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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 
 FORM 10-Q [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 OR [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the transition period from                    to Commission file numbers 1-12080 and 0-28226 
 POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.  Georgia
Georgia
(State or other jurisdiction
of incorporation or organization)
    
    58-1550675
58-2053632
(I.R.S. Employer
Identification No.)
 4401 Northside Parkway, Suite 800, Atlanta, Georgia 30327
(Address of principal executive offices  zip code) (404) 846-5000
(Registrants telephone number, including area code) Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Post
Properties, Inc.

Post Apartment Homes, L.P.
    
    Yes
Yes
    
    [X]
[X]
    
    No
No
    
    [   ]
[   ]
 Indicate by check mark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act). Post
Properties, Inc.

Post Apartment Homes, L.P.
    
    Yes
Yes
    
    [X]
[X]
    
    No
No
    
    [   ]
[   ]
   APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of
common stock as of the latest practicable date: 39,954,269 shares of common stock outstanding as of November 3, 2004.




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




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POST PROPERTIES, INC. 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
 September 30,
    
    December 31,2004
    
    2003(Unaudited)AssetsReal estate assets
Land
    
    $
    274,020
    
    
    $
    254,000Building and improvements
    
    
    1,949,257
    
    
    
    1,883,582Furniture, fixtures and equipment
    
    
    221,570
    
    
    
    214,002Construction in progress
    
    
    16,064
    
    
    
    12,946Land held for future development
    
    
    18,910
    
    
    
    11,9942,479,821
    
    
    
    2,376,524Less: accumulated depreciation
    
    
    (495,048
    )
    
    
    (432,157
    )Assets held for sale, net of accumulated depreciation of $7,836 and
$74,614 at September 30, 2004 and December 31, 2003 respectively
    
    
    11,496
    
    
    
    145,238Total real estate assets
    
    
    1,996,269
    
    
    
    2,089,605Investments in and advances to unconsolidated real estate entities
    
    
    21,794
    
    
    
    74,786Cash and cash equivalents
    
    
    3,002
    
    
    
    1,334Restricted cash
    
    
    1,727
    
    
    
    2,065Deferred charges, net
    
    
    10,658
    
    
    
    12,285Other assets
    
    
    37,334
    
    
    
    35,376Total assets
    
    $
    2,070,784
    
    
    $
    2,215,451Liabilities and shareholders equityNotes payable, including $14,760 and $119,085 of debt secured by assets
held for sale at September 30, 2004 and December 31, 2003, respectively
    
    $
    1,099,980
    
    
    $
    1,186,322Accrued interest payable
    
    
    12,152
    
    
    
    6,923Dividend and distribution payable
    
    
    19,091
    
    
    
    19,509Accounts payable and accrued expenses
    
    
    73,129
    
    
    
    65,872Security deposits and prepaid rents
    
    
    7,106
    
    
    
    7,890Total liabilities
    
    
    1,211,458
    
    
    
    1,286,516Minority interest of preferred unitholders in Operating Partnership
    
    
    
    
    
    
    70,000Minority interest of common unitholders in Operating Partnership
    
    
    45,207
    
    
    
    62,409Shareholders equityPreferred stock, $.01 par value, 20,000,000 authorized:8 1/2 % Series A Cumulative Redeemable Shares, liquidation preference
$50 per share, 900,000 shares issued and outstanding
    
    
    9
    
    
    
    97 5/8 % Series B Cumulative Redeemable Shares, liquidation preference
$25 per share, 2,000,000 shares issued and outstanding
    
    
    20
    
    
    
    207 5/8 % Series C Cumulative Redeemable Shares, liquidation preference
$25 per share, 0 and 2,000,000 shares issued and outstanding at
September 30, 2004 and
December 31, 2003, respectively
    
    
    
    
    
    
    20Common stock, $.01 par value, 100,000,000 authorized:39,925,460 and 39,676,204 shares issued, 39,922,487 and 38,686,315
shares outstanding at September 30, 2004 and December 31, 2003,
respectively
    
    
    399
    
    
    
    396Additional paid-in capital
    
    
    768,566
    
    
    
    849,632Accumulated earnings
    
    
    59,569
    
    
    
    Accumulated other comprehensive income (loss)
    
    
    (10,151
    )
    
    
    (12,362
    )Deferred compensation
    
    
    (4,207
    )
    
    
    (4,424
    )814,205
    
    
    
    833,291Less common stock in treasury, at cost, 2,973 and 989,889 shares
at September 30, 2004 and December 31, 2003, respectively
    
    
    (86
    )
    
    
    (36,765
    )Total shareholders equity
    
    
    814,119
    
    
    
    796,526Total liabilities and shareholders equity
    
    $
    2,070,784
    
    
    $
    2,215,451
 The accompanying notes are an integral part of these consolidated financial statements. -1-




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POST PROPERTIES, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003RevenuesRental
    
    $
    74,298
    
    
    $
    70,440
    
    
    $
    217,726
    
    
    $
    208,784Other property revenues
    
    
    4,680
    
    
    
    4,485
    
    
    
    13,365
    
    
    
    12,598Other
    
    
    814
    
    
    
    102
    
    
    
    936
    
    
    
    379Total revenues
    
    
    79,792
    
    
    
    75,027
    
    
    
    232,027
    
    
    
    221,761ExpensesProperty operating and maintenance (exclusive of items
shown separately below)
    
    
    36,054
    
    
    
    33,017
    
    
    
    102,659
    
    
    
    96,347Depreciation
    
    
    21,864
    
    
    
    21,553
    
    
    
    64,227
    
    
    
    62,096General and administrative
    
    
    6,017
    
    
    
    3,738
    
    
    
    16,136
    
    
    
    10,703Development costs and other
    
    
    283
    
    
    
    274
    
    
    
    1,200
    
    
    
    841Proxy contest and related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,231Severance charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,506Total expenses
    
    
    64,218
    
    
    
    58,582
    
    
    
    184,222
    
    
    
    196,724Operating Income
    
    
    15,574
    
    
    
    16,445
    
    
    
    47,805
    
    
    
    25,037Interest income
    
    
    247
    
    
    
    223
    
    
    
    639
    
    
    
    708Interest expense
    
    
    (17,299
    )
    
    
    (17,122
    )
    
    
    (50,306
    )
    
    
    (49,001
    )Amortization of deferred financing costs
    
    
    (1,066
    )
    
    
    (1,084
    )
    
    
    (3,273
    )
    
    
    (2,839
    )Equity in income of unconsolidated real estate entities
    
    
    420
    
    
    
    60
    
    
    
    843
    
    
    
    7,768Minority interest in consolidated property partnerships
    
    
    167
    
    
    
    677
    
    
    
    742
    
    
    
    1,359Minority interest of preferred unitholders
    
    
    (980
    )
    
    
    (1,400
    )
    
    
    (3,780
    )
    
    
    (4,200
    )Minority interest of common unitholders
    
    
    406
    
    
    
    457
    
    
    
    1,125
    
    
    
    3,160Loss from continuing operations
    
    
    (2,531
    )
    
    
    (1,744
    )
    
    
    (6,205
    )
    
    
    (18,008
    )Discontinued operationsIncome (loss) from discontinued operations,
net of minority interest
    
    
    738
    
    
    
    (74
    )
    
    
    6,742
    
    
    
    (6,583
    )Loss on early extinguishment of indebtedness associated
with property sales, net of minority interest
    
    
    
    
    
    
    
    
    
    
    (3,849
    )
    
    
    Gains on property sales, net of minority interest
    
    
    
    
    
    
    166
    
    
    
    106,039
    
    
    
    30,043Income from discontinued operations
    
    
    738
    
    
    
    92
    
    
    
    108,932
    
    
    
    23,460Net income (loss)
    
    
    (1,793
    )
    
    
    (1,652
    )
    
    
    102,727
    
    
    
    5,452Dividends to preferred shareholders
    
    
    (1,909
    )
    
    
    (2,862
    )
    
    
    (6,416
    )
    
    
    (8,587
    )Redemption costs on preferred stock and units
    
    
    (1,810
    )
    
    
    
    
    
    
    (3,526
    )
    
    
    Net income (loss) available to common shareholders
    
    $
    (5,512
    )
    
    $
    (4,514
    )
    
    $
    92,785
    
    
    $
    (3,135
    )Per common share data  BasicLoss from continuing operations (net of preferred dividends
and redemption costs)
    
    $
    (0.16
    )
    
    $
    (0.12
    )
    
    $
    (0.41
    )
    
    $
    (0.71
    )Income from discontinued operations
    
    
    0.02
    
    
    
    
    
    
    
    2.75
    
    
    
    0.63Net income (loss) available to common shareholders
    
    $
    (0.14
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.08
    )Dividends declared
    
    $
    0.45
    
    
    $
    0.45
    
    
    $
    1.35
    
    
    $
    1.35Weighted average common shares outstanding  basic
    
    
    39,892
    
    
    
    37,841
    
    
    
    39,694
    
    
    
    37,523Per common share data  DilutedLoss from continuing operations (net of preferred dividends
and redemption costs)
    
    $
    (0.16
    )
    
    $
    (0.12
    )
    
    $
    (0.41
    )
    
    $
    (0.71
    )Income from discontinued operations
    
    
    0.02
    
    
    
    
    
    
    
    2.75
    
    
    
    0.63Net income (loss) available to common shareholders
    
    $
    (0.14
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.08
    )Dividends declared
    
    $
    0.45
    
    
    $
    0.45
    
    
    $
    1.35
    
    
    $
    1.35Weighted average common shares outstanding  diluted
    
    
    39,892
    
    
    
    37,857
    
    
    
    39,694
    
    
    
    37,524
 The accompanying notes are an integral part of these consolidated financial statements. -2-




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POST PROPERTIES, INC. 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
ACCUMULATED EARNINGS
 (In thousands)
 AccumulatedAdditional
    
    
    
    
    
    OtherPreferred
    
    Common
    
    Paid-in
    
    Accumulated
    
    Comprehensive
    
    Deferred
    
    TreasuryStock
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Compensation
    
    Stock
    
    TotalShareholders Equity and Accumulated Earnings,
December 31, 2003
    
    $
    49
    
    
    $
    396
    
    
    $
    849,632
    
    
    $
    
    
    
    $
    (12,362
    )
    
    $
    (4,424
    )
    
    $
    (36,765
    )
    
    $
    796,526Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,727
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,727Net change in derivative value, net of
minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,211
    
    
    
    
    
    
    
    
    
    
    
    2,211Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,938Proceeds from employee stock purchase and
stock option plans
    
    
    
    
    
    
    3
    
    
    
    (672
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,260
    
    
    
    3,591Adjustment for minority interest of
unitholders in Operating Partnership upon
conversion of units into common shares and at
dates of capital transactions
    
    
    
    
    
    
    
    
    
    
    (13,642
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,890
    
    
    
    20,248Redemption of preferred stock
    
    
    (20
    )
    
    
    
    
    
    
    (49,980
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    441
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    441Restricted stock issuances, net of forfeitures.
    
    
    
    
    
    
    
    
    
    
    (201
    )
    
    
    
    
    
    
    
    
    
    
    (596
    )
    
    
    797
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    813
    
    
    
    
    
    
    
    813Treasury stock acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,268
    )
    
    
    (2,268
    )Dividends to preferred shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,416
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,416
    )Dividends to common shareholders
    
    
    
    
    
    
    
    
    
    
    (17,012
    )
    
    
    (36,742
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,754
    )Shareholders Equity and Accumulated Earnings,
September 30, 2004
    
    $
    29
    
    
    $
    399
    
    
    $
    768,566
    
    
    $
    59,569
    
    
    $
    (10,151
    )
    
    $
    (4,207
    )
    
    $
    (86
    )
    
    $
    814,119
 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)
 Nine months endedSeptember 30,2004
    
    2003Cash Flows From Operating ActivitiesNet income
    
    $
    102,727
    
    
    $
    5,452Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    64,227
    
    
    
    68,372Amortization of deferred financing costs
    
    
    3,273
    
    
    
    2,839Minority interest of preferred unitholders in Operating Partnership
    
    
    3,780
    
    
    
    4,200Minority interest of common unitholders in Operating Partnership
    
    
    (1,125
    )
    
    
    (3,160
    )Minority interest in discontinued operations
    
    
    7,584
    
    
    
    2,783Gains on properties sold  discontinued operations
    
    
    (113,739
    )
    
    
    (33,690
    )Asset impairment charge
    
    
    626
    
    
    
    17,462Equity in income of unconsolidated entities
    
    
    (734
    )
    
    
    (7,768
    )Stock-based compensation
    
    
    1,280
    
    
    
    179Loss on early extinguishment of indebtedness
    
    
    4,128
    
    
    
    Changes in assets, (increase) decrease in:Restricted cash
    
    
    338
    
    
    
    (655
    )Other assets
    
    
    (706
    )
    
    
    4,046Deferred charges
    
    
    (304
    )
    
    
    (1,820
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    5,229
    
    
    
    7,426Accounts payable and accrued expenses
    
    
    6,622
    
    
    
    22,742Security deposits and prepaid rents
    
    
    (784
    )
    
    
    (75
    )Net cash provided by operating activities
    
    
    82,422
    
    
    
    88,333Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (38,002
    )
    
    
    (22,247
    )Net proceeds from property sales
    
    
    138,637
    
    
    
    99,858Capitalized interest
    
    
    (787
    )
    
    
    (3,338
    )Recurring capital expenditures
    
    
    (7,613
    )
    
    
    (6,982
    )Corporate additions and improvements
    
    
    (553
    )
    
    
    (521
    )Non-recurring capital expenditures
    
    
    (3,604
    )
    
    
    (3,231
    )Revenue generating capital expenditures
    
    
    (26
    )
    
    
    (837
    )Distributions and repayment of advances received from unconsolidated entities
    
    
    53,582
    
    
    
    88,935Net cash provided by investing activities
    
    
    141,634
    
    
    
    151,637Cash Flows From Financing ActivitiesProceeds from notes payable
    
    
    35,000
    
    
    
    Payments on notes payable
    
    
    (26,704
    )
    
    
    (3,207
    )Payments of financing costs
    
    
    (4,262
    )
    
    
    Lines of credit proceeds (repayments), net
    
    
    (39,809
    )
    
    
    (156,068
    )Redemption of preferred stock
    
    
    (50,000
    )
    
    
    Redemption of preferred units
    
    
    (70,000
    )
    
    
    Treasury stock purchases
    
    
    (2,268
    )
    
    
    Proceeds from employee stock purchase and stock option plans
    
    
    3,591
    
    
    
    576Distributions to preferred unitholders
    
    
    (4,246
    )
    
    
    (4,200
    )Distributions to common unitholders
    
    
    (4,094
    )
    
    
    (7,890
    )Dividends paid to preferred shareholders
    
    
    (6,416
    )
    
    
    (8,587
    )Dividends paid to common shareholders
    
    
    (53,180
    )
    
    
    (62,769
    )Net cash used in financing activities
    
    
    (222,388
    )
    
    
    (242,145
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,668
    
    
    
    (2,175
    )Cash and cash equivalents, beginning of period
    
    
    1,334
    
    
    
    6,390Cash and cash equivalents, end of period
    
    $
    3,002
    
    
    $
    4,215
 The accompanying notes are an integral part of these consolidated financial statements. -4-




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##### Table of Contents



POST PROPERTIES, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   1.
    
    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIESOrganizationPost Properties, Inc. and its subsidiaries develop, own and manage upscale
multifamily apartment communities in selected markets in the United States.
As used herein, the term Company includes Post Properties, Inc. and its
subsidiaries, including Post Apartment Homes, L.P. (the Operating
Partnership), unless the context indicates otherwise. The Company, through
its wholly-owned subsidiaries, is the general partner and owns a majority
interest in the Operating Partnership which, through its subsidiaries,
conducts substantially all of the on-going operations of the Company. At
September 30, 2004, the Company owned 24,700 apartment units in 65 apartment
communities, including 666 apartment units in three apartment communities
held in unconsolidated entities. At September 30, 2004, approximately 51.6%,
17.6%, 9.0% and 8.0% (on a unit basis) of the Companys communities were
located in the Atlanta, Dallas, Tampa and greater Washington, D.C.
metropolitan areas, respectively.The Company has elected to qualify and operate as a self-administrated and
self-managed real estate investment trust (REIT) for federal income tax
purposes. A REIT is a legal entity which holds real estate interests and
through payments of dividends to shareholders, in practical effect, is not
subject to federal income taxes at the corporate level.As of September 30, 2004, the Company had outstanding 39,922 shares of common
stock and owned the same number of units of common limited partnership
interests (Common Units) in the Operating Partnership, representing 94.1%
ownership interest in the Operating Partnership. Common Units held by persons
other than the Company totaled 2,501 as of September 30, 2004 and represented
a 5.9% common minority interest in the Operating Partnership. Each Common
Unit may be redeemed by the holder thereof for either one share of Company
common stock or cash equal to the fair market value thereof at the time of
redemption, at the option of the Company. The Companys weighted average
common ownership interest in the Operating Partnership was 94.0% and 89.7%
for the three months and 93.5% and 89.1% for the nine months ended September
30, 2004 and 2003, respectively.Basis of PresentationThe accompanying unaudited financial statements have been prepared by the
Companys management in accordance with generally accepted accounting
principles for interim financial information and applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the three and nine month periods ended
September 30, 2004 are not necessarily indicative of the results that may be
expected for the full year. These financial statements should be read in
conjunction with the Companys audited financial statements and notes thereto
included in its Annual Report on Form 10-K for the year ended December 31,
2003. Certain 2003 amounts have been reclassified to conform to the current
years financial statement presentation.Revenue RecognitionResidential properties are leased under operating leases with terms of
generally one year or less. Rental revenues from residential leases are
recognized on the straight-line method over the approximate life of the
leases, which is generally one year. The recognition of rental revenues from
residential leases when earned has historically not been materially different
from rental revenues recognized on a straight-line basis.Under the terms of residential leases, the residents of the Companys
residential communities are obligated to reimburse the Company for certain
utility usage, water and electricity (at selected properties), where the
Company is the primary obligor to the public utility entity. These utility
reimbursements from residents are reflected as other property revenues in the
consolidated statements of operations. -5-




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##### Table of Contents



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  Apartment Community AcquisitionsIn accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, the aggregate purchase
price of apartment community acquisitions is allocated to the tangible
assets, intangible assets and liabilities (including mortgage indebtedness)
acquired in each transaction, based on their estimated fair values at the
acquisition date. The acquired tangible assets, principally land, building
and improvements and furniture, fixtures and equipment, are reflected in real
estate assets and depreciated over their estimated useful lives. The
acquired intangible assets, principally above/below market leases, in-place
leases and resident relationships, are reflected in other assets and
amortized over the average remaining lease terms of the acquired leases and
resident relationships (generally 6 months to 18 months).Stock-based CompensationEffective January 1, 2003, the Company accounts for stock-based compensation
under the fair value method prescribed by SFAS No. 123, Accounting for
Stock-Based Compensation. In adopting SFAS No. 123, the Company used the
prospective method prescribed in SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. In periods prior to January 1,
2003, the Company accounted for stock-based compensation under the intrinsic
value method prescribed by Accounting Principles Board (APB) Opinion 25,
Accounting for Stock Issued to Employees.The following table reflects the effect on the Companys net income and
earnings per common share had the fair value method of accounting under SFAS
No. 123 been applied to all stock awards for each period. Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net income (loss) available to common shareholdersAs reported
    
    $
    (5,512
    )
    
    $
    (4,514
    )
    
    $
    92,785
    
    
    $
    (3,135
    )Stock-based compensation included in net
income as reported, net of minority interest
    
    
    392
    
    
    
    222
    
    
    
    1,197
    
    
    
    663Stock-based compensation determined under the
fair value method for all awards, net of
minority interest
    
    
    (407
    )
    
    
    (249
    )
    
    
    (1,246
    )
    
    
    (766
    )Pro forma
    
    $
    (5,527
    )
    
    $
    (4,541
    )
    
    $
    92,736
    
    
    $
    (3,238
    )Net income (loss) per common share  basicAs reported
    
    $
    (0.14
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.08
    )Pro forma
    
    $
    (0.14
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.09
    )Net income (loss) per common share  dilutedAs reported
    
    $
    (0.14
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.08
    )Pro forma
    
    $
    (0.14
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.09
    )
 -6-




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##### Table of Contents



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  2.
    
    INDEBTEDNESSAt September 30, 2004 and December 31, 2003, the Companys indebtedness
consisted of the following: Payment
    
    
    
    
    
    Maturity
    
    September 30,
    
    December 31,Description
    
    Terms
    
    Interest Rate
    
    Date
    
    2004
    
    2003Unsecured NotesSenior Notes
    
    Int.
    
    
    6.11% - 7.70
    %
    
    
    2006-2010
    
    
    $
    285,000
    
    
    $
    285,000Medium Term Notes
    
    Int.
    
    
    6.78% - 8.12
    % (1)
    
    
    2004-2015
    
    
    
    300,000
    
    
    
    323,000585,000
    
    
    
    608,000Unsecured Lines of Credit & OtherSyndicated Line of Credit
    
    
    N/A
    
    
    
    LIBOR + 0.90
    % (2)
    
    2007
    
    
    
    18,000
    
    
    
    60,000Cash Management Line
    
    
    N/A
    
    
    
    LIBOR + 0.90
    %
    
    
    2007
    
    
    
    14,201
    
    
    
    12,01032,201
    
    
    
    72,010Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int.
    
    
    6.975
    % (3)
    
    
    2029
    
    
    
    98,500
    
    
    
    99,800Other
    
    Prin. and Int.
    
    
    4.27% - 7.69
    %
    
    
    2007-2013
    
    
    
    274,224
    
    
    
    192,132372,724
    
    
    
    291,932Tax Exempt Floating Rate
Bonds (Secured)
    
    Int.
    
