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 June 30, 2006

OR

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

For the transition period from            to

Commission file numbers 1-12080 and 0-28226

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

(Exact name of registrant as specified in its charter)

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

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

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

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

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

     Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers.
See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Post Properties, Inc.

Large Accelerated Filer

þ

Accelerated Filer

o

Non-Accelerated Filer

o

Post Apartment Homes, L.P.

Large Accelerated Filer

þ

Accelerated Filer

o

Non-Accelerated Filer

o

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

43,220,785 shares of common stock outstanding as of August 1, 2006 (excluding treasury stock).

 

 

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

INDEX

						Page
Part I		FINANCIAL INFORMATION
		Item 1		Financial Statements
		POST PROPERTIES, INC.
		Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005					1
		Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005					2
		Consolidated Statement of Shareholders’ Equity and Accumulated Earnings for the six months ended June 30, 2006					3
		Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005					4
		Notes to Consolidated Financial Statements					5
		POST APARTMENT HOMES, L.P.
		Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005					18
		Consolidated Statements of Operations for the six months ended June 30, 2006 and 2005					19
		Consolidated Statement of Partners’ Equity for the six months ended June 30, 2006					20
		Consolidated Statements of Cash Flows for the six months ended June 30, 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			50
		Item 4		Controls and Procedures			51
Part II		OTHER INFORMATION					52
		Item 1		Legal Proceedings			52
		Item 1A		Risk Factors			52
		Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			53
		Item 3		Defaults Upon Senior Securities			53
		Item 4		Submission of Matters to a Vote of Security Holders			53
		Item 5		Other Information			54
		Item 6		Exhibits			54
		Signatures					55
		Exhibit Index					57
EX-31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
EX-31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
EX-32.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
EX-32.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

		June 30,				December 31,
		2006				2005
		(Unaudited)
Assets
Real estate assets
Land		$	266,323			$	266,914
Building and improvements			1,747,290				1,789,479
Furniture, fixtures and equipment			203,421				207,497
Construction in progress			83,818				47,005
Land held for future development			113,146				62,511
			2,413,998				2,373,406
Less: accumulated depreciation			(532,340	)			(516,954	)
For-sale condominiums			34,151				38,338
Assets held for sale, net of accumulated depreciation of $18,109 and $0 at June 30, 2006 and December 31, 2005, respectively			88,347				4,591
Total real estate assets			2,004,156				1,899,381
Investments in and advances to unconsolidated real estate entities			20,185				26,614
Cash and cash equivalents			10,543				6,410
Restricted cash			5,005				4,599
Deferred charges, net			13,750				11,624
Other assets			37,685				32,826
Total assets		$	2,091,324			$	1,981,454
Liabilities and shareholders’ equity
Indebtedness		$	1,054,804			$	980,615
Accounts payable and accrued expenses			59,308				53,429
Dividend and distribution payable			19,764				19,257
Accrued interest payable			5,501				5,478
Security deposits and prepaid rents			10,983				9,857
Total liabilities			1,150,360				1,068,636
Minority interest of common unitholders in Operating Partnership			13,587				26,764
Minority interests in consolidated real estate entities			15,374				5,045
Total minority interests			28,961				31,809
Shareholders’ equity
Preferred stock, $.01 par value, 20,000 authorized:
8 1/2 % Series A Cumulative Redeemable Shares, liquidation preference $50 per share, 900 shares issued and outstanding			9				9
7 5/8 % Series B Cumulative Redeemable Shares, liquidation preference $25 per share, 2,000 shares issued and outstanding			20				20
Common stock, $.01 par value, 100,000 authorized:
43,205 and 41,394 shares issued, 43,205 and 41,394 shares outstanding at June 30, 2006 and December 31, 2005, respectively			432				414
Additional paid-in capital			854,106				803,765
Accumulated earnings			62,541				86,315
Accumulated other comprehensive income (loss)			(3,057	)			(4,208	)
Deferred compensation			—				(3,625	)
			914,051				882,690
Less common stock in treasury, at cost, 52 and 44 shares at June 30, 2006 and December 31, 2005, respectively			(2,048	)			(1,681	)
Total shareholders’ equity			912,003				881,009
Total liabilities and shareholders’ equity		$	2,091,324			$	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								Six months ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenues
Rental		$	71,607			$	66,891			$	141,679			$	132,746
Other property revenues			4,604				4,093				8,659				7,653
Other			85				61				151				132
Total revenues			76,296				71,045				150,489				140,531
Expenses
Property operating and maintenance (exclusive of items shown separately below)			34,554				32,754				68,631				65,346
Depreciation			17,031				18,247				33,706				36,612
General and administrative			4,632				4,558				9,058				8,949
Investment, development and other			1,617				984				3,168				2,404
Total expenses			57,834				56,543				114,563				113,311
Operating Income			18,462				14,502				35,926				27,220
Interest income			118				189				238				354
Interest expense			(13,560	)			(14,612	)			(27,266	)			(29,609	)
Amortization of deferred financing costs			(834	)			(1,029	)			(1,769	)			(2,717	)
Gains (losses) on sales of condominiums, net			8,569				(160	)			8,411				(269	)
Equity in income of unconsolidated real estate entities			411				553				724				701
Other income			270				—				1,694				5,267
Minority interest in consolidated property partnerships			(63	)			64				(92	)			178
Minority interest of common unitholders			(247	)			138				(310	)			154
Income (loss) from continuing operations			13,126				(355	)			17,556				1,279
Discontinued operations
Income from discontinued operations, net of minority interest			867				1,176				847				3,880
Gains (losses) on sales of real estate assets, net of minority interest and provision for income taxes			(10	)			58,918				382				59,258
Loss on early extinguishment of indebtedness, net of minority interest			—				(1,296	)			—				(1,296	)
Income from discontinued operations			857				58,798				1,229				61,842
Net income			13,983				58,443				18,785				63,121
Dividends to preferred shareholders			(1,909	)			(1,909	)			(3,819	)			(3,819	)
Net income available to common shareholders		$	12,074			$	56,534			$	14,966			$	59,302
Per common share data — Basic
Income (loss) from continuing operations (net of preferred dividends)		$	0.26			$	(0.06	)		$	0.32			$	(0.06	)
Income from discontinued operations			0.02				1.47				0.03				1.54
Net income available to common shareholders		$	0.28			$	1.42			$	0.35			$	1.48
Weighted average common shares outstanding — basic			42,817				39,930				42,351				40,048
Per common share data — Diluted
Income (loss) from continuing operations (net of preferred dividends)		$	0.26			$	(0.06	)		$	0.32			$	(0.06	)
Income from discontinued operations			0.02				1.47				0.03				1.54
Net income available to common shareholders		$	0.28			$	1.42			$	0.35			$	1.48
Weighted average common shares outstanding — diluted			43,518				39,930				43,089				40,048
Dividends declared		$	0.45			$	0.45			$	0.90			$	0.90

