Investor


News Releases

Preferred Apartment Communities, Inc. Reports Results for First Quarter Ended 2018

ATLANTA, April 30, 2018 /PRNewswire/ -- Preferred Apartment Communities, Inc. (NYSE: APTS) ("we," "our," the "Company" or "Preferred Apartment Communities") today reported results for the quarter ended March 31, 2018. Unless otherwise indicated, all per share results are reported based on the basic weighted average shares of Common Stock and Class A Units of the Company's operating partnership ("Class A Units") outstanding. See Definitions of Non-GAAP Measures.

Preferred Apartment Communities

"As we continue executing our strategy of property acquisitions, we are able to utilize our unique access to capital through the independent broker-dealer and registered investment advisory channels to issue our Series A Preferred Stock and mShares. These additional capital channels beyond the sale of our common stock give us a significant competitive advantage as we explore opportunities," said Daniel M. DuPree, Preferred Apartment Communities' Chairman and Chief Executive Officer.

Financial Highlights

Our operating results are presented below. Net income (loss) per share reflected gains on sales of real estate of approximately $1.14 per share for the first quarter 2017 and $0.52 per share for the first quarter 2018.











Three months ended March 31,






2018


2017


% change











Revenues (in thousands)

$

90,370



$

66,561



35.8

%











Per share data:








Net income (loss) (1)

$

(0.14)



$

0.54














FFO (2)

$

0.37



$

0.35



5.7

%











AFFO (2)

$

0.26



$

0.27



(3.7)

%











Dividends (3)

$

0.25



$

0.22



13.6

%











(1) Per weighted average share of Common Stock outstanding for the periods indicated.

(2) FFO and AFFO results are presented per weighted average share of Common Stock and Class A Unit in our Operating Partnership outstanding for the periods indicated. See Reconciliation of FFO and AFFO to Net Income (Loss) Attributable to Common Stockholders and Definitions of Non-GAAP Measures.

(3)  Per share of Common Stock and Class A Unit outstanding.

 

  • For the first quarter 2018, our FFO payout ratio to Common Stockholders and Unitholders was approximately 68.5% and our FFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 57.0%.(A)
  • For the first quarter 2018, our AFFO payout ratio to Common Stockholders and Unitholders was approximately 96.7% and our AFFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 65.2%.(A)
  • For the first quarter 2018, our same store net operating income for our established multifamily communities increased 10.3% as compared to the first quarter 2017. (B)
  • At March 31, 2018, the market value of our common stock was $14.19. A hypothetical investment in our Common Stock in our initial public offering on April 5, 2011, assuming the reinvestment of all dividends and no transaction costs, would have resulted in an average annual return of approximately 17.3% through March 31, 2018.
  • As of March 31, 2018, our total assets were approximately $3.4 billion compared to approximately $2.5 billion as of March 31, 2017, an increase of approximately $851 million, or approximately 33.4%. This growth was driven primarily by the acquisition of 18 real estate properties (partially offset by the sale of two properties) and an increase of approximately $74.1 million in the funded amount of our real estate loan investment portfolio since March 31, 2017.
  • As of March 31, 2018, the average age of our multifamily communities was approximately 5.6 years, which is one of the youngest in the multifamily REIT industry.
  • Approximately 89.1% of our permanent property-level mortgage debt has fixed interest rates or has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates.
  • At March 31, 2018, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 53.9%.
  • Cash flow from operations for the quarter ended March 31, 2018 was approximately $31.4 million, an increase of approximately $13.1 million, or 71.9%, compared to approximately $18.3 million for the quarter ended March 31, 2017.
  • For the quarter ended March 31, 2018, our physical occupancy for established multifamily communities was 95.1%.
  • On January 16, 2018, we closed on a real estate loan investment of up to $3.5 million in support of a mixed-use project in North Augusta, South Carolina. On February 13, 2018, we closed on a real estate loan investment of up to $137.6 million in support of a 551-unit multifamily community in San Jose, California.
  • On March 20, 2018, we sold our oldest multifamily community, Lake Cameron, which is located in Raleigh, North Carolina for approximately $43.5 million, which resulted in an average annual return of 19% from January 23, 2013, the date the property was acquired.
  • Remediation of property damages due to Hurricane Harvey at our Stone Creek multifamily community located in Port Arthur, Texas is progressing on schedule, and we anticipate full completion by May 2018. For the three-month period ended March 31, 2018, rental revenues decreased approximately $252,000 due to lost rents. During the first quarter, we received proceeds from our insurance company of $588,000 for lost rents, which has been reflected in income for the first quarter 2018. We expect to record a full recovery of the remainder of lost revenues upon settlement with our insurance carrier and receipt of funds later in 2018.

(A) We calculate the AFFO payout ratio to Common Stockholders as the ratio of Common Stock dividends and distributions to preferred stockholders to AFFO. We calculate the AFFO payout ratio to preferred stockholders as the ratio of Preferred Stock dividends to the sum of Preferred Stock dividends and AFFO. Since our operations resulted in a net loss from continuing operations for the periods presented, a payout ratio based on net loss is not calculable. See Definitions of Non-GAAP Measures.

(B) Same store net operating income is a non-GAAP measure. See Definitions of Non-GAAP Measures.

Acquisitions of Properties

During the first quarter 2018, we acquired the following properties:











Property


Location (MSA)


Units


Leasable
square feet












Multifamily communities:









The Lux at Sorrel


Jacksonville, FL


265


n/a



Green Park


Atlanta, GA


310


n/a












Office buildings:









Armour Yards


Atlanta, GA


n/a


187,000





















Real Estate Assets











Owned as of
March 31, 2018


Potential additions
from real estate
loan investment
portfolio (1)


Potential total



Multifamily communities:








Properties

31



15



46




Units

9,768



4,378



14,146




Grocery-anchored shopping centers:








Properties

39





39




Gross leasable area (square feet)

4,055,714





4,055,714




Student housing properties:








Properties

4



6



10




Units

891



1,457



2,348




Beds

2,950



4,145



7,095




Office buildings:








Properties

5





5




Rentable square feet

1,539,000





1,539,000












(1)  We evaluate each project individually and we make no assurance that we will acquire any of the underlying properties from our real estate loan investment portfolio.

Subsequent to Quarter End

On April 11, 2018, we closed on a real estate loan and member loan investment of up to approximately $30.2 million in support of a proposed 302-unit multifamily community in Alexandria, Virginia.

On April 27, 2018, we acquired a grocery-anchored shopping center located in the Atlanta, Georgia MSA comprising 68,658 square feet of gross leasable area and a second grocery-anchored shopping center located in the Nashville, Tennessee MSA comprising 70,203 square feet of gross leasable area.

On April 29, 2018, our board of directors declared a quarterly dividend on our Common Stock of $0.255 per share, payable on July 16, 2018 to stockholders of record on June 15, 2018.

Multifamily Established Communities Financial Data

The following chart presents same store operating results for the Company's established communities. Effective with the fourth quarter 2017, we define our population of established communities as those that have been stabilized for at least three consecutive months and that have been owned for at least 15 full months as of the end of the first quarter of each year, enabling comparisons of the current year quarterly and annual reporting periods to the prior year comparative periods. The Company excludes the operating results of properties for which construction of adjacent phases has commenced and properties which are undergoing significant capital projects, have sustained significant casualty losses, or are being marketed for sale as of the end of the reporting period. For the periods presented, same store operating results consist of the operating results of the following multifamily established communities:

Stoneridge Farms at Hunt Club


Overton Rise


Avenues at Cypress

Vineyards


Aster at Lely


Avenues at Northpointe

McNeil Ranch


Venue at Lakewood Ranch


Stone Rise

Citi Lakes


Lenox Portfolio


Sorrel

Same store net operating income is a non-GAAP measure that is most directly comparable to net income (loss), with a reconciliation following below.

