earlier of the community sale date or the end of the
period.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The revenues and expenses of these communities for the three and six months
ended June 30, 2003 and 2002 were as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002RevenuesRental
    
    $
    917
    
    
    $
    4,580
    
    
    $
    3,087
    
    
    $
    12,242Other
    
    
    18
    
    
    
    212
    
    
    
    89
    
    
    
    476Total revenues
    
    
    935
    
    
    
    4,792
    
    
    
    3,176
    
    
    
    12,718ExpensesProperty operating and
maintenance (exclusive of items
shown separately below)
    
    
    345
    
    
    
    2,188
    
    
    
    1,150
    
    
    
    5,242Depreciation
    
    
    
    
    
    
    591
    
    
    
    
    
    
    
    1,455Interest
    
    
    396
    
    
    
    813
    
    
    
    1,135
    
    
    
    2,196Total expenses
    
    
    741
    
    
    
    3,592
    
    
    
    2,285
    
    
    
    8,893Income from discontinued operations
(before minority interest)
    
    $
    194
    
    
    $
    1,200
    
    
    $
    891
    
    
    $
    3,825




| |  | For the three months ended June 30, 2003, the Company recognized net gains
from discontinued operations of $26,936 ($23,987 net of minority interest),
on the sale of one community, containing 770 apartment units, reduced by
losses of $306 ($273 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 classified as held for sale. For the six
months ended June 30, 2003, the Company recognized net gains from
discontinued operations of $34,917 ($31,059 net of minority interest) on the
sale of two communities containing 1,009 units, reduced by losses of $1,413
($1,254 net of minority interest) resulting from losses on the sale of
certain land parcels and additional reserves to write-down to fair value less
costs to sell certain other land parcels classified as held for sale.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For the three months ended June 30, 2002, the Company recognized net gains of
$18,385 ($16,146 net of minority interest) on the sale of four apartment
communities, containing 1,450 apartment units, and one commercial property.
For the six
months ended June 30, 2002, these gains were reduced by losses of $7,652
($6,731 net of minority interest) to reduce the carrying value of such assets
designated as held for sale to their fair value sell costs to sell.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-10-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | In the first quarter of 2003, the Company recorded an impairment loss of
$14,118, under the provisions of SFAS No. 144, to write-down the cost of an
apartment community, located in Phoenix, Arizona, to its estimated fair
value, based upon a revised determination that it was more probable that this
community would be marketed for sale in the near term instead of held for
long-term investment. This community was not classified as held for sale at
June 30, 2003 as the Companys internal investment committee had not approved
the sale of the community and no program was initiated to actively sell the
community. Subsequent to June 30, 2003, this community has been classified
as held for sale as the Companys investment committee approved the sale and
the Company began actively marketing it for sale.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Under prior accounting pronouncements, operating results and net gains or
losses on the sale of assets classified as held for sale prior to December
31, 2001 are included in continuing operations. As a result of this
presentation, income from continuing operation and gains on property sales
may not be comparable between periods. The discussion below relates to the
gains on property sales reported in continuing operations in the consolidated
statements of operations for the six months ended June 30, 2002.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In the first quarter of 2002, the Company sold two apartment communities
containing 540 units and one commercial property for net proceeds of
approximately $41,393. These sales resulted in net gains of approximately
$13,275. For the six months ended June 30, 2002, the consolidated statement
of operations includes net income of $366 from these two communities and one
commercial property prior to their sale dates.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | EARNINGS PER SHARE
|-- |  | ------------------



| |  | For the three and six months ended June 30, 2003 and 2002, a reconciliation
of the numerator and denominator used in the computation of basic and diluted
income from continuing operations per common share is as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 302003
    
    2002
    
    2003
    
    2002Income (loss) from continuing operations available to common
shareholders (numerator):Income (loss) from continuing operations
    
    $
    3,802
    
    
    $
    7,863
    
    
    $
    (23,495
    )
    
    $
    29,299Less: Preferred stock dividends
    
    
    (2,863
    )
    
    
    (2,863
    )
    
    
    (5,725
    )
    
    
    (5,725
    )Income (loss) from continuing operations available to
common shareholders
    
    $
    939
    
    
    $
    5,000
    
    
    $
    (29,220
    )
    
    $
    23,574Common shares (denominator):Weighted average shares outstanding  basic
    
    
    37,459,530
    
    
    
    36,904,954
    
    
    
    37,361,132
    
    
    
    36,890,139Incremental shares from assumed conversion of stock options
    
    
    7,858
    
    
    
    76,380
    
    
    
    770
    
    
    
    85,029Weighted average shares outstanding  diluted
    
    
    37,467,388
    
    
    
    36,981,334
    
    
    
    37,361,902
    
    
    
    36,975,168




|6. |  | DERIVATIVE FINANCIAL INSTRUMENTS
|-- |  | --------------------------------



| |  | At June 30, 2003 and 2002, the Company had outstanding interest rate swap
agreements with a notional value of $129,000 with maturity dates ranging from
2005 to 2009. The Company recorded unrealized net losses of $1,804, net of
minority interest and $4,657, net of minority interest, for the three months
ended June 30, 2003 and 2002 respectively, and net losses of $1,632, net of
minority interest, and $2,724, net of minority interest, for the six months
ended June 30, 2003 and 2002, respectively, on these cash flow hedges as an
increase in accumulated other comprehensive income, a shareholders equity
account, in the accompanying consolidated balance sheet. Within the next
twelve months, the Company expects to reclassify out of accumulated other
comprehensive income approximately $6,198.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In the first quarter of 2003, the Company entered into two interest rate cap
arrangements with two financial institutions. The new interest rate cap
arrangements replaced three expiring interest rate cap arrangements and were
structured as cash flow hedges to provide a fixed 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 June 30, 2003, the
difference of $1,140, net of minority interest, between the amortized costs
of the interest rate cap arrangements of $2,720 and their fair value of
$1,436 is included in accumulated other comprehensive income, 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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-11-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | Comprehensive income for the three and six months ended June 30, 2003 totaled
$25,346 and $4,330 respectively, as summarized on the consolidated statement
of shareholders equity and accumulated earnings. Comprehensive income for
the three months ended June 30, 2002 totaled $20,405 and consisted of net
income of $25,062 plus the net change in the value of the derivatives
discussed above of ($4,657). Comprehensive income for the six months ended
June 30, 2002 totaled $39,358 and consisted of net income of $42,082 plus the
net change in the value of the derivatives discussed above of $2,724.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7. |  | SEGMENT INFORMATION
|-- |  | -------------------



| |  | Segment Description
| |  | -------------------



| |  | In accordance with SFAS No. 131, Disclosure About the Segments of an
Enterprise and Related Information, the Company presents segment information
based on the way that management organizes the segments within the enterprise
for making operating decisions and assessing performance. The segment
information is prepared on substantially the same basis as the internally
reported information used by the Companys chief operating decision makers to
manage the business.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Companys chief operating decision makers focus on the Companys primary
sources of income from apartment community rental operations. Apartment
community rental operations are broken down into four segments based on the
various stages in the apartment community ownership lifecycle. These segments
are described below. All commercial properties and other ancillary service
and support operations are aggregated in the line item other in the
accompanying segment information.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 2002  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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sold communities  communities which were sold in the prior year and
not reflected as discontinued operations (see note 4).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  | Segment Performance Measure
| |  | ---------------------------



| |  | Management uses contribution to consolidated property net operating income
(NOI) as the performance measure for its operating segments. The Company
uses net operating income, including net operating income of stabilized
communities, as an operating measure. Net operating income is defined as
rental and other 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. 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 income (loss) from
continuing operations is the most directly comparable GAAP measure to net
operating income.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-12-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | Segment Information
| |  | -------------------



| |  | The following table reflects each segments contribution to consolidated
revenues and property NOI together with a reconciliation of segment
contribution to property NOI income from continuing operations. Additionally,
substantially all of the Companys assets relate to the Companys property
rental operations. Asset cost, depreciation and amortization by segment are
not presented because such information at the segment level is not reported
internally.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002RevenuesFully stabilized communities
    
    $
    64,541
    
    
    $
    66,945
    
    
    $
    129,487
    
    
    $
    135,050Communities stabilized during 2002
    
    
    8,790
    
    
    
    6,709
    
    
    
    17,577
    
    
    
    12,932Development and lease-up communities
    
    
    3,918
    
    
    
    1,744
    
    
    
    7,332
    
    
    
    3,465Sold communities
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    745Other
    
    
    5,218
    
    
    
    5,278
    
    
    
    9,847
    
    
    
    10,274Interest income
    
    
    251
    
    
    
    281
    
    
    
    485
    
    
    
    686Consolidated revenues
    
    $
    82,718
    
    
    $
    80,966
    
    
    $
    164,728
    
    
    $
    163,152Contribution to NOIFully stabilized communities
    
    $
    40,578
    
    
    $
    43,439
    
    
    $
    82,371
    
    
    $
    88,330Communities stabilized during 2002
    
    
    5,593
    
    
    
    3,595
    
    
    
    11,235
    
    
    
    6,984Development and lease-up communities
    
    
    2,034
    
    
    
    935
    
    
    
    3,728
    
    
    
    1,888Sold communities
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    369Other
    
    
    (349
    )
    
    
    682
    
    
    
    (1,327
    )
    
    
    13Consolidated net operating income
    
    
    47,856
    
    
    
    48,654
    
    
    
    96,007
    
    
    
    97,584Interest income
    
    
    251
    
    
    
    281
    
    
    
    485
    
    
    
    686Minority interest in consolidated property partnerships
    
    
    348
    
    
    
    460
    
    
    
    682
    
    
    
    943Gains on property sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,275Depreciation
    
    
    (22,476
    )
    
    
    (20,794
    )
    
    
    (45,204
    )
    
    
    (40,696
    )Interest
    
    
    (17,396
    )
    
    
    (13,700
    )
    
    
    (33,957
    )
    
    
    (26,844
    )Amortization of deferred loan costs
    
    
    (968
    )
    
    
    (569
    )
    
    
    (1,756
    )
    
    
    (1,123
    )General and administrative
    
    
    (3,342
    )
    
    
    (3,720
    )
    
    
    (6,967
    )
    
    
    (7,486
    )Other expenses
    
    
    
    
    
    
    (136
    )
    
    
    (567
    )
    
    
    (136
    )Severance charges
    
    
    (1,795
    )
    
    
    
    
    
    
    (21,506
    )
    
    
    Asset impairment charge
    
    
    
    
    
    
    
    
    
    
    (14,118
    )
    
    
    Proxy and related costs
    
    
    (5,231
    )
    
    
    
    
    
    
    (5,231
    )
    
    
    Equity in losses of unconsolidated real estate entities
    
    
    8,101
    
    
    
    (500
    )
    
    
    7,708
    
    
    
    (843
    )Minority interest of preferred unitholders
    
    
    (1,400
    )
    
    
    (1,400
    )
    
    
    (2,800
    )
    
    
    (2,800
    )Minority interest of common unitholders
    
    
    (146
    )
    
    
    (713
    )
    
    
    3,729
    
    
    
    (3,261
    )Income (loss) from continuing operations
    
    $
    3,802
    
    
    $
    7,863
    
    
    $
    (23,495
    )
    
    $
    29,299


-13-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



|8. |  | SEVERANCE, PROXY AND ASSET IMPAIRMENT CHARGES
|-- |  | ---------------------------------------------



| |  | In the second quarter of 2003, the Company recorded severance charges of
$1,795 ($1,598 net of minority interest) relating to the departures of its
executive vice president and chief financial officer and its executive vice
president of asset management. In addition, the Company recorded the actual
and estimated costs associated with the recently concluded proxy contest of
$5,231 ($4,658 net of minority interest). In 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, and a $14,118 ($12,510 net of minority interest) asset impairment
charge, under the provisions of SFAS No. 144, to write-down the cost of an
apartment community, located in Phoenix, Arizona, to its estimated fair value
less the cost to sell.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The severance charges recorded in the second quarter of 2003 represented the
aggregate amount of the estimated payments and benefits to be made to the
departing executive officers. The severance charges recorded in the first
quarter of 2003 consisted of a $13,994 charge representing the discounted
present value of the estimated payments to be made to the former chairman and
vice-chairman under their existing employment arrangements and a $5,718
charge representing the discounted present value of estimated net costs that
may be incurred by the Company as a result of the settlement of split-dollar
life insurance obligations to the individuals under their employment
contracts. The estimated charge for the settlement of the split-dollar life
insurance obligations may change based upon a final legal determination
regarding these insurance contracts and a final settlement among the parties.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As discussed above, the Company recorded severance charges in the first and
second quarters of 2003. The following table summarizes the activity
relating to the accrued severance charges for the six months ended June 30,
2003:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Aggregate severance charges
    
    $
    21,506Payments for period
    
    
    (938
    )Interest accretion
    
    
    354Accrued severance charges at June 30, 2003
    
    $
    20,922




| |  | Substantially all of these remaining amounts will be paid over the remaining
terms of the former executives employment contracts (10 to 13 years).
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Proxy and related costs of $5,231 represent the actual and estimated legal,
advisory and other expenses associated with the solicitation of proxies from
shareholders resulting from the proxy contest initiated in April 2003 by the
Companys former chairman and current chairman emeritus of the board of
directors. Additionally, the $5,231 amount includes the estimated legal and
resolution costs associated with the settlement of two derivative and
purported class action lawsuits filed against the Company during the proxy
contest. These lawsuits are expected to be settled subsequent to June 30,
2003. Through June 30, 2003, proxy and related costs paid totaled $3,181.
The remaining accrued proxy and related charges of $2,050 are expected to be
paid in the third quarter of 2003.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The asset impairment charge relating to the Companys Phoenix, Arizona
apartment community was based upon a revised determination that it was more
probable that this community would be marketed for sale in the near term
instead of held for long-term investment. This determination was based on
the views of the Companys new chairman and current chief executive officer
resulting from a review of the Companys apartment communities during the
first quarter of 2003. This community was not classified as held for sale at
June 30, 2003 as the Companys internal investment committee had not approved
the sale of the community and no program was initiated to actively sell the
community. Subsequent to June 30, 2003, this community has been classified
as held for sale as the Companys investment committee approved the sale and
the Company began actively marketing it for sale.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9. |  | SUPPLEMENTAL CASH FLOW INFORMATION
|-- |  | ----------------------------------



| |  | Non-cash investing and financing activities for the six months ended June 30,
2003 and 2002 were as follows:
| |  | ------------------------------------------------------------------------------------------------------------



| |  | During the six months ended June 30, 2003, 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 $2,772, net of minority interest. During the six months ended June
30, 2002, the Companys derivative financial instruments decreased in value
causing an increase in accounts payable and accrued expenses and a
corresponding increase in shareholders equity of $2,724, net of minority
interest.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-14-



---



##### 



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | During the six months ended June 30, 2003, holders of 399,097 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 Dividend Reinvestment and Employee
Stock Purchase and 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 $7,234 and $104 for the six
months ended June 30, 2003 and 2002, respectively.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10. |  | STOCK-BASED COMPENSATION PLAN
|--- |  | -----------------------------



| |  | During the six months ended June 30, 2003, the Company granted 42,990 shares
of restricted stock to company officers. The restricted shares vest ratably
over periods ranging from three to eight years. The total value of the
restricted share grants, net of forfeitures, of $1,106 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 vesting
period.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|11. |  | LEGAL PROCEEDINGS
|--- |  | -----------------



| |  | On April 7, 2003, John A. Williams, chairman emeritus of the board, withdrew
a complaint for injunctive relief and damages filed on March 21, 2003. As a
result, the temporary restraining order issued by the Superior Court of Cobb
County, Georgia in connection with the complaint also has been withdrawn. The
board of directors was to have voted on a number of resolutions that would
have restricted Mr. Williams with respect to certain company matters,
including restrictions on access to employees and information. The temporary
restraining order had enjoined the board from voting on any such resolutions
during the 30-day period.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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, including John Williams, 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. Mr. Williams was not
named as a defendant in the lawsuit. 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 subsequent to June 30, 2003. 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 the 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-15-



