UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission file numbers 1-12080 and 0-28226

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

(Exact name of registrant as specified in its charter)

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

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

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

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

Post Properties, Inc.

Yes

þ

No

o

Post Apartment Homes, L.P.

Yes

þ

No

o

     Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act).

Post Properties, Inc.

Yes

þ

No

o

Post Apartment Homes, L.P.

Yes

þ

No

o

     Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).

Post Properties, Inc.

Yes

o

No

þ

Post Apartment Homes, L.P.

Yes

o

No

þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

40,748,867 shares of common stock outstanding as of November 4, 2005 (excluding treasury stock).

 

 

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

INDEX

		Page
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
POST PROPERTIES, INC.
Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004			1
Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004			2
Consolidated Statement of Shareholders’ Equity and Accumulated Earnings for the nine months ended September 30, 2005			3
Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004			4
Notes to Consolidated Financial Statements			5
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004			18
Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004			19
Consolidated Statement of Partners’ Equity for the nine months ended September 30, 2005			20
Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004			21
Notes to Consolidated Financial Statements			22
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3 Quantitative and Qualitative Disclosures about Market Risk			50
Item 4 Controls and Procedures			50
Part II OTHER INFORMATION			51
Item 1 Legal Proceedings			51
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 3 Defaults Upon Senior Securities			52
Item 4 Submission of Matters to a Vote of Security Holders			52
Item 5 Other Information			52
Item 6 Exhibits			53
Signatures			54
Exhibit Index			56
EX-31.1 SECTION 302, CERTIFICATION OF THE CEO
EX-31.2 SECTION 302, CERTIFICATION OF THE CFO
EX-32.1 SECTION 906, CERTIFICATION OF THE CEO
EX-32.2 SECTION 906, CERTIFICATION OF THE CFO

POST PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

		September 30,				December 31,
		2005				2004
		(Unaudited)
Assets
Real estate assets
Land		$	270,166			$	266,520
Building and improvements			1,825,584				1,887,514
Furniture, fixtures and equipment			210,179				214,954
Construction in progress			38,550				19,527
Land held for future development			56,512				18,910
			2,400,991				2,407,425
Less: accumulated depreciation			(508,386	)			(498,367	)
Assets held for sale, net of accumulated depreciation of $0 and $26,332 at September 30, 2005 and December 31, 2004, respectively			9,221				68,661
Total real estate assets			1,901,826				1,977,719
Investments in and advances to unconsolidated real estate entities			31,047				21,320
Cash and cash equivalents			3,335				123
Restricted cash			4,277				1,844
Deferred charges, net			11,572				15,574
Other assets			33,215				37,262
Total assets		$	1,985,272			$	2,053,842
Liabilities and shareholders’ equity
Indebtedness, including $0 and $34,060 of debt secured by assets held for sale at September 30, 2005 and December 31, 2004, respectively		$	957,985			$	1,129,478
Accounts payable and accrued expenses			69,184				58,837
Dividend and distribution payable			19,190				19,203
Accrued interest payable			11,780				7,677
Security deposits and prepaid rents			9,701				7,236
Total liabilities			1,067,840				1,222,431
Minority interest of common unitholders in Operating Partnership			36,080				43,341
Commitments and contingencies
Shareholders’ equity
Preferred stock, $.01 par value, 20,000 authorized:
8 1/2 % Series A Cumulative Redeemable Shares, liquidation preference $50 per share, 900 shares issued and outstanding			9				9
7 5/8 % Series B Cumulative Redeemable Shares, liquidation preference $25 per share, 2,000 shares issued and outstanding			20				20
Common stock, $.01 par value, 100,000 authorized:
40,831 and 40,164 shares issued, 40,780 and 40,164 shares outstanding at September 30, 2005 and December 31, 2004, respectively			408				401
Additional paid-in capital			791,101				775,221
Accumulated earnings			101,265				25,075
Accumulated other comprehensive loss			(4,160	)			(8,668	)
Deferred compensation			(3,876	)			(3,988	)
			884,767				788,070
Less common stock in treasury, at cost, 92 and 0 shares at September 30, 2005 and December 31, 2004, respectively			(3,415	)			—
Total shareholders’ equity			881,352				788,070
Total liabilities and shareholders’ equity		$	1,985,272			$	2,053,842