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)

										Additional								Accumulated 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			—				—				—				18,785				—				—				—				18,785
Net change in derivatives, net of minority interest			—				—				—				—				1,217				—				—				1,217
Total comprehensive income																															20,002
Transition effect of adoption of SFAS 123R			—				—				(3,625	)			—				—				3,625				—				—
Proceeds from employee stock purchase, stock option plans and other			—				11				39,766				—				—				—				(367	)			39,410
Adjustment for minority interest of unitholders in Operating Partnership upon conversion of units into common shares and at dates of capital transactions			—				7				12,894				—				(66	)			—				—				12,835
Stock-based compensation, net of minority interest			—				—				1,306				—				—				—				—				1,306
Dividends to preferred shareholders			—				—				—				(3,819	)			—				—				—				(3,819	)
Dividends to common shareholders			—				—				—				(38,740	)			—				—				—				(38,740	)
Shareholders’ Equity and Accumulated Earnings, June 30, 2006		$	29			$	432			$	854,106			$	62,541			$	(3,057	)		$	—			$	(2,048	)		$	912,003

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)

		Six months ended
		June 30,
		2006				2005
Cash Flows From Operating Activities
Net income		$	18,785			$	63,121
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			34,487				38,946
Amortization of deferred financing costs			1,769				2,717
Minority interest of common unitholders in Operating Partnership			310				(154	)
Minority interest in discontinued operations			28				3,738
Gains on sales of real estate assets			(8,802	)			(62,839	)
Other non-cash income			(1,101	)			(5,267	)
Equity in income of unconsolidated entities			(724	)			(701	)
Distributions of earnings of unconsolidated entities			1,114				1,040
Deferred compensation			377				—
Stock-based compensation			1,334				1,022
Loss on early extinguishment of debt			—				1,374
Changes in assets, (increase) decrease in:
Other assets			(1,417	)			(2,913	)
Deferred charges			(45	)			(327	)
Changes in liabilities, increase (decrease) in:
Accrued interest payable			23				(1,669	)
Accounts payable and accrued expenses			5,091				9,891
Security deposits and prepaid rents			721				2,669
Net cash provided by operating activities			51,950				50,648
Cash Flows From Investing Activities
Construction and acquisition of real estate assets, net of payables			(136,460	)			(86,128	)
Net proceeds from sales of real estate assets			23,007				93,398
Proceeds from sale of technology investment			—				5,267
Capitalized interest			(4,138	)			(783	)
Annually recurring capital expenditures			(5,914	)			(4,822	)
Periodically recurring capital expenditures			(2,322	)			(2,029	)
Community rehabilitation and other revenue generating capital expenditures			(2,837	)			—
Corporate additions and improvements			(983	)			(978	)
Distributions from (investments in and advances to) unconsolidated entities			5,967				(13,541	)
Net cash used in investing activities			(123,680	)			(9,616	)
Cash Flows From Financing Activities
Payments on indebtedness			(52,365	)			(189,267	)
Proceeds from indebtedness			190,000				100,000
Lines of credit proceeds (repayments), net			(63,446	)			105,785
Payments of financing costs			(3,627	)			(976	)
Treasury stock acquisitions			—				(21,283	)
Proceeds from employee stock purchase and stock option plans			39,033				10,617
Capital contributions of minority interests			9,055				283
Distributions to common unitholders			(1,045	)			(2,216	)
Dividends paid to preferred shareholders			(3,819	)			(3,819	)
Dividends paid to common shareholders			(37,923	)			(36,110	)
Net cash provided by (used in) financing activities			75,863				(36,986	)
Net increase in cash and cash equivalents			4,133				4,046
Cash and cash equivalents, beginning of period			6,410				123
Cash and cash equivalents, end of period		$	10,543			$	4,169

