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 March 31, 2007

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.)

(Address of principal executive offices — zip code)

(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 o		Accelerated Filer o		Non-Accelerated Filer þ

     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:

43,640,147 shares of common stock outstanding as of May 1, 2007 (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 March 31, 2007 and December 31, 2006			1
Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006			2
Consolidated Statement of Shareholders’ Equity and Accumulated Earnings for the three months ended March 31, 2007			3
Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006			4
Notes to Consolidated Financial Statements			5
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006			19
Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006			20
Consolidated Statement of Partners’ Equity for the three months ended March 31, 2007			21
Consolidated Statements of Cash Flows for the nine months ended March 31, 2007 and 2006			22
Notes to Consolidated Financial Statements			23
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			37
Item 3 Quantitative and Qualitative Disclosures about Market Risk			53
Item 4 Controls and Procedures			53
Part II OTHER INFORMATION			54
Item 1 Legal Proceedings			54
Item 1A Risk Factors			54
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			54
Item 3 Defaults Upon Senior Securities			54
Item 4 Submission of Matters to a Vote of Security Holders			54
Item 5 Other Information			54
Item 6 Exhibits			55
Signatures			56
Exhibit Index			58
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)

		March 31,				December 31,
		2007				2006
		(Unaudited)
Assets
Real estate assets
Land		$	281,902			$	278,448
Building and improvements			1,874,223				1,821,123
Furniture, fixtures and equipment			208,519				204,318
Construction in progress			92,412				135,428
Land held for future development			107,198				92,800
			2,564,254				2,532,117
Less: accumulated depreciation			(563,344	)			(547,477	)
For-sale condominiums			30,074				28,295
Assets held for sale, net of accumulated depreciation of $0 and $4,035 at March 31, 2007 and December 31, 2006, respectively			8,503				15,645
Total real estate assets			2,039,487				2,028,580
Investments in and advances to unconsolidated real estate entities			31,471				32,794
Cash and cash equivalents			4,887				3,663
Restricted cash			5,629				5,203
Deferred charges, net			11,883				12,400
Other assets			31,868				34,007
Total assets		$	2,125,225			$	2,116,647
Liabilities and shareholders’ equity
Indebtedness		$	1,033,984			$	1,033,779
Accounts payable and accrued expenses			68,969				75,403
Dividend and distribution payable			21,815				19,886
Accrued interest payable			13,808				4,885
Security deposits and prepaid rents			10,636				9,915
Total liabilities			1,149,212				1,143,868
Minority interest of common unitholders in Operating Partnership			12,875				14,057
Minority interests in consolidated real estate entities			2,280				2,268
Total minority interests			15,155				16,325
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:
43,603 and 43,603 shares issued, 43,587 and 43,486 shares outstanding at March 31, 2007 and December 31, 2006, respectively			436				436
Additional paid-in-capital			866,591				869,587
Accumulated earnings			100,510				97,567
Accumulated other comprehensive income (loss)			(3,423	)			(3,490	)
			964,143				964,129
Less common stock in treasury, at cost, 78 and 175 shares at March 31, 2007 and December 31, 2006, respectively			(3,285	)			(7,675	)
Total shareholders’ equity			960,858				956,454
Total liabilities and shareholders’ equity		$	2,125,225			$	2,116,647

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
		March 31,
		2007				2006
Revenues
Rental		$	73,462			$	68,242
Other property revenues			3,968				3,897
Other			117				65
Total revenues			77,547				72,204
Expenses
Property operating and maintenance (exclusive of items shown separately below)			35,882				33,303
Depreciation			17,044				16,388
General and administrative			5,448				4,426
Investment and development			1,528				1,550
Total expenses			59,902				55,667
Operating income			17,645				16,537
Interest income			250				120
Interest expense			(13,544	)			(13,143	)
Amortization of deferred financing costs			(812	)			(936	)
Gains (losses) on sales of real estate assets, net			3,684				(158	)
Equity in income of unconsolidated real estate entities			504				312
Other income (expense)			(261	)			1,149
Minority interest in consolidated property partnerships			(20	)			(29	)
Minority interest of common unitholders			(85	)			(47	)
Income from continuing operations			7,361				3,805
Discontinued operations
Income from discontinued property operations, net of minority interest			220				605
Gains on sales of real estate assets, net of minority interest			16,890				391
Income from discontinued operations			17,110				996
Net income			24,471				4,801
Dividends to preferred shareholders			(1,909	)			(1,909	)
Net income available to common shareholders		$	22,562			$	2,892
Per common share data — Basic
Income from continuing operations (net of preferred dividends)		$	0.13			$	0.05
Income from discontinued operations			0.39				0.02
Net income available to common shareholders		$	0.52			$	0.07
Weighted average common shares outstanding — basic			43,367				41,881
Per common share data — Diluted
Income from continuing operations (net of preferred dividends)		$	0.12			$	0.04
Income from discontinued operations			0.39			$	0.02
Net income available to common shareholders		$	0.51			$	0.07
Weighted average common shares outstanding — diluted			44,101				42,653