Multifamily Established Communities' Same Store Net Operating Income












Three months ended:





(in thousands)


3/31/2018


3/31/2017


$ change


% change

Revenues:









Rental revenues


$

13,412



$

12,990



$

422



3.2

%

Other property revenues


1,458



1,390



68



4.9

%

Total revenues


14,870



14,380



490



3.4

%










Operating expenses:









Property operating and maintenance


1,839



1,865



(26)



(1.4)

%

Payroll


1,148



1,229



(81)



(6.6)

%

Property management fees


599



577



22



3.8

%

Real estate taxes


2,181



2,382



(201)



(8.4)

%

Other


610



627



(17)



(2.7)

%

Total operating expenses


6,377



6,680



(303)



(4.5)

%










Same store net operating income


$

8,493



$

7,700



$

793



10.3

%

Real estate taxes for same store established communities fell 8.4% for the first quarter 2018 versus 2017 due to successful appeals for 2017 which, along with guidance from our real estate tax consultants, resulted in downward adjustments to some of our 2018 estimates.

Reconciliation of Multifamily Established Communities' Same Store Net Operating Income (NOI) to Net
Income (Loss)








Three months ended:

(in thousands)


3/31/2018


3/31/2017






Same store net operating income


$

8,493



$

7,700


Add:





Non-same-store property revenues


60,936



39,419


Less:





Non-same-store property operating expenses

21,641



14,586


Property net operating income


47,788



32,533


Add:





Interest revenue on notes receivable


10,300



7,948


Interest revenue on related party notes receivable


4,265



4,814


Less:





Equity stock compensation


1,135



873


Depreciation and amortization


40,616



24,826


Interest expense


20,968



15,009


Acquisition costs




9


Management fees


6,241



4,513


Insurance, professional fees and other

704



903


Gain on sale of real estate


20,354



30,724


Contingent asset management and general and administrative expense fees


(1,220)



(175)







Net income (loss)


$

14,263



$

30,061


Capital Markets Activities

During the first quarter 2018, we issued and sold an aggregate of 98,195 Units from our offering of up to 1,500,000 Units, with each Unit consisting of one share of Series A Redeemable Preferred Stock and one Warrant to purchase up to 20 shares of Common Stock (the "$1.5 Billion Series A Unit Offering"), resulting in net proceeds of approximately $88.4 million after commissions and other fees. In addition, during the first quarter 2018, we issued approximately 527,000 shares of Common Stock pursuant to the exercise of warrants issued under our Series A Preferred Stock offering, resulting in aggregate gross proceeds of approximately $7.2 million.

During the first quarter 2018, we issued and sold an aggregate of 5,209 shares of Series M Redeemable Preferred Stock ("mShares"), resulting in net proceeds of approximately $5.1 million after dealer manager fees.

Our outstanding shares of Common Stock totaled approximately 39.2 million shares at March 31, 2018. The market value of our Common Stock was $14.19 per share on March 31, 2018 versus $13.21 on March 31, 2017. Our total equity book value increased 40.7% to approximately $1.4 billion at March 31, 2018 from $967.3 million at March 31, 2017.

Dividends

Quarterly Dividends on Common Stock and Class A OP Units

On February 1, 2018, we declared a quarterly dividend on our Common Stock of $0.25 per share for the first quarter 2018. This represents a 13.6% increase in our common stock dividend from our first quarter 2017 common stock dividend of $0.22 per share, and an annualized dividend growth rate of 14.9% since June 30, 2011, the first quarter end following our initial public offering in April 2011. The first quarter dividend was paid on April 16, 2018 to all stockholders of record on March 15, 2018. In conjunction with the Common Stock dividend, the Company's operating partnership declared a distribution on its Class A Units of $0.25 per unit for the first quarter 2018, which was paid on April 16, 2018 to all Class A Unit holders of record as of March 15, 2018.

Monthly Dividends on Preferred Stock

We declared and paid monthly dividends of $5.00 per share on our Series A Redeemable Preferred Stock, which totaled approximately $19.2 million for the quarter ended March 31, 2018 and represent a 6% annual yield. We declared and paid dividends totaling approximately $270,000 on our Series M Redeemable Preferred Stock, or mShares, for the quarter ended March 31, 2018. The mShares have an escalating dividend rate from 5.75% in year one of issuance to 7.50% in year eight and thereafter.

Conference Call and Supplemental Data

We will hold our quarterly conference call on Tuesday, May 1, 2018 at 11:00 a.m. Eastern Time to discuss our first quarter 2018 results. To participate in the conference call, please dial in to the following:

Live Conference Call Details
Domestic Dial-in Number: 1-(844) 890-1791
International Dial-in Number: 1-(412) 380-7408
Company: Preferred Apartment Communities, Inc.
Date: Tuesday, May 1, 2018
Time: 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time)

The live broadcast of our first quarter 2018 conference call will be available online, on a listen-only basis, at our website, www.pacapts.com, under "Investors" and then click on the "Upcoming Events" link. A replay of the call will be archived on under the Investors/Audio Archive section.

2018 Guidance:

Net income (loss) per shareWe are actively adding properties and real estate loan investments to our real estate portfolio and the specific timing of the closing of acquisitions is difficult to predict. Acquisition activity by its nature can cause material variation in our reported depreciation and amortization expense and interest income. Since net income (loss) per share is calculated net of depreciation and amortization expense, our net income (loss) results can fluctuate, possibly significantly, depending upon the timing of the closing of acquisitions. For this reason, we are unable to reasonably forecast this measure or provide a reconciliation of our projected FFO per share to this measure.

FFO per share  -   We currently project FFO to be in the range of $1.43 - $1.47 per share for the full year 2018.

Revenue - We currently project total revenues to be in the range of $400 million - $440 million for the full year 2018.

Common Stock dividends - We currently expect to increase our Common Stock dividend by an aggregate of at least 10% during 2018 as compared to 2017.

AFFO and FFO are calculated after deductions for all preferred stock dividends. Reconciliations of net income (loss) attributable to common stockholders to FFO and AFFO for the three-month periods ended March 31, 2018 and 2017 appear in the attached report, as well as on our website using the following link:

http://investors.pacapts.com/download/1Q18_Earnings_and_Supplemental_Data.pdf

Forward-Looking Statements

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:  Estimates of future earnings, guidance, goals and performance are, by definition, and certain other statements in this Earnings Release and Supplemental Financial Data Report may constitute, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or transactions to be materially different from the results, guidance, goals, performance, achievements or transactions expressed or implied by the forward-looking statements.  Factors that impact such forward-looking statements include, among others, our business and investment strategy; legislative or regulatory actions; the state of the U.S. economy generally or in specific geographic areas; economic trends and economic recoveries; changes in operating costs, including real estate taxes, utilities and insurance costs; our ability to obtain and maintain debt or equity financing; financing and advance rates for our target assets; our leverage level; changes in the values of our assets; the occurrence of natural or man-made disasters; availability of attractive investment opportunities in our target markets; our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; availability of quality personnel; our understanding of our competition and market trends in our industry; and interest rates, real estate values, the debt securities markets and the general economy.