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##### 



POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS(In thousands)

June 30,
    
    December 31,2003
    
    2002(Unaudited)AssetsReal estate assetsLand
    
    $
    286,757
    
    
    $
    273,058Building and improvements
    
    
    2,033,983
    
    
    
    1,976,809Furniture, fixtures and equipment
    
    
    244,985
    
    
    
    246,634Construction in progress
    
    
    33,784
    
    
    
    92,945Investments in and advances to unconsolidated real estate entities
    
    
    100,356
    
    
    
    182,285Land held for future development
    
    
    24,299
    
    
    
    24,8792,724,164
    
    
    
    2,796,610Less: accumulated depreciation
    
    
    (470,307
    )
    
    
    (426,136
    )Assets held for sale
    
    
    10,705
    
    
    
    73,061Total real estate assets
    
    
    2,264,562
    
    
    
    2,443,535Cash and cash equivalents
    
    
    4,302
    
    
    
    6,390Restricted cash
    
    
    1,707
    
    
    
    1,369Deferred charges, net
    
    
    14,235
    
    
    
    15,584Other assets
    
    
    40,126
    
    
    
    41,273Total assets
    
    $
    2,324,932
    
    
    $
    2,508,151Liabilities
and partners equityNotes payable
    
    $
    1,259,926
    
    
    $
    1,414,555Accrued interest payable
    
    
    8,874
    
    
    
    8,994Distribution payable
    
    
    19,406
    
    
    
    33,252Accounts payable and accrued expenses
    
    
    73,504
    
    
    
    49,124Security deposits and prepaid rents
    
    
    8,073
    
    
    
    8,250Total liabilities
    
    
    1,369,783
    
    
    
    1,514,175Commitments and contingenciesPartners equityPreferred units
    
    
    215,000
    
    
    
    215,000Common unitsGeneral partner
    
    
    8,785
    
    
    
    9,143Limited partners
    
    
    751,328
    
    
    
    786,682Accumulated other comprehensive income (loss)
    
    
    (19,964
    )
    
    
    (16,849
    )Total partners equity
    
    
    955,149
    
    
    
    993,976Total liabilities and partners equity
    
    $
    2,324,932
    
    
    $
    2,508,151


The accompanying notes are an integral part of these consolidated financial statements.

-16-



---



##### 



POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per unit data)
(Unaudited)

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002RevenuesRental
    
    $
    79,312
    
    
    $
    77,221
    
    
    $
    158,178
    
    
    $
    156,009Other
    
    
    3,155
    
    
    
    3,464
    
    
    
    6,065
    
    
    
    6,457Interest
    
    
    251
    
    
    
    281
    
    
    
    485
    
    
    
    686Total revenues
    
    
    82,718
    
    
    
    80,966
    
    
    
    164,728
    
    
    
    163,152ExpensesProperty operating and maintenance (exclusive of items shown separately
below)
    
    
    34,611
    
    
    
    32,031
    
    
    
    68,236
    
    
    
    64,882Depreciation
    
    
    22,476
    
    
    
    20,794
    
    
    
    45,204
    
    
    
    40,696Interest
    
    
    17,396
    
    
    
    13,700
    
    
    
    33,957
    
    
    
    26,844Amortization of deferred financing costs
    
    
    968
    
    
    
    569
    
    
    
    1,756
    
    
    
    1,123General and administrative
    
    
    3,342
    
    
    
    3,720
    
    
    
    6,967
    
    
    
    7,486Minority interest in consolidated property partnerships
    
    
    (348
    )
    
    
    (460
    )
    
    
    (682
    )
    
    
    (943
    )Other
    
    
    
    
    
    
    136
    
    
    
    567
    
    
    
    136Severance charges
    
    
    1,795
    
    
    
    
    
    
    
    21,506
    
    
    
    Proxy and related costs
    
    
    5,231
    
    
    
    
    
    
    
    5,231
    
    
    
    Asset impairment charge
    
    
    
    
    
    
    
    
    
    
    14,118
    
    
    
    Total expenses
    
    
    85,471
    
    
    
    70,490
    
    
    
    196,860
    
    
    
    140,224Income (loss) from continuing operations before equity in income (losses)
of unconsolidated entities and gains on property sales
    
    
    (2,753
    )
    
    
    10,476
    
    
    
    (32,132
    )
    
    
    22,928Equity in income (losses) of unconsolidated real estate entities
    
    
    8,101
    
    
    
    (500
    )
    
    
    7,708
    
    
    
    (843
    )Gains on property sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,275Income (loss) from continuing operations
    
    
    5,348
    
    
    
    9,976
    
    
    
    (24,424
    )
    
    
    35,360Discontinued operationsIncome from discontinued operations
    
    
    194
    
    
    
    1,200
    
    
    
    891
    
    
    
    3,825Gains on properties held for sale and sold
    
    
    26,630
    
    
    
    18,385
    
    
    
    33,504
    
    
    
    10,733Income from discontinued operations
    
    
    26,824
    
    
    
    19,585
    
    
    
    34,395
    
    
    
    14,558Net income
    
    
    32,172
    
    
    
    29,561
    
    
    
    9,971
    
    
    
    49,918Distributions to preferred unitholders
    
    
    (4,263
    )
    
    
    (4,263
    )
    
    
    (8,525
    )
    
    
    (8,525
    )Net income available to common unitholders
    
    $
    27,909
    
    
    $
    25,298
    
    
    $
    1,446
    
    
    $
    41,393Per common unit data  BasicIncome (loss) from continuing operations (net of preferred distributions)
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    (0.78
    )
    
    $
    0.64Income from discontinued operations
    
    
    0.64
    
    
    
    0.47
    
    
    
    0.82
    
    
    
    0.35Net income available to common unitholders
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.04
    
    
    $
    0.99Weighted
average common units outstanding  basic
    
    
    42,066,025
    
    
    
    42,023,842
    
    
    
    42,057,716
    
    
    
    42,009,027Per common unit data  DilutedIncome (loss) from continuing operations (net of preferred distributions)
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    (0.78
    )
    
    $
    0.63Income from discontinued operations
    
    
    0.64
    
    
    
    0.47
    
    
    
    0.82
    
    
    
    0.35Net income available to common unitholders
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.04
    
    
    $
    0.98Distributions declared
    
    $
    0.45
    
    
    $
    0.78
    
    
    $
    0.90
    
    
    $
    1.56Weighted average common units outstanding  diluted
    
    
    42,073,883
    
    
    
    42,100,222
    
    
    
    42,058,486
    
    
    
    42,094,056


The accompanying notes are an integral part of these consolidated financial statements.

-17-



---



##### 



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

Common Units
    
    AccumulatedOtherPreferred
    
    General
    
    Limited
    
    ComprehensiveUnits
    
    Partner
    
    Partners
    
    Income
    
    TotalPartners Equity, December 31, 2002
    
    $
    215,000
    
    
    $
    9,143
    
    
    $
    786,682
    
    
    $
    (16,849
    )
    
    $
    993,976Comprehensive incomeNet income
    
    
    8,525
    
    
    
    14
    
    
    
    1,432
    
    
    
    
    
    
    
    9,971Net change in derivative value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,115
    )
    
    
    (3,115
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,856Contributions from the Company related
to Dividend Reinvestment and Employee
Stock Purchase Plans
    
    
    
    
    
    
    3
    
    
    
    263
    
    
    
    
    
    
    
    266Stock-based compensation
    
    
    
    
    
    
    1
    
    
    
    119
    
    
    
    
    
    
    
    120Distributions to preferred Unitholders
    
    
    (8,525
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,525
    )Distributions to common Unitholders
    
    
    
    
    
    
    (379
    )
    
    
    (37,492
    )
    
    
    
    
    
    
    (37,871
    )Contributions from the Company related
to shares issued for restricted stock,
net of deferred compensation
    
    
    
    
    
    
    3
    
    
    
    324
    
    
    
    
    
    
    
    327Partners Equity, June 30, 2003
    
    $
    215,000
    
    
    $
    8,785
    
    
    $
    751,328
    
    
    $
    (19,964
    )
    
    $
    955,149


The accompanying notes are an integral part of these consolidated financial statements.

-18-



---



##### 



POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)
(Unaudited)

Six months endedJune 30,2003
    
    2002Cash Flows From Operating ActivitiesNet income
    
    $
    9,971
    
    
    $
    49,918Adjustments to reconcile net income to net cash provided by operating
activities:Gains on property sales   continuing operations
    
    
    
    
    
    
    (13,275
    )Gains on properties held for sale and sold  discontinued operations
    
    
    (33,504
    )
    
    
    (10,733
    )Asset impairment charge
    
    
    14,118
    
    
    
    Equity in losses (income) of unconsolidated entities
    
    
    (7,708
    )
    
    
    843Stock-based compensation
    
    
    120
    
    
    
    Depreciation
    
    
    46,114
    
    
    
    42,549Amortization of deferred financing costs
    
    
    1,756
    
    
    
    1,123Changes in assets, (increase) decrease in:Restricted cash
    
    
    (338
    )
    
    
    192Other assets
    
    
    1,540
    
    
    
    (250
    )Deferred charges
    
    
    (1,463
    )
    
    
    (1,629
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    (120
    )
    
    
    (762
    )Accounts payable and accrued expenses
    
    
    23,313
    
    
    
    (5,390
    )Security deposits and prepaid rents
    
    
    (177
    )
    
    
    (440
    )Net cash provided by operating activities
    
    
    53,622
    
    
    
    62,146Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (18,939
    )
    
    
    (87,597
    )Net proceeds from property sales
    
    
    98,711
    
    
    
    140,368Capitalized interest
    
    
    (3,113
    )
    
    
    (8,540
    )Recurring capital expenditures
    
    
    (3,986
    )
    
    
    (4,731
    )Corporate additions and improvements
    
    
    (339
    )
    
    
    (548
    )Non-recurring capital expenditures
    
    
    (2,176
    )
    
    
    (1,264
    )Revenue generating capital expenditures
    
    
    (732
    )
    
    
    (966
    )Distributions from (investment in and advances to) unconsolidated entities
    
    
    89,471
    
    
    
    (22,821
    )Net cash provided by investing activities
    
    
    158,897
    
    
    
    13,901Cash Flows From Financing ActivitiesPayment of financing costs
    
    
    
    
    
    
    (150
    )Proceeds from notes payable
    
    
    
    
    
    
    38,500Payments on notes payable
    
    
    (1,278
    )
    
    
    (21,854
    )Lines of credit proceeds (repayments), net
    
    
    (153,351
    )
    
    
    (14,849
    )Proceeds from Dividend Reinvestment and Employee Stock Purchase Plans
    
    
    266
    
    
    
    1,025Distributions to preferred unitholders
    
    
    (8,525
    )
    
    
    (8,525
    )Distributions to common unitholders
    
    
    (51,719
    )
    
    
    (65,470
    )Net cash used in financing activities
    
    
    (214,607
    )
    
    
    (71,323
    )Net increase (decrease) in cash and cash equivalents
    
    
    (2,088
    )
    
    
    4,724Cash and cash equivalents, beginning of period
    
    
    6,390
    
    
    
    4,803Cash and cash equivalents, end of period
    
    $
    4,302
    
    
    $
    9,527


The accompanying notes are an integral part of these consolidated financial statements

-19-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



|1. |  | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------------



| |  | Organization
| |  | ------------



| |  | Post Apartment Homes, L.P. (the Operating Partnership), a Georgia limited
partnership, and its subsidiaries develop, own and manage upscale
multi-family apartment communities in selected markets in the United States.
Post Properties, Inc. (the Company) through its wholly owned subsidiaries
is the sole general partner, a limited partner and owns a majority interest
in the Operating Partnership. The Operating Partnership, through its
operating divisions and subsidiaries, conducts substantially all of the
on-going operations of Post Properties, Inc., a publicly traded company which
operates as a self-administered and self-managed real estate investment
trust.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | At June 30, 2003, the Company owned 89.5% of the common limited partnership
interests (Common Units) in the Operating Partnership and 63.6% of the
preferred limited partnership interests (Preferred Units). The Companys
weighted average common ownership interest in the Operating Partnership was
89.0% and 87.8% for the three months and 88.8% and 87.8% for the six months
ended June 30, 2003 and 2002, respectively. At June 30, 2003, Common Units
held by persons (including three directors of the Company) other than the
Company represented an 10.5% 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 28,917 apartment units in 78 apartment
communities, including 468 apartment units under development and lease-up in
two apartment communities. At June 30, 2003, approximately 51.9%, 19.6% and
7.7% (on a unit basis) of the Company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 Presentation
| |  | ---------------------



| |  | The accompanying unaudited financial statements have been prepared by the
Operating Partnerships management in accordance with generally accepted
accounting principles for interim financial information and applicable rules
and regulations of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the three and six month periods ended June 30,
2003 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,
2002. Certain 2002 amounts have been reclassified to conform to the current
years financial statement presentation.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-20-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | Stock-based Compensation
| |  | ------------------------



| |  | On January 1, 2003, the Operating Partnership elected to voluntarily change
its method of accounting for stock-based compensation to the fair value
method prescribed by Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, using the prospective method
prescribed in SFAS No. 148, Accounting for Stock-Based
Compensation 
Transition and Disclosure. SFAS No. 148 also amended the disclosure
requirements in both annual and interim financial statements about the method
of accounting used for stock-based compensation and the effect of the method
on reported results. In prior periods, the Operating Partnership accounted
for stock-based compensation under the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued
to Employees.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Under the prospective method of adoption prescribed by SFAS No. 123 and SFAS
No. 148, the Operating Partnership will reflect as an expense each period the
estimated cost of stock-based compensation, calculated under the
Black-Scholes option pricing model for Company stock options, for all
stock-based compensation granted after January 1, 2003. For stock-based
compensation granted prior to December 31, 2002, compensation expense was
generally not recognized for Company stock options granted at the Companys
current stock price on the grant date. As a result, the Operating
Partnerships general and administrative expenses may not be comparable
between periods. For the three and six months ended June 30, 2003, general
and administrative expenses included compensation expense of $75 and $120,
respectively, recognized under the fair value method.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 for each period.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002Net income available to common unitholdersAs reported
    
    $
    27,909
    
    
    $
    25,298
    
    
    $
    1,446
    
    
    $
    41,393Stock-based compensation included in net income as reported
    
    
    75
    
    
    
    
    
    
    
    120
    
    
    
    Stock-based compensation determined under the fair value
method for all awards
    
    
    (99
    )
    
    
    (144
    )
    
    
    (205
    )
    
    
    (343
    )Pro forma
    
    $
    27,885
    
    
    $
    25,154
    
    
    $
    1,361
    
    
    $
    41,050Net income per common unit  basicAs reported
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.04
    
    
    $
    0.99Pro forma
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.03
    
    
    $
    0.98Net income per common unit  dilutedAs reported
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.04
    