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				Treasury
		Stock				Stock				Capital				Earnings				Income (Loss)				Stock				Total
Shareholders’ Equity and Accumulated Earnings, December 31, 2006		$	29			$	436			$	869,587			$	97,567			$	(3,490	)		$	(7,675	)		$	956,454
Comprehensive income
Net income			—				—				—				24,471				—				—				24,471
Net change in derivatives, net of minority interest			—				—				—				—				67				—				67
Total comprehensive income																											24,538
Proceeds from employee stock purchase, stock option and other plans			—				—				(2,630	)			—				—				5,549				2,919
Adjustment for minority interest of unitholders in Operating Partnership upon conversion of units into common shares and at dates of capital transactions			—				—				(1,279	)			—				—				2,535				1,256
Stock-based compensation, net of minority interest			—				—				913				—				—				—				913
Treasury stock acquisitions			—				—				—				—				—				(3,694	)			(3,694	)
Dividends to preferred shareholders			—				—				—				(1,909	)			—				—				(1,909	)
Dividends to common shareholders ($0.45 per share)			—				—				—				(19,619	)			—				—				(19,619	)
Shareholders’ Equity and Accumulated Earnings, March 31, 2007		$	29			$	436			$	866,591			$	100,510			$	(3,423	)		$	(3,285	)		$	960,858

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)

		Three months ended
		March 31,
		2007				2006
Cash Flows From Operating Activities
Net income		$	24,471			$	4,801
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			17,044				17,455
Amortization of deferred financing costs			812				935
Minority interest of common unitholders in Operating Partnership			85				47
Minority interest in discontinued operations			266				25
Minority interest in consolidated entities			20				29
Gains on sales of real estate assets			(20,837	)			(401	)
Other expense (income)			281				(1,149	)
Equity in income of unconsolidated entities			(504	)			(312	)
Distributions of earnings of unconsolidated entities			796				516
Deferred compensation			136				263
Stock-based compensation			926				549
Changes in assets, (increase) decrease in:
Other assets			757				1,050
Deferred charges			(14	)			91
Changes in liabilities, increase (decrease) in:
Accrued interest payable			8,923				5,248
Accounts payable and accrued expenses			(6,878	)			(3,960	)
Security deposits and prepaid rents			295				372
Net cash provided by operating activities			26,579				25,559
Cash Flows From Investing Activities
Construction and acquisition of real estate assets, net of payables			(26,479	)			(96,356	)
Net proceeds from sales of real estate assets			34,665				2,788
Capitalized interest			(3,107	)			(1,832	)
Annually recurring capital expenditures			(2,616	)			(2,054	)
Periodically recurring capital expenditures			(2,305	)			(723	)
Community rehabilitation and other revenue generating capital expenditures			(4,667	)			(865	)
Corporate additions and improvements			(1,261	)			(495	)
Distributions from unconsolidated entities			995				3,032
Note receivable collections and other investments			(21	)			—
Net cash used in investing activities			(4,796	)			(96,505	)
Cash Flows From Financing Activities
Payments on indebtedness			(1,025	)			(51,198	)
Lines of credit proceeds, net			1,230				110,531
Payments of financing costs			(164	)			(50	)
Treasury stock acquisitions			(3,694	)			—
Proceeds from employee stock purchase and stock options plans			2,783				34,282
Capital contributions of minority interests			200				1,912
Distributions to common unitholders			(317	)			(631	)
Dividends paid to preferred shareholders			—				(1,909	)
Dividends paid to common shareholders			(19,573	)			(18,636	)
Net cash provided by (used in) financing activities			(20,560	)			74,301
Net increase in cash and cash equivalents			1,223				3,355
Cash and cash equivalents, beginning of period			3,663				6,410
Cash and cash equivalents, end of period		$	4,887			$	9,765

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 March 31, 2007, the Company owned 21,563 apartment units in 60 apartment communities, including 545 apartment units in two communities held in unconsolidated entities and 1,181 apartment units in four communities (and the expansion of one community) currently under construction and/or in lease-up. The Company is also developing 230 for-sale condominium homes and is converting apartment homes in three communities initially consisting of 470 units (including 121 units in one community held in an unconsolidated entity) into for-sale condominium homes through a taxable REIT subsidiary. At March 31, 2007, approximately 44.0%, 19.0%, 12.2% and 9.8% (on a unit basis) of the Company’s operating communities were located in the 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 is generally not subject to federal income tax on the income it distributes to its shareholders.

At March 31, 2007, the Company had outstanding 43,587 shares of common stock and owned the same number of units of common limited partnership interests (“Common Units”) in the Operating Partnership, representing a 98.5% common ownership interest in the Operating Partnership. Common Units held by persons other than the Company totaled 648 at March 31, 2007 and represented a 1.5% common minority interest in the Operating Partnership. Each Common Unit may be redeemed by the holder thereof for either one share of Company common stock or cash equal to the fair market value thereof at the time of redemption, at the option of the Company. The Company’s weighted average common ownership interest in the Operating Partnership was 98.5% and 97.6% for the three months ended March 31, 2007 and 2006, 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 months ended March 31, 2007 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, 2006.

The accompanying unaudited consolidated financial statements include the consolidated accounts of the Company, the Operating Partnership and their wholly owned subsidiaries. The Company also consolidates other entities in which it has a controlling financial interest or entities where it is determined to be the primary beneficiary under Financial Accounting Standards Board Interpretation No. 46R (“FIN 46R”), “Consolidation of Variable Interest Entities.” Under FIN 46R, the primary beneficiary is required to consolidate a variable interest entity (“VIE”) for financial reporting purposes. The application of FIN 46R requires management to make significant estimates and judgments about the Company’s and its other partners’ rights, obligations and economic interests in such entities. Accordingly, the Company’s share of the net earnings or losses of entities accounted for using the equity method is included in consolidated net income. All significant inter-company accounts and transactions have been eliminated in consolidation. The minority interest of unitholders in the operations of the Operating Partnership is calculated based on the weighted average unit ownership during the period.

Certain 2006 amounts have been reclassified to conform to the current year’s financial statement presentation.

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

     Revenue Recognition

Residential properties are leased under operating leases with terms of generally one year. 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 of the Company’s residential communities are obligated to reimburse the Company for certain utility usage, water and electricity (at selected properties), where the Company is the primary obligor to the public utility entity. These utility reimbursements from residents are reflected as other property revenues in the consolidated statements of operations.

