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, 2006

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

For the transition period from                     to

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 large accelerated filers, accelerated filers, or non-accelerated filers. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

	Post Properties, Inc.		Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o
	Post Apartment Homes, L.P.		Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer 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:

43,571,365 shares of common stock outstanding as of November 1, 2006 (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, 2006 and December 31, 2005			1
Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005			2
Consolidated Statement of Shareholders’ Equity and Accumulated Earnings for the nine months ended September 30, 2006			3
Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005			4
Notes to Consolidated Financial Statements			5
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005			21
Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005			22
Consolidated Statement of Partners’ Equity for the nine months ended September 30, 2006			23
Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005			24
Notes to Consolidated Financial Statements			25
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3 Quantitative and Qualitative Disclosures about Market Risk			60
Item 4 Controls and Procedures			60
Part II OTHER INFORMATION			61
Item 1 Legal Proceedings			61
Item 1A Risk Factors			61
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			62
Item 3 Defaults Upon Senior Securities			62
Item 4 Submission of Matters to a Vote of Security Holders			62
Item 5 Other Information			62
Item 6 Exhibits			63
Signatures			64
Exhibit Index			66
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

POST PROPERTIES, INC.

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

		September 30,				December 31,
		2006				2005
		(Unaudited)
Assets
Real estate assets
Land		$	275,928			$	266,914
Building and improvements			1,791,088				1,789,479
Furniture, fixtures and equipment			201,765				207,497
Construction in progress			114,204				47,005
Land held for future development			79,724				62,511
			2,462,709				2,373,406
Less: accumulated depreciation			(530,090	)			(516,954	)
For-sale condominiums			31,481				38,338
Assets held for sale, net of accumulated depreciation of $19,004 and $0 at September 30, 2006 and December 31, 2005, respectively			33,944				4,591
Total real estate assets			1,998,044				1,899,381
Investments in and advances to unconsolidated real estate entities			34,465				26,614
Cash and cash equivalents			5,386				6,410
Restricted cash			5,314				4,599
Deferred charges, net			13,311				11,624
Other assets			33,594				32,826
Total assets		$	2,090,114			$	1,981,454
Liabilities and shareholders’ equity
Indebtedness, including $18,600 and $0 of debt secured by assets held for sale at September 30, 2006 and December 31, 2005, respectively		$	1,024,440			$	980,615
Accounts payable and accrued expenses			67,819				53,429
Dividend and distribution payable			21,774				19,257
Accrued interest payable			14,849				5,478
Security deposits and prepaid rents			11,060				9,857
Total liabilities			1,139,942				1,068,636
Minority interest of common unitholders in Operating Partnership			13,691				26,764
Minority interests in consolidated real estate entities			2,421				5,045
Total minority interests			16,112				31,809
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:
43,440 and 41,394 shares issued, 43,440 and 41,394 shares outstanding at September 30, 2006 and December 31, 2005, respectively			434				414
Additional paid-in-capital			863,032				803,765
Accumulated earnings			76,897				86,315
Accumulated other comprehensive income (loss)			(4,109	)			(4,208	)
Deferred compensation			—				(3,625	)
			936,283				882,690
Less common stock in treasury, at cost, 56 and 44 shares at September 30, 2006 and December 31, 2005, respectively			(2,223	)			(1,681	)
Total shareholders’ equity			934,060				881,009
Total liabilities and shareholders’ equity		$	2,090,114			$	1,981,454

