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

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

For the transition period from          to

Commission file numbers 1-12080 and 0-28226

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

(Exact name of registrant as specified in its charter)

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

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

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

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

		Post Properties, Inc.		Yes     þ     No     o
		Post Apartment Homes, L.P.		Yes     þ     No     o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. 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:

42,902,759 shares of common stock outstanding as of May 5, 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 March 31, 2006 and December 31, 2005				1
		Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005				2
		Consolidated Statement of Shareholders’ Equity and Accumulated Earnings for the three months ended March 31, 2006				3
		Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005				4
		Notes to Consolidated Financial Statements				5
		POST APARTMENT HOMES, L.P.
		Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005				18
		Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005				19
		Consolidated Statement of Partners’ Equity for the three months ended March 31, 2006				20
		Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005				21
		Notes to Consolidated Financial Statements				22
		Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
		Item 3		Quantitative and Qualitative Disclosures about Market Risk		48
		Item 4		Controls and Procedures		49
Part II		OTHER INFORMATION				50
		Item 1		Legal Proceedings		50
		Item 1A		Risk Factors		50
		Item 2		Unregistered Sales of Equity Securities and Use of Proceeds		51
		Item 3		Defaults Upon Senior Securities		51
		Item 4		Submission of Matters to a Vote of Security Holders		51
		Item 5		Other Information		51
		Item 6		Exhibits		52
		Signatures				53
		Exhibit Index				55
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.

		March 31,				December 31,
		2006				2005
		(Unaudited)
Assets
Real estate assets
Land		$	266,323			$	266,914
Building and improvements			1,741,971				1,789,479
Furniture, fixtures and equipment			199,853				207,497
Construction in progress			68,935				47,005
Land held for future development			89,613				62,511
			2,366,695				2,373,406
Less: accumulated depreciation			(515,942	)			(516,954	)
For-sale condominiums			39,969				38,338
Assets held for sale, net of accumulated depreciation of $18,109 and $0 at March 31, 2006 and December 31, 2005, respectively			90,772				4,591
Total real estate assets			1,981,494				1,899,381
Investments in and advances to unconsolidated real estate entities			23,342				26,614
Cash and cash equivalents			9,765				6,410
Restricted cash			5,475				4,599
Deferred charges, net			10,815				11,624
Other assets			35,138				32,826
Total assets		$	2,066,029			$	1,981,454
Liabilities and shareholders’ equity
Indebtedness		$	1,039,948			$	980,615
Accounts payable and accrued expenses			58,135				58,474
Dividend and distribution payable			19,704				19,257
Accrued interest payable			10,726				5,478
Deposits and prepaid rents			11,105				9,857
Total liabilities			1,139,618				1,073,681
Minority interest of common unitholders in Operating Partnership			17,522				26,764
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:
42,868 and 41,394 shares issued, 42,868 and 41,394 shares outstanding at March 31, 2006 and December 31, 2005, respectively			429				414
Additional paid-in capital			844,431				803,765
Accumulated earnings			69,907				86,315
Accumulated other comprehensive income (loss)			(3,973	)			(4,208	)
Deferred compensation			—				(3,625	)
			910,823				882,690
Less common stock in treasury, at cost, 50 and 44 shares at March 31, 2006 and December 31, 2005, respectively			(1,934	)			(1,681	)
Total shareholders’ equity			908,889				881,009
Total liabilities and shareholders’ equity		$	2,066,029			$	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
		March 31,
		2006				2005
Revenues
Rental		$	70,062			$	65,855
Other property revenues			4,066				3,560
Other			65				71
Total revenues			74,193				69,486
Expenses
Property operating and maintenance (exclusive of items shown separately below)			34,078				32,592
Depreciation			16,674				18,364
General and administrative			4,426				4,390
Investment, development and other			1,708				1,530
Total expenses			56,886				56,876
Operating Income			17,307				12,610
Interest income			120				165
Interest expense			(13,432	)			(14,998	)
Amortization of deferred financing costs			(935	)			(1,688	)
Equity in income of unconsolidated real estate entities			312				147
Other income			1,149				5,267
Minority interest in consolidated property partnerships			(29	)			113
Minority interest of common unitholders			(63	)			17
Income from continuing operations			4,429				1,633
Discontinued operations
Income (loss) from discontinued operations, net of minority interest			(19	)			2,706
Gains on sales of real estate assets, net of minority interest and provision for income taxes			391				337
Income from discontinued operations			372				3,043
Net income			4,801				4,676
Dividends to preferred shareholders			(1,909	)			(1,909	)
Net income available to common shareholders		$	2,892			$	2,767
Per common share data — Basic
Income (loss) from continuing operations (net of preferred dividends)		$	0.06			$	(0.01	)
Income from discontinued operations			0.01				0.08
Net income available to common shareholders		$	0.07			$	0.07
Weighted average common shares outstanding — basic			41,881				40,167
Per common share data — Diluted
Income (loss) from continuing operations (net of preferred dividends)		$	0.06			$	(0.01	)
Income from discontinued operations			0.01				0.08
Net income available to common shareholders		$	0.07			$	0.07
Weighted average common shares outstanding – diluted			42,653				40,167
Dividends declared		$	0.45			$	0.45