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, revenues from individual condominium unit sales are recognized upon the closing of the sale transactions (the “Completed Contract 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 also recognizes revenues and the associated gains under the Completed Contract 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, the revenues and gains on sales of condominium units at partial condominium communities are included in continuing operations.

For newly developed condominiums, the Company accounts for each project under either the Completed Contract 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 projects costs for each condominium unit under a binding real estate contract. As of March 31, 2007, no condominium projects are accounted for under the Percentage of Completion Method.

In November 2006 the Financial Accounting Standards Board (“FASB”) ratified EITF Issue No. 06-8 (“EITF No. 06-8”), “Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66 for Sales of Condominiums.” EITF No. 06-8 provided 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 (a method consistent with the Company’s above stated Completed Contract Method). EITF No. 06-8 is effective January 1, 2008. As discussed above, the Company accounts for condominium sales using similar criteria to those stated in EITF No. 06-8. As a result, the Company does not expect that the adoption of EITF No. 06-8 will have a material impact on the Company’s financial position or results of operations.

     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 and revised SFAS No. 123, “Accounting for Stock-Based Compensation,” and superseded the provisions of APB No. 25. SFAS No. 123R required companies to expense the fair value of employee stock options and other forms of stock-based compensation. 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.

     Recently Issued and Adopted Accounting Pronouncements

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

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

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. Additionally, FIN 48 requires additional disclosure regarding the nature and amount of uncertain tax positions, if any. The Company adopted FIN 48 on January 1, 2007 and the adoption did not have a material impact on the Company’s financial position and results of operations (see note 11).

Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair Value Measurements,” was issued in September 2006. SFAS No. 157 provides a definition of fair value and establishes a framework for measuring fair value. SFAS No. 157 clarified the definition of fair value in an effort to eliminate inconsistencies in the application of fair value under generally accepted accounting principles. Additional disclosure focusing on the methods used to determine fair value is also required. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and should be applied prospectively. The Company does not expect that the adoption of SFAS No. 157 will have a material impact on the Company’s financial position and results of operations.

2.

REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITY

Acquisitions

In March 2006, the Company acquired two apartment communities, containing 308 units, in Austin, Texas for approximately $46,400, including closing costs. Additionally, the Company plans to spend up to approximately $1,200 (of which approximately $1,100 was incurred as of March 31, 2007) to improve the communities. The purchase price of these communities was allocated to the assets acquired based on their estimated fair values.

     Dispositions

The Company classifies real estate assets as held for sale after the approval of its board of directors and after the Company has commenced an active program to sell the assets. At March 31, 2007, the Company had certain parcels of land classified as held for sale. These land parcels are reflected in the accompanying consolidated balance sheet at $8,503, which represents the lower of their cost or fair value less costs to sell. At March 31, 2007, the Company also had portions of two communities being converted to condominiums, originally containing 349 units, and certain completed condominium units at a newly developed community totaling $30,074 classified as for-sale condominiums on the accompanying consolidated balance sheet.

For the three months ended March 31, 2007, gains on sales of real estate assets in continuing operations included a $2,198 gain on the sale of a land site and an associated corporate facility previously used in the Company’s landscape and maintenance operations. In prior years, the Company began the conversion of portions of two apartment communities into for-sale condominiums. As discussed in note 1, gains on sales of these condominium units 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 months ended March 31, 2007 and 2006 was as follows:

		Three months ended
		March 31,
		2007				2006
Condominium revenues		$	5,869			$	—
Condominium costs and expenses			(4,383	)			(158	)
Gains (losses) on sales of condominiums, net		$	1,486			$	(158	)

Under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” the operating results of real estate assets designated as held for sale are included in discontinued operations in the consolidated statement of operations for all periods presented. Additionally, all gains and losses on the sale of these assets are included in discontinued operations. For the three months ended March 31, 2007, income from discontinued operations included the results of operations of one condominium conversion community through its sell out date in February 2007 and the results of operations of one apartment community through its sale date in March 2007. For the three months ended March 31, 2006, income from discontinued operations included the results of operations of the condominium conversion community and apartment community sold in 2007 and three apartment communities sold in 2006.

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

The revenues and expenses of these communities for the three months ended March 31, 2007 and 2006 were as follows:

		Three months ended
		March 31,
		2007				2006
Revenues
Rental		$	463			$	3,765
Other property revenues			27				376
Total revenues			490				4,141
Expenses
Property operating and maintenance (exclusive of items shown separately below)			211				1,550
Depreciation			—				1,067
Interest			56				904
Total expenses			267				3,521
Income from discontinued property operations before minority interest			223				620
Minority interest			(3	)			(15	)
Income from discontinued property operations		$	220			$	605

For the three months ended March 31, 2007, the Company recognized net gains in discontinued operations of $16,974 ($16,714 net of minority interest) from the sale of one community, containing 182 units. This sale generated net proceeds of approximately $23,741. There were no sales of apartment communities for the three months ended March 31, 2006.

For the three months ended March 31, 2007 and 2006, gains on sales of real estate assets included in discontinued operations also included net gains of $179 ($176 net of minority interest) and $401 ($391 net of minority interest), respectively, from condominium sales at one condominium conversion community. This community completed the sale of units in the three months ended March 31, 2007. A summary of revenues and costs and expenses of condominium activities included in discontinued operations for the three months ended March 31, 2007 and 2006 was as follows:

		Three months ended
		March 31,
		2007				2006
Condominium revenues		$	560			$	2,996
Condominium costs and expenses			(381	)			(2,595	)
Gains on condominium sales, before minority interest			179				401
Minority interest			(3	)			(10	)
Gains on condominium sales, net of minority interest		$	176			$	391

3.

INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES

Apartment and Condominium Conversion Communities

At March 31, 2007, 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, initially consisting of 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 $5,319 at March 31, 2007. The excess investment related to 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 approximately $13 at March 31, 2007 related to the Property LLC holding the condominium conversion community will be recognized as additional costs as the underlying condominiums are sold. At March 31, 2007, the Property LLC converting its units into condominiums had two units

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

remaining to sell. 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 allocable 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:

		March 31,				December 31,
Balance Sheet Data		2007				2006
Real estate assets, net of accumulated depreciation of $11,584 and $11,039, respectively		$	93,154			$	93,614
Assets held for sale, net			188				3,027
Cash and other			3,316				4,067
Total assets		$	96,658			$	100,708
Mortgage notes payable		$	66,998			$	66,998
Other liabilities			1,089				1,107
Total liabilities			68,087				68,105
Members’ equity			28,571				32,603
Total liabilities and members’ equity		$	96,658			$	100,708
Company’s equity investment in Property LLCs		$	15,335			$	16,883

		Three months ended
		March 31,
Income Statement Data		2007				2006
Revenues
Rental		$	2,814			$	2,789
Other property revenues			188				233
Total revenues			3,002				3,022
Expenses
Property operating and maintenance			1,012				986
Depreciation and amortization			661				658
Interest			688				688
Total expenses			2,361				2,332
Income from continuing operations			641				690
Discontinued operations
Income (loss) from discontinued operations			22				(163	)
Gains on sales of real estate assets, net			858				397
Income from discontinued operations			880				234
Net income		$	1,521			$	924
Company’s share of net income		$	504			$	312

For the three months ended March 31, 2007 and 2006, gains on 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 months ended March 31, 2007 and 2006 is as follows:

		Three months ended
		March 31,
		2007				2006
Condominium revenues		$	4,112			$	4,086
Condominium costs and expenses			(3,254	)			(3,689	)
Gains on condominium sales, net		$	858			$	397

At March 31, 2007, mortgage notes payable include a $49,998 mortgage note that bears interest at 4.13%, requires monthly interest payments and annual principal payments of $1 through 2009. Thereafter, the note requires monthly principal and interest payments based on a 25-year amortization schedule and matures in 2034. The note is callable by the lender in 2009 and on each

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

successive fifth year anniversary of the note thereafter. The note is prepayable without penalty in 2008. The additional mortgage note payable totaling $17,000 bears interest at a fixed rate of 4.04%, requires interest only payments and matures in 2008.

     Land Entities

At March 31, 2007, 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 March 31, 2007, the Land Partnership had total assets of $26,398, principally land held for future development, total liabilities of $12,076 (including a secured note payable of $12,000 to the Company) and total equity of $14,322 (including the Company’s equity investment of $4,136).

4.

INDEBTEDNESS

At March 31, 2007 and December 31, 2006, the Company’s indebtedness consisted of the following:

		Payment								Maturity				March 31,				December 31,
Description		Terms				Interest Rate				Date				2007				2006
Senior Unsecured Notes		Int.					5.13% - 7.70	%			2007-2013			$	560,000			$	560,000
Unsecured Lines of Credit
Syndicated Line of Credit			N/A			LIBOR + 0.575%(1)					2010				95,000				95,000
Cash Management Line			N/A			LIBOR + 0.575%					2010				15,143				13,913
															110,143				108,913
Fixed Rate Secured Notes
FNMA		Prin. and Int.					6.15	%(2)			2029				95,600				95,600
Other		Prin. and Int.					4.27% - 7.69	%			2007-2013				258,346				259,371
															353,946				354,971
Tax-Exempt Floating Rate
Secured Bonds		Int.					3.65	%(3)			2025				9,895				9,895
Total														$	1,033,984			$	1,033,779

     Debt maturities

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

Remainder of 2007		$	112,165
2008			5,230
2009			76,618
2010			298,871	(1)
2011			141,831
Thereafter			399,269
		$	1,033,984

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

     Unsecured Lines of Credit

At March 31, 2007, the Company utilizes a $450,000 syndicated unsecured revolving line of credit (the “Syndicated Line”) that matures in April 2010 for its short-term financing needs. The Syndicated Line 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 Syndicated Line requires the payment of annual facility fees currently equal to 0.15% of the aggregate loan commitment. The Syndicated Line 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 Syndicated Line are based on the higher of the Company’s unsecured debt ratings in instances where the Company has split unsecured debt ratings. The Syndicated Line 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 Syndicated Line contains customary restrictions, representations, covenants and events of default, including fixed charge coverage and maximum leverage ratios. The Syndicated Line 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 March 31, 2007, the Company had issued letters of credit to third parties totaling $2,805 under this facility.

Additionally, at March 31, 2007, the Company had 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 Syndicated Line.

5.

SHAREHOLDERS’ EQUITY

Computation of Earnings Per Common Share

For the three months ended March 31, 2007 and 2006, 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
		March 31,
		2007				2006
Income from continuing operations available to common shareholders (numerator):
Income from continuing operations		$	7,361			$	3,805
Less: Preferred stock dividends			(1,909	)			(1,909	)
Income from continuing operations available to common shareholders		$	5,452			$	1,896
Common shares (denominator):
Weighted average shares outstanding — basic			43,367				41,881
Dilutive shares from stock options and awards			734				772
Weighted average shares outstanding — diluted			44,101				42,653

For the three months ended March 31, 2007 and 2006, stock options to purchase 148 and 253 shares of common stock, respectively, were excluded from the computation of diluted earnings per common share as these stock options and awards were antidilutive.