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 July 31, 2006, the Company owned 22,418 apartment units in 62 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 June 30, 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 June 30, 2006, the Company had outstanding 43,205 shares of common stock and owned the same number of units of common limited partnership interests (“Common Units”) in the Operating Partnership, representing a 98.4% ownership interest in the Operating Partnership. Common Units held by persons other than the Company totaled 714 as of June 30, 2006 and represented a 1.6% common minority interest in the Operating Partnership. Each Common Unit may be redeemed by the holder thereof for either one share of Company common stock or cash equal to the fair market value thereof at the time of redemption, at the option of the Company. The Company’s weighted average common ownership interest in the Operating Partnership was 98.0% and 94.3% for the three months ended and 97.8% and 94.3% for the six months ended June 30, 2006 and 2005, respectively.

Basis of Presentation

The accompanying unaudited financial statements have been prepared by the Company’s management in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normally recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K, as amended, for the year ended December 31, 2005.

Beginning in the fourth quarter of 2005, the Company reclassified certain expenses previously reported as general and administrative expenses to property operating and maintenance expenses and investment, development and other expenses on the accompanying statements of operations. Prior period amounts have been reclassified to conform to the 2006 presentation. The reclassified expenses primarily included certain investment 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

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

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 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, gains on sales of condominium units sold at partial condominium communities are included in continuing operations.

For newly developed condominiums, the Company accounts for each project under either the 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 June 30, 2006, the Company had two new condominium projects under development, one with approximately 62% of the condominium units under contract. As the initial and continuing cash investments received under a majority of the sales contracts do not meet the requirements of SFAS No. 66, as well as other factors (such as the uncertainties regarding the estimation of the aggregate sales proceeds and contract rescission rates), the Company has concluded that units under contract as of June 30, 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 liability company and therefore should consolidate the entity. The presumption

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

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.

FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109,” was issued in July 2006. FIN 48 clarifies guidance on the recognition and measurement of uncertain tax positions and establishes a more likely than not standard for the evaluation of whether such tax positions can be recognized in the Company’s financial statements. Previously recognized tax positions that do not meet the more likely than not criteria will be required to be adjusted on the implementation date. FIN 48 is effective January 1, 2007 for all calendar year companies. The Company is currently evaluating the impact that FIN 48 will have on the Company’s financial position and results of operations.

2.

INDEBTEDNESS

At June 30, 2006 and December 31, 2005, the Company’s indebtedness consisted of the following:

																		June 30,
Description		Payment Terms				Interest Rate								Maturity Date				2006				December 31, 2005
Senior Unsecured Notes		Int.					5.125% - 7.70	%							2006-2012			$	585,000			$	485,000
Unsecured Lines of Credit
Syndicated Line of Credit			N/A			LIBOR + 0.575%					(1	)			2007				20,000				90,000
Cash Management Line			N/A			LIBOR + 0.575%									2007				17,933				11,379
																			37,933				101,379
Fixed Rate Notes (Secured)
FNMA		Prin. and Int.					6.145	%			(2	)			2029				97,100				97,100
Other		Prin. and Int.					4.27% - 7.69	%							2007-2013				266,276				268,641
																			363,376				365,471
Variable Rate Note (Secured)		Int.				LIBOR + 1.00%									2008				40,000				—
Tax-Exempt Floating Rate Bonds (Secured)		Int.					3.99	%			(3	)			2025				28,495				28,495
Total																		$	1,054,804			$	980,615

(1)

Represents stated rate. At June 30, 2006, the weighted average interest rate was 5.45%.