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			—				—				—				4,801				—				—				—				4,801
Net change in derivatives, net of minority interest			—				—				—				—				286				—				—				286
Total comprehensive income																															5,087
Transition effect of adoption of SFAS 123R			—				—				(3,625	)			—				—				3,625				—				—
Proceeds from employee stock purchase, stock option plans and other			—				10				34,788				—				—				—				(253	)			34,545
Adjustment for minority interest of unitholders in Operating Partnership upon conversion of units into common shares and at dates of capital transactions			—				5				8,966				—				(51	)			—				—				8,920
Stock-based compensation, net of minority interest			—				—				537				—				—				—				—				537
Dividends to preferred shareholders			—				—				—				(1,909	)			—				—				—				(1,909	)
Dividends to common shareholders			—				—				—				(19,300	)			—				—				—				(19,300	)
Shareholders’ Equity and Accumulated Earnings, March 31, 2006		$	29			$	429			$	844,431			$	69,907			$	(3,973	)		$	—			$	(1,934	)		$	908,889

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,
		2006				2005
Cash Flows From Operating Activities
Net income		$	4,801			$	4,676
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			17,455				19,532
Amortization of deferred financing costs			935				1,688
Minority interest of common unitholders in Operating Partnership			63				(17	)
Minority interest in discontinued operations			9				185
Gains on sales of real estate assets — discontinued operations			(401	)			(358	)
Other non-cash income			(1,149	)			(5,267	)
Equity in income of unconsolidated entities			(312	)			(147	)
Distributions of earnings of unconsolidated entities			516				147
Deferred compensation			263				—
Stock-based compensation			549				464
Changes in assets, (increase) decrease in:
Other assets			1,050				(1,539	)
Deferred charges			91				(152	)
Changes in liabilities, increase (decrease) in:
Accrued interest payable			5,248				4,470
Accounts payable and accrued expenses			(3,931	)			(112	)
Security deposits and prepaid rents			372				53
Net cash used in operating activities			25,559				23,623
Cash Flows From Investing Activities
Construction and acquisition of real estate assets, net of payables			(96,356	)			(13,583	)
Net proceeds from sales of real estate assets			2,788				3,296
Proceeds from sale of technology investment			–				5,267
Capitalized interest			(1,832	)			(367	)
Recurring capital expenditures			(2,054	)			(1,958	)
Non-recurring capital expenditures			(723	)			(902	)
Community rehabilitation and other revenue generating capital expenditures			(865	)			—
Corporate additions and improvements			(495	)			(701	)
Distributions from (investments in and advances to) unconsolidated entities			3,032				(16,538	)
Net cash used in investing activities			(96,505	)			(25,486	)
Cash Flows From Financing Activities
Payments on indebtedness			(51,198	)			(126,130	)
Lines of credit proceeds (repayments), net			110,531				157,892
Payments of financing costs			(50	)			(168	)
Treasury stock acquisitions			—				(9,128	)
Proceeds from employee stock purchase and stock option plans			34,282				3,037
Capital contributions of minority interests			1,912				283
Distributions to common unitholders			(631	)			(1,125	)
Dividends paid to preferred shareholders			(1,909	)			(1,909	)
Dividends paid to common shareholders			(18,636	)			(18,077	)
Net cash provided by financing activities			74,301				4,675
Net increase in cash and cash equivalents			3,355				2,812
Cash and cash equivalents, beginning of period			6,410				123
Cash and cash equivalents, end of period		$	9,765			$	2,935

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 April 28, 2006, the Company owned 22,057 apartment units in 61 apartment communities, including 545 apartment units in two apartment communities held in unconsolidated entities and including 512 apartment units currently under development in two communities. 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 March 31, 2006, approximately 46.2%, 18.3%, 9.2% and 8.7% (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 March 31, 2006, the Company had outstanding 42,868 shares of common stock and owned the same number of units of common limited partnership interests (“Common Units”) in the Operating Partnership, representing a 97.9% ownership interest in the Operating Partnership. Common Units held by persons other than the Company totaled 919 as of March 31, 2006 and represented a 2.1% 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 97.6% and 94.3% for the three months ended March 31, 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 months ended March 31, 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 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 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

