ITEM 1. BUSINESS THE COMPANY
The Company is one of the largest developers and operators of upscale multifamily apartment communities in the Southeastern United States. The Company currently owns 49 stabilized communities (the "Communities") containing 17,930 apartment units located primarily in metropolitan Atlanta, Georgia and Tampa, Florida. In addition, the Company currently has under construction or in initial lease-up nine new communities and additions to two existing communities in the Atlanta, Tampa, Nashville and Charlotte metropolitan areas that will contain an aggregate of 3,271 apartment units when completed. For the year ended December 31, 1996, the average economic occupancy rate of the 40 Communities and the first phase of an additional Community stabilized for the entire period was 95.4%. The average monthly rental rate per apartment unit at these Communities for the same period was $767. The Company also manages through affiliates one community with 260 apartment units under the Post(R) brand name for a third party and approximately 7,800 additional apartment units owned by third parties. The Company is a fully-integrated organization with multifamily development, acquisition, operation and asset management expertise and has approximately 1,100 employees, none of whom is a party to a collective bargaining agreement.
Since founded in 1971, the Company has pursued three distinctive core business strategies that, for over 25 years, have remained substantially unchanged:
Investment Building Investment building means taking a long-term view of the assets the Company creates. The Company develops communities with the intention of operating them for periods that are relatively long by the standards of the apartment industry. Key elements of the Company's investment building strategy include instilling a disciplined team approach to development decisions; selecting sites in niche and infill locations in strong primary markets; consistently constructing new apartment communities with a uniformly high quality; and conducting ongoing property improvements.
Promotion of the Post(R) Brand Name The Post(R) brand name strategy has been integral to the success of the Company and, to the knowledge of the Company, has not been successfully duplicated within the multifamily real estate industry in any major U.S. market. For such a strategy to work, a company must develop and implement systems to achieve uniformly high quality and value throughout its operations. As a result of the Company's efforts in developing and maintaining its communities, the Company believes that the Post(R) brand name is synonymous with quality upscale apartment communities that are situated in desirable locations and provide superior resident service. Key elements in implementing the Company's brand name strategy include extensively utilizing the trademarked brand name; adhering to quality in all aspects of the Company's operations; developing and implementing leading edge training programs; and coordinating the Company's advertising programs to increase brand name recognition.
Service Orientation The Company's mission statement is: "To provide the superior apartment living experience for our residents." By striving to provide a superior product and superior service, the Company believes that it will be able to achieve its long-term goals. The Company believes that it provides its residents with superior product and superior service through its uniformly high quality construction, award winning landscaping and numerous amenities, including on site business centers, on site courtesy officers, urban vegetable gardens and state of the art fitness centers.
The Company believes that with the implementation of these strategies, multifamily properties in its primary markets have the potential over the long term to provide investment returns that exceed national averages. According to recent market surveys, employment growth, population growth and household formation growth in the Company's primary markets have exceeded and are forecasted to continue to exceed national averages.
The Company is a self-administered and self-managed equity real estate investment trust (a "REIT"). On July 22, 1993, the Company completed an initial public offering of 10,580,000 shares of Common Stock (the "Initial Offering") and a business combination involving entities under varying common ownership (the "Formation Transactions"). On
February 7, 1994, the Company completed a second public offering of 3,000,000 shares of Common Stock (the "Second Offering"). On October 20, 1995, the Company completed a third public offering of 3,710,500 additional shares of Common Stock (the "Third Offering"). Proceeds from the Initial Offering were used by the Company (i) to acquire a controlling interest in Post Apartment Homes, L.P. (the "Operating Partnership"), the Company's principal operating subsidiary, which was formed to succeed to substantially all of the ownership interest in a portfolio of 40 Post(R) multifamily apartment communities, all of which were developed by the Company and owned by affiliates of the Company, and to the development, leasing, landscaping and management business of the Company and certain other affiliates and (ii) to pay down existing indebtedness on certain communities. Proceeds of the Second and Third Offerings were used by the Company to pay down existing indebtedness. On October 1, 1996, the Company sold one million non-convertible 8.5% Series A Cumulative Redeemable Preferred Shares (the "Perpetual Preferred Shares") with a liquidation preference equivalent to $50 per share. Proceeds from the Perpetual Preferred Shares were contributed to the Operating Partnership in exchange for one million Series A Preferred Partnership Units (the "Perpetual Preferred Units") and used by the Operating Partnership to repay outstanding indebtedness. The Company is the sole general partner of, and controls a majority of the limited partnership interests in, the Operating Partnership. The Company conducts all of its business through the Operating Partnership and its subsidiaries.
The Company's executive offices are located at 3350 Cumberland Circle, Atlanta, Georgia 30339 and its telephone number is (770) 850-4400. Post Properties, Inc., a Georgia corporation, was incorporated on January 25, 1984, and is the successor by merger to the original Post Properties, Inc., a Georgia corporation, which was formed in 1971. The Operating Partnership is a Georgia limited partnership that was formed in July 1993 for the purpose of consolidating the operating and development businesses of the Company and the Post(R) apartment portfolio described herein.
THE OPERATING PARTNERSHIP
The Operating Partnership, through the operating divisions and subsidiaries described below, is the entity through which all of the Company's operations are conducted. At December 31, 1996, the Company controlled the Operating Partnership as the sole general partner and as the holder of 80.8% of the common units in the Operating Partnership ("Units") and 100% of the Perpetual Preferred Units. The other limited partners of the Operating Partnership are those persons (including certain officers and directors of the Company) who, at the time of the Initial Offering, elected to hold all or a portion of their interest in the Company in the form of Units rather than receiving shares of Common Stock. Each Unit may be redeemed by the holder thereof for either one share of Common Stock or cash equal to the fair market value thereof at the time of such redemption, at the option of the Company. The Company presently anticipates that it will elect to issue shares of Common Stock in connection with each such redemption rather than paying cash (and has done so in all redemptions to date). With each redemption of outstanding Units for 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 Units to the Company.
As sole general partner, the Company has the exclusive power under the agreement of limited partnership of the Operating Partnership to manage and conduct the business of the Operating Partnership, subject to the consent of the holders of the Units in connection with the sale of all or substantially all of the assets of the Operating Partnership or in connection with a dissolution of the Operating Partnership. The board of directors of the Company manages the affairs of the Company by directing the affairs of the Operating Partnership. The Operating Partnership cannot be terminated, except in connection with a sale of all or substantially all of the assets of the Company, for a period of 50 years without a vote of limited partners of the Operating Partnership. The Company's limited and general partner interests in the Operating Partnership entitle it to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to the Company's percentage interest therein and entitle the Company to vote on all matters requiring a vote of the limited partners.
As part of the formation of the Operating Partnership, a new holding company, Post Services, Inc. ("Post Services") was organized as a separate corporate subsidiary of the Operating Partnership. Post Services, in turn, owns all the outstanding stock of three operating subsidiaries, RAM Partners, Inc. ("RAM"), Post Asset Management, Inc. ("Post Asset Management") and Post Landscape Services, Inc. ("Post Landscape"). Certain officers and directors of the Company received 99%, collectively, of the voting common stock of Post Services, and the Operating Partnership received 1% of the voting common stock and 100% of the nonvoting common stock of Post Services. The voting and nonvoting common stock of Post Services held by the Operating Partnership represents 99% of the equity interests therein. The
voting common stock held by officers and directors in Post Services is subject to an agreement that is designed to ensure that the stock will be held by one or more officers of Post Services. The by-laws of Post Services provide that a majority of the board of directors of Post Services must be persons who are not employees, members of management or affiliates of the Company or its subsidiaries. This by-law provision cannot be amended without the vote of 100% of the outstanding voting common stock of Post Services. Post Services currently has the same board of directors as the Company.
OPERATING DIVISIONS
The major operating divisions of the Company include:
Post Management Services Post Management Services is responsible for the day-to-day operations of all the Post(R) communities and is itself comprised of two divisions: one responsible for community leasing, property management and personnel recruiting, training and development, and the other for maintenance and security. Post Management Services also conducts short-term leasing activities and is the largest division in the Company.
Post Apartment Development Post Apartment Development conducts the development and construction activities of the Company. Development activities include site selection, zoning and regulatory approvals, project design, and the full range of construction management services.
Post Landscape Operations This division works closely with Post Apartment Development in the initial design of each Post(R) community and then has primary responsibility for maintaining each community's landscape. The division maintains each community's grounds on a cost effective basis for seasonal impact and has earned national recognition for the Company. Post Landscape Operations employs professionals specializing in landscape architecture, horticulture, floriculture, and general landscape maintenance.
Post Corporate Services Post Corporate Services provides executive direction and control to the Company's other divisions and subsidiaries and has responsibility for the creation and implementation of all Company financing and capital strategies. All accounting, management reporting, information systems and insurance services required by the Company and all of its affiliates are centralized in Post Corporate Services.
OPERATING SUBSIDIARIES
The operating subsidiaries of the Company, each of which is wholly owned by Post Services, include:
RAM provides third party asset management and leasing services for multifamily properties that do not operate under the Post(R) name. RAM's clients include pension funds, independent private investors, financial institutions and insurance companies. RAM's asset management contracts generally are subject to annual renewal or are terminable upon specified notice. As of December 31, 1996, RAM managed 35 properties (located in Georgia, California, Florida, North Carolina, Virginia and Pennsylvania) with approximately 7,800 units under management.
Post Asset Management Post Asset Management currently provides management services to a Post(R) community (260 apartment units) owned by a third party, which was originally developed by the Company but sold prior to the Initial Offering. Use of the Post(R) name and other of the Company's federally registered service marks in connection with each such community is limited to the period during which the Company continues to manage the community.