(2)

Stated interest rate based on FNMA “AAA” taxable remarketed rate plus credit enhancements and other fees. The effective interest rate is fixed at 6.145%, inclusive of credit enhancement and other fees, to 2009 through an interest rate swap arrangement.

(3)

FNMA credit enhanced bond indebtedness. Interest based on FNMA “AAA” tax-exempt rate plus credit enhancement and other fees of 0.639%. Interest rate represents the rate at June 30, 2006 before credit enhancements. The Company has outstanding interest rate cap arrangements that limit the Company’s exposure to increases in the base interest rate to 5%.

Debt Maturities

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

Remainder of 2006		$	28,904
2007			158,193
2008			44,557
2009			75,901
2010			226,200	(1)
Thereafter			521,049
		$	1,054,804

(1)

Includes outstanding balances on lines of credit totaling $37,933. The Company’s lines of credit mature in April 2010.

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

Debt Issuances and Retirements

Upon their maturity in March 2006, the Company repaid $50,000 of 6.71% senior unsecured notes, from available borrowings under its unsecured lines of credit.

In April 2006, the Company closed a $40,000 mortgage note payable secured by an apartment community located in Denver, Colorado. The mortgage note bears interest at LIBOR plus 1.0%, matures in April 2008 and is pre-payable without penalty.

In June 2006, the Company issued $150,000 of senior unsecured notes. The notes bear interest at 6.30% and mature in June 2013. The net proceeds from the unsecured notes were used to reduce amounts outstanding under the Company’s unsecured lines of credit.

In July 2006, in conjunction with an apartment community acquisition (see note 4), the Company assumed a secured, fixed rate mortgage note payable with an outstanding balance of $41,394. The mortgage note bears interest at a coupon rate of approximately 6.1%, requires monthly principal and interest payments and matures in November 2011. Based on the Company’s preliminary purchase accounting allocations related to the acquisition, the fair value of the mortgage note approximated its carrying value.

Unsecured Lines of Credit

At June 30, 2006, the Company utilizes a $450,000 syndicated unsecured revolving line of credit (the “Revolver”) that matures in April 2010 for its short-term financing needs. The Revolver currently has a stated interest rate of LIBOR plus 0.575% or the prime rate and was provided by a syndicate of 11 banks led by Wachovia Bank, N.A. and JP Morgan Securities, Inc. Additionally, the Revolver requires the payment of annual facility fees currently equal to 0.15% of the aggregate loan commitment. The Revolver provides for the interest rate and facility fee rate to be adjusted up or down based on changes in the credit ratings on the Company’s senior unsecured debt. The rates under the Revolver are based on the higher of the Company’s unsecured debt ratings in instances where the Company has split unsecured debt ratings. The Revolver also includes a competitive bid option for short-term funds up to 50% of the loan commitment at rates generally below the stated line rate. The credit agreement for the Revolver contains customary restrictions, representations, covenants and events of default, including fixed charge coverage and maximum leverage ratios. The Revolver also restricts the amount of capital the Company can invest in specific categories of assets, such as improved land, properties under construction, condominium properties, non-multifamily properties, debt or equity securities, notes receivable and unconsolidated affiliates. At June 30, 2006, the Company had issued letters of credit to third parties totaling $2,280 under this facility.

Additionally at June 30, 2006, the Company has a $30,000 unsecured line of credit with Wachovia Bank, N.A. (the “Cash Management Line”). The Cash Management line matures in April 2010 and carries pricing and terms, including debt covenants, substantially consistent with the Revolver.

3.

INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES

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 $5,810 at June 30, 2006. This excess investment related to the two Property LLCs holding apartment communities is being amortized as a reduction to earnings on a straight-line basis over the lives of the related assets. The excess investment of $395 at June 30, 2006 related to the Property LLC holding the condominium conversion community will be recognized as additional cost of sales as the underlying condominiums are sold. The Company provides real estate services (development, construction and property management) to the Property LLCs for which it earns fees.