    
    $
    0.98Pro forma
    
    $
    0.66
    
    
    $
    0.60
    
    
    $
    0.03
    
    
    $
    0.98




| |  | New Accounting Pronouncements
| |  | -----------------------------



| |  | In 2002 and 2003, the Financial Accounting Standards Board issued several new
accounting pronouncements and the pronouncements with a potential impact on
the Operating Partnership are discussed below.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-21-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections was issued in May 2002.
SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishments of Debt, which provided that gains and losses from early
debt retirements be treated as extraordinary items. Under SFAS No. 145,
gains and losses from early debt retirements will only be treated as
extraordinary items if they meet the criteria for extraordinary items under
APB No. 30. Since the definition of an extraordinary item is more
restrictive under APB No. 30, SFAS No. 145 will generally cause the Operating
Partnership to treat gains or losses from early debt retirements as part of
income before extraordinary items. This part of SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002 and requires the
reclassification of prior period extraordinary items not meeting the APB No.
30 criteria. The Operating Partnership adopted the requirements of SFAS No.
145 on January 1, 2003. The implementation of the statement had no impact on
the Operating Partnerships results of operations or financial position in
the three and six months ended June 30, 2003. In the second quarter of 2003,
the Operating Partnership reclassified $136 of extraordinary items recorded
in the second quarter of 2002 from its prior period presentation as
extraordinary items to operating expenses used in the determination of income
from continuing operations. The remaining provisions of SFAS No. 145 are
generally not applicable to the Operating Partnership.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities was issued in July 2002. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 is effective for exit or disposal activities
initiated after December 31, 2002. The implementation of this Statement did
not have a significant effect on the Operating Partnerships results of
operations or its financial position.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | FASB Interpretation No. 45 (FIN No. 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others was issued in November 2002. FIN No. 45 clarifies disclosure
requirements to be made by a guarantor in its interim and annual financial
statements regarding its obligations under certain guarantees that it has
issued. Additionally, it clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The disclosure
requirements of FIN No. 45 are effective for interim and annual financial
statements issued after December 15, 2002. The initial recognition and
measurement provisions of FIN No. 45 are applicable for guarantees issued or
modified after December 31, 2002. The Operating Partnership has implemented
the disclosure requirements of FIN No. 45 effective with its December 31,
2002 financial statements and adopted the recognition and measurement
provisions effective January 1, 2003. The adoption of the recognition and
measurement provisions of FIN No. 45 did not have a significant impact on the
Operating Partnerships financial position or results of operations.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 was issued in January
2003. 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 are
applicable immediately to all variable interest entities created after
January 31, 2003. For 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 September 30, 2003. Information required to be disclosed in
2003 pursuant to FIN No. 46 includes the nature, purpose, size and activities
of all variable interest entities where it is reasonably possible that such
entities will be required to be consolidated by the Operating Partnership and
the Operating Partnerships maximum exposure to loss from these entities.
The Operating Partnership is evaluating its investments in unconsolidated
real estate entities to determine whether they fall within the definition of
variable interest entities. The Operating Partnership believes that FIN No.
46 will not have a significant effect on its results of operations or
financial position.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, was issued in May 2003.
SFAS No. 150 establishes standards for how an issuer classifies and measures
certain liabilities and equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first quarterly period beginning after June
15, 2003. The Operating Partnership has not entered into any transactions
involving financial instruments impacted by SFAS No. 150 and believes that
the implementation of SFAS No. 150 in the third quarter of 2003 will not have
a significant effect on the Operating Partnerships financial position or
results of operations.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-22-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



|2. |  | NOTES PAYABLE
|-- |  | -------------



| |  | At June 30, 2003 and December 31, 2002, the Operating Partnerships
indebtedness consisted of the following:
| |  | ------------------------------------------------------------------------------------------------------------

Payment
    
    
    
    
    
    Maturity
    
    June 30,
    
    December 31,Description
    
    Terms
    
    Interest Rate
    
    Date (1)
    
    2003
    
    2002Unsecured NotesSenior Notes
    
    Int
    
    
    6.11% - 7.70
    %
    
    2003-2010
    
    $
    385,000
    
    
    $
    385,000Medium Term Notes
    
    Int
    
    
    6.69% - 8.12
    %(2)
    
    2004-2015
    
    
    323,000
    
    
    
    323,000708,000
    
    
    
    708,000Unsecured Lines of Credit & OtherRevolver
    
    N/A
    
    
    LIBOR + 0.85
    %(3)
    
    2004
    
    
    30,000
    
    
    
    185,000Cash Management Line
    
    N/A
    
    
    LIBOR + 0.75
    %
    
    2004
    
    
    13,017
    
    
    
    11,36943,017
    
    
    
    196,369Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int
    
    
    6.975
    %(4)
    
    2029
    
    
    101,100
    
    
    
    101,100Other
    
    Prin. and Int
    
    
    5.50% - 7.69
    %
    
    2007-2013
    
    
    193,429
    
    
    
    194,706294,529
    
    
    
    295,806Tax Exempt Floating Rate
Bonds (Secured)
    
    Int
    
    
    1.00
    %(5)
    
    2025
    
    
    214,380
    
    
    
    214,380Total
    
    
    
    
    
    
    
    
    
    $
    1,259,926
    
    
    $
    1,414,555




|(1) |  | All outstanding indebtedness can be prepaid at any time, subject to
certain prepayment penalties.                                                                                                                                                                                                                                                                                           
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Contains $100,000 of Mandatory Par Put Remarketed Securities. The
annual interest rate on these securities to 2005 (the Remarketing
Date) is 6.85%. On the Remarketing Date, they are subject to
mandatory tender for remarketing.                                                                                                                                                        
|   
|(3) |  | Represents stated rate. At June 30, 2003, the average interest
rate was 2.11%.                                                                                                                                                                                                                                                                                                              
|   
|(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 June 30, 2003 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%.

Debt maturities



| |  | The aggregate maturities of the Operating Partnerships indebtedness are as
follows (1):
| |  | ----------------------------------------------------------------------------------------

Remainder of 2003
    
    $
    102,5312004
    
    
    27,0942005
    
    
    204,4022006
    
    
    79,7322007
    
    
    112,178Thereafter
    
    
    690,972$
    1,216,909


(2)    Excludes outstanding balances on lines of credit of $43,017 discussed below.



| |  | Unsecured Lines of Credit
| |  | -------------------------



| |  | The Operating Partnership utilizes a $320,000 three-year syndicated revolving
line of credit (the Revolver), for its short-term financing needs. At June
30, 2003, the stated interest rate for the Revolver was LIBOR plus 0.85% or
prime minus 0.25%. The Revolver provides for the rate to be adjusted up or
down based on changes in the credit ratings on the Operating Partnerships
senior unsecured debt. The Revolver also includes a money market competitive
bid option for short-term funds up to $160,000 at rates below the stated line
rate. The credit agreement for the Revolver contains customary
representations, covenants and events of default, including 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 $30,000 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 this covenant will adversely
affect the ability of the Operating Partnership to make distributions, or the
Company to declare dividends, at the Companys current dividend level. The
Revolver matures in April 2004, however, management expects to renew this
facility later in 2003.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-23-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | In July 2003, the Operating Partnerships unsecured debt rating was
downgraded from Baa2 to Baa3 by Moodys Investor Services, resulting in a
split unsecured debt rating (Standard & Poors rates the Operating
Partnerships unsecured debt at BBB). Under the terms of the credit
agreement, the interest rate on the revolver will remain at LIBOR plus 0.85%
as the interest rate is based on the higher of the Operating Partnerships
unsecured debt ratings. If Standard & Poors were to lower its unsecured
debt ratings one level, the interest rate on Revolver borrowings would
increase to LIBOR plus 1.10%.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Through April 2003, the Operating Partnership also had in place an additional
$125,000 line of credit facility for general corporate purposes. This line
matured in April 2003 and was not renewed.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Additionally, the Operating Partnership has a $20,000 unsecured line of
credit with Wachovia Bank of Georgia, N.A. (the Cash Management Line). The
Cash Management Line bears interest at LIBOR plus 0.75% or prime minus .25%
and matures in April 2004. Management expects to renew this facility at its
maturity. At June 30, 2003, there were letters of credit to third parties
totaling $963.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES
|-- |  | --------------------------------------------------



| |  | At June 30, 2003, 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. The Operating Partnership holds a 35% equity interest in the
Property LLCs. At June 30, 2003, two of the apartment communities had
achieved stabilized occupancy and one apartment community was in initial
lease-up. The total estimated development cost of the apartment communities
was funded through member equity contributions proportionate to the members
ownership interests and through construction financing provided by the
Operating Partnership. In June 2003, the underlying apartment community held
by a fourth Property LLC was sold. The financial information below reflects
the gain on property sale and the operating results of this Property LLC
through the sale date. The Operating Partnership recognized its allocable
share of the gain from the property sale of approximately $8,395 in its
second quarter operating results. The Operating Partnerships share of this
gain is included in the Operating Partnerships share of net income (loss)
shown in the table below.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 $6,727 at June 30, 2003. 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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-24-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | The operating results of the Operating Partnership include its proportionate
share of net income (loss) from the investments in the Property LLCs. A
summary of financial information for the Property LLCs in the aggregate is as
follows:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

June 30,
    
    December 31,2003
    
    2002Real estate assets, net
    
    $
    128,924
    
    
    $
    198,854Cash and other
    
    
    3,324
    
    
    
    2,330Total assets
    
    $
    132,248
    
    
    $
    201,184Mortgage notes payable
    
    $
    16,906
    
    
    $
    Construction notes payable to Operating Partnership (1)
    
    
    83,155
    
    
    
    160,294Other liabilities
    
    
    2,335
    
    
    
    3,975Total liabilities
    
    
    102,396
    
    
    
    164,269Members equity
    
    
    29,852
    
    
    
    36,915Total liabilities and members equity
    
    $
    132,248
    
    
    $
    201,184Operating Partnerships equity investment
    
    $
    17,201
    
    
    $
    21,991Operating Partnerships share of mortgage and construction notes payable
    
    $
    35,022
    
    
    $
    56,103




|(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 real estate assets. At June 30,
2003 and December 31, 2002, the venture partners
share of the construction loans was $54,051 and
$104,191, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002RevenuesRental
    
    $
    3,360
    
    
    $
    850
    
    
    $
    6,606
    
    
    $
    1,181Other
    
    
    149
    
    
    
    89
    
    
    
    288
    
    
    
    161Total revenues
    
    
    3,509
    
    
    
    939
    
    
    
    6,894
    
    
    
    1,342ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    1,970
    
    
    
    1,050
    
    
    
    3,989
    
    
    
    1,778Depreciation
    
    
    1,257
    
    
    
    745
    
    
    
    2,590
    
    
    
    1,141Interest
    
    
    1,121
    
    
    
    574
    
    
    
    2,278
    
    
    
    833Total expenses
    
    
    4,348
    
    
    
    2,369
    
    
    
    8,857
    
    
    
    3,752Gain on property sale
    
    
    26,179
    
    
    
    
    
    
    
    26,179
    
    
    
    Net income (loss)
    
    $
    25,340
    
    
    $
    (1,430
    )
    
    $
    24,216
    
    
    $
    (2,410
    )Operating Partnerships share of net income (loss)
    
    $
    8,101
    
    
    $
    (500
    )
    
    $
    7,708
    
    
    $
    (843
    )




| |  | The operating results for the Property LLCs, summarized in the financial
information above, included the revenues and expenses of the community sold
through its sale date. Total revenues for this community were $1,277 and
$303 for the three months ended June 30, 2003 and 2002, respectively, and
$2,871 and $319 for the six months ended June 30, 2003 and 2002,
respectively. Total expenses were $1,380 and $991 for the three months ended
June 30, 2003 and 2002, respectively, and $3,059 and $1,172 for the six
months ended June 30, 2003 and 2002, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Operating Partnership has committed construction financing to two
Property LLCs totaling $85,491 ($83,155 funded at June 30, 2003). These
loans earn interest at LIBOR plus 1.75% and are secured by the apartment
communities. The loans mature on dates ranging from September 2003 to
November 2004 and are expected to be repaid from the proceeds of permanent
project financings. In the first quarter of 2003, one of the Property LLCs
repaid its outstanding construction note payable to the Operating Partnership
of $24,071 through the proceeds from a third-party non-recourse permanent
mortgage note totaling $17,000 and from additional member equity
contributions. The mortgage note bears interest at 4.28%, requires monthly
principal and interest payments based on a 30-year amortization schedule and
matures in March 2008. The Operating Partnership issued a limited guarantee
and indemnity to the lender regarding certain customary recourse liabilities
and environmental matters up to a maximum potential exposure of $5,000. The
other member of the Property LLC is obligated to reimburse the Operating
Partnership for up to its 65% share ($3,250) of the maximum potential
exposure under these arrangements.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-25-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | 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 the Property LLC. Additionally, under
theses agreements, the Operating Partnership is subject to project completion
date requirements, as defined. At June 30, 2003, the Operating Partnership
had met its remaining completion date requirements and will not be subject to
any additional costs.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | REAL ESTATE ASSETS HELD FOR SALE/DISCONTINUED OPERATIONS
|-- |  | --------------------------------------------------------



| |  | The Operating Partnership classifies real estate assets as held for sale
after the approval of its internal investment committee and after the
Operating Partnership has commenced an active program to sell the assets. At
June 30, 2003, the Operating Partnership had classified multiple tracts of
land as held for sale. These real estate assets are reflected in the
accompanying consolidated balance sheet at $10,705, which represents the
lower of 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 subsequent to January 1, 2002 are included in discontinued operations in
the consolidated statement of operations for all periods presented. Also
under the provisions of SFAS No. 144, the reserves, if any, to write down the
carrying value of real estate assets designated and classified as held for
sale after January 1, 2002 are included in discontinued operations. All
subsequent gains or additional losses on the sale of these assets are also
included in discontinued operations. Additionally under SFAS No. 144, any
impairment losses on assets held for continuing use are included in
continuing operations.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For the three months ended June 30, 2003, income from discontinued operations
included the results of operations, through the earlier of community sale
date (if the community was sold between April 1, 2003 and June 30, 2003) or
June 30, 2003, of one apartment community containing 770 units that was
classified as held for sale at December 31, 2002. For the six months ended
June 30, 2003, income from discontinued operations included the results of
operations, through the earlier of the community sale date (if the community
was sold between January 1, 2003 and June 30, 2003) or June 30, 2003 of two
apartment communities containing 1,009 units that were classified as held for
sale at December 31, 2002. For the three and six months ended June 30, 2002,
income from discontinued operations included the results of operations of
eight apartment communities containing 3,134 units and one commercial
property through the earlier of the community sale date or the end of the
period.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The revenues and expenses of these communities for the three and six months
ended June 30, 2003 and 2002 were as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002RevenuesRental
    
    $
    917
    
    
    $
    4,580
    
    
    $
    3,087
    
    
    $
    12,242Other
    
    
    18
    
    
    
    212
    
    
    
    89
    
    
    
    476Total revenues
    
    
    935
    
    
    
    4,792
    
    
    
    3,176
    
    
    
    12,718ExpensesProperty operating and
maintenance (exclusive of items
shown separately below)
    
    
    345
    
    
    
    2,188
    
    
    
    1,150
    
    
    
    5,242Depreciation
    
    
    
    
    
    
    591
    
    
    
    
    
    
    
    1,455Interest
    
    
    396
    
    
    
    813
    
    
    
    1,135
    
    
    
    2,196Total expenses
    
    
    741
    
    
    
    3,592
    
    
    
    2,285
    
    
    