Post Landscape As a result of the reputation the Company developed in connection with the landscaping of Post(R) communities, in 1990 the Company began providing third party landscape services for clients other than Post(R) communities. Projects with third parties include the maintenance and design of the landscape for office parks, commercial buildings and other commercial enterprises, and private residences. Post Landscape provides such third party landscape services.
HISTORY OF POST PROPERTIES, INC.
The Company and its affiliates have developed a total of 71 Post(R) upscale garden and mid-rise apartment communities containing approximately 23,432 apartment units and have acquired one community containing 80 units. Of these communities, 49 communities comprising 17,930 apartment units are owned by the Operating Partnership in fee simple or pursuant to a long-term ground lease, and are operated by the Operating Partnership. The Company and its affiliates sold 24 communities between 1972 and 1996 to parties not affiliated with the Company, one of which was reacquired during 1996 and one of which the Company continues to manage under the Post(R) name. As of March 7, 1997, nine additional Post(R) communities and additions to two existing communities are under construction and are owned and operated by the Operating Partnership.
During the five-year period from January 1, 1992 through December 31, 1996, the Company and its predecessors and affiliates have developed and completed 4,256 apartment units in 14 apartment communities, acquired 890 units in two apartment communities and sold four apartment communities containing an aggregate of 748 apartment units. Historically, the Company has developed its apartment communities to the Company's specifications as opposed to buying and refurbishing existing properties built by others. During 1996, the Company reacquired a community it had previously developed and sold. Also, during 1996, the Company also purchased two communities located in Nashville, Tennessee, in a single transaction, containing 181 apartment units. The first, a 101 unit community, is currently being completely renovated and 100 units are being constructed on adjacent land. The second is an 80 unit community that the Company is currently operating, while evaluating whether to hold , renovate or sell. The Company and its affiliates have sold apartment communities after holding them for investment periods that typically have been seven to twelve years after development. The following table shows the results of the Company's developments during this period:
CURRENT DEVELOPMENT ACTIVITY
The Company currently has, under construction or in initial lease-up, nine new communities and additions to two existing communities that will contain an aggregate of 3,271 units. The Company's communities under development or in initial lease up are summarized in the following chart:
The Company has acquired a parcel of land in Atlanta on which it plans to build a new community. Adjacent to the parcel, Home Depot, Inc. is constructing its corporate headquarters campus and extensive infrastructure improvements are being made by the county. The Company will review its development plan for this parcel closer to completion of these improvements. In addition, the Company holds land for a third phase of Post Rocky Point in Tampa, Florida. The Company is also currently conducting feasibility and other pre-development studies for possible new Post(R) communities in its primary market areas.
COMPETITION
All of the Communities are located in developed areas that include other upscale apartments. The number of competitive upscale apartment properties in a particular area could have a material effect on the Company's ability to lease apartment units at the Communities or at any newly developed or acquired communities and on the rents charged. The Company may be competing with others that have greater resources than the Company. In addition, other forms of residential properties, including single family housing, provide housing alternatives to potential residents of upscale apartment communities.
AMERICANS WITH DISABILITIES ACT
The Communities and any newly acquired apartment communities must comply with Title III of the Americans with Disabilities Act (the "ADA") to the extent that such properties are "public accommodations" and/or "commercial facilities" as defined by the ADA. Compliance with the ADA requirements could require removal of structural barriers to handicapped access in certain public areas of the Company's Communities where such removal is readily achievable. The ADA does not, however, consider residential properties, such as apartment communities, to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as the leasing office, are open to the public. The Company believes that its properties comply with all present requirements under the ADA and applicable state laws. Noncompliance could result in imposition of fines or an award of damages to private litigants. If required to make material additional changes, the Company's results of operations could be adversely affected.
ENVIRONMENTAL REGULATIONS
The Company is subject to Federal, state and local environmental regulations that apply to the development of real property, including construction activities, the ownership of real property, and the operation of multifamily apartment communities.
In developing properties and constructing apartments, the Company utilizes environmental consultants to determine whether there are any flood plains, wetlands or environmentally sensitive areas that are part of the property to be developed. If flood plains are identified, development and construction is planned so that flood plain areas are preserved or alternative flood plain capacity is created in conformance with Federal and local flood plain management requirements.
Storm water discharge from a construction facility is evaluated in connection with the requirements for storm water permits under the Clean Water Act. This is an evolving program in most states. The Company currently anticipates it will be able to obtain storm water permits for existing or new development.
The Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. sec. 9601 et seq. ("CERCLA"), and applicable state superfund laws subject the owner of real property to claims or liability for the costs of removal or remediation of hazardous substances that are disposed of on real property in amounts that require removal or remediation. Liability under CERCLA and applicable state superfund laws can be imposed on the owner of real property or the operator of a facility without regard to fault or even knowledge of the disposal of hazardous substances on the property or at the facility. The presence of hazardous substances in amounts requiring response action or the failure to undertake remediation where it is necessary may adversely affect the owner's ability to sell real estate or borrow money using such real estate as collateral. In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in a claim by a private party for personal injury or a claim by an adjacent property owner for property damage.
The Company has instituted a policy that requires an environmental investigation of each property that it considers for purchase or that it owns and plans to develop. The environmental investigation is conducted by a qualified environmental consultant. If there is any indication of contamination, sampling of the property is performed by the environmental consultant. The environmental investigation report is reviewed by the Company and counsel prior to purchase of any property. If necessary, remediation of contamination, including underground storage tanks, is undertaken prior to development.
The Company has not been notified by any governmental authority of any noncompliance, claim, or liability in connection with any of the Communities. The Company has not been notified of a claim for personal injury or property damage by a private party in connection with any of the Communities in connection with environmental conditions. The Company is not aware of any other environmental condition with respect to any of the Communities that could be considered to be material.
ITEM 2.

ITEM 2. PROPERTIES
The Communities consist of 48 stabilized Post(R) multifamily apartment communities and one acquired community located in the following metropolitan areas:
The Company developed all of the Post(R) Communities and currently manages all of the Communities. Thirty-three of the Communities have in excess of 300 apartment units, with the largest Community having a total of 810 apartment units. The oldest of the Communities was first occupied in 1977 and 42 of the 49 Communities, comprising approximately 86% of such Communities' apartment units, were completed after January 1, 1986. The average economic occupancy rate for communities stabilized for each of the entire years ended December 31, 1996 and 1995 was 95.4% and 96.0% respectively. The average monthly rental rate per unit (stabilized communities) during 1996 and 1995 was $767 and $710, respectively. See "Selected Financial Information".
COMMUNITY INFORMATION
- ---------- (1) Refers to greater metropolitan areas of cities indicated. (2) Average economic occupancy is defined as gross potential rent less vacancy losses, model expenses and bad debt divided by gross potential rent for the period, expressed as a percentage. (3) These dates represent the respective completion dates for multiple phases of a Community. (4) This community was completed by the Company in 1983, sold during 1986, managed by the Company through 1993 and reacquired by the Company in 1996. (5) Represents average economic occupancy since acquisition on May 7, 1996. (6) During 1996, this Community was in the lease-up phase and, therefore, is not included. (7) The Company has a leasehold interest in the land underlying Post Renaissance pursuant to a ground lease that expires on January 1, 2040. (8) Represents amounts only for the first phase of the Community since the second phase of this Community was in the lease-up phase during the year ended December 31, 1996. (9) This community was acquired by the Company during 1996. (10) Represents average economic occupancy since acquisition on August 26, 1996.
ITEM 3.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The persons who are executive officers of the Company and its affiliates and their positions are as follows:
The following is a biographical summary of the experience of the executive officers of the company:
John A. Williams. Mr. Williams is the Chairman of the Board and Chief Executive Officer of the Company. Mr. Williams founded the business of the Company in 1971 and since that time has acted as Chairman and Chief Executive Officer. Mr. Williams is currently serving on the board of directors of Barnett Banks, Inc., Crawford & Co. and the Atlanta Regional Commission. Mr. Williams is 54 years old.
John T. Glover. Mr. Glover is the President, Chief Operating Officer and Treasurer of the Company and a director. Mr. Glover joined the Company in 1984 and since that time has acted as its President. Mr. Glover is a Director of SunTrust Banks of Georgia Inc., SunTrust Bank, Atlanta, N.A. and Haverty's Furniture Companies, Inc. In addition, he is a member of the Board of Governors of the National Association of Real Estate Investment Trusts, and a member of the board of directors of the National Realty Committee and the National Multi-Housing Council. Mr. Glover is 50 years old.
W. Daniel Faulk, Jr. Mr. Faulk has been with the Company for nine years. Since April 1993, he has been President of Post Apartment Development, which is responsible for the development and construction of all Post apartment communities. Prior thereto, Mr. Faulk was President of Post Atlanta since February 1987. Mr. Faulk is currently on the board of directors of Mountain National Bank. Mr. Faulk is 54 years old.
Jeffrey A. Harris. Mr. Harris has been with the Company for twelve years. Since October 1995, he has been President of Post Management Services and President of Post Landscape. Prior thereto, Mr. Harris was President of Post Management Division from March 1995, Executive Vice President of Post Management Division from April 1993 and Senior Vice President from 1989. Mr. Harris is on the Board of Directors and is President of the Atlanta Apartment Association. Mr. Harris is 39 years old.
Martha J. Logan. Ms. Logan has been with the Company for five years. Since October 1995, she has been President of Post Management Division. Prior thereto, Ms. Logan was President of RAM since July 1994, Executive Vice President of RAM from January 1994 and was Vice President of RAM since 1991. Ms. Logan is 42 years old.