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

POST PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2005				2004				2005				2004
Revenues
Rental		$	71,242			$	68,003			$	207,714			$	198,782
Other property revenues			4,765				4,095				12,863				11,741
Other			64				814				196				936
Total revenues			76,071				72,912				220,773				211,459
Expenses
Property operating and maintenance (exclusive of items shown separately below)			34,074				33,143				99,840				94,236
Depreciation			18,950				20,371				57,896				59,683
General and administrative			5,421				6,018				16,150				16,137
Development costs and other			1,042				284				2,879				1,200
Total expenses			59,487				59,816				176,765				171,256
Operating Income			16,584				13,096				44,008				40,203
Interest income			230				246				583				639
Interest expense			(14,455	)			(16,316	)			(45,340	)			(47,678	)
Amortization of deferred financing costs			(991	)			(1,065	)			(3,707	)			(3,273	)
Equity in income of unconsolidated real estate entities			593				420				1,294				843
Gain on sale of technology investment			—				—				5,267				—
Minority interest in consolidated property partnerships			34				106				212				538
Minority interest of preferred unitholders			—				(980	)			—				(3,780	)
Minority interest of common unitholders			(12	)			499				188				1,463
Income (loss) from continuing operations			1,983				(3,994	)			2,505				(11,045	)
Discontinued operations
Income from discontinued operations, net of minority interest			272				2,201				4,909				11,582
Gains on sales of real estate assets, net of minority interest and provision for income taxes			72,734				—				131,991				106,039
Loss in early extinguishment of indebtedness associated with property sales, net of minority interest			(1,748	)			—				(3,043	)			(3,849	)
Income from discontinued operations			71,258				2,201				133,857				113,772
Net income (loss)			73,241				(1,793	)			136,362				102,727
Dividends to preferred shareholders			(1,909	)			(1,909	)			(5,728	)			(6,416	)
Redemption costs on preferred stock and units			—				(1,810	)			—				(3,526	)
Net income (loss) available to common shareholders		$	71,332			$	(5,512	)		$	130,634			$	92,785
Per common share data — Basic
Income (loss) from continuing operations (net of preferred dividends and redemption costs)		$	—			$	(0.19	)		$	(0.08	)		$	(0.53	)
Income from discontinued operations			1.77				0.06				3.33				2.87
Net income (loss) available to common shareholders		$	1.77			$	(0.14	)		$	3.25			$	2.34
Weighted average common shares outstanding — basic			40,372				39,892				40,157				39,694
Per common share data — Diluted
Income (loss) from continuing operations (net of preferred dividends and redemption costs)		$	—			$	(0.19	)		$	(0.08	)		$	(0.53	)
Income from discontinued operations			1.75				0.06				3.33				2.87
Net income (loss) available to common shareholders		$	1.75			$	(0.14	)		$	3.25			$	2.34
Weighted average common shares outstanding — diluted			40,813				39,892				40,157				39,694
Dividends declared		$	0.45			$	0.45			$	1.35			$	1.35

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

POST PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND
ACCUMULATED EARNINGS
(In thousands, except per share data)
(Unaudited)

																		Accumulated
										Additional								Other
		Preferred				Common				Paid-in				Accumulated				Comprehensive				Deferred				Treasury
		Stock				Stock				Capital				Earnings				Income (Loss)				Compensation				Stock				Total
Shareholders’ Equity and Accumulated Earnings, December 31, 2004		$	29			$	401			$	775,221			$	25,075			$	(8,668	)		$	(3,988	)		$	—			$	788,070
Comprehensive income
Net income			—				—				—				136,362				—				—				—				136,362
Net change in derivative value, net of minority interest			—				—				—				—				4,508				—				—				4,508
Total comprehensive income																															140,870
Proceeds from employee stock purchase and stock option plans			—				2				6,729				—				—				—				16,570				23,301
Adjustment for minority interest of unitholders in Operating Partnership upon conversion of units into common shares and at dates of capital transactions			—				5				7,317				—				—				—				4,878				12,200
Stock-based compensation			—				—				528				—				—				—				—				528
Restricted stock issuances, net of forfeitures			—				—				1,306				—				—				(909	)			(397	)			—
Amortization of deferred compensation			—				—				—				—				—				1,021				—				1,021
Treasury stock acquisitions			—				—				—				—				—				—				(24,466	)			(24,466	)
Dividends to preferred shareholders			—				—				—				(5,728	)			—				—				—				(5,728	)
Dividends to common shareholders			—				—				—				(54,444	)			—				—				—				(54,444	)
Shareholders’ Equity and Accumulated Earnings, September 30, 2005		$	29			$	408			$	791,101			$	101,265			$	(4,160	)		$	(3,876	)		$	(3,415	)		$	881,352

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

POST PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
(Unaudited)

		Nine months ended
		September 30,
		2005				2004
Cash Flows From Operating Activities
Net income		$	136,362			$	102,727
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			57,896				64,227
Amortization of deferred financing costs			3,707				3,273
Minority interest of preferred unitholders in Operating Partnership			—				3,780
Minority interest of common unitholders in Operating Partnership			(188	)			(1,463	)
Minority interest in discontinued operations			7,775				7,922
Gains on sales of real estate assets — discontinued operations			(139,658	)			(113,739	)
Gain on sale of technology investment			(5,267	)			—
Asset impairment charge			—				626
Equity in income of unconsolidated entities, net of distributions			310				562
Stock-based compensation			1,693				1,280
Loss on early extinguishment of debt			3,220				4,128
Changes in assets, (increase) decrease in:
Restricted cash			(2,433	)			338
Other assets			2,906				(706	)
Deferred charges			(253	)			(304	)
Changes in liabilities, increase (decrease) in:
Accrued interest payable			4,103				5,229
Accounts payable and accrued expenses			11,010				10,428
Security deposits and prepaid rents			2,465				(784	)
Net cash provided by operating activities			83,648				87,524
Cash Flows From Investing Activities
Construction and acquisition of real estate assets, net of payables			(102,781	)			(38,789	)
Net proceeds from sales of real estate assets			193,306				138,637
Proceeds from sale of technology investment			5,267				—
Recurring capital expenditures			(7,172	)			(7,613	)
Non-recurring capital expenditures			(2,636	)			(3,604	)
Revenue generating capital expenditures			—				(26	)
Corporate additions and improvements			(1,155	)			(553	)
Distributions from (investments in and advances to) unconsolidated entities			(10,154	)			52,286
Net cash provided by investing activities			74,675				140,338
Cash Flows From Financing Activities
Payments on indebtedness			(216,779	)			(26,704	)
Proceeds from indebtedness			100,000				35,000
Payments of financing costs			(1,176	)			(4,262	)
Lines of credit proceeds (repayments), net			26,846				(39,809	)
Treasury stock acquisitions			(24,466	)			(2,268	)
Redemption of preferred stock			—				(50,000	)
Redemption of preferred units			—				(70,000	)
Proceeds from employee stock purchase and stock option plans			23,301				3,591
Capital contributions (distributions) of minority interests			283				(3,806	)
Distributions to preferred unitholders			—				(4,246	)
Distributions to common unitholders			(3,266	)			(4,094	)
Dividends paid to preferred shareholders			(5,728	)			(6,416	)
Dividends paid to common shareholders			(54,126	)			(53,180	)
Net cash used in financing activities			(155,111	)			(226,194	)
Net increase in cash and cash equivalents			3,212				1,668
Cash and cash equivalents, beginning of period			123				1,334
Cash and cash equivalents, end of period		$	3,335			$	3,002