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,
		2006				2005				2006				2005
Revenues
Rental		$	72,216			$	67,538			$	210,211			$	196,805
Other property revenues			4,609				4,298				12,934				11,675
Other			49				64				200				196
Total revenues			76,874				71,900				223,345				208,676
Expenses
Property operating and maintenance (exclusive of items shown separately below)			35,790				33,019				102,844				96,832
Depreciation			16,966				17,496				50,101				53,539
General and administrative			4,406				4,558				13,464				13,506
Investment, development and other			1,332				1,333				4,500				3,737
Total expenses			58,494				56,406				170,909				167,614
Operating income			18,380				15,494				52,436				41,062
Interest income			175				229				413				583
Interest expense			(13,609	)			(13,676	)			(40,281	)			(42,722	)
Amortization of deferred financing costs			(882	)			(990	)			(2,651	)			(3,707	)
Gains (losses) on sales of condominiums, net			1,611				(99	)			10,022				(368	)
Equity in income of unconsolidated real estate entities			527				592				1,251				1,294
Other income			1,401				—				3,095				5,267
Minority interest in consolidated property partnerships			(85	)			34				(177	)			212
Minority interest of common unitholders			(87	)			10				(369	)			226
Income from continuing operations			7,431				1,594				23,739				1,847
Discontinued operations
Income from discontinued property operations, net of minority interest			988				662				3,083				5,568
Gains on sales of real estate assets, net of minority interest and provision for income taxes			27,503				72,733				27,885				131,991
Loss on early extinguishment of indebtedness, net of minority interest			(121	)			(1,748	)			(121	)			(3,044	)
Income from discontinued operations			28,370				71,647				30,847				134,515
Net income			35,801				73,241				54,586				136,362
Dividends to preferred shareholders			(1,909	)			(1,909	)			(5,728	)			(5,728	)
Net income available to common shareholders		$	33,892			$	71,332			$	48,858			$	130,634
Per common share data — Basic
Income (loss) from continuing operations (net of preferred dividends)		$	0.13			$	(0.01	)		$	0.42			$	(0.10	)
Income from discontinued operations			0.66				1.77				0.72				3.35
Net income available to common shareholders		$	0.79			$	1.77			$	1.15			$	3.25
Weighted average common shares outstanding — basic			43,137				40,372				42,616				40,157
Per common share data — Diluted
Income (loss) from continuing operations (net of preferred dividends)		$	0.13			$	(0.01	)		$	0.42			$	(0.10	)
Income from discontinued operations			0.65				1.77				0.71				3.35
Net income available to common shareholders		$	0.77			$	1.77			$	1.13			$	3.25
Weighted average common shares outstanding — diluted			43,955				40,372				43,387				40,157
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, 2005		$	29			$	414			$	803,765			$	86,315			$	(4,208	)		$	(3,625	)		$	(1,681	)		$	881,009
Comprehensive income
Net income			—				—				—				54,586				—				—				—				54,586
Net change in derivatives, net of minority interest			—				—				—				—				172				—				—				172
Total comprehensive income																															54,758
Transition effect of adoption of SFAS 123R			—				—				(3,625	)			—				—				3,625				—				—
Proceeds from employee stock purchase, stock option plans and other			—				13				47,673				—				—				—				(542	)			47,144
Adjustment for minority interest of unitholders in Operating Partnership upon conversion of units into common shares and at dates of capital transactions			—				7				13,131				—				(73	)			—				—				13,065
Stock-based compensation, net of minority interest			—				—				2,088				—				—				—				—				2,088
Dividends to preferred shareholders			—				—				—				(5,728	)			—				—				—				(5,728	)
Dividends to common shareholders			—				—				—				(58,276	)			—				—				—				(58,276	)
Shareholders’ Equity and Accumulated Earnings, September 30, 2006		$	29			$	434			$	863,032			$	76,897			$	(4,109	)		$	—			$	(2,223	)		$	934,060

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,
		2006				2005
Cash Flows From Operating Activities
Net income		$	54,586			$	136,362
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			51,740				57,896
Amortization of deferred financing costs			2,651				3,707
Minority interest of common unitholders in Operating Partnership			369				(226	)
Minority interest in discontinued operations			633				7,814
Minority interest in consolidated entities			177				(212	)
Gains on sales of real estate assets			(38,983	)			(139,658	)
Other income			(1,719	)			(5,267	)
Equity in income of unconsolidated entities			(1,251	)			(1,294	)
Distributions of earnings of unconsolidated entities			1,775				1,604
Deferred compensation			465				—
Stock-based compensation			2,129				1,693
Loss on early extinguishment of debt			123				3,220
Changes in assets, (increase) decrease in:
Other assets			(2,532	)			2,906
Deferred charges			(114	)			(253	)
Changes in liabilities, increase (decrease) in:
Accrued interest payable			9,370				4,103
Accounts payable and accrued expenses			2,538				11,221
Security deposits and prepaid rents			488				32
Net cash provided by operating activities			82,445				83,648
Cash Flows From Investing Activities
Construction and acquisition of real estate assets, net of payables			(185,053	)			(101,228	)
Net proceeds from sales of real estate assets			111,471				193,306
Proceeds from sale of other investments			898				5,267
Capitalized interest			(7,061	)			(1,553	)
Annually recurring capital expenditures			(9,143	)			(7,172	)
Periodically recurring capital expenditures			(4,446	)			(2,636	)
Community rehabilitation and other revenue generating capital expenditures			(6,490	)			—
Corporate additions and improvements			(2,923	)			(1,155	)
Distributions from (investments in and advances to) unconsolidated entities			(3,384	)			(10,154	)
Note receivable collections			1,234				—
Net cash (used in) provided by investing activities			(104,897	)			74,675
Cash Flows From Financing Activities
Payments on indebtedness			(55,142	)			(216,779	)
Proceeds from indebtedness			190,000				100,000
Lines of credit proceeds (repayments), net			(92,426	)			26,846
Payments of financing costs			(3,960	)			(1,176	)
Treasury stock acquisitions			—				(24,466	)
Proceeds from employee stock purchase and stock options plans			46,679				23,301
Capital contributions (distributions) of minority interests			(1,183	)			283
Distributions to common unitholders			(1,366	)			(3,266	)
Dividends paid to preferred shareholders			(3,819	)			(5,728	)
Dividends paid to common shareholders			(57,355	)			(54,126	)
Net cash provided by (used in) financing activities			21,428				(155,111	)
Net (decrease) increase in cash and cash equivalents			(1,024	)			3,212
Cash and cash equivalents, beginning of period			6,410				123
Cash and cash equivalents, end of period		$	5,386			$	3,335