Terry L. Chapman. Mr. Chapman has been with the Company for twenty-three years and is currently, and has been for more than five years, an Executive Vice President of Post Management Services responsible for maintenance, quality assurance, security, and preventive maintenance for all Post(R) communities. Mr. Chapman is 50 years old.
Richard A. Denny, III. Mr. Denny has been with the Company for sixteen years. Since July 1993, he has been an Executive Vice President of Post Apartment Development responsible for construction of all Post(R) apartment communities. Prior thereto, he was a Senior Vice President of Post Atlanta since June 1987. Mr. Denny is 39 years old.
John D. Hooks. Mr. Hooks has been with the Company for eighteen years. Since July 1993, he has been an Executive Vice President of Post Landscape responsible for landscape design, installation and maintenance on all Post(R) communities. Prior thereto, he was the Senior Vice President of Landscape since January 1987. Mr. Hooks is 42 years old.
William F. Leseman. Mr. Leseman has been with the Company for seven years. Since October 1995, he has been Executive Vice President of RAM responsible for day-to-day operations of such division. Prior thereto, Mr. Leseman was Senior Vice President of Post Management Services since January 1994 and an Area Vice President of Post Management Services since 1989. Mr. Leseman is 37 years old.
William C. Lincicome. Mr. Lincicome has been with the Company for six years. Since September 1996, he has been Executive Vice President of Post Landscape Services responsible for the day to day operations of Post Landscape Services. Prior thereto, he was an independent architectural consultant since April 1996 and was Vice President and Director of Land Planning of Post Landscape Services since 1989. Mr. Lincicome is 44 years old.
Timothy A. Peterson. Mr. Peterson has been with the Company for seven years and currently serves as Executive Vice President of Post Corporate Services responsible for accounting and capital markets. Prior thereto, he was Senior Vice President of Post Corporate Service since April 1993 and responsible for capital markets since November 1995. Mr. Peterson was Vice President of Post Corporate Services since January 1993, and he was responsible for planning and reporting services since 1989. Mr. Peterson is Co-Chairman of the Accounting Committee for the National Association of Real Estate Investment Trust. Mr. Peterson is a Certified Public Accountant. Mr. Peterson is 31 years old.
Sherry W. Cohen. Ms. Cohen has been with the Company for twelve years. Since July 1993, she has been a Senior Vice President of Post Corporate Services responsible for supervising and coordinating legal affairs and insurance. Prior thereto, Ms. Cohen was a Vice President of Post Properties, Inc. since April 1990, as well as Corporate Secretary. Ms. Cohen is 42 years old.
Judy M. Denman. Ms. Denman has been with the Company for twenty-one years. Since July 1993, she has been a Senior Vice President of Post Corporate Services responsible for day-to-day accounting functions and cash management reporting. Prior thereto, she was a Vice President of Post Properties, Inc. since June 1984. Ms. Denman is 50 years old.
R. Gregory Fox. Mr. Fox has been with the Company since February 1996 and he serves as Senior Vice President of Post Corporate Services and the Company's Chief Accounting Officer responsible for financial reporting and management information systems. Prior to joining the Company, he was a senior manager in the audit division of Price Waterhouse LLP where he was employed for ten years. Mr. Fox is a Certified Public Accountant. Mr. Fox is 37 years old.
Katharine W. Kelley. Ms. Kelley has been with the Company since 1994 and serves as a Senior Vice President of Post Apartment Development responsible for acquiring new development sites in metropolitan Atlanta, Georgia. For five years prior to joining the Company, she was a Vice President at The Landmarks Group, a commercial real estate development firm. Ms. Kelley is 33 years old.
John B. Mears. Mr. Mears has been with the Company since November 1993. Since July 1994, he has been a Senior Vice President of Post Apartment Development responsible for acquiring new development sites in the Company's primary market outside of Atlanta, GA. Prior to joining the Company, Mr. Mears was an associate in the Real Estate Investment Banking Group at Merrill Lynch and Company since July 1992. Mr. Mears is 33 years old.
Janie S. Maddox. Ms. Maddox has been with the Company for twenty-one years. Since November 1995, she has been a Vice President of the Company in charge of community relations. Prior thereto, she was a Senior Vice President of Post Management Services primarily responsible for human resources since 1990. Ms. Maddox is 49 years old.
Donald J. Rutzen. Mr. Rutzen has been with the Company for eighteen years and currently serves as Vice President of Post Apartment Development responsible for the coordination of site planning for new apartment development. Prior thereto, he was Executive Vice President of Post Landscape Services, Inc. responsible for the day-to-day landscape design, installation and maintenance for third party accounts since 1993. He was Senior Vice President of Post Landscape Services, Inc. since April 1992 and Vice President of Post Landscape Services, Inc. since January 1985. Mr. Rutzen is 49 years old.
PART II
ITEM 5.

ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock has been traded on the New York Stock Exchanges ("NYSE") under the symbol "PPS" since the Company's Initial Offering. The following table sets forth the quarterly high and low sales prices per share reported on the NYSE:
On February 21, 1997, the Company had 1,755 common shareholders of record.
The Company pays regular quarterly dividends to holders of shares of Common Stock. Future distributions by the Company will be at the discretion of the board of directors and will depend on the actual funds from operations of the Company, the Company's financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code (the "Code") and such other factors as the board of directors deems relevant.
During 1996, the Company did not sell any unregistered equity securities.
For a discussion of the Company's credit agreements and their restrictions on dividend payments, see Liquidity and Capital Resources at Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA POST PROPERTIES, INC. AND PREDECESSOR
Post Properties, Inc. (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND APARTMENT UNIT DATA)
(Selected financial data continued on following page)
- --------------- (1) Consists of revenues and expenses from property management and landscape services provided to properties owned by third parties (including services provided to third-party owners of properties previously developed and sold by the Company that operate under the Post(R) name). (2) The extraordinary item resulted from costs associated with the early extinguishment of indebtedness. The extraordinary item has been reduced by the portion related to the minority interest of the unitholders calculated on the basis of weighted average Units outstanding for the year. (3) The dividend paid by the Company for the portion of the quarter ended September 30, 1993 after the Initial Offering was $.320 per share of Common Stock, which is an amount equivalent to a quarterly distribution of $.415 per share (which, if annualized, would equal $1.66 per share). (4) The Company uses the National Association of Real Estate Investment Trust ("NAREIT") definition of FFO, which was adopted for periods beginning after January 1, 1996. FFO for any period means the Consolidated Net Income of the Company and its subsidiaries for such period excluding gains or losses from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures, all determined on a consistent basis in accordance with generally accepted accounting principles ("GAAP"). FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. However, the Company's FFO is comparable to the FFO of real estate companies that use the current NAREIT definition. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as
a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs or ability to service indebtedness or make distributions. (5) Amount represents average economic occupancy for communities stabilized for both the current and prior respective periods. Average economic occupancy is defined as gross potential rent less vacancy losses, model expenses and bad debt divided by gross potential rent for the period, expressed as a percentage. The calculation of average economic occupancy does not include a deduction for concessions and employee discounts (average economic occupancy, taking account of these amounts, would have been 94.7% and 95.5% for the year ended December 31, 1996 and 1995, respectively). Concessions were $428 and $296 and employee discounts were $261 and $213 for the years ended December 31, 1996 and 1995, respectively. A community is considered by the Company to have achieved stabilized occupancy on the earlier to occur of (i) attainment of 95% physical occupancy on the first day of any month, or (ii) one year after completion of construction.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
OVERVIEW
The following discussion should be read in conjunction with all of the financial statements appearing elsewhere in this report. The following discussion is based primarily on the Consolidated Financial Statements of Post Properties, Inc.
As of December 31, 1996, there were 27,145,386 Units outstanding, of which 21,922,393, or 80.8%, were owned by the Company and 5,222,993, or 19.2% were owned by other limited partners (including certain officers and directors of the Company). As of December 31, 1996, there were 1,000,000 Perpetual Preferred Units outstanding, all of which were owned by the Company.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The Company recorded net income available for common shareholders of $42,406, $29,118 and $18,999 for the year ended December 31, 1996, 1995 and 1994, respectively. The increases in net income in 1996 and 1995 were primarily due to increased rental rates for fully stabilized communities and an increase in units placed in service.
COMMUNITY OPERATIONS
The Company's net income is generated primarily from the operation of its apartment communities. For purposes of evaluating comparative operating performance, the Company categorizes its operating communities based on the period each community reaches stabilized occupancy. A community is generally considered by the Company to have achieved stabilized occupancy on the earlier to occur of (i) attainment of 95% physical occupancy on the first day of any month or (ii) one year after completion of construction.
At December 31, 1996, the Company's portfolio of apartment communities consisted of the following: (i) 36 communities and the first phase of 2 additional communities which were completed and stabilized for all of the current and prior year, (ii) 3 communities and the second phase of an existing community which achieved full stabilization during the prior year, (iii) 6 communities and the second phase of an existing community which reached stabilization during 1996, (iv) 2 communities which were acquired during 1996 and (v) 9 communities and the second phase of two existing communities in the development or lease-up stage.
For communities with respect to which construction is completed and the community has become fully operational, all property operating and maintenance expenses are expensed as incurred and those recurring and non-recurring expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset are capitalized. (See "Capitalization of Fixed Assets and Community Improvements").
The Company has adopted an accounting policy related to communities in the development and lease-up stage whereby substantially all operating expenses (including pre-opening marketing expenses) are expensed as incurred. 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 reflected on the balance sheet as construction in progress. Once a unit is placed in service, all operating expenses allocated to that unit, including interest, are expensed as incurred. During the lease-up phase, the sum of interest expense on completed units and other operating expenses (including pre-opening marketing expenses) will initially exceed rental revenues, resulting in a "lease-up deficit," which continues until such time as rental revenues exceed such expenses.