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

POST PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

1.		ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
		Organization
		Post Properties, Inc. and its subsidiaries develop, own and manage upscale multifamily apartment communities in selected markets in the United States. As used herein, the term “Company” includes Post Properties, Inc. and its subsidiaries, including Post Apartment Homes, L.P. (the “Operating Partnership”), unless the context indicates otherwise. The Company, through its wholly-owned subsidiaries, is the general partner and owns a majority interest in the Operating Partnership which, through its subsidiaries, conducts substantially all of the on-going operations of the Company. At September 30, 2005, the Company owned 21,791 apartment units in 58 apartment communities, including 545 apartment units in two apartment communities held in unconsolidated entities and including 205 apartment units currently under development in one community. The Company is also developing 145 for-sale condominium units and is converting 248 apartment units in two communities (including one in an unconsolidated entity, containing 121 units) into for-sale condominium units through a taxable REIT subsidiary. At September 30, 2005, approximately 46.1%, 18.2%, 9.7% and 9.1% (on a unit basis) of the Company’s operating communities were located in Atlanta, Dallas, Tampa and the greater Washington, D.C. metropolitan areas, respectively.
		The Company has elected to qualify and operate as a self-administrated and self-managed real estate investment trust (“REIT”) for federal income tax purposes. A REIT is a legal entity which holds real estate interests and through payments of dividends to shareholders, in practical effect, is not subject to federal income taxes at the corporate level, except to the extent that taxable income is earned through its taxable REIT subsidiaries (see note 11).
		As of September 30, 2005, the Company had outstanding 40,780 shares of common stock and owned the same number of units of common limited partnership interests (“Common Units”) in the Operating Partnership, representing a 95.6% ownership interest in the Operating Partnership. Common Units held by persons other than the Company totaled 1,865 as of September 30, 2005 and represented a 4.4% common minority interest in the Operating Partnership. Each Common Unit may be redeemed by the holder thereof for either one share of Company common stock or cash equal to the fair market value thereof at the time of redemption, at the option of the Company. The Company’s weighted average common ownership interest in the Operating Partnership was 94.9% and 94.0% for the three months and 94.5% and 93.5% for the nine months ended September 30, 2005 and 2004, respectively.
		Basis of Presentation
		The accompanying unaudited financial statements have been prepared by the Company’s management in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normally recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2004. Certain 2004 amounts have been reclassified to conform to the current year’s financial statement presentation.
		Revenue Recognition
		Sales and the associated gains or losses of real estate assets and for-sale condominiums are recognized in accordance with the provisions of SFAS No. 66, “Accounting for Sales of Real Estate.” For condominium conversion projects, sales and the associated gains for individual condominium units are recognized upon the closing of the sale transactions, as all conditions for full profit recognition have been met. In accordance with SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets,” gains on sales of condominium units at condominium conversion projects are included in discontinued operations.
		Stock-based Compensation
		Effective January 1, 2003, the Company accounts for stock-based compensation under the fair value method prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation.” In adopting SFAS No. 123, the Company used the prospective method prescribed in SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” for all options issues after January 1, 2003.

POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

The following table reflects the effect on the Company’s net income and earnings per common share had the fair value method of accounting under SFAS No. 123 been applied to all stock awards for each period.

		Three months ended								Nine months ended
		September 30,								September 30,
		2005				2004				2005				2004
Net income (loss) available to common shareholders
As reported		$	71,332			$	(5,512	)		$	130,634			$	92,785
Stock-based compensation included in net income as reported, net of minority interest			637				392				1,600				1,197
Stock-based compensation determined under the fair value method for all awards, net of minority interest			(643	)			(407	)			(1,611	)			(1,246	)
Pro forma		$	71,326			$	(5,527	)		$	130,623			$	92,736
Net income (loss) per common share — basic
As reported		$	1.77			$	(0.14	)		$	3.25			$	2.34
Pro forma		$	1.77			$	(0.14	)		$	3.25			$	2.34
Net income (loss) per common share — diluted
As reported		$	1.75			$	(0.14	)		$	3.25			$	2.34
Pro forma		$	1.75			$	(0.14	)		$	3.25			$	2.34

SFAS No. 123R, “Share-Based Payment,” was issued in December 2004. SFAS No. 123R revises SFAS No. 123, “Accounting for Stock-Based Compensation” and requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. SFAS No. 123R also supersedes the provisions of APB No. 25. The provisions of SFAS No. 123R will be effective for the Company as of January 1, 2006. The Company plans to adopt the provisions of SFAS No. 123R in the first quarter of 2006 and is currently evaluating the alternative methods of adoption. Since the Company elected to apply the provisions of SFAS No. 123 on January 1, 2003, the adoption of SFAS No. 123R is not expected to have a significant impact on the Company’s financial position or results of operations.