    8,893Income from discontinued operations
    
    $
    194
    
    
    $
    1,200
    
    
    $
    891
    
    
    $
    3,825




| |  | For the three months ended June 30, 2003, the Operating Partnership
recognized net gains from discontinued operations of $26,936 on the sale of
one community, containing 770 apartment units, reduced by losses of $306
resulting from losses on the sale of certain land parcels and additional
reserves to write-down to fair value certain other land parcels classified as
held for sale. For the six months ended June 30, 2003, the Operating
Partnership recognized net gains from discontinued operations of $34,917 on
the sale of two communities containing 1,009 units, reduced by losses of
$1,413 resulting from losses on the sale of certain land parcels and
additional reserves to write-down to fair value certain other land parcels
classified as held for sale.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-26-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | For the three months ended June 30, 2002, the Operating Partnership
recognized net gains of $18,385 on the sale of four apartment communities,
containing 1,450 apartment units, and one commercial property. For the six
months ended June 30, 2002, these gains were reduced by losses of $7,652 to
reduce the carrying value of such assets designated as held for sale to their
fair value.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In the first quarter of 2003, the Operating Partnership recorded an
impairment loss of $14,118, under the provisions of SFAS No. 144, to
write-down the cost of an apartment community, located in Phoenix, Arizona,
to its estimated fair value, based upon a revised determination that it was
more probable that this community would be marketed for sale in the near term
instead of held for long-term investment. This community was not classified
as held for sale at June 30, 2003 as the Operating Partnerships internal
investment committee had not approved the sale of the community and no
program was initiated to actively sell the community. Subsequent to June 30,
2003, this community has been classified as held for sale as the Operating
Partnerships investment committee approved the sale and the Operating
Partnership began actively marketing it for sale.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Under prior accounting pronouncements, operating results and net gains or
losses on the sale of assets classified as held for sale prior to December
31, 2001 are included in continuing operations. As a result of this
presentation, income from continuing operation and gains on property sales
may not be comparable between periods. The discussion below relates to the
gains on property sales reported in continuing operations in the consolidated
statements of operations for the six months ended June 30, 2002.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In the first quarter of 2002, the Operating Partnership sold two apartment
communities containing 540 units and one commercial property for net proceeds
of approximately $41,393. These sales resulted in net gains of approximately
$13,275. For the six months ended June 30, 2002, the consolidated statement
of operations includes net income of $366 from these two communities and one
commercial property prior to their sale dates.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | EARNINGS PER UNIT
|-- |  | -----------------



| |  | For the three and six months ended June 30, 2003 and 2002, a reconciliation
of the numerator and denominator used in the computation of basic and diluted
income from continuing operations per common unit is as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 302003
    
    2002
    
    2003
    
    2002Income (loss) from continuing operations available to common unitholders
(numerator):Income (loss) from continuing operations
    
    $
    5,348
    
    
    $
    9,976
    
    
    $
    (24,424
    )
    
    $
    35,360Less: Preferred unit distributions
    
    
    (4,263
    )
    
    
    (4,263
    )
    
    
    (8,525
    )
    
    
    (8,525
    )Income (loss) from continuing operations available to common unitholders
    
    $
    1,085
    
    
    $
    5,713
    
    
    $
    (32,949
    )
    
    $
    26,835Common unit (denominator):Weighted average units outstanding  basic
    
    
    42,066,025
    
    
    
    42,023,842
    
    
    
    42,057,716
    
    
    
    42,009,027Incremental units from assumed conversion of stock options
    
    
    7,858
    
    
    
    76,380
    
    
    
    770
    
    
    
    85,029Weighted average units outstanding  diluted
    
    
    42,073,883
    
    
    
    42,100,222
    
    
    
    42,058,486
    
    
    
    42,094,056




|6. |  | DERIVATIVE FINANCIAL INSTRUMENTS
|-- |  | --------------------------------



| |  | At June 30, 2003 and 2002, 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 Operating Partnership recorded unrealized net
losses of $2,025 and $5,303, for the three months ended June 30, 2003 and 2002
respectively, and net losses of $1,832 and $3,105 for the six months ended
June 30, 2003 and 2002, respectively, on these cash flow hedges as an
increase in accumulated other comprehensive income, a shareholders equity
account, in the accompanying consolidated balance sheet. Within the next
twelve months, the Operating Partnership expects to reclassify out of
accumulated other comprehensive income approximately $6,198.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-27-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | In the first quarter of 2003, the Operating Partnership entered into two
interest rate cap arrangements with two financial institutions. The new
interest rate cap arrangements replaced three expiring interest rate cap
arrangements and were structured as cash flow hedges to 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 June 30, 2003, the difference of $1,284 between the
amortized costs of the interest rate cap arrangements of $2,720 and their
fair value of $1,436 is included in accumulated other comprehensive income, 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 and six months ended June 30, 2003 totaled
$29,541 and $6,856 respectively, as summarized on the consolidated statement
of shareholders equity and accumulated earnings. Comprehensive income for
the three months ended June 30, 2002 totaled $24,257 and consisted of net
income of $29,560 plus the net change in the value of the derivatives
discussed above of $5,303. Comprehensive income for the six months ended June
30, 2002 totaled $46,813 and consisted of net income of $49,918 plus the net
change in the value of the derivatives discussed above of $3,105.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7. |  | SEGMENT INFORMATION
|-- |  | -------------------



| |  | Segment Description
| |  | -------------------



| |  | In accordance with SFAS No. 131, Disclosure About the Segments of an
Enterprise and Related Information, the Operating Partnership presents
segment information based on the way that management organizes the segments
within the enterprise for making operating decisions and assessing
performance. The segment information is prepared on substantially the same
basis as the internally reported information used by the Operating
Partnerships chief operating decision makers to manage the business.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Operating Partnerships chief operating decision makers focus on the
Operating Partnerships primary sources of income from apartment community
rental operations. Apartment community rental operations are broken down
into four segments based on the various stages in the apartment community
ownership lifecycle. These segments are described below. All commercial
properties and other ancillary service and support operations are aggregated
in the line item other in the accompanying segment information.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 2002  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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sold communities  communities which were sold in the prior year and
not reflected as discontinued operations (see note 4).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

-28-



---



##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



| |  | Segment Performance Measure
| |  | ---------------------------



| |  | Management uses contribution to consolidated property net operating income
(NOI) as the performance measure for its operating segments. The Operating
Partnership uses net operating income, including net operating income of
stabilized communities, as an operating measure. Net operating income is
defined as rental and other 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 income (loss)
from continuing operations is the most directly comparable GAAP measure to
net operating income.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Segment Information
| |  | -------------------



| |  | The following table reflects each segments contribution to consolidated
revenues and property NOI together with a reconciliation of segment
contribution to property NOI income from continuing operations. Additionally,
substantially all of the Operating Partnerships assets relate to the
Operating Partnerships property rental operations. Asset cost, depreciation
and amortization by segment are not presented because such information at the
segment level is not reported internally.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002RevenuesFully stabilized communities
    
    $
    64,541
    
    
    $
    66,945
    
    
    $
    129,487
    
    
    $
    135,050Communities stabilized during 2002
    
    
    8,790
    
    
    
    6,709
    
    
    
    17,577
    
    
    
    12,932Development and lease-up communities
    
    
    3,918
    
    
    
    1,744
    
    
    
    7,332
    
    
    
    3,465Sold communities
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    745Other
    
    
    5,218
    
    
    
    5,278
    
    
    
    9,847
    
    
    
    10,274Interest income
    
    
    251
    
    
    
    281
    
    
    
    485
    
    
    
    686Consolidated revenues
    
    $
    82,718
    
    
    $
    80,966
    
    
    $
    164,728
    
    
    $
    163,152Contribution to NOIFully stabilized communities
    
    $
    40,578
    
    
    $
    43,439
    
    
    $
    82,371
    
    
    $
    88,330Communities stabilized during 2002
    
    
    5,593
    
    
    
    3,595
    
    
    
    11,235
    
    
    
    6,984Development and lease-up communities
    
    
    2,034
    
    
    
    935
    
    
    
    3,728
    
    
    
    1,888Sold communities
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    369Other
    
    
    (349
    )
    
    
    682
    
    
    
    (1,327
    )
    
    
    13Consolidated net operating income
    
    
    47,856
    
    
    
    48,654
    
    
    
    96,007
    
    
    
    97,584Interest income
    
    
    251
    
    
    
    281
    
    
    
    485
    
    
    
    686Minority interest in consolidated property partnerships
    
    
    348
    
    
    
    460
    
    
    
    682
    
    
    
    943Gains on property sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,275Depreciation
    
    
    (22,476
    )
    
    
    (20,794
    )
    
    
    (45,204
    )
    
    
    (40,696
    )Interest
    
    
    (17,396
    )
    
    
    (13,700
    )
    
    
    (33,957
    )
    
    
    (26,844
    )Amortization of deferred loan costs
    
    
    (968
    )
    
    
    (569
    )
    
    
    (1,756
    )
    
    
    (1,123
    )General and administrative
    
    
    (3,342
    )
    
    
    (3,720
    )
    
    
    (6,967
    )
    
    
    (7,486
    )Other expenses
    
    
    
    
    
    
    (136
    )
    
    
    (567
    )
    
    
    (136
    )Severance charges
    
    
    (1,795
    )
    
    
    
    
    
    
    (21,506
    )
    
    
    Asset impairment charge
    
    
    
    
    
    
    
    
    
    
    (14,118
    )
    
    
    Proxy and related costs
    
    
    (5,231
    )
    
    
    
    
    
    
    (5,231
    )
    
    
    Equity in income (losses) of unconsolidated real estate entities
    
    
    8,101
    
    
    
    (500
    )
    
    
    7,708
    
    
    
    (843
    )Income (loss) from continuing operations
    
    $
    5,348
    
    
    $
    9,976
    
    
    $
    (24,424
    )
    
    $
    35,360


-29-



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##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



|8. |  | SEVERANCE, PROXY AND ASSET IMPAIRMENT CHARGES
|-- |  | ---------------------------------------------



| |  | In the second quarter of 2003, the Operating Partnership recorded severance
charges of $1,795 relating to the departures of its executive vice president
and chief financial officer and its executive vice president of asset
management. In addition, the Operating Partnership recorded the actual and
estimated costs associated with the recently concluded proxy contest of
$5,231. In 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, and a $14,118 asset impairment charge, under the
provisions of SFAS No. 144, to write-down the cost of an apartment community,
located in Phoenix, Arizona, to its estimated fair value.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The severance charges recorded in the second quarter of 2003 represented the
aggregate amount of the estimated payments and benefits to be made to the
departing executive officers. The severance charges recorded in the first
quarter of 2003 consisted of a $13,994 charge representing the discounted
present value of the estimated payments to be made to the former chairman and
vice-chairman under their existing employment arrangements and a $5,718
charge representing the discounted present value of estimated net costs that
may be incurred by the Operating Partnership as a result of the settlement of
split-dollar life insurance obligations to the individuals under their
employment contracts. The estimated charge for the settlement of the
split-dollar life insurance obligations may change based upon a final legal
determination regarding these insurance contracts and a final settlement
among the parties.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As discussed above, the Operating Partnership recorded severance charges in
the first and second quarters of 2003. The following table summarizes the
activity relating to the accrued severance charges for the six months ended
June 30, 2003:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Aggregate severance charges
    
    $
    21,506Payments for period
    
    
    (938
    )Interest accretion
    
    
    354Accrued severance charges on June 30, 2003
    
    $
    20,922




| |  | Substantially all of these remaining amounts will be paid over the remaining
terms of the former executives employment contracts (10 to 13 years).
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Proxy and related costs of $5,231 represent the actual and estimated legal,
advisory and other expenses associated with the solicitation of proxies from
shareholders resulting from the proxy contest initiated in April 2003 by the
Companys former chairman and current chairman emeritus of the board of
directors. Additionally, the $5,231 amount includes the estimated legal and
settlement costs associated with the resolution of two derivative and
purported class action lawsuits filed against the Operating Partnership
during the proxy contest. These lawsuits are expected to be settled
subsequent to June 30, 2003. Through June 30, 2003, proxy and related costs
paid totaled $3,181. The remaining accrued proxy and related charges of
$2,050 are expected to be paid in the third quarter of 2003.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The asset impairment charge relating to the Operating Partnerships Phoenix,
Arizona apartment community was based upon a revised determination that it
was more probable that this community would be marketed for sale in the near
term instead of held for long-term investment. This determination was based
on the views of the Operating Partnerships new chairman and current chief
executive officer resulting from a review of the Operating Partnerships
apartment communities during the first quarter of 2003. This community was
not classified as held for sale at June 30, 2003 as the Operating
Partnerships internal investment committee had not approved the sale of the
community and no program was initiated to actively sell the community.
Subsequent to June 30, 2003, this community has been classified as held for
sale as the Companys investment committee approved the sale and the Company
began actively marketing it for sale.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9. |  | SUPPLEMENTAL CASH FLOW INFORMATION
|-- |  | ----------------------------------



| |  | Non-cash investing and financing activities for the six months ended June 30,
2003 and 2002 were as follows:
| |  | ------------------------------------------------------------------------------------------------------------



| |  | During the six months ended June 30, 2003, 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 $3,115. During the six months ended June 30,
2002, the Operating Partnerships derivative financial instruments decreased
in value causing an increase in accounts payable and accrued expenses and a
corresponding increase in partners equity of $3,105.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-30-



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##### 



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)



|10. |  | STOCK-BASED COMPENSATION PLAN
|--- |  | -----------------------------



| |  | During the six months ended June 30, 2003, the Company granted 42,990 shares
of restricted stock to Operating Partnership officers. The restricted shares
vest ratably over periods ranging from three to eight years. The total value
of the restricted share grants, net of forfeitures, of $1,106 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|11. |  | LEGAL PROCEEDINGS
|--- |  | -----------------



| |  | On April 7, 2003, John A. Williams, chairman emeritus of the board, withdrew
a complaint for injunctive relief and damages filed on March 21, 2003. As a
result, the temporary restraining order issued by the Superior Court of Cobb
County, Georgia in connection with the complaint also has been withdrawn. The
board of directors was to have voted on a number of resolutions that would
have restricted Mr. Williams with respect to certain Operating Partnership
matters, including restrictions on access to employees and information. The
temporary restraining order had enjoined the board from voting on any such
resolutions during the 30-day period.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On May 5, 2003, the Operating Partnership received notice that a shareholder
derivative and purported class action lawsuit was filed against members of
the board of directors of the Company, including John Williams, 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. Mr. Williams was not named as a
defendant in the lawsuit. 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 subsequent to June 30, 2003. The
estimated legal and settlement costs, not covered by insurance, associated
with the expected resolution of these lawsuits, were recorded in the second
quarter of 2003 as a component of the 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.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-31-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

ITEM 2.     MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

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. The Company owns
28,917 apartment units in 78 apartment communities, including 468 apartment
units in two apartment communities under development and lease-up. At June 30,
2003, approximately 51.9%, 19.6% and 7.7% (on a unit basis) of the Companys
communities are 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.

At June 30, 2003, the Company owned approximately 89.5% of the common limited
partnership interests (Common Units) in the Operating Partnership. Common
Units held by persons (including certain officers and directors) other than the
Company represented a 10.5% common minority interest in the Operating
Partnership.

The following discussion should be read in conjunction with all of 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 10.5% 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. 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 our expectations with regard to: net operating income for 2003,
occupancy levels and rental rates, operating expenses, stabilized community
revenues in excess of specified expenses, accounting recognition and
measurement of guarantees, employee severance charges and other accrued
liabilities, debt maturities and financing needs, dividend payments, our
ability to meet new construction, development, acquisition and other long-term
liquidity requirements, and our ability to execute asset sales. All
forward-looking statements are subject to certain risks and uncertainties that
could cause actual events to differ materially from those projected. Management
believes that these forward-looking statements are reasonable; however, you
should not place undue reliance on such statements. These statements are based
on current expectations and speak only as of the date of such statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of future events, new
information or otherwise.