    
    1.69
    % (4)
    
    
    2025
    
    
    
    110,055
    
    
    
    214,380Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,099,980
    
    
    $
    1,186,322
  (1)
    
    Includes $100,000 of Mandatory Par Put Remarketed Securities
(MOPPRS). The annual interest rate on these securities to March
2005 is 6.85%. The MOPPRS mature in March 2015, but are subject to
mandatory tender for remarketing in March 2005. In March 2005, if the
remarketing dealer elects not to remarket the MOPPRS, the Company is
required to redeem the MOPPRS at par. If the remarketing dealer
elects to remarket the securities in March 2005, the interest rate on
the MOPPRS will be established at a rate of 5.715% plus the Companys
applicable credit spread for the Companys securities with similar
maturities. The MOPPRS may be redeemed, at the Companys option,
immediately prior to their remarketing in March 2005 at an optional
redemption price equal to the outstanding principal balance plus a
prepayment penalty (generally equivalent to the make-whole amount
necessary to compensate for the amount by which the base rate of
5.715% exceeds the then-existing 10-year treasury rate).(2)
    
    Represents stated rate.(3)
    
    Interest rate is fixed at 6.975%, inclusive of credit enhancement
and other fees, to 2009 through an interest rate swap arrangement.(4)
    
    FNMA credit enhanced bond indebtedness. Interest based on FNMA
AAA tax exempt rate plus credit enhancement and other fees of
0.639%. Interest rate represents the rate at September 30, 2004
before credit enhancements. The Company has outstanding interest rate
cap arrangements that limit the Companys exposure to increases in the
base interest rate to 5%. At September 30, 2004 and December 31,
2003, approximately $14,760 and $119,085, respectively, of this debt
was secured by assets held for sale.  Debt maturitiesThe aggregate maturities of the Companys indebtedness are as follows: Remainder of 2004
    
    $
    1,2162005
    
    
    205,933
    (1)2006
    
    
    81,3362007
    
    
    157,6772008
    
    
    4,014Thereafter
    
    
    617,603
    (1)$
    1,067,779
    (2)
  (1)
    
    Aggregate debt maturities for
years ended in 2009 and thereafter include
$100,000 of Mandatory Par Put Remarketed
Securities (MOPPRS). The MOPPRS mature in
March 2015, but are subject to mandatory
tender for remarketing in March 2005. In
March 2005, if the remarketing dealer elects
not to remarket the MOPPRS, the Company is
required to redeem the MOPPRS at par. If the
remarketing dealer elects to remarket the
securities in March 2005, the interest rate on
the MOPPRS will be established at a rate of
5.715% plus the Companys applicable credit
spread for Company securities with similar
maturities. The MOPPRS may be redeemed, at
the Companys option, immediately prior to
their remarketing in March 2005 at an optional
redemption price equal to the outstanding
principal balance plus a prepayment penalty.(2)
    
    Excludes outstanding balances
on lines of credit.  Debt issuances and retirementsUpon their maturity in September 2004, the Company repaid $10,000 of its
6.69% medium term, unsecured notes, from available borrowings under its
unsecured lines of credit.In October 2004, the Company purchased and retired $87,957 of the Companys
8.125% medium term, unsecured notes through a tender offer using available
borrowings under its unsecured lines of credit. Subsequent to the debt
retirement, $62,043 of 8.125% medium term notes remain outstanding with a
maturity in June 2005. The Company expects to record in the fourth quarter
of 2004 a loss on the early extinguishment of this indebtedness of
approximately $4,000 representing the debt repurchase premiums, the expenses
of the tender offer and the write-off of the deferred loan costs associated
with the retired indebtedness. In addition in October 2004, the company
issued $100,000 of senior unsecured notes. The notes bear interest at 5.125%
and mature in October -7-




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##### Table of Contents



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  2011. The net proceeds from the unsecured notes were used to reduce amounts
outstanding under the Companys unsecured lines of credit.In conjunction with an apartment community acquisition (see note 4) in June
2004, the Company assumed a secured, fixed rate mortgage note payable. The
mortgage note was valued at $49,496 yielding an effective interest rate of
4.7%. The mortgage note bears interest at a coupon rate of 6.8%, requires
monthly principal and interest payments and matures in 2007.In June 2004, the Company sold certain apartment communities subject to the
assumption of $104,325 of tax exempt mortgage indebtedness (see note 4). As
a result of this debt assumption, the Company recorded a loss on early
extinguishment of debt of $4,128 ($3,849 net of minority interest) related to
the write-off of deferred loan costs of $3,187 ($2,972 net of minority
interest) relating to such assumed indebtedness and the realization of a $941
($877 net of minority interest) loss in connection with the termination of
related interest rate cap agreements that were used as cash flow hedges of
the assumed debt.Upon their maturity in April 2004, the Company repaid $13,000 of its 7.30%
medium term, unsecured notes, using its available cash balances and
borrowings under its unsecured lines of credit.In March 2004, the Company closed a $35,000 secured, fixed rate mortgage note
payable obtained by a consolidated real estate entity. The note bears
interest at 4.27%, requires monthly interest only payments through March 2007
and monthly principal and interest payments based on a 30-year amortization
schedule from April 2007 through the note maturity date in March 2009.Unsecured Lines of CreditIn January 2004, the Company refinanced its previous revolving line of credit
with a new $350,000 three-year unsecured revolving line of credit (the
Revolver) that matures in January 2007. The Revolver currently has a
stated interest rate of LIBOR plus 0.90% or the prime rate and was provided
by a syndicate of nine banks led by Wachovia Bank, N.A. Additionally, the
Revolver requires the payment of annual facility fees equal to 0.20% of the
aggregate loan commitment. The Revolver provides for the interest rate and
facility fee rate to be adjusted up or down based on changes in the credit
ratings on the Companys senior unsecured debt. The rates under the Revolver
are based on the lower of the Companys unsecured debt ratings in instances
where the Company has split unsecured debt ratings. The Revolver also
includes a money market competitive bid option for short-term funds up to
$175,000 at rates generally below the stated line rate. The credit agreement
for the Revolver contains customary representations, covenants and events of
default, including fixed charge coverage and maximum leverage ratios as well
as covenants which restrict the ability of the Operating Partnership to make
distributions, in excess of stated amounts, which in turn restrict the
discretion of the Company to declare and pay dividends. In general, during
any fiscal year the Operating Partnership may only distribute up to 100% of
the Operating Partnerships consolidated income available for distribution
(as defined in the credit agreement) exclusive of distributions of up to
$15,000 of capital gains for such year. The credit agreement contains
exceptions to these limitations to allow the Operating Partnership to make
distributions necessary to allow the Company to maintain its status as a
REIT. The Company does not anticipate that these ratios and covenants will
adversely affect the ability of the Operating Partnership to borrow money or
make distributions, or the Company to declare dividends, at the Companys
current dividend level. At September 30, 2004, the Company had issued
letters of credit to third parties totaling $1,828 under this facility.Additionally, the Company has a $20,000 unsecured line of credit with
Wachovia Bank, N.A. (the Cash Management Line), which was scheduled to
mature on April 30, 2004. In April 2004, the Company renewed this line of
credit with maturity, pricing and terms, including debt covenants,
substantially consistent with those of the Revolver. The Cash Management
line currently has a stated interest rate of LIBOR plus 0.90% mirroring the
pricing structure of the Revolver and requires the payment of an annual
facility fee equal to 0.125% of the average annual unused portion of the loan
commitment.3.
    
    INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIESAt September 30, 2004, the Company held investments in three individual
limited liability companies (the Property LLCs) with an institutional
investor. Each Property LLC owns a newly developed apartment community. At
September 30, 2004, each of the apartment communities had achieved stabilized
occupancy. The Company holds a 35% equity interest in the Property LLCs.
The initial development costs of the apartment communities were funded
through member equity contributions proportionate to the members ownership
interests and through construction financing provided by the Company.The Company accounts for its investments in these Property LLCs using the
equity method of accounting. The excess of the Companys investment over its
equity in the underlying net assets of the Property LLCs was approximately
$6,618 at September -8-




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##### Table of Contents



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  30, 2004. This excess investment is being amortized as a reduction to
earnings on a straight-line basis over the lives of the related assets. The
Company provides real estate services (development, construction and property
management) to the Property LLCs for which it earns fees.The operating results of the Company include its proportionate share of net
income from the investments in the Property LLCs. A summary of financial
information for the Property LLCs in the aggregate is as follows: September 30,
    
    December 31,Balance Sheet Data
    
    2004
    
    2003Real estate assets, net of accumulated depreciation of
$8,757 and $5,939, respectively
    
    $
    124,899
    
    
    $
    127,513Cash and other
    
    
    3,284
    
    
    
    2,516Total assets
    
    $
    128,183
    
    
    $
    130,029Mortgage notes payable
    
    $
    83,543
    
    
    $
    33,763Construction notes payable to Company (1)
    
    
    
    
    
    
    53,769Other liabilities
    
    
    1,318
    
    
    
    1,742Total liabilities
    
    
    84,861
    
    
    
    89,274Members equity
    
    
    43,322
    
    
    
    40,755Total liabilities and members equity
    
    $
    128,183
    
    
    $
    130,029Companys equity investment
    
    $
    21,794
    
    
    $
    21,017Companys share of notes payable
    
    $
    29,240
    
    
    $
    30,636
  (1)
    
    All of the Companys construction financing to
these unconsolidated real estate entities is included
in the Companys outstanding debt and total assets.
At December 31, 2003, the venture partners share of
the construction loans was $34,950. All construction
financing previously provided by the Company was
refinanced with permanent loans from unaffiliated
entities in early 2004. Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,Income Statement Data
    
    2004
    
    2003
    
    2004
    
    2003RevenueRental
    
    $
    3,385
    
    
    $
    2,638
    
    
    $
    9,924
    
    
    $
    6,434Other
    
    
    252
    
    
    
    130
    
    
    
    722
    
    
    
    357Total revenues
    
    
    3,637
    
    
    
    2,768
    
    
    
    10,646
    
    
    
    6,791ExpensesProperty operating and maintenance
    
    
    1,116
    
    
    
    866
    
    
    
    3,560
    
    
    
    3,301Depreciation and amortization
    
    
    972
    
    
    
    954
    
    
    
    2,892
    
    
    
    2,798Interest
    
    
    865
    
    
    
    777
    
    
    
    2,505
    
    
    
    2,296Total expenses
    
    
    2,953
    
    
    
    2,597
    
    
    
    8,957
    
    
    
    8,395Income (loss) from continuing operations
    
    
    684
    
    
    
    171
    
    
    
    1,689
    
    
    
    (1,604
    )Discontinued OperationsLoss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (188
    )Gain on property sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,179Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,991Net income
    
    $
    684
    
    
    $
    171
    
    
    $
    1,689
    
    
    $
    24,387Companys share of net income
    
    $
    420
    
    
    $
    60
    
    
    $
    843
    
    
    $
    7,768
  The income from discontinued operations represents the operating results and
the gain on sale of an apartment community (held by a fourth Property LLC)
that was sold in June 2003.At September 30, 2004, mortgage notes payable include a $50,000 mortgage note
that bears interest at 4.13%, requires monthly interest payments and annual
principal payment of $1 through 2009. Thereafter, the note requires monthly
principal and interest payments based on a 25-year amortization schedule and
matures in April 2034. The note is callable by the lender in May 2009 and on
each successive fifth year anniversary of the note thereafter. The note is
prepayable without penalty in May 2008. The additional mortgage notes
payable bear interest at rates ranging from 4.04% to 4.28% and mature in
2008. -9-




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##### Table of Contents



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  4.
    
    REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITYAcquisition ActivityIn June 2004, the Company acquired a 499-unit apartment community located in
suburban Washington, D.C. for approximately $85,814, including the assumption
of mortgage indebtedness and closing costs. Additionally, the Company plans
to spend up to approximately $2,000 to improve the community. The assumed
mortgage note payable was valued at $49,496 yielding an effective interest
rate of 4.7%. The mortgage note bears interest at a coupon rate of
6.8%,
requires monthly principal and interest payments and matures in 2007.The purchase price of this community was allocated to the assets acquired and
the liabilities assumed based on estimated fair values.Disposition Activity

The Company classifies real estate assets as held for sale after the approval
of its internal strategic planning and investment committee and after the
Company has commenced an active program to sell the assets. At September 30,
2004, the Company had one apartment community, containing 460 units, and
certain tracts of land classified as held for sale. These real estate assets
are reflected in the accompanying consolidated balance sheet at $11,496,
which represents the lower of depreciated cost or fair value less costs to
sell.Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the operating results of real estate assets designated as held for
sale are included in discontinued operations in the consolidated statement of
operations for all periods presented. Additionally, all subsequent gains or
additional losses on the sale of these assets are included in discontinued
operations.For the three and nine months ended September 30, 2004, income from
discontinued operations included the results of operations of one community,
containing 460 units, classified as held for sale at September 30, 2004 and
the results of operations of eight communities sold in 2004 through their
sale dates. For the three and nine months ended September 30, 2003, income
from discontinued operations included the results of operations of the
community classified as held for sale at September 30, 2004, the eight
communities sold in 2004 and the results of operations of four communities
sold in 2003 through the earlier of September 30, 2003 or their sale dates.The revenues and expenses of these communities for the three and nine months
ended September 30, 2004 and 2003 were as follows: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003RevenuesRental
    
    $
    830
    
    
    $
    9,918
    
    
    $
    15,529
    
    
    $
    32,838Other
    
    
    83
    
    
    
    820
    
    
    
    1,446
    
    
    
    2,505Total revenues
    
    
    913
    
    
    
    10,738
    
    
    
    16,975
    
    
    
    35,343ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    374
    
    
    
    4,505
    
    
    
    7,678
    
    
    
    14,476Depreciation
    
    
    
    
    
    
    1,610
    
    
    
    
    
    
    
    6,277Interest
    
    
    74
    
    
    
    1,361
    
    
    
    1,766
    
    
    
    4,575Asset impairment charge
    
    
    
    
    
    
    3,344
    
    
    
    626
    
    
    
    17,462Total expenses
    
    
    448
    
    
    
    10,820
    
    
    
    10,070
    
    
    
    42,790Income (loss) from discontinued operations
before minority interest
    
    
    465
    
    
    
    (82
    )
    
    
    6,905
    
    
    
    (7,447
    )Minority interest
    
    
    273
    
    
    
    8
    
    
    
    (163
    )
    
    
    864Income (loss) from discontinued operations
    
    $
    738
    
    
    $
    (74
    )
    
    $
    6,742
    
    
    $
    (6,583
    )
  In the second quarter of 2004, the Company recorded an asset impairment loss
of $626 to write-down the cost of an apartment community, located in Dallas,
Texas, to its realized value. In the third quarter of 2003, the Company
recorded a $3,344 asset impairment charge to write-down this asset to its
estimated fair value at the date the asset was classified as held for sale.
In the first quarter of 2003, the Company recorded an asset impairment charge
of $14,118 to write-down the cost of the Companys apartment community
located in Phoenix, Arizona to its estimated fair value. This impairment
loss, originally reflected in continuing operations, was reclassified to
discontinued operations to reflect the designation of this community as held
for sale during the third quarter of 2003 and the final sale of the community
in the fourth quarter of 2003. -10-




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##### Table of Contents



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  For the nine months ended September 30, 2004, the Company recognized net
gains from discontinued operations of $113,739 ($106,039 net of minority
interest) from the sale of eight communities containing 3,880 units and
certain land parcels. These sales generated net proceeds of approximately
$242,962, including debt assumed by the purchasers of $104,325.For the three months ended September 30, 2003, the company recognized net
gains from discontinued operations of $185 ($166 net of minority interest)
from the sale of land. For the nine months ended September 30, 2003, the
company recognized net gains from discontinued operations of $33,690 ($30,043
net of minority interest) on the sale of two communities, containing 1,009
units, and certain land parcels. These sales generated net proceeds of
$99,858.5.
    
    SHAREHOLDERS EQUITY / MINORITY INTERESTPreferred UnitsOn September 3, 2004, the Operating Partnership redeemed its 8% Series D
cumulative redeemable preferred units (Series D Preferred Units) for $25.00
per unit (an aggregate of $70,000), plus accrued and unpaid dividends through
September 3, 2004. In connection with the issuance of the Series D Preferred
Units in 1998, the Operating Partnership incurred $1,810 in issuance costs
and recorded such costs as a reduction of partners equity. The redemption
price of the Series D Preferred Units exceeded the related carrying value by
the $1,810 of issuance costs. In connection with the redemption, in
accordance with generally accepted accounting principles, the Company
reflected the $1,810 of issuance costs as a reduction of earnings in arriving
at net income available to common shareholders for the three and nine months
ended September 30, 2004.Preferred StockOn March 5, 2004, the Company redeemed its 7 5/8% Series C cumulative
redeemable preferred stock (Series C Preferred Stock) for $25.00 per share
(an aggregate of $50,000), plus accrued and unpaid dividends through March 5,
2004. In connection with the issuance of the Series C Preferred Stock in
1999, the Company incurred $1,716 in issuance costs and recorded such costs
as a reduction of shareholders equity. The redemption price of the Series C
Preferred Stock exceeded the related carrying value by the $1,716 of issuance
costs. In connection with the redemption, in accordance with generally
accepted accounting principles, the Company reflected the $1,716 of issuance
costs as a reduction of earnings in arriving at net income available to
common shareholders for the nine months ended September 30, 2004.Computation of Earnings Per Common ShareFor the three and nine months ended September 30, 2004 and 2003, a
reconciliation of the numerator and denominator used in the computation of
basic and diluted income from continuing operations per common share is as
follows: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Loss from continuing operations available to common shareholders
(numerator):Loss from continuing operations
    
    $
    (2,531
    )
    
    $
    (1,744
    )
    
    $
    (6,205
    )
    
    $
    (18,008
    )Less: Preferred stock dividends
    
    
    (1,909
    )
    
    
    (2,862
    )
    
    
    (6,416
    )
    
    
    (8,587
    )Less: Preferred stock and unit redemption costs
    
    
    (1,810
    )
    
    
    
    
    
    
    (3,526
    )
    
    
    Loss from continuing operations available to common shareholders
    
    $
    (6,250
    )
    
    $
    (4,606
    )
    
    $
    (16,147
    )
    
    $
    (26,595
    )Common shares (denominator):Weighted average shares outstanding  basic
    
    
    39,892
    
    
    
    37,841
    
    
    
    39,694
    
    
    
    37,523Incremental shares from assumed conversion of stock options (1)
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    1Weighted average shares outstanding  diluted (1)
    
    
    39,892
    
    
    
    37,857
    
    
    
    39,694
    
    
    
    37,524
  1)
    
    For the three and nine months ended September 30,
2004, the potential dilution from the Companys outstanding
stock options of 98 and 67 shares, respectively, was
antidilutive to the loss from continuing operations per share
calculation. As such, the amounts were excluded from
weighted average shares for the period.  At September 30, 2004 and 2003, stock options to purchase 4,753 and 5,183
shares of common stock, respectively, were excluded from the computation of
diluted earnings per common share as these stock options were antidilutive. -11-




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POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  6.
    
    DERIVATIVE FINANCIAL INSTRUMENTSAt September 30, 2004 and 2003, the Company had outstanding interest rate
swap agreements with a notional value of $129,000 with maturity dates ranging
from 2005 to 2009. The interest rate swap agreements are included on the
accompanying consolidated balance sheet at fair value. The Company records
the changes in the fair value of these cash flow hedges as changes in
accumulated other comprehensive income (loss), a shareholders equity
account, in the accompanying consolidated balance sheet.At September 30, 2004, the Company had outstanding interest rate cap
agreements with two financial institutions with a notional value of $110,055.
These interest rate cap agreements are cash flow hedges that provide a fixed
interest ceiling at 5% for the Companys variable rate, tax exempt
borrowings. The Company is required to maintain the interest rate exposure
protection under the terms of the financing arrangements. The interest rate
cap arrangements are included on the accompanying balance sheet at fair
value. At September 30, 2004, the difference between the amortized costs of
the interest rate cap arrangements and their fair value of $180 is included
in accumulated other comprehensive income (loss), a shareholders equity
account. The original cost of $1,396 of the arrangements is being amortized
as additional expense over their five-year term.A summary of comprehensive income (loss) for the three and nine months ended
September 30, 2004 and 2003 is as follows: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net income (loss)
    
    $
    (1,793
    )
    
    $
    (1,652
    )
    
    $
    102,727
    
    
    $
    5,452Change in derivative values
    
    
    (1,472
    )
    
    
    3,297
    
    
    
    2,211
    
    
    
    525Comprehensive income (loss)
    
    $
    (3,265
    )
    
    $
    1,645
    
    
    $
    104,938
    
    
    $
    5,977
  In June 2004, in connection with the sale of five properties discussed in
note 4 above, the Company sold its interest in interest rate cap agreements
with a notional value of $104,325 for aggregate proceeds of $379 and realized
a loss of $941 ($877 net of minority interest) that was included in the loss
on early extinguishment of indebtedness on the accompanying statement of
operations. The unrealized loss on these interest rate cap agreements was
previously reflected in accumulated other comprehensive income (loss), a
shareholders equity account. These interest rate cap agreements were sold
as the underlying hedged indebtedness was assumed by the purchaser in
connection with the sale of the related assets.7.
    
    SEGMENT INFORMATIONSegment DescriptionIn accordance with SFAS No. 131, Disclosure About the Segments of an
Enterprise and Related Information, the Company presents segment information
based on the way that management organizes the segments within the enterprise
for making operating decisions and assessing performance. The segment
information is prepared on substantially the same basis as the internally
reported information used by the Companys chief operating decision makers to
manage the business.The Companys chief operating decision makers focus on the Companys primary
sources of income from apartment community rental operations. Apartment
community rental operations are broken down into four segments based on the
various stages in the apartment community ownership lifecycle. These segments
are described below. All commercial properties and other ancillary service
and support operations are aggregated in the line item other in the
accompanying segment information. The segment information presented below
reflects the segment categories based on the lifecycle status of each
community as of January 1, 2004. The segment information for the three and
nine months ended September 30, 2003 has been adjusted due to the restatement
impact of reclassifying the operating results of the assets designated as
held for sale in 2003 to discontinued operations under SFAS No. 144 (see note
4).  
    
    Fully stabilized communities  those apartment communities which have
been stabilized (the earlier of the point at which a property reaches
95% occupancy or one year after completion of construction) for both the
current and prior year.  
    
    Communities stabilized during 2003  communities which reached
stabilized occupancy in the prior year.  
    