Long-term Ground Leases

The Company is party to six long-term ground leases associated with land underlying certain of the Company’s operating communities. The ground leases generally provide for future increases in minimum lease payments tied to an inflation index or contain stated rent increases that generally compensate for the impact of inflation. Beginning in 2005, the Company recognizes ground lease expense on the straight-line method over the life of the ground lease for all ground leases with stated rent increases. The recognition of ground lease expense as incurred has historically not been materially different than recognizing ground lease expense on a straight-line basis.

POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

2.		INDEBTEDNESS
		At September 30, 2005 and December 31, 2004, the Company’s indebtedness consisted of the following:

		Payment						Maturity		September 30,				December 31,
Description		Terms		Interest Rate				Date		2005				2004
Unsecured Notes
Senior Notes		Int.			5.125% - 7.70	%		2006-2012		$	485,000			$	385,000
Medium Term Notes		—			—			—			—				212,043
											485,000				597,043
Unsecured Lines of Credit & Other
Syndicated Line of Credit		N/A		LIBOR + 0.75		%(1)		2007			65,000				40,000
Cash Management Line		N/A		LIBOR + 0.75		%		2007			12,594				10,748
											77,594				50,748
Conventional Fixed Rate (Secured)
FNMA		Prin. and Int.			6.975	%(2)		2029			97,100				98,500
Other		Prin. and Int.			4.27% - 7.69	%		2007-2013			269,796				273,132
											366,896				371,632
Tax-Exempt Floating Rate Bonds (Secured)		Int.			2.74	%(3)		2025			28,495				110,055
Total										$	957,985			$	1,129,478

Debt maturities

The aggregate maturities of the Company’s indebtedness are as follows:

Remainder of 2005		$	1,155
2006			81,269
2007			235,787	(1)
2008			4,557
2009			75,901
Thereafter			559,316
		$	957,985

Debt issuances and retirements

Upon their maturity in February 2005, the Company repaid $25,000 of its 7.28% medium term, unsecured notes, from available borrowings under its unsecured lines of credit. In March 2005, the Company repaid the $100,000 outstanding principal balance under its 6.85% Mandatory Par Put Remarketed Securities (“MOPPRS”) debt arrangement from available borrowings under its unsecured lines of credit.

In May 2005, the Company issued $100,000 of senior unsecured notes. The notes bear interest at 5.45% and mature in June 2012. The net proceeds from the unsecured notes were used to reduce amounts outstanding under the Company’s unsecured lines of credit. Upon their maturity in June 2005, the Company repaid $62,043 of its 8.125% medium term, unsecured notes, from available borrowings under its unsecured lines of credit. Upon their maturity in September 2005, the Company repaid $25,000 of its 6.78% medium term, unsecured notes, from available borrowings under its unsecured lines of credit.

In May 2005, the Company sold two apartment communities subject to the assumption of $34,060 of tax-exempt mortgage indebtedness (see note 4). As a result of this debt assumption, the Company recorded a loss on early extinguishment of debt of $1,374 ($1,296 net of minority interest) related to the write-off of deferred loan costs of $966 ($911 net of minority interest) relating to such assumed indebtedness and the realization of a $408 ($385 net of minority interest) loss in connection with the termination of related interest rate cap agreements that were used as cash flow hedges of the assumed debt.

In August 2005, the Company sold one apartment community subject to the assumption of $47,500 of tax-exempt mortgage indebtedness (see note 4). As a result of this debt assumption, the Company recorded a loss on early extinguishment of debt of

POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

$1,846 ($1,748 net of minority interest) related to the write-off of deferred loan costs of $1,299 ($1,230 net of minority interest) relating to such assumed indebtedness and the realization of a $547 ($518 net of minority interest) loss in connection with the termination of related interest rate cap agreements that were used as cash flow hedges of the assumed debt.