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

The operating results of the Company include its share of net income from the investments in the Property LLCs. A summary of financial information for the Property LLCs in the aggregate is as follows:

		June 30,				December 31,
Balance Sheet Data		2006				2005
Real estate assets, net of accumulated depreciation of $9,639 and $8,349, respectively		$	94,908			$	96,000
Assets held for sale, net (1)			11,606				17,715
Cash and other			2,734				1,770
Total assets		$	109,248			$	115,485
Mortgage notes payable		$	66,998			$	66,999
Mortgage notes payable to Company			—				5,967
Other liabilities			1,284				996
Total liabilities			68,282				73,962
Members’ equity			40,966				41,523
Total liabilities and members’ equity		$	109,248			$	115,485
Company’s equity investment		$	20,185			$	20,647

(1)

Includes one community, originally containing 121 units, being converted into condominiums.

		Three months ended								Six months ended
		June 30,								June 30,
Income Statement Data		2006				2005				2006				2005
Revenue
Rental		$	2,859			$	2,721			$	5,648			$	5,361
Other property revenues			244				230				478				415
Total revenues			3,103				2,951				6,126				5,776
Expenses
Property operating and maintenance			928				889				1,913				1,799
Depreciation and amortization			661				655				1,320				1,308
Interest			688				688				1,376				1,376
Total expenses			2,277				2,232				4,609				4,483
Income from continuing operations			826				719				1,517				1,293
Discontinued Operations
Gain (loss) from discontinued operations			(120	)			16				(283	)			(96	)
Gains on sales of real estate assets, net			502				860				899				855
Loss on early extinguishment of debt			—				—				—				(273	)
Income from discontinued operations			382				876				616				486
Net income		$	1,208			$	1,595			$	2,133			$	1,779
Company’s share of net income		$	411			$	553			$	724			$	701

For the three and six months ended June 30, 2006 and 2005, gains on sales of real estate assets represent net gains from condominium sales at the condominium conversion community held by one of the Property LLCs. A summary of revenues and costs and expenses of condominium activities for the three and six months ended June 30, 2006 and 2005 was as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2006				2005				2006				2005
Condominium revenues		$	5,138			$	4,422			$	9,224			$	4,422
Condominium costs and expenses			(4,636	)			(3,562	)			(8,325	)			(3,567	)
Gains on condominium sales, net		$	502			$	860			$	899			$	855

At June 30, 2006, mortgage notes payable include a $49,998 mortgage note that bears interest at 4.13%, requires monthly interest payments and annual principal payment of $1 through 2009. Thereafter, the note requires monthly principal and interest payments based on a 25-year amortization schedule and matures in April 2034. The note is callable by the lender in May 2009 and on each successive fifth year anniversary of the note thereafter. The note is pre-payable without penalty in May 2008. The additional mortgage note payable totaling $17,000 bears interest at a rate of 4.04% and matures in 2008.

In 2005, one of the Property LLCs elected to convert its apartment community into for-sale condominiums. As a result of its decision to sell the community through the condominium conversion process, the Property LLC prepaid its third party mortgage note payable of $16,392 through secured borrowings from the Company. The Property LLC incurred debt prepayment costs and expenses associated with the write-off of unamortized deferred financing costs totaling $273 in March 2005. The mortgage note payable to the Company had a fixed rate component ($16,392) bearing interest at 4.28% and a variable rate component bearing interest at LIBOR plus 1.90%. In the three months ended June 30, 2006, the mortgage note payable was retired from the proceeds of condominium sales.

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

4.

REAL ESTATE ACQUISITION AND DISPOSITION ACTIVITY

Acquisition Activity
In March 2006, the Company acquired two apartment communities, containing 308 units, located in Austin, Texas for approximately $46,500, including closing costs. Additionally, the Company plans to spend up to approximately $1,200 to improve the communities. The purchase price of these communities was allocated to the assets acquired based on their estimated fair values.

In July 2006, the Company acquired a 361-unit apartment community in suburban Washington, D.C. for approximately $85,000, including the assumption of approximately $41,394 mortgage indebtedness and closing costs. Based on the Company’s preliminary purchase accounting allocations, the assets acquired and the mortgage indebtedness assumed were recorded at their estimated fair values. The Company may be required to pay additional purchase consideration of up to approximately $6,563 based on a share of the appreciation in the value of the property, if any, over approximately the next four years.

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 June 30, 2006, the Company had one apartment community, containing 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 $88,347, which represents the lower of their depreciated cost or fair value less costs to sell. At June 30, 2006, the Company also had portions of two communities that are being converted to condominiums, originally containing 349 units, that are classified as for-sale condominiums on the accompanying consolidated balance sheet at $34,151.