6.

DERIVATIVE FINANCIAL INSTRUMENTS

At March 31, 2007, 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 a prior swap arrangement that became ineffective under generally accepted accounting principles (SFAS No. 133, “Accounting for Derivative Investments and Hedging Activities,” as amended) in the first quarter of 2006. The interest rate swap agreement is included on the accompanying consolidated balance sheet at fair value. At March 31, 2007, the fair value of the interest rate swap agreement represented a liability of $791, and the liability was included in consolidated liabilities in the accompanying consolidated balance sheet. The change in the value of this cash flow hedge was recorded as a change in accumulated other comprehensive income (loss), a shareholders’ equity account, in the accompanying consolidated balance sheet.

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

In early 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 $1,149 for the three months ended March 31, 2006 (prior to its termination in April 2006) 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 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. Total amortization expense related to this swap was $281 and $273 for the three months ended March 31, 2007 and 2006, respectively.

At March 31, 2007, the Company had outstanding an interest rate cap agreement with a financial institution with a notional value of $28,495. Through mid-December 2006, this interest rate cap agreement was a cash flow hedge that provided a fixed interest ceiling at 5% for the Company’s variable rate, tax-exempt borrowings. As a result of the repayment of tax-exempt indebtedness in December 2006, the portion of this interest rate cap arrangement with a notional amount of $18,600 associated with this indebtedness became ineffective for accounting purposes. The Company is required to maintain the interest rate exposure protection under the terms of the financing arrangements for outstanding tax-exempt borrowings of $9,895 at March 31, 2007. The interest rate cap arrangement is included on the accompanying balance sheet at fair value. The change in fair value of the ineffective portion of the arrangement is included in the statement of operations. Such amount was not material in the three months ended March 31, 2007. At March 31, 2007, the difference between the amortized costs of the cash flow hedge associated with the $9,895 tax-exempt borrowings and its $0 fair value is included in accumulated other comprehensive income (loss), a shareholders’ equity account. The original cost of $59 of the remaining cash flow hedge is being amortized to expense over their five-year term.

A summary of comprehensive income for the three months ended March 31, 2007 and 2006 is as follows:

		Three months ended
		March 31,
		2007				2006
Net income		$	24,471			$	4,801
Change in derivatives, net of minority interest (1)			67				286
Comprehensive income		$	24,538			$	5,087

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 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 generally 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 combined 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, 2006. The segment information for the three months ended March 31, 2006 has been adjusted due to the restatement impact of reclassifying the operating results of the assets designated as held for sale or sold in 2006 to discontinued operations under SFAS No. 144 (see note 2).

•

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.

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

	•		Development, rehabilitation and lease-up communities — those apartment communities under development, rehabilitation and lease-up during the period.
	•		Condominium conversion and other communities — those portions of existing apartment communities being converted into condominiums and other communities expected to be converted to joint venture ownership that are reflected in continuing operations.
	•		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 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.

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 NOI together with a reconciliation of segment contribution to property NOI to consolidated net income for the three months ended March 31, 2007 and 2006. 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
		March 31,
		2007				2006
Revenues
Fully stabilized communities		$	61,902			$	58,753
Development, rehabilitation and lease-up communities			2,825				2,563
Condominium conversion and other communities			4,023				4,708
Acquired communities			2,840				355
Other property segments			5,840				5,760
Other			117				65
Consolidated revenues		$	77,547			$	72,204
Contribution to Property Net Operating Income
Fully stabilized communities		$	38,304			$	36,103
Development, rehabilitation and lease-up communities			898				1,474
Condominium conversion and other communities			2,349				2,896
Acquired communities			1,627				196
Other property segments, including corporate management expenses			(1,630	)			(1,833	)
Consolidated property net operating income			41,548				38,836
Interest income			250				120
Other revenues			117				65
Minority interest in consolidated property partnerships			(20	)			(29	)
Depreciation			(17,044	)			(16,388	)
Interest expense			(13,544	)			(13,143	)
Amortization of deferred financing costs			(812	)			(936	)
General and administrative			(5,448	)			(4,426	)
Investment and development			(1,528	)			(1,550	)
Gains (losses) on sales of real estate assets, net			3,684				(158	)
Equity in income of unconsolidated real estate entities			504				312
Other income (expense)			(261	)			1,149
Minority interest of common unitholders			(85	)			(47	)
Income from continuing operations			7,361				3,805
Income from discontinued operations			17,110				996
Net income		$	24,471			$	4,801

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 three months ended March 31, 2007 and 2006:

		Three months ended
		March 31,
		2007				2006
Accrued severance charges, beginning of period		$	12,832			$	14,325
Payments for period			(440	)			(402	)
Interest accretion			185				212
Accrued severance charges, end of period		$	12,577			$	14,135

9.

SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid (including capitalized amounts of $3,107 and $1,832 for the three months ended March 31, 2007 and 2006, respectively), aggregated $7,784 and $9,482 for the three months ended March 31, 2007 and 2006, respectively.

For the three months ended March 31, 2007 and 2006, the Company and the Company’s taxable REIT subsidiaries made income tax payments to federal and state taxing authorities totaling $143 and $168, respectively.

Non-cash investing and financing activities for the three months ended March 31, 2007 and 2006 were as follows:

For the three months ended March 31, 2007 and 2006, the Company amortized approximately $281 ($277 net of minority interest) and $273 ($268 net of minority interest), respectively, 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 three months ended March 31, 2007 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 $209, net of minority interest. For the three months ended March 31, 2006, 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 shareholder’s equity of $2,666, net of minority interest.