Unsecured Lines of Credit

The Company utilizes a $350,000 syndicated unsecured revolving line of credit (the “Revolver”) that matures in January 2007 for its short-term financing needs. The Revolver has a current stated interest rate of LIBOR plus 0.75% or the prime rate and was provided by a syndicate of nine banks led by Wachovia Bank, N.A. Additionally, the Revolver requires the payment of annual facility fees currently equal to 0.15% of the aggregate loan commitment. The Revolver provides for the interest rate and facility fee rate to be adjusted up or down based on changes in the credit ratings on the Company’s senior unsecured debt. The rates under the Revolver are based on the higher of the Company’s unsecured debt ratings in instances where the Company has split unsecured debt ratings. The Revolver also includes a money market competitive bid option for short-term funds up to $175,000 at rates generally below the stated line rate. The credit agreement for the Revolver contains customary representations, covenants and events of default, including fixed charge coverage and maximum leverage ratios as well as covenants which restrict the ability of the Operating Partnership to make distributions, in excess of stated amounts, which in turn restrict the discretion of the Company to declare and pay dividends. In general, during any fiscal year the Operating Partnership may only distribute up to 100% of the Operating Partnership’s consolidated income available for distribution (as defined in the credit agreement) exclusive of distributions of up to $15,000 of capital gains for such year. The credit agreement contains exceptions to these limitations to allow the Operating Partnership to make distributions necessary to allow the Company to maintain its status as a REIT. The Company does not anticipate that these ratios and covenants will adversely affect the ability of the Operating Partnership to borrow money or make distributions, or the Company to declare dividends, at the Company’s current dividend level. At September 30, 2005, the Company had issued letters of credit to third parties totaling $2,778 under this facility.

Additionally, the Company has a $20,000 unsecured line of credit with Wachovia Bank, N.A. (the “Cash Management Line”). The Cash Management line matures in January 2007 and carries pricing and terms, including debt covenants, substantially consistent with those of the Revolver.

3.		INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES
		The Company holds investments in three individual limited liability companies (the “Property LLCs”) with an institutional investor. Two of the Property LLCs own single apartment communities. The third Property LLC has converted its apartment community, containing 121 units, into for-sale condominiums. The Company holds a 35% equity interest in the Property LLCs.
		The Company accounts for its investments in these Property LLCs using the equity method of accounting. The excess of the Company’s investment over its equity in the underlying net assets of the Property LLCs was approximately $6,266 at September 30, 2005. This excess investment related to the two Property LLCs holding apartment communities is being amortized as a reduction to earnings on a straight-line basis over the lives of the related assets. The excess investment of $742 at September 30, 2005 related to the Property LLC holding the condominium conversion community will be recognized as additional cost of sales as the underlying condominiums are sold. The Company provides real estate services (development, construction and property management) to the Property LLCs for which it earns fees.
		The operating results of the Company include its share of net income from the investments in the Property LLCs. A summary of financial information for the Property LLCs in the aggregate is as follows:

		September 30,				December 31,
Balance Sheet Data		2005				2004
Real estate assets, net of accumulated depreciation of $7,708 and $9,712, respectively		$	96,613			$	124,072
Assets held for sale, net (1)			21,205				—
Cash and other			1,686				2,797
Total assets		$	119,504			$	126,869
Mortgage notes payable		$	66,999			$	83,468
Mortgage notes payable to Company			10,275				—
Other liabilities			830				1,296
Total liabilities			78,104				84,764
Members’ equity			41,400				42,105
Total liabilities and members’ equity		$	119,504			$	126,869
Company’s equity investment		$	20,772			$	21,320

POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

		Three months ended								Nine months ended
		September 30,								September 30,
Income Statement Data		2005				2004				2005				2004
Revenue
Rental		$	2,720			$	2,690			$	8,081			$	7,868
Other property revenues			230				213				645				600
Total revenues			2,950				2,903				8,726				8,468
Expenses
Property operating and maintenance			877				806				2,676				2,643
Depreciation and amortization			656				650				1,964				1,927
Interest			688				688				2,064				1,970
Total expenses			2,221				2,144				6,704				6,540
Income from continuing operations			729				759				2,022				1,928
Discontinued Operations
Loss from discontinued operations			(23	)			(75	)			(119	)			(239	)
Gains on sales of real estate assets			994				—				1,849				—
Loss on early extinguishment of debt			—				—				(273	)			—
Income (loss) from discontinued operations			971				(75	)			1,457				(239	)
Net income		$	1,700			$	684			$	3,479			$	1,689
Company’s share of net income		$	593			$	420			$	1,294			$	843

For the three and nine months ended September 30, 2005, gains on sales of real estate assets represent net gains of $994 and $1,849, respectively, from condominium sales at the condominium conversion community held by one of the Property LLCs. A summary of revenues and costs and expenses of condominium activities for the three and nine months ended September 30, 2005 was as follows:

		Three months ended				Nine months ended
		September 30, 2005				September 30, 2005
Condominium revenues, net		$	4,383			$	8,566
Condominium costs and expenses			(3,389	)			(6,717	)
Gains on condominium sales		$	994			$	1,849

At September 30, 2005, mortgage notes payable include a $49,999 mortgage note that bears interest at 4.13%, requires monthly interest payments and annual principal payment of $1 through 2009. Thereafter, the note requires monthly principal and interest payments based on a 25-year amortization schedule and matures in April 2034. The note is callable by the lender in May 2009 and on each successive fifth year anniversary of the note thereafter. The note is prepayable without penalty in May 2008. The additional mortgage note payable totaling $17,000 bears interest at a rate of 4.04% and matures in 2008.

In March 2005, one of the Property LLCs elected to convert its apartment community into for-sale condominiums. As a result of its decision to sell the community through the condominium conversion process, the Property LLC prepaid its third party mortgage note payable of $16,392 through secured borrowings from the Company. The Property LLC incurred debt prepayment costs and expenses associated with the write-off of unamortized deferred financing costs totaling $273 in March 2005. The mortgage note payable to the Company has a fixed rate component ($16,392) bearing interest at 4.28% and a variable rate component bearing interest at LIBOR plus 1.90%. This note is repayable from the proceeds of condominium sales and matures in February 2008.