-32-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

The following are some of the factors that could cause the Companys actual
results to differ materially from the expected results described in the
Companys forward-looking statements:



| |  | 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 tenants and development locations;
|- |  | -----------------------------------------------------------------------------------------------------------------



| |  | The Companys ability to obtain financing or self-fund the development and acquisition of additional apartment communities;
|- |  | ---------------------------------------------------------------------------------------------------------------------------



| |  | The uncertainties associated with the Companys current real estate development, including actual costs exceeding the Companys
budgets or development periods exceeding expectations;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Uncertainties associated with the timing and amount of asset sales and the resulting gains/losses associated with such asset
sales;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  | Conditions affecting ownership of residential real estate and general conditions in the multi-family residential real estate
market;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  | The effects of changes in accounting policies and other regulatory matters detailed in the Companys filings with the
Securities and Exchange Commission and uncertainties of litigation; and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Companys ability to continue to qualify as a real estate investment trust under the Code.
|- |  | ----------------------------------------------------------------------------------------------

Other important risk factors regarding the Company are included under the
caption Risk Factors in the companys Annual Report on Form 10-K for the year
ended December 31, 2002 and may be discussed in subsequent filings with the
SEC.

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, 2002. The
discussion below addresses the implementation and the impact of new
pronouncements and accounting policies in the six months ended June 30, 2003.

On January 1, 2003, the Company elected to voluntarily change its method of
accounting for stock-based compensation to the fair value method prescribed by
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, using the prospective method prescribed by SFAS No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure.
SFAS No. 148 also amended the disclosure requirements in both annual and
interim financial statements about the method of accounting used for
stock-based compensation and the effect of the method on reported results. In
prior periods, 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.

Under the prospective method of adoption prescribed by SFAS No. 123 and SFAS
No. 148, the Company will reflect as an expense each period the estimated cost
of stock-based compensation, calculated under the Black-Scholes option pricing
model for stock options, for all stock-based compensation granted on or after
January 1, 2003. For stock-based compensation granted on or before December
31, 2002, compensation expense was generally not recognized for stock options
granted at the Companys current stock price on the grant date. As a result,
the Companys general and administrative expenses may not be comparable between
periods. For the three and six months ended June 30, 2003, general and
administrative expenses included stock-based compensation expense of $75 and
$120, respectively, recognized under the fair value method. Note 1 to the
consolidated financial statements reflects the Companys net income and
earnings per share had the fair value method of accounting under SFAS No. 123
been applied for each period.

-33-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

SFAS No.145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections was issued in May 2002. SFAS No.
145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishments of
Debt, which provided that gains and losses from early debt retirements be
treated as extraordinary items. Under SFAS No. 145, gains and losses from early
debt retirements will only be treated as extraordinary items if they meet the
criteria for extraordinary items under APB No. 30. Since the definition of an
extraordinary item is more restrictive under APB No. 30, SFAS No. 145 will
generally cause the Company to treat gains or losses from early debt
retirements as part of income before extraordinary items. This part of SFAS No.
145 is effective for fiscal years beginning after May 15, 2002 and requires the
reclassification of prior period extraordinary items not meeting the APB No. 30
criteria. The Company adopted the requirements of SFAS No. 145 on January 1,
2003. In the second quarter of 2003, the Company reclassified $120, net of
minority interest, of extraordinary items recorded in the second quarter of
2002 from its prior period presentation as extraordinary items to expenses used
in the determination of income from continuing operations. The remaining
provisions of SFAS No. 145 are generally not applicable to the Company.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities was issued in July 2002. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS No.
146 is effective for exit or disposal activities initiated after December 31,
2002. The implementation of this Statement did not have a significant effect on
the Companys results of operations or its financial position in the three and
six months ended June 30, 2003.

FASB Interpretation No. 45 (FIN No. 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of
Others was issued in November 2002. FIN No. 45 clarifies disclosure
requirements to be made by a guarantor in its interim and annual financial
statements regarding its obligations under certain guarantees that it has
issued. Additionally, it clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The disclosure requirements of
FIN No. 45 are effective for interim and annual financial statements issued
after December 15, 2002. The initial recognition and measurement provisions of
FIN No. 45 are applicable for guarantees issued or modified after December 31,
2002. The Company has implemented the disclosure requirements of FIN No. 45
effective with its December 31, 2002 financial statements and adopted the
recognition and measurement provisions effective January 1, 2003. The adoption
of the recognition and measurement provisions of FIN No. 45 did not have a
significant impact on the Companys financial position or results of
operations.

FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51 was issued in January 2003. 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 are applicable immediately to all
variable interest entities created after January 31, 2003. For 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 September 30, 2003. Information required to be
disclosed in 2003 pursuant to FIN No. 46 includes the nature, purpose, size and
activities of all variable interest entities where it is reasonably possible
that such entities will be required to be consolidated by the Company and the
Companys maximum exposure to loss from these entities. The Company is
evaluating its investments in unconsolidated real estate entities to determine
whether they fall within the definition of variable interest entities. The
Company believes that FIN No. 46 will not have a significant effect on its
results of operations or financial position.

SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, was issued in May 2003. SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
liabilities and equity. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise effective at the
beginning of the first quarterly period beginning after June 15, 2003. The
Company has not entered into any transactions involving financial instruments
impacted by SFAS No. 150 and believes that the implementation of SFAS No. 150
in the third quarter of 2003 will not have a significant effect on the
Companys financial position or results of operations.

-34-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Results of Operations

The following discussion of results of operations should be read in conjunction
with the consolidated statements of operations and the community
operations/segment performance information included below.

The Companys revenues and earnings are generated primarily from the operation
of its apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. A community is generally
considered by the Company to have achieved stabilized occupancy on the earlier
to occur of (1) attainment of 95% physical occupancy on the first day of any
month or (2) one year after completion of construction.

At June 30, 2003, the Companys portfolio of wholly-owned and majority-owned
apartment communities consisted of the following: (1) 67 communities that were
completed and stabilized for all of the current and prior year, (2) five
communities that achieved full stabilization during 2002, and (3) three
communities and additions to an existing community currently in the development
or lease-up stage. Sold communities include communities sold in 2002 that
were not reflected in discontinued operations under SFAS No. 144 (see
discussion under Discontinued Operations). These operating segments exclude
the operations of apartment communities classified as discontinued operations
and apartment communities held in unconsolidated entities for the periods
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 $703 and $403 for
the three months ended June 30, 2003 and 2002, respectively, and $961 and $858
for the six months ended June 30, 2003 and 2002, respectively.

In order to evaluate the operating performance of its communities for the
comparative periods listed below, the Company has presented financial
information which summarizes the rental and other revenues and property
operating and maintenance expense (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 income
(loss) from continuing operations 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 income (loss) from
continuing operations. 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.

-35-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

All Operating Communities

The operating performance from continuing operations for all of the Companys
apartment communities summarized by operating segment for the three and six
months ended June 30, 2003 and 2002 is summarized as follows:

Three months ended
    
    
    
    
    
    Six months endedJune 30,
    
    
    
    
    
    June 30,2003
    
    2002
    
    % Change
    
    2003
    
    2002
    
    % ChangeRental and other revenuesFully stabilized communities (1)
    
    $
    64,541
    
    
    $
    66,945
    
    
    
    (3.6
    )%
    
    $
    129,487
    
    
    $
    135,050
    
    
    
    (4.1
    )%Communities stabilized during 2002
    
    
    8,790
    
    
    
    6,709
    
    
    
    31.0
    %
    
    
    17,577
    
    
    
    12,932
    
    
    
    35.9
    %Lease-up communities (2)
    
    
    3,918
    
    
    
    1,744
    
    
    
    124.7
    %
    
    
    7,332
    
    
    
    3,465
    
    
    
    111.6
    %Sold communities (3)
    
    
    
    
    
    
    9
    
    
    
    (100.0
    )%
    
    
    
    
    
    
    745
    
    
    
    (100.0
    )%Other revenue (4)
    
    
    5,218
    
    
    
    5,278
    
    
    
    (1.1
    )%
    
    
    9,847
    
    
    
    10,274
    
    
    
    (4.2
    )%82,467
    
    
    
    80,685
    
    
    
    2.2
    %
    
    
    164,243
    
    
    
    162,466
    
    
    
    1.1
    %Property operating and maintenance
expenses (excluding depreciation
and amortization)Fully stabilized communities (1)
    
    
    23,963
    
    
    
    23,506
    
    
    
    1.9
    %
    
    
    47,117
    
    
    
    46,720
    
    
    
    0.8
    %Communities stabilized during 2002
    
    
    3,197
    
    
    
    3,114
    
    
    
    2.7
    %
    
    
    6,342
    
    
    
    5,948
    
    
    
    6.6
    %Lease-up communities (2)
    
    
    1,884
    
    
    
    809
    
    
    
    132.9
    %
    
    
    3,604
    
    
    
    1,577
    
    
    
    128.5
    %Sold communities (3)
    
    
    
    
    
    
    6
    
    
    
    (100.0
    )%
    
    
    
    
    
    
    376
    
    
    
    (100.0
    )%Other expense (5)
    
    
    5,567
    
    
    
    4,596
    
    
    
    21.1
    %
    
    
    11,173
    
    
    
    10,261
    
    
    
    8.9
    %34,611
    
    
    
    32,031
    
    
    
    8.1
    %
    
    
    68,236
    
    
    
    64,882
    
    
    
    5.2
    %Net operating income
    
    $
    47,856
    
    
    $
    48,654
    
    
    
    (1.6
    )%
    
    $
    96,007
    
    
    $
    97,584
    
    
    
    (1.6
    )%Recurring capital expenditures: (6)Carpet
    
    $
    787
    
    
    $
    702
    
    
    
    12.1
    %
    
    $
    1,385
    
    
    $
    1,361
    
    
    
    1.8
    %Other
    
    
    1,737
    
    
    
    2,150
    
    
    
    (19.2
    )%
    
    
    2,601
    
    
    
    3,370
    
    
    
    (22.8
    )%Total
    
    $
    2,524
    
    
    $
    2,852
    
    
    
    (11.5
    )%
    
    $
    3,986
    
    
    $
    4,731
    
    
    
    (15.7
    )%Non-recurring capital expenditures
    
    $
    1,218
    
    
    $
    717
    
    
    
    69.9
    %
    
    $
    2,176
    
    
    $
    1,264
    
    
    
    72.2
    %Average apartment units in service
    
    
    29,188
    
    
    
    30,509
    
    
    
    (4.3
    )%
    
    
    29,374
    
    
    
    30,445
    
    
    
    (3.5
    )%




|(1) |  | Communities which reached stabilization prior to January 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(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) |  | Includes results from two communities containing 540 units and one
commercial property in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(4) |  | Other revenues include revenues from commercial properties, from the
Companys corporate apartment rental business and revenues not
directly related to property operations. Other revenue excludes
interest income included in total revenues in the consolidated
statements of operations.                                                                                                                                                                                                                                                          
|   
|(5) |  | Other expenses include certain indirect central office operating
expenses related to management, grounds maintenance, and costs
associated with commercial properties and the Companys corporate
apartment rental business.                                                                                                                                                                                                                                                                                                                          
|   
|(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.

-36-



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Stabilized Communities

The Company defines fully stabilized, or same store communities as those
which have reached stabilization prior to the beginning of the previous year.
At June 30, 2003, the fully stabilized portfolio of 67 communities with 24,347
units includes 37 communities with 14,614 units (60.0%) located in Atlanta,
Georgia, 18 communities with 5,183 units (21.3%) located in Dallas, Texas,
three communities with 1,439 units (5.9%) located in Tampa, Florida and nine
communities with 3,111 units (12.8%) located in other markets. The operating
performance of these communities is summarized as follows:

Three months ended
    
    
    
    
    
    Six months endedJune 30,
    
    
    
    
    
    June 30,2003
    
    2002
    
    % Change
    
    2003
    
    2002
    
    % ChangeRental and other revenue
    
    $
    64,541
    
    
    $
    66,945
    
    
    
    (3.6
    )%
    
    $
    129,487
    
    
    $
    135,050
    
    
    
    (4.1
    )%Property operating and maintenance
expense (excluding depreciation and
amortization)
    
    
    23,963
    
    
    
    23,506
    
    
    
    1.9
    %
    
    
    47,117
    
    
    
    46,720
    
    
    
    0.8
    %Same store net operating income (1)
    
    $
    40,578
    
    
    $
    43,439
    
    
    
    (6.6
    )%
    
    $
    82,370
    
    
    $
    88,330
    
    
    
    (6.7
    )%Capital expenditures (2)Recurring:Carpet
    
    $
    746
    
    
    $
    602
    
    
    
    23.9
    %
    
    $
    1,310
    
    
    $
    1,101
    
    
    
    19.0
    %Other
    
    
    1,642
    
    
    
    1,962
    
    
    
    (16.3
    )%
    
    
    2,386
    
    
    
    2,913
    
    
    
    (18.1
    )%Total recurring
    
    
    2,388
    
    
    
    2,564
    
    
    
    (6.9
    )%
    
    
    3,696
    
    
    
    4,014
    
    
    
    (7.9
    )%Non-recurring
    
    
    972
    
    
    
    596
    
    
    
    63.0
    %
    
    
    1,571
    
    
    
    1,074
    
    
    
    46.2
    %Total capital expenditures (A)
    
    $
    3,360
    
    
    $
    3,160
    
    
    
    6.3
    %
    
    $
    5,267
    
    
    $
    5,088
    
    
    
    3.5
    %Total capital expenditures per
unit (A÷24,347 units)
    
    $
    138
    
    
    $
    130
    
    
    
    6.2
    %
    
    $
    216
    
    
    $
    209
    
    
    
    3.3
    %Average monthly rental rate per
apartment unit (3)
    
    $
    941
    
    
    $
    1,000
    
    
    
    (5.9
    )%
    
    $
    949
    
    
    $
    1,004
    
    
    
    (5.5
    )%Average economic occupancy (4)
    
    
    91.1
    %
    
    
    89.5
    %
    
    
    1.6
    %
    
    
    90.6
    %
    
    
    89.8
    %
    
    
    0.8
    %




|(1) |  | Net operating income of stabilized communities is a supplemental
non-GAAP financial measure. See note 7 to the consolidated financial
statements for a reconciliation of net operating income for
stabilized communities to GAAP income (loss) from continuing
operations. 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 revenues from
real estate operations less total property operating 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. 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 income
(loss) from continuing operations is the most directly comparable
GAAP measure to net operating income.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | A reconciliation of these segment components of property capital
expenditures to total recurring and non-recurring capital
expenditures as presented in the consolidated statements of cash
flows prepared under GAAP is detailed below.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002Recurring capital expenditures by operating segmentSame store
    
    $
    2,388
    
    
    $
    2,564
    
    
    $
    3,696
    
    
    $
    4,014Partially stabilized
    
    
    77
    
    
    
    18
    
    
    
    123
    
    
    
    21Construction and lease-up
    
    
    17
    
    
    
    16
    
    
    
    26
    
    
    
    21Other segments
    
    
    42
    
    
    
    254
    
    
    
    141
    
    
    
    675Total recurring capital expenditures per statements of cash flows
    
    $
    2,524
    
    
    $
    2,852
    
    
    $
    3,986
    
    
    $
    4,731Non-recurring capital expenditures by operating segmentSame store
    
    $
    972
    
    
    $
    596
    
    
    $
    1,571
    
    
    
    1,074Partially stabilized
    
    
    1
    
    
    
    5
    
    
    
    41
    
    
    
    8Construction and lease-up
    
    
    3
    
    
    
    7
    
    
    
    7
    
    
    
    9Other segments
    
    
    242
    
    
    
    109
    
    
    
    557
    
    
    
    173Total non-recurring capital expenditures per statements of cash flows
    
    $
    1,218
    
    
    $
    717
    
    
    $
    2,176
    
    
    $
    1,264




| |  | 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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-37-



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)



|(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. 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 89.5% and 86.9% for the three
months ended June 30, 2003 and 2002, respectively, and 89.1% and 87.6%
for the six months ended June 30, 2003 and 2002, respectively. For the
three months ended June 30, 2003 and 2002, concessions were $1,015 and
$1,688, respectively, and employee discounts were $134 and $190,
respectively. For the six months ended June 30, 2003 and 2002,
concessions were $1,749 and $2,780, respectively, and employee
discounts were $270 and $395, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Comparison of Three Months Ended June 30, 2003 to Three Months Ended June 30,
2002

The Operating Partnership reported net income available to common unitholders
of $27,909 and $25,298 for the three months ended June 30, 2003 and 2002,
respectively, and the Company reported net income available to common
shareholders of $24,826 and $22,200 for the three months ended June 30, 2003
and 2002, respectively. The increase in net income between the three months
ended June 30, 2003 and 2002 primarily reflected an increase in gains on
property sales of $8,245 ($7,568 net of minority interest), and in earnings
from unconsolidated entities of $8,601 ($7,659 net of minority interest),
resulting from the gain on the sale of an apartment community held by one of
the entities, offset by the impact of two separate accounting charges totaling
$7,026 ($6,257 net of minority interest) recorded in the three months ended
June 30, 2003. The first charge of $1,795 related to the severance costs
associated with the departures of the Companys executive vice president and
chief financial officer and executive vice president of asset management. The
second charge of $5,231 reflected the legal, advisory and other costs
associated with the proxy contest initiated by the Companys former chairman
and current chairman emeritus of the board of directors in the second quarter
of 2003. This $5,231 charge also included the estimated legal and settlement
costs associated with the resolution of the two derivative and purported class
action lawsuits filed against the Company during the proxy contest. In
addition, the decline in net income between periods reflected a decrease in
fully stabilized communities operating performance and reduced earnings
resulting from the Companys asset sale and capital recycling program. The
impact of these items is discussed below.