    Development and lease-up communities  those communities that are in
lease-up but were not stabilized by the beginning of the current year,
including communities that stabilized during the current year. -12-




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##### Table of Contents



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  
    
    Acquired communities  those communities acquired in the current or
prior year.  Segment Performance MeasureManagement uses contribution to consolidated property net operating income
(NOI) as the performance measure for its operating segments. The Company
uses net operating income, including net operating income of stabilized
communities, as an operating measure. Net operating income is defined as
rental and other property revenue from real estate operations less total
property and maintenance expenses from real estate operations (excluding
depreciation and amortization). The Company believes that net operating
income is an important supplemental measure of operating performance for a
REITs operating real estate because it provides a measure of the core
operations, rather than factoring in depreciation and amortization, financing
costs and general and administrative expenses generally incurred at the
corporate level. This measure is particularly useful, in the opinion of the
Company, in evaluating the performance of geographic operations, operating
segment groupings and individual properties. Additionally, the Company
believes that net operating income, as defined, is a widely accepted measure
of comparative operating performance in the real estate investment community.
The Company believes that the line on the Companys consolidated statement
of operations entitled net income is the most directly comparable GAAP
measure to net operating income.Segment InformationThe following table reflects each segments contribution to consolidated
revenues and property NOI together with a reconciliation of segment
contribution to property NOI to net income (loss). 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
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003RevenuesFully stabilized communities
    
    $
    65,762
    
    
    $
    65,452
    
    
    $
    195,745
    
    
    $
    194,999Communities stabilized during 2003
    
    
    3,985
    
    
    
    3,688
    
    
    
    11,817
    
    
    
    10,846Development and lease-up communities
    
    
    1,718
    
    
    
    634
    
    
    
    5,303
    
    
    
    887Acquired communities
    
    
    2,155
    
    
    
    
    
    
    
    2,360
    
    
    
    Other property segments
    
    
    5,358
    
    
    
    5,151
    
    
    
    15,866
    
    
    
    14,650Other
    
    
    814
    
    
    
    102
    
    
    
    936
    
    
    
    379Consolidated revenues
    
    $
    79,792
    
    
    $
    75,027
    
    
    $
    232,027
    
    
    $
    221,761Contribution to NOIFully stabilized communities
    
    $
    39,715
    
    
    $
    40,041
    
    
    $
    118,849
    
    
    $
    121,090Communities stabilized during 2003
    
    
    2,491
    
    
    
    2,183
    
    
    
    7,466
    
    
    
    6,399Development and lease-up communities
    
    
    1,168
    
    
    
    29
    
    
    
    3,773
    
    
    
    (459
    )Acquired communities
    
    
    1,544
    
    
    
    
    
    
    
    1,692
    
    
    
    Other
    
    
    (1,994
    )
    
    
    (345
    )
    
    
    (3,348
    )
    
    
    (1,995
    )Consolidated property net operating income
    
    
    42,924
    
    
    
    41,908
    
    
    
    128,432
    
    
    
    125,035Interest income
    
    
    247
    
    
    
    223
    
    
    
    639
    
    
    
    708Other revenue
    
    
    814
    
    
    
    102
    
    
    
    936
    
    
    
    379Minority interest in consolidated property partnerships
    
    
    167
    
    
    
    677
    
    
    
    742
    
    
    
    1,359Depreciation
    
    
    (21,864
    )
    
    
    (21,553
    )
    
    
    (64,227
    )
    
    
    (62,096
    )Interest expense
    
    
    (17,299
    )
    
    
    (17,122
    )
    
    
    (50,306
    )
    
    
    (49,001
    )Amortization
of deferred financing costs
    
    
    (1,066
    )
    
    
    (1,084
    )
    
    
    (3,273
    )
    
    
    (2,839
    )General and administrative
    
    
    (6,017
    )
    
    
    (3,738
    )
    
    
    (16,136
    )
    
    
    (10,703
    )Development costs and other
    
    
    (283
    )
    
    
    (274
    )
    
    
    (1,200
    )
    
    
    (841
    )Proxy contest and related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,231
    )Severance charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,506
    )Equity in income of unconsolidated real estate entities
    
    
    420
    
    
    
    60
    
    
    
    843
    
    
    
    7,768Minority interest of preferred unitholders
    
    
    (980
    )
    
    
    (1,400
    )
    
    
    (3,780
    )
    
    
    (4,200
    )Minority interest of common unitholders
    
    
    406
    
    
    
    457
    
    
    
    1,125
    
    
    
    3,160Loss from continuing operations
    
    
    (2,531
    )
    
    
    (1,744
    )
    
    
    (6,205
    )
    
    
    (18,008
    )Income from discontinued operations
    
    
    738
    
    
    
    92
    
    
    
    108,932
    
    
    
    23,460Net income (loss)
    
    $
    (1,793
    )
    
    $
    (1,652
    )
    
    $
    102,727
    
    
    $
    5,452
 -13-




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##### Table of Contents



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  8.
    
    SEVERANCE AND PROXY CONTEST CHARGESIn the second quarter of 2003, the Company recorded severance charges of
$1,795 relating to the departure of two executive officers. In the first
quarter of 2003, the Company recorded severance charges of $19,711 relating to the change in roles from executive to
non-executive status of the Companys former chairman and vice-chairman of
the board of directors. The severance charges represented the discounted
present value of the estimated payments to be made to the former chairman and
vice-chairman under their existing employment arrangements.In August 2004, the Company entered into a final settlement agreement with
its former chairman of the board of directors. Under the terms of the
agreement, the former chairmans employment and non-competition agreements
were terminated and the Company agreed to continue to provide the former
chairman certain payments and benefits through May 2013, the approximate
expiration date of the original employment agreement. Because the present
value of the estimated payments under the settlement agreement approximated
the Companys remaining accrued charge under the former employment agreement,
no additional charges were recorded as a result of the settlement.The following table summarizes the activity relating to aggregate severance
charges for the nine months ended September 30, 2004: Accrued severance charges, December 31, 2003
    
    $
    19,171Payments for period
    
    
    (2,333
    )Interest accretion
    
    
    753Accrued severance charges, September 30, 2004
    
    $
    17,591
  Substantially all of these remaining amounts will be paid over the remaining
terms of the former executives employment and settlement agreements (9 to 12
years).Proxy contest and related costs of $5,231 represent the legal, advisory and
other expenses associated with the solicitation of proxies from shareholders
resulting from the proxy contest initiated in April 2003 by the Companys
former chairman of the board of directors. Additionally, the $5,231 amount
included legal and resolution costs associated with the settlement of two
derivative and purported class action lawsuits filed against the Company
during the proxy contest. These lawsuits were settled in
October 2004 (see note 11).9.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONNon-cash investing and financing activities for the nine months ended
September 30, 2004 and 2003 were as follows:In June 2004, the Company acquired an apartment community for cash and the
assumption of mortgage indebtedness with an estimated fair value of $49,496.
Also, in June 2004, the Company sold certain apartment communities
subject to $104,325 of mortgage indebtedness assumed by the purchasers.
These transactions involving mortgage indebtedness were excluded from the
statement of cash flows as non-cash transactions (see note 4).During the nine months ended September 30, 2004, the Companys derivative
financial instruments (see note 6) increased in value causing a decrease in
accounts payable and accrued expenses and a corresponding increase in
shareholders equity of $2,211, net of minority interest. During the nine
months ended September 30, 2003, the Companys derivative financial
instruments increased in value causing an decrease in accounts payable and
accrued expenses and a corresponding increase in shareholders equity of
$525, net of minority interest.During the nine months ended September 30, 2004 and 2003, holders of 1,167
and 609 units, respectively, in the Operating Partnership exercised their
option to convert their units to shares of common stock of the Company on a
one-for-one basis. These conversions and adjustments for the impact of the
common stock issued under the Companys employee stock purchase and stock
option plans and other capital transactions result in adjustments to minority
interest. The net effect of the conversions and adjustments was a
reclassification decreasing minority interest and increasing shareholders
equity in the amounts of $20,248 and $11,199 for the nine months ended
September 30, 2004 and 2003, respectively.The Operating Partnership committed to distribute $19,090 and $18,999 for the
quarters ended September 30, 2004 and 2003, respectively. As a result, the
Company declared dividends of $17,965 and $17,100 for the quarters ended
September 30, 2004 and 2003, respectively. The remaining distributions from
the Operating Partnership in the amount of $1,125 and $1,899 for the -14-




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##### Table of Contents



POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)  quarters ended September 30, 2004 and 2003, respectively, are distributed to
minority interest unitholders in the Operating Partnership.10.
    
    STOCK-BASED COMPENSATION PLANDuring the nine months ended September 30, 2004, the Company granted
approximately 24 shares of restricted stock to Company officers and
directors, of which approximately 7 shares were granted to the Companys
non-executive Chairman of the Board. The restricted shares vest ratably over
three years. The total value of the restricted share grants of $677 for the
nine months, ended September 30, 2004 was initially reflected in
shareholders equity as additional paid in capital and as deferred
compensation, a contra shareholders equity account. No restricted shares
were granted to Company officers and directors in the three months ended
September 30, 2004. Such deferred compensation is amortized ratably into
compensation expense over the three year vesting period.Additionally, in the nine months ended September 30, 2004, the Company
granted stock options to purchase approximately 271 shares, respectively, of
Company common stock to Company officers and directors, of which 50 shares
were granted to the Companys non-executive Chairman of the Board. No stock
options were granted to Company officers and directors in the three months
ended September 30, 2004. As discussed in note 1, the Company expenses the
estimated costs of stock options over their three year vesting periods.11.
    
    LEGAL PROCEEDINGSOn May 13, 2004, an alleged Company shareholder filed a purported pro se
derivative and direct action in the Superior Court of Fulton County, Atlanta,
Georgia, against the Company, certain members of the Companys board of
directors, and certain of its executive officers. The case was removed to
the United States District Court for the Northern District of Georgia on May
21, 2004. The complaint alleges, among other things, breaches of fiduciary
duties, fraud, corporate waste, withholding certain documents from
shareholder inspection and certain securities laws claims. The complaint
requests various types of relief, such as injunctive relief and damages and
demands production of certain Company records. The Company believes the
allegations are wholly without merit and has moved to dismiss the litigation.On May 5, 2003, the Company received notice that a shareholder derivative and
purported class action lawsuit was filed against members of the board of
directors of the Company and the Company as a nominal defendant. This
complaint was filed in the Superior Court of Fulton County, Atlanta, Georgia
on May 2, 2003 and alleges various breaches of fiduciary duties by the board
of directors of the Company and seeks, among other relief, the disclosure of
certain information by the defendants. This complaint also seeks to compel
the defendants to undertake various actions to facilitate a sale of the
Company. On May 7, 2003, the plaintiff made a request for voluntary expedited
discovery. On May 13, 2003, the Company received notice that a shareholder
derivative and purported class action lawsuit was filed against certain
members of the board of directors of the Company and against the Company as a
nominal defendant. The complaint was filed in the Superior Court of Fulton
County, Atlanta, Georgia on May 12, 2003 and alleges breaches of fiduciary
duties, abuse of control and corporate waste by the defendants. The
plaintiff seeks monetary damages and, as appropriate, injunctive relief.
These lawsuits were settled, and in October 2004, the Superior Court of
Fulton County entered an order approving the settlement. The estimated legal
and settlement costs, not covered by insurance, associated with the expected
resolution of the lawsuits were recorded in the second quarter of 2003 as a
component of a proxy contest and related costs charge.The Company is involved in various other legal proceedings incidental to its
business from time to time, most of which are expected to be covered by
liability insurance. Management of the Company believes that any resolution
of pending proceedings or liability to the Company, which may arise as a
result of these proceedings, will not have a material adverse effect on the
Companys results of operations or financial position. -15-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 CONSOLIDATED BALANCE SHEETS
 (In thousands)
 September 30,
    
    December 31,2004
    
    2003(Unaudited)AssetsReal estate assets
Land
    
    $
    274,020
    
    
    $
    254,000Building and improvements
    
    
    1,949,257
    
    
    
    1,883,582Furniture, fixtures and equipment
    
    
    221,570
    
    
    
    214,002Construction in progress
    
    
    16,064
    
    
    
    12,946Land held for future development
    
    
    18,910
    
    
    
    11,9942,479,821
    
    
    
    2,376,524Less: accumulated depreciation
    
    
    (495,048
    )
    
    
    (432,157
    )Assets held for sale, net of accumulated depreciation of $7,836 and
$74,614 at September 30, 2004 and December 31, 2003 respectively
    
    
    11,496
    
    
    
    145,238Total real estate assets
    
    
    1,996,269
    
    
    
    2,089,605Investments in and advances to unconsolidated entities
    
    
    21,794
    
    
    
    74,786Cash and cash equivalents
    
    
    3,002
    
    
    
    1,334Restricted cash
    
    
    1,727
    
    
    
    2,065Deferred charges, net
    
    
    10,658
    
    
    
    12,285Other assets
    
    
    37,334
    
    
    
    35,376Total assets
    
    $
    2,070,784
    
    
    $
    2,215,451Liabilities and partners equityNotes payable, including $14,760 and $119,085 of debt secured by assets
held for sale at September 30, 2004 and December 31, 2003, respectively
    
    $
    1,099,980
    
    
    $
    1,186,322Accrued interest payable
    
    
    12,152
    
    
    
    6,923Distribution payable
    
    
    19,091
    
    
    
    19,509Accounts payable and accrued expenses
    
    
    73,129
    
    
    
    65,872Security deposits and prepaid rents
    
    
    7,106
    
    
    
    7,890Total liabilities
    
    
    1,211,458
    
    
    
    1,286,516Commitments and contingenciesPartners equityPreferred units
    
    
    95,000
    
    
    
    215,000Common unitsGeneral partner
    
    
    8,967
    
    
    
    8,464Limited partners
    
    
    767,143
    
    
    
    719,618Accumulated other comprehensive income (loss)
    
    
    (11,784
    )
    
    
    (14,147
    )Total partners equity
    
    
    859,326
    
    
    
    928,935Total liabilities and partners equity
    
    $
    2,070,784
    
    
    $
    2,215,451
 The accompanying notes are an integral part of these consolidated financial statements. -16-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per unit data)
 Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003RevenuesRental
    
    $
    74,298
    
    
    $
    70,440
    
    
    $
    217,726
    
    
    $
    208,784Other property revenues
    
    
    4,680
    
    
    
    4,485
    
    
    
    13,365
    
    
    
    12,598Other
    
    
    814
    
    
    
    102
    
    
    
    936
    
    
    
    379Total revenues
    
    
    79,792
    
    
    
    75,027
    
    
    
    232,027
    
    
    
    221,761ExpensesProperty operating and maintenance (exclusive of items
shown separately below)
    
    
    36,054
    
    
    
    33,017
    
    
    
    102,659
    
    
    
    96,347Depreciation
    
    
    21,864
    
    
    
    21,553
    
    
    
    64,227
    
    
    
    62,096General and administrative
    
    
    6,017
    
    
    
    3,738
    
    
    
    16,136
    
    
    
    10,703Development costs and other
    
    
    283
    
    
    
    274
    
    
    
    1,200
    
    
    
    841Proxy contest and related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,231Severance charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,506Total expenses
    
    
    64,218
    
    
    
    58,582
    
    
    
    184,222
    
    
    
    196,724Operating Income
    
    
    15,574
    
    
    
    16,445
    
    
    
    47,805
    
    
    
    25,037Interest income
    
    
    247
    
    
    
    223
    
    
    
    639
    
    
    
    708Interest expense
    
    
    (17,299
    )
    
    
    (17,122
    )
    
    
    (50,306
    )
    
    
    (49,001
    )Amortization of deferred financing costs
    
    
    (1,066
    )
    
    
    (1,084
    )
    
    
    (3,273
    )
    
    
    (2,839
    )Equity in income of unconsolidated real estate entities
    
    
    420
    
    
    
    60
    
    
    
    843
    
    
    
    7,768Minority interest in consolidated property partnerships
    
    
    167
    
    
    
    677
    
    
    
    742
    
    
    
    1,359Loss from continuing operations
    
    
    (1,957
    )
    
    
    (801
    )
    
    
    (3,550
    )
    
    
    (16,968
    )Discontinued operationsIncome (loss) from discontinued operations
    
    
    465
    
    
    
    (83
    )
    
    
    6,905
    
    
    
    (7,447
    )Loss on early extinguishment of indebtedness associated
with property sales
    
    
    
    
    
    
    
    
    
    
    (4,128
    )
    
    
    Gains on property sales
    
    
    
    
    
    
    185
    
    
    
    113,739
    
    
    
    33,690Income from discontinued operations
    
    
    465
    
    
    
    102
    
    
    
    116,516
    
    
    
    26,243Net income (loss)
    
    
    (1,492
    )
    
    
    (699
    )
    
    
    112,966
    
    
    
    9,275Distributions to preferred unitholders
    
    
    (2,889
    )
    
    
    (4,262
    )
    
    
    (10,196
    )
    
    
    (12,787
    )Redemption costs on preferred units
    
    
    (1,810
    )
    
    
    
    
    
    
    (3,526
    )
    
    
    Net income (loss) available to common unitholders
    
    $
    (6,191
    )
    
    $
    (4,961
    )
    
    $
    99,244
    
    
    $
    (3,512
    )Per common unit data  BasicLoss from continuing operations (net of preferred
distributions and redemption costs)
    
    $
    (0.16
    )
    
    $
    (0.12
    )
    
    $
    (0.41
    )
    
    $
    (0.71
    )Income from discontinued operations
    
    
    0.01
    
    
    
    
    
    
    
    2.75
    
    
    
    0.63Net income (loss) available to common unitholders
    
    $
    (0.15
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.08
    )Weighted average common units outstanding  basic
    
    
    42,433
    
    
    
    42,190
    
    
    
    42,457
    
    
    
    42,102Per common unit data  DilutedLoss from continuing operations (net of preferred
distributions and redemption costs)
    
    $
    (0.16
    )
    
    $
    (0.12
    )
    
    $
    (0.41
    )
    
    $
    (0.71
    )Income from discontinued operations
    
    
    0.01
    
    
    
    
    
    
    
    2.75
    
    
    
    0.63Net income (loss) available to common unitholders
    
    $
    (0.15
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.08
    )Distributions declared
    
    $
    0.45
    
    
    $
    0.45
    
    
    $
    1.35
    
    
    $
    1.35Weighted average common units outstanding  diluted
    
    
    42,433
    
    
    
    42,206
    
    
    
    42,457
    
    
    
    42,104
 The accompanying notes are an integral part of these consolidated financial statements. -17-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 CONSOLIDATED STATEMENTS OF PARTNERS EQUITY
 (In thousands)
 Common Units
    
    AccumulatedOtherPreferred
    
    General
    
    Limited
    
    ComprehensiveUnits
    
    Partner
    
    Partners
    
    Income (Loss)
    
    TotalPartners Equity, December 31, 2003
    
    $
    215,000
    
    
    $
    8,464
    
    
    $
    719,618
    
    
    $
    (14,147
    )
    
    $
    928,935Comprehensive incomeNet income
    
    
    10,196
    
    
    
    1,028
    
    
    
    101,742
    
    
    
    
    
    
    
    112,966Net change in derivative value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,363
    
    
    
    2,363Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115,329Contributions from the Company related
to employee stock purchase and stock
option plans
    
    
    
    
    
    
    36
    
    
    
    3,555
    
    
    
    
    
    
    
    3,591Redemption of preferred units
    
    
    (120,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120,000
    )Stock-based compensation
    
    
    
    
    
    
    4
    
    
    
    437
    
    
    
    
    
    
    
    441Purchase of Common Units
    
    
    
    
    
    
    
    
    
    
    (2,268
    )
    
    
    
    
    
    
    (2,268
    )Distributions to preferred Unitholders
    
    
    (10,196
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,196
    )Distributions to common Unitholders
    
    
    
    
    
    
    (573
    )
    
    
    (56,746
    )
    
    
    
    
    
    
    (57,319
    )Contributions from the Company related
to shares issued for restricted stock,
net of deferred compensation
    
    
    
    
    
    
    8
    
    
    
    805
    
    
    
    
    
    
    
    813Partners Equity, September 30, 2004
    
    $
    95,000
    
    
    $
    8,967
    
    
    $
    767,143
    
    
    $
    (11,784
    )
    
    $
    859,326
 The accompanying notes are an integral part of these consolidated financial statements. -18-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Nine months endedSeptember 30,2004
    
    2003Cash Flows From Operating ActivitiesNet income
    
    $
    112,966
    
    
    $
    9,275Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    64,227
    
    
    
    68,372Amortization of deferred financing costs
    
    
    3,273
    
    
    
    2,839Gains on properties sold  discontinued operations
    
    
    (113,739
    )
    
    
    (33,690
    )Asset impairment charge
    
    
    626
    
    
    
    17,462Equity in income of unconsolidated entities
    
    
    (734
    )
    
    
    (7,768
    )Stock-based compensation
    
    
    1,280
    
    
    
    179Loss on
early extinguishment of indebtedness
    
    
    4,128
    
    
    
    Changes in assets, (increase) decrease in:Restricted cash
    
    
    338
    
    
    
    (655
    )Other assets
    
    
    (706
    )
    
    
    4,046Deferred charges
    
    
    (304
    )
    
    
    (1,820
    )Changes in liabilities, increase (decrease) in:Accrued interest payable
    
    
    5,229
    
    
    
    7,426Accounts payable and accrued expenses
    
    
    6,622
    
    
    
    22,742Security deposits and prepaid rents
    
    
    (784
    )
    
    
    (75
    )Net cash provided by operating activities
    
    
    82,422
    
    
    
    88,333Cash Flows From Investing ActivitiesConstruction and acquisition of real estate assets, net of payables
    
    
    (38,002
    )
    
    
    (22,247
    )Net proceeds from property sales
    
    
    138,637
    
    
    
    99,858Capitalized interest
    
    
    (787
    )
    
    
    (3,338
    )Recurring capital expenditures
    
    
    (7,613
    )
    
    
    (6,982
    )Corporate additions and improvements
    
    
    (553
    )
    
    
    (521
    )Non-recurring capital expenditures
    
    
    (3,604
    )
    
    
    (3,231
    )Revenue generating capital expenditures
    
    
    (26
    )
    
    
    (837
    )Distributions and repayment of advances received from unconsolidated entities
    
    
    53,582
    
    
    
    88,935Net cash provided by investing activities
    
    
    141,634
    
    
    
    151,637Cash Flows From Financing ActivitiesProceeds from notes payable
    
    
    35,000
    
    
    
    Payments on notes payable
    
    
    (26,704
    )
    
    
    (3,207
    )Payments of financing costs
    
    
    (4,262
    )
    
    
    Lines of credit proceeds (repayments), net
    
    
    (39,809
    )
    
    
    (156,068
    )Redemption of common units
    
    
    (2,268
    )
    
    
    Redemption of preferred units
    
    
    (120,000
    )
    
    
    Proceeds from employee stock purchase and stock option plans
    
    
    3,591
    
    
    
    576Distributions to preferred unitholders
    
    
    (10,663
    )
    
    
    (12,787
    )Distributions to common unitholders
    
    
    (57,273
    )
    
    
    (70,659
    )Net cash used in financing activities
    
    
    (222,388
    )
    
    
    (242,145
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,668
    
    
    
    (2,175
    )Cash and cash equivalents, beginning of period
    
    
    1,334
    
    
    
    6,390Cash and cash equivalents, end of period
    
    $
    3,002
    
    
    $
    4,215
 The accompanying notes are an integral part of these consolidated financial statements. -19-




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##### Table of Contents



POST APARTMENT HOMES, L.P. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   1.
    