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. As of October 31, 2006, the Company owned 22,389 apartment units in 63 apartment communities, including 545 apartment units in two apartment communities held in unconsolidated entities, 1,031 apartment units currently under construction in four communities (including the expansion of one community) and 150 apartment homes in lease-up. The Company is also developing 230 for-sale condominium units in two communities and is converting 597 apartment units in four communities (including one in an unconsolidated entity, containing 121 units) into for-sale condominium units through a taxable REIT subsidiary. At September 30, 2006, approximately 46.6%, 18.5%, 10.9% and 9.5% (on a unit basis) of the Company’s operating communities were located in Atlanta, Dallas, the greater Washington, D.C. and Tampa metropolitan areas, respectively.
		The Company has elected to qualify and operate as a self-administrated and self-managed real estate investment trust (“REIT”) for federal income tax purposes. A REIT is a legal entity which holds real estate interests and through payments of dividends to shareholders, in practical effect, is not subject to federal income taxes at the corporate level, except to the extent that taxable income is earned through its taxable REIT subsidiaries (see note 11).
		As of September 30, 2006, the Company had outstanding 43,440 shares of common stock and owned the same number of units of common limited partnership interests (“Common Units”) in the Operating Partnership, representing a 98.4% ownership interest in the Operating Partnership. Common Units held by persons other than the Company totaled 705 as of September 30, 2006 and represented a 1.6% 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 98.4% and 94.9% for the three months ended and 98.0% and 94.5% for the nine months ended September 30, 2006 and 2005, 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, 2006 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, as amended, for the year ended December 31, 2005.
		Beginning in the fourth quarter of 2005, the Company reclassified certain expenses previously reported as general and administrative expenses to property operating and maintenance expenses and investment, development and other expenses on the accompanying statements of operations. Prior period amounts have been reclassified to conform to the 2006 presentation. The reclassified expenses primarily included certain investment and development group executive and administrative functions and long-term, stock-based compensation and benefits expenses associated with property management and investment and development group activities. Certain other 2005 amounts have been reclassified to conform to the current year’s financial statement presentation.
		Revenue Recognition
		Residential properties are leased under operating leases with terms of generally one year or less. Rental revenues from residential leases are recognized on the straight-line method over the approximate life of the leases, which is generally one year. Under the terms of residential leases, the residents at a majority of the Company’s residential communities are obligated to reimburse the Company for certain utility usage, water and electricity (at selected properties), where the Company is the primary obligor to the

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

		public utility entity. These utility reimbursements from residents are reflected as other property revenues in the consolidated statements of operations.
		Sales and the associated gains or losses of real estate assets and for-sale condominiums are recognized in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 66, “Accounting for Sales of Real Estate.” For condominium conversion projects, revenues from individual condominium unit sales are recognized upon the closing of the sale transactions (the “Deposit Method”), as all conditions for full profit recognition have been met at that time and the conversion construction periods are typically very short. Under SFAS No. 66, the Company uses the relative sales value method to allocate costs and recognize profits from condominium conversion sales. In accordance with SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets,” gains on sales of condominium units at complete community condominium conversion projects are included in discontinued operations. For condominium conversion projects relating to a portion of an existing apartment community, the Company recognizes revenues and the associated gains under the Deposit Method, as discussed herein. Since a portion of an operating community does not meet the requirements of a component of an entity under SFAS No. 144, gains on sales of condominium units sold at partial condominium communities are included in continuing operations.
		For newly developed condominiums, the Company accounts for each project under either the Deposit Method or the “Percentage of Completion Method,” based on a specific evaluation of the factors specified in SFAS No. 66. The factors used to determine the appropriate accounting method are the legal commitment of the purchaser in the real estate contract, whether the construction of the project is beyond a preliminary phase, sufficient units have been contracted to ensure the project will not revert to a rental project, the aggregate project sale proceeds and costs can be reasonably estimated and the buyer has made an adequate initial and continuing cash investment under the contract in accordance with SFAS No. 66. Under the Percentage of Completion Method, revenues and the associated gains are recognized over the project construction period generally based on the percentage of total project costs incurred to estimated total project costs for each condominium unit under a binding real estate contract.
		At September 30, 2006, the Company had two new condominium projects under development, one with approximately 63% of the condominium units under contract. As the initial and continuing cash investments received under a majority of the sales contracts do not meet the requirements of SFAS No. 66, as well as other factors (such as the uncertainties regarding the estimation of the aggregate sales proceeds and contract rescission rates), the Company has concluded that units under contract as of September 30, 2006 will be accounted for under the Deposit Method, similar to the accounting for condominium conversion projects discussed above.
		Apartment Community Acquisitions
		In accordance with the provisions of SFAS No. 141, “Business Combinations”, the aggregate purchase price of apartment community acquisitions is allocated to the tangible assets, intangible assets and liabilities (including mortgage indebtedness) acquired in each transaction, based on their estimated fair values at the acquisition date. The acquired tangible assets, principally land, building and improvements and furniture, fixtures and equipment, are reflected in real estate assets and such assets, excluding land, are depreciated over their estimated useful lives. The acquired intangible assets, principally above/below market leases, in-place leases and resident relationships, are reflected in other assets and amortized over the average remaining lease terms of the acquired leases and resident relationships (generally 6 months to 18 months).
		Stock-based Compensation
		Effective January 1, 2006, the Company accounts for stock-based compensation under the fair value method prescribed by SFAS 123R, “Share-Based Payment.” SFAS No. 123R was issued in December 2004. SFAS No. 123R revised SFAS No. 123, “Accounting for Stock-Based Compensation,” and required companies to expense the fair value of employee stock options and other forms of stock-based compensation. SFAS No. 123R also superseded the provisions of APB No. 25. The Company adopted the provisions of SFAS No. 123R using the modified prospective method of adoption. Since the Company elected to apply the provisions of SFAS No. 123 on January 1, 2003, the adoption of SFAS No. 123R did not have a significant impact on the Company’s financial position or results of operations.
		In periods from January 1, 2003 through December 31, 2005, the Company accounted for stock-based compensation under the fair value method prescribed by SFAS No. 123. 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 issued after January 1, 2003.