Therefore, in order to evaluate the operating performance of its communities, the Company has presented financial information which summarizes the revenue in excess of specified expense on a comparative basis for all of its operating communities combined and for communities which have reached stabilization prior to January 1, 1995. The Company has also presented quarterly financial information reflecting the dilutive impact of lease-up deficits incurred for communities in the development and lease-up stage and not yet operating at break-even. In this presentation, only those Communities which were dilutive during each period are included and, accordingly, different communities may be included in each period.
All Operating Communities
The operating performance for all of the Company's apartment communities combined for the years ended December 31, 1996, 1995 and 1994 is summarized as follows:
- ---------------
(1) Communities which reached stabilization prior to January 1, 1995. (2) On May 7, 1996, the Company reacquired three contiguous Atlanta apartment communities containing a total of 810 units which the Company now operates as a single community. On August 26, 1996, the Company acquired an apartment community containing 80 units in Nashville, Tennessee. See "Current Development Activity". (3) Communities in the "construction", "development" or "lease-up" stage during 1996 and, therefore, not considered fully stabilized for all of the periods presented. (4) Includes three communities, containing 568 units, which were sold on September 13, 1995 and one community, containing 180 units, which was sold on July 19, 1996. The revenues and expenses for these communities had previously been included in the fully stabilized group. (5) Other revenue includes revenue on furnished apartment rentals above the unfurnished rental rates and any revenue not directly related to property operations. Other revenue also includes, for the year ended December 31, 1996, approximately $527 which resulted from the Company's Olympic-related housing initiatives. (6) Other expenses includes certain indirect central office operating expenses related to management, grounds maintenance, and costs associated with furnished apartment rentals. (7) In addition to those expenses which relate to property operations, the Company incurs recurring and non-recurring expenditures relating to acquiring 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.
For the year ended December 31, 1996, rental and other revenue increased $26,019, or 19.0% compared to the same period in the prior year, primarily as a result of increased rental rates for fully stabilized communities, an increase in units placed in service, the acquisition of communities and the Company's Olympic-related housing initiatives, partially offset by a decrease in rental and other revenue due to the sale of three communities during the third quarter of 1995 and the sale of one community during the third quarter of 1996.
For the year ended December 31, 1996, recurring capital expenditures increased $1,261, or 74.2%, compared to the same period in the prior year, primarily due to additional units placed in service and the timing of scheduled capital improvements.
Property operating and maintenance expenses (exclusive of depreciation and amortization) increased from 1995 to 1996 and 1994 to 1995 primarily due to the increase in the units placed in service through the development and acquisition of communities.
Fully Stabilized Communities
The Company defines fully stabilized communities as those which have reached stabilization prior to the beginning of the previous calendar year.
The operating performance of the 36 communities and the first phase of two additional communities containing an aggregate of 13,980 units which were stabilized as of January 1, 1995, are summarized as follows:
- ---------------
(1) In addition to those expenses which relate to property operations, the Company incurs recurring and non-recurring expenditures relating to acquiring 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. For the year ended December 31, 1996 and 1995, recurring expenditures were $2,782 and $1,607, or $199 and $115 on a per unit basis, respectively.
(2) Average economic occupancy is defined as gross potential rent less vacancy losses, model expenses and bad debt divided by gross potential rent for the period, expressed as a percentage. The calculation of average economic occupancy does not include a deduction for concessions and employee discounts. (Average economic occupancy, taking account of these amounts would have been 94.7% and 95.8% for the years ended December 31, 1996 and 1995, respectively.) Concessions were $428 and $297 and employee discounts were $261 and $239 for the years ended December 31, 1996 and 1995, respectively. (3) Average monthly rental rate is defined as the average of the gross actual rental rates for leased units and the average of the anticipated rental rates for unoccupied units.
Rental and other revenue increased from 1995 to 1996 due to higher rental rates with occupancy slightly declining. The modest increase in property and maintenance expense (exclusive of depreciation and amortization) from 1995 to 1996 was primarily due to increases in ad valorem real estate taxes and personnel costs.
Rental and other revenue increased from 1994 to 1995 due to higher rental rates. Property operating and maintenance expenses (exclusive of depreciation and amortization) increased $2,292, or 6.1%. Ad valorem real estate taxes increased from $9,439 in 1994 to $10,973 in 1995, an increase of 16.3%. This increase alone accounted for 67% of the overall operating expense increase. The remaining increase was primarily due to modest increases in utilities, advertising and promotion and building repairs and maintenance offset by a modest decrease in landscaping and grounds and maintenance expense.
Lease-up Deficits
As noted in the overview of Community Operations, the Company has adopted an accounting policy related to communities in the development and lease-up stage whereby substantially all operating expenses (including pre-opening marketing expenses) are expensed as incurred. 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 as well as other construction costs are capitalized and reflected on the balance sheet as construction in progress. Once a unit is placed in service, all expenses allocated to that unit, including interest, are expensed as incurred. During the lease-up phase, the sum of interest expense on completed units and other operating expenses (including pre-opening marketing expenses) will typically exceed rental revenues, resulting in a "lease-up deficit," which continues until rental revenues exceed such expenses.
In this presentation, only those communities which were dilutive during each period are included in that period and, accordingly, different communities may be included in different periods.
For each quarter of the year ended December 31, 1996, the "lease-up deficit" charged to and included in results of operations are summarized as follows:
THIRD PARTY MANAGEMENT SERVICES
The Company provides asset management, leasing and other consulting services to non-related owners of apartment communities through two of its subsidiaries, RAM and Post Asset Management.
The operating performance of RAM and Post Asset Management for the years ended December 31, 1996, 1995 and 1994 are summarized as follows:
RAM Partners, Inc.
The change in property management revenues and expenses from 1995 to 1996 and from 1994 to 1995 is primarily attributable to the change in the average number and the average gross revenues of units managed.
Post Asset Management
The decreases in property management revenues and the related expenses from 1995 to 1996 and 1994 to 1995 were primarily due to the reduction in the average number of apartment units managed during the periods. These reductions were primarily due to the termination of one management contract during 1994 for communities developed by the Company and sold to third-party owners prior to the Initial Offering. Four additional contracts were terminated effective during 1996. As of December 31, 1996, Post Asset Management provided management services to one Post(R) community, containing 260 apartment units. The Company anticipates that the remaining contract will be terminated during 1997.
Third Party Landscape Services
The Company provides landscape maintenance, design and installation services to non-related parties through a subsidiary, Post Landscape.
The operating performance of Post Landscape for the years ended December 31, 1996, 1995 and 1994 are summarized as follows:
The change in landscape services revenue, landscape services expense and general and administrative expense from 1995 to 1996 and 1994 to 1995 is primarily due to an increase in landscape contracts.
Other Income and Expenses
Depreciation expense increased from 1995 to 1996 and 1994 to 1995 primarily due to the completion of new communities and the acquisition of communities.
Interest expense decreased from 1995 to 1996 primarily due to the repayment of debt with proceeds from the Third Offering and the Perpetual Preferred Shares. Interest expense increased from 1994 to 1995 due to additional outstanding borrowings until the time of the Third Offering.
Amortization of deferred loan costs, interest rate protection agreement and swap gain decreased from 1995 to 1996 as a result of repayment of indebtedness with proceeds of the Third Offering.
General and administrative expense increased from 1995 to 1996 primarily as a result of increased travel-related expenses and personnel costs. General and administrative expense remained relatively consistent from 1994 to 1995.
The gain on sale of assets resulted from the sale of a community and other assets during 1996, the sale of three communities during 1995 and a parcel of land during 1994.
The extraordinary item of $870 and $3,293, net of minority interest portion, for the years ended December 31, 1995 and 1994, respectively, resulted from the costs associated with the early retirement of debt.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity The Company's net cash provided by operating activities increased from $43,807 in 1994 to $57,362 in 1995 and to $78,966 in 1996, principally due to increased property operating income. Net cash used in investing activities increased from $99,364 in 1994 to $114,531 in 1995, principally due to a $27,740 increase in spending on new community development and acquisition activity offset by an increase in net proceeds of $15,152 from the sale of real estate assets. Net cash used in investing activities increased from $114,531 in 1995 to $166,762 in 1996 primarily due to a $41,616 increase in spending on construction and acquisition of real estate assets and a $10,360 decrease in proceeds from the sale of assets. The Company's net cash provided by financing activities increased from $46,508 in 1994 to $60,885 in 1995, primarily due to the effects of the Third Offering, the Company's dividend reinvestment plan ("DRIP"), additional borrowings and dividend payments. Net cash provided by financing activities increased from $60,885 in 1995 to $79,021 in 1996 primarily as a result of a decrease in net borrowings and an increase in offering proceeds from the Notes and the Perpetual Preferred Shares.
The Company has elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1993. REITs are subject to a number of organizational and operational requirements, including a requirement that they currently distribute 95% of their ordinary taxable income. As a REIT, the Company generally will not be subject to Federal income tax on net income.
At December 31, 1996, the Company had total indebtedness of $434,319 and cash and cash equivalents of $233. The Company's indebtedness includes approximately $36,281 in conventional mortgages payable and $149,038 in tax-exempt bond indebtedness secured by communities, senior unsecured notes of $225,000, and borrowings under unsecured lines of credit totaling approximately $24,000.