    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIESOrganizationPost Apartment Homes, L.P. (the Operating Partnership), a Georgia limited
partnership, and its subsidiaries develop, own and manage upscale
multi-family apartment communities in selected markets in the United States.
Post Properties, Inc. (the Company) through its wholly owned subsidiaries
is the sole general partner, a limited partner and owns a majority interest
in the Operating Partnership. The Operating Partnership, through its
operating divisions and subsidiaries, conducts substantially all of the
on-going operations of Post Properties, Inc., a publicly traded company which
operates as a self-administered and self-managed real estate investment
trust.At September 30, 2004, the Company owned 94.1% of the common limited
partnership interests (Common Units) in the Operating Partnership and
100.0% of the preferred limited partnership interests (Preferred Units).
The Companys weighted average common ownership interest in the Operating
Partnership was 94.0% and 89.7% for the three months and 93.5% and 89.1% for
the nine months ended September 30, 2004 and 2003, respectively. At
September 30, 2004, Common Units held by persons (including one director of
the Company) other than the Company represented a 5.9% ownership interest in
the Operating Partnership. Each Common Unit may be redeemed by the holder
thereof for either one share of Company common stock or cash equal to the
fair market value thereof at the time of such redemptions, at the option of
the Operating Partnership. The Operating Partnership presently anticipates
that it will cause shares of common stock to be issued in connection with
each such redemption rather than paying cash (as has been done in all
redemptions to date). With each redemption of outstanding Common Units for
Company common stock, the Companys percentage ownership interest in the
Operating Partnership will increase. In addition, whenever the Company issues
shares of common stock, the Company will contribute any net proceeds
therefrom to the Operating Partnership and the Operating Partnership will
issue an equivalent number of Common Units to the Company.The Operating Partnership owns 24,700 apartment units in 65 apartment
communities, including 666 apartment units in three apartment communities
held in unconsolidated real estate entities. At September 30, 2004,
approximately 51.6%, 17.6%, 9.0% and 8.0% (on a unit basis) of the Operating
Partnerships communities were located in the Atlanta, Dallas, Tampa and
greater Washington, D.C. metropolitan areas, respectively.Under the provisions of the limited partnership agreement, as amended,
Operating Partnership net profits, net losses and cash flow (after
allocations to preferred ownership interests) are allocated to the partners
in proportion to their common ownership interests. Cash distributions from
the Operating Partnership shall be, at a minimum, sufficient to enable the
Company to satisfy its annual dividend requirements to maintain its REIT
status under the Code.Basis of PresentationThe accompanying unaudited financial statements have been prepared by the
Operating Partnerships management in accordance with generally accepted
accounting principles for interim financial information and applicable rules
and regulations of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the three and nine month periods ended
September 30, 2004 are not necessarily indicative of the results that may be
expected for the full year. These financial statements should be read in
conjunction with the Operating Partnerships audited financial statements and
notes thereto included in its Annual Report on Form 10-K for the year ended
December 31, 2003. Certain 2003 amounts have been reclassified to conform to
the current years financial statement presentation.Revenue RecognitionResidential properties are leased under operating leases with terms of
generally one year or less. Rental revenues from residential leases are
recognized on the straight-line method over the approximate life of the
leases, which is generally one year. The recognition of rental revenues from
residential leases when earned has historically not been materially different
from rental revenues recognized on a straight-line basis.Under the terms of residential leases, the residents of the Operating
Partnerships residential communities are obligated to reimburse the
Operating Partnership for certain utility usage, water and electricity (at
selected properties), where the Operating Partnership is the primary obligor
to the public utility entity. These utility reimbursements from residents
are reflected as other property revenues in the consolidated statements of
operations. -20-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  Apartment Community AcquisitionsIn accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, the aggregate purchase
price of apartment community acquisitions is allocated to the tangible
assets, intangible assets and liabilities (including mortgage indebtedness)
acquired in each transaction, based on their estimated fair values at the
acquisition date. The acquired tangible assets, principally land, building
and improvements and furniture, fixtures and equipment, are reflected in real
estate assets and depreciated over their estimated useful lives. The
acquired intangible assets, principally above/below market leases, in-place
leases and resident relationships, are reflected in other assets and
amortized over the average remaining lease terms of the acquired leases and
resident relationships (generally 6 months to 18 months).Equity-based CompensationEffective January 1, 2003, the Company accounts for stock-based compensation
under the fair value method prescribed by Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. In
adopting SFAS No. 123, the Company used the prospective method prescribed in
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. In periods prior to January 1, 2003, the Company accounted for
stock-based compensation under the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued
to Employees.The following table reflects the effect on the Operating Partnerships net
income and earnings per common unit had the fair value method of accounting
under SFAS No. 123 been applied to all stock awards for each period. Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net income (loss) available to common unitholdersAs reported
    
    $
    (6,191
    )
    
    $
    (4,961
    )
    
    $
    99,244
    
    
    $
    (3,512
    )Stock-based compensation included in net income as reported
    
    
    415
    
    
    
    246
    
    
    
    1,280
    
    
    
    743Stock-based compensation determined under the fair value
method for all awards
    
    
    (432
    )
    
    
    (278
    )
    
    
    (1,333
    )
    
    
    (860
    )Pro forma
    
    $
    (6,208
    )
    
    $
    (4,993
    )
    
    $
    99,191
    
    
    $
    (3,629
    )Net income (loss) per common unit  basicAs reported
    
    $
    (0.15
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.08
    )Pro forma
    
    $
    (0.15
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.09
    )Net income (loss) per common unit  dilutedAs reported
    
    $
    (0.15
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.08
    )Pro forma
    
    $
    (0.15
    )
    
    $
    (0.12
    )
    
    $
    2.34
    
    
    $
    (0.09
    )
 -21-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  2.
    
    INDEBTEDNESSAt September 30, 2004 and December 31, 2003, the Operating Partnerships
indebtedness consisted of the following: Payment
    
    
    
    
    
    Maturity
    
    September 30,
    
    December 31,Description
    
    Terms
    
    Interest Rate
    
    Date
    
    2004
    
    2003Unsecured NotesSenior Notes
    
    Int.
    
    
    6.11% - 7.70
    %
    
    
    2006-2010
    
    
    $
    285,000
    
    
    $
    285,000Medium Term Notes
    
    Int.
    
    
    6.78% - 8.12
    % (1)
    
    
    2004-2015
    
    
    
    300,000
    
    
    
    323,000585,000
    
    
    
    608,000Unsecured Lines of Credit & OtherSyndicated Line of Credit
    
    
    N/A
    
    
    
    LIBOR + 0.90
    % (2)
    
    
    2007
    
    
    
    18,000
    
    
    
    60,000Cash Management Line
    
    
    N/A
    
    
    
    LIBOR + 0.90
    %
    
    
    2007
    
    
    
    14,201
    
    
    
    12,01032,201
    
    
    
    72,010Conventional Fixed Rate (Secured)FNMA
    
    Prin. and Int.
    
    
    6.975
    % (3)
    
    
    2029
    
    
    
    98,500
    
    
    
    99,800Other
    
    Prin. and Int.
    
    
    4.27% - 7.69
    %
    
    
    2007-2013
    
    
    
    274,224
    
    
    
    192,132372,724
    
    
    
    291,932Tax Exempt Floating Rate
Bonds (Secured)
    
    Int.
    
    
    1.69
    % (4)
    
    
    2025
    
    
    
    110,055
    
    
    
    214,380Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,099,980
    
    
    $
    1,186,322
  (1)
    
    Includes $100,000 of Mandatory Par Put Remarketed Securities
(MOPPRS). The annual interest rate on these securities to March
2005 is 6.85%. The MOPPRS mature in March 2015, but are subject to
mandatory tender for remarketing in March 2005. In March 2005, if the
remarketing dealer elects not to remarket the MOPPRS, the Operating
Partnership is required to redeem the MOPPRS at par. If the
remarketing dealer elects to remarket the securities in March 2005,
the interest rate on the MOPPRS will be established at a rate of
5.715% plus the Operating Partnerships applicable credit spread for
the Operating Partnerships securities with similar maturities. The
MOPPRS may be redeemed, at the Operating Partnerships option,
immediately prior to their remarketing in March 2005 at an optional
redemption price equal to the outstanding principal balance plus a
prepayment penalty (generally equivalent to the make-whole amount
necessary to compensate for the amount by which the base rate of
5.715% exceeds the then-existing 10-year treasury rate).(2)
    
    Represents stated rate.(3)
    
    Interest rate is fixed at 6.975%, inclusive of credit enhancement
and other fees, to 2009 through an interest rate swap arrangement.(4)
    
    FNMA credit enhanced bond indebtedness. Interest based on FNMA
AAA tax exempt rate plus credit enhancement and other fees of
0.639%. Interest rate represents the rate at September 30, 2004
before credit enhancements. The Operating Partnership has outstanding
interest rate cap arrangements that limit the Operating Partnerships
exposure to increases in the base interest rate to 5%. At September
30, 2004 and December 31, 2003, approximately $14,760 and $119,085,
respectively, of this debt was secured by assets held for sale.  Debt maturitiesThe aggregate maturities of the Operating Partnerships indebtedness are as
follows: Remainder of 2004
    
    $
    1,2162005
    
    
    205,933
    (1)2006
    
    
    81,3362007
    
    
    157,6772008
    
    
    4,014Thereafter
    
    
    617,603
    (1)$
    1,067,779
    (2)
  (1)
    
    Aggregate debt maturities
for years ended in 2009 and thereafter
include $100,000 of Mandatory Par Put
Remarketed Securities (MOPPRS). The MOPPRS
mature in March 2015, but are subject to
mandatory tender for remarketing in March
2005. In March 2005, if the remarketing
dealer elects not to remarket the MOPPRS, the
Operating Partnership is required to redeem
the MOPPRS at par. If the remarketing dealer
elects to remarket the securities in March
2005, the interest rate on the MOPPRS will be
established at a rate of 5.715% plus the
Operating Partnerships applicable credit
spread for Operating Partnership securities
with similar maturities. The MOPPRS may be
redeemed, at the Operating Partnerships
option, immediately prior to their
remarketing in March 2005 at an optional
redemption price equal to the outstanding
principal balance plus a prepayment penalty.(2)
    
    Excludes outstanding
balances on lines of credit.  Debt issuances and retirementsUpon their maturity in September 2004, the Operating Partnership repaid
$10,000 of its 6.69% medium term, unsecured notes, from available borrowings
under its unsecured lines of credit.In October 2004, the Operating Partnership purchased and retired $87,957 of
the Operating Partnerships 8.125% medium term, unsecured notes through a
public tender offer using available borrowings under its unsecured lines of
credit. Subsequent to the debt retirement, $62,043 of 8.125% medium term
notes remain outstanding with a maturity in June 2005. The Operating
Partnership expects to record in the fourth quarter of 2004 a loss on the early
extinguishment of this indebtedness of approximately $4,000 -22-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  representing the debt repurchase premiums, the expenses of the tender offer
and the write-off of the deferred loan costs associated with the retired
indebtedness. In addition in October 2004, the Operating Partnership issued
$100,000 of senior unsecured notes. The notes bear interest at 5.125% and
mature in October 2011. The net proceeds from the unsecured notes were used
to reduce amounts outstanding under the Operating Partnerships unsecured
lines of credit.In conjunction with an apartment community acquisition (see note 4) in June
2004, the Operating Partnership assumed a secured, fixed rate mortgage note
payable. The mortgage note was valued at $49,496 yielding an effective
interest rate of 4.7%. The mortgage note bears interest at a coupon rate of
6.8%, requires monthly principal and interest payments and matures in 2007.In June 2004, the Operating Partnership sold certain apartment communities
subject to the assumption of $104,325 of tax exempt mortgage indebtedness
(see note 4). As a result of this debt assumption, the Operating Partnership
recorded a loss on early extinguishment of debt of $4,128 related to the
write-off of deferred loan costs of $3,187 relating to such assumed
indebtedness and the realization of a $941 loss in connection with the
termination of related interest rate cap agreements that were used as cash
flow hedges of the assumed debt.Upon their maturity in April 2004, the Operating Partnership repaid $13,000
of its 7.30% medium term, unsecured notes, using its available cash balances
and borrowings under its unsecured lines of credit.In March 2004, the Operating Partnership closed a $35,000 secured, fixed rate
mortgage note payable obtained by a consolidated real estate entity. The
note bears interest at 4.27%, requires monthly interest only payments through
March 2007 and monthly principal and interest payments based on a 30-year
amortization schedule from April 2007 through the note maturity date in March
2009.Unsecured Lines of CreditIn January 2004, the Operating Partnership refinanced its previous revolving
line of credit with a new $350,000 three-year unsecured revolving line of
credit (the Revolver) that matures in January 2007. The Revolver currently
has a stated interest rate of LIBOR plus 0.90% or the prime rate and was
provided by a syndicate of nine banks led by Wachovia Bank, N.A.
Additionally, the Revolver requires the payment of annual facility fees equal
to 0.20% of the aggregate loan commitment. The Revolver provides for the
interest rate and facility fee rate to be adjusted up or down based on
changes in the credit ratings on the Operating Partnerships senior unsecured
debt. The rates under the Revolver are based on the lower of the Operating
Partnerships unsecured debt ratings in instances where the Operating
Partnership has split unsecured debt ratings. The Revolver also includes a
money market competitive bid option for short-term funds up to $175,000 at
rates generally below the stated line rate. The credit agreement for the
Revolver contains customary representations, covenants and events of default,
including fixed charge coverage and maximum leverage ratios as well as
covenants which restrict the ability of the Operating Partnership to make
distributions, in excess of stated amounts, which in turn restrict the
discretion of the Company to declare and pay dividends. In general, during
any fiscal year the Operating Partnership may only distribute up to 100% of
the Operating Partnerships consolidated income available for distribution
(as defined in the credit agreement) exclusive of distributions of up to
$15,000 of capital gains for such year. The credit agreement contains
exceptions to these limitations to allow the Operating Partnership to make
distributions necessary to allow the Company to maintain its status as a
REIT. The Company does not anticipate that these ratios and covenants will
adversely affect the ability of the Operating Partnership to borrow money or
make distributions, or the Company to declare dividends, at the Companys
current dividend level. At September 30, 2004, the Operating Partnership had
issued letters of credit to third parties totaling $1,828 under this
facility.Additionally, the Operating Partnership has a $20,000 unsecured line of
credit with Wachovia Bank, N.A. (the Cash Management Line), which was
scheduled to mature on April 30, 2004. In April 2004, the Operating
Partnership renewed this line of credit with maturity, pricing and terms,
including debt covenants, substantially consistent with those of the
Revolver. The Cash Management line currently has a stated interest rate of
LIBOR plus 0.90% mirroring the pricing structure of the Revolver and requires
the payment of an annual facility fee equal to 0.125% of the average annual
unused portion of the loan commitment.3.
    
    INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIESAt September 30, 2004, the Operating Partnership held investments in three
individual limited liability companies (the Property LLCs) with an
institutional investor. Each Property LLC owns a newly developed apartment
community. At September 30, 2004, each of the apartment communities had
achieved stabilized occupancy. The Operating Partnership holds a 35% equity
interest in the Property LLCs. The initial development costs of the
apartment communities were funded through member equity -23-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  contributions proportionate to the members ownership interests and through
construction financing provided by the Operating Partnership.The Operating Partnership accounts for its investments in these Property LLCs
using the equity method of accounting. The excess of the Operating
Partnerships investment over its equity in the underlying net assets of the
Property LLCs was approximately $6,618 at September 30, 2004. This excess
investment is being amortized as a reduction to earnings on a straight-line
basis over the lives of the related assets. The Operating Partnership
provides real estate services (development, construction and property
management) to the Property LLCs for which it earns fees.The operating results of the Operating Partnership include its proportionate
share of net income from the investments in the Property LLCs. A summary of
financial information for the Property LLCs in the aggregate is as follows: September 30,
    
    December 31,Balance Sheet Data
    
    2004
    
    2003Real estate assets, net of accumulated depreciation of
$8,757 and $5,939, respectively
    
    $
    124,899
    
    
    $
    127,513Cash and other
    
    
    3,284
    
    
    
    2,516Total assets
    
    $
    128,183
    
    
    $
    130,029Mortgage notes payable
    
    $
    83,543
    
    
    $
    33,763Construction notes payable to Operating Partnership (1)
    
    
    
    
    
    
    53,769Other liabilities
    
    
    1,318
    
    
    
    1,742Total liabilities
    
    
    84,861
    
    
    
    89,274Members equity
    
    
    43,322
    
    
    
    40,755Total liabilities and members equity
    
    $
    128,183
    
    
    $
    130,029Operating Partnerships equity investment
    
    $
    21,794
    
    
    $
    21,017Operating Partnerships share of notes payable
    
    $
    29,240
    
    
    $
    30,636
  (1)
    
    All of the Operating Partnerships
construction financing to these unconsolidated
real estate entities is included in the
Operating Partnerships outstanding debt and
total assets. At December 31, 2003, the
venture partners share of the construction
loans was $34,950. All construction financing
previously provided by the Operating
Partnership was refinanced with permanent loans
from unaffiliated entities in early 2004. Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,Income Statement Data
    
    2004
    
    2003
    
    2004
    
    2003RevenueRental
    
    $
    3,385
    
    
    $
    2,638
    
    
    $
    9,924
    
    
    $
    6,434Other
    
    
    252
    
    
    
    130
    
    
    
    722
    
    
    
    357Total revenues
    
    
    3,637
    
    
    
    2,768
    
    
    
    10,646
    
    
    
    6,791ExpensesProperty operating and maintenance
    
    
    1,116
    
    
    
    866
    
    
    
    3,560
    
    
    
    3,301Depreciation and amortization
    
    
    972
    
    
    
    954
    
    
    
    2,892
    
    
    
    2,798Interest
    
    
    865
    
    
    
    777
    
    
    
    2,505
    
    
    
    2,296Total expenses
    
    
    2,953
    
    
    
    2,597
    
    
    
    8,957
    
    
    
    8,395Income (loss) from continuing operations
    
    
    684
    
    
    
    171
    
    
    
    1,689
    
    
    
    (1,604
    )Discontinued OperationsLoss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (188
    )Gain on property sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,179Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,991Net income
    
    $
    684
    
    
    $
    171
    
    
    $
    1,689
    
    
    $
    24,387Operating Partnerships share of net income
    
    $
    420
    
    
    $
    60
    
    
    $
    843
    
    
    $
    7,768
  The income from discontinued operations represents the operating results and
the gain on sale of an apartment community (held by a fourth Property LLC)
that was sold in June 2003.At September 30, 2004, mortgage notes payable include a $50,000 mortgage note
that bears interest at 4.13%, requires monthly interest payments and annual
principal payment of $1 through 2009. Thereafter, the note requires monthly
principal and interest payments based on a 25-year amortization schedule and
matures in April 2034. The note is callable by the lender in May 2009 -24-




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POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  and on each successive fifth year anniversary of the note thereafter. The
note is prepayable without penalty in May 2008. The additional mortgage
notes payable bear interest at rates ranging from 4.04% to 4.28% and mature
in 2008.4.
    
    REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITYAcquisition Activity

In June 2004, the Operating Partnership acquired a 499-unit apartment
community located in suburban Washington, D.C. for approximately $85,814,
including the assumption of mortgage indebtedness and closing costs.
Additionally, the Operating Partnership plans to spend up to approximately
$2,000 to improve the community. The assumed mortgage note payable was
valued at $49,496 yielding an effective interest rate of 4.7%. The mortgage
note bears interest at a coupon rate of 6.8%, requires monthly principal and
interest payments and matures in 2007.The purchase price of this community was allocated to the assets acquired and
the liabilities assumed based on their estimated fair values.Disposition Activity

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
September 30, 2004, the Operating Partnership had one apartment community,
containing 460 units, and certain tracts of land classified as held for sale.
These real estate assets are reflected in the accompanying consolidated
balance sheet at $11,496, which represents the lower of depreciated cost or
fair value less costs to sell.Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the operating results of real estate assets designated as held for
sale are included in discontinued operations in the consolidated statement of
operations for all periods presented. Additionally, all subsequent gains or
additional losses on the sale of these assets are included in discontinued
operations.For the three and nine months ended September 30, 2004, income from
discontinued operations included the results of operations of one community,
containing 460 units, classified as held for sale at September 30, 2004 and
the results of operations of eight communities sold in 2004 through their
sale dates. For the three and nine months ended September 30, 2003, income
from discontinued operations included the results of operations of the
community classified as held for sale at September 30, 2004, the eight
communities sold in 2004 and the results of operations of four communities
sold in 2003 through the earlier of September 30, 2003 or their sale dates.The revenues and expenses of these communities for the three and nine months
ended September 30, 2004 and 2003 were as follows: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003RevenuesRental
    
    $
    830
    
    
    $
    9,918
    
    
    $
    15,529
    
    
    $
    32,838Other
    
    
    83
    
    
    
    820
    
    
    
    1,446
    
    
    
    2,505Total revenues
    
    
    913
    
    
    
    10,738
    
    
    
    16,975
    
    
    
    35,343ExpensesProperty operating and maintenance
(exclusive of items shown separately below)
    
    
    374
    
    
    
    4,505
    
    
    
    7,678
    
    
    
    14,476Depreciation
    
    
    
    
    
    
    1,610
    
    
    
    
    
    
    
    6,277Interest
    
    
    74
    
    
    
    1,361
    
    
    
    1,766
    
    
    
    4,575Asset impairment charge
    
    
    
    
    
    
    3,344
    
    
    
    626
    
    
    
    17,462Total expenses
    
    
    448
    
    
    
    10,820
    
    
    
    10,070
    
    
    
    42,790Income (loss) from discontinued operations
    
    $
    465
    
    
    $
    (82
    )
    
    $
    6,905
    
    
    $
    (7,447
    )
  In the second quarter of 2004, the Operating Partnership recorded an asset
impairment loss of $626 to write-down the cost of an apartment community,
located in Dallas, Texas, to its realized value. In the third quarter of
2003, the Operating Partnership recorded a $3,344 asset impairment charge to
write-down this asset to its estimated fair value at the date the asset was
classified as held for sale. In the first quarter of 2003, the Operating
Partnership recorded an asset impairment charge of $14,118 to write-down the
cost of the Operating Partnerships apartment community located in Phoenix,
Arizona to its estimated fair value. This impairment loss, originally
reflected in continuing operations, was reclassified to discontinued
operations to reflect the -25-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  designation of this community as held for sale during the third quarter of
2003 and the final sale of the community in the fourth quarter of 2003.For the nine months ended September 30, 2004, the Operating Partnership
recognized net gains from discontinued operations of $113,739 from the sale
of eight communities containing 3,880 units and certain land parcels. These
sales generated net proceeds of approximately $242,962, including debt
assumed by the purchasers of $104,325.For the three months ended September 30, 2003, the Operating Partnership
recognized net gains from discontinued operations of $185 from the sale of
land. For the nine months ended September 30, 2003, the Operating
Partnership recognized net gains from discontinued operations of $33,690 on
the sale of two communities, containing 1,009 units, and certain land
parcels. These sales generated net proceeds of $99,858.5.
    