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

		New Accounting Pronouncements
		The Emerging Issues Task Force issued EITF No. 04-5 (“EITF No. 04-5”), “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” EITF No. 04-5 provides a framework for evaluating whether a general partner or group of general partners or managing members controls a limited partnership or limited liability company and therefore should consolidate the entity. The presumption that the general partner or group of general partners or managing members controls a limited liability partnership or limited liability company may be overcome if the limited partners or members have (1) the substantive ability to dissolve the partnership without cause, or (2) substantive participating rights. EITF No. 04-5 became effective on September 30, 2005 for new or modified limited partnerships or limited liability companies and January 1, 2006 for all existing arrangements. The Company adopted EITF No. 04-5 on January 1, 2006 for all existing partnerships and limited liability companies and the adoption did not have a material impact on the Company’s financial position or results of operations.
		Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109,” was issued in July 2006. FIN 48 clarifies guidance on the recognition and measurement of uncertain tax positions and establishes a more likely than not standard for the evaluation of whether such tax positions can be recognized in the Company’s financial statements. Previously recognized tax positions that do not meet the more likely than not criteria will be required to be adjusted on the implementation date. FIN 48 is effective January 1, 2007 for all calendar year companies. The Company is currently evaluating the impact that FIN 48 will have on the Company’s financial position and results of operations.
		Staff Accounting Bulletin No. 108 (“SAB 108”) was issued by the Securities and Exchange Commission in September 2006. SAB 108 provides additional guidance on the quantification and consideration of the financial statement materiality of cumulative unadjusted misstatements in both current and future financial statements. SAB 108 also provides guidance on the proper accounting and reporting for the correction of immaterial unadjusted misstatements determined to be material in subsequent accounting periods. SAB 108 generally requires prior period financial statements to be revised; however, for immaterial prior year revisions previously filed Exchange Act reports would not be required to be amended. SAB 108 is effective for the Company for its fiscal year ending December 31, 2006. The Company is currently assessing the impact of SAB 108 on its consolidated financial statements and plans to adopt SAB 108 in the fourth quarter of 2006. As previously disclosed in the Company’s consolidated financial statements for the years ended December 31, 2006 and 2005, the Company began accounting for certain ground leases with scheduled rent increases on a straight-line basis effective January 1, 2005. The cumulative unadjusted misstatement related to the Company’s accounting for ground lease expense as incurred in years prior to 2005 was determined to be immaterial to the Company’s financial statements. The Company plans to record a cumulative adjusting entry in its December 31, 2006 consolidated financial statements to correct this cumulative misstatement resulting in an increase in consolidated real estate assets of approximately $3,800, an increase in consolidated liabilities of approximately $8,800 and a decrease in consolidated equity of approximately $5,000.
		The Emerging Issues Task Force reached a consensus on EITF No. 06-8 (“EITF No. 06-8”), “Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66, “Accounting for Sales of Real Estate,” for Sales of Condominiums,” in September 2006. EITF No. 06-8 provides additional guidance on whether the seller of a condominium unit is required to evaluate the buyer’s continuing investment under SFAS No. 66 in order to recognize profit from the sale under the percentage of completion method. The EITF concluded that both the buyer’s initial and continuing investment must meet the criteria in SFAS No. 66 in order for condominium sale profits to be recognized under the percentage of completion method. Sales of condominiums not meeting the continuing investment test must be accounted for under the deposit method. This consensus must be ratified by the FASB after a comment period. As discussed under the Company’s revenue recognition accounting policy, the Company accounts for condominium sales on the deposit method using similar criteria to those stated in EITF No. 06-8 in addition to the other criteria of SFAS No. 66. If ratified, EITF No. 06-8 is effective January 1, 2008 for calendar year companies.
		Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair Value Measurements,” was issued in September 2006. SFAS No. 157 provides one definition of fair value and establishes a framework for measuring fair value. SFAS No. 157 does not require any additional financial statement items to be measured at fair value. Instead, the FASB clarified fair value measurements for existing financial statement items in an effort to eliminate inconsistencies among companies in the application of fair value under generally accepted accounting principles. Additional disclosure focusing on the inputs used to determine fair value are also required under the new guidance. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and should be applied prospectively. The Company is currently assessing the impact that SFAS No. 157 will have on its financial position and results of operations.