As discussed in note 1, gains on condominium sales at portions of two communities that are being converted into condominiums are reflected in continuing operations. In addition to the condominium gains included in continuing operations, the Company expensed certain sales and marketing costs associated with new condominium communities under development totaling $167 and $160 for the three months ended and $289 and $269 for the six months ended June 30, 2006 and 2005, respectively. A summary of revenues and costs and expenses of condominium activities included in continuing operations for the three and six months ended June 30, 2006 and 2005 was as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2006				2005				2006				2005
Condominium revenues		$	18,463			$	—			$	18,463			$	—
Condominium costs and expenses			(9,894	)			(160	)			(10,052	)			(269	)
Gains (losses) on sales of condominium, net		$	8,569			$	(160	)		$	8,411			$	(269	)

Under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the operating results of real estate assets designated as held for sale are included in discontinued operations in the consolidated statement of operations for all periods presented. Additionally, gains or losses on the sale of these assets are included in discontinued operations. For the three and six months ended June 30, 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 June 30, 2006. For the three and six months ended June 30, 2005, income from discontinued operations included the results of operations of the communities classified as held for sale at June 30, 2006, five apartment communities sold in 2005 and one condominium conversion community through its sell-out date in 2005.

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

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

		Three months ended								Six months ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenues
Rental		$	1,932			$	6,708			$	3,866			$	15,564
Other property revenues			252				649				469				1,502
Total revenues			2,184				7,357				4,335				17,066
Expenses
Property operating and maintenance (exclusive of items shown separately below)			694				3,519				1,469				7,452
Depreciation			—				1,166				781				2,334
Interest			604				1,426				1,219				3,151
Minority interest in consolidated property partnerships			—				—				—				14
Total expenses			1,298				6,111				3,469				12,951
Income from discontinued operations before minority interest			886				1,246				866				4,115
Minority interest			(19	)			(70	)			(19	)			(235	)
Income from discontinued operations		$	867			$	1,176			$	847			$	3,880

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

		Three months ended								Six months ended
		June 30,								June 30,
		2006				2005				2006				2005
Condominium revenues		$	3,522			$	34,600			$	6,518			$	38,106
Condominium costs and expenses			(3,532	)			(21,447	)			(6,127	)			(24,594	)
Gains (losses) on condominium sales, before minority interest and income taxes			(10	)			13,153				391				13,512
Minority interest			—				(728	)			(9	)			(748	)
Provision for income taxes			—				(383	)			—				(383	)
Gains (losses) on condominium sales, net of minority interest and income taxes		$	(10	)		$	12,042			$	382			$	12,381

For the three and six months ended June 30, 2005, the Company recognized net gains in discontinued operations of $49,710 ($46,876 net of minority interest) from the sale of five communities, containing 1,309 units. The sales generated net proceeds of approximately $97,900, including $34,060 of tax-exempt secured indebtedness assumed by the purchasers.

5.

SHAREHOLDERS’ EQUITY

Computation of Earnings Per Common Share

For the three and six months ended June 30, 2006 and 2005, a reconciliation of the numerator and denominator used in the computation of basic and diluted income from continuing operations per common share is as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2006				2005				2006				2005
Income from continuing operations available to common shareholders (numerator):
Income (loss) from continuing operations		$	13,126			$	(355	)		$	17,556			$	1,279
Less: Preferred stock dividends			(1,909	)			(1,909	)			(3,819	)			(3,819	)
Income (loss) from continuing operations available to common shareholders		$	11,217			$	(2,264	)		$	13,737			$	(2,540	)
Common shares (denominator):
Weighted average shares outstanding — basic			42,817				39,930				42,351				40,048
Dilutive shares from stock options and awards			701				—				738				—
Weighted average shares outstanding — diluted			43,518				39,930				43,089				40,048

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

For the three and six months ended June 30, 2006 and 2005, stock options to purchase shares of common stock, 307 and 4,309, respectively, and 280 and 4,309, respectively, were excluded from the computation of diluted earnings per common share as these stock options were antidilutive.

6.

DERIVATIVE FINANCIAL INSTRUMENTS

At June 30, 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 swap arrangement is a variable to fixed rate swap at a fixed rate of 5.21% and the swap was designated as a cash flow hedge of the Company’s FNMA variable rate debt. This swap was entered into following the termination of the prior swap arrangement discussed below. The interest rate swap agreement is included on the accompanying consolidated balance sheet at fair value.

In the first quarter of 2006, a previous interest rate swap arrangement, accounted for as a cash flow hedge, became ineffective under generally accepted accounting principles (SFAS No. 133, as amended). As a result, the gross increase in the market value of the interest rate swap arrangement of $1,655 through the April 2006 termination of the swap was recognized in other income in the consolidated statement of operations. In addition, under SFAS No. 133, as amended, the Company is required to amortize into interest expense the cumulative unrecognized loss on the terminated interest rate swap arrangement of $4,021, included in shareholders’ equity, over the remaining life of the swap through 2009. The swap arrangement discussed above was terminated through a $2,448 termination payment to the swap counterparty.