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

		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 will also recognize 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 sold at partial condominium communities will be 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.
		At March 31, 2006, the Company had one new condominium project under development 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 sold through March 31, 2006 will be accounted for under the Completed Contract 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.
		New Accounting Pronouncements
		The Emerging Issues Task Force issued EITF No. 04-05 (“EITF No. 04-05”), “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. 04-05 provides a framework for evaluating whether a general partner or group of general partners or managing members controls a limited partnership or limited

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

		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. 04-05 became effective on June 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. 04-05 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.
2.		INDEBTEDNESS
		At March 31, 2006 and December 31, 2005, the Company’s indebtedness consisted of the following:

		Payment						Maturity		March 31,				December 31,
Description		Terms		Interest Rate				Date		2006				2005
Senior Unsecured Notes		Int.			5.125% - 7.70	%		2006-2012		$	435,000			$	485,000
Unsecured Lines of Credit & Other
Syndicated Line of Credit		N/A		LIBOR + 0.75% (1)				2007			205,000				90,000
Cash Management Line		N/A		LIBOR + 0.75%				2007			6,910				11,379
											211,910				101,379
Conventional Fixed Rate (Secured)
FNMA		Prin. and Int.			5.765	% (2)		2029			97,100				97,100
Other		Prin. and Int.			4.27% - 7.69	%		2007-2013			267,443				268,641
											364,543				365,741
Tax-Exempt Floating Rate Bonds (Secured)		Int.			3.17	% (3)		2025			28,495				28,495
Total										$	1,039,948			$	980,615

		Debt Maturities
		The aggregate maturities of the Company’s indebtedness as of March 31, 2006 are as follows:

Remainder of 2006		$	30,071
2007			370,103	(1)
2008			4,557
2009			75,901
2010			188,267
Thereafter			371,049
		$	1,039,948

		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.
		Unsecured Lines of Credit
		At March 31, 2006, the Company utilized a $350,000 syndicated unsecured revolving line of credit (the “Revolver”) that was scheduled to mature in January 2007 for its short-term financing needs. The Revolver had a stated interest rate of LIBOR plus 0.75% or the prime rate and was provided by a syndicate of nine banks led by Wachovia Bank, N.A. Additionally, the Revolver required the payment of annual facility fees equal to 0.15% of the aggregate loan commitment. In April 2006, the Company

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

		refinanced and increased the capacity under the revolving line of credit (the “Amended Revolver”) to $450,000. The Amended Revolver matures in April 2010 and currently has a stated interest rate of LIBOR plus 0.575% or the prime rate. Additionally, the Amended Revolver requires the payment of annual facility fees currently equal to 0.15% of the aggregate loan commitment. The Amended Revolver was provided by a syndicate of 11 banks led by Wachovia Bank, N.A. and JP Morgan Securities, Inc. The Amended 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 Amended Revolver are based on the higher of the Company’s unsecured debt ratings in instances where the Company has split unsecured debt ratings. The Amended 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 Amended Revolver contains customary restrictions, representations, covenants and events of default, including fixed charge coverage and maximum leverage ratios. The Amended 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 March 31, 2006, the Company had issued letters of credit to third parties totaling $2,330 under this facility.
		Additionally at March 31, 2006, the Company had a $20,000 unsecured line of credit with Wachovia Bank, N.A. (the “Cash Management Line”). The Cash Management line was scheduled to mature in January 2007. In April 2006, the Company refinanced and increased the capacity under the cash management line (the “Amended Cash Management Line”) to $30,000 with Wachovia Bank, N.A. The Amended Cash Management Line matures in April 2010 and carries pricing and terms, including debt covenants, substantially consistent with the Amended Revolver.
3.		INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES
		The Company holds investments in three individual limited liability companies (the “Property LLCs”) with an institutional investor. Two of the Property LLCs own single apartment communities. The third Property LLC 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 $5,966 at March 31, 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 $515 at March 31, 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.
		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:

		March 31,				December 31,
Balance Sheet Data		2006				2005
Real estate assets, net of accumulated depreciation of $8,992 and $8,349, respectively		$	95,401			$	96,000
Assets held for sale, net (1)			15,176				17,715
Cash and other			1,620				1,770
Total assets		$	112,197			$	115,485
Mortgage notes payable		$	66,999			$	66,999
Mortgage notes payable to Company			2,934				5,967
Other liabilities			1,047				996
Total liabilities			70,980				73,962
Members’ equity			41,217				41,523
Total liabilities and members’ equity		$	112,197			$	115,485
Company’s equity investment		$	20,408			$	20,647