Except as otherwise required by the federal securities laws, we assume no liability to update the information in this Earnings Release and Supplemental Financial Data Report.

We refer you to the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2017 that was filed with the Securities and Exchange Commission, or SEC, on March 1, 2018, which discuss various factors that could adversely affect our financial results. Such risk factors and information may be updated or supplemented by our Form 10-K, Form 10-Q and Form 8-K filings and other documents filed from time to time with the SEC.

Additional Information

The SEC has declared effective the registration statement filed by the Company for each of the offerings to which this communication may relate. Before you invest, you should read the final prospectus, and any prospectus supplements, forming a part of the registration statement and other documents the Company has filed with the SEC for more complete information about the Company and the offering to which this communication may relate. In particular, you should carefully read the risk factors described in the final prospectus and in any related prospectus supplement and in the documents incorporated by reference in the final prospectus and any related prospectus supplement to which this communication may relate. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the Company or its dealer manager, Preferred Capital Securities, LLC, with respect to the mShares Offering and the $1.5 Billion Unit Offering, and JonesTrading Institutional Services LLC, with respect to the Common Stock ATM Offering, will arrange to send you a prospectus if you request it by contacting Leonard A. Silverstein at (770) 818-4100, 3284 Northside Parkway NW, Suite 150, Atlanta, Georgia 30327.

The prospectus supplement for the Common Stock ATM Offering, dated July 10, 2017, including a base prospectus, dated May 17, 2016, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183217000110/atmprospectusspring2017.htm

The final prospectus for the mShares Offering, dated January 19, 2017, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183217000008/a424prospectus-mshares1.htm

The final prospectus for the $1.5 Billion Unit Offering, dated March 16, 2017, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183217000061/a424prospectus-15bseriesar.htm

 

 

Preferred Apartment Communities, Inc.

Consolidated Statements of Operations

(Unaudited)






Three months ended March 31,

(In thousands, except per-share figures)


2018


2017

Revenues:





Rental revenues


$

64,077



$

45,363


Other property revenues


11,728



8,436


Interest income on loans and notes receivable


10,300



7,948


Interest income from related parties


4,265



4,814


Total revenues


90,370



66,561







Operating expenses:





Property operating and maintenance


8,805



6,539


Property salary and benefits

3,899



3,028


Property management fees

2,756



1,902


Real estate taxes


9,975



7,904


General and administrative


1,841



1,505


Equity compensation to directors and executives

1,135



873


Depreciation and amortization


40,616



24,826


Acquisition and pursuit costs



9


Asset management and general and administrative expense





fees to related party


6,241



4,513


Insurance, professional fees, and other expenses


1,445



1,291


Total operating expenses


76,713



52,390


Contingent asset management and general and administrative




expense fees

(1,220)



(175)


Net operating expenses


75,493



52,215


Operating income


14,877



14,346


Interest expense


20,968



15,009


Net income (loss) before gain on sale of real estate


(6,091)



(663)


Gain on sale of real estate


20,354



30,724


Net income


14,263



30,061


Consolidated net (income) attributable to non-controlling interests

(380)



(999)







Net income attributable to the Company


13,883



29,062







Dividends declared to preferred stockholders


(19,517)



(14,386)


Earnings attributable to unvested restricted stock


(2)



(1)







Net (loss) income attributable to common stockholders


$

(5,636)



$

14,675


Net (loss) income per share of Common Stock available to common stockholders,




basic and diluted


$

(0.14)



$

0.54







Dividends per share declared on Common Stock


$

0.25



$

0.22







Weighted average number of shares of Common Stock outstanding,




basic and diluted


39,098



26,936


 

 

Reconciliation of FFO and AFFO

to Net (Loss) Income Attributable to Common Stockholders (A)






Three months ended March 31,

(In thousands, except per-share figures)



2018


2017









Net (loss) income attributable to common stockholders (See note 1)

$

(5,636)



$

14,675










Add:

Depreciation of real estate assets


27,712



18,131



Amortization of acquired real estate intangible assets and deferred leasing costs

12,591



6,532



Income attributable to non-controlling interests (See note 2)


380



999


Less:

Gain on sale of real estate


(20,354)



(30,724)


FFO

14,693



9,613










Add:

Acquisition and pursuit costs





9



Loan cost amortization on acquisition term note (See note 3)

25



27



Amortization of loan coordination fees paid to the Manager (See note 4)

476



356



Mortgage loan refinancing and extinguishment costs

41





Insurance recovery in excess of weather-related property operating losses  (See note 5)

(260)





Non-cash equity compensation to directors and executives

1,135



873



Amortization of loan closing costs (See note 6)


1,045



798



Depreciation/amortization of non-real estate assets


313



163



Net loan fees received (See note 7)


800





Accrued interest income received (See note 8)


1,343



2,524



Deemed dividends from cash redemptions of preferred stock


318





Non-cash dividends on Series M Preferred Stock


106





Amortization of lease inducements (See note 9)


257




Less:

Non-cash loan interest income (See note 8)


(4,932)



(4,299)



Cash paid for loan closing costs

(391)





Amortization of acquired above and below market lease intangibles





and straight-line rental revenues (See note 10)

(3,189)



(1,817)



Amortization of deferred revenues (See note 11)


(497)





Normally recurring capital expenditures and leasing costs (See note 12)

(874)



(846)










AFFO

$

10,409



$

7,401










Common Stock dividends and distributions to Unitholders declared:





Common Stock dividends



$

9,802



$

5,971



Distributions to Unitholders (See note 2)


268



198



Total




$

10,070



$

6,169










Common Stock dividends and Unitholder distributions per share


$

0.25



$

0.22










FFO per weighted average basic share of Common Stock and Unit outstanding

$

0.37



$

0.35


AFFO per weighted average basic share of Common Stock and Unit outstanding

$

0.26



$

0.27






Weighted average shares of Common Stock and Units outstanding: (A)





Basic:








Common Stock



39,098



26,936



Class A Units




1,070



926



Common Stock and Class A Units


40,168



27,862











Diluted Common Stock and Class A Units (B)


41,226



28,786










Actual shares of Common Stock outstanding, including 6 and 8 unvested shares




 of restricted Common Stock at March 31, 2018 and 2017, respectively

39,215



27,193


Actual Class A Units outstanding at March 31, 2018 and 2017, respectively.

1,070



903



Total




40,285



28,096










(A) Units and Unitholders refer to Class A Units in our Operating Partnership, or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 2.66% weighted average non-controlling interest in the Operating Partnership for the three-month period ended March 31, 2018.


(B) Since our FFO and AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders, excluding any gains from sales of real estate assets.

See Notes to Reconciliation of FFO and AFFO to Net Income (Loss) Attributable to Common Stockholders.

 

Notes to Reconciliations of FFO and AFFO to Net Income (Loss) Attributable to Common Stockholders



1)

Rental and other property revenues and property operating expenses for the quarter ended March 31, 2018 include activity for the two multifamily communities and one office building acquired during the quarter only from their respective dates of acquisition. In addition, the first quarter 2018 period includes a full quarter of activity for the six multifamily communities, eight grocery-anchored shopping centers, two student housing properties and one office building acquired during the second, third and fourth quarters 2017. Rental and other property revenues and expenses for the first quarter 2017 include activity for the acquisitions made during that period only from their respective dates of acquisition.