For the three months ended March 31, 2007 and 2006, Common Units in the Operating Partnership totaling 57 and 483, respectively, were converted into Company common shares on a one-for-one basis. The net effect of the conversion of Common Units of the Operating Partnership to common shares of the Company and the adjustments to minority interest for the impact of the Company’s employee stock purchase and stock options plans, decreased minority interest and increased shareholders’ equity in the amounts of $1,256 and $8,920 for the three months ended March 31, 2007 and 2006, respectively.

The Operating Partnership committed to distribute $21,815 and $19,704 for the three months ended March 31, 2007 and 2006, respectively. As a result, the Company declared dividends of $21,523 and $19,290 for the three months ended March 31, 2007 and 2006, respectively. The remaining distributions from the Operating Partnership in the amount of $292 and $414 for the three months ended March 31, 2007 and 2006, respectively, are distributed to minority interest unitholders in the Operating Partnership.

For the three months ended March 31, 2007 and 2006, the Company issued common shares for director compensation, totaling $136 and $132, respectively. These stock issuances were non-cash transactions.

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). Other than the required modification under SFAS No. 123R to use an estimated forfeiture rate for award terminations and forfeitures, the adoption of SFAS 123R did not have a material impact on the Company’s accounting for stock-based compensation. The cumulative impact of this modification on awards granted prior to January 1, 2006 was $172 and the amount was reflected as a reduction of compensation expense for the year ended March 31, 2006.

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

     Incentive Stock Plans

Incentive stock awards are granted under the Company’s 2003 Incentive Stock Plan (the “2003 Stock Plan”). Under the 2003 Stock Plan, an aggregate of 4,000 shares of common stock were reserved for issuance. Of this amount, not more than 500 shares of common stock are available for grants of restricted stock. The exercise price of each option granted under the 2003 Stock Plan may not be less than the market price of the Company’s common stock on the date of the option grant and all options may have a maximum life of ten years. Participants receiving restricted stock grants are generally eligible to vote such shares and receive dividends on such shares. Substantially all stock option and restricted stock grants are subject to annual vesting provisions (generally three to five years) as determined by the compensation committee overseeing the 2003 Stock Plan. At March 31, 2007, stock options outstanding under the 2003 Stock Plan and the Company’s previous stock plan totaled 2,509.

Compensation costs for stock options have been estimated on the grant date using the Black-Scholes option-pricing method. The weighted average assumptions used in the Black-Scholes option-pricing model were as follows:

		Three months ended
		March 31, 2007				March 31, 2006
Dividend yield			3.8	%			4.5	%
Expected volatility			18.1	%			17.5	%
Risk-free interest rate			4.8	%			4.3	%
Expected option term (years)			5.0				5.0

The Company’s assumptions were derived from the methodologies discussed herein. The expected dividend yield reflects the Company’s current historical yield, which is expected to approximate the future yield. Expected volatility was based on the historical volatility of the Company’s common stock. The risk-free interest rate for the expected life of the options was based on the implied yields on the U.S. Treasury yield curve. The weighted average expected option term was based on the Company’s historical data for prior period stock option exercise and forfeiture activity.

For the three months ended March 31, 2007 and 2006, the Company granted stock options to purchase 199 and 291 shares of Company common stock, respectively, to Company officers and directors, of which 28 and 50 shares, respectively, were granted to the Company’s non-executive chairman of the board. For the three months ended March 31, 2007 and 2006, the Company recorded compensation expense related to stock options of 379 ($373 net of minority interest) and $221 ($215 net of minority interest), respectively, recognized under the fair value method. Upon the exercise of stock options, the Company issues shares of common stock from treasury shares or, to the extent treasury shares are not available, from authorized common shares.

A summary of stock option activity under all plans for the three months ended March 31, 2007 and 2006 is presented below.

		Three months ended
		March 31, 2007								March 31, 2006
						Weighted Average								Weighted Average
		Shares				Exercise Price				Shares				Exercise Price
Options outstanding, beginning of period			2,375			$	33				3,534			$	34
Granted			199				48				291				40
Exercised			(64	)			35				(938	)			36
Forfeited			(1	)			38				—				—
Options outstanding, end of period			2,509				34				2,887				33
Options exercisable, end of period			1,642				33				1,776				35
Weighted-average fair value of options granted during the period		$	7.22							$	4.80

At March 31, 2007, there was $2,750 of unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 1.7 years. The total intrinsic value of stock options exercised during the three months ended March 31, 2007 and 2006 was $789 and $7,642, respectively. The aggregate intrinsic values of stock options outstanding, exercisable and expected to vest at March 31, 2007 were $29,667 and $20,534, respectively. The weighted average remaining contractual lives of stock options outstanding, exercisable and expected to vest at March 31, 2007 and 2006 were 5.9 and 5.8 years, respectively. Stock options expected to vest at March 31, 2007 totaled 2,455 at a weighted average exercise price of approximately $34.11.

At March 31, 2007, the Company had separated its outstanding options into two ranges based on exercise prices. There were 1,420 options outstanding with exercise prices ranging from $23.90 to $36.13. These options have a weighted average exercise

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

price of $29.31 and a weighted average remaining contractual life of 5.8 years. Of these outstanding options, 981 were exercisable at March 31, 2007 at a weighted average exercise price of $30.07. In addition, there were 1,089 options outstanding with exercise prices ranging from $36.47 to $48.00. These options had a weighted average exercise price of $40.31 and a weighted average remaining contractual life of 6.1 years. Of these outstanding options, 661 were exercisable at March 31, 2007 at a weighted average exercise price of $37.91.