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

		Three months ended
		March 31,
Income Statement Data		2006				2005
Revenue
Rental		$	2,789			$	2,640
Other property revenues			233				185
Total revenues			3,022				2,825
Expenses
Property operating and maintenance			986				910
Depreciation and amortization			658				653
Interest			688				688
Total expenses			2,332				2,251
Income from continuing operations			690				574
Discontinued Operations
Loss from discontinued operations			(163	)			(117	)
Gains on sales of real estate assets			397				—
Loss on early extinguishment of debt			—				(273	)
Income (loss) from discontinued operations			234				(390	)
Net income		$	924			$	184
Company’s share of net income		$	312			$	147

For the three months ended March 31, 2006, gains on sales of real estate assets represent net gains of $397 from condominium sales at the condominium conversion community held by one of the Property LLCs. There were no condominium sales at this conversion community in the three months ended March 31, 2005. A summary of revenues and costs and expenses of condominium activities for the three months ended March 31, 2006 was as follows:

		Three months
		ended
		March 31, 2006
Condominium revenues, net		$	3,726
Condominium costs and expenses			(3,329	)
Gains on condominium sales		$	397

		At March 31, 2006, mortgage notes payable include a $49,999 mortgage note that bears interest at 4.13%, requires monthly interest payments and annual principal payment of $1 through 2009. Thereafter, the note requires monthly principal and interest payments based on a 25-year amortization schedule and matures in April 2034. The note is callable by the lender in May 2009 and on each successive fifth year anniversary of the note thereafter. The note is 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 March 2005, one of the Property LLCs elected to convert its apartment community into for-sale condominiums. As a result of its decision to sell the community through the condominium conversion process, the Property LLC prepaid its third party mortgage note payable of $16,392 through secured borrowings from the Company. The Property LLC incurred debt prepayment costs and expenses associated with the write-off of unamortized deferred financing costs totaling $273 in March 2005. The mortgage note payable to the Company has a fixed rate component ($16,392) bearing interest at 4.28% and a variable rate component bearing interest at LIBOR plus 1.90%. At March 31, 2006, the mortgage note payable to the Company had an outstanding balance of $2,934. This note is repayable from the proceeds of condominium sales and matures in February 2008.
4.		REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITY
		Acquisition Activity
		In 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.
		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.
		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 March 31, 2006, the Company had one apartment community, containing

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

		696 units, and one condominium conversion community, originally containing 127 units classified as held for sale. These real estate assets are reflected in the accompanying consolidated balance sheet at $90,772, which represents the lower of their depreciated cost or fair value less costs to sell. At March 31, 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 $39,969.
		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. As discussed in note 1, portions of two communities that are being converted to condominiums will be reflected in continuing operations. For the three months ended March 31, 2006, income from discontinued operations included the results of operations of one apartment community, containing 696 units, and one condominium conversion community classified as held for sale at March 31, 2006. For the three months ended March 31, 2005, income from discontinued operations included the results of operations of the communities classified as held for sale at March 31, 2006, six apartment communities sold in 2005 and one condominium conversion community through its sell-out date in 2005.
		The revenues and expenses of these communities for the three months ended March 31, 2006 and 2005 were as follows:

		Three months ended
		March 31,
		2006				2005
Revenues
Rental		$	1,934			$	8,856
Other property revenues			217				853
Total revenues			2,151				9,709
Expenses
Property operating and maintenance (exclusive of items shown separately below)			775				3,932
Depreciation			781				1,168
Interest			615				1,725
Minority interest in consolidated property partnerships			—				14
Total expenses			2,171				6,839
Income from discontinued operations before minority interest			(20	)			2,870
Minority interest			1				(164	)
Income from discontinued operations		$	(19	)		$	2,706

For the three months ended March 31, 2006 and 2005, gains on sales of real estate assets included the net gains of $401 ($391 net of minority interest and provision for income taxes) and $358 ($337 net of minority interest and provision for income taxes), respectively, from condominium sales at the Company’s condominium conversion communities. A summary of revenues and costs and expenses of condominium activities for the three months ended March 31, 2006 and 2005 was as follows:

		Three months ended
		March 31,
		2006				2005
Condominium revenues, net		$	2,788			$	3,296
Condominium costs and expenses			(2,387	)			(2,938	)
Gains on condominium sales, before minority interest and provision for income taxes			401				358
Minority interest			(10	)			(21	)
Provision for income taxes			—				—
Gains on condominium sales, net of minority interest and provision for income taxes		$	391			$	337