2)

Non-controlling interests in our Operating Partnership consisted of a total of 1,070,103 Class A Units as of March 31, 2018. Included in this total are 419,228 Class A Units which were granted as partial consideration to the seller in conjunction with the seller's contribution to us on February 29, 2016 of the Wade Green grocery-anchored shopping center. The remaining Class A units were awarded primarily to our key executive officers. The Class A Units are apportioned a percentage of our financial results as non-controlling interests. The weighted average ownership percentage of these holders of Class A Units was calculated to be 2.67% and 3.32% for the three-month periods ended March 31, 2018 and 2017, respectively.



3)

We incurred loan closing costs for the $11 million term note, which we used to finance the acquisition of our Anderson Central grocery-anchored shopping center, and on our $200 million acquisition revolving credit facility, or Acquisition Facility, which is used to finance acquisitions of multifamily communities and student housing communities. The costs to establish these instruments were deferred and amortized over the lives of the instruments. The amortization expense of these deferred costs is an additive adjustment in the calculation of AFFO.



4)

As of January 1, 2016, we pay loan coordination fees to Preferred Apartment Advisors, LLC, our Manager, related to obtaining mortgage financing for acquired properties. Loan coordination fees were introduced to reflect the administrative effort involved in arranging debt financing for acquired properties. The portion of the loan coordination fees paid up until July 1, 2017 attributable to the financing were amortized over the lives of the respective mortgage loans, and this non-cash amortization expense is an addition to FFO in the calculation of AFFO. Beginning effective July 1, 2017, the loan coordination fee was lowered from 1.6%  to 0.6% of the amount of any mortgage indebtedness on newly-acquired properties or refinancing. All of the loan coordination fees paid to our Manager subsequent to July 1, 2017 are amortized over the life of the debt. At March 31, 2018, aggregate unamortized loan coordination fees were approximately $12.4 million, which will be amortized over a weighted average remaining loan life of approximately 10.5 years.



5)

We sustained weather-related operating losses due to Hurricane Harvey at our Stone Creek multifamily community during the first quarter 2018; these costs are added back to FFO in our calculation of AFFO. Included in these adjustments are the receipt from our insurance carrier during the first quarter 2018 of claims proceeds for lost rental revenues incurred during the third and fourth quarters of 2017 that totaled approximately $588,000, which was recognized in our statements of operations for the first quarter 2018.



6)

We incur loan closing costs on our existing mortgage loans, which are secured on a property-by-property basis by each of our acquired real estate assets, and also for occasional amendments to our syndicated revolving line of credit with Key Bank National Association, or our Revolving Line of Credit. On March 23, 2018, but effective April 13, 2018, the maximum borrowing capacity on the Revolving Line of Credit was increased from $150 million to $200 million. These loan closing costs are also amortized over the lives of the respective loans and the Revolving Line of Credit, and this non-cash amortization expense is an addition to FFO in the calculation of AFFO. Neither we nor the Operating Partnership have any recourse liability in connection with any of the mortgage loans, nor do we have any cross-collateralization arrangements with respect to the assets securing the mortgage loans, other than security interests in 49% of the equity interests of the subsidiaries owning such assets, granted in connection with our Revolving Line of Credit, which provides for full recourse liability. At March 31, 2018, aggregate unamortized loan costs were approximately $19.8 million, which will be amortized over a weighted average remaining loan life of approximately 7.9 years.



7)

We receive loan origination fees in conjunction with the origination of certain real estate loan investments. These fees are then recognized as revenue over the lives of the applicable loans as adjustments of yield using the effective interest method. The total fees received after the payment of loan origination fees to our Manager are additive adjustments in the calculation of AFFO. Correspondingly, the amortized non-cash income is a deduction in the calculation of AFFO. Over the lives of certain loans, we accrue additional interest amounts that become due to us at the time of repayment of the loan or refinancing of the property, or when the property is sold. This non-cash interest income is subtracted from FFO in our calculation of AFFO.



8)

This adjustment reflects the receipt during the periods presented of additional interest income (described in note 7 above) which was earned and accrued prior to those periods presented on various real estate loans.



9)

This adjustment removes the non-cash amortization of costs incurred to induce tenants to lease space in our office buildings and grocery-anchored shopping centers.



10)

This adjustment reflects straight-line rent adjustments and the reversal of the non-cash amortization of below-market and above-market lease intangibles, which were recognized in conjunction with our acquisitions and which are amortized over the estimated average remaining lease terms from the acquisition date for multifamily communities and over the remaining lease terms for grocery-anchored shopping center assets and office buildings. At March 31, 2018, the balance of unamortized below-market lease intangibles was approximately $39.0 million, which will be recognized over a weighted average remaining lease period of approximately 9.4 years.



11)

This adjustment removes the non-cash amortization of deferred revenue recorded by us in conjunction with Company-owned lessee-funded tenant improvements in our office buildings.



12)

We deduct from FFO normally recurring capital expenditures that are necessary to maintain our assets' revenue streams in the calculation of AFFO. This adjustment also deducts from FFO capitalized amounts for third party costs during the period to originate or renew leases in our grocery-anchored shopping centers and office buildings. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures. See Capital Expenditures, Grocery-Anchored Shopping Center Portfolio, and Office Buildings Portfolio sections for definitions of these terms.

 

See Definitions of Non-GAAP Measures.

Preferred Apartment Communities, Inc.


Consolidated Balance Sheets


(Unaudited)




(In thousands, except per-share par values)


March 31, 2018


December 31, 2017


Assets






Real estate





  Land


$

422,361



$

406,794



  Building and improvements

2,146,135



2,043,853



  Tenant improvements

75,531



63,425



  Furniture, fixtures, and equipment

225,553



210,779



  Construction in progress

13,420



10,491



   Gross real estate

2,883,000



2,735,342



  Less: accumulated depreciation

(193,141)



(172,756)



   Net real estate

2,689,859



2,562,586



Real estate loan investments, net of deferred fee income

278,258



255,345



Real estate loan investments to related parties, net

134,786



131,451



   Total real estate and real estate loan investments, net

3,102,903



2,949,382









Cash and cash equivalents

19,711



21,043



Restricted cash

47,683



51,969



Notes receivable

12,174



17,318



Note receivable and revolving line of credit due from related party

28,020



22,739



Accrued interest receivable on real estate loans

29,693



26,865



Acquired intangible assets, net of amortization

100,276



102,743



Deferred loan costs on Revolving Line of Credit, net of amortization

1,578



1,385



Deferred offering costs

7,374



6,544



Tenant lease inducements, net

16,318



14,425



Tenant receivables and other assets

28,444



37,957









Total assets

$

3,394,174



$

3,252,370









Liabilities and equity





Liabilities





Mortgage notes payable, net of deferred loan costs

$

1,871,966



$

1,776,652



Revolving line of credit

13,200



41,800



Term note payable, net of deferred loan costs



10,994



Real estate loan investment participation obligation

10,798



13,986



Deferred revenue

31,053



27,947



Accounts payable and accrued expenses

33,053



31,253



Accrued interest payable

5,472



5,028



Dividends and partnership distributions payable

16,460



15,680



Acquired below market lease intangibles, net of amortization

38,991



38,857



Security deposits and other liabilities

12,349



9,407








Total liabilities

2,033,342



1,971,604









Commitments and contingencies





Equity






Stockholders' equity






Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050





   shares authorized; 1,348 and 1,250 shares issued; 1,313 and 1,222





shares outstanding at March 31, 2018 and December 31, 2017, respectively

13



12



Series M Redeemable Preferred Stock, $0.01 par value per share; 500





   shares authorized; 20 and 15 shares issued and outstanding





at March 31, 2018 and December 31, 2017, respectively





Common Stock, $0.01 par value per share; 400,067 shares authorized;





39,208 and 38,565 shares issued and outstanding at





March 31, 2018 and December 31, 2017, respectively

392



386



Additional paid-in capital

1,357,725



1,271,040



Accumulated earnings



4,449



      Total stockholders' equity

1,358,130



1,275,887



Non-controlling interest

2,702



4,879



Total equity

1,360,832



1,280,766









Total liabilities and equity

$

3,394,174



$

3,252,370



 

 

Preferred Apartment Communities, Inc.