4.		REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITY
		Acquisition Activity
		In June 2005, the Company acquired a 319-unit apartment community located in suburban Charlotte, NC for approximately $38,240, including closing costs and the reimbursement of a fee to terminate a loan commitment paid for by the seller. Additionally, the Company plans to spend up to approximately $1,100 to improve the community. The purchase price of this community was allocated to the assets acquired based on their estimated fair values.
		Disposition Activity
		The Company classifies real estate assets as held for sale after the approval of its investment committee and after the Company has commenced an active program to sell the assets. At September 30, 2005, the Company had one apartment community, originally containing 127 units, that is being converted into condominiums and certain tracts of land classified as held for sale. These real estate assets are reflected in the accompanying consolidated balance sheet at $9,221, which represents the lower of their depreciated cost or fair value less costs to sell.

POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

Under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the operating results of real estate assets designated as held for sale are included in discontinued operations in the consolidated statement of operations for all periods presented. Additionally, gains or losses on the sale of these assets are included in discontinued operations. For the three and nine months ended September 30, 2005, income from discontinued operations included the results of operations of one condominium conversion community classified as held for sale at September 30, 2005 as well as the operations of six communities sold in 2005 through their sale dates and one condominium conversion community through its sell-out date. For the three and nine months ended September 30, 2004, income from discontinued operations included the results of operations of the community classified as held for sale at September 30, 2005, six apartment communities sold in 2005, one condominium conversion community through its sell-out date in 2005 and eight apartment communities sold in 2004 through the earlier of September 30, 2004 or their sale dates.

The revenues and expenses of these communities for the three and nine months ended September 30, 2005 and 2004 were as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2005				2004				2005				2004
Revenues
Rental		$	1,381			$	7,200			$	13,220			$	34,704
Other property revenues			185				668				1,242				3,070
Total revenues			1,566				7,868				14,462				37,774
Expenses
Property operating and maintenance (exclusive of items shown separately below)			1,042				3,360				7,130				16,332
Depreciation			—				1,491				—				4,544
Interest			247				1,057				2,123				4,394
Minority interest in consolidated property partnerships			—				(61	)			14				(205	)
Asset impairment charge			—				—				—				626
Total expenses			1,289				5,847				9,267				25,691
Income from discontinued operations before minority interest			277				2,021				5,195				12,083
Minority interest			(5	)			180				(286	)			(501	)
Income from discontinued operations		$	272			$	2,201			$	4,909			$	11,582

For the three months ended September 30, 2005, the Company recognized net gains in discontinued operations of $74,715 ($70,718 net of minority interest) from the sale of one community, containing 1,738 units. The sales generated net proceeds of approximately $131,349, including $47,500 of tax-exempt secured indebtedness assumed by the purchaser. For the nine months ended September 30, 2005, the Company recognized net gains in discontinued operations of $124,425 ($117,594 net of minority interest) from the sale of six communities, containing 3,047 units. The sales generated net proceeds of approximately $229,249, including $81,560 of tax-exempt secured indebtedness assumed by the purchasers.

In addition, for the three and nine months ended September 30, 2005, gains on sales of real estate assets included the net gains of $2,374 ($2,016 net of minority interest and provision for income taxes) and $15,886 ($14,397 net of minority interest and provision for income taxes), respectively, from condominium sales at the Company’s condominium conversion communities. A summary of revenues and costs and expenses of condominium activities for the three and nine months ended September 30, 2005 was as follows:

		Three months ended				Nine months ended
		September 30, 2005				September 30, 2005
Condominium revenues, net		$	10,900			$	46,270
Condominium costs and expenses			8,526				30,384
Gains on condominium sales, before minority interest and income taxes			2,374				15,886
Minority interest			(88	)			(836	)
Provision for income taxes			(270	)			(653	)
Gains on condominium sales, net of minority interest and provision for income taxes		$	2,016			$	14,397

For the nine months ended September 30, 2004, the Company recognized net gains from discontinued operations of $113,739 ($106,039 net of minority interest) from the sale of eight communities containing 3,880 units and certain land parcels. These sales generated net proceeds of approximately $242,962, including debt assumed by the purchasers of $104,325.

POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

5.		SHAREHOLDERS’ EQUITY
		Common Stock Purchases
		In the three and nine months ended September 30, 2005, the Company repurchased approximately 88 and 749 shares, respectively, of its common stock at an aggregate cost of $3,183 and $24,466, respectively, under 10b5-1 stock repurchase plans, the latest of which will expire on November 30, 2005. Subsequent to September 30, 2005, the Company repurchased 282 shares at an aggregate cost of $9,934. These shares were purchased under a board of directors approved plan which provides for aggregate common or preferred stock repurchases of up to $200,000 through December 31, 2006.
		Computation of Earnings Per Common Share
		For the three and nine months ended September 30, 2005 and 2004, a reconciliation of the numerator and denominator used in the computation of basic and diluted income from continuing operations per common share is as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2005				2004				2005				2004
Income (loss) from continuing operations available to common shareholders (numerator):
Income (loss) from continuing operations		$	1,983			$	(3,994	)		$	2,505			$	(11,045	)
Less: Preferred stock dividends			(1,909	)			(1,909	)			(5,728	)			(6,416	)
Less: Preferred stock and unit redemption costs			—				(1,810	)			—				(3,526	)
Income (loss) from continuing operations available to common shareholders		$	74			$	(7,713	)		$	(3,223	)		$	(20,987	)
Common shares (denominator):
Weighted average shares outstanding — basic			40,372				39,892				40,157				39,694
Incremental shares from assumed conversion of stock options (1)			441				—				—				—
Weighted average shares outstanding — diluted (1).			40,813				39,892				40,157				39,694

For the three months ended September 30, 2005 and 2004, weighted average stock options to purchase 1,290 and 4,787 shares of common stock, respectively, were excluded from the computation of diluted earnings per common share as these stock options were antidilutive.

POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

Deferred Compensation Plan

Under an amended deferred compensation plan for eligible employees and directors, directors are eligible to defer the payment of director fees and invest the deferred amounts in common stock of the Company. For financial reporting purposes, these shares, totaling approximately 41 shares at September 30, 2005, are included as treasury stock on the accompanying consolidated balance sheet.

6.		DERIVATIVE FINANCIAL INSTRUMENTS
		At September 30, 2005, the Company had an outstanding interest rate swap agreement with a notional value of approximately $97,400 with a maturity date in 2009. The interest rate swap agreement is included on the accompanying consolidated balance sheet at fair value. The Company records the changes in the fair value of this cash flow hedge as a change in accumulated other comprehensive loss, a shareholders’ equity account, in the accompanying consolidated balance sheet.
		At September 30, 2005, the Company had an outstanding interest rate cap agreement with a financial institution with a notional value of $28,495. The interest rate cap agreement is a cash flow hedge that provides a fixed interest ceiling at 5% for the Company’s variable rate, tax-exempt borrowings aggregating $28,495 at September 30, 2005. The Company is required to maintain the interest rate exposure protection under the terms of the financing arrangements. The interest rate cap arrangement is included on the accompanying balance sheet at fair value. At September 30, 2005, the difference between the amortized costs of the interest rate cap arrangement and its fair value of $10 is included in accumulated other comprehensive loss, a shareholders’ equity account. The original cost of approximately $362 of the arrangements is being amortized as additional expense over its five-year term.
		In May and August 2005, in connection with the sale of three communities discussed in note 4 above, the Company sold its interest in interest rate cap agreements with notional values of $81,560 for aggregate proceeds of $17 and realized losses of $547 ($518 net of minority interest) and $955 ($902 net of minority interest) in the three and nine months ended September 30, 2005, respectively, that were included in the loss on early extinguishment of indebtedness on the accompanying statement of operations. The unrealized loss on these interest rate cap agreements was previously reflected in accumulated other comprehensive income, a shareholders’ equity account. These interest rate cap agreements were sold as the underlying hedged indebtedness was assumed by the purchaser in connection with the sale of the related assets.
		A summary of comprehensive income for the three and nine months ended September 30, 2005 and 2004 is as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2005				2004				2005				2004
Net income (loss)		$	73,241			$	(1,793	)		$	136,362			$	102,727
Change in derivative values, net of minority interest			2,680				(1,472	)			4,508				2,211
Comprehensive income (loss)		$	75,921			$	(3,265	)		$	140,870			$	104,938

7.		SEGMENT INFORMATION
		Segment Description
		In accordance with SFAS No. 131, “Disclosure About the Segments of an Enterprise and Related Information,” the Company presents segment information based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. The segment information is prepared on substantially the same basis as the internally reported information used by the Company’s chief operating decision makers to manage the business.
		The Company’s chief operating decision makers focus on the Company’s primary sources of income from apartment community rental operations. Apartment community rental operations are broken down into four segments based on the various stages in the apartment community ownership lifecycle. These segments are described below. All commercial properties and other ancillary service and support operations are aggregated in the line item “other” in the accompanying segment information. The segment information presented below reflects the segment categories based on the lifecycle status of each community as of January 1, 2004. The segment information for the three and nine months ended September 30, 2004 has been adjusted due to the restatement impact of reclassifying the operating results of the assets designated as held for sale in 2004 and 2005 to discontinued operations under SFAS No. 144 (see note 4).

POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

	•		Fully stabilized communities — those apartment communities which have been stabilized (the earlier of the point at which a property reaches 95% occupancy or one year after completion of construction) for both the current and prior year.
	•		Communities stabilized during 2004 — communities which reached stabilized occupancy in the prior year.
	•		Development and lease-up communities — those development communities that are in lease-up but were not stabilized by the beginning of the current year, including communities that stabilized during the current year. The Company has no communities in the development or lease-up stage for the periods presented.
	•		Acquired communities — those communities acquired in the current or prior year.

Segment Performance Measure

Management uses contribution to consolidated property net operating income (“NOI”) as the performance measure for its operating segments. The Company uses net operating income, including net operating income of stabilized communities, as an operating measure. Net operating income is defined as rental and other property revenue from real estate operations less total property and maintenance expenses from real estate operations (excluding depreciation and amortization). The Company believes that net operating income is an important supplemental measure of operating performance for a REIT’s operating real estate because it provides a measure of the core operations, rather than factoring in depreciation and amortization, financing costs and general and administrative expenses generally incurred at the corporate level. This measure is particularly useful, in the opinion of the Company, in evaluating the performance of geographic operations, operating segment groupings and individual properties. Additionally, the Company believes that net operating income, as defined, is a widely accepted measure of comparative operating performance in the real estate investment community. The Company believes that the line on the Company’s consolidated statement of operations entitled “net income (loss)” is the most directly comparable GAAP measure to net operating income.