    PARTNERS EQUITYPreferred UnitsOn September 3, 2004, the Operating Partnership redeemed its 8% Series D
cumulative redeemable preferred units (Series D Preferred Units) for $25.00
per unit (an aggregate of $70,000), plus accrued and unpaid dividends through
September 3, 2004. In connection with the issuance of the Series D Preferred
Units in 1998, the Operating Partnership incurred $1,810 in issuance costs
and recorded such costs as a reduction of partners equity. The redemption
price of the Series D Preferred Units exceeded the related carrying value by
the $1,810 of issuance costs. In connection with the redemption, in
accordance with generally accepted accounting principles, the Operating
Partnership reflected the $1,810 of issuance costs as a reduction of earnings
in arriving at net income available to common unitholders for the three and
nine months ended September 30, 2004.On March 5, 2004, the Company redeemed its 7 5/8% Series C cumulative
redeemable preferred stock (Series C Preferred Stock) for $25.00 per share
(an aggregate of $50,000), plus accrued and unpaid dividends through March 5,
2004. Correspondingly, the Operating Partnership redeemed its 7 5/8% Series
C Cumulative redeemable preferred partnership units (the Series C Preferred
Units) on the same date and under the same terms. In connection with the
issuance of the Series C Preferred Units in 1999, the Operating Partnership
incurred $1,716 in issuance costs and recorded such costs as a reduction of
partners equity. The redemption price of the Series C Preferred Units
exceeded the related carrying value by the $1,716 of issuance costs. In
connection with the redemption, in accordance with generally accepted
accounting principles, the Operating Partnership reflected the $1,716 of
issuance costs as a reduction of earnings in arriving at net income available
to common unitholders for the nine months ended September 30, 2004.Computations of Earnings Per Common UnitFor the three and nine months ended September 30, 2004 and 2003, a
reconciliation of the numerator and denominator used in the computation of
basic and diluted income from continuing operations per common unit is as
follows: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Loss from continuing operations available to common unitholders
(numerator):Loss from continuing operations
    
    $
    (1,957
    )
    
    $
    (801
    )
    
    $
    (3,550
    )
    
    $
    (16,968
    )Less: Preferred unit distributions
    
    
    (2,889
    )
    
    
    (4,262
    )
    
    
    (10,196
    )
    
    
    (12,787
    )Less: Preferred unit redemption costs
    
    
    (1,810
    )
    
    
    
    
    
    
    (3,526
    )
    
    
    Loss from continuing operations available to common unitholders
    
    $
    (6,656
    )
    
    $
    (5,063
    )
    
    $
    (17,272
    )
    
    $
    (29,755
    )Common units (denominator):Weighted average units outstanding  basic
    
    
    42,433
    
    
    
    42,190
    
    
    
    42,457
    
    
    
    42,102Incremental units from assumed conversion of stock options (1)
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    2Weighted average units outstanding  diluted (1)
    
    
    42,433
    
    
    
    42,206
    
    
    
    42,457
    
    
    
    42,104
  (1)
    
    For the three and nine months ended September 30, 2004,
stock options to purchase 98 and 67 shares, respectively, of
common stock were excluded from the computation of diluted
earnings per common unit as these stock options were
antidilutive. -26-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  6.
    
    DERIVATIVE FINANCIAL INSTRUMENTSAt September 30, 2004 and 2003, the Operating Partnership had outstanding
interest rate swap agreements with a notional value of $129,000 with maturity
dates ranging from 2005 to 2009. The interest rate swap agreements are
included on the accompanying consolidated balance sheet at fair value. The
Operating Partnership records the changes in the fair value of these cash
flow hedges as changes in accumulated other comprehensive income (loss), a
partners equity account, in the accompanying consolidated balance sheet.At September 30, 2004, the Operating Partnership had outstanding interest
rate cap agreements with two financial institutions with a notional value of
$110,055. These interest rate cap agreements are cash flow hedges that
provide a fixed interest ceiling at 5% for the Operating Partnerships
variable rate, tax exempt borrowings. The Operating Partnership is required
to maintain the interest rate exposure protection under the terms of the
financing arrangements. The interest rate cap arrangements are included on
the accompanying balance sheet at fair value. At September 30, 2004, the
difference between the amortized costs of the interest rate cap arrangements
and their fair value of $180 is included in accumulated other comprehensive
income (loss), a partners equity account. The original cost of $1,396 of
the arrangements is being amortized as additional expense over their
five-year term.A summary of comprehensive income (loss) for the three and nine months ended
September 30, 2004 and 2003 is as follows: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net income (loss)
    
    $
    (1,492
    )
    
    $
    (699
    )
    
    $
    112,966
    
    
    $
    9,275Change in derivative values
    
    
    (1,587
    )
    
    
    3,675
    
    
    
    2,363
    
    
    
    560Comprehensive income (loss)
    
    $
    (3,079
    )
    
    $
    2,976
    
    
    $
    115,329
    
    
    $
    9,835
  In June 2004, in connection with the sale of five properties discussed in
note 4 above, the Operating Partnership sold its interest in interest rate
cap agreements with a notional value of $104,325 for aggregate proceeds of
$379 and realized a loss of $941 that was included in the loss on early
extinguishment of indebtedness on the accompanying statement of operations.
The unrealized loss on these interest rate cap agreements was previously
reflected in accumulated other comprehensive income (loss), a partners
equity account. These interest rate cap agreements were sold as the
underlying hedged indebtedness was assumed by the purchaser in connection
with the sale of the related assets.7.
    
    SEGMENT INFORMATIONSegment DescriptionIn accordance with SFAS No. 131, Disclosure About the Segments of an
Enterprise and Related Information, the Operating Partnership presents
segment information based on the way that management organizes the segments
within the enterprise for making operating decisions and assessing
performance. The segment information is prepared on substantially the same
basis as the internally reported information used by the Operating
Partnerships chief operating decision makers to manage the business.The Operating Partnerships chief operating decision makers focus on the
Operating Partnerships primary sources of income from apartment community
rental operations. Apartment community rental operations are broken down
into four segments based on the various stages in the apartment community
ownership lifecycle. These segments are described below. All commercial
properties and other ancillary service and support operations are aggregated
in the line item other in the accompanying segment information. The
segment information presented below reflects the segment categories based on
the lifecycle status of each community as of January 1, 2004. The segment
information for the three and nine months ended September 30, 2003 has been
adjusted due to the restatement impact of reclassifying the operating results
of the assets designated as held for sale in 2003 to discontinued operations
under SFAS No. 144 (see note 4).  
    
    Fully stabilized communities  those apartment communities which have
been stabilized (the earlier of the point at which a property reaches
95% occupancy or one year after completion of construction) for both the
current and prior year.  
    
    Communities stabilized during 2003  communities which reached
stabilized occupancy in the prior year.  
    
    Development and lease-up communities  those communities that are in
lease-up but were not stabilized by the beginning of the current year,
including communities that stabilized during the current year.  
    
    Acquired communities  those communities acquired in the current or
prior year. -27-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  Segment Performance MeasureManagement uses contribution to consolidated property net operating income
(NOI) as the performance measure for its operating segments. The Operating
Partnership uses net operating income, including net operating income of
stabilized communities, as an operating measure. Net operating income is
defined as rental and other property revenue from real estate operations less
total property and maintenance expenses from real estate operations
(excluding depreciation and amortization). The Operating Partnership
believes that net operating income is an important supplemental measure of
operating performance for a REITs operating real estate because it provides
a measure of the core operations, rather than factoring in depreciation and
amortization, financing costs and general and administrative expenses
generally incurred at the corporate level. This measure is particularly
useful, in the opinion of the Operating Partnership, in evaluating the
performance of geographic operations, operating segment groupings and
individual properties. Additionally, the Operating Partnership believes that
net operating income, as defined, is a widely accepted measure of comparative
operating performance in the real estate investment community. The Operating
Partnership believes that the line on the Operating Partnerships
consolidated statement of operations entitled net income is the most
directly comparable GAAP measure to net operating income.Segment InformationThe following table reflects each segments contribution to consolidated
revenues and property NOI together with a reconciliation of segment
contribution to property NOI to net income (loss). 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
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003RevenuesFully stabilized communities
    
    $
    65,762
    
    
    $
    65,452
    
    
    $
    195,745
    
    
    $
    194,999Communities stabilized during 2003
    
    
    3,985
    
    
    
    3,688
    
    
    
    11,817
    
    
    
    10,846Development and lease-up communities
    
    
    1,718
    
    
    
    634
    
    
    
    5,303
    
    
    
    887Acquired communities
    
    
    2,155
    
    
    
    
    
    
    
    2,360
    
    
    
    Other property segments
    
    
    5,358
    
    
    
    5,151
    
    
    
    15,866
    
    
    
    14,650Other
    
    
    814
    
    
    
    102
    
    
    
    936
    
    
    
    379Consolidated revenues
    
    $
    79,792
    
    
    $
    75,027
    
    
    $
    232,027
    
    
    $
    221,761Contribution to NOIFully stabilized communities
    
    $
    39,715
    
    
    $
    40,041
    
    
    $
    118,849
    
    
    $
    121,090Communities stabilized during 2003
    
    
    2,491
    
    
    
    2,183
    
    
    
    7,466
    
    
    
    6,399Development and lease-up communities
    
    
    1,168
    
    
    
    29
    
    
    
    3,773
    
    
    
    (459
    )Acquired communities
    
    
    1,544
    
    
    
    
    
    
    
    1,692
    
    
    
    Other
    
    
    (1,994
    )
    
    
    (345
    )
    
    
    (3,348
    )
    
    
    (1,995
    )Consolidated property net operating income
    
    
    42,924
    
    
    
    41,908
    
    
    
    128,432
    
    
    
    125,035Interest income
    
    
    247
    
    
    
    223
    
    
    
    639
    
    
    
    708Other revenue
    
    
    814
    
    
    
    102
    
    
    
    936
    
    
    
    379Minority interest in consolidated property partnerships
    
    
    167
    
    
    
    677
    
    
    
    742
    
    
    
    1,359Depreciation
    
    
    (21,864
    )
    
    
    (21,553
    )
    
    
    (64,227
    )
    
    
    (62,096
    )Interest expense
    
    
    (17,299
    )
    
    
    (17,122
    )
    
    
    (50,306
    )
    
    
    (49,001
    )Amortization
of deferred financing costs
    
    
    (1,066
    )
    
    
    (1,084
    )
    
    
    (3,273
    )
    
    
    (2,839
    )General and administrative
    
    
    (6,017
    )
    
    
    (3,738
    )
    
    
    (16,136
    )
    
    
    (10,703
    )Development costs and other
    
    
    (283
    )
    
    
    (274
    )
    
    
    (1,200
    )
    
    
    (841
    )Severance charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,506
    )Proxy contest and related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,231
    )Equity in income of unconsolidated real estate entities
    
    
    420
    
    
    
    60
    
    
    
    843
    
    
    
    7,768Loss from continuing operations
    
    
    (1,957
    )
    
    
    (801
    )
    
    
    (3,550
    )
    
    
    (16,968
    )Income (loss) from discontinued operations
    
    
    465
    
    
    
    102
    
    
    
    116,516
    
    
    
    26,243Net income
(loss)
    
    $
    (1,492
    )
    
    $
    (699
    )
    
    $
    112,966
    
    
    $
    9,275
 -28-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  8.
    
    SEVERANCE AND PROXY CONTEST CHARGESIn the second quarter of 2003, the Operating Partnership recorded severance
charges of $1,795 relating to the departure of two executive officers. In
the first quarter of 2003, the Operating Partnership recorded severance
charges of $19,711 relating to the change in roles from executive to
non-executive status of the Companys former chairman and vice-chairman of
the board of directors. The severance charges represented the discounted
present value of the estimated payments to be made to the former chairman and
vice-chairman under their existing employment arrangements.In August 2004, the Operating Partnership entered into a final settlement
agreement with its former chairman of the board of directors. Under the
terms of the agreement, the former chairmans employment and non-competition
agreements were terminated and the Operating Partnership agreed to continue
to provide the former chairman certain payments and benefits through May
2013, the approximate expiration date of the original employment agreement.
Because the present value of the estimated payments under the settlement
agreement approximated the Operating Partnerships remaining accrued charge
under the former employment agreement, no additional charges were recorded as
a result of the settlement.The following table summarizes the activity relating to aggregate severance
charges for the nine months ended September 30, 2004: Accrued severance charges, December 31, 2003
    
    $
    19,171Payments for period
    
    
    (2,333
    )Interest accretion
    
    
    753Accrued severance charges, September 30, 2004
    
    $
    17,591
  Substantially all of these remaining amounts will be paid over the remaining
terms of the former executives employment and settlement agreements (9 to 12
years).Proxy contest and related costs of $5,231 represent the legal, advisory and
other expenses associated with the solicitation of proxies from shareholders
resulting from the proxy contest initiated in April 2003 by the Companys
former chairman of the board of directors. Additionally, the $5,231 amount
included legal and resolution costs associated with the settlement of two
derivative and purported class action lawsuits filed against the Operating
Partnership during the proxy contest. These lawsuits were settled in
October 2004 (see note 11).9.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONNon-cash investing and financing activities for the nine months ended
September 30, 2004 and 2003 were as follows:In June 2004, the Operating Partnership acquired an apartment community for
cash and the assumption of mortgage indebtedness with an estimated fair value
of $49,496. Also, in June 2004, the Operating Partnership sold certain
apartment communities subject to $104,325 of mortgage indebtedness assumed by
the purchasers. These transactions involving mortgage indebtedness were
excluded from the statement of cash flows as non-cash transactions (see note
4).During the nine months ended September 30, 2004, the Operating Partnerships
derivative financial instruments (see note 6) increased in value causing a
decrease in accounts payable and accrued expenses and a corresponding
increase in partners equity of $2,363. During the nine months ended
September 30, 2003, the Operating Partnerships derivative financial
instruments increased in value causing a decrease in accounts payable and
accrued expenses and a corresponding increase in partners equity of $560.10.
    
    STOCK-BASED COMPENSATION PLANDuring the nine months ended September 30, 2004, the Company granted
approximately 24 shares of restricted stock to Company officers and
directors, of which approximately 7 shares were granted to the Companys
non-executive Chairman of the Board. The restricted shares vest ratably over
three years. The total value of the restricted share grants of $677 for the
nine months, ended September 30, 2004 was initially reflected in partners
equity reduced by non-amortized deferred compensation expense. No restricted shares
were granted to Company officers and directors in the three months
ended September 30, 2004. Such deferred compensation is amortized ratably
into compensation expense over the three year vesting period. -29-




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##### Table of Contents



POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per unit and apartment unit data)  Additionally, in the nine months ended September 30, 2004, the Company
granted stock options to purchase approximately 271 shares, respectively, of
Company common stock to Company officers and directors, of which 50 shares
were granted to the Companys non-executive Chairman of the Board. No stock
options were granted to Company officers and directors in the three months
ended September 30, 2004. As discussed in note 1, the Operating Partnership
expenses the estimated costs of stock options over their three year vesting
periods.11.
    
    LEGAL PROCEEDINGSOn May 13, 2004, an alleged Operating Partnership shareholder filed a
purported pro se derivative and direct action in the Superior Court of Fulton
County, Atlanta, Georgia, against the Operating Partnership, certain members
of the Companys Board of Directors, and certain of its executive officers.
The case was removed to the United States District Court for the Northern
District of Georgia on May 21, 2004. The complaint alleges, among other
things, breaches of fiduciary duties, fraud, corporate waste, withholding
certain documents from shareholder inspection and certain securities laws
claims. The complaint requests various types of relief, such as injunctive
relief and damages and demands production of certain Operating Partnership
records. The Operating Partnership believes the allegations are wholly
without merit and has moved to dismiss the litigation.On May 5, 2003, the Operating Partnership received notice that a shareholder
derivative and purported class action lawsuit was filed against members of
the board of directors of the Company and the Operating Partnership as a
nominal defendant. This complaint was filed in the Superior Court of Fulton
County, Atlanta, Georgia on May 2, 2003 and alleges various breaches of
fiduciary duties by the board of directors of the Company and seeks, among
other relief, the disclosure of certain information by the defendants. This
complaint also seeks to compel the defendants to undertake various actions to
facilitate a sale of the Operating Partnership. On May 7, 2003, the plaintiff
made a request for voluntary expedited discovery. On May 13, 2003, the
Operating Partnership received notice that a shareholder derivative and
purported class action lawsuit was filed against certain members of the board
of directors of the Company and against the Operating Partnership as a
nominal defendant. The complaint was filed in the Superior Court of Fulton
County, Atlanta, Georgia on May 12, 2003 and alleges breaches of fiduciary
duties, abuse of control and corporate waste by the defendants. The
plaintiff seeks monetary damages and, as appropriate, injunctive relief.
These lawsuits were settled, and in October 2004, the Superior Court of
Fulton County entered an order approving the settlement. The estimated legal
and settlement costs, not covered by insurance, associated with the expected
resolution of the lawsuits were recorded in the second quarter of 2003 as a
component of a proxy contest and related costs charge.The Operating Partnership is involved in various other legal proceedings
incidental to its business from time to time, most of which are expected to
be covered by liability insurance. Management of the Operating Partnership
believes that any resolution of pending proceedings or liability to the
Operating Partnership, which may arise as a result of these proceedings, will
not have a material adverse effect on the Operating Partnerships results of
operations or financial position. -30-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Company Overview Post Properties, Inc. and its subsidiaries develop, own and manage upscale
multifamily apartment communities in selected markets in the United States. As
used in this report, the term Company includes Post Properties, Inc. and its
subsidiaries, including Post Apartment Homes, L.P. (the Operating
Partnership), unless the context indicates otherwise. The Company, through
its wholly-owned subsidiaries is the general partner and owns a majority
interest in the Operating Partnership which, through its subsidiaries, conducts
substantially all of the on-going operations of the Company. At September 30,
2004, the Company owned 24,700 apartment units in 65 apartment communities,
including 666 apartment units in three communities held in unconsolidated
entities. At September 30, 2004, approximately 51.9%, 17.6%, 9.0% and 8.0% (on
a unit basis) of the Companys communities were located in the Atlanta, Dallas,
Tampa and greater Washington, D.C. metropolitan area, respectively. The Company has elected to qualify and operate as a self-administrated and
self-managed real estate investment trust (REIT) for federal income tax
purposes. A REIT is a legal entity which holds real estate interests and,
through payments of dividends to shareholders, in practical effect is not
subject to federal income taxes at the corporate level. At September 30, 2004, the Company owned approximately 94.1% of the common
limited partnership interests (Common Units) in the Operating Partnership.
Common Units held by persons other than the Company represented a 5.9% common
minority interest in the Operating Partnership. As discussed in the Companys Annual Report on Form 10-K for the year ended
December 31, 2003, the multifamily sector had been adversely impacted over the
past few years by overall weakness in the U.S. economy and a soft employment
market, the strong single-family housing market caused by historically low
mortgage interest rates and excess multifamily supply. These factors led to a
significant increase in apartment vacancies and, in turn, lower net effective
rents as multifamily apartment owners sought to compete in this increasingly
competitive environment. As a result, multifamily same-store revenue and net
operating income growth have declined, turning negative since 2001 and
continuing into the first quarter of 2004. Beginning in the second quarter of
2004, however, there have been ongoing signs of stabilization in the Companys
markets. As a result, revenues at the Companys fully stabilized (same store)
communities have increased in the second and third quarters of 2004 as compared
to the same periods in 2003. These are the first year-over-year quarterly
increases in same store revenues in nearly three years. Net operating income
from these properties in the third quarter continued to show a decline over
2003, but the year-over-year decline lowered from 4.0% in the first quarter of
2004 to 0.8% in the third quarter of 2004. These net operating income declines
were also smaller than the full year 2003 decline of 6.1%. The improved
revenues and net operating income were driven by increased average economic
occupancy at the Companys fully stabilized (same store) communities which
increased from 92.7% for the three months ended September 30, 2003 to 94.2% for
the three months ended September 30, 2004. Sequentially, revenues for the
Companys fully stabilized (same store) communities increased 0.7% in the third
quarter of 2004, compared to the second quarter of 2004, and the average
monthly rental rates increased 0.1% for the same sequential period. In the third quarter of 2004, the Company utilized a portion of the proceeds
from prior quarter asset sales to redeem its 8.0% Series D preferred units
totaling $70,000, and repay its 6.69% medium term notes totaling $10,000 upon
their maturity in September 2004. The reinvestment of asset sales proceeds
back into the Companys balance sheet contributed to the decrease in the
Companys percentage of total debt and preferred equity to undepreciated real
estate assets from 52.7% at September 30, 2003 to 48.1% at September 30, 2004
(see table 1 below). The Company may utilize a portion of the proceeds from its
asset sales program to reinvest in acquisitions that diversify its cash flow
stream and enhance the quality of its portfolio, such as in the greater
Washington, D.C., Tampa and Orlando markets, among others. In the event that
the Company is unable to identify acquisition targets that meet its objectives,
however, the Company may also consider utilizing asset sales proceeds to
repurchase its common stock, if the Company could do so at prices that are
attractive relative to its estimates of per-share net asset value. There can
be no assurance, however, that the Company will utilize asset sales proceeds
for the above purposes. See Liquidity and Capital Resources later in this
section where the Companys asset sales program is discussed further. -31-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  Table 1
Computation of the Ratio of Debt and Preferred Shares and Units to
Undepreciated Real Estate Assets
(adjusted for joint venture partners share of debt) As of September 30,2004
    
    2003Total real estate assets per balance sheet
    
    $
    1,996,269
    
    
    $
    2,158,879Plus:Company share of real estate assets held in unconsolidated entities
    
    
    43,715
    
    
    
    44,897Company share of accumulated depreciation  assets held in unconsolidated entities
    
    
    3,065
    
    
    
    1,738Accumulated depreciation per balance sheet
    
    
    495,048
    
    
    
    411,312Accumulated depreciation on assets held for sale
    
    
    7,836
    
    
    
    82,286Total undepreciated real estate assets (A)
    
    $
    2,545,933
    
    
    $
    2,699,112Total debt per balance sheet
    
    $
    1,099,980
    
    
    $
    1,255,280Plus:Company share of debt held in unconsolidated entities
    
    
    29,240
    
    
    
    5,892Preferred shares at liquidation value
    
    
    95,000
    
    
    
    145,000Preferred units at liquidation value
    
    
    
    
    
    
    70,000Less:Joint venture partners share of construction debt to the Company
    
    
    
    
    
    
    (54,309
    )Total debt and preferred equity (adjusted for joint venture partners share of debt) (B)
    
    $
    1,224,220
    
    
    $
    1,421,863Total debt and preferred equity as a % of undepreciated assets (adjusted for joint
venture partners share of debt) (B÷A) (1)
    
    
    48.1
    %
    
    
    52.7
    %
  (1)
    