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

5.		SHAREHOLDERS’ EQUITY
		Computation of Earnings Per Common Share
		For the three months ended March 31, 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
		March 31,
		2006				2005
Income from continuing operations available to common shareholders (numerator):
Income from continuing operations		$	4,429			$	1,633
Less: Preferred stock dividends			(1,909	)			(1,909	)
Income (loss) from continuing operations available to common shareholders		$	2,520			$	(276	)
Common shares (denominator):
Weighted average shares outstanding — basic			41,881				40,167
Dilutive shares from stock options and awards (1)			772				—
Weighted average shares outstanding — diluted (1)			42,653				40,167

		For the three months ended March 31, 2006 and 2005, stock options to purchase 253 and 4,570 shares of common stock, respectively, were excluded from the computation of diluted earnings per common share as these stock options were antidilutive.
6.		DERIVATIVE FINANCIAL INSTRUMENTS
		At March 31, 2006, the Company had an outstanding interest rate swap agreement with a notional value of approximately $97,010 with a maturity date in 2009. The interest rate swap agreement is included on the accompanying consolidated balance sheet at fair value. In the three months ended March 31, 2006, the interest rate swap arrangement, previously 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 for the three months ended March 31, 2006 of $1,149 (net of the amortized swap cost totaling $273) 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 expense the cumulative unrecognized loss on the interest rate swap arrangement of $4,021, previously included in shareholders’ equity, over the remaining life of the swap through 2009.
		In April 2006, the Company terminated its existing interest rate swap arrangement discussed above through a $2,448 termination payment to the swap counterparty. Subsequent to the termination of the swap arrangement, the Company entered into a new, market rate swap arrangement with an amortized notional amount ranging from $97,010 to $90,270. The new swap arrangement is a variable to fixed rate swap at a fixed rate of 5.21% with a termination date of July 2009. Similar to the terminated swap, the new swap has been designated as a cash flow hedge of the Company’s FNMA variable rate debt.
		At March 31, 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 March 31, 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 March 31, 2006, the difference between the amortized costs of the interest rate cap arrangement and its fair value of $3 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.

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

A summary of comprehensive income for the three months ended March 31, 2006 and 2005 is as follows:

		Three months ended
		March 31,
		2006				2005
Net income		$	4,801			$	4,676
Change in derivatives, net of minority interest (1)			286				2,666
Comprehensive income		$	5,087			$	7,342

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 months ended March 31, 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 – 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 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.

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

		Segment Information
		The following table reflects each segment’s contribution to consolidated revenues and property NOI together with a reconciliation of segment contribution to property NOI to net income. 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,
		2006				2005
Revenues
Fully stabilized communities		$	63,339			$	60,200
Development, rehabilitation and lease-up communities			2,563				2,539
Condominium conversion communities			1,176				1,453
Acquired communities			1,292				—
Other property segments			5,758				5,223
Other			65				71
Consolidated revenues		$	74,193			$	69,486
Contribution to NOI
Fully stabilized communities		$	39,043			$	36,433
Development, rehabilitation and lease-up communities			1,474				1,393
Condominium conversion communities			652				920
Acquired communities			716				—
Other			(1,835	)			(1,923	)
Consolidated property net operating income			40,050				36,823
Interest income			120				165
Other revenue			65				71
Minority interest in consolidated property partnerships			(29	)			113
Depreciation			(16,674	)			(18,364	)
Interest expense			(13,432	)			(14,998	)
Amortization of deferred financing costs			(935	)			(1,688	)
General and administrative			(4,426	)			(4,390	)
Development costs and other			(1,708	)			(1,530	)
Equity in income of unconsolidated real estate entities			312				147
Other income			1,149				5,267
Minority interest of common unitholders			(63	)			17
Income from continuing operations			4,429				1,633
Income from discontinued operations			372				3,043
Net income		$	4,801			$	4,676

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

8.		SEVERANCE COSTS
		In prior years, the Company recorded severance charges associated with the departure of certain executive officers of the Company. Under certain of these arrangements, the Company is required to make certain payments and provide specified benefits through 2013 and 2016, respectively. The following table summarizes the activity relating to aggregate severance charges for the three months ended March 31, 2006 and 2005:

		Three months ended
		March 31,
		2006				2005
Accrued severance charges, beginning of period		$	14,325			$	15,317
Payments for period			(402	)			(442	)
Interest accretion			212				226
Accrued severance charges, end of period		$	14,135			$	15,101