Rental and other revenues increased $1,782 or 2.2% due to increased rental and
other revenues of $4,255 from newly stabilized and lease-up properties offset
by a decrease in rental and other revenues from fully stabilized communities of
$2,404 (see discussion below). Property operating and maintenance expenses
(excluding depreciation and amortization) increased $2,580 or 8.1% primarily
due to increased expenses from lease-up communities as these expenses typically
increase as property occupancy levels increase towards stabilized occupancy
levels and as new lease-up properties are placed in service. Property
operating and maintenance expenses (excluding depreciation and amortization)
for fully stabilized communities increased $457 or 1.9% between periods (see
discussion below).

For the three months ended June 30, 2003, the Company recognized net gains from
discontinued operations of $26,936 ($23,987 net of minority interest), on the
sale of one community, containing 770 apartment units, reduced by losses of
$306 ($273 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 classified as held for sale. For the three months
ended June 30, 2002, the Company recognized net gains from discontinued
operations of $18,385 ($16,146 net of minority interest) on the sale of four
communities, containing 1,450 apartment units, and one commercial property.
Fluctuations in gains on property sales between periods reflect such variables
as the timing of sales and the size, age and location of the communities sold.
See the section titled Discontinued Operations below for further discussion.

Depreciation expense increased $1,682 or 8.1% from 2002 to 2003 primarily due
to increased depreciation on newly stabilized and lease-up properties,
partially offset by the cessation of depreciation on properties sold.

Interest expense increased $3,696 or 27.0% from 2002 to 2003 primarily due to a
$2,863 reduction in capitalized interest to development properties between
periods as the Companys development pipeline transitioned to operating
properties in late 2002 and into 2003. In addition to the impact of
capitalized interest, the remaining increase in interest expense was a result
of increased average debt balances in 2003 and as a result of more interest
expense reclassified to discontinued operations in 2002 of $417.

General and administrative expenses decreased $378 or 10.2% from 2002 to 2003
primarily due to lower executive salaries and associated costs due to the
change in roles from executive to non-executive status of the Companys
chairman and vice-chairman in February 2003, as such costs were charged against
the $19,712 severance liability established during the first quarter of 2003.
The severance charges recorded in 2003 are discussed further below.

-38-



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Other expenses in 2002 represent the costs associated with the early
extinguishment of indebtedness. This $136 amount was reclassified from its
prior year presentation as an extraordinary item as a result of the current
year implementation of SFAS No. 145.

The Company recorded severance and proxy charges of $1,795 and $5,231,
respectively, in the three months ended June 30, 2003. These charges are
discussed in more detail below. No such charges were recorded in the
comparable period of 2002.

Equity in income (losses) of unconsolidated real estate entities increased from
losses of $500 in 2002 to income of $8,101 in 2003. This increase was
primarily due to the recognition of the Companys share of a gain of $8,395
resulting from the sale of an apartment community by one of the limited
liability companies accounted for on the equity method (see note 3 to the
consolidated financial statements).

Stabilized Communities

Rental and other revenues decreased $2,404 or 3.6% from 2002 to 2003. This
decrease resulted primarily from a 5.9% decline in the average monthly rental
rate per apartment unit. The decline in average rental rate resulted in a
revenue decrease of approximately $4,279 between periods. The aggregate
decline in revenues related to other property fees totaled $815. These declines
were offset by lower up-front rental concessions of $674 and lower vacancy
losses of $2,016. The decline in rental rates in 2003 reflects the effect of
the sluggish economy on the Companys primary markets coupled with a continuing
supply of new apartment units. This trend was especially true for the
Companys largest markets, Atlanta, Georgia and Dallas, Texas, which
experienced rental and other revenue declines of $1,773 and $400 for the three
months ended June 30, 2003 and 2002, respectively.

Property operating and maintenance expenses (excluding depreciation and
amortization) increased $457 or 1.9% between periods. This increase was
primarily due to increased property tax expense of $582 or 7.8%. This increase
reflects the impact of lower expenses in 2002 of approximately $596 resulting
from the settlement of 2001 property taxes principally in the Companys Dallas,
Texas market. Increased insurance expenses of $275 or 23.1% and increased
promotional expenses of $151 or 11.5% were largely offset by decreased
personnel expenses of $473 or 7.3%. Insurance costs increased primarily due to
higher premiums caused by the volatility in insurance markets caused by, among
other things, increased terrorism risks and lower insurance company investment
returns. Promotional expenses increased primarily due to increased locator
fees paid to brokers as a result of occupancy increases between periods.
Personnel costs decreased due primarily to the impact of prior year staff
reductions and continued control of wage increases between years.

Comparison of Six Months Ended June 30, 2003 to Six Months Ended June 30, 2002

The Operating Partnership reported net income available to common unitholders
of $1,446 and $41,393 for the six months ended June 30, 2003 and 2002,
respectively, and the Company reported net income available to common
shareholders of $1,377 and $36,357 for the six months ended June 30, 2003 and
2002, respectively. The decline in net income between the six months ended June
30, 2003 and 2002 primarily reflected the impact of severance, proxy and asset
impairment charges totaling $40,855 ($36,291 net of minority interest) recorded
in the six months ended June 30, 2003. Severance charges included $1,795
($1,598 net of minority interest) recorded in the second quarter of 2003
related to the departures of two executive officers and $19,712 ($17,467 net of
minority interest) 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 proxy charge of $5,231 ($4,658 net of minority
interest) reflected the legal, advisory and other costs associated with the
proxy contest in the second quarter of 2003. The $5,231 charge also included
the estimated legal and settlement costs associated with resolution of two
derivative and purported class action lawsuits filed against the Company during
the proxy contest. The asset impairment charge totaling $14,118 ($12,510 net of
minority interest) was a loss recorded under the provisions of SFAS No. 144 to
write-down the cost of an apartment community located in Phoenix, Arizona, to
its estimated fair value. These charges are discussed in more detail in the
sections below. In addition, the decline in net income reflects a decrease in
fully stabilized communities operating performance and reduced earnings
resulting from the Companys asset sale and capital recycling program. The
impact of these items is discussed below.

-39-



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Rental and other revenues increased $1,774 or 1.1% due to increased rental and
other revenues of $8,512 from newly stabilized and lease-up communities offset
by a decrease in rental and other revenues from fully stabilized communities of
$5,563 (see discussion below) and sold communities of $745. Property operating
and maintenance expenses (excluding depreciation and amortization) increased
$3,354 or 5.2% primarily due to increased expenses from newly stabilized and
lease-up communities as these expenses typically increase as property occupancy
levels increase towards stabilized occupancy levels and as new lease-up
properties are placed in service. Property operating and maintenance expenses
(excluding depreciation and amortization) for fully stabilized communities
remained essentially flat between periods (see discussion below).

The Company reported no net gains on property sales in continuing operations in
2003, as under the provisions of SFAS No. 144 all gains (losses) on sales of
properties classified as held for sale subsequent to January 1, 2002 are
classified as discontinued operations. The net gains on property sales included
in continuing operations of $13,275 in 2002 resulted from the sale of two
communities containing 540 units and one commercial property. These assets were
all classified as assets held for sale at December 31, 2001. For the six months
ended June 30, 2003, the Company recognized net gains from discontinued
operations of $34,917 ($31,059 net of minority interest), on the sale of two
communities, containing 1,009 apartment units, reduced by losses of $1,413
($1,254 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 classified as held for sale. For the six months ended June 30,
2002, the Company recognized $18,385 ($16,146 net of minority interest) on the
sale of four communities, containing 1,450 apartment units and one commercial
property, reduced by losses totaling $7,652 ($6,731 net of minority interest)
to reduce the carrying value of certain of such assets designated as held for
sale to their fair value. See the section titled Discontinued Operations
below for further discussion.

Depreciation expense increased $4,508 or 11.1% from 2002 to 2003 primarily due
to increased depreciation on newly stabilized and lease-up properties,
partially offset by the cessation of depreciation on properties sold
and held for sale.

Interest expense increased $7,113 or 26.5% from 2002 to 2003 primarily due to a
$5,427 reduction in capitalized interest to development properties between
periods as the Companys development pipeline transitioned to operating
properties in late 2002 and early 2003. In addition to the impact of
capitalized interest, the remaining increase in interest expense was a result
of increased average debt balances in 2003 and as a result of more interest
expense reclassified to discontinued operations in 2002 of $1,061.

General and administrative expenses decreased $519 or 6.9% from 2002 to 2003
primarily due to lower executive salaries and associated costs due to the
change in roles from executive to non-executive status of the Companys
chairman and vice-chairman in February 2003, as such costs were charged against
the $19,712 severance reserve established during the first quarter of 2003.
The severance charges recorded in 2003 are discussed further below.

Other expenses of $567 in 2003 includes 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 the
estimated loss of $94 on the disposal of the Companys partial ownership
interest in a corporate aircraft. Other expenses in 2002 represent the costs
associated with the early extinguishment of indebtedness. This $136 amount was
reclassified from its prior year presentation as an extraordinary item as a
result of the current year implementation of SFAS No. 145.

The Company recorded severance, proxy and asset impairment charges of $21,506,
$5,231 and $14,118, respectively, in the six months ended June 30, 2003. These
charges are discussed in more detail below. No such charges were recorded in
the comparable period of 2002.

Equity in income (losses) of unconsolidated real estate entities increased from
a loss of $843 in 2002 to income of $7,708 in 2003. This increase was
primarily due to the recognition of the Companys share of a gain of $8,395
resulting from the sale of an apartment community by one of the limited
liability companies accounted for on the equity method (see note 3 to the
consolidated financial statements).

-40-



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Stabilized Communities

Rental and other revenues decreased $5,563 or 4.1% from 2002 to 2003. This
decrease resulted primarily from a 5.5% decline in the average monthly rental
rate per apartment unit. The decline in average rental rate resulted in a
revenue decrease of approximately $8,142 between periods. The aggregate
decline in revenues related to other property fees totaled $1,052. These
declines were offset by lower up-front rental concessions of $1,032 and lower
vacancy losses of $2,597. The decline in rental rates in 2003 reflects the
effect of the sluggish economy on the Companys primary markets coupled with a
continuing supply of new apartment units. This trend was especially true for
the Companys largest market, Atlanta, Georgia and Dallas, Texas, which
experienced rental and other revenue declines of $3,893 and $1,020,
respectively, between periods.

Property operating and maintenance expenses (excluding depreciation and
amortization) increased $397 or 0.8% from 2002 to 2003. Increased property tax
expenses of $394 or 2.5%, increased insurance expenses of $562 or 23.7% and
increased promotional expenses of $291 or 12.2% were offset by decreased
personnel expenses of $658 or 5.2%. The increase in property tax expenses
primarily reflects the impact of lower expenses in 2002 of approximately $596
resulting from the settlement of 2001 property taxes principally in the
Companys Dallas, Texas market. Insurance costs increased primarily due to
higher premiums caused by the volatility in insurance markets caused by, among
other things, increased terrorism risks and lower insurance company investment
returns. Promotional expenses increased primarily due to increased locator
fees paid to brokers as a result of occupancy increases between periods.

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 subsequent to
January 1, 2002 are included in discontinued operations in the consolidated
statement of operations.

For the three months ended June 30, 2003, income from discontinued operations
includes the results of operations through the earlier of the community sale
date (if the community was sold between April 1, 2003 and June 30, 2003) or
June 30, 2003, of one apartment community containing 770 units that was held
for sale at December 31, 2002. For the six months ended June 30, 2003, income
from discontinued operations included the results of operations, through the
earlier of the community sale date (if the community was sold between January
1, 2003 and June 30, 2003) or June 30, 2003 of two apartment communities
containing 1,009 units that were classified as held for sale at December 31,
2002. For the three and six months ended June 30, 2002, income from
discontinued operations included the results of operations of eight apartment
communities containing 3,134 units and one commercial property through the
earlier of the community sale date or the end of the period. The revenues and
expenses of these properties for the three and six months ended June 30, 2003
and 2002 were as follows:

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002RevenuesRental
    
    $
    917
    
    
    $
    4,580
    
    
    $
    3,087
    
    
    $
    12,242Other
    
    
    18
    
    
    
    212
    
    
    
    89
    
    
    
    476Total revenues
    
    
    935
    
    
    
    4,792
    
    
    
    3,176
    
    
    
    12,718ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    345
    
    
    
    2,188
    
    
    
    1,150
    
    
    
    5,242Depreciation
    
    
    
    
    
    
    591
    
    
    
    
    
    
    
    1,455Interest
    
    
    396
    
    
    
    813
    
    
    
    1,135
    
    
    
    2,196Total expenses
    
    
    741
    
    
    
    3,592
    
    
    
    2,285
    
    
    
    8,893Income from discontinued operations
(before minority interest)
    
    $
    194
    
    
    $
    1,200
    
    
    $
    891
    
    
    $
    3,825


The decrease in revenues and expenses between periods results from the timing
and size of the communities sold, as summarized above.

For the three months ended June 30, 2003, the Company recognized net gains from
discontinued operations of $26,936 ($23,987 net of minority interest), on the
sale of one community, containing 770 apartment units, reduced by losses of
$306 ($273 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 classified as held for sale. For the six months
ended June 30, 2003, the Company recognized net gains from discontinued
operations of $34,917 ($31,059 net of minority interest) on the sale of two
communities containing 1,009 units,

-41-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

reduced by losses of $1,413 ($1,254 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 classified as held for
sale. For the three months ended June 30, 2002, the Company recognized net
gains from discontinued operations totaling $18,385 ($16,146 net of minority
interest) on the sale of four apartment communities, containing 1,450 apartment
units, and one commercial property. For the six months ended June 30, 2002,
these gains were reduced by losses of $7,652 ($6,731 net of minority interest)
to reduce the carrying value of certain of such assets designated as held for
sale to their fair value.