    The Company uses the above ratio as a
supplemental measure of liquidity. The ratio is
presented because it is an indicator of the degree of
debt and preferred equity used by the Company to
finance its business. The degree of leverage used by
the Company could affect the Companys ability to
obtain additional financing for working capital,
capital expenditures, acquisitions, development or
other general corporate purposes. The Company also
believes this measure is used by the investment and
analyst communities to better understand the Companys
liquidity. The following discussion should be read in conjunction with the accompanying
consolidated financial statements appearing elsewhere in this report. This
discussion is combined for the Company and the Operating Partnership as their
results of operations and the financial condition are substantially the same
except for the effect of the 5.9% common minority interest in the Operating
Partnership. See the summary financial information in the section below
titled, Results of Operations. Disclosure Regarding Forward-Looking Statements Certain statements made in this report, and other written or oral statements
made by or on behalf of the Company, may constitute forward-looking
statements within the meaning of the federal securities laws. In addition, the
Company, or the executive officers on the Companys behalf, may from time to
time make forward-looking statements in reports and other documents the Company
files with the Securities and Exchange Commission or in connection with oral
statements made to the press, potential investors or others. Statements
regarding future events and developments and the Companys future performance,
as well as managements expectations, beliefs, plans, estimates or projections
relating to the future, are forward-looking statements within the meaning of
these laws. Forward-looking statements include statements preceded by, followed
by or that include the words believes, expects, anticipates, plans,
estimates, or similar expressions. Examples of such statements in this report
include the Companys expectations with regard to: anticipated apartment
community sales (including the estimated proceeds, estimated gains on sales and
the use of proceeds from such sales), property net operating income for 2004,
occupancy levels and rental rates, operating expenses, stabilized community
revenues in excess of specified expenses, accounting recognition and
measurement of guarantees, debt maturities and financing needs, dividend
payments, its ability to meet new construction, development and other long-term
liquidity requirements, and its ability to execute future asset sales.
Forward-looking statements are only predictions and are not guarantees of
performance. These statements are based on beliefs and assumptions of the
Companys management, which in turn are based on currently available
information. Important assumptions relating to the forward-looking statements
include, among others, assumptions regarding the market for the Companys
apartment communities held for sale, demand for apartments in the markets in
which it operates, competitive conditions and general economic conditions.
These assumptions could prove inaccurate. The forward-looking statements also
involve risks and uncertainties, which could cause actual results to differ
materially from those contained in any forward-looking statement. Many of these
factors are beyond the Companys ability to control or predict. Such factors
include, but are not limited to, the following: -32-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  
    
    The success of the Companys business strategies described on pages 2-3 in the Companys Annual Report on Form 10-K for the year ended December 31, 2003;
    
    Future local and national economic conditions, including changes in job growth, interest rates, the availability of financing and other factors;
    
    Demand for apartments in the Companys markets and the effect on occupancy and rental rates;
    
    The impact of competition on the Companys business, including competition for residents and development locations;
    
    The Companys ability to obtain financing or self-fund the development of additional apartment communities;
    
    The uncertainties associated with the Companys real estate development, including actual costs exceeding the Companys budgets or development periods exceeding expectations;
    
    Uncertainties associated with the timing and amount of apartment community sales and the resulting gains/losses associated with such sales;
    
    Conditions affecting ownership of residential real estate and general conditions in the multifamily residential real estate market;
    
    The effects of changes in accounting policies and other regulatory matters detailed in the Companys filings with the Securities and Exchange Commission and uncertainties of litigation;
    
    The Companys ability to continue to qualify as a REIT under the Internal Revenue Code; and
    
    Other factors, including the risk factors discussed in the Companys Form 8-K filed on October 6, 2004. Management believes these forward-looking statements are reasonable; however,
undue reliance should not be placed on any forward-looking statements, which
are based on current expectations. Further, forward-looking statements speak
only as of the date they are made, and management undertakes no obligation to
update publicly any of them in light of new information or future events. Critical Accounting Policies In the preparation of financial statements and in the determination of Company
operating performance, the Company utilizes certain significant accounting
polices. The Companys significant accounting policies are included in the
notes to the Companys audited financial statements included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2003. The
discussion below addresses the implementation and impact of accounting policies
with an impact on the Company in the three and nine months ended September 30,
2004. Residential properties are leased under operating leases with terms of
generally one year or less. Rental revenues from residential leases are
recognized on the straight-line method over the approximate life of the leases,
which is generally one year. The recognition of rental revenues from
residential leases when earned has historically not been materially different
from rental revenues recognized on a straight-line basis. Under the terms of
residential leases, the residents of the Companys residential communities are
obligated to reimburse the Company for certain utility usage, principally water
and electricity, at certain properties, where the Company is the primary
obligor to the public utility entity. These utility reimbursements from
residents are reflected as other property revenues in the consolidated
statements of operations. In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, the aggregate purchase
price of apartment community acquisitions is allocated to the tangible assets,
intangible assets and liabilities (including mortgage indebtedness) acquired in
each transaction, based on their estimated fair values at the acquisition date.
The acquired tangible assets, principally land, building and improvements and
furnitures fixed and equipment, are reflected in real estate assets and
depreciated over their estimated useful lives. The acquired intangible assets,
principally above/below market leases, in-place leases and resident
relationships, are reflected in other assets and amortized over the average
remaining lease terms of the acquired leases and resident relationships
(generally 6 months to 18 months). -33-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) Results of Operations The following discussion of results of operations should be read in conjunction
with the consolidated statements of operations and the community
operations/segment performance information included below. The Companys revenues and earnings are generated primarily from the operation
of its apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. The Company generally
considers a development community to have achieved stabilized occupancy on the
earlier to occur of (1) attainment of 95% physical occupancy on the first day
of any month or (2) one year after completion of construction. At September 30, 2004, the Companys portfolio of apartment communities,
excluding three communities held in unconsolidated entities and one community
held for sale, consisted of the following: (1) 57 communities that were
completed and stabilized for all of the current and prior year, (2) two
communities that achieved full stabilization during 2003, (3) one community
that was in the lease-up stage in early 2004, and (4) one community that was
acquired in 2004. These operating segments exclude the operations of apartment
communities classified as discontinued operations and apartment communities
held in unconsolidated entities for the 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 of a development community, the
sum of interest expense on completed units and other operating expenses
(including pre-opening marketing and management and leasing personnel expenses)
will initially exceed rental revenues, resulting in a lease-up deficit, which
continues until such time as rental revenues exceed such expenses. Lease up
deficits were $0 and $1,634 for the three months ended September 30, 2004 and
2003, respectively, and $0 and $2,612 for the nine months ended September 30,
2004 and 2003, respectively. This reduction in the aggregate lease-up deficits
reflects the lease-up and stabilization of the Companys lease-up communities
in late 2003 and early 2004. Currently, all of the Companys communities have
reached stabilized occupancy and the Company has no communities in the lease-up
stage. In order to evaluate the operating performance of its communities for the
comparative years listed below, the Company has presented financial information
which summarizes the rental and other revenues, property operating and
maintenance expenses (excluding depreciation and amortization) and net
operating income on a comparative basis for all of its operating communities
and for its stabilized operating communities. Net operating income is a
supplemental non-GAAP financial measure. The Company believes that the line on
the Companys consolidated statement of operations entitled net income is the
most directly comparable GAAP measure to net operating income. See note 7 to
the consolidated financial statements for a reconciliation of net operating
income to GAAP net income. The Company believes that net operating income is
an important supplemental measure of operating performance for a REITs
operating real estate because it provides a measure of the core operations,
rather than factoring in depreciation and amortization, financing costs and
general and administrative expenses. This measure is particularly useful, in
the opinion of the Company, in evaluating the performance of geographic
operations, operating segment groupings and individual properties.
Additionally, the Company believes that net operating income, as defined, is a
widely accepted measure of comparative operating performance in the real estate
investment community. -34-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) All Operating Communities The operating performance and capital expenditures from continuing operations
for all of the Companys apartment communities and other commercial properties
summarized by segment for the three and nine months ended September 30, 2004
and 2003 is summarized as follows: Three months ended
    
    
    
    
    
    Nine months endedSeptember 30,
    
    
    
    
    
    September 30,2004
    
    2003
    
    % Change
    
    2004
    
    2003
    
    % ChangeRental and other property revenuesFully stabilized communities (1)
    
    $
    65,762
    
    
    $
    65,452
    
    
    
    0.5
    %
    
    $
    195,745
    
    
    $
    194,999
    
    
    
    0.4
    %Communities stabilized in 2003
    
    
    3,985
    
    
    
    3,688
    
    
    
    8.1
    %
    
    
    11,817
    
    
    
    10,846
    
    
    
    9.0
    %Lease-up communities (2)
    
    
    1,718
    
    
    
    634
    
    
    
    171.0
    %
    
    
    5,303
    
    
    
    887
    
    
    
    497.9
    %Acquired communities (3)
    
    
    2,155
    
    
    
    
    
    
    
    
    
    
    
    2,360
    
    
    
    
    
    
    
    Other property segments (4)
    
    
    5,358
    
    
    
    5,151
    
    
    
    4.0
    %
    
    
    15,866
    
    
    
    14,650
    
    
    
    8.3
    %78,978
    
    
    
    74,925
    
    
    
    5.4
    %
    
    
    231,091
    
    
    
    221,382
    
    
    
    4.4
    %Property operating and maintenance
expenses (exclusive of depreciation
and amortization)Fully stabilized communities (1)
    
    
    26,047
    
    
    
    25,411
    
    
    
    2.5
    %
    
    
    76,896
    
    
    
    73,909
    
    
    
    4.0
    %Communities stabilized in 2003
    
    
    1,494
    
    
    
    1,505
    
    
    
    (0.7
    )%
    
    
    4,351
    
    
    
    4,447
    
    
    
    (2.2
    )%Lease-up communities (2)
    
    
    550
    
    
    
    605
    
    
    
    (9.1
    )%
    
    
    1,530
    
    
    
    1,346
    
    
    
    13.7
    %Acquired communities (3)
    
    
    611
    
    
    
    
    
    
    
    
    
    
    
    668
    
    
    
    
    
    
    
    Other expense (5)
    
    
    7,352
    
    
    
    5,496
    
    
    
    33.8
    %
    
    
    19,214
    
    
    
    16,645
    
    
    
    15.4
    %36,054
    
    
    
    33,017
    
    
    
    9.2
    %
    
    
    102,659
    
    
    
    96,347
    
    
    
    6.6
    %Property net operating income(6)
    
    $
    42,924
    
    
    $
    41,908
    
    
    
    2.4
    %
    
    $
    128,432
    
    
    $
    125,035
    
    
    
    2.7
    %Capital ExpendituresRecurring capital expenditures: (7)(8)Carpet
    
    $
    940
    
    
    $
    585
    
    
    
    60.7
    %
    
    $
    2,301
    
    
    $
    1,642
    
    
    
    40.1
    %Other
    
    
    1,439
    
    
    
    1,753
    
    
    
    (17.9
    )%
    
    
    4,667
    
    
    
    3,712
    
    
    
    25.7
    %Total
    
    $
    2,379
    
    
    $
    2,338
    
    
    
    1.8
    %
    
    $
    6,968
    
    
    $
    5,354
    
    
    
    30.1
    %Non-recurring capital expenditures
    
    $
    1,057
    
    
    $
    1,022
    
    
    
    3.3
    %
    
    $
    3,591
    
    
    $
    2,870
    
    
    
    25.1
    %Average apartment units in service
    
    
    23,574
    
    
    
    23,574
    
    
    
    
    
    
    
    23,574
    
    
    
    23,574
    
    
    
    
  (1)
    
    Communities which reached stabilization prior to January
1, 2003.(2)
    
    Communities in the construction, development or
lease-up stage during 2003 and, therefore, not considered
fully stabilized for all of the periods presented.(3)
    
    Communities acquired subsequent to January 1, 2003.(4)
    
    Other property segment revenues include revenue from
commercial properties, from furnished apartment rentals above
the unfurnished rental rates and any property revenue not
directly related to property operations. Other property
segment revenues exclude other corporate revenues of $814 and
$102 for the three months and $936 and $379 for the nine months
ended September 30, 2004 and 2003, respectively.(5)
    
    Other expenses includes certain indirect central office
operating expenses related to management, grounds maintenance,
and costs associated with commercial properties and furnished
apartment rentals.(6)
    
    A reconciliation of property net operating income to GAAP
net income is detailed below. Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Consolidated property NOI
    
    $
    42,924
    
    
    $
    41,908
    
    
    $
    128,432
    
    
    $
    125,035Add (subtract):Other revenues
    
    
    814
    
    
    
    102
    
    
    
    936
    
    
    
    379Interest income
    
    
    247
    
    
    
    223
    
    
    
    639
    
    
    
    708Minority interest in consolidated property
partnerships
    
    
    167
    
    
    
    677
    
    
    
    742
    
    
    
    1,359Depreciation
    
    
    (21,864
    )
    
    
    (21,553
    )
    
    
    (64,227
    )
    
    
    (62,096
    )Interest expense
    
    
    (17,299
    )
    
    
    (17,122
    )
    
    
    (50,306
    )
    
    
    (49,001
    )Amortization of deferred financing costs
    
    
    (1,066
    )
    
    
    (1,084
    )
    
    
    (3,273
    )
    
    
    (2,839
    )General and administrative
    
    
    (6,017
    )
    
    
    (3,738
    )
    
    
    (16,136
    )
    
    
    (10,703
    )Development costs and other expenses
    
    
    (283
    )
    
    
    (274
    )
    
    
    (1,200
    )
    
    
    (841
    )Proxy contest and related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,231
    )Severance charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,506
    )Equity in income of unconsolidated entities
    
    
    420
    
    
    
    60
    
    
    
    843
    
    
    
    7,768Minority interest of preferred unitholders
    
    
    (980
    )
    
    
    (1,400
    )
    
    
    (3,780
    )
    
    
    (4,200
    )Minority interest of common unitholders
    
    
    406
    
    
    
    457
    
    
    
    1,125
    
    
    
    3,160Loss from continuing operations
    
    
    (2,531
    )
    
    
    (1,744
    )
    
    
    (6,205
    )
    
    
    (18,008
    )Income from discontinued operations
    
    
    738
    
    
    
    92
    
    
    
    108,932
    
    
    
    23,460Net income (loss)
    
    $
    (1,793
    )
    
    $
    (1,652
    )
    
    $
    102,727
    
    
    $
    5,452
 -35-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  (7)
    
    In addition to those expenses which relate to property
operations, the Company incurs recurring and non-recurring
expenditures relating to acquiring and developing new assets,
materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset,
all of which are capitalized. Recurring capital expenditures
are those that are generally expected to be incurred on an
annual basis. Non-recurring capital expenditures are those
that generally occur less frequently than on an annual basis.(8)
    
    A reconciliation of property capital expenditures from
continuing operations to total recurring and non-recurring
capital expenditures as presented in the consolidated
statements of cash flows under GAAP is detailed below. Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Recurring capital expendituresContinuing operations
    
    $
    2,379
    
    
    $
    2,338
    
    
    $
    6,968
    
    
    $
    5,354Discontinued operations
    
    
    41
    
    
    
    658
    
    
    
    645
    
    
    
    1,628Total recurring capital
expenditures per statements of
cash flows
    
    $
    2,420
    
    
    $
    2,996
    
    
    $
    7,613
    
    
    $
    6,982Non-recurring capital expendituresContinuing operations
    
    $
    1,057
    
    
    $
    1,022
    
    
    $
    3,591
    
    
    $
    2,870Discontinued operations
    
    
    1
    
    
    
    33
    
    
    
    13
    
    
    
    361Total non-recurring capital
expenditures per statements of
cash flows
    
    $
    1,058
    
    
    $
    1,055
    
    
    $
    3,604
    
    
    $
    3,231
 Stabilized Communities The Company defines fully stabilized communities as those which have reached
stabilization prior to the beginning of the previous year. For the 2004 to
2003 comparison, fully stabilized communities are defined as those communities
which reached stabilization prior to January 1, 2003. This portfolio
consisted of 57 communities with 21,954 units, including 27 communities with
11,886 units (54.1%) located in Atlanta, Georgia, 16 communities with 4,353
units (19.8%) located in Dallas, Texas, three communities with 1,439 units
(6.6%) located in Tampa, Florida, three communities with 1,204 units (5.5%)
located in Washington, DC, three communities with 1,065 units (4.9%) located in
Charlotte, North Carolina and five communities with 2,007 units (9.1%) located
in other markets. The operating performance and capital expenditures of these
communities is summarized as follows: Three months ended
    
    
    
    
    
    Nine months endedSeptember 30,
    
    
    
    
    
    September 30,2004
    
    2003
    
    % Change
    
    2004
    
    2003
    
    % ChangeRental and other revenues
    
    $
    65,762
    
    
    $
    65,452
    
    
    
    0.5
    %
    
    $
    195,745
    
    
    $
    194,999
    
    
    
    0.4
    %Property operating and maintenance
expenses (excluding depreciation and
amortization)
    
    
    26,047
    
    
    
    25,411
    
    
    
    2.5
    %
    
    
    76,896
    
    
    
    73,909
    
    
    
    4.0
    %Same store net operating income (1)
    
    $
    39,715
    
    
    $
    40,041
    
    
    
    (0.8
    )%
    
    $
    118,849
    
    
    $
    121,090
    
    
    
    (1.9
    )%Capital expenditures (2)RecurringCarpet
    
    $
    859
    
    
    $
    649
    
    
    
    32.4
    %
    
    $
    2,204
    
    
    $
    1,637
    
    
    
    34.6
    %Other
    
    
    1,405
    
    
    
    1,625
    
    
    
    (13.5
    )%
    
    
    4,531
    
    
    
    3,562
    
    
    
    27.2
    %Total recurring
    
    
    2,264
    
    
    
    2,274
    
    
    
    (0.4
    )%
    
    
    6,735
    
    
    
    5,199
    
    
    
    29.5
    %Non-recurring
    
    
    985
    
    
    
    922
    
    
    
    6.8
    %
    
    
    3,181
    
    
    
    2,256
    
    
    
    41.0
    %Total capital expenditures (A)
    
    $
    3,249
    
    
    $
    3,196
    
    
    
    1.7
    %
    
    $
    9,916
    
    
    $
    7,455
    
    
    
    33.0
    %Total capital expenditures per unit
(A÷21,954 units)
    
    $
    148
    
    
    $
    146
    
    
    
    1.4
    %
    
    $
    452
    
    
    $
    340
    
    
    
    32.9
    %Average economic occupancy (3)
    
    
    94.2
    %
    
    
    92.7
    %
    
    
    1.5
    %
    
    
    93.5
    %
    
    
    91.5
    %
    
    
    2.0
    %Average monthly rental rate per unit (4)
    
    $
    986
    
    
    $
    1,004
    
    
    
    (1.8
    )%
    
    $
    986
    
    
    $
    1,019
    
    
    
    (3.2
    )%
  (1)
    
    Net operating income of stabilized communities is a
supplemental non-GAAP financial measure. See note 7 to the
consolidated financial statements for a reconciliation of net
operating income for stabilized communities to GAAP net
income. -36-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data)  (2)
    
    A reconciliation of these segment components of property capital
expenditures to total recurring and non-recurring capital
expenditures as presented in the consolidated statements of cash
flows prepared under GAAP is detailed below. Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Recurring capital expenditures by operating segmentSame store
    
    $
    2,264
    
    
    $
    2,274
    
    
    $
    6,735
    
    
    $
    5,199Partially stabilized
    
    
    34
    
    
    
    15
    
    
    
    121
    
    
    
    42Construction and lease-up
    
    
    3
    
    
    
    
    
    
    
    15
    
    
    
    Other segments
    
    
    119
    
    
    
    707
    
    
    
    742
    
    
    
    1,741Total recurring capital expenditures per statements of
cash flows
    
    $
    2,420
    
    
    $
    2,996
    
    
    $
    7,613
    
    
    $
    6,982Non-recurring capital expenditures by operating segmentSame store
    
    $
    985
    
    
    $
    922
    
    
    $
    3,181
    
    
    $
    2,256Partially stabilized
    
    
    15
    
    
    
    41
    
    
    
    197
    
    
    
    48Construction and lease-up
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other segments
    
    
    58
    
    
    
    92
    
    
    
    226
    
    
    
    927Total non-recurring capital expenditures per
statements of cash flows
    
    $
    1,058
    
    
    $
    1,055
    
    
    $
    3,604
    
    
    $
    3,231
  The Company uses same store recurring and non-recurring capital
expenditures as cash flow measures. Same store recurring and
non-recurring capital expenditures are supplemental non-GAAP
financial measures. The Company believes that same store
recurring and non-recurring capital expenditures are important
indicators of the costs incurred by the Company in maintaining
same store communities. The corresponding GAAP measures include
information with respect to the Companys other operating
segments consisting of communities stabilized in the prior year,
lease-up communities, and sold communities in addition to same
store information. Therefore, the Company believes that the
Companys presentation of same store recurring and non-recurring
capital expenditures is necessary to demonstrate same store
replacement costs over time. The Company believes that the most
directly comparable GAAP measure to same store recurring and
non-recurring capital expenditures are the lines on the Companys
consolidated statements of cash flows entitled recurring capital
expenditures and non-recurring capital expenditures.(3)
    
    Average economic occupancy is defined as gross
potential rent less vacancy losses, model expenses and bad
debt expenses divided by gross potential rent for the period,
expressed as a percentage. Gross potential rent is defined as
the sum of the gross actual rental rates for leased units and
the anticipated rental rates for unoccupied units. The
calculation of average economic occupancy does not include a
deduction for concessions and employee discounts. Average
economic occupancy including these amounts would have been
93.5% and 91.7% for the three months and 92.9% and 90.1% for
the nine months ended September 30, 2004 and 2003,
respectively. For the three months ended September 30, 2004
and 2003, net concessions were $319 and $538, respectively,
and employee discounts were $109 and $131, respectively. For
the nine months ended September 30, 2004 and 2003, net
concessions were $924 and $2,302, respectively, and employee
discounts were $340 and $420, respectively.(4)
    