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

2.		INDEBTEDNESS
		At September 30, 2006 and December 31, 2005, the Company’s indebtedness consisted of the following:

		Payment						Maturity		September 30,				December 31,
Description		Terms		Interest Rate				Date		2006				2005
Senior Unsecured Notes		Int.			5.125% - 7.70	%		2006-2012		$	585,000			$	485,000
Unsecured Lines of Credit
Syndicated Line of Credit		N/A			LIBOR + 0.575	% (1)		2010			—				90,000
Cash Management Line		N/A			LIBOR + 0.575	%		2010			8,953				11,379
											8,953				101,379
Fixed Rate Secured Notes
FNMA		Prin. and Int.			6.15%	(2)		2029			95,600				97,100
Other		Prin. and Int.			4.27% - 7.69	%		2007-2013			306,392				268,641
											401,992				365,741
Tax-Exempt Floating Rate
Secured Bonds		Int.			3.74%	(3)		2025			28,495				28,495
Total										$	1,024,440			$	980,615

Debt Maturities

The aggregate maturities of the Company’s indebtedness as of September 30, 2006 are as follows:

Remainder of 2006		$	26,373
2007			158,828
2008			5,230
2009			76,618
2010			197,981	(1)
Thereafter			559,410
		$	1,024,440

		Debt Issuances and Retirements
		Upon their maturity in March 2006, the Company repaid $50,000 of 6.71% senior unsecured notes, from available borrowings under its unsecured lines of credit.
		In April 2006, the Company closed a $40,000 mortgage note payable secured by an apartment community located in Denver, Colorado. The mortgage note bears interest at LIBOR plus 1.0%, matures in April 2008 and is pre-payable without penalty. In August 2006, the Company sold the apartment community subject to the assumption of this indebtedness (see note 4). As a result of this debt assumption, the Company recorded a loss on early extinguishment of indebtedness of $123 ($121 net of minority interest) related to the write-off of unamortized deferred financing costs.
		In June 2006, the Company issued $150,000 of senior unsecured notes. The notes bear interest at 6.30% and mature in September 2013. The net proceeds from the unsecured notes were used to reduce amounts outstanding under the Company’s unsecured lines of credit.

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

		In July 2006, in conjunction with an apartment community acquisition (see note 4), the Company assumed a secured, fixed rate mortgage note payable with an outstanding balance of $41,394. The mortgage note bears interest at a coupon rate of approximately 6.1%, requires monthly principal and interest payments and matures in November 2011. Based on the Company’s preliminary purchase accounting allocations related to the acquisition, the fair value of the mortgage note approximated its carrying value.
		Unsecured Lines of Credit
		At September 30, 2006, the Company utilizes a $450,000 syndicated unsecured revolving line of credit (the “Revolver”) that matures in April 2010 for its short-term financing needs. The Revolver currently has a stated interest rate of LIBOR plus 0.575% or the prime rate and was provided by a syndicate of 11 banks led by Wachovia Bank, N.A. and JP Morgan Securities, Inc. 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 competitive bid option for short-term funds up to 50% of the loan commitment at rates generally below the stated line rate. The credit agreement for the Revolver contains customary restrictions, representations, covenants and events of default, including fixed charge coverage and maximum leverage ratios. The Revolver also restricts the amount of capital the Company can invest in specific categories of assets, such as improved land, properties under construction, condominium properties, non-multifamily properties, debt or equity securities, notes receivable and unconsolidated affiliates. At September 30, 2006, the Company had issued letters of credit to third parties totaling $2,280 under this facility.
		Additionally, at September 30, 2006, the Company has a $30,000 unsecured line of credit with Wachovia Bank, N.A. (the “Cash Management Line”). The Cash Management line matures in April 2010 and carries pricing and terms, including debt covenants, substantially consistent with the Revolver.
3.		INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES
		Apartment and Condominium Conversion Communities
		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 is converting 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 $5,607 at September 30, 2006. 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 $228 at September 30, 2006 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.

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

The operating results of the Company include its 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		2006				2005
Real estate assets, net of accumulated depreciation of $10,289 and $8,349, respectively		$	94,309			$	96,000
Assets held for sale, net (1)			6,431				17,715
Cash and other			5,760				1,770
Total assets		$	106,500			$	115,485
Mortgage notes payable		$	66,998			$	66,999
Mortgage notes payable to Company			—				5,967
Other liabilities			1,053				996
Total liabilities			68,051				73,962
Members’ equity			38,449				41,523
Total liabilities and members’ equity		$	106,500			$	115,485
Company’s equity investment		$	19,074			$	20,647