Severance, Proxy and Asset Impairment Charges

In the second quarter of 2003, the Company recorded severance charges of $1,795
($1,598 net of minority interest) relating to the departures of its executive
vice president and chief financial officer and its executive vice president of
asset management. In addition, the Company recorded the actual and estimated
costs associated with the recently concluded proxy contest of $5,231 ($4,658
net of minority interest). In 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, and a $14,118 ($12,510
net of minority interest) asset impairment charge, under the provisions of SFAS
No. 144, to write-down the cost of an apartment community, located in Phoenix,
Arizona, to its estimated fair value.

The severance charges recorded in the second quarter of 2003 represent the
aggregate amount of the estimated payments and benefits to be made to the
departing executive officers. The severance charges recorded in the first
quarter of 2003 consisted of a $13,994 ($12,399 net of minority interest)
charge representing the discounted present value of the estimated payments to
be made to the former chairman and vice-chairman under their existing
employment arrangements and a $5,718 ($5,068 net of minority interest) charge
representing the discounted present value of estimated net costs that may be
incurred by the Company as a result of the settlement of split-dollar life
insurance obligations to the individuals under their employment arrangements.
The estimated charge for the settlement of the split-dollar life insurance
obligations may change based upon a final legal determination regarding these
insurance contracts and a final settlement among the parties.

As discussed above, the Company recorded severance charges in the first and
second quarters of 2003. The following table summarizes the activity relating
to the accrued severance charges for the six months ended June 30, 2003:

Aggregate severance charges
    
    $
    21,506Payments for period
    
    
    (938
    )Interest accretion
    
    
    354Accrued severance charges on June 30, 2003
    
    $
    20,922


Substantially all of these remaining amounts will be paid over the terms of the
former executives employment contracts (10 to 13 years).

Proxy and related costs of $5,231 represent the actual and estimated legal,
advisory and other expenses associated with the solicitation of proxies from
shareholders resulting from the contested proxy contest initiated in April 2003
by the Companys former chairman and current chairman emeritus of the board of
directors. Additionally, the $5,231 amount includes the estimated legal and
settlement costs associated with the resolution of two derivative and purported
class action lawsuits filed against the Company during the proxy contest.
These lawsuits are expected to be settled subsequent to June 30, 2003. Through
June 30, 2003, proxy and related costs paid totaled $3,181. The remaining
accrued proxy charges of $2,050 are expected to be paid in the third quarter of
2003.

The asset impairment charge relating to the Companys Phoenix, Arizona
apartment community was based upon a revised determination that it was more
probable that this community would be marketed for sale in the near term
instead of held for long-term investment. This community was not classified as
held for sale at June 30, 2003 as the Companys internal investment committee
had not approved the sale of the community and no program was initiated to
actively sell the community. Subsequent to June 30, 2003, this community has
been classified as held for sale as the Companys investment committee approved
the sale and the Company began actively marketing it for sale.

-42-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Outlook

For the remainder of 2003, management expects a moderation in the rate of
decline in rental and other revenues from fully stabilized communities compared
to the prior year period. Because of continued cost control efforts in 2003,
management expects modest full year increases in fully stabilized community
operating expenses primarily driven by projected full year increases in
property taxes and insurance expenses offset by reductions in personnel costs.
In light of the expectation of decreased revenues and modestly higher operating
expenses for the full year of 2003, management expects stabilized community net
operating income to continue to show period over period declines when compared
to 2002. For the third quarter of 2003, management expects same store property
net operating income to be flat to slightly higher as compared to the second
quarter of 2003, driven primarily by higher occupancy rates.

Management expects interest expense in the third quarter of 2003 to be higher
than in the second quarter of 2002 due to a reduction of interest
capitalization on the Companys Post ToscanaTM project as it transitions to
being completely in service in the third quarter. This decline will be
somewhat offset by increased property net operating income from this project as
it continues its lease-up in the third and fourth quarters of 2003. Management
also expects general and administrative expenses to increase in the third and
fourth quarters of 2003 resulting from increased directors and officers
insurance premiums, the amortization of additional restricted stock and stock
option awards and the expensing of development personnel and related costs.

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
described herein has been incurred by the Operating Partnership.

The Companys net cash provided by operating activities declined from $62,146
in 2002 to $53,622 in 2003 primarily due to lower operating earnings, excluding
gains from property sales, and the negative impact of cash payments for proxy
and severance costs in 2003.

Net cash provided by investing activities increased from $13,901 in 2002 to
$158,897 in 2003 primarily due to reduced development and construction
expenditures in 2003 and the net repayment of construction loan advances and
cash distributions from unconsolidated real estate entities in 2003, partially
offset by reduced proceeds from wholly-owned asset sales between periods.

Net cash used in financing activities increased from $71,323 in 2002 to
$214,607 in 2003 primarily due to the increased repayment of outstanding debt
in 2003 compared to 2002. The proceeds used to repay consolidated debt
balances were generated from asset sale proceeds and through the repayment of
construction loan advances and cash distributions from unconsolidated entities.

The Company has elected to be taxed as REIT under the Internal Revenue Code of
1986, as amended (the Code). Management currently intends to continue
operating the Company as a REIT in 2003. 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.

Through June 30, 2003, the Company met its short-term liquidity requirement of
funding the payment of its current level of quarterly dividends to shareholders
from its net cash flow provided by operating activities, less its annual
recurring and nonrecurring property and corporate capital expenditures. For
the second half of 2003, the Company believes its net cash flow from
operations, reduced by annual capital expenditures discussed above, may not be
sufficient to fully fund the Companys current level of dividend payments to
common shareholders. If cash flows decline in future periods, the Company
currently intends to use a combination of proceeds from asset sales and line of
credit borrowings to fund the additional cash flow necessary to fully fund the
Companys current quarterly dividend to common shareholders of $0.45 per share.
Depending on market conditions, the Company may need to fund dividends ranging
from $4,000 to $5,000 from these sources for the remainder of 2003. 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.

-43-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Management expects the Company to meet its construction and development and
certain of its other long-term liquidity requirements, including maturities of
long-term debt and lines of credit, debt and equity commitments to
unconsolidated entities (summarized in the Companys Form 10-K for the year
ended December 31, 2002) 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 accessibility to real estate sales markets to fund these
requirements. Management currently intends to utilize its available borrowing
capacity under its unsecured lines of credit to retire its $100,000 senior
notes maturing in October 2003. The capacity under the lines of credit was
created primarily through proceeds from property sales. 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
years as a source of capital 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 as the primary source of capital to fund its current
and future development and acquisition expenditures. The Company began an
active asset sale and capital recycling program in 2000 as the primary means to
fund its on-going community development program. Total funds raised in fiscal
2002 and fiscal 2001 were $182,216 and $220,122, respectively. In the six
months ended June 30, 2003, the Company sold two apartment communities,
containing 1,009 apartment units, and certain land parcels for net proceeds of
$98,711. Additionally in 2003, the Company received net proceeds of
approximately $75,000 (including the repayment of the construction loan from
the venture) from the sale of one apartment community held in an unconsolidated
entity.

Subsequent to June 30, 2003, the Company announced its intention to sell an
additional $250,000 to $300,000 of operating properties in late 2003 or early
2004. The proceeds from these sales are expected to be used to fund future development
expenditures, future property acquisitions and to opportunistically repurchase
the Companys common stock. The objective of this additional asset sales
effort is to reduce the Companys asset concentrations in Atlanta, Georgia and
Dallas, Texas and to increase its asset holdings in certain of its other
markets.

At June 30, 2003, the Company had available credit facility borrowing capacity
of approximately $297,000 under its existing $320,000 revolving credit facility
and its $20,000 cash management credit facility. The Companys primary credit
facility with total capacity of $320,000 and the $20,000 cash management
facility mature in April 2004. Management currently expects to renew its
primary credit facility with a capacity of approximately $300,000.
Additionally, management expects to renew its $20,000 cash management credit
facility. Management believes it will have adequate capacity under its
facilities to execute its 2003 business plan without a significant level of
asset sales or other secured and unsecured debt financings.

Subsequent to June 30, 2003, the
Companys unsecured public debt ratings were
downgraded by Moodys Investor Service from Baa2 to Baa3. The Companys
current unsecured debt ratings are BBB by Standard & Poors and Baa3 by Moodys
Investors Service. The Company continues to be rated investment grade by both rating agencies. Under the terms of the Companys credit
facility, the interest rate on borrowings will remain at LIBOR plus 0.85% as
the interest rate is based on the higher of the Companys unsecured debt
ratings (in a situation where the Company has split ratings). A lowering of the
Companys unsecured public debt ratings by one rating level by Standard &
Poors would lead to increased pricing under its credit facility
to LIBOR plus
1.10%. Downgrades may also increase the pricing of new issuances of public
unsecured debt. In addition, certain of the financial covenants under the
Companys syndicated line of credit are tied to maintaining an investment grade
credit rating. Management does not anticipate that the downgrade by
Moody's Investor Service will
materially affect the Companys ability to obtain the requisite level of debt
financing to finance its business plan. Should the Company not maintain its
investment grade credit ratings, its total dividend payout, exclusive of the
portion of the dividend attributable to capital gains from asset sales up to
$30,000, would be limited to 95% versus 100% of consolidated income available
for distribution, as defined. Management believes the Companys current
business plan and financing strategy are consistent with the fundamentals of
maintaining its investment grade ratings.

-44-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Unsecured Lines of Credit

The Company utilizes a $320,000 three-year syndicated revolving line of credit
lead by Wachovia Bank (the Revolver), for its short-term financing needs. At
June 30, 2003, the stated interest rate for the Revolver was LIBOR plus 0.85%
or prime minus 0.25%. The Revolver provides for the rate to be adjusted up or
down based on changes in the credit ratings on the Companys senior unsecured
debt (see the discussion in the previous section regarding changes in the
Companys credit ratings and the impact on the interest rate under the credit
facility). The Revolver also includes a money market competitive bid option for
short-term funds up to $160,000 at rates below the stated line rate. The credit
agreement for the Revolver contains customary representations, covenants and
events of default, including 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 $30,000 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 this covenant will adversely affect the
ability of the Operating Partnership to make distributions, or the Company to
declare dividends, at the Companys current dividend level. The Revolver
matures in April 2004, however, management expects to renew this facility later
in 2003. This line may be renewed with a total capacity of approximately
$300,000, due to reduced financing requirements resulting from reduced
development activities.

Additionally, the Company has a $20,000 unsecured line of credit with Wachovia
Bank of Georgia, N.A. (the Cash Management Line). The Cash Management Line
bears interest at LIBOR plus 0.75% or prime minus .25% and matures in April
2004. At June 30, 2003, the Company has issued letters of credit to third
parties totaling $963 under this facility.

Long-term Debt Issuances

In February 2003, one of the Companys unconsolidated equity joint ventures
closed a $17,000 loan with a life insurance company. This loan is secured by
the apartment community owned by the joint venture in which the Company has a
35% ownership interest. The Company received 100% of the loan proceeds from
the joint venture as a repayment of its outstanding construction loan to the
joint venture. Payments of principal and interest will be based upon an
interest rate of 4.28% per annum and a 30-year amortization schedule, with the
balance due at maturity in March 2008. The net proceeds were used by the
Company to repay amounts outstanding under its credit facilities.

Stock Repurchase Program

The Companys Board of Directors has approved the purchase of up to $200,000 of
the Companys common stock. Through December 31, 2002, the Company had
acquired 3,127,600 shares of its common stock at an aggregate cost of $114,126
and had acquired 100,000 shares of preferred stock at an aggregate cost of
$5,100. The Company acquired no common or preferred stock in the six months
ended June 30, 2003. 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.

-45-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Schedule of Indebtedness

The following table reflects a summary of the Companys indebtedness at June
30, 2003 and December 31, 2002:

Payment
    
    
    
    
    
    Maturity
    
    June 30,
    
    December 31,Description
    
    Terms
    
    Interest Rate
    
    Date (1)
    
    2003
    
    2002Unsecured NotesSenior Notes
    
    Int
    
    
    6.11% - 7.70
    %
    
    2003-2010
    
    $
    385,000
    
    
    $
    385,000Medium Term Notes
    
    Int
    
    
    6.69% - 8.12
    %(2)
    
    2004-2015
    
    
    323,000
    
    
    
    323,000708,000
    
    
    
    708,000Unsecured Lines of Credit & OtherRevolver
    
    N/A
    
    
    LIBOR + 0.85
    %(3)
    
    2004
    
    
    30,000
    
    
    
    185,000Cash Management Line
    
    N/A
    
    
    LIBOR + 0.75
    %
    
    2004
    
    
    13,017
    
    
    
    11,36943,017
    
    
    
    196,369Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int
    
    
    6.975
    %(4)
    
    2029
    
    
    101,100
    
    
    
    101,100Other
    
    Prin. and Int
    
    
    5.50% - 7.69
    %
    
    2007-2013
    
    
    193,429
    
    
    
    194,706294,529
    
    
    
    295,806Tax Exempt Floating Rate
Bonds (Secured)
    
    Int
    
    
    1.00
    %(5)
    
    2025
    
    
    214,380
    
    
    
    214,380Total
    
    
    
    
    
    
    
    
    
    $
    1,259,926
    
    
    $
    1,414,555




|(1) |  | All outstanding indebtedness can be prepaid at any time, subject to
certain prepayment penalties.
|--- |  | -------------------------------------------------------------------------------------------------



|(2) |  | Contains $100,000 of Mandatory Par Put Remarketed Securities. The annual
interest rate on these securities to 2005 (the Remarketing Date) is
6.85%. On the Remarketing Date, they are subject to mandatory tender for
remarketing.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Represents stated rate. At June 30,2003, the weighted average interest
rate was 2.11%.
|--- |  | --------------------------------------------------------------------------------------



|(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 rate at June 30, 2003 before credit enhancements. At June
30, 2003, the Company has outstanding interest rate cap arrangements that
limit the Companys exposure to increases in the base interest rate to 5%.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 internal 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 are reflected on the
balance sheet as 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 as well as property management and leasing personnel expenses) of
such communities.

-46-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

A summary of community development improvements and other capitalized
expenditures for the three and six months ended June 30, 2003 and 2002 is
detailed below.