9.		SUPPLEMENTAL CASH FLOW INFORMATION
		Interest paid (including capitalized amounts of $1,832 and $367 for the three months ended March 31, 2006 and 2005, respectively), aggregated $9,482 and $12,618 for the three months ended March 31, 2006 and 2005, respectively.
		Non-cash investing and financing activities for the three months ended March 31, 2006 and 2005 were as follows:
		In the three months ended March 31, 2006, a minority partner in a consolidated real estate venture contributed land with an agreed upon value of $2,556. This non-cash land contribution was excluded from the statement of cash flows.
		During the three months ended March 31, 2006, the Company amortized approximately $273 of accumulated other comprehensive non-cash losses into earnings related to an interest rate swap derivative financial instruments (see note 6). During the three months ended March 31, 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 $2,666, net of minority interest.
		During the three months ended March 31, 2006 and 2005, holders of 483 and 75 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 $8,920 and $1,442 for the three months ended March 31, 2006 and 2005, respectively.
		The Operating Partnership committed to distribute $19,704 and $19,122 for the quarters ended March 31, 2006 and 2005, respectively. As a result, the Company declared dividends of $19,290 and $18,031 for the quarters ended March 31, 2006 and 2005, respectively. The remaining distributions from the Operating Partnership in the amount of $414 and $1,091 for the quarters ended March 31, 2006 and 2005, respectively, were distributed to minority interest unitholders in the Operating Partnership.
10.		STOCK-BASED COMPENSATION PLAN
		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 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. In prior years, the Company used a policy of recognizing the effect of award forfeitures as they occurred. Under SFAS No. 123R, such award forfeitures are recognized based on an estimate of the number of awards expected to be forfeited during the estimated service period. 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 in the three months ended March 31, 2006.
		The Company’s audited financial statements for the year ended December 31, 2005 included in the Company’s Form 10-K, as amended, include the footnote disclosures under SFAS No. 123. The disclosures below summarize the new disclosures under SFAS 123R.

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

		Incentive Stock Plans
		Under the Company’s 2003 Incentive Stock Plan (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 stock 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 administrative committee overseeing the 2003 Stock Plan. Compensation costs are recognized ratably over the vesting period. At March 31, 2006, stock options outstanding under the 2003 Stock Plan and the Company’s previous stock plan totaled 2,887.
		Compensation costs for stock options has 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, 2006
Dividend yield			4.5	%
Expected volatility			17.5	%
Risk-free interest rate			4.3	%
Expected option term (years)			5.0

		In connection with the adoption of SFAS No. 123R, the Company reviewed the above assumptions based on the additional guidance provided in the pronouncement. 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.
		In the three months ended March 31, 2006, the Company granted stock options to purchase 291 shares of Company common stock to Company officers and directors, of which 50 were granted to the Company’s non-executive chairman of the board. For the three months ended March 31, 2006, the Company recorded compensation expense related to stock options of $221 ($215 net of minority interest). Such expense was net of the cumulative impact of the adoption of SFAS 123R of $60, as discussed above. 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, 2006, is presented below.

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

		At March 31, 2006, there was $2,494 of unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 2.2 years. The total intrinsic values of stock options exercised during the three months ended March 31, 2006 was $7,642. The aggregate intrinsic values of stock options outstanding and exercisable at March 31, 2006 were $32,375 and $17,757, respectively.
		At March 31, 2006, the Company has separated its outstanding options into two ranges based on exercise prices. There were 1,709 options outstanding with exercise prices ranging from $23.90 to $36.13. These options have a weighted average exercise price of $29.73 and a weighted average remaining contractual life of 6 years. Of these outstanding options, 911 were exercisable at March 31, 2006 at a weighted average exercise price of $31.34. In addition, there were 1,178 options outstanding with exercise prices ranging from $36.47 to $44.13. These options have a weighted average exercise price of $38.44 and a weighted average

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

		remaining contractual life of 5 years. Of these outstanding options, 865 were exercisable at March 31, 2006 at a weighted average exercise price of $37.84.
		In the three months ended March 31, 2006, the Company granted 39 shares of restricted stock, respectively, to Company officers, employees and directors, of which 5 shares were granted to the Company’s non-executive chairman of the board. The restricted shares granted in 2006 vest ratably over three to five year periods. The weighted average grant date fair value for the restricted shares was $40.21 per share. The total value of the restricted share grants in the three months ended March 31, 2006 was $1,556. The compensation cost is amortized ratably into compensation expense over the applicable vesting periods. Total compensation expense relating to the restricted stock was $288 ($281 net of minority interest) in the three months ended March 31, 2006. Such expense was net of the cumulative impact of the adoption of SFAS No. 123R of $112, as discussed above.
		A summary of the activity related to the Company’s restricted stock for the three months ended March 31, 2006 is presented below:

						Weighted
						Average
						Grant-Date
		Shares				Fair Value
Unvested shares, beginning or period			140			$	28
Granted			39				40
Vested			—				—
Forfeited			—				—
Unvested shares, end of period			179				31

		At March 31, 2006, there was $4,510 of unrecognized compensation cost related to restricted stock. This cost is expected to be recognized over a weighted average period of 3.5 years.
		Employee Stock Purchase Plan
		The Company maintains an Employee Stock Purchase Plan (the “2005 ESPP”) under a plan approved by Company shareholders in 2005. 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 $40 for the three months ended March 31, 2006.
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. Management believes it has used reasonable judgments and conclusions in the preparation of its income tax returns.
		The Company utilizes taxable REIT subsidiaries (“TRSs”) to perform such nonqualifying activities as property management, ground-up condominium development and conversions and to provide noncustomary services for the Company’s apartment residents. Income at the TRS level is subject to federal and state income taxes. For the three months ended March 31, 2006, the Company’s TRSs sustained a loss for financial accounting purposes. The Company has also estimated a taxable loss from its TRSs for the same period. At December 31, 2005, the Company’s TRSs had an estimated consolidated federal income tax net operating loss of approximately $1,200. This carryforward and other net deferred tax assets were fully offset by a valuation allowances. As a result, the Company recorded no income tax expense (benefit) related to its TRSs for the three months ended March 31, 2006. The tax benefits associated with such income tax net operating loss carryforwards may be recognized in future

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

		periods should the TRSs generate sufficient taxable income to utilize these loss carryforwards or should the Company determine that it is more likely than not that the related deferred tax assets are realizable.
		In the three months ended March 31, 2005, the TRSs had losses for both financial reporting and income tax reporting purposes. As the TRSs had unrecognized income tax net operating loss carryforwards as of March 31, 2005, the TRSs recorded no income tax expense (benefit) in the three months ended March 31, 2005.
		A summary of the components of the TRSs’ deferred tax assets and liabilities at December 31, 2005 are included in the footnotes to the Company’s audited financial statements included in the Company’s Form 10-K, as amended. Other than the additional estimated taxable losses for the three months ended March 31, 2006, there were no material changes to the components of deferred tax assets and liabilities at March 31, 2006.
12.		LEGAL PROCEEDINGS
		On May 13, 2004, an alleged Company shareholder filed a purported pro se derivative and direct action in the Superior Court of Fulton County, Georgia, against the Company, certain members of the Company’s board of directors, and certain of its executive officers. The case was removed to the United States District Court for the Northern District of Georgia on May 21, 2004. The complaint alleged, among other things, breaches of fiduciary duties, fraud, corporate waste, withholding certain documents from shareholder inspection and certain securities laws claims. The complaint requested various types of relief, such as injunctive relief and damages and demanded production of certain Company records. Because the Company believed the allegations were wholly without merit, the Company moved to dismiss the litigation. On April 20, 2005, the court entered an order dismissing all claims without prejudice, save a claim seeking production of certain Company records, upon which the Court declined to rule, concluding it lacked jurisdiction to do so, and ordered the claim remanded to the Superior Court of Fulton County. Since that time, the Company has moved for its attorney fees in the United States District Court, arguing that the plaintiff frivolously pursued the litigation, and the plaintiff has moved for entry of judgment in Superior Court, which the Company has vigorously contested. In February 2006, the United States District Court granted the Company’s motion for attorneys’ fees in an amount to be determined by the agreement of the parties, or, alternatively, by the Court.
		On May 5, 2003, the Company received notice that a shareholder derivative and purported class action lawsuit was filed against members of the board of directors of the Company and the Company as a nominal defendant. This complaint was filed in the Superior Court of Fulton County, Atlanta, Georgia on May 2, 2003 and alleged various breaches of fiduciary duties by the board of directors of the Company and sought, among other relief, the disclosure of certain information by the defendants. This complaint also sought to compel the defendants to undertake various actions to facilitate a sale of the Company. On May 7, 2003, the plaintiff made a request for voluntary expedited discovery. On May 13, 2003, the Company received notice that a similar shareholder derivative and purported class action lawsuit was filed against certain members of the board of directors of the Company and against the Company as a nominal defendant. The complaint was filed in the Superior Court of Fulton County, Atlanta, Georgia on May 12, 2003 and alleged breaches of fiduciary duties, abuse of control and corporate waste by the defendants. The plaintiff sought monetary damages and, as appropriate, injunctive relief. These lawsuits were settled, and in October 2004, the Superior Court of Fulton County entered an order approving the settlement and related orders dismissing the litigation. The estimated legal and settlement costs, not covered by insurance, associated with the expected resolution of the lawsuits were recorded in 2003 as a component of a proxy contest and related costs charge. An alleged Company shareholder, who had filed a separate purported derivative and direct action against the Company and certain of its officers and directors (which is described in the paragraph above), has appealed from the Superior Court’s orders approving the settlement, overruling the shareholder’s objection to the settlement denying the shareholder’s motion to intervene, and dismissing the litigation with prejudice. In November 2005, the Georgia Court of Appeals affirmed the orders. In December 2005, the alleged Company shareholder asked the Georgia Supreme Court to review the case. In April 2006, the Georgia Supreme Court denied review, and the alleged Company shareholder has indicated that he will seek review by the United States Supreme Court.
		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 proceedings will not have a material adverse effect on the Company’s results of operations or financial position.
13.		SALE OF TECHNOLOGY INVESTMENT
		In February 2005, the Company sold its investment in Rent.com, a privately-held internet leasing company, and recognized a gain of $5,267. The gain is included in other income on the consolidated statement of operations.