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Revenues
Rental		$	2,900			$	2,720			$	8,624			$	8,081
Other property revenues			208				231				610				645
Total revenues			3,108				2,951				9,234				8,726
Expenses
Property operating and maintenance			964				877				2,877				2,676
Depreciation and amortization			665				656				1,985				1,963
Interest			688				688				2,064				2,064
Total expenses			2,317				2,221				6,926				6,703
Income from continuing operations			791				730				2,308				2,023
Discontinued operations
Loss from discontinued operations			(75	)			(23	)			(359	)			(119	)
Gains on sales of real estate assets, net			997				994				1,897				1,849
Loss on early extinguishment of debt			—				—				—				(273	)
Income from discontinued operations			922				971				1,538				1,457
Net income		$	1,713			$	1,701			$	3,846			$	3,480
Company’s share of net income		$	527			$	592			$	1,251			$	1,294

For the three and nine months ended September 30, 2006 and 2005, gains on sales of real estate assets represent net gains 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, 2006 and 2005 was as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Condominium revenue		$	7,289			$	4,769			$	16,513			$	9,191
Condominium costs and expenses			(6,292	)			(3,775	)			(14,616	)			(7,342	)
Gains on condominium sales, net		$	997			$	994			$	1,897			$	1,849

At September 30, 2006, mortgage notes payable include a $49,998 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

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

		and on each successive fifth year anniversary of the note thereafter. The note is pre-payable 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 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 had a fixed rate component ($16,392) bearing interest at 4.28% and a variable rate component bearing interest at LIBOR plus 1.90%. In the second quarter of 2006, the mortgage note payable was retired from the proceeds of condominium sales.
		Land Entities
		At September 30, 2006, the Company holds a 50% equity interest in a limited liability company whose sole investment consists of a partnership interest in an entity (the “Land Partnership”) which holds land for future development. At September 30, 2006, the Land Partnership had total assets of $24,985, principally land held for future development, total liabilities of $13,171 (including a secured note payable of $12,000 to the Company) and total equity of $11,814 (including the Company’s equity investment of $3,391).
4.		REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITY
		Acquisition Activity
		In March 2006, the Company acquired two apartment communities, containing 308 units, located in Austin, Texas for approximately $46,500, including closing costs. Additionally, the Company plans to spend up to approximately $1,200 to improve the communities. The purchase price of these communities was allocated to the assets acquired based on their estimated fair values.
		In July 2006, the Company acquired a 361-unit apartment community in suburban Washington, D.C. for approximately $85,000, including the assumption of approximately $41,394 mortgage indebtedness (see note 3) and closing costs. Based on the Company’s preliminary purchase accounting allocations, the assets acquired and the mortgage indebtedness assumed were recorded at their estimated fair values. The Company may be required to pay additional purchase consideration of up to approximately $6,563 based on a share of the appreciation in the value of the property, if any, over approximately the next four years.
		In October 2006, the Company acquired a 150-unit apartment community in Tampa, Florida for approximately $23,800, including closing costs. At the time of acquisition, the community was undergoing an extensive renovation program and was predominantly vacant. The Company plans to spend up to approximately $2,000 to complete the renovation of the community. Leasing of the renovated apartment units will commence upon the completion of the units.
		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, 2006, the Company had three apartment communities, containing 826 units, and one condominium conversion community, originally containing 127 units and several land parcels classified as held for sale. These real estate assets are reflected in the accompanying consolidated balance sheet at $33,944, which represents the lower of their depreciated cost or fair value less costs to sell. At September 30, 2006, the Company also had portions of two communities that are being converted to condominiums, originally containing 349 units, that are classified as for-sale condominiums on the accompanying consolidated balance sheet at $31,481.

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

As discussed in note 1, gains on condominium sales at portions of two communities that are being converted into condominiums are reflected in continuing operations. In addition to the condominium gains included in continuing operations, the Company expensed certain sales and marketing costs associated with new condominium communities under development and such costs are included in condominium expenses in the table below. A summary of revenues and costs and expenses of condominium activities included in continuing operations for the three and nine months ended September 30, 2006 and 2005 was as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Condominium revenues		$	6,778			$	—			$	25,241			$	—
Condominium costs and expenses			(5,167	)			(99	)			(15,219	)			(368	)
Gains (losses) on sales of condominiums, net		$	1,611			$	(99	)		$	10,022			$	(368	)

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, 2006, income from discontinued operations included the results of operations of three apartment communities classified as held for sale at September 30, 2006, containing 826 units, one condominium conversion community classified as held for sale at September 30, 2006, and the operations of one apartment community containing 696 units, through its sale date in August 2006. For the three and nine months ended September 30, 2005, income from discontinued operations included the results of operations of the three apartment communities and one condominium conversion community classified as held for sale at September 30, 2006, one apartment community sold in 2006, six apartment communities sold in 2005 through their sale dates and one condominium conversion community through its sell-out date in 2005.