The Company expects to meet its short-term liquidity requirements generally through its net cash provided by operations and borrowings under credit arrangements and expects to meet certain of its long-term liquidity requirements, such as scheduled debt maturities, repayment of financing of construction and development activities and possible property acquisitions, through long-term secured and unsecured borrowings, possible sale of properties and the issuance of debt
securities or additional equity securities of the Company, or, possibly in connection with acquisitions of land or improved properties, Units of the Operating Partnership. The Company believes that its net cash provided by operations will be adequate and anticipates that it will continue to be adequate to meet both operating requirements and payment of dividends by the Company in accordance with REIT requirements in both the short and the long term. The budgeted expenditures for improvements and renovations to certain of the communities are expected to be funded from property operations.
Lines Of Credit The Company has a syndicated line of credit (the "Revolver") in the amount of $180,000 to provide funding for future construction, acquisitions and general business obligations. The Revolver matures on May 1, 1999 and as of December 31, 1996, borrowings bore interest at LIBOR plus .80% or prime minus .25%. The Revolver provides for the rate to be adjusted up or down based on changes in the credit ratings on the Company's senior unsecured debt. The credit agreement for the Revolver contains customary representations, covenants and events of default, including covenants which restrict the ability of the Operating Partnership to make distributions, in excess of stated amounts, which in turn restricts the discretion of the Company to declare and pay dividends. In general, during any fiscal year the Operating Partnership may only distribute up to 100% of the Operating Partnership's consolidated income available for distribution (as defined in the credit agreement) exclusive of distributions of up to $30,000 of capital gains for such year. The credit agreement contains exceptions to these limitations to allow the Operating Partnership to make distributions necessary to allow the Company to maintain its status as a REIT. The Company does not anticipate that this covenant will adversely affect the ability of the Operating Partnership to make distributions, or the Company to declare dividends, under the Company's current dividend policy.
On July 26, 1996, the Company closed a $20,000 unsecured line of credit with Wachovia Bank of Georgia, N.A. (The "Cash Management Line"), which was fully funded and used to pay down the outstanding balance on the Revolver. The Cash Management Line bears interest at LIBOR plus .75% or prime minus .25% and has a maturity date of November 14, 1997. The Revolver requires three days advance notice to repay borrowings whereas the Cash Management Line provides the Company with an automatic daily sweep which applies all available cash to reduce the outstanding balance. At December 31, 1996, the Company had $176,000 available under the Revolver to fund future development and general corporate obligations. In addition, the Company has a $3,000 facility to provide letters of credit for general business purposes.
Tax Exempt Bonds On June 29, 1995, the Company replaced the bank letters of credit providing credit enhancement for twelve of its outstanding tax-exempt bonds and three of its economically defeased tax-exempt bonds. Under an agreement with the Federal National Mortgage Association ("FNMA"), FNMA now provides, directly or indirectly through other bank letters of credit, credit enhancement with respect to such bonds. Under the terms of such agreement, FNMA has provided replacement credit enhancement through 2025 for seven bond issues, aggregating $84,280, which were concurrently reissued, and has agreed, subject to certain conditions, to provide credit enhancement through June 1, 2025 for up to an additional $70,248 ($5,490 of which is currently defeased) with respect to eight other bond issues which mature and may be refunded during 1997 and 1998. Under this agreement, on January 1, 1997, the Post Bridge and Post Gardens bonds were refunded in the amount of $12,450 ($2,490 of which had previously been defeased) and $14,500, respectively, with an issue enhanced by FNMA and maturing on June 1, 2025. The agreement with FNMA contains representations, covenants, and events of default customary to such secured loans.
Refundable Tax Exempt Bonds The Company has previously issued tax-exempt bonds, secured by certain communities, totaling $235,880, of which $86,842 has been economically defeased at December 31, 1996, leaving $149,038 of principal amount of tax-exempt bonds outstanding at December 31, 1996 of which $84,280 of the bonds outstanding have been reissued with a maturity of June 1, 2025. The remaining outstanding bonds, together with the economically defeased bonds, mature and may be reissued, during the years 1997 and 1998. On January 1, 1997, the Post Bridge and Post Gardens bonds were refunded in the amount of $12,450 ($2,490 of which had previously been defeased) and $14,500, respectively, with an issue enhanced by FNMA and maturing on June 1, 2025. The Company has chosen economic defeasance of the bond obligations rather than a legal defeasance in order to preserve the legal right to refund such obligations on a tax-exempt basis at the stated maturity if the Company then determines that such refunding is beneficial to the Company.
The following table shows the amount of bonds (both defeased and outstanding) at December 31, 1996, which the Company may reissue during the years 1997 through 2025:
- --------------- (1) 1997 amounts include Post Bridge and Post Gardens bonds which matured on January 1, 1997.
Senior Unsecured Debt Offering On September 30, 1996, the Company completed a $125,000 senior unsecured debt offering comprised of two tranches. The first tranche, $100,000 of 7.25% Notes due on October 1, 2003 (the "2003 Notes"), was priced at 99.642% to yield 7.316%, or 71 basis points over the rate on U.S. Treasury securities with a comparable maturity. The second tranche, $25,000 or 7.50% Notes due on October 1, 2006 (the "2006 Notes", and together with the 2003 Notes, the "Notes"), was priced at 99.694% to yield 7.544%, or 83 basis points over the rate on U.S. Treasury securities with a comparable maturity. Proceeds from the Notes were used to pay down the Revolver.
Perpetual Preferred Stock Offering On October 1, 1996, the Company sold one million non-convertible 8.5% Series A Cumulative Redeemable Shares (the "Perpetual Preferred Shares"), raising $50 million. Net proceeds of $48,700 from the sale of the Perpetual Preferred Shares were contributed to the Operating Partnership in exchange for one million Series A Preferred Units (the "Perpetual Preferred Units") and used by the Operating Partnership to repay outstanding indebtedness.
Dividend Reinvestment Plan The Dividend Reinvestment Plan ("DRIP") is available to all shareholders of the Company. Under the DRIP, shareholders may elect for their dividends to be used to acquire additional shares of the Company's Common Stock directly from the Company, for 95% of the market price on the date of purchase.
Schedule of Indebtedness The following table reflects the Company's indebtedness at December 31, 1996.
- ----------------------------- (1) All of the debt can be prepaid at any time, subject to certain prepayment penalties. All dates listed are final maturity dates assuming the exercise of any available extension option by the Company. (2) On January 1, 1997, this bond was refunded with an issue having a maturity date of June 1, 2025 and an interest rate of SunTrust Bank, Atlanta Non-AMT "AAA" tax free rate plus a credit enhancement fee of .575%. (3) Bond Financed (interest rate on bonds + credit enhancement fees). (4) These bonds are cross collateralized and are also secured by Post Fountains at Lee Vista, Post Lake (Orlando) and the Fountains and Meadows of Post Village for which the Company has economically defeased their respective bond indebtedness. (5) Subject to certain conditions at re-issuance, the credit enhancement runs to June 1, 2025. (6) On February 10, 1997, this mortgage was paid off with proceeds drawn on the Revolver.
Current Development Activity The Company's communities under development or in initial lease-up are summarized in the following table:
Land The Company has acquired a parcel of land in Atlanta on which it plans to build a new community. The Home Depot, Inc. is constructing its corporate headquarters campus and extensive infrastructure improvements are being made by the county adjacent to the parcel. The Company will review its development plan for this parcel closer to completion of these improvements. In addition, the Company holds land for a third phase of Post Rocky Point in Tampa, Florida. The Company is also currently conducting feasibility and other pre-development studies for possible new Post(R) communities in its primary market areas.
Other Activities On May 7, 1996, the Company reacquired three contiguous Atlanta apartment communities, containing 810 units, which the Company developed in the early 1980's and managed under the Post(R) brand name through mid-1993. The Company's capital investment, after capital improvements, will be approximately $48 million, or $59,000 per apartment unit. The Company is operating this as one community under the name Post Creek(TM).
On July 19, 1996, the Company sold a community located in Florida, containing 180 units. The sale of the community is consistent with the Company's strategy of selling communities when the market demographics for a community are no longer consistent with the Company's existing ownership strategy.
Capitalization of Fixed Assets and Community Improvements The Company has established a policy of capitalizing those expenditures relating to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. All expenditures necessary to maintain a community in ordinary operating condition are expensed as incurred. During the first five years of a community (which corresponds to the estimated depreciable life), carpet replacements are expensed as incurred. Thereafter, carpet replacements are capitalized.
Acquisition of assets and community improvement expenditures for the year ended December 31, 1996 and 1995 are summarized as follows:
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 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 permits the earlier termination of a lease by a lessee upon thirty (30) days written notice to the Company and the payment of one month's additional rent as compensation for early termination. The short-term nature of these leases generally serves to reduce the risk to the Company of the adverse effect of inflation.
FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION
Historical Funds from Operations The Company considers funds from operations ("FFO") an appropriate measure of performance of an equity REIT. FFO is defined to mean net income (loss) determined in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs. Cash available for distribution ("CAD") is defined as FFO less capital expenditures funded by operations and loan amortization payments. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO and CAD should be examined in conjunction with net income as presented in the consolidated financial statements and data included elsewhere in this report.