    Average monthly rental rate is defined as the average
of the gross actual rental rates for leased units and the
average of the anticipated rental rates for unoccupied units,
divided by total units. Comparison of Three Months Ended September 30, 2004 to Three Months Ended September 30, 2003 The Operating Partnership reported a net loss available to common unitholders
of $6,191 and $4,961 for the three months ended September 30, 2004 and 2003,
respectively, and the Company reported a net loss available to common
shareholders of $5,512 and $4,514 for the three months ended September 30, 2004
and 2003, respectively. The increase in the net loss between periods primarily
reflects increased general and administrative expenses offset by increased
property net operating income. The impact of these items is discussed below. Rental and other revenues from property operations increased $4,053 or 5.4%
from 2003 to 2004 primarily due to increased revenues from the Companys
acquired and lease-up communities of $3,873. The revenue increase from
acquired communities reflects the Companys acquisition of one community in
June 2004. The revenue increase from lease-up communities in 2004 reflects the
increased occupancy of one community between periods as this community was in
initial lease-up in 2003. Property operating and maintenance expenses
(exclusive of depreciation and amortization) increased $3,037 or 9.2% primarily
due to the impact of charges of $703 relating to estimated hurricane damage at
the Companys Florida properties and severance charges of $569 for the
elimination of certain property management positions (both charges included in
other expenses) as well as increases in property operating and maintenance
expenses (excluding depreciation and amortization) for acquired communities of
$611 and for fully stabilized communities of $636 or 2.5% between periods (see
discussion below). Other revenues for the three months ended September 30, 2004 included forfeited
earnest money deposits from terminated property and land sale contracts
totaling $684. Depreciation expense increased $311, or 1.4% from 2003 to 2004 primarily due to
increased depreciation on an acquisition property acquired in June 2004 offset
by reduced depreciation resulting from certain furniture and fixtures (with a
five year life) at certain properties becoming fully depreciated in the third
quarter of 2004. -37-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) General and administrative expenses increased $2,279, or 61.0%, from 2003 to
2004 primarily due to higher expenses related to legal, audit, corporate
governance and other consulting expenses. The increase in legal expenses
includes approximately $499 of additional costs associated with the settlement
with the Companys former chairman and CEO (see note 8 to the consolidated
financial statements), shareholder litigation and other matters. The increase
in audit and corporate governance expenses of $477 reflects the impact of the
Sarbanes/Oxley regulations. The increase in consulting expenses of
approximately $620 between periods reflects costs associated with a review and
valuation of each asset in the Companys real estate portfolio to assist with
future capital investment decisions and strategic planning and professional
services to assist with the selection of new property management software. In 2004 and 2003, development costs and other expenses of $283 and $274,
respectively, consisted of development personnel and associated costs and land
carry expenses not allocable to development projects. Interest expense included in continuing operations increased $177 or 1.0% from
2003 to 2004. The comparable expense amounts between periods reflect stable
interest rates in the Companys debt portfolio and consistent outstanding debt
levels associated with results from continuing operations. Interest expense
included in discontinued operations decreased from $1,361 in 2003 to $74 in
2004 as the majority of the assets included in discontinued operations were
sold prior to the third quarter of 2004 and the proceeds of such asset sales
were used to reduce outstanding debt levels. Equity in income of unconsolidated real estate entities increased $360 from
2003 to 2004. This increase was primarily due to the completion of the
lease-up of one community held by the entities and the generally improving
apartment market fundamentals resulting in improved operating performance of
the communities held by the entities. See note 3 to the consolidated financial
statements for a summary of the operating results of the Companys
unconsolidated entities. Recurring and nonrecurring capital expenditures from continuing operations
increased $75 or 2.2% from 2003 to 2004. The slight increase in capital
expenditure reflects normal timing fluctuations in spending between periods. Stabilized Communities Rental and other revenues increased $310 or 0.5% from 2003 to 2004. This
increase resulted from an increase in average economic occupancy of the
portfolio from 92.7% in 2003 to 94.2% in 2004 offset somewhat by a 1.8% decline
in the average monthly rental rate per apartment unit. These occupancy
increases resulted in lower net rental concessions of $333 and lower
vacancy losses of $1,187. The decline in average rental rates resulted in a
revenue decrease of approximately $1,200 between years. Overall, the improving
performance of the operating portfolio reflects gradually improving market
conditions in most of the Companys markets resulting generally from improved
economic conditions. In mid 2003 and 2004, the Company modified its leasing strategy to focus on
retaining higher average occupancy levels. The Companys targeted physical
occupancy for its stabilized communities is generally between 94% and 95%. As
shown in the table above, the Company was operating in that range during the
third quarter of 2004. This strategy has resulted in continued year over year
reductions in the average rental rate per apartment unit between periods, but
the increase in occupancy has resulted in increased year over year total rental and other revenues
between years (0.5% in 2004). In periods prior to mid 2003, the Companys
leasing strategy focused more on maintaining average monthly rental rates than
on retaining occupancy. The Company believed this strategy change was
necessary to maximize its operating results under the market conditions
existing in 2003 and 2004, to operate the Companys communities more
efficiently at higher occupancy levels in 2004 and to be in a better position
to increase rental rates as market conditions improve in future periods. Property operating and maintenance expenses (exclusive of depreciation and
amortization) increased $636 or 2.5% from 2003 to 2004. Increased personnel
expenses of $447 or 7.7%, increased property tax expenses of $363 or 4.6% and
increased utility expenses of $295 or 9.1% were offset by decreased insurance
expenses of $144 or 10.4% and decreased repairs and maintenance expenses of
$234 or 7.5%. Personnel expenses increased due to annual salary increases,
increased bonus expenses and increased health insurance expenses in 2004.
Property tax expense increased due to larger accruals from estimated property
taxes in Dallas, Texas due to rising property valuations in that market offset
somewhat by achieved favorable tax valuations in other markets during the third
quarter of 2004. Utility expenses increased primarily due to higher water and
sewer rates in Atlanta, Georgia. Insurance expenses decreased due to lower
insurance rates for the 2004 insurance renewal period. Repairs and maintenance
expenses decreased due to reduced exterior painting between periods and as a
result of fewer of the Companys stabilized communities expensing carpet, vinyl
and blinds during their first five years of operations. -38-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) Comparison of Nine Months Ended September 30, 2004 to Nine Months Ended
September 30, 2003 The Operating Partnership reported net income available to common unitholders
of $99,244 for the nine months ended September 30, 2004 compared to a net loss
of $3,512 for the nine months ended September 30, 2003, and the Company
reported net income available to common shareholders of $92,785 for the nine
months ended September 30, 2004 compared to a net loss of $3,135 for the nine
months ended September 30, 2003. The significant increase in net income
between periods primarily reflects the increased gains on property sales
between periods. In the nine months ended September 30, 2004, the Company sold
eight communities and certain land parcels with gains totaling $113,739
($106,039 net of minority interest) compared to the sale of two communities and
certain land parcels with gains of $33,690 ($30,043 net of minority interest)
and the Companys share of the gain on the sale of an apartment community held
in an unconsolidated entity of $8,395 ($7,472 net of minority interest) in the
first half of 2003. These gains were partially offset by a loss of $4,128
($3,849 net of minority interest) from the early extinguishment of debt
associated with the 2004 apartment sales. Net income in the first nine months
of 2003 was negatively impacted by accounting charges (severance and proxy
contest) totaling $26,737 ($23,723 net of minority interest). These charges
are discussed in more detail below. In addition, in 2003, the Company recorded
$17,462 ($15,466 net of minority interest) of asset impairment charges to
write-down the cost of apartment communities in Phoenix, Arizona and Dallas,
Texas to their estimated fair value. Other than the impact of these items, the
operating performance of the Companys properties improved over 2003 as
reflected in increased revenues and net operating income offset by increased
general and administrative expenses. The impact of these items is discussed
below. Rental and other revenues from property operations increased $9,709 or 4.4%
from 2003 to 2004 primarily due to increased revenues from the Companys
acquired and lease-up communities of $6,776. The revenue increase from
acquired communities reflects the Companys acquisition of one community in
June 2004. The revenue increase from lease-up communities in 2004 reflects the
increased occupancy of one community between periods as this community was in
initial lease-up in 2003. Property operating and maintenance expenses
(exclusive of depreciation and amortization) increased $6,312 or 6.6% primarily
due to an increase in property operating and maintenance expenses (excluding
depreciation and amortization) for fully stabilized communities of $2,987 or
4.0% between periods (see discussion below) and increases in expenses of $668
from acquired communities as well as the impact of one-time charges of $703
relating to estimated hurricane charges at the Companys Florida properties and
severance charges of $569 for the elimination of certain property management
positions (both charges included in other expenses in the table above). For the nine months ended September 30, 2004, the Company recognized net gains
from discontinued operations of $113,739 ($106,039 net of minority interest)
from the sale of eight communities containing 3,880 units and certain land
parcels. The sales generated net proceeds of approximately $242,962, including
$104,325 of tax-exempt debt assumed by the purchasers. For the nine months
ended September 30, 2003, the Company recognized net gains from discontinued
operations of $33,690 ($30,043 net of minority interest), on the sale of two
communities, containing 1,009 apartment units, and certain land parcels. These
sales generated net proceeds of approximately $99,858. Depreciation expense increased $2,131, or 3.4% from 2003 to 2004 primarily due
to an acquisition property acquired in June 2004 and lease-up properties, as
these properties were placed in service, during mid to late 2003. Interest expense increased $1,305 or 2.7% from 2003 to 2004 primarily due to a
$2,551 reduction in capitalized interest to development properties between
years as the Companys development pipeline transitioned to operating
properties in 2003. Adjusted for the impact of capitalized interest, the
resulting decrease in interest expense from continuing operations results from
lower outstanding debt levels between years as the Company used the proceeds
from asset sales to reduce outstanding debt. General and administrative expenses increased $5,433, or 50.8%, from 2003 to
2004 primarily due to higher expenses related to the amortization of incentive
stock compensation awards, directors and officers insurance, legal, audit,
corporate governance and other consulting expenses. The increase in legal
expenses includes approximately $1,386 of additional costs associated with the
settlement with the Companys former chairman and CEO (see note 8 to the
consolidated financial statements), shareholder litigation and other matters.
The increase in audit and corporate governance expense of $921 reflects the impact of
the Sarbanes/Oxley regulations. The increase in consulting expenses of
approximately $620 between periods reflects costs associated with a review and
valuation of each asset in the Companys real estate portfolio to assist with
future capital investment decisions and strategic planning and professional
services to assist with the selection of new property management software. Development costs and other increased $359 or 42.7% from 2003 to 2004.
Development costs and other expenses of $1,200 in 2004 consisted of development
personnel and associated costs and land carry expenses not allocable to
development projects. Development costs and other expenses of $841 in 2003
consisted of development personnel and associated costs of $274, legal expenses
of $373 relating to board of directors governance and transition matters, the
settlement cost of $100 relating to the bankruptcy of a former technology
investment and losses of $94 on the disposal of the Companys partial ownership
interest in a corporate aircraft. -39-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) The Company recorded severance and proxy contest charges of $21,506 and $5,231,
respectively in 2003. These charges and a summary of the activity relating to
accrued severance charges for the nine months ended September 30, 2004 are
summarized in more detail in note 8 to the consolidated financial statements. Equity in income of unconsolidated real estate entities decreased $6,925 or
89.1% from 2003 to 2004. This decrease was primarily due to the recognition of
the Companys share of a gain totaling $8,395 resulting from the sale of an
apartment community by one of its equity method limited liability companies in
2003. Excluding the impact of this gain, the net income of the unconsolidated
entities improved in 2004 primarily due to the completion of the lease-up of
one community held by the entities and the generally improving apartment market
fundamentals resulting in improved operating performance of the communities
held by the entities. See note 3 to the consolidated financial statements for
a summary of the operating results of the Companys unconsolidated entities. Recurring and nonrecurring capital expenditures from continuing operations
increased $2,335 or 28.4% from 2003 to 2004. The increase in recurring capital
expenditures of $1,614 or 30.1% reflects the impact of several properties
beginning to capitalize carpet, vinyl and blinds in 2004 (the properties
expensed these expenditures under the Companys accounting policies for the
initial five years), more leasing office upgrades in 2004 as well as the timing
of capital spending between years. The increase in nonrecurring capital expenditures
of $721 or 25.1% in 2004
primarily reflected a special project to prevent water infiltration at one
property located in Tampa, Florida as well as other structural projects at
properties in Dallas, Texas. Stabilized Communities Rental and other revenues increased $746 or 0.4% from 2003 to 2004. This
increase resulted from increased average economic occupancy levels in 2004
offset somewhat by a 3.2% decline in the average monthly rental rate per
apartment unit. These increases in the average economic occupancy of the
portfolio from 91.5% in 2003 to 93.5% in 2004 resulted in lower net
rental concessions of $1,922 and lower vacancy losses of $4,835 in 2004. Other
property revenues also increased $414. The decline in average rental rates
resulted in a revenue decrease of approximately $6,425 between years. Overall,
the improving performance of the operating portfolio reflects gradually
improving market conditions in most of the Companys markets
resulting generally from
improved economic conditions. In mid 2003 and 2004, the Company modified its leasing strategy to focus on
retaining higher average occupancy levels as discussed above. This strategy
has resulted in continued year over year reductions in the average rental rate
per apartment unit between periods, but the increase in occupancy has resulted
in increased year over year total rental and other revenues between years (0.4%
in 2004). In periods prior to mid 2003, the Companys leasing strategy focused
more on maintaining average monthly rental rates than on retaining occupancy.
The Company believed this strategy change was necessary to maximize its
operating results under the market conditions existing in 2003 and 2004, to
operate the Companys communities more efficiently at higher occupancy levels
and to be in a better position to increase rental rates as market conditions
improve in future periods. Property operating and maintenance expenses (exclusive of depreciation and
amortization) increased $2,987 or 4.0% from 2003 to 2004. Increased personnel
expenses of $1,446 or 8.5%, increased property tax expenses of $1,182 or 5.0%,
and increased utility expenses of $902 or 9.9% were offset by decreased
insurance expenses of $413 or 9.9%. Personnel expenses increased due to annual
salary increases, increased bonus expenses and increased health insurance
expenses in 2004. Property tax expense increased $1,182, or 5.0%, due to
larger accruals for estimated property taxes in Dallas, Texas due to rising
property valuations in that market offset somewhat by achieved favorable tax
valuation in other markets during the third quarter of 2004. Utility expenses
increased primarily due to higher water and sewer rates in Atlanta, Georgia.
Insurance expenses decreased due to lower insurance rates for the 2004
insurance renewal period. -40-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) Discontinued Operations In accordance with SFAS No. 144, the operating results and gains and losses on
property sales of real estate assets designated as held for sale are included
in discontinued operations in the consolidated statement of operations. For
the three and nine months ended September 30, 2004, income from discontinued
operations included the results of operations of one community, containing 460
units, classified as held for sale at September 30, 2004 and the results of
operations of eight communities sold in 2004 through their sale dates. For the
three and nine months ended September 30, 2003, income from discontinued
operations included the results of operations of one community classified as
held for sale at September 30, 2004, eight communities sold in 2004 and the
results of operations of four communities sold in 2003 through the earlier of
September 30, 2003 or their sale dates. The revenues and expenses of
discontinued operations are summarized in note 4 to the consolidated financial
statements. For the nine months ended September 30, 2004, income from
discontinued operations increased from a loss of $6,583, net of minority
interest, in 2003 to income of $6,742, net of minority interest, in 2004. This
increase was primarily due to $17,462 ($15,466 net of minority interest) of
impairment losses taken on two of the Companys apartment communities in 2003
partially offset by a $626 ($584 net of minority interest) asset impairment
loss in the second quarter of 2004 on an apartment community located in Dallas,
Texas. The gains on property sales between periods reflect the timing and size
of the communities sold. These gains are discussed in note 4 to the
consolidated financial statements. As discussed under Liquidity and Capital Resources, the Company expects to
continue to sell real estate assets in future periods as part of its overall
investment, disposition and acquisition strategy. As such, the Company may
continue to have additional assets classified as held for sale, however, the
timing and amount of such asset sales and their impact on the aggregate
revenues and expenses included in discontinued operations will vary from period
to period. Additionally, should the Company change its expectations regarding
the holding period for certain assets or decide to classify certain assets as
held for sale, this could cause the Company to recognize impairment losses in
future periods if the carrying value of these assets is not deemed recoverable. Outlook Certain statements made below may constitute forward-looking statements
within the meaning of the federal securities laws, and are based on current
apartment market and general economic conditions and other risks as outlined in
the section titled Disclosure Regarding Forward-Looking Statements above. The outlook for the Companys core markets is for continued gradual
improvement, with expectations of modest job growth, increased absorption
and reduced supply. This is reflected in the year-over-year, same store
quarterly revenue growth that the Company achieved in the second and third
quarters of 2004 in most of its major markets as well as in the continued
moderation in the decline in average rents, reduced levels of concessions and
improved economic occupancy. In the fourth quarter of 2004, the Company anticipates flat to slight increases
in same store net operating income. Both same store operating revenues and
expenses are expected to be seasonably lower than in the third quarter of 2003.
Overall property operating and maintenance expenses are expected to be lower
due to the charges of $703 for hurricane damage and $569 for severance accruals
taken in the third quarter of 2004. Interest expense will be lower due to the
debt tender and refinancing of fixed rate debt in early October 2004, and the
Company will benefit from lower preferred unit distribution requirements due to
the preferred unit redemption in the third quarter of 2004. General and
administrative expenses are also expected to be lower primarily due to reduced
legal and consulting expenses. The Company expects to report a loss on early
debt extinguishment of approximately $4,000 resulting from the debt tender
offer completed in October 2004. The Company is also anticipating higher short-term interest rates and continued
higher than normal general and administrative costs. Although general and
administrative costs in the fourth quarter are anticipated to be modestly lower
than in the second and third quarters of 2004, they are still anticipated to be
moderately higher than in the first quarter due to increased legal expenses
associated with shareholder litigation and other matters as well as increased
legal and other professional expenses relating to implementation of the
Sarbanes-Oxley Act. Liquidity and Capital Resources The discussion in this Liquidity and Capital Resources section is the same for
the Company and the Operating Partnership, except that all indebtedness
discussed herein has been incurred by the Operating Partnership. -41-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) The Companys net cash provided by operating activities decreased from $88,333
in 2003 to $82,422 in 2004 primarily due to reduced earnings from continuing
and discontinuing operations (exclusive of the 2003 proxy and executive
severance charges) and due to a reduction in the changes in the working capital
components (primarily the reduction in the change in payables between periods)
included in operating activities. The reduced earnings between years reflects
the dilutive impact of the Companys asset sales program. The Company expects
cash flows from operating activities to show declines for the full year of 2004
compared to 2003 primarily driven by the dilutive cash flow impact from asset
sales. Net cash provided by investing activities decreased from $151,637 in 2003 to
$141,634 in 2004 primarily due to a reduced net repayment of construction loan
advances from unconsolidated entities in 2003 and increased investment in an
acquisition property in 2004, partially offset by increased proceeds from
wholly-owned asset sales between periods. Net cash used in financing activities decreased from $242,145 in 2003 to
$222,388 in 2004 primarily due to lower cash dividend payments between periods
and the timing differences in the net repayment of indebtedness and redemptions
of preferred stock and units between periods. Since 1993, the Company has elected to be taxed as a real estate investment
trust (REIT) under the Internal Revenue Code of 1986, as amended (the
Code). Management currently intends to continue operating the Company as a
REIT in 2004. As a REIT, the Company is subject to a number of organizational
and operating requirements, including a requirement to distribute 90% of its
taxable income to its shareholders. As a REIT, the Company generally will not
be subject to federal income taxes on its taxable income. Generally, the Companys objective is to meet its short-term liquidity
requirement of funding the payment of its current level of quarterly preferred
and common dividends to shareholders through its net cash flows provided by
operating activities, less its annual recurring and nonrecurring property and
corporate capital expenditures. These operating capital expenditures are the
capital expenditures necessary to maintain the earnings capacity of the
Companys operating assets over time. For the nine months ended September 30, 2004, the Companys net cash flow from
operations, reduced by operating capital expenditures, was sufficient to fully
fund the Companys current level of dividend payments to common and preferred
shareholders. Cash flows from operations, reduced by operating capital
expenditures, would have been lower than the quarterly dividend requirements,
exclusive of the favorable change in working capital items impacting operating
cash flows for the period. These working capital items fluctuate from period
to period, primarily due to the timing of payments of interest, property taxes
and operating payables. As discussed below, the Company expects its operating
cash flows, less operating capital expenditures, to be less than its dividend
requirements for the full year of 2004. The Companys net cash flow from
operations and proceeds from asset sales continue to be sufficient to meet the
dividend requirements necessary to maintain its REIT status under the Code. For full year of 2004, management of the Company currently expects to maintain
its current quarterly dividend payment rate to common shareholders of $0.45 per
share. At this dividend rate, the Company currently expects that net cash
flows from operations reduced by annual operating capital expenditures will not
be sufficient to fund the dividend payments to common and preferred
shareholders by approximately $10,000 to $15,000. The Company intends to use
primarily the proceeds from 2004 asset sales to fund the additional cash flow
necessary to fully fund the dividend payments to common shareholders. The
factors leading to this net operating cash flow shortfall are the soft market
conditions for the Companys operating properties over the last few years and
the short-term negative cash flow impact of sales of operating properties
(discussed below) prior to the reinvestment of such proceeds. The Companys
board of directors, however, will continue to review the dividend quarterly. The Company generally expects to utilize net cash flow from operations,
available cash and cash equivalents and available capacity under its revolving
lines of credit to fund its short-term liquidity requirements, including
capital expenditures, development and construction expenditures, land
acquisitions, dividends and distributions on its common and preferred equity
and its debt service requirements. Available cash and cash equivalents and
capacity under the revolving lines of credit as of September 30, 2004 were
created primarily through the Companys asset sales program. The Company
generally expects to fund its long-term liquidity requirements, including
maturities of long-term debt and acquisition and development activities,
through long-term unsecured and secured borrowings, through additional sales of
selective operating properties, and possibly through equity or leveraged joint
venture arrangements. The Company may also continue to use joint venture
arrangements in future periods to reduce its market concentrations in certain
markets, build critical mass in other markets and to reduce its exposure to
certain risks of its future development activities. As previously discussed, the Company intends to use the proceeds from the sale
of operating properties and availability under its unsecured revolving line of
credit as the primary source of capital to fund its current and future
development and acquisition expenditures. The Company began an asset sale and
capital recycling program in 2000 as the primary means to fund its on-going -42-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) community development program. Total net sales proceeds raised in 2004, 2003
and 2002 were $242,962 (including $104,325 of debt assumed), $163,560 and
$182,216, respectively. Additionally in 2003, the Company received net
proceeds of approximately $75,000 (including the repayment of the construction
loan from the venture) from the sale of one apartment community held in an
unconsolidated entity. A more detailed discussion of the assets sales is
included in note 4 to the consolidated financial statements. In the first half of 2004, the Company sold eight apartment communities,
containing 3,880 units, as part of an asset sales program designed to focus its
operations in fewer markets, maintain the low average age and high quality of
the portfolio and reduce the Companys market concentrations in Atlanta,
Georgia and Dallas, Texas. These sales are expected to generate significant
capital gains for tax purposes in 2004. Realized capital gains must generally
be distributed to shareholders, in the form of dividends, in order to avoid the
payment of income taxes at the corporate level. The Company expects to be able
to use its regular quarterly dividend of $0.45 per share, as well as other tax
planning strategies, to pay out or otherwise mitigate the impact of these
capital gains. At September 30, 2004, the Company has one additional community
located in Atlanta, Georgia classified as held for sale. This community was
previously under contract and expected to close in the third quarter of 2004.
The Company currently intends to remarket this property for sale. In the third quarter of 2004, the Company used a portion of the
proceeds from
its asset sales program to redeem its $70,000 8.0% Series D preferred units and
to repay its 6.69% medium term notes totaling $10,000 upon their maturity.
Additionally, the Company may utilize remaining asset sale proceeds to fund
future development activity, future property acquisition, future debt
reductions and to repurchase its common stock if the Company can do so at
prices that are attractive relative to its estimates of per-share net asset
value. There can be no assurance, however, that the Company will utilize asset
sale proceeds for the above purposes. At September 30, 2004, the Company had $32,201 outstanding under its $370,000
combined line of credit facilities. The Companys primary credit facility,
with total capacity of $350,000 and its $20,000 cash management facility,
mature in January 2007. Management believes it will have adequate capacity
under its facilities to execute its business plan and meet its short-term
liquidity requirements without a significant level of additional asset sales
(other than the remaining asset sale discussed above) or other secured and
unsecured debt financings. A further discussion of the terms of the Companys
line of credit agreements is included in note 2 to the consolidated financial
statements. Long-term Debt Issuances and Retirements A summary of the Companys outstanding debt and debt maturities at September
30, 2004 is included in note 2 to the consolidated financial statements. A
discussion of changes in secured and unsecured debt during the first nine
months of 2004 is discussed below. In March 2004, the Company closed a $35,000 secured, fixed rate mortgage note
payable in a consolidated real estate entity. The note bears interest at
4.27%, requires monthly interest only payments through March 2007 and monthly
principal and interest payments based on a 30-year amortization schedule from
April 2007 through the note maturity date in March 2009. Additionally, in March 2004, one of the Companys unconsolidated entities
repaid its outstanding construction note payable to the Company of $53,916
through the proceeds from a third-party non-recourse permanent mortgage note
totaling $50,000 and from member equity contributions. The mortgage note bears
interest at 4.13%, requires monthly interest payments and annual principal
payment of $1 through 2009. Thereafter, the note requires monthly principal
and interest payments based on a 25-year amortization schedule and matures in
April 2034. The note is callable by the lender in May 2009 and on each
successive fifth year anniversary of the note thereafter. The note is
prepayable without penalty in May 2008. Upon their maturity on April 1, 2004, the Company repaid $13,000 of its 7.30%
medium term, unsecured notes, using its available cash balances and borrowings
under its unsecured lines of credit. In conjunction with an apartment community acquisition (see note 4) in June
2004, the Company assumed a secured, fixed rate mortgage note payable. The
mortgage note was valued at $49,694 yielding an effective interest rate of
4.7%. The mortgage note bears interest at a coupon rate of 6.8%, requires
monthly principal and interest payments and matures in 2007. Also in June
2004, the Company sold certain apartment communities subject to the assumption
of $104,325 of tax exempt mortgage indebtedness (see note 4). Upon their maturity in September 2004, the Company repaid $10,000 of its 6.69%
medium term, unsecured notes from available borrowings under its unsecured line
of credit. In October 2004, the Company purchased and retired $87,957 of the Companys
8.125% medium term unsecured notes through a public tender offer using
available borrowings under its unsecured lines of credit. Subsequent to the
debt retirement, $62,043 of -43-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) 8.125% medium term notes remain outstanding with a maturity in June 2005. The
Company will record in the fourth quarter a loss on the early extinguishment of
this indebtedness of approximately $4,000 representing the debt repurchase
premiums, the expenses of the tender offer and the write-off of the deferred
loan costs associated with the retired indebtedness. In addition in October
2004, the Company issued $100,000 of senior unsecured notes. The notes bear
interest at 5.125% and mature in October 2011. The net proceeds from the
unsecured notes were used to repay amounts outstanding under the Companys
unsecured lines of credit. Stock Repurchase Program In the fourth quarter of 2003, the Companys board of directors adopted a new
stock repurchase program under which the Company may repurchase up to $200,000
of common stock or preferred stock at market prices from time to time through
December 31, 2004. In the first quarter of 2004, the Company acquired $50,000
of preferred stock. In the third quarter of 2004, the Company redeemed $70,000
of preferred units and acquired $2,268 of common stock under this program. The
Company has purchased common stock during 2004 using 10b5-1 stock purchase
plans and may utilize these plans from time to time in future periods. The
Company may also utilize proceeds from its asset sale program to repurchase
additional shares common stock at appropriate times, if it could do so at
prices that are attractive relative to its estimates of per share net asset
value. There can be no assurance, however, that the Company will utilize asset
sales proceeds for this purpose. 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. In conjunction with acquisitions of existing communities, it is the Companys
policy to provide in its acquisition budgets adequate funds to complete any
deferred maintenance items and to otherwise make the communities acquired
competitive with comparable newly-constructed communities. In some cases, the
Company will provide in its acquisition budgets additional funds to upgrade or
otherwise improve new acquisitions. Such costs are generally
capitalized, as costs of the acquired communities, when identified
and included as part of an approved capital budget at the time of
acquisition and when incurred during the twelve months subsequent to the acquisition date. The Company capitalizes interest, real estate taxes, and certain internal
personnel and associated costs related to apartment communities under
development and construction. The incremental personnel and associated costs
are capitalized to the projects under development based upon the effort
identifiable with such projects. The Company treats each unit in an apartment
community separately for cost accumulation, capitalization and expense
recognition purposes. Prior to the commencement of leasing activities,
interest and other construction costs are capitalized and included in
construction in progress. The Company ceases the capitalization of such costs
as the residential units in a community become substantially complete and
available for occupancy. This practice results in a proration of these costs
between amounts that are capitalized and expensed as the residential units in a
development community become available for occupancy. In addition, prior to
the completion of units, the Company expenses as incurred substantially all
operating expenses (including pre-opening marketing expenses) of such
communities. -44-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) Acquisition of assets and community improvement and other capitalized
expenditures for the three and nine months ended September 30, 2004 and 2003
are summarized as follows: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003New community development and acquisition activity(1)
    