POST APARTMENT HOMES, L.P.

CONSOLIDATED BALANCE SHEETS
(In thousands)

		March 31,				December 31,
		2006				2005
Assets		(Unaudited)
Real estate assets
Land		$	266,323			$	266,914
Building and improvements			1,741,971				1,789,479
Furniture, fixtures and equipment			199,853				207,497
Construction in progress			68,935				47,005
Land held for future development			89,613				62,511
			2,366,695				2,373,406
Less: accumulated depreciation			(515,942	)			(516,954	)
For-sale condominiums			39,969				38,338
Assets held for sale, net of accumulated depreciation of $18,109 and $0 at March 31, 2006 and December 31, 2005, respectively			90,772				4,591
Total real estate assets			1,981,494				1,899,381
Investments in and advances to unconsolidated real estate entities			23,342				26,614
Cash and cash equivalents			9,765				6,410
Restricted cash			5,475				4,599
Deferred charges, net			10,815				11,624
Other assets			35,138				32,826
Total assets		$	2,066,029			$	1,981,454
Liabilities and Partners’ Equity
Indebtedness		$	1,039,948			$	980,615
Accounts payable and accrued expenses			58,135				58,474
Dividend and distribution payable			19,704				19,257
Accrued interest payable			10,726				5,478
Deposits and prepaid rents			11,105				9,857
Total liabilities			1,139,618				1,073,681
Commitments and contingencies
Partners’ equity
Preferred units			95,000				95,000
Common units
General partner			9,905				9,722
Limited partner			825,567				807,403
Accumulated other comprehensive income (loss)			(4,061	)			(4,352	)
Total partners’ equity			926,411				907,773
Total liabilities and partners’ equity		$	2,066,029			$	1,981,454

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

POST APARTMENT HOMES, L.P.

(In thousands, except per unit data)
(Unaudited)

		Three months ended
		March 31,
		2006				2005
Revenues
Rental		$	70,062			$	65,855
Other property revenues			4,066				3,560
Other			65				71
Total revenues			74,193				69,486
Expenses
Property operating and maintenance (exclusive of items shown separately below)			34,078				32,592
Depreciation			16,674				18,364
General and administrative			4,426				4,390
Investment, development and other			1,708				1,530
Total expenses			56,886				56,876
Operating Income			17,307				12,610
Interest income			120				165
Interest expense			(13,432	)			(14,998	)
Amortization of deferred financing costs			(935	)			(1,688	)
Equity in income of unconsolidated real estate entities			312				147
Other income			1,149				5,267
Minority interest in consolidated property partnerships			(29	)			113
Income from continuing operations			4,492				1,616
Discontinued operations
Income (loss) from discontinued operations			(20	)			2,870
Gains on sales of real estate assets, net of provision for income taxes			401				358
Income from discontinued operations			381				3,228
Net income			4,873				4,844
Distributions to preferred unitholders			(1,909	)			(1,909	)
Net income available to common unitholders		$	2,964			$	2,935
Per common unit data — Basic
Income (loss) from continuing operations (net of preferred distributions)		$	0.06			$	(0.01	)
Income from discontinued operations			0.01				0.08
Net income available to common unitholders		$	0.07			$	0.07
Weighted average common units outstanding – basic			42,935				42,614
Per common unit data — Diluted
Income (loss) from continuing operations (net of preferred distributions)		$	0.06			$	(0.01	)
Income from discontinued operations			0.01				0.08
Net income available to common unitholders		$	0.07			$	0.07
Weighted average common units outstanding – diluted			43,707				42,614
Distributions declared		$	0.45			$	0.45

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

POST APARTMENT HOMES, L.P.