FFO and CAD for the year ended December 31, 1996, 1995 and 1994 presented on a historical basis are summarized in the following table:
Calculations of Funds from Operations and Cash Available for Distribution
- --------------- (1) The Company uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO which was adopted for periods beginning after January 1, 1996. FFO for any period means the Consolidated Net Income of the Company and its subsidiaries for such period excluding gains or losses from debt restructuring and sales of property plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures, all determined on a consistent basis in accordance with generally accepted accounting principles. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. However, the Company's FFO is comparable to the FFO of real estate companies that use the current NAREIT definition. (2) Recurring capital expenditures consisted primarily of $1,087, $897 and $729 of carpet replacement and $1,874, $803 and $1,087 of other community additions and improvements to existing communities for the years ended December 31, 1996, 1995 and 1994, respectively. Since the Company does not add back the depreciation of non-real estate assets in its calculation of FFO, capital expenditures of $820, $1,267 and $783 are excluded from the calculation of CAD for the years ended December 31, 1996, 1995 and 1994, respectively. (3) Non-recurring capital expenditures consisted of the additions of vehicle access control gates to communities of $66, $428 and $1,302 and other community additions and improvements of $1,872, $859 and $0 for the years ended December 31, 1996, 1995 and 1994, respectively.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS The Company considers portions of this information to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of The Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are listed under Item 14(a) and are filed as part of this report on the pages indicated. The supplementary data are included in Note 13 of the Notes to Consolidated Financial Statements.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections under the headings "Election of Directors" entitled "Nominee for Election -- New Director," "Nominees for Election -- Term Expiring 1997," "Incumbent Directors -- Term Expiring 1999," and "Incumbent Directors -- Term Expiring 1999" of the Proxy Statement for Annual Meeting of Shareholders to be held May 22, 1997 (the "Proxy Statement") are incorporated herein by reference for information on Directors of the Registrant. See Item X in Part I hereof for information regarding executive officers of the Registrant. The section under the heading "Other Matters" entitled "Section 16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled "Compensation of Directors" of the Proxy Statement and the sections under the heading titled "Executive Compensation" entitled "Summary Compensation Table", "Fiscal Year-end Option Value Table", "Profit Sharing Plan", "Noncompetition and Employment Contract" and "Compensation Committee Interlocks and Insider Participation" of the Proxy Statement are incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section under the heading "Common Stock Ownership by Management and Principal Shareholders" of the Proxy Statement is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section under the heading "Certain Transactions" of the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2. FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedules listed below are filed as part of this annual report on the pages indicated.
3. EXHIBITS
Certain of the exhibits required by Item 601 of Regulation S-K have been filed with previous reports by the registrant and are herein incorporated by reference thereto.
The Registrant agrees to furnish a copy of all agreements relating to long-term debt upon request of the Commission.
- --------------- * Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as amended, of the Registrant. ** Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-71650), as amended, of the Registrant.
*** Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-3555) of the Registrant. + Filed as an exhibit to the Registration Statement on Form S-8 (SEC File No. 33-86674) of the Registrant. ++ Filed as part of the Registration Statement on Form S-3 (SEC File No. 33-81772) of the Registrant. +++ Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1995. o Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1994.
The registrant's proxy statement is to be filed with the Commission on or about March 31, 1997.
(b) Reports on Form 8-K
Report on Form 8-K filed on October 1, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. (Registrant)
March 28, 1997 /s/ John T. Glover -------------------------------------- John T. Glover, President Chief Operating Officer, Treasurer and a Director (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Post Properties, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a) 1. and 2. on page 30 present fairly, in all material respects, the financial position of Post Properties, Inc. at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the management of Post Properties, Inc.; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Atlanta, Georgia February 11, 1997
POST PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
POST PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying notes are an integral part of these consolidated financial statements.
POST PROPERTIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND ACCUMULATED EARNINGS (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
POST PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND FORMATION OF THE COMPANY
ORGANIZATION AND FORMATION OF THE COMPANY
Post Properties, Inc. (the "Company") which was incorporated on January 25, 1984 is the successor by merger to the original Post Properties, Inc., a Georgia Corporation which was formed in 1971. The Company was formed to develop, lease and manage upscale multi-family apartment communities. On July 22, 1993, the Company completed the Initial Offering and a business combination involving entities under varying common ownership ("Formation Transactions"). Proceeds from the Initial Offering were used to acquire a controlling interest in the Post Apartment Homes, L.P. (the "Operating Partnership") which was formed to succeed to substantially all of the ownership interest in the Initial Communities and to the development, leasing, landscaping and management business of the Company and certain other affiliates.
The Company elected to be taxed as a real estate investment trust ("REIT") for Federal income tax purposes beginning with the taxable year ended December 31, 1993. A corporate REIT is a legal entity which holds real estate interest and, through payments of dividends to shareholders, is permitted to reduce or avoid the payment of Federal income taxes at the corporate level.
The Company currently owns and manages or is in the process of developing apartment communities located in the Atlanta, Tampa, Northern Virginia, Nashville and Charlotte metropolitan areas. Approximately 72.8% and 12.6% (on a unit basis) of the Company's communities are located in the Atlanta and Tampa metropolitan areas, respectively.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated accounts of the Company and the Operating Partnership. All significant intercompany accounts and transactions have been eliminated in consolidation. Since units can be redeemed for shares of the Company on a one-for-one basis at the Company's option, minority interest of unitholders in the operations of the Operating Partnership is calculated based on the weighted average of shares and units outstanding during the period.
Certain items in the Consolidated Financial Statements were reclassified for comparative purposes.
ACCOUNTING CHANGES
In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement requires that long-lived assets and certain identified intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement requires the use of undiscounted estimated cash flows expected from the asset's operations and eventual disposition. If the sum of the expected future cash flows are less than the carrying value of the asset, an impairment loss is recognized based on the fair value of the asset. Adoption of this pronouncement had no material effect on the consolidated statement of operations for the year ended December 31, 1996.
During 1996, the Company adopted SFAS 123, "Accounting for Stock-Based Compensation." This statement provides entities a choice between fair value based or intrinsic value based methods of accounting, for stock based compensation plans. The Company has elected to continue using the intrinsic value method. Under this approach, the Company will provide pro forma disclosures of net income and earnings per share as if the fair value method had been applied.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
REAL ESTATE ASSETS AND DEPRECIATION
Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments are capitalized and depreciated over their estimated useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and components and related land improvements -- 20-40 years; furniture, fixtures and equipment -- 5 years).
REVENUE RECOGNITION
Rental -- Residential properties are leased under operating leases with terms of generally one year or less. Rental income is recognized when earned, which is not materially different from revenue recognition on a straight line basis.
Property management and landscaping services -- Income is recognized when earned for property management and landscaping services provided to third parties.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, all investments purchased with an original maturity of three months or less are considered to be cash equivalents.
RESTRICTED CASH
Restricted cash generally is comprised of resident security deposits for communities located in Florida and Tennessee and required maintenance reserves for communities located in DeKalb County, Georgia.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized using the interest method over the terms of the related debt.
INTEREST AND REAL ESTATE TAXES
Interest and real estate taxes incurred during the construction period are capitalized and depreciated over the lives of the constructed assets. Interest paid (including capitalized amounts of $4,443, $5,653 and $3,427 during 1996, 1995 and 1994, respectively, and interest rate protection receipts of $830, $1,539 and $384 during 1996, 1995 and 1994, respectively) aggregated $27,120, $28,343, $21,234 for the years ended December 31, 1996, 1995 and 1994, respectively.
INTEREST RATE PROTECTION AGREEMENTS
Premiums paid to purchase interest rate protection agreements are capitalized and amortized over the terms of those agreements using the interest method. Unamortized premiums are included in other assets in the consolidated balance sheet. Amounts receivable under the interest rate protection agreements are accrued as a reduction of interest expense.
PER SHARE DATA
Earnings per common share with respect to the Company for the years ended December 31, 1996, 1995 and 1994 is computed based upon the weighted average number of shares outstanding during the period.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
2. DEFERRED CHARGES
Deferred charges consist of the following:
3. NOTES PAYABLE
The Company's indebtedness consists of the following:
CONVENTIONAL MORTGAGES PAYABLE
Conventional mortgages payable were comprised of five loans at December 31, 1996 and 1995 each of which is collateralized by an apartment community included in real estate assets. The mortgages payable are generally due in monthly installments of interest only and mature at various dates through 1999. The interest rates on the fixed rate mortgages payable ranged from 7.72% to 9.20% at December 31, 1996. At December 31, 1996, the interest rate on the variable rate mortgage payable was at .55% above the London Interbank Offered Rate ("LIBOR"). At December 31, 1996, LIBOR ranged from 5.50% to 5.79% for one, three, six, and twelve month indices.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
TAX-EXEMPT BOND INDEBTEDNESS
Certain of the apartment communities are encumbered to secure tax-exempt housing bonds. Such bonds are generally payable in monthly or semi-annual installments of interest only and mature at various dates through 2025. The interest rate on each of the fixed rate bonds payable was 8.075% at December 31, 1996. Floating rate indebtedness reissued in 1995 and 1996, bears interest at the "AAA" non-AMT tax exempt rate, set weekly, which was 4.05% at December 31, 1996 (average of 3.44% for 1996). With respect to such bonds, the Company pays certain credit enhancement fees of .575% of the amount of such bonds or the amount of such letters of credit, as the case may be.
On June 29, 1995, the Company replaced the bank letters of credit providing credit enhancement for twelve of its outstanding tax-exempt bonds and three of its economically defeased tax-exempt bonds. Under an agreement with the Federal National Mortgage Association ("FNMA"), FNMA now provides, directly or indirectly through other bank letters of credit, credit enhancement for such bonds. Under the terms of such agreement, FNMA has provided replacement credit enhancement through 2025 for seven bond issues, aggregating $84,280, which were concurrently reissued, and has agreed, subject to certain conditions, to provide credit enhancement through June 1, 2025 for up to an additional $70,248 ($5,490 of which is currently defeased) with respect to eight other bond issues which mature and may be refunded during 1997 and 1998. Under this agreement, on January 1, 1997, the Post Bridge and Post Gardens bonds were refunded in the amount of $12,450 ($2,490 of which had previously been defeased) and $14,500, respectively, with an issue enhanced by FNMA and maturing on June 1, 2025. The agreement also contains a provision whereby the Company may request FNMA to evaluate the enhancement of an additional $81,352 of bonds which are currently defeased and not part of the agreement. The agreement with FNMA contains representations, covenants, and events of default customary to such secured loans.