    $
    1,039
    
    
    $
    2,991
    
    
    $
    38,581
    
    
    $
    22,823Non-recurring capital expendituresRevenue generating additions and improvements (2)
    
    
    
    
    
    
    105
    
    
    
    26
    
    
    
    837Other community additions and improvements (3)
    
    
    1,058
    
    
    
    1,055
    
    
    
    3,604
    
    
    
    3,231Recurring capital expendituresCarpet replacements and other community additions
and improvements (4)
    
    
    2,420
    
    
    
    2,996
    
    
    
    7,613
    
    
    
    6,982Corporate additions and improvements
    
    
    265
    
    
    
    182
    
    
    
    553
    
    
    
    521$
    4,782
    
    
    $
    7,329
    
    
    $
    50,377
    
    
    $
    34,394Other DataCapitalized interest
    
    $
    287
    
    
    $
    225
    
    
    $
    787
    
    
    $
    3,338Capitalized personnel and associated costs (5)
    
    $
    249
    
    
    $
    387
    
    
    $
    748
    
    
    $
    1,566
  (1)
    
    Reflects aggregate community development costs, exclusive of
the change in construction payables between years.(2)
    
    Represents expenditures for major renovations of communities,
water sub-metering equipment and other upgrade costs that enhance
the rental value of such units.(3)
    
    Represents property improvement expenditures that generally
occur less frequently than on an annual basis.(4)
    
    Represents property improvement expenditures of a type that
are expected to be incurred on an annual basis.(5)
    
    Reflects internal personnel and associated costs capitalized
to construction and development activities. Inflation Substantially all of the leases at the communities allow, at the time of
renewal, for adjustments in the rent payable thereunder, and thus may enable
the Company to seek increases in rents. The substantial majority of these
leases are for one year or less and the remaining leases are for up to two
years. At the expiration of a lease term, the Companys lease agreements
generally provide that the term will be extended unless either the Company or
the lessee gives at least sixty (60) days written notice of termination. In
addition, the Companys policy generally permits the earlier termination of a
lease by a lessee upon thirty (30) days written notice to the Company and the
payment of an amount equal to two months rent as compensation for early
termination. The short-term nature of these leases generally serves to reduce
the risk to the Company of the adverse effect of inflation. Funds from Operations The Company uses the National Association of Real Estate Investment Trusts
(NAREIT) definition of funds from operations (FFO). FFO is defined by
NAREIT as net income available to common shareholders determined in accordance
with GAAP, excluding gains (or losses) from extraordinary items and sales of
property, plus depreciation of real estate assets, and after adjustment for
unconsolidated partnerships and joint ventures all determined on a consistent
basis in accordance with GAAP. FFO is a supplemental non-GAAP financial
measure. FFO presented herein is not necessarily comparable to FFO presented
by other real estate companies because not all real estate companies use the
same definition. The Companys FFO is comparable to the FFO of real estate
companies that use the current NAREIT definition. The Company also uses FFO as an operating measure. Accounting for real estate
assets using historical cost accounting under GAAP assumes that the value of
real estate assets diminishes predictably over time. NAREIT stated in its
April 2002 White Paper on Funds from Operations since real estate asset values
have historically risen or fallen with market conditions, many industry
investors have considered presentations of operating results for real estate
companies that use historical cost accounting to be insufficient by
themselves. As a result, the concept of FFO was created by NAREIT for the
REIT industry to provide an alternate measure. Since the Company agrees with
the concept of FFO and appreciates the reasons surrounding its creation,
management believes that FFO is an important supplemental measure of operating
performance. In addition, since most equity REITs provide FFO information to
the investment community, the Company believes FFO is a useful supplemental
measure for comparing the Companys results to those of other equity REITs.
The Company believes that the line on the Companys consolidated statement of
operations entitled net income available to common shareholders is the most
directly comparable GAAP measure to FFO. FFO should not be considered as an alternative to net income available to
common shareholders (determined in accordance with GAAP) as an indicator of the
Companys financial performance. While management believes that FFO is an
important supplemental non-GAAP financial measure, management believes it is
also important to stress that FFO should not be considered as an alternative to
cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Companys liquidity. Further, FFO -45-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) is not necessarily indicative of sufficient cash flow to fund all of the
Companys needs or ability to service indebtedness or make distributions. A reconciliation of net income (loss) available to common shareholders to FFO
is provided below. Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net income (loss) available to common shareholders
    
    $
    (5,512
    )
    
    $
    (4,514
    )
    
    $
    92,785
    
    
    $
    (3,135
    )Minority interest of common unitholders  continuing operations
    
    
    (406
    )
    
    
    (457
    )
    
    
    (1,125
    )
    
    
    (3,160
    )Minority interest in discontinued operations (1)
    
    
    (273
    )
    
    
    11
    
    
    
    7,584
    
    
    
    2,783Gains on property sales  discontinued operations
    
    
    
    
    
    
    (185
    )
    
    
    (113,739
    )
    
    
    (33,690
    )Gains on property sales  unconsolidated entities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,395
    )Depreciation on wholly-owned real estate assets, net (2)
    
    
    21,035
    
    
    
    21,571
    
    
    
    61,180
    
    
    
    64,555Depreciation on real estate assets held in unconsolidated entities
    
    
    332
    
    
    
    333
    
    
    
    993
    
    
    
    1,236Funds from operations available to common shareholders
    
    $
    15,176
    
    
    $
    16,759
    
    
    $
    47,678
    
    
    $
    20,194Cash flow provided by (used in):Operating activities
    
    $
    26,018
    
    
    $
    34,711
    
    
    $
    82,422
    
    
    $
    88,333Investing activities
    
    $
    (4,165
    )
    
    $
    (7,260
    )
    
    $
    141,634
    
    
    $
    151,637Financing activities
    
    $
    (74,142
    )
    
    $
    (27,538
    )
    
    $
    (222,388
    )
    
    $
    (242,145
    )Weighted average shares outstanding  basic
    
    
    39,892
    
    
    
    37,841
    
    
    
    39,694
    
    
    
    37,523Weighted average shares and units outstanding  basic
    
    
    42,433
    
    
    
    42,190
    
    
    
    42,457
    
    
    
    42,102Weighted average shares outstanding  diluted (3)
    
    
    39,990
    
    
    
    37,857
    
    
    
    39,761
    
    
    
    37,524Weighted average shares and units outstanding  diluted (3)
    
    
    42,531
    
    
    
    42,206
    
    
    
    42,524
    
    
    
    42,104
  (1)
    
    Represents the minority interest in earnings and gains
(losses) on properties held for sale and sold reported as
discontinued operations for the periods presented.(2)
    
    Depreciation on wholly-owned real estate assets is net of the
minority interest portion of depreciation in consolidated
entities.(3)
    
    Diluted weighted average shares and units for the three and
nine months ended September 30, 2004 include 98 and 67 shares and
units, respectively, that were antidilutive to all income (loss)
per share computations under generally accepted accounting
principles. -46-




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share and apartment unit data) 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Companys primary market risk exposure is interest rate risk. At September
30, 2004, the Company had $155,701 of variable rate debt tied to LIBOR. In
addition, the Company had $110,055 of variable tax-exempt debt with interest
based on the FNMA AAA tax exempt rate. In addition, the Company has interest
rate risk associated with fixed rate debt at maturity. The discussion in this
section is the same for the Company and the Operating Partnership, except that
all indebtedness described herein has been incurred by the Operating
Partnership. Management has and will continue to manage interest rate risk as follows:  
    
    maintain a conservative ratio of fixed rate, long-term debt to total debt such that
variable rate exposure is kept at an acceptable level;  
    
    fix certain long-term variable rate debt through the use of interest rate swaps or
interest rate caps with appropriately matching maturities;  
    
    use treasury locks where appropriate to fix rates on anticipated debt transactions; and  
    
    take advantage of favorable market conditions for long-term debt and/or equity. Management uses various financial models and advisors to achieve these
objectives. The table below provides information about the Companys derivative financial
instruments at September 30, 2004 that are sensitive to changes in interest
rates. For interest rate swap and cap arrangements, the table presents notional
amounts and weighted average interest rates by expected contractual maturity
dates. Notional amounts are used to calculate the contractual payments to be
exchanged under the contracts. ExpectedAverage
    
    Average
    
    SettlementInterest Rate Derivatives
    
    Notional Amount
    
    Pay Rate/Cap Rate
    
    Receive Rate
    
    Date
    
    Fair ValueAsset (Liab.)Interest Rate SwapsVariable to fixed
    
    $104,000 amortizing
to $90,270
    
    
    6.04
    %
    
    1 month LIBOR
    
    7/31/09
    
    $
    (10,184
    )Variable to fixed
    
    $
    25,000
    
    
    
    6.53
    %
    
    3 month LIBOR
    
    2/01/05
    
    
    (385
    )Interest rate cap
    
    $
    14,760
    
    
    
    5.00
    %
    
    
    
    2/01/08
    
    
    24Interest rate cap
    
    $
    95,295
    
    
    
    5.00
    %
    
    
    
    2/01/08
    
    
    156$
    (10,389
    )
 As more fully described in note 6 to the consolidated financial statements, the
interest rate swap and cap arrangements are carried on the consolidated balance
sheet at the fair value shown above in accordance with SFAS No. 133, as
amended. If interest rates under the Companys floating rate LIBOR-based and
tax-exempt borrowings, in excess of the $98,500 FNMA borrowings 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 September 30, 2004, would increase or decrease by approximately
$1,423 on an annualized basis. There have been no material changes in the value of the Companys fixed debt
since December 31, 2003. -47-




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




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##### Table of Contents



PART II. OTHER INFORMATION 
 ITEM 1.LEGAL PROCEEDINGS On May 13, 2004, an alleged Company shareholder filed a purported pro se
derivative and direct action in the Superior Court of Fulton County, Georgia,
against the Company, certain members of the Companys board of directors, and
certain of its executive officers. The case was removed to the United States
District Court for the Northern District of Georgia on May 21, 2004. The
complaint alleges, among other things, breaches of fiduciary duties, fraud,
corporate waste, withholding certain documents from shareholder inspection and
certain securities laws claims. The complaint requests various types of
relief, such as injunctive relief and damages and demands production of certain
Company records. The Company believes the allegations are wholly without merit
and has moved to dismiss the litigation. On May 5, 2003, the Company received notice that a shareholder derivative and
purported class action lawsuit was filed against members of the board of
directors of the Company and the Company as a nominal defendant. This complaint
was filed in the Superior Court of Fulton County, Atlanta, Georgia on May 2,
2003 and alleges various breaches of fiduciary duties by the board of directors
of the Company and seeks, among other relief, the disclosure of certain
information by the defendants. This complaint also seeks to compel the
defendants to undertake various actions to facilitate a sale of the Company. On
May 7, 2003, the plaintiff made a request for voluntary expedited discovery.
This lawsuit was settled, and in October 2004, the Superior Court of Fulton
County entered an order approving the settlement. On May 13, 2003, the Company received notice that a shareholder derivative and
purported class action lawsuit was filed against certain members of the board
of directors of the Company and against the Company as a nominal defendant.
The complaint was filed in the Superior Court of Fulton County, Atlanta,
Georgia on May 12, 2003 and alleges breaches of fiduciary duties, abuse of
control and corporate waste by the defendants. The plaintiff seeks monetary
damages and, as appropriate, injunctive relief. This lawsuit was settled, and
in October 2004, the Superior Court of Fulton County entered an order approving
the settlement. 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.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  (a)
    
    through (b)  None(c)
    
    The following table summarizes the Companys purchases of its
equity securities in the three months ended September 30, 2004 (in
thousands, except per share amounts). Total Number of
    
    Approximate DollarShares Purchased as
    
    Value of Shares thatPart of Publicly
    
    May Yet BeTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    Per Share
    
    Programs
    
    Plans or ProgramsJuly 1, 2004 to
July 31, 2004
    
    
    82
    
    
    $
    27.73
    
    
    
    82
    
    
    $
    147,732
    (1)August 1, 2004 to
August 28, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1, 2004 to
September 31, 2004 (2)
    
    
    2,800
    
    
    
    25.00
    
    
    
    2,800
    
    
    
    77,732
    (1)Total
    
    
    2,882
    
    
    $
    25.00
    
    
    
    2,882
    
    
    $
    77,732
  (1)
    
    On November 5, 2003, the Companys board of
directors approved a stock repurchase program under which
the Company may repurchase up to $200,000 of common or
preferred stock through December 31, 2004.(2)
    
    On September 3, 2004, the Company redeemed all
2,800 units of its 8.0% series D Cumulative redeemable
preferred units for $25.00 per share (an aggregate of
$70,000) plus accrued and unpaid dividends through
September 3, 2004. The redemption made in accordance with
the redemption provisions of the preferred unit
arrangement. -49-




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##### Table of Contents



ITEM 3.DEFAULTS UPON SENIOR SECURITIES None 
 ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 
 ITEM 5.OTHER INFORMATION None -50-




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##### Table of Contents



ITEM 6.EXHIBITS Certain exhibits required by Item 601 of Regulation S-K have been filed with
previous reports (as indicated in the footnotes to this Exhibit Table) and are
incorporated by reference herein. (a)
    
    
    
    Exhibits3.1(a)
    
    
    
    Articles of Incorporation of the Company.3.2(b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.3(b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.4(b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.5(c)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.6(d)
    
    
    
    Bylaws of the Company (as Amended and Restated as of November 5, 2003).4.1(e)
    
    
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2(e)
    
    
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.4.3(f)
    
    
    
    Form of Note for 51⁄8% Notes due 2011.10.1(g)
    
    
    
    Redemption Agreement between Post Apartment Homes, L.P. and JRC Acquisition Corporation.10.2(g)
    
    
    
    First Amendment to the Registration
Agreement.10.3(g)
    
    
    
    Second Amendment to the Redemption
Agreement.10.4(g)
    
    
    
    Third Amendment to the Redemption
Agreement.10.5(g)
    
    
    
    Fourth Amendment to the Redemption
Agreement.10.6(h)
    
    
    
    Settlement Agreement by and among
John A. Williams, the John A. Williams Irrevocable Trust, Post
Properties, Inc., Post G.P. Holdings, Inc., Post Apartment Homes,
L.P., and Post Services Inc., and incorporated herein by reference.11.1(i)
    
    
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under
Section 906 of the Sarbanes-Oxley Act of 2002.(a)
    
    Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as
amended, of the Company and incorporated herein by reference.(b)
    
    Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2002 and incorporated herein by reference.(c)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended March 31, 1999 and incorporated herein by reference.(d)
    
    Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 2003 and incorporated herein by reference.(e)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the
Company and incorporated herein by reference.(f)
    
    Filed as an exhibit to the current
report on Form 8-K of the Registrants filed October 12,
2004 and incorporated herein by reference.(g)
    
    Filed as an exhibit to the Current
Report on Form 8-K of the Registrants filed July 13,
2004 and incorporated herein by reference.(h)
    
    Filed as an exhibit to the current Report on Form 8-K of the Registrants filed August 30, 2004
and incorporated herein by reference.(i)
    
    The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference.
 -51-




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. POST PROPERTIES, INC.November 9, 2004
    
    By
    
    /s/ David P. StockertDavid P. StockertPresident and Chief Executive OfficerNovember 9, 2004
    
    By
    
    /s/ Christopher J. PapaChristopher J. PapaExecutive Vice President and Chief Financial OfficerNovember 9, 2004
    
    By
    
    /s/ Arthur J. QuirkArthur J. QuirkSenior Vice President and Chief
Accounting Officer
 -52-




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##### Table of Contents



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




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##### Table of Contents



EXHIBIT INDEX (a)
    
    
    
    Exhibits3.1(a)
    
    
    
    Articles of Incorporation of the Company.3.2(b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.3(b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.4(b)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.5(c)
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company.3.6(d)
    
    
    
    Bylaws of the Company (as Amended and Restated as of November 5, 2003).4.1(e)
    
    
    
    Indenture between the Company and SunTrust Bank, as Trustee.4.2(e)
    
    
    
    First Supplemental Indenture to the Indenture between the Company and SunTrust Bank, as Trustee.4.3(f)
    
    
    
    Form of Note for 51⁄8% Notes due 2011.10.1(g)
    
    
    
    Redemption Agreement between Post Apartment Homes, L.P. and JRC Acquisition Corporation.10.2(g)
    
    
    
    First Amendment to the Registration
Agreement.10.3(g)
    
    
    
    Second Amendment to the Redemption
Agreement.10.4(g)
    
    
    
    Third Amendment to the Redemption
Agreement.10.5(g)
    
    
    
    Fourth Amendment to the Redemption
Agreement.10.6(h)
    
    
    
    Settlement Agreement by and among
John A. Williams, the John A. Williams Irrevocable Trust, Post
Properties, Inc., Post G.P. Holdings, Inc., Post Apartment Homes,
L.P., and Post Services Inc., and incorporated herein by reference.11.1(i)
    
    
    
    Statement Regarding Computation of Per Share Earnings.31.1
    
    
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted under
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted under
Section 906 of the Sarbanes-Oxley Act of 2002.(a)
    
    Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as
amended, of the Company and incorporated herein by reference.(b)
    
    Filed as an exhibit to the Annual Report on Form 10-K of the Registrants for the year ended
December 31, 2002 and incorporated herein by reference.(c)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended March 31, 1999 and incorporated herein by reference.(d)
    
    Filed as an exhibit of the Quarterly Report on Form 10-Q of the Registrants for the quarter
ended September 30, 2003 and incorporated herein by reference.(e)
    
    Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-42884) of the
Company and incorporated herein by reference.(f)
    
    Filed as an exhibit to the current
report on Form 8-K of the Registrants filed October 12,
2004 and incorporated herein by reference.(g)
    
    Filed as an exhibit to the Current
Report on Form 8-K of the Registrants filed July 13,
2004 and incorporated herein by reference.(h)
    
    Filed as an exhibit to the current Report on Form 8-K of the Registrants filed August 30, 2004
and incorporated herein by reference.(i)
    
    The information required by this exhibit is included in note 5 to the consolidated financial
statements and incorporated herein by reference.
 -54-