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002New community development and acquisition activity
    
    $
    5,720
    
    
    $
    44,612
    
    
    $
    19,832
    
    
    $
    92,760Non-recurring capital expendituresRevenue generating additions and improvements (1)
    
    
    643
    
    
    
    639
    
    
    
    732
    
    
    
    966Other community additions and improvements (2)
    
    
    1,218
    
    
    
    717
    
    
    
    2,176
    
    
    
    1,264Recurring capital expendituresCarpet replacements and other community additions
and improvements (3)
    
    
    2,524
    
    
    
    2,852
    
    
    
    3,986
    
    
    
    4,731Corporate additions and improvements
    
    
    131
    
    
    
    269
    
    
    
    339
    
    
    
    548$
    10,236
    
    
    $
    49,089
    
    
    $
    27,065
    
    
    $
    100,269Other DataCapitalized interest
    
    $
    1,244
    
    
    $
    4,107
    
    
    $
    3,113
    
    
    $
    8,540Capitalized personnel and associated costs (4)
    
    $
    579
    
    
    $
    1,346
    
    
    $
    1,179
    
    
    $
    2,729




|(1) |  | Represents expenditures for major renovations of communities,
water sub-metering equipment and other upgrade costs that enhance
the rental value of such units.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Represents property improvement expenditures that generally occur
less frequently than on an annual basis.
|--- |  | ----------------------------------------------------------------------------------------------------------



|(3) |  | Represents property improvement expenditures of a type that are
expected to be incurred on an annual basis.
|--- |  | -----------------------------------------------------------------------------------------------------------



|(4) |  | Reflects internal personnel and associated costs capitalized to
construction and development activities.
|--- |  | --------------------------------------------------------------------------------------------------------

Current Development Activity

The Company has under construction or in initial lease-up two new communities
that will contain an aggregate of 468 units upon completion. The Companys
communities under development or in initial lease-up are summarized in the
following table:

Estimated
    
    Amount
    
    
    
    
    
    
    
    
    
    EstimatedConstruction
    
    Spent
    
    Quarter of
    
    Quarter of
    
    Quarter of
    
    %
    
    %Number of
    
    Cost
    
    As of
    
    Construction
    
    First Units
    
    Stabilized
    
    Leased
    
    OccupiedMetropolitan Area
    
    Units
    
    ($ in millions)
    
    6/30/2003
    
    Start
    
    Available
    
    Occupancy (1)
    
    8/4/2003
    
    8/4/2003Wholly Owned Construction/Lease-up
CommunitiesNew York City, NYPost ToscanaTM
    
    
    199
    
    
    
    92
    
    
    
    89
    
    
    
    1Q 02
    
    
    
    1Q 03
    
    
    
    2Q 04
    
    
    
    60.8
    %
    
    
    45.2
    %Subtotal Wholly-Owned
Construction/Lease-up Communities
    
    
    199
    
    
    $
    92
    
    
    $
    89Co-Investment Construction/Lease-up
CommunitiesWashington D.C.Post Massachusetts AvenueTM (2)
    
    
    269
    
    
    
    72
    
    
    
    71
    
    
    
    2Q 01
    
    
    
    4Q 02
    
    
    
    4Q 03
    
    
    
    70.6
    %
    
    
    61.0
    %Subtotal Co-Investment
Construction/Lease-up Communities
    
    
    269
    
    
    $
    72
    
    
    $
    71Construction Totals
    
    
    468
    
    
    $
    164
    
    
    $
    160less Partners Portion
    
    
    
    
    
    $
    (47
    )
    
    $
    (46
    )Post Properties Funding Commitment
    
    
    
    
    
    $
    117
    
    
    $
    114




|(1) |  | The Company defines stabilized occupancy as the earlier to occur of (i)
the attainment of 95% physical occupancy on the first day of any month or
(ii) one year after completion of construction.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | This community is being developed as a joint venture (Post equity
ownership is 35%).
|--- |  | ------------------------------------------------------------------------------------

-47-



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Inflation

Substantially all of the leases at the Companys apartment 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 and Funds Available for Distribution

The Company uses the National Association for 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 debt restructuring 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. 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 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.

The Company uses funds available for distribution (FAD) as an operating
measure. FAD is defined as FFO less capital expenditures funded by operations.
FAD is a supplemental non-GAAP financial measure. The Company believes that
FAD is an important supplemental measure of operating performance for an equity
REIT because it provides investors with an indication of the REITs ability to
fund its cash needs through earnings, including debt service requirements,
construction and development expenditures and dividends and distributions. In
addition, since most equity REITs provide FAD information to the investment
community, the Company believes FAD is a useful supplemental measure for
comparing the Company to other 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 FAD.

FFO and FAD 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 and FAD
are supplemental non-GAAP financial measures, management believes it is also
important to stress that FFO and FAD 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 and FAD are not necessarily
indicative of sufficient cash flow to fund all of the Companys needs or
ability to service indebtedness or make distributions.

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

A reconciliation of net income available to common shareholders to FFO and FAD
is provided below.

Three months ended
    
    Six months endedJune 30,
    
    June 30,2003
    
    2002 (1)
    
    2003
    
    2002 (1)Net income available to common shareholders
    
    $
    24,826
    
    
    $
    22,200
    
    
    $
    1,377
    
    
    $
    36,357Minority
interest of common unitholders  continuing operations
    
    
    146
    
    
    
    713
    
    
    
    (3,729
    )
    
    
    3,261Minority interest in discontinued operations (2)
    
    
    23
    
    
    
    146
    
    
    
    99
    
    
    
    467Gains on property sales  continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,275
    )Gains on property sales  unconsolidated entities
    
    
    (8,395
    )
    
    
    
    
    
    
    (8,395
    )
    
    
    Gains
on properties held for sale and sold, net of minority interest  discontinued operations
    
    
    (23,714
    )
    
    
    (16,146
    )
    
    
    (29,805
    )
    
    
    (9,425
    )Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    14,118
    
    
    
    Depreciation on wholly-owned real estate assets, net (3)
    
    
    21,364
    
    
    
    20,147
    
    
    
    42,982
    
    
    
    39,732Depreciation on real estate assets held in unconsolidated entities
    
    
    440
    
    
    
    260
    
    
    
    906
    
    
    
    399Funds from operations
    
    
    14,690
    
    
    
    27,320
    
    
    
    17,553
    
    
    
    57,516Recurring capital expenditures
    
    
    (2,524
    )
    
    
    (2,852
    )
    
    
    (3,986
    )
    
    
    (4,732
    )Non-recurring capital expenditures
    
    
    (1,218
    )
    
    
    (717
    )
    
    
    (2,176
    )
    
    
    (1,264
    )Funds available for distribution(4)
    
    $
    10,948
    
    
    $
    23,751
    
    
    $
    11,391
    
    
    $
    51,520Cash flow provided by (used in):Operating activities
    
    $
    26,925
    
    
    $
    35,791
    
    
    $
    53,622
    
    
    $
    62,146Investing activities
    
    $
    121,093
    
    
    $
    42,535
    
    
    $
    158,897
    
    
    $
    13,901Financing activities
    
    $
    (147,527
    )
    
    $
    (78,150
    )
    
    $
    (214,607
    )
    
    $
    (71,323
    )Weighted average shares outstanding  basic
    
    
    37,459,530
    
    
    
    36,904,954
    
    
    
    37,361,132
    
    
    
    36,890,139Weighted average shares and units outstanding  basic
    
    
    42,066,025
    
    
    
    42,023,842
    
    
    
    42,057,716
    
    
    
    42,009,027Weighted average shares outstanding  diluted
    
    
    37,467,388
    
    
    
    36,981,334
    
    
    
    37,361,902
    
    
    
    36,975,168Weighted average shares and units outstanding  diluted
    
    
    42,073,883
    
    
    
    42,100,222
    
    
    
    42,058,486
    
    
    
    42,094,056




|(1) |  | For the three and six month periods ended June 30, 2002, FFO has
been restated from the prior year presentation to reflect a
reduction of $136 for early debt extinguishment costs reclassified
from extraordinary items to operating expenses under SFAS No. 145.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Represents the minority interest in earnings of discontinued
operations for the periods presented.
|--- |  | --------------------------------------------------------------------------------------------------



|(3) |  | Depreciation on wholly-owned real estate assets is net of minority
interest portion of depreciation in consolidated partnerships.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Since the Company does not add back the depreciation of non-real
estate assets in its calculation of funds from operations, non-real
estate related capital expenditures of $131 and $269 for the three
months ended June 30, 2003 and 2002, respectively, and $339 and $548
for the six months ended June 30, 2003 and 2002, respectively, are
excluded from the calculation of funds available for distribution.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys primary market risk exposure is interest rate risk. At June 30,
2003, the Company had $169,117 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 amortizingto $90,270
    
    
    6.04
    %
    
    1 month LIBOR
    
    
    7/31/09
    
    
    $
    (16,601
    )Variable to fixed
    
    $
    25,000
    
    
    
    6.53
    %
    
    3 month LIBOR
    
    
    2/01/05
    
    
    
    (2,080
    )Interest rate cap
    
    $
    107,190
    
    
    
    5.00
    %
    
    
    
    
    
    
    2/01/08
    
    
    
    718Interest rate cap
    
    $
    107,190
    
    
    
    5.00
    %
    
    
    
    
    
    
    2/01/08
    
    
    
    718$
    (17,245
    )


As more fully described in note 1 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 $101,100 FNMA borrowings and $25,000
medium-term notes effectively converted to fixed rates discussed above,
fluctuated by 1.0%, interest costs to the Company, based on outstanding
borrowings at June 30, 2003, would increase or decrease by approximately $2,600
on an annualized basis.

Effective February 1, 2003, the Company entered into two interest rate cap
arrangements with two separate financial institutions with notional amounts
totaling $214,380. The new interest rate cap arrangements replaced three
expiring interest rate cap arrangements and were structured as cash flow hedges
to provide a fixed ceiling at 5% for the Companys variable rate, tax-exempt
borrowings totaling $214,380. The Company is required to maintain this
interest rate exposure protection under the terms of the financing
arrangements. The $2,720 cost of the interest rate arrangements will be
amortized as additional expense over their five year term in accordance with
SFAS No. 133.

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##### 



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 accounting 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 significant
changes to the Companys internal controls during the period covered by this
quarterly report that materially affected, or are reasonably likely to
materially affect, the Companys controls over financial reporting.

Disclosure controls and procedures are the Companys controls and other
procedures that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act 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 under the Exchange Act is accumulated and
communicated to the Companys management, including its principal executive
officer and principal accounting officer, as appropriate, to allow timely
decisions regarding required disclosure.

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##### 



PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

On April 7, 2003, John A. Williams, chairman emeritus of the board,
withdrew a complaint for injunctive relief and damages filed on March 21, 2003.
As a result, the temporary restraining order issued by the Superior Court of
Cobb County, Georgia in connection with the complaint also has been withdrawn.
The board of directors was to have voted on a number of resolutions that would
have restricted Mr. Williams with respect to certain company matters, including
restrictions on access to employees and information. The temporary restraining
order had enjoined the board from voting on any such resolutions during the
30-day period.

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, including Mr. Williams, 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 subsequent to June
30, 2003.

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.
Mr. Williams was not named as a defendant in the lawsuit. 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 subsequent to June
30, 2003.

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 AND USE OF PROCEEDS

None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None

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##### 



ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Companys annual meeting of shareholders was held May 22, 2003. The
matters subject to a vote of shareholders were the election of directors
and the approval of the Companys 2003 Incentive Stock Plan. At the
meeting in person or by proxy, there were shareholders holding an
aggregate of 28,010,507 shares of common stock. There were no broker
non-votes cast for any proposal. The voting results were as follows:

Election of Directors

Nominees of Companys Board of Directors

Term Expires 2004
    
    For
    
    WithheldL. Barry Teague
    
    
    18,560,230
    
    
    
    161,031


Term Expires 2005
    
    For
    
    WithheldDavid P. Stockert
    
    
    18,569,666
    
    
    
    151,595


Term Expires 2006
    
    For
    
    WithheldHerschel M. Bloom
    
    
    18,481,261
    
    
    
    240,000Russell R. French
    
    
    18,569,971
    
    
    
    151,290Robert C Goddard, III
    
    
    18,571,149
    
    
    
    150,112Ronald de Waal
    
    
    18,551,243
    
    
    
    170,018


Nominees of John A. Williams

For
    
    WithheldGeorge R. Puskar
    
    
    9,123,262
    
    
    
    165,984Roy E. Barnes
    
    
    9,178,738
    
    
    
    110,508Francis L. Bryant, Jr.
    
    
    9,123,762
    
    
    
    165,484Paul J. Dolinoy
    
    
    9,124,062
    
    
    
    165,184Thomas J. A. Levin
    
    
    9,123,762
    
    
    
    165,484


Based on the vote tabulations listed above the nominees elected to the
board of directors were L. Barry Teague, David P. Stockert, Herschel M.
Bloom, Russell R. French, Robert C. Goddard, III and Ronald de Waal.

Approval of 2003 Incentive Stock Plan

For
    
    Against
    
    Abstain22,695,530
    
    
    4,636,241
    
    
    
    678,736


ITEM 5.    OTHER INFORMATION

None

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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(b)
    
    Bylaws of the Company (as Amended and Restated as of March 22, 2003)4.1(d)
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2(d)
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.10.1
    
    Employment Agreement with David P. Stockert, dated July 18, 200310.2
    
    Employment Agreement with Thomas Senkbeil, dated June 2, 200310.3
    
    Amendment No. 1 to Employment Agreement with Thomas Senkbeil, dated August 1, 200310.4
    
    Form of Change in Control Agreement (1.0X) and schedule of executive officers who have entered into such agreement10.5
    
    Form of Change in Control Agreement (1.5X) and schedule of executive officers who have entered into such agreement10.6
    
    Form of Amendment No. 1 to Change in Control Agreement and schedule of executive officers who have entered into such
agreement10.7
    
    Version One Amendment No. 2 to Change in Control Agreement and schedule of executive officers who have entered into
such agreement10.8
    
    Version Two Amendment No. 2 to Change in Control Agreement and schedule of executive officers who have entered into
such agreement11.1(e)
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    Certification of the Chief Executive Officer and acting 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 200232.1
    
    Certification of the Chief Executive Officer and acting 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 September 30, 1999.(d)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the Company.(e)
    
    The information required by this exhibit is included in note 5 to the consolidated financial statements.(b)
    
    Reports on Form 8-KOn May 1, 2003, the Registrants filed a Form 8-K including the Registrants investor presentation used in advance of
its annual shareholders meeting and during the proxy contest.On May 6, 2003, the Registrants filed a Form 8-K including the Registrants earnings release and supplemental
financial information package relating to the quarterly period ended March 31, 2003.On May 9, 2003, the Registrants filed a Form 8-K including a schedule of supplemental financial information used
internally to calculate net asset value.


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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

POST PROPERTIES, INCAugust 14, 2003
    
    /s/ David P. Stockert(Date)
    
    David P. Stockert
President and Chief Executive Officer
(acting Principal Financial Officer)August 14, 2003
    
    /s/ Arthur J. Quirk(Date)
    
    Arthur J. Quirk
Senior Vice President and Controller,
Chief Accounting Officer


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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

POST APARTMENT HOMES, L.P.By: Post GP Holdings, Inc., its sole General PartnerAugust 14, 2003
    
    /s/ David P. Stockert(Date)
    
    David P. Stockert
President and Chief Executive Officer
(acting Principal Financial Officer)August 14, 2003
    
    /s/ Arthur J. Quirk(Date)
    
    Arthur J. Quirk
Senior Vice President and Controller,
Chief Accounting Officer


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##### 



EXHIBIT INDEX

3.1(a)
    
    Articles of Incorporation of the Company.3.2(b)
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.3(b)
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.4(b)
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.5(c)
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.6(b)
    
    Bylaws of the Company (as Amended and Restated as of March 22, 2003)4.1(d)
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2(d)
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.10.1
    
    Employment Agreement with David P. Stockert, dated July 18, 200310.2
    
    Employment Agreement with Thomas Senkbeil, dated June 2, 200310.3
    
    Amendment No. 1 to Employment Agreement with Thomas Senkbeil, dated August 1, 200310.4
    
    Form of Change in Control Agreement (1.0X) and schedule of executive officers who have entered into such agreement10.5
    
    Form of Change in Control Agreement (1.5X) and schedule of executive officers who have entered into such agreement10.6
    
    Form of Amendment No. 1 to Change in Control Agreement and schedule of executive officers who have entered into such
agreement10.7
    
    Version One Amendment No. 2 to Change in Control Agreement and schedule of executive officers who have entered into
such agreement10.8
    
    Version Two Amendment No. 2 to Change in Control Agreement and schedule of executive officers who have entered into
such agreement11.1(e)
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    Certification of the Chief Executive Officer and acting 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 200232.1
    
    Certification of the Chief Executive Officer and acting 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 September 30, 1999.(d)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the Company.(e)
    
    The information required by this exhibit is included in note 5 to the consolidated financial statements.


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