POST PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

Segment Information

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

		Three months ended								Nine months ended
		September 30,								September 30,
		2005				2004				2005				2004
Revenues
Fully stabilized communities		$	65,255			$	62,839			$	191,183			$	187,021
Communities stabilized during 2004			1,814				1,719				5,335				5,308
Acquired communities			3,154				2,157				7,654				2,362
Other property segments			5,784				5,383				16,405				15,832
Other			64				814				196				936
Consolidated revenues		$	76,071			$	72,912			$	220,773			$	211,459
Contribution to NOI
Fully stabilized communities		$	39,698			$	38,186			$	116,055			$	114,190
Communities stabilized during 2004			1,292				1,169				3,700				3,778
Acquired communities			2,113				1,544				5,146				1,692
Other			(1,170	)			(1,944	)			(4,164	)			(3,373	)
Consolidated property net operating income			41,933				38,955				120,737				116,287
Interest income			230				246				583				639
Other revenue			64				814				196				936
Minority interest in consolidated property partnerships			34				106				212				538
Depreciation			(18,950	)			(20,371	)			(57,896	)			(59,683	)
Interest expense			(14,455	)			(16,316	)			(45,340	)			(47,678	)
Amortization of deferred financing costs			(991	)			(1,065	)			(3,707	)			(3,273	)
General and administrative			(5,421	)			(6,018	)			(16,150	)			(16,137	)
Development costs and other			(1,042	)			(284	)			(2,879	)			(1,200	)
Equity in income of unconsolidated real estate entities			593				420				1,294				843
Gain on sale of technology investment			—				—				5,267				—
Minority interest of preferred unitholders			—				(980	)			—				(3,780	)
Minority interest of common unitholders			(12	)			499				188				1,463
Income (loss) from continuing operations			1,983				(3,994	)			2,505				(11,045	)
Income from discontinued operations			71,258				2,201				133,857				113,772
Net income (loss)		$	73,241			$	(1,793	)		$	136,362			$	102,727

POST PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and apartment unit data)

8.		SEVERANCE COSTS
		In prior years, the Company recorded severance charges associated with the departure of certain executive officers of the Company. Under certain of these arrangements, the Company is required to make certain payments and provide specified benefits through 2013 and 2016, respectively. The following table summarizes the activity relating to aggregate severance charges for the nine months ended September 30, 2005 and 2004:

		Nine months ended
		September 30,
		2005				2004
Accrued severance charges, beginning of period		$	15,317			$	19,171
Payments for period			(2,095	)			(2,333	)
Interest accretion			679				753
Accrued severance charges, end of period		$	13,901			$	17,591

9.		SUPPLEMENTAL CASH FLOW INFORMATION
		Interest paid (including capitalized amounts of $1,553 and $787 for the nine months ended September 30, 2005 and 2004, respectively), aggregated $45,288 and $47,540 for the nine months ended September 30, 2005 and 2004, respectively.
		Non-cash investing and financing activities for the nine months ended September 30, 2005 and 2004 were as follows:
		During the nine months ended September 30, 2005, the Company sold three apartment communities subject to $81,560 of mortgage indebtedness assumed by the purchasers. This mortgage debt assumed by the purchasers was excluded from the cash flow statement as a non-cash transaction (see note 4).
		During the nine months ended September 30, 2005, the Company’s derivative financial instruments (see note 6) increased in value causing a decrease in accounts payable and accrued expenses and a corresponding increase in shareholders’ equity of $4,508, net of minority interest. During the nine months ended September 30, 2004, the Company’s derivative financial instruments increased in value causing a decrease in accounts payable and accrued expenses and a corresponding increase in shareholders’ equity of $2,211, net of minority interest.
		During the nine months ended September 30, 2005 and 2004, holders of 635 and 1,167 units, respectively, in the Operating Partnership exercised their option to convert their units to shares of common stock of the Company on a one-for-one basis. These conversions and adjustments for the impact of the common stock issued under the Company’s employee stock purchase and stock option plans and other capital transactions resulted in adjustments to minority interest. The net effect of the conversions and adjustments was a reclassification decreasing minority interest and increasing shareholders’ equity in the amounts of $12,200 and $20,248 for the nine months ended September 30, 2005 and 2004, respectively.
		The Operating Partnership committed to distribute $19,190 and $19,090 for the quarters ended September 30, 2005 and 2004, respectively. As a result, the Company declared dividends of $18,396 and $17,965 for the quarters ended September 30, 2005 and 2004, respectively. The remaining distributions from the Operating Partnership in the amount of $794 and $1,125 for the quarters ended September 30, 2005 and 2004, respectively, were distributed to minority interest unitholders in the Operating Partnership.
		In June 2004, the Company acquired an apartment community for cash and the assumption of mortgage indebtedness with an estimated fair value of $49,694. Also, in June 2004, the Company sold certain apartment communities subject to $104,325 of mortgage indebtedness assumed by the purchasers. These transactions involving mortgage indebtedness were excluded from the statement of cash flows as non-cash transactions (see note 4).