Consolidated Statements of Cash Flows

(Unaudited)




Three months ended March 31,

(In thousands)


2018


2017

Operating activities:





Net income (loss )


$

14,263



$

30,061


Reconciliation of net income (loss) to net cash provided by operating activities:




Depreciation expense


27,990



18,288


Amortization expense


12,626



6,539


Amortization of above and below market leases

(1,178)



(798)


Deferred revenues and fee income amortization

(943)



(284)


Amortization of market discount on assumed debt and lease incentives

323




Deferred loan cost amortization

1,480



1,180


(Increase) in accrued interest income on real estate loans

(2,828)



(1,546)


Equity compensation to executives and directors

1,135



873


Gain on sale of real estate


(20,354)



(30,724)


Other




187


Changes in operating assets and liabilities:




(Increase) in tenant receivables and other assets

625



(1,965)


(Increase) in tenant lease incentives

(2,149)



(2,913)


Increase in accounts payable and accrued expenses

(1,074)



(716)


Increase in accrued interest, prepaid rents and other liabilities

1,502



95


Net cash provided by operating activities

31,418



18,277







Investing activities:





Investment in real estate loans


(68,929)



(16,272)


Repayments of real estate loans


42,312



9,866


Notes receivable issued


(472)



(1,263)


Notes receivable repaid


5,618




Note receivable issued to and draws on line of credit by related party

(14,419)



(7,650)


Repayments of line of credit by related party

9,034



7,554


Loan origination fees received

1,600




Loan origination fees paid to Manager

(800)




Acquisition of properties


(170,072)



(138,298)


Disposition of properties, net


42,266



76,368


Increase in cash held in like-kind exchange




3,761


Receipt of insurance proceeds for capital improvements

412




Additions to real estate assets - improvements

(7,637)



(3,680)


(Deposits) on acquisitions


4,021



(1,838)


Decrease (increase) in restricted cash



4,450


Net cash used in investing activities

(157,066)



(71,452)







Financing activities:





Proceeds from mortgage notes payable

123,275



104,300


Payments for mortgage notes payable

(27,350)



(67,141)


Payments for deposits and other mortgage loan costs

(1,733)



(3,399)


Proceeds from real estate loan participants

5



82


Payments to real estate loan participants

(3,314)



(2,467)


Proceeds from lines of credit


86,200



37,500


Payments on lines of credit


(114,800)



(68,000)


Repayment of the Term Loan


(11,000)




Proceeds from sales of Units, net of offering costs and redemptions

87,490



68,987


Proceeds from sales of Common Stock



186


Proceeds from exercises of warrants

11,169



4,249


Common Stock dividends paid


(9,576)



(5,741)


Preferred stock dividends paid


(18,963)



(13,961)


Distributions to non-controlling interests

(221)



(195)


Payments for deferred offering costs

(1,152)



(2,126)


Net cash provided by financing activities

120,030



52,274






Net increase in cash, cash equivalents and restricted cash

(5,618)



(901)


Cash, cash equivalents and restricted cash, beginning of period

73,012



67,715


Cash, cash equivalents and restricted cash, end of period

$

67,394



$

66,814


Real Estate Loan Investments

The following tables present details pertaining to our portfolio of fixed rate, interest-only real estate loan investments.

Project/Property


Location


Maturity
date


Optional
extension
date


Total loan
commitments


Carrying amount (1) as of



Current /
deferred
interest %
per annum





March 31,
2018


December 31,
2017
















Multifamily communities:






(in thousands)



Encore


Atlanta, GA


4/8/2019


10/8/2020


$

10,958



$

10,958



$

10,958



8.5 / 5

Encore Capital


Atlanta, GA


4/8/2019


10/8/2020


9,758



7,723



7,521



8.5 / 5

Palisades


Northern VA


5/7/2018

(2)

N/A


17,270



17,132



17,111



8 / 5

Fusion


Irvine, CA


5/31/2018


5/31/2020


70,835



65,981



58,447



8.5 / 7.5

Green Park


Atlanta, GA


2/28/2018


12/1/2019


13,464





11,464



8.5 / 5.83

Bishop Street


Atlanta, GA


2/18/2020


N/A


12,693



12,405



12,145



8.5 / 6.5

Hidden River


Tampa, FL


12/3/2018


12/3/2020


4,735



4,735



4,735



8.5 / 6.5

Hidden River Capital


Tampa, FL


12/4/2018


12/4/2020


5,380



5,149



5,041



8.5 / 6.5

CityPark II


Charlotte, NC


1/7/2019


1/7/2021


3,365



3,365



3,365



8.5 / 6.5

CityPark II Capital


Charlotte, NC


1/8/2019


1/31/2021


3,916



3,702



3,624



8.5 / 6.5

Park 35 on Clairmont


Birmingham, AL


6/26/2018


6/26/2020


21,060



21,060



21,060



8.5 / 2

Wiregrass


Tampa, FL


5/15/2020


5/15/2023


14,976



13,250



12,972



8.5 / 6.5

Wiregrass Capital


Tampa, FL


5/15/2020


5/15/2023


3,744



3,637



3,561



8.5 / 6.5

Berryessa


San Jose, CA


4/19/2018


N/A


31,509





30,571



10.5 / 0

Berryessa


San Jose, CA


2/13/2021


2/13/2023


137,616



34,563





8.5 / 6.0

Brentwood


Nashville, TN


6/1/2018


N/A


2,376



2,329



2,261



12 / 0

Fort Myers


Fort Myers, FL


2/3/2021


2/3/2022


9,416



7,461



3,521



8.5 / 5.5

Fort Myers Capital


Fort Myers, FL


2/3/2021


2/3/2022


6,193



5,101



4,994



8.5 / 5.5

360 Forsyth


Atlanta, GA


7/11/2020


7/11/2022


22,412



18,342



13,400



8.5 / 5.5

Morosgo


Atlanta, GA


1/31/2021


1/31/2022


11,749



9,269



4,951



8.5 / 5.5

Morosgo Capital


Atlanta, GA


1/31/2021


1/31/2022


6,176



4,863



4,761



8.5 / 5.5

University City Gateway


Charlotte, NC


8/15/2021


8/15/2022


10,336



2,968



850



8.5 / 5

University City Gateway















Capital


Charlotte, NC


8/18/2021


8/18/2022


7,338



5,652



5,530



8.5 / 5
















Student housing properties:













Haven 12


Starkville, MS


12/17/2018


11/30/2020


6,116



6,116



5,816



8.5 / 0

Haven46


Tampa, FL


3/29/2019


9/29/2020


9,820



9,820



9,820



8.5 / 5

Haven Northgate


College Station, TX


6/20/2019


6/20/2020


67,680



66,644



65,724



(3)  / 1.5

Lubbock II


Lubbock, TX


4/20/2019


N/A


9,857



9,635



9,357



8.5 / 0

Haven Charlotte


Charlotte, NC


12/22/2019


12/22/2021


19,582



18,242



17,039



8.5 / 6.5

Haven Charlotte Member


Charlotte, NC


12/22/2019


12/22/2021


8,201



7,978



7,795



8.5 / 6.5

Solis Kennesaw


Atlanta, GA


9/26/2020


9/26/2022


12,359



6,896



1,610



8.5 / 5.5

Solis Kennesaw Capital


Atlanta, GA


10/1/2020


10/1/2022


8,360



7,298



7,145



8.5 / 5.5
















New Market Properties:















Dawson Marketplace


Atlanta, GA


9/24/2020


9/24/2022


12,857



12,857



12,857



8.5 / 6.9 (4)
















Other:















Crescent Avenue


Atlanta, GA


4/13/2018


5/31/2018


8,500



8,500



8,500



10 / 5

North Augusta Ballpark


North Augusta, SC


1/15/2021


1/15/2024


3,500



1,492





9 / 6
























$

604,107



415,123



388,506




Unamortized loan origination fees








(2,079)



(1,710)



















Carrying amount










$

413,044



$

386,796



















(1) Carrying amounts presented per loan are amounts drawn, exclusive of deferred fee revenue.

(2) Effective April 13, 2018, the maturity date was extended to May 17, 2019.

(3) The current interest rate on the Haven Northgate loan is a variable rate of 600 basis points over LIBOR.

(4) Effective January 1, 2018, the deferred interest rate increased to 6.9% per annum until the accumulated accrued interest balance reaches $250, at which point the deferred interest rate reverts to 5.0%.

 

We hold options, but not obligations, to purchase certain of the properties which are partially financed by our real estate loan investments. The option purchase prices are negotiated at the time of the loan closing and are to be calculated based upon market cap rates at the time of exercise of the purchase option, less a discount ranging from between 15 and 60 basis points, depending on the loan. As of March 31, 2018, potential property acquisitions and units from projects in our real estate loan investment portfolio consisted of:




Total units
upon


Purchase option window


Project/Property

Location


completion (1)


Begin


End











Multifamily communities:









Encore

Atlanta, GA


339



9/30/2018


12/31/2018


Palisades

Northern VA


304



1/1/2019


5/31/2019


Fusion

Irvine, CA


280



10/1/2018


1/1/2019


Bishop Street

Atlanta, GA


232



10/1/2018


12/31/2018


Hidden River

Tampa, FL


300



9/1/2018


12/31/2018


CityPark II

Charlotte, NC


200



9/30/2018


12/31/2018


Park 35 on Clairmont

Birmingham, AL


271



S + 90 days (2)


S + 150 days (2)


Fort Myers

Fort Myers, FL


224



S + 90 days (2)


S + 150 days (2)


Wiregrass

Tampa, FL


392



S + 90 days (2)


S + 150 days (2)


360 Forsyth

Atlanta, GA


356



S + 90 days (2)


S + 150 days (2)


Morosgo

Atlanta, GA


258



S + 90 days (2)


S + 150 days (2)


University City Gateway

Charlotte, NC


338



S + 90 days (2)


S + 150 days (2)


Berryessa

San Jose, CA


551



N/A


N/A


Brentwood

Nashville, TN


301



N/A


N/A


North Augusta Ballpark

North Augusta, SC


32



N/A


N/A











Student housing properties:









Haven 12

Starkville, MS


152



4/1/2019


6/30/2019


Haven46

Tampa, FL


158



11/1/2018


1/31/2019


Haven Northgate

College Station, TX


427



10/1/2018


12/31/2018


Lubbock II

Lubbock, TX


140



11/1/2018


1/31/2019


Haven Charlotte

Charlotte, NC


332



12/1/2019


2/28/2020


Solis Kennesaw

Atlanta, GA


248



(3)


(3)














5,835
















(1) We evaluate each project individually and we make no assurance that we will acquire any of the underlying properties from our real estate loan investment portfolio. The Berryessa and North Augusta Ballpark projects do not include exclusive purchase options, but we hold a Right of First Offer on these projects at prices acceptable to us and the developer. The Brentwood project is a land acquisition bridge loan and does not include any exclusive purchase right as of March 31, 2018.




(2) The option period window begins and ends at the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property.




(3) The option period begins on October 1 of the second academic year following project completion and ends on the following December 31. The developer may elect to expedite the option period to begin December 1, 2019 and end on December 31, 2019.



Mortgage Indebtedness

The following table presents certain details regarding our mortgage notes payable:




Principal balance as of










Acquisition/

refinancing
date


March 31,
2018


December 31,
2017


Maturity
date


Interest
rate


Basis point
spread over
1 Month
LIBOR


Interest only
through date
(1)















Multifamily communities:



(in thousands)









Stone Rise

7/3/2014


$

23,798



$

23,939



8/1/2019


2.89

%


Fixed rate


8/31/2015

Summit Crossing

10/31/2017


38,848



39,019



11/1/2024


3.99

%


Fixed rate


N/A

Summit Crossing II

3/20/2014


13,357



13,357



4/1/2021


4.49

%


Fixed rate


4/30/2019

McNeil Ranch

1/24/2013


13,621



13,646



2/1/2020


3.13

%


Fixed rate


2/28/2018

Lake Cameron

1/24/2013



(2)

19,773



2/1/2020


3.13

%


Fixed rate


2/28/2018

Stoneridge

9/26/2014


25,982



26,136



10/1/2019


3.18

%


Fixed rate


N/A

Vineyards

9/26/2014


34,512



34,672



10/1/2021


3.68

%


Fixed rate


10/31/2017

Avenues at Cypress

2/13/2015


21,555



21,675



9/1/2022


3.43

%


Fixed rate


N/A

Avenues at Northpointe

2/13/2015


27,324



27,467



3/1/2022


3.16

%


Fixed rate


3/31/2017

Venue at Lakewood Ranch

5/21/2015


29,190



29,348



12/1/2022


3.55

%


Fixed rate


N/A

Aster at Lely

6/24/2015


32,305



32,471



7/5/2022


3.84

%


Fixed rate


N/A

CityPark View

6/30/2015


20,920



21,038



7/1/2022


3.27

%


Fixed rate


N/A

Avenues at Creekside

7/31/2015


40,317



40,523



8/1/2024


3.48

%


160

(3)

8/31/2016

Citi Lakes

9/3/2015


42,176



42,396



4/1/2023


4.05

%


217

(4)