At June 30, 2006, the Company had an outstanding interest rate cap agreement with a financial institution with a notional value of $28,495. The interest rate cap agreement is a cash flow hedge that provides a fixed interest ceiling at 5% for the Company’s variable rate, tax-exempt borrowings aggregating $28,495 at June 30, 2006. The Company is required to maintain the interest rate exposure protection under the terms of the financing arrangements. The interest rate cap arrangement is included on the accompanying balance sheet at fair value. At June 30, 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.

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

		Three months ended								Six months ended
		June 30,								June 30,
		2006				2005				2006				2005
Net income		$	13,983			$	58,443			$	18,785			$	63,121
Change in derivatives, net of minority interest (1)			931				(838	)			1,217				1,828
Comprehensive income		$	14,914			$	57,605			$	20,002			$	64,949

(1)

In the three and six months ended June 30, 2006, the change in derivatives balance includes an adjustment of $281 ($275 net of minority interest) and $554 ($542 net of minority interest), respectively, for amortized swap costs included in net income.

7.

SEGMENT INFORMATION

Segment Description

In accordance with SFAS No. 131, “Disclosure About the Segments of an Enterprise and Related Information,” the Company presents segment information based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. The segment information is prepared on substantially the same basis as the internally reported information used by the Company’s chief operating decision makers to manage the business.

The Company’s chief operating decision makers focus on the Company’s primary sources of income from apartment community rental operations. Apartment community rental operations are broken down into four segments based on the various stages in the apartment community ownership lifecycle. These segments are described below. All commercial properties and other ancillary service and support operations are aggregated in the line item “other” in the accompanying segment information. The segment information presented below reflects the segment categories based on the lifecycle status of each community as of January 1, 2005. The segment information for the three and six months ended June 30, 2005 has been adjusted due to the restatement impact of reclassifying the operating results of the assets designated as held for sale in 2006 and 2005 to discontinued operations under SFAS No. 144 (see note 4).

•

Fully stabilized communities — those apartment communities which have been stabilized (the earlier of the point at which a property reaches 95% occupancy or one year after completion of construction) for both the current and prior year.

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 construction and major rehabilitation programs. The Company had no apartment communities in the lease-up stage for the periods presented.
	•		Condominium conversion communities — the rental operations of those portions of existing apartment communities being converted into condominiums that are reflected in continuing operations under SFAS No. 144 (see note 1).
	•		Acquired communities — those communities acquired in the current or prior year.

Segment Performance Measure

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

Segment Information

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

		Three months ended								Six months ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenues
Fully stabilized communities		$	64,893			$	61,284			$	128,233			$	121,484
Development, rehabilitation and lease-up communities			2,403				2,614				4,966				5,154
Condominium conversion communities			730				1,454				1,906				2,907
Acquired communities			2,052				306				3,344				306
Other property segments			6,133				5,326				11,889				10,548
Other			85				61				151				132
Consolidated revenues		$	76,296			$	71,045			$	150,489			$	140,531
Contribution to NOI
Fully stabilized communities		$	40,064			$	37,692			$	79,107			$	74,125
Development, rehabilitation and lease-up communities			1,303				1,485				2,777				2,879
Condominium conversion communities			270				958				921				1,877
Acquired communities			1,031				228				1,747				228
Other			(1,011	)			(2,133	)			(2,845	)			(4,056	)
Consolidated property net operating income			41,657				38,230				81,707				75,053
Interest income			118				189				238				354
Other revenue			85				61				151				132
Minority interest in consolidated property partnerships			(63	)			64				(92	)			178
Depreciation			(17,031	)			(18,247	)			(33,706	)			(36,612	)
Interest expense			(13,560	)			(14,612	)			(27,266	)			(29,609	)
Amortization of deferred financing costs			(834	)			(1,029	)			(1,769	)			(2,717	)
General and administrative			(4,632	)			(4,558	)			(9,058	)			(8,949	)
Investment, development and other expenses			(1,617	)			(984	)			(3,168	)			(2,404	)
Gains (losses) on sales of condominiums, net			8,569				(160	)			8,411				(269	)
Equity in income of unconsolidated real estate entities			411				553				724				701
Other income			270				—				1,694				5,267
Minority interest of common unitholders			(247	)			138				(310	)			154
Income (loss) from continuing operations			13,126				(355	)			17,556				1,279
Income from discontinued operations			857				58,798				1,229				61,842
Net income		$	13,983			$	58,443			$	18,785			$	63,121

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 six months ended June 30, 2006 and 2005:

		Six months ended
		June 30,
		2006				2005
Accrued severance charges, beginning of period		$	14,325			$	15,317
Payments for period			(1,495	)			(1,494	)
Interest accretion			424				453
Accrued severance charges, end of period		$	13,254			$	14,276

9.

SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid (including capitalized amounts of $4,138 and $783 for the six months ended June 30, 2006 and 2005, respectively), aggregated $32,600 and $35,405 for the six months ended June 30, 2006 and 2005, respectively.

Non-cash investing and financing activities for the six months ended June 30, 2006 and 2005 were as follows:

In the six months ended June 30, 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 six months ended June 30, 2006, the Company amortized approximately $554 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 six months ended June 30, 2006, the Company 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 equity of $690 ($675 net of minority interest). During the six months ended June 30, 2005, the Company’s derivative financial instruments, accounted for as cash flow hedges, increased in value causing a decrease in accounts payable and accrued expenses and a corresponding increase in shareholders’ equity of $1,940 ($1,828 net of minority interest).

During the six months ended June 30, 2006 and 2005, holders of 688 and 166 units, respectively, in the Operating Partnership exercised their option to convert their units to shares of common stock of the Company on a one-for-one basis. These conversions and adjustments for the impact of the common stock issued under the Company’s employee stock purchase and stock option plans and other capital transactions resulted in adjustments to minority interest. The net effect of the conversions and adjustments was a reclassification decreasing minority interest and increasing shareholders’ equity in the amounts of $12,835 and $3,230 for the six months ended June 30, 2006 and 2005, respectively.

The Operating Partnership committed to distribute $19,764 and $19,065 for the quarters ended June 30, 2006 and 2005, respectively. As a result, the Company declared dividends of $19,441 and $18,015 for the quarters ended June 30, 2006 and 2005, respectively. The remaining distributions from the Operating Partnership in the amount of $323 and $1,050 for the quarters ended June 30, 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 six months ended June 30, 2006.

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

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.

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 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 Company’s compensation committee. Compensation costs are recognized ratably over the vesting period. At June 30, 2006, stock options outstanding under the 2003 Stock Plan and the Company’s previous stock plan totaled 2,746.

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:

		Six months ended
		June 30, 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 six months ended June 30, 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 and six months ended June 30, 2006, the Company recorded compensation expense related to stock options of $286 ($280 net of minority interest) and $507 ($496 net of minority interest), respectively. In the six months ended June 30, 2006, 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 six months ended June 30, 2006, is presented below.

		Six months ended
		June 30, 2006
						Weighted Average
		Shares				Exercise Price
Options outstanding, beginning of period			3,534			$	34
Granted			291				40
Exercised			(1,079	)			36
Forfeited			—				—
Options outstanding, end of period			2,746				33
Options exercisable, end of period			1,671				34
Weighted-average fair value of options granted during the period		$	4.80

At June 30, 2006, there was $2,205 of unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 2.0 years. The total intrinsic value of stock options exercised during the six months ended June 30, 2006 was $8,586. The aggregate intrinsic values of stock options outstanding and exercisable at June 30, 2006 were $33,591 and $18,708, respectively.

At June 30, 2006, the Company has separated its outstanding options into two ranges based on exercise prices. There were 1,645 options outstanding with exercise prices ranging from $23.90 to $36.13. These options have a weighted average exercise price of

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

$29.53 and a weighted average remaining contractual life of 6 years. Of these outstanding options, 883 were exercisable at June 30, 2006 at a weighted average exercise price of $30.91. In addition, there were 1,101 options outstanding with exercise prices ranging from $36.47 to $44.13. These options have a weighted average exercise price of $38.43 and a weighted average remaining contractual life of 5 years. Of these outstanding options, 788 were exercisable at June 30, 2006 at a weighted average exercise price of $37.77.

In the six months ended June 30, 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 $40.24 per share. The total value of the restricted share grants in the six months ended June 30, 2006 was $1,571. The compensation cost is amortized ratably into compensation expense over the applicable vesting periods. Total compensation expense relating to the restricted stock was $438 ($429 net of minority interest) and $726 ($710 net of minority interest) in the three and six months ended June 30, 2006, respectively. In the six months ended June 30, 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 six months ended June 30, 2006 is presented below:

						Weighted Average
						Grant-Date
		Shares				Fair Value
Unvested shares, beginning or period			140			$	28
Granted			39				40
Vested			(4	)			27
Forfeited			—				—
Unvested shares, end of period			175				31

At June 30, 2006, there was $4,093 of unrecognized compensation cost related to restricted stock. This cost is expected to be recognized over a weighted average period of 3.3 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 $60 and $100 for the three and six months ended June 30, 2006, respectively.

11.

INCOME TAXES