DEBT DEFEASED
The Company applied a portion of the net proceeds of the Initial Offering and Second Offering to pay in full thirteen fixed rate obligations totaling $132,470 and economically defease in full six tax exempt bond financings totaling $52,700. In addition, the Company paid $43,108 to partially prepay eleven variable rate obligations and $51,956 to economically defease portions of eight tax exempt bond financings. The above amounts do not include aggregate prepayment penalties and defeasance escrow requirements in excess of principal defeased of $18,077. The balance of debt fully or partially economically defeased aggregated $86,842 at December 31, 1996.
LINES OF CREDIT
The Company has a syndicated line of credit (the "Revolver") in the amount of $180,000 to provide the funding for future construction, acquisition and general business obligations. The Revolver matures on May 1, 1999 and borrowings currently bear interest at LIBOR plus .80% or prime minus .25%. The Revolver provides for the rate to be adjusted up or down based on changes in the credit ratings on the Company's senior unsecured debt. The credit agreement for the Revolver contains customary representations, covenants and events of default, including covenants which restrict the ability of the Operating Partnership to make distributions, in excess of stated amounts, which in turn restricts the discretion of the Company to declare and pay dividends. In general, during any fiscal year the Operating Partnership may only distribute up to 100% of the Operating Partnership's consolidated income available for distribution (as defined in the credit agreement) exclusive of distributions of up to $30,000 of capital gains for such year. The credit agreement contains exceptions to these limitations to allow the Operating Partnership to make distributions necessary to allow the Company to maintain its status as a REIT. The Company does not anticipate that this covenant will adversely affect the ability of the Operating Partnership to make distributions, or the Company to declare dividends, under the Company's current dividend policy.
On July 26, 1996, the Company closed a $20,000 unsecured line of credit with Wachovia Bank of Georgia, N.A. (The "Cash Management Line"), which was fully funded and used to pay down the outstanding balance on the Revolver. The
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Cash Management Line bears interest at LIBOR plus .75% or prime minus .25% and has a maturity date of November 14, 1997. The Revolver requires three days advance notice to repay borrowings whereas this facility provides the Company with an automatic daily sweep which applies all available cash to reduce the outstanding balance.
At December 31, 1996, the outstanding balances on the Revolver and the Cash Management Line were $4,000 and $20,000, respectively.
In addition, the Company has a $3,000 facility to provide letters of credit for general business purposes.
SENIOR UNSECURED NOTES
On June 7, 1995, the Company issued $50,000 of unsecured senior notes with The Northwestern Mutual Life Insurance Company. The notes were in two tranches: the first, totaling $30,000, carries an interest rate of 8.21% per annum (1.25% over the corresponding treasury rate on the date such rate was set) and matures on June 7, 2000; and the second, totaling $20,000 carries an interest rate of 8.37% per annum (1.35% over the corresponding treasury rate on the date such rate was set) and matures on June 7, 2002. Proceeds from the notes were used to reduce other secured indebtedness and to pay down the Revolver. The note agreements pursuant to which the notes were purchased contain customary representations, covenants and events of default similar to those contained in the note agreement for the Revolver.
On September 29, 1995, the Company issued $50,000 of unsecured senior notes with Wachovia Bank of Georgia, N.A. (the "Wachovia Notes"). The Wachovia Notes were in two tranches: the first tranche, aggregating $25,000, will mature on September 29, 1999; the second tranche, aggregating $25,000 will mature on September 29, 2001. Both tranches bear interest at 7.15% per annum (1.10% over the corresponding treasury rate on the date such rate was set). Proceeds from the issuance of the Wachovia Notes were used to reduce indebtedness outstanding on the Revolver. The credit agreement for the notes contain representations, covenants and events of default similar to those contained in the note agreement for the Revolver.
On September 30, 1996, the Company completed a $125,000 senior unsecured debt offering comprised of two tranches. The first tranche, $100,000 of 7.25% Notes due on October 1, 2003 (the "2003 Notes"), was priced at 99.642% to yield 7.316% per annum (.71% over the corresponding treasury rate on the date such rate was set). The second tranche, $25,000 of 7.50% Notes due on October 1, 2006 (the "2006 Notes", and together with the 2003 Notes, the "Notes"), was priced at 99.694% to yield 7.544% per annum (.83% over the corresponding treasury rate on the date such rate was set). Proceeds from the Notes were used to pay down existing indebtedness outstanding on the Revolver.
The aggregate maturities of the above conventional mortgages payable, tax-exempt bond indebtedness, lines of credit and senior unsecured notes (after giving effect to the refunding of the Post Bridge and Post Gardens bonds) are as follows:
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PLEDGED ASSETS
The aggregate net book value at December 31, 1996 of property pledged as collateral for indebtedness amounted to approximately $169,171.
EXTRAORDINARY ITEM
The extraordinary item for the year ended December 31, 1995 resulted from the write-off of deferred financing costs on the mortgage debt satisfied. The extraordinary item is net of minority interest ($250) of the unitholders calculated on the basis of weighted average units and common shares outstanding for the year ended December 31, 1995.
The extraordinary item for the year ended December 31, 1994 resulted from mortgage prepayment penalties and defeasance escrow requirements ($4,274), the administrative costs for bond indebtedness defeased ($485), the write-off of deferred financing costs on the mortgage debt satisfied ($1,139) and the recognition of the gain previously deferred ($1,485) from the termination of the interest rate swap agreements for which the related debt has been repaid or defeased. The extraordinary item is net of the minority interest ($1,120) of the unit holders calculated on the basis of weighted average units and shares outstanding for the year ended December 31, 1994.
4. INCOME TAXES
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code") commencing with the taxable year ended December 31, 1993. In order for the Company to qualify as a REIT, it must distribute annually at least 95% of its REIT taxable income, as defined in the Code, to its shareholders and satisfy certain other requirements. As a result, the Company generally will not be subject to Federal income taxation at the corporate level on the income it distributes to the shareholders. Although Post Properties, Inc. has elected to be taxed as a REIT, Post Services, Inc. ("Post Services") was formed as a subsidiary of the Operating Partnership to provide through its subsidiaries asset management, leasing and landscaping services to third parties. The consolidated taxable income of Post Services, if any, will be subject to tax at regular corporate rates.
As of December 31, 1996, the net basis for Federal income tax purposes, taking into account the special allocation of gain to the partners contributing property to the Operating Partnership and including minority interest in the Operating Partnership, exceeded the net assets as reported in the Company's consolidated financial statements by approximately $100,439.
5. RELATED PARTY TRANSACTIONS
The Company provides landscaping services for executive officers, employees, directors and other related parties. For the years ended December 31, 1996, 1995 and 1994, the Company received landscaping fees of $1,391, $1,758 and $1,968 for such services. These amounts include reimbursements of direct expenses in the amount of $729, $1,111 and $1,507 which are not included in landscape services revenue; accordingly, these transactions resulted in the Company recording landscape services net fees in excess of direct expenses of $662, $647 and $461 in the accompanying financial statements for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company provides accounting and administrative services to entities controlled by certain executive officers of the Company. Fees under this arrangement aggregated $25, $32 and $60 for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company was contracted to assist in the development of apartment complexes constructed by a former executive and current shareholder. Fees under this arrangement were $363, $317 and $140 for the years ended December 31, 1996, 1995 and 1994, respectively.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
On May 22, 1995, the Company purchased for a nominal amount the outstanding capital stock of A.T. Aviation, Inc. ("A.T. Aviation"), an entity formed and owned by John A. Williams, Chairman of the Board of Directors of the Company, and John T. Glover, President and a Director of the Company. In connection with the acquisition, the Company assumed certain obligations of A.T. Aviation. At the time of the acquisition, A.T. Aviation had entered into a purchase agreement for a used aircraft, leased certain property improvements related thereto, and obtained a line of credit in the amount of $7,500 to fund such acquisitions. In connection with the acquisition, the Company assumed and repaid such line of credit, which had been guaranteed by such officers, and such line and guarantees were terminated.
On October 15, 1996, the Company exercised its option to purchase land from unitholders of the Operating Partnership. In exchange for the land, the Company issued 138,150 units of the Operating Partnership to the unitholders.
6. EMPLOYEE BENEFIT PLANS
The employees of the Company are participants in a profit sharing plan pursuant to Section 401 of the Internal Revenue Code. Contributions are made based on a discretionary amount determined by the Company's management. Contributions, if any, are allocated to each participant based on the relative compensation of the participant to the compensation of all participants. Contributions of $100, $145 and $147 were made in 1996, 1995 and 1994, respectively.
During 1995, the Company adopted the Employee Stock Purchase Plan ("ESPP") to encourage stock ownership by eligible directors and employees. To participate in the ESPP, (i) directors must not be employed by the Company or the Operating Partnership and must have been a member of the Board of Directors for at least one month and (ii) an employee must have been employed full-time by the Company or the Operating Partnership for at least one month. The purchase price of shares of Common Stock under the ESPP is equal to 85% of the lesser of the closing price per share of Common Stock on the first or last day of the trading period, as defined.