N/A

Stone Creek

6/22/2017


20,386



20,467



7/1/2052


3.22

%


Fixed rate


N/A

Lenox Village Town Center

12/21/2015


29,824



30,009



5/1/2019


3.82

%


Fixed rate


N/A

Lenox Village III

12/21/2015


17,717



17,802



1/1/2023


4.04

%


Fixed rate


N/A

Overton Rise

2/1/2016


39,788



39,981



8/1/2026


3.98

%


Fixed rate


N/A

Baldwin Park

1/5/2016


77,800



77,800



1/5/2019


4.18

%


230


1/4/2019

Crosstown Walk

1/15/2016


31,332



31,486



2/1/2023


3.90

%


Fixed rate


N/A

525 Avalon Park

6/15/2017


66,614



66,912



7/1/2024


3.98

%


Fixed rate


N/A

City Vista

7/1/2016


34,900



35,073



7/1/2026


3.68

%


Fixed rate


N/A

Sorrel

8/24/2016


32,633



32,801



9/1/2023


3.44

%


Fixed rate


N/A

Citrus Village

3/3/2017


29,827



29,970



6/10/2023


3.65

%


Fixed rate


6/09/2017

Retreat at Greystone

11/21/2017


35,066



35,210



12/1/2024


4.31

%


Fixed rate


N/A

Founders Village

3/31/2017


31,138



31,271



4/1/2027


4.31

%


Fixed rate


N/A

Claiborne Crossing

4/26/2017


26,697



26,801



6/1/2054


2.89

%


Fixed rate


N/A

Luxe at Lakewood Ranch

7/26/2017


38,891



39,066



8/1/2027


3.93

%


Fixed rate


N/A

Adara at Overland Park

9/27/2017


31,618



31,760



4/1/2028


3.90

%


Fixed rate


N/A

Aldridge at Town Village

10/31/2017


37,688



37,847



11/1/2024


4.19

%


Fixed rate

(5)

N/A

Reserve at Summit Crossing

9/29/2017


19,925



20,017



10/1/2024


3.87

%


Fixed rate


N/A

Overlook at Crosstown Walk

11/21/2017


22,134



22,231



12/1/2024


3.95

%


Fixed rate


N/A

Colony at Centerpointe

12/20/2017


33,243



33,346



10/1/2026


3.68

%


Fixed rate


N/A

Lux at Sorrel

1/9/2018


31,479





2/1/2030


3.91

%


Fixed rate


N/A

Green Park

2/28/2018


39,750





3/10/2028


4.09

%


Fixed rate


N/A















Total multifamily communities



1,092,355



1,045,310
























Grocery-anchored shopping centers:

Spring Hill Plaza

9/5/2014


9,418



9,470



10/1/2019


3.36

%


Fixed rate


10/31/2015

Parkway Town Centre

9/5/2014


6,850



6,887



10/1/2019


3.36

%


Fixed rate


10/31/2015

Woodstock Crossing

8/8/2014


2,976



2,989



9/1/2021


4.71

%


Fixed rate


N/A

Deltona Landings

9/30/2014


6,739



6,778



10/1/2019


3.48

%


Fixed rate


N/A

Powder Springs

9/30/2014


7,111



7,152



10/1/2019


3.48

%


Fixed rate


N/A

Kingwood Glen

9/30/2014


11,276



11,340



10/1/2019


3.48

%


Fixed rate


N/A

Barclay Crossing

9/30/2014


6,340



6,376



10/1/2019


3.48

%


Fixed rate


N/A

Sweetgrass Corner

9/30/2014


7,687



7,731



10/1/2019


3.58

%


Fixed rate


N/A

Parkway Centre

9/30/2014


4,415



4,441



10/1/2019


3.48

%


Fixed rate


N/A

The Market at Salem Cove

10/6/2014


9,381



9,423



11/1/2024


4.21

%


Fixed rate


11/30/2016

Independence Square

8/27/2015


11,905



11,967



9/1/2022


3.93

%


Fixed rate


9/30/2016

Royal Lakes Marketplace

9/4/2015


9,654



9,690



9/4/2020


4.16

%


250


4/3/2017

The Overlook at Hamilton Place

12/22/2015


20,206



20,301



1/1/2026


4.19

%


Fixed rate


N/A

Summit Point

10/30/2015


12,122



12,208



11/1/2022


3.57

%


Fixed rate


N/A

East Gate Shopping Center

4/29/2016


5,542



5,578



5/1/2026


3.97

%


Fixed rate


N/A

Fury's Ferry

4/29/2016


6,402



6,444



5/1/2026


3.97

%


Fixed rate


N/A

Rosewood Shopping Center

4/29/2016


4,300



4,328



5/1/2026


3.97

%


Fixed rate


N/A

Southgate Village

4/29/2016


7,644



7,694



5/1/2026


3.97

%


Fixed rate


N/A

The Market at Victory Village

5/16/2016


9,176



9,214



9/11/2024


4.40

%


Fixed rate


10/10/2017

Wade Green Village

4/7/2016


7,931



7,969



5/1/2026


4.00

%


Fixed rate


N/A

Lakeland Plaza

7/15/2016


28,834



29,023



8/1/2026


3.85

%


Fixed rate


N/A

University Palms

8/8/2016


13,072



13,162



9/1/2026


3.45

%


Fixed rate


N/A

Cherokee Plaza

8/8/2016


25,153



25,322



9/1/2021


3.91

%


225

(6)

N/A

Sandy Plains Exchange

8/8/2016


9,131



9,194



9/1/2026


3.45

%


Fixed rate


N/A

Thompson Bridge Commons

8/8/2016


12,207



12,291



9/1/2026


3.45

%


Fixed rate


N/A

Heritage Station

8/8/2016


9,035



9,097



9/1/2026


3.45

%


Fixed rate


N/A

Oak Park Village

8/8/2016


9,323



9,388



9/1/2026


3.45

%


Fixed rate


N/A

Shoppes of Parkland

8/8/2016


16,174



16,241



9/1/2023


4.67

%


Fixed rate


N/A

Champions Village

10/18/2016


27,400



27,400



11/1/2021


4.67

%


300

(7)

11/1/2021

Castleberry-Southard

4/21/2017


11,332



11,383



5/1/2027


3.99

%


Fixed rate


N/A

Rockbridge Village

6/6/2017


14,076



14,142



7/5/2027


3.73

%


Fixed rate


N/A

Irmo Station

7/26/2017


10,502



10,566



8/1/2030


3.94

%


Fixed rate


N/A

Maynard Crossing

8/25/2017


18,274



18,388



9/1/2032


3.74

%


Fixed rate


N/A

Woodmont Village

9/8/2017


8,691



8,741



10/1/2027


4.125

%


Fixed rate


N/A

West Town Market

9/22/2017


8,907



8,963



10/1/2025


3.65

%


Fixed rate


N/A

Crossroads Market

12/5/2017


18,925



19,000



1/1/2030


3.95

%


Fixed rate


N/A

Anderson Central

3/16/2018


12,000





4/1/2028


4.32

%


Fixed rate


N/A















Total grocery-anchored shopping centers



420,111



410,281
























Student housing properties:

North by Northwest

6/1/2016


32,574



32,767



9/1/2022


4.02

%


Fixed rate


N/A

SoL

3/29/2018


37,485



37,485



2/1/2019


3.98

%


210


2/1/2019

Stadium Village

10/27/2017


46,718



46,930



11/1/2024


3.80

%


Fixed rate


N/A

Ursa

12/18/2017


31,400



31,400



1/5/2020


4.88

%


300


1/5/2020















Total student housing properties



148,177



148,582
























Office buildings:

Brookwood Center

8/29/2016


32,037



32,219



9/10/2031


3.52

%


Fixed rate


10/9/2017

Galleria 75

11/4/2016


5,668



5,716



7/1/2022


4.25

%


Fixed rate


N/A

Three Ravinia

12/30/2016


115,500



115,500



1/1/2042


4.46

%


Fixed rate


1/31/2022

Westridge at La Cantera

11/13/2017


54,126



54,440



12/10/2028


4.10

%


Fixed rate


N/A

Armour Yards

1/29/2018


40,000





2/1/2028


4.10

%


Fixed rate


1/31/2020















Total office buildings



247,331



207,875










Grand total



1,907,974



1,812,048










Less: deferred loan costs



(30,926)



(30,249)










Less: below market debt adjustment



(5,082)



(5,147)










Mortgage notes, net



$

1,871,966



$

1,776,652


























Footnotes to Mortgage Notes Table


(1) Following the indicated interest only period (where applicable), monthly payments of accrued interest and principal are based on a 25 to 35-year amortization period through the maturity date.