For the three months ended March 31, 2007 and 2006, the Company granted 47 and 39 shares of restricted stock, respectively, to Company officers and directors, of which 4 and 5 shares, respectively, were granted to the Company’s non-executive chairman of the board. The restricted share grants generally vest ratably over three to five year periods. The weighted average grant date fair value for the restricted shares for the three months ended March 31, 2007 and 2006 was $47.98 and $40.21, respectively, per share. The total value of the restricted share grants for the three months ended March 31, 2007 and 2006 was $2,240 and $1,556, respectively. The compensation cost is amortized ratably into compensation expense over the applicable vesting periods. Total compensation expense relating to the restricted stock was $486 ($478 net of minority interest) and $288 ($281 net of minority interest) or the three months ended March 31, 2007 and 2006, respectively.

A summary of the activity related to the Company’s restricted stock for the three months ended March 31, 2007 and 2006 is presented below:

		Three months ended
		March 31, 2007								March 31, 2006
						Weighted Average								Weighted Average
						Grant-Date								Grant-Date
		Shares				Fair Value				Shares				Fair Value
Unvested shares, beginning or period			125			$	31				140			$	28
Granted			47				48				39				40
Vested			—				—				—				—
Forfeited			—				—				—				—
Unvested shares, end of period			172				35				179				31

At March 31, 2007, there was $4,931 of unrecognized compensation cost related to restricted stock. This cost is expected to be recognized over a weighted average period of 3.0 years. The total intrinsic value of restricted shares vested for the three months ended March 31, 2007 and 2006 was $20 and $20, respectively.

     Employee Stock Purchase Plan

The Company maintains an Employee Stock Purchase Plan (the “2005 ESPP”) under a plan approved by Company shareholders in 2005, and the maximum number of shares issuable is 300. The purchase price of shares of common stock under the ESPP is equal to 85% of the lesser of the closing price per share of common stock on the first or last day of the trading period, as defined. The Company records the aggregate cost of the ESPP (generally the 15% discount on the share purchases) as a period expense. Total compensation expense relating to the ESPP was $62 and $40 for the three months ended March 31, 2007 and 2006, respectively.

11.

INCOME TAXES

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Company must distribute annually at least 90% of its adjusted taxable income, as defined in the Code, to its shareholders and satisfy certain other organizational and operating requirements. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to federal income tax at the corporate level on the taxable income it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. The Company may be subject to certain state and local taxes on its income and property, and to federal income taxes and excise taxes on its undistributed taxable income.

In the preparation of income tax returns in federal and state jurisdictions, the Company and its taxable REIT subsidiaries assert certain tax positions based on their understanding and interpretation of the income tax law. The taxing authorities may challenge such positions and the resolution of such matters could result in the payment and recognition of additional income tax expense as well as interest and penalties. Management believes it has used reasonable judgments and conclusions in the preparation of its income tax returns.

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

The Company adopted the provisions of FIN 48 on January 1, 2007. As of January 1, 2007 and March 31, 2007, the Company had unrecognized tax benefits of approximately $800 which primarily related to uncertainty regarding the sustainability of certain deductions taken on prior year income tax returns of the TRSs related to the amortization of certain acquisition intangible assets. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate in a future period. The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense. Accrued interest and penalties for the three months ended March 31, 2007 and at March 31, 2007 was not material to the Company’s results of operations, cash flows or financial position.

The Company utilizes taxable REIT subsidiaries (“TRSs”) to perform such non-REIT activities as asset and property management, for-sale housing (condominiums) activities and other services for third parties. These TRSs are subject to federal and state income taxes. At December 31, 2006, the Company’s TRSs had fully utilized its net operating loss carryforward from prior years. However, for the three months ended March 31, 2007, the Company’s TRSs generated an estimated net taxable loss. As a result of this current period loss and as the TRSs’ other net deferred assets were fully offset by valuation allowances, the Company recorded no income tax expense (benefit) related to its TRSs for the three months ended March 31, 2007. The tax benefits associated with the current period net operating loss and unrecognized deferred tax assets may be recognized in future periods should the TRSs generate sufficient taxable income to utilize the loss carryforward or should the Company determine that it is more likely than not that the related deferred tax assets are realizable. Likewise for the three months ended March 31, 2006, the Company recorded no income income tax (benefit) related to its TRSs due to estimated net taxable losses for the period and the existence of unrecognized net deferred tax assets as stated above.

The Company and its subsidiaries’ (including the TRSs) income tax returns are subject to examination by federal and state tax jurisdictions for years 2003 through 2006. Net income tax loss carryforwards and other tax attributes generated in years prior to 2003 are also subject to challenge in any examination of the 2003 to 2006 tax years.

A summary of the components of the TRSs’ deferred tax assets and liabilities at December 31, 2006 are included in the footnotes to the Company’s audited financial statements included in the Company’s Form 10-K. Other than the additional estimated taxable losses for the three months ended March 31, 2007, there were no material changes to the components of deferred tax assets and liabilities at March 31, 2007.

12.

LEGAL PROCEEDINGS

In November 2006, the Equal Rights Center (“ERC”) filed a lawsuit against the Company and the Operating Partnership in the United States District Court for the District of Columbia. This suit alleges various violations of the Fair Housing Act (“FHA”) and the Americans with Disabilities Act (“ADA”) at properties designed, constructed or operated by the Company and the Operating Partnership in the District of Columbia, Virginia, Colorado, Florida, Georgia, New York, North Carolina and Texas. The plaintiff seeks compensatory and punitive damages in unspecified amounts, an award of attorneys’ fees and costs of suit, as well as preliminary and permanent injunctive relief that includes retrofitting multi-family units and public use areas to comply with the FHA and the ADA and prohibiting construction or sale of noncompliant units or complexes. On April 18, 2007, ERC filed a motion for a preliminary injunction to prohibit the Company and the Operating Partnership from selling any noncompliant apartment communities or condominium units while the litigation is ongoing. A hearing on the motion for the preliminary injunction was held on May 8, 2007. The court did not grant the motion, but gave both parties ten days to file supplemental filings in connection with the motion. At this stage in the proceeding, it is not possible to predict or determine the outcome of the lawsuit or the ERC’s motion for preliminary injunction, nor is it possible to estimate the amount of loss that would be associated with an adverse decision.