7. DIVIDEND REINVESTMENT PLAN
The Dividend Reinvestment Plan ("DRIP") is available to all shareholders of the Company. Under the DRIP, shareholders may elect for their dividends to be used to acquire additional shares of the Company's Common Stock directly from the Company, for 95% of the market price on the date of purchase.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. STOCK-BASED COMPENSATION PLANS
STOCK COMPENSATION PLANS
At December 31, 1996, the Company had two stock-based compensation plans, the Employee Stock Plan (the "Stock Plan"), the Employee Stock Purchase Plan (the "ESPP") and, under the Stock Plan, a stock grant program (the "Grant Plan") as described below. The Company applies APB Opinion 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the Stock Plan and the ESPP. The compensation cost that has been charged against income for the Grant Plan was, $129 and $73 for 1996 and 1995, respectively. Had compensation cost for the Company's Stock Plan and ESPP been determined based on the fair value at the grant dates for awards under the Plans consistent with the method of FASB Statement 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
For purposes of the pro forma presentation, the fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model. The weighted-average of all assumptions used in the calculation for various grants under all of the Company's plans during 1996 and 1995, are as follows: dividend yield of 5.4 for 1996 and 6.2 percent for 1995; expected volatility of 14.5 percent for both years; risk-free interest rates ranging from 5.4 to 5.7 percent for 1996 and 5.5 to 7.3 percent for 1995; and expected lives ranging from 5 to 7 years for both years.
FIXED STOCK OPTION PLANS
Under the Stock Plan, the Company may grant options to its employees and directors for up to 1,200,000 shares of common stock. Of this amount, 550,000 shares are available for grants of restricted stock. Options granted to any key employee or officer cannot exceed 50,000 shares a year. The exercise price of each option equals the market price on the date of grant and all options have a maximum term of ten years from the grant date.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of the status of the Company's Stock Plan as of December 31, 1995 and 1996, changes during the years then ended, and the weighted-average fair value of options granted during the years is presented below:
The following table summarizes information about the options outstanding under the Company's Stock Plan at December 31, 1996:
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. COMMITMENTS AND CONTINGENCIES
LAND, OFFICE AND EQUIPMENT LEASES
The Company is party to two ground leases relating to an operating community with terms expiring in years 2040 and 2043 and to office, equipment and other operating leases with terms expiring in years 1997 through 2004. Future minimum lease payments for noncancellable land, office, equipment and other leases at December 31, 1996 are as follows:
The Company incurred $2,172 , $2,034 and $1,911 of rent expense for the years ended December 31, 1996, 1995 and 1994, respectively.
CONTINGENCIES
The Company is party to various legal actions which are incidental to its business. Management believes that these actions will not have a material adverse affect on the consolidated balance sheets and statements of operations.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by management using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Cash equivalents, rents and landscape service receivables, interest rate protection agreement, accounts payable, accrued expenses, notes payable and other liabilities are carried at amounts which reasonably approximate their fair values.
Disclosure about fair value of financial instruments are based on pertinent information available to management as of December 31, 1996. Although management is not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
11. EARNINGS PER SHARE
Primary earnings per common share for income before extraordinary item, net of preferred dividends, and net income available to common shareholders has been computed by dividing income before extraordinary item, net of preferred dividends, and net income available to common shareholders by the weighted average number of shares outstanding. This method derives the same per common share information as the "two-class" method prescribed for REIT's. The weighted average number of common shares outstanding utilized in the calculations are 21,787,648, 18,382,299 and 16,847,999 for the years ended December 31, 1996, 1995 and 1994, respectively.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended December 31, 1996, 1995 and 1994 are as follows:
(a) On the date of the Second Offering and Third Offering, holders of 5,401,185 and 5,139,243 Units of the Operating Partnership, respectively, were allocated capital on a pro rata basis in proportion to their Units over total Units outstanding in the Operating Partnership. During 1996, 1995 and 1994, holders of 54,400, 97,201 and 159,373 Units in the Operating Partnership, respectively, exercised their option to convert their units to shares of the Company on a one-for-one basis. During 1996 the Company exercised its option to purchase land in exchange for 138,150 Units of the Operating Partnership. The net effect of the capital allocated to the unitholders of the Operating Partnership on the dates of the offerings, the subsequent conversion of Units of the Operating Partnership to shares of the Company, the adjustments to minority interest for the dilutive impact of the Dividend Reinvestment and Employee Stock Purchase Plans and the issuance of Units of the Operating Partnership in exchange for land was a reclassification increasing minority interest and decreasing shareholders' equity in the amount of $2,680 and $10,598 and $8,345 for the years ended December 31, 1996, 1995 and 1994, respectively.
(b) The Operating Partnership committed to distribute $14,659, $13,091 and $10,094 for the quarters ended December 31, 1996, 1995 and 1994, respectively. As a result, the Company declared dividends of $11,838, $10,573 and $7,737 for the quarters ended December 31, 1996, 1995 and 1994, respectively. The remaining distributions from the Operating Partnership in the amount of $2,821, $2,518 and $2,357 for the quarters ended December 31, 1996, 1995 and 1994, respectively, are distributed to minority interest unitholders in the Operating Partnership.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended 1996 and 1995 are as follows:
- --------------- * The total of the four quarterly amounts for minority interest of unitholders in Operating Partnership, extraordinary item, net income and earnings per share may not equal the total for the year. These differences result from the use of a weighted average to compute minority interest in the Operating Partnership and average number of shares outstanding.
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCHEDULE III
POST PROPERTIES, INC. REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (Dollars in thousands)
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) The aggregate cost for Federal Income Tax purposes to the Company was approximately $1,198,542 at December 31, 1996, taking into account the special allocation of gain to the partners contributing property to the Operating Partnership. (2) These properties serve as collateral for the Federal National Mortgage Association credit enhancement. (3) Balance includes an allowance for possible loss of $3,700 which was taken in prior years. (4) Construction still in process as of December 31, 1996. (5) The Company acquired this community during 1996. The Company is operating the community while evaluating whether whether to hold, renovate or sell the community. (6) Additional land was acquired for construction of a second phase.
- --------------------- A summary of activity for real estate investments and accumulated depreciation is as follows:
[a] Depreciation expense in the Consolidated Statements for the year ended December 31, 1996 and 1995, include $231 and $138, respectively, of depreciation expense on other assets.
EXHIBIT INDEX
* Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-61936), as amended, of the Registrant. ** Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-71650), as amended, of the Registrant. *** Filed as an exhibit to the Registration Statement on Form S-3 (SEC File No. 333-3555) of the Registrant. + Filed as an exhibit to the Registration Statement on Form S-8 (SEC File No. 33-86674) of the Registrant. ++ Filed as part of the Registration Statement on Form S-3 (SEC File No. 33-81772) of the Registrant. +++ Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1995. o Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1994.
The registrant's proxy statement is to be filed with the Commission on or about March 31, 1997.
(b) REPORTS ON FORM 8-K
Report on Form 8-K filed on October 1, 1996.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrator of the Post Properties, Inc. 1995 Non-Qualified Employee Stock Purchase Plan
In our opinion, the accompanying statements of net assets available for plan benefits and of changes in net assets available for plan benefits present fairly, in all material respects, the net assets of the Post Properties, Inc. 1995 Non-Qualified Employee Stock Purchase Plan at December 31, 1996 and 1995 and the changes in net assets available for plan benefits for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Plan's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Atlanta, Georgia February 11, 1997
POST PROPERTIES, INC. 1995 NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
POST PROPERTIES, INC. 1995 NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
POST PROPERTIES, INC. 1995 NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) Post Properties, Inc. (the "Company") established the 1995 Non-Qualified Employee Stock Purchase Plan (the "Plan") to encourage stock ownership by eligible directors and employees.
(B) The financial statements have been prepared on the accrual basis of accounting.
(C) All expenses incurred in the administration of the Plan are paid by the Company and are excluded from these financial statements.
NOTE 2 - THE PLAN:
Upon adoption by the Company's Board of Directors, the Plan became effective as of January 1, 1995. Under the Plan, eligible participating employees and directors of the Company can purchase Common Stock at a discount (up to 15% set by the Compensation Committee of the Company's Board of Directors) from the Company through salary withholding or cash contributions. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, nor is it intended to qualify for special tax treatment under Section 401(a) of the Internal Revenue Code.
Directors who have been a member of the Board of Directors for at least one full calendar month and full-time employees who have been employed a full calendar month are eligible to participate in the Plan. Eligible directors and employees (the "Participants") may contribute in cash or as a specified dollar amount or percentage of their compensation to the Plan. The minimum payroll deduction for a Participant for each payroll period for purchases under the Plan is $10.00. The maximum contribution which a Participant can make for purchases under the Plan for any calendar year is $100,000. All contributions to the Plan are held in the general assets of Post Apartment Homes, L.P., the Company's operating subsidiary.
Shares of the Company's Common Stock are purchased by an investment firm semi-annually after the end of each six-month period, as defined, and credited to each Participant's individual account. The purchase price of the Common Stock purchased pursuant to the Plan is currently equal to 85% of the closing price on either the first or last trading day of each purchase period, whichever is lower.
All Common Stock of the Company purchased by Participants pursuant to the Plan may be voted by the Participants or as directed by the Participants.
The Plan does not discriminate, in scope, terms, or operation, in favor of officers or directors of the Company and is available, subject to the eligibility rules of the Plan, to all employees of the Company on the same basis.
NOTE 3 - FEDERAL INCOME TAXES:
The Plan is not subject to Federal incomes taxes. The difference between the fair market value of the shares acquired under the Plan, and the amount contributed by the Participants is treated as ordinary income to the Participants' for Federal income tax purposes. Accordingly, the Company withholds all applicable taxes from the Participant contributions. The fair market value of the shares is determined as of the stock purchase date.