The revenues and expenses of the communities included in discontinued operations for the three and nine months ended September 30, 2006 and 2005 were as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Revenues
Rental		$	2,806			$	5,086			$	10,355			$	24,129
Other property revenues			324				652				1,128				2,430
Total revenues			3,130				5,738				11,483				26,559
Expenses
Property operating and maintenance (exclusive of items shown separately below)			1,258				2,569				4,304				11,554
Depreciation			286				1,454				1,639				4,359
Interest			582				1,026				2,394				4,741
Minority interest in consolidated property partnerships			—				—				—				14
Total expenses			2,126				5,049				8,337				20,668
Income from discontinued property operations before minority interest			1,004				689				3,146				5,891
Minority interest			(16	)			(27	)			(63	)			(323	)
Income from discontinued property operations		$	988			$	662			$	3,083			$	5,568

For the three and nine months ended September 30, 2006, the Company recognized net gains in discontinued operations of $28,120 ($27,555 net of minority interest) from the sale of one community, containing 696 units. The sale generated net proceeds of approximately $116,876, including $40,000 of secured indebtedness assumed by the purchaser.

For the three months ended September 30, 2005, the Company recognized net gains in discontinued operations of $74,715 ($70,717 net of minority interest) from the sale of one community, containing 1,738 units. The sale 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.

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

In addition, for the three and nine months ended September 30, 2006 and 2005, gains on sales of real estate assets included in discontinued operations included net gains from condominium sales at two condominium conversion communities. A summary of revenues and costs and expenses of condominium activities included in discontinued operations for the three and nine months ended September 30, 2006 and 2005 was as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Condominium revenues		$	504			$	11,911			$	7,022			$	50,016
Condominium costs and expenses			(558	)			(9,537	)			(6,685	)			(34,130	)
Gains (losses) on condominium sales, before minority interest and income taxes			(54	)			2,374				337				15,886
Minority interest			2				(88	)			(7	)			(836	)
Provision for income taxes			—				(270	)			—				(653	)
Gains (losses) on condominium sales, net of minority interest and income taxes		$	(52	)		$	2,016			$	330			$	14,397

5.		SHAREHOLDERS’ EQUITY
		Computation of Earnings Per Common Share
		For the three and nine months ended September 30, 2006 and 2005, 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,
		2006				2005				2006				2005
Income from continuing operations available to common shareholders (numerator):
Income from continuing operations		$	7,431			$	1,594			$	23,739			$	1,847
Less: Preferred stock dividends			(1,909	)			(1,909	)			(5,728	)			(5,728	)
Income from continuing operations available to common shareholders		$	5,522			$	(315	)		$	18,011			$	(3,881	)
Common shares (denominator):
Weighted average shares outstanding — basic			43,137				40,372				42,616				40,157
Dilutive shares from stock options and awards			818				—				771				—
Weighted average shares outstanding — diluted			43,955				40,372				43,387				40,157

		For the three and nine months ended September 30, 2006, there were no antidilutive securities. For the three and nine months ended September 30, 2005, stock options to purchase 3,933 shares of common stock were excluded from the computation of diluted earnings per common share as these stock options and awards were antidilutive.
6.		DERIVATIVE FINANCIAL INSTRUMENTS
		At September 30, 2006, the Company had an outstanding interest rate swap agreement with a notional value of approximately $95,510 with a maturity date in 2009. The swap arrangement is a variable to fixed rate swap at a fixed rate of 5.21% and the swap was designated as a cash flow hedge of the Company’s FNMA variable rate debt. This swap was entered into following the termination of the prior swap arrangement discussed below. The interest rate swap agreement is included on the accompanying consolidated balance sheet at fair value.
		In the first quarter of 2006, a previous interest rate swap arrangement, accounted for as a cash flow hedge, became ineffective under generally accepted accounting principles (SFAS No. 133, as amended). As a result, the gross increase in the market value of the interest rate swap arrangement of $1,655 through the April 2006 termination of the swap was recognized in other income in the consolidated statement of operations. In addition, under SFAS No. 133, as amended, the Company is required to amortize

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

into interest expense the cumulative unrecognized loss on the terminated interest rate swap arrangement of $4,021, included in shareholders’ equity, over the remaining life of the swap through 2009. The swap arrangement was terminated through a $2,448 termination payment to the swap counterparty.

At September 30, 2006, 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, 2006. 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, 2006, the difference between the amortized costs of the interest rate cap arrangement and its fair value of $0 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.

A summary of comprehensive income for the three and nine months ended September 30, 2006 and 2005 is as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Net income		$	35,801			$	73,241			$	54,586			$	136,362
Change in derivatives, net of minority interest (1)			(1,045	)			2,680				172				4,508
Comprehensive income		$	34,756			$	75,921			$	54,758			$	140,870

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, 2005. The segment information for the three and nine months ended September 30, 2005 has been adjusted due to the restatement impact of reclassifying the operating results of the assets designated as held for sale in 2006 and 2005 to discontinued operations under SFAS No. 144 (see note 4).