The Company is involved in various other legal proceedings incidental to its business from time to time, most of which are expected to be covered by liability or other insurance. Management of the Company believes that any resolution of pending proceedings or liability to the Company which may arise as a result of these various other legal proceedings will not have a material adverse effect on the Company’s results of operations or financial position.

13.

OTHER INCOME (EXPENSE)

For the three months ended March 31, 2007, other expenses related to the estimated state franchise and other taxes. Franchise taxes are associated with new margin-based taxes in Texas that are effective in 2007. For the three months ended March 31, 2006, one of the Company’s derivative financial instruments, previously accounted for as a cash flow hedge, became ineffective under generally accepted accounting principles. As a result, the net increase in the market value of this derivative prior to its termination in April 2006 totaling $1,149 was recognized in other income.

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

		March 31,				December 31,
		2007				2006
		(Unaudited)
Assets
Real estate assets
Land		$	281,902			$	278,448
Building and improvements			1,874,223				1,821,123
Furniture, fixtures and equipment			208,519				204,318
Construction in progress			92,412				135,428
Land held for future development			107,198				92,800
			2,564,254				2,532,117
Less: accumulated depreciation			(563,344	)			(547,477	)
For-sale condominiums			30,074				28,295
Assets held for sale, net of accumulated depreciation of $0 and $4,035 at March 31, 2007 and December 31, 2006, respectively			8,503				15,645
Total real estate assets			2,039,487				2,028,580
Investments in and advances to unconsolidated real estate entities			31,471				32,794
Cash and cash equivalents			4,887				3,663
Restricted cash			5,629				5,203
Deferred charges, net			11,883				12,400
Other assets			31,868				34,007
Total assets		$	2,125,225			$	2,116,647
Liabilities and partners’ equity
Indebtedness		$	1,033,984			$	1,033,779
Accounts payable and accrued expenses			68,969				75,403
Distribution payable			21,815				19,886
Accrued interest payable			13,808				4,885
Security deposits and prepaid rents			10,636				9,915
Total liabilities			1,149,212				1,143,868
Minority interests in consolidated real estate entities			2,280				2,268
Commitments and contingencies
Partners’ equity
Preferred units			95,000				95,000
Common units
General partner			10,372				10,341
Limited partner			871,834				868,711
Accumulated other comprehensive income (loss)			(3,473	)			(3,541	)
Total partners’ equity			973,733				970,511
Total liabilities and partners’ equity		$	2,125,225			$	2,116,647

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

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

		Three months ended
		March 31,
		2007				2006
Revenues
Rental		$	73,462			$	68,242
Other property revenues			3,968				3,897
Other			117				65
Total revenues			77,547				72,204
Expenses
Property operating and maintenance (exclusive of items shown separately below)			35,882				33,303
Depreciation			17,044				16,388
General and administrative			5,448				4,426
Investment and development			1,528				1,550
Total expenses			59,902				55,667
Operating income			17,645				16,537
Interest income			250				120
Interest expense			(13,544	)			(13,143	)
Amortization of deferred financing costs			(812	)			(936	)
Gains (losses) on sales of real estate assets, net			3,684				(158	)
Equity in income of unconsolidated real estate entities			504				312
Other income (expense)			(261	)			1,149
Minority interest in consolidated property partnerships			(20	)			(29	)
Income from continuing operations			7,446				3,852
Discontinued operations
Income from discontinued property operations			223				620
Gains on sales of real estate assets			17,153				401
Income from discontinued operations			17,376				1,021
Net income			24,822				4,873
Distributions to preferred unitholders			(1,909	)			(1,909	)
Net income available to common unitholders		$	22,913			$	2,964
Per common unit data — Basic
Income from continuing operations (net of preferred distributions)		$	0.13			$	0.05
Income from discontinued operations			0.39				0.02
Net income available to common unitholders		$	0.52			$	0.07
Weighted average common units outstanding — basic			44,041				42,935
Per common unit data — Diluted
Income from continuing operations (net of preferred distributions)		$	0.12			$	0.04
Income from discontinued operations			0.39				0.02
Net income available to common unitholders		$	0.51			$	0.07
Weighted average common units outstanding — diluted			44,776				43,707

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

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

														Accumulated
						Common Units								Other
		Preferred				General				Limited				Comprehensive
		Units				Partner				Partners				Income (Loss)				Total
Partners’ Equity, December 31, 2006		$	95,000			$	10,341			$	868,711			$	(3,541	)		$	970,511
Comprehensive income
Net income			1,909				229				22,684				—				24,822
Net change in derivative value			—				—				—				68				68
Total comprehensive income																			24,890
Contributions from the Company related to employee stock purchase, stock option and other plans			—				29				2,890				—				2,919
Equity-based compensation			—				9				918				—				927
Purchase of common units			—				(37	)			(3,657	)							(3,694	)
Distributions to preferred unitholders			(1,909	)			—				—				—				(1,909	)
Distributions to common unitholders ($0.45 per unit)			—				(199	)			(19,712	)			—				(19,911	)
Partners’ Equity, March 31, 2007		$	95,000			$	10,372			$	871,834			$	(3,473	)		$	973,733