	•		Fully stabilized communities – those apartment communities which have been stabilized (the earlier of the point at which a property reaches 95% occupancy or one year after completion of construction) for both the current and prior year.
	•		Development, rehabilitation and lease-up communities – those apartment communities under construction and major rehabilitation programs. The Company had no apartment communities in the lease-up stage for the periods presented.
	•		Condominium conversion communities – the rental operations of those portions of existing apartment communities being converted into condominiums that are reflected in continuing operations under SFAS No. 144 (see note 1).
	•		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

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

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

Segment 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. 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,
		2006				2005				2006				2005
Revenues
Fully stabilized communities		$	64,350			$	60,931			$	188,565			$	178,661
Development, rehabilitation and lease-up communities			2,202				2,653				7,168				7,806
Condominium conversion communities			428				1,520				2,334				4,427
Acquired communities			3,664				1,005				7,008				1,311
Other property segments			6,181				5,727				18,070				16,275
Other			49				64				200				196
Consolidated revenues		$	76,874			$	71,900			$	223,345			$	208,676
Contribution to NOI
Fully stabilized communities		$	39,377			$	37,392			$	116,044			$	109,295
Development, rehabilitation and lease-up communities			821				1,543				3,598				4,422
Condominium conversion communities			(72	)			990				849				2,868
Acquired communities			2,129				625				3,876				854
Other			(1,220	)			(1,733	)			(4,066	)			(5,791	)
Consolidated property net operating income			41,035				38,817				120,301				111,648
Interest income			175				229				413				583
Other revenues			49				64				200				196
Minority interest in consolidated property partnerships			(85	)			34				(177	)			212
Depreciation			(16,966	)			(17,496	)			(50,101	)			(53,539	)
Interest expense			(13,609	)			(13,676	)			(40,281	)			(42,722	)
Amortization of deferred financing costs			(882	)			(990	)			(2,651	)			(3,707	)
General and administrative			(4,406	)			(4,558	)			(13,464	)			(13,506	)
Investment, development and other expenses			(1,332	)			(1,333	)			(4,500	)			(3,737	)
Gains (losses) on sales of condominiums, net			1,611				(99	)			10,022				(368	)
Equity in income of unconsolidated real estate entities			527				592				1,251				1,294
Other income			1,401				—				3,095				5,267
Minority interest of common unitholders			(87	)			10				(369	)			226
Income from continuing operations			7,431				1,594				23,739				1,847
Income from discontinued operations			28,370				71,647				30,847				134,515
Net income		$	35,801			$	73,241			$	54,586			$	136,362

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. The following table summarizes the activity relating to aggregate severance charges for the nine months ended September 30, 2006 and 2005:

		Nine months ended
		September 30,
		2006				2005
Accrued severance charges, beginning of period		$	14,325			$	15,317
Payments for period			(2,372	)			(2,095	)
Interest accretion			636				679
Accrued severance charges, end of period		$	12,589			$	13,901

9.		SUPPLEMENTAL CASH FLOW INFORMATION
		Interest paid (including capitalized amounts of $7,061 and $1,553 for the nine months ended September 30, 2006 and 2005, respectively), aggregated $40,315 and $45,288 for the nine months ended September 30, 2006 and 2005, respectively.
		Non-cash investing and financing activities for the nine months ended September 30, 2006 and 2005 were as follows:
		During the nine months ended September 30, 2006, the Company sold an apartment community subject to $40,000 of mortgage debt assumed by the purchaser. 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 statements as a non-cash transactions (see note 4).
		In July 2006 the Company acquired an apartment community for cash and the assumption of mortgage indebtedness totaling $41,394. The mortgage debt assumed by the Company was excluded from the statement of cash flows as a non-cash transaction (see note 4).
		During the nine months ended September 30, 2006, the Company amortized approximately $834 of accumulated other comprehensive non-cash losses into earnings related to an interest rate swap derivative financial instrument (see note 6). Other than the amortization discussed herein, for the nine months ended September 30, 2006, the Company’s derivative financial instruments, accounted for as cash flow hedges, decreased in value causing an increase in accounts payable and accrued expenses and a corresponding decrease in shareholder’s equity of $660 ($647 net of minority interest). During the nine months ended September 30, 2005, the Company’s derivative financial instruments, accounted for as cash flow hedges, increased in value causing a decrease in accounts payable and accrued expenses and a corresponding increase in shareholders’ equity of $4,763 ($4,508 net of minority interest).
		During the nine months ended September 30, 2006 and 2005, holders of 697 and 635 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 $13,065 and $12,200 for the nine months ended September 30, 2006 and 2005, respectively.
		The Operating Partnership committed to distribute $21,774 and $19,190 for the quarters ended September 30, 2006 and 2005, respectively. As a result, the Company declared dividends of $21,456 and $18,396 for the quarters ended September 30, 2006 and 2005, respectively. The remaining distributions from the Operating Partnership in the amount of $318 and $794 for the quarters ended September 30, 2006 and 2005, respectively, were distributed to minority interest unitholders in the Operating Partnership.
10.		STOCK-BASED COMPENSATION PLANS
		Stock Compensation Plans
		Effective January 1, 2006, the Company accounts for stock-based compensation using the fair value method prescribed in SFAS No. 123R (see note 1). For stock-based compensation granted from January 1, 2003 to December 31, 2005, the Company accounted for stock-based compensation under the fair value method prescribed by SFAS No. 123. Other than the required