(2) On date, the Company legally defeased the mortgage loan in conjunction with the sale of its Lake Cameron property, located in Raleigh, NC. In connection with the defeasance, the mortgage and other liens on the property were extinguished and all existing collateral, including various guarantees, were released. As a result of the defeasance, the Company incurred costs associated with a defeasance premium of approximately $355.

(3)  The mortgage instrument was assumed as part of the sales transaction; the 1 Month LIBOR index is capped at 5.0%, resulting in a cap on the combined rate of 6.6%.

(4) The 1 Month LIBOR index is capped at 4.33% resulting in a cap on the combined rate of 6.5%.

(5) The property was temporarily financed through a credit facility sponsored by the Federal Home Loan Mortgage Corporation; the Company obtained permanent mortgage financing subsequent to the closing as shown.

(6) The interest rate has a floor of 2.7%.

(7) The interest rate has a floor of 3.25%.

Multifamily Communities

As of March 31, 2018, our multifamily community portfolio consisted of the following properties:









Three months ended
March 31, 2018


Property


Location


Number of
units


Average unit
size (sq. ft.)


Average
physical
occupancy


Average
rent per
unit














Established Communities:












Stone Rise


Philadelphia, PA


216



1,078



94.6

%


$

1,451



McNeil Ranch


Austin, TX


192



1,071



95.1

%


$

1,257



Avenues at Cypress


Houston, TX


240



1,170



94.6

%


$

1,423



Avenues at Northpointe


Houston, TX


280



1,167



95.7

%


$

1,340



Stoneridge Farms at the Hunt Club


Nashville, TN


364



1,153



94.7

%


$

1,098



Vineyards


Houston, TX


369



1,122



95.8

%


$

1,145



Aster at Lely Resort


Naples, FL


308



1,071



95.8

%


$

1,467



Venue at Lakewood Ranch


Sarasota, FL


237



1,001



95.6

%


$

1,568



Citi Lakes


Orlando, FL


346



984



94.5

%


$

1,394



Lenox Portfolio


Nashville, TN


474



861



96.1

%


$

1,207



Overton Rise


Atlanta, GA


294



1,018



94.7

%


$

1,498



Sorrel


Jacksonville, FL


290



1,048



93.6

%


$

1,258















Total/Average Established Communities




3,610





95.1

%
















Summit Crossing


Atlanta, GA


485



1,053



92.5

%


$

1,188



CityPark View


Charlotte, NC


284



948





$

1,072



Avenues at Creekside


San Antonio, TX


395



974





$

1,143



Stone Creek


Houston, TX


246



852





$

1,044



525 Avalon Park


Orlando, FL


487



1,394





$

1,396



Retreat at Greystone


Birmingham, AL


312



1,100



94.4

%


$

1,212



Broadstone at Citrus Village


Tampa, FL


296



980



97.7

%


$

1,267



Founders Village


Williamsburg, VA


247



1,070



94.9

%


$

1,362



Crosstown Walk


Tampa, FL


342



981



95.4

%


$

1,268



Claiborne Crossing


Louisville, KY


242



1,204





$

1,308



Luxe at Lakewood Ranch


Sarasota, FL


280



1,105





$

1,516



Adara Overland Park


Kansas City, KS


260



1,116



94.1

%


$

1,310



Aldridge at Town Village


Atlanta, GA


300



969



95.3

%


$

1,303



The Reserve at Summit Crossing


Atlanta, GA


172



1,002





$

1,315



Overlook at Crosstown Walk


Tampa, FL


180



986





$

1,360



Colony at Centerpointe


Richmond, VA


255



1,149





$

1,305



Lux at Sorrel


Jacksonville, FL


265



1,025





n/a



Green Park


Atlanta, GA


310



985





n/a















Value-add project:












Village at Baldwin Park


Orlando, FL


528



1,069





$

1,572



















5,886









Joint venture:












City Vista


Pittsburgh, PA


272



1,023



94.2

%


$

1,343















Total PAC Non-Established Communities




6,158









Average stabilized physical occupancy








94.9

%

(1)



Student housing communities: (2)










Average
rent per bed


North by Northwest


Tallahassee, FL


219


(2)


1,250



99.2

%


$

724



SoL


Tempe, AZ


224


(2)


1,296



91.3

%


$

713



Stadium Village (3)


Atlanta, GA


198


(2)


1,466



99.7

%


$

670



Ursa (3)


Waco, TX


250


(2)


1,634





n/a















Total All PAC units




10,659





















(1) Excludes average occupancy for student housing communities.


(2) North by Northwest has 679 beds, SoL has 639 beds, Stadium Village has 792 beds and Ursa has 840 beds.

(3) The Company acquired and owns an approximate 99% equity interest in a joint venture which owns both Stadium Village and Ursa.

 

For the three-month period ended March 31, 2018, our average established multifamily communities' physical occupancy was 95.1%. We calculate average established physical occupancy for quarterly periods as the average number of occupied units on the 20th day of each of the trailing three months from the reporting period end date and that have been owned for at least 15 full months as of the end of the first quarter of each year. We exclude the operating results of properties for which construction of adjacent phases has commenced, properties which are undergoing significant capital projects, have sustained significant casualty losses, or are being marketed for sale as of the end of the reporting period. For the three-month period ended March 31, 2018, our average stabilized physical occupancy was 94.9%. We calculate average stabilized physical occupancy for quarterly periods as the average number of occupied units on the 20th day of each of the trailing three months from the reporting period end date. For the three-month period ended March 31, 2018, our average economic occupancy was 94.9%. We define average economic occupancy as market rent reduced by vacancy losses, expressed as a percentage. All of our multifamily properties are included in these calculations except for properties which are not yet stabilized (which we define as properties having first achieved 93% physical occupancy for three full months in a quarter), properties which are owned for less than the entire reporting period and properties which are undergoing significant capital projects, have sustained significant casualty losses or are adding additional phases (Stone Creek, Village at Baldwin Park, 525 Avalon Park, CityPark View and Avenues at Creekside). We also exclude properties which are currently being marketed for sale, of which there were none at March 31, 2018.

Capital Expenditures

We regularly incur capital expenditures related to our owned multifamily communities and student housing properties. Capital expenditures may be nonrecurring and discretionary, as part of a strategic plan intended to increase a property's value and corresponding revenue-generating ability, or may be normally recurring and necessary to maintain the income streams and present value of a property. Certain capital expenditures may be budgeted and reserved for upon acquiring a property as initial expenditures necessary to bring a property up to our standards or to add features or amenities that we believe make the property a compelling value to prospective residents in its individual market. These budgeted nonrecurring capital expenditures in connection with an acquisition are funded from the capital source(s) for the acquisition and are not dependent upon subsequent property operating cash flows for funding. For the three-month period ended March 31, 2018, our capital expenditures for multifamily communities and student housing properties consisted of:




Capital Expenditures




Recurring


Non-recurring


Total

(in thousands, except per-unit figures)

Amount


Per Unit


Amount


Per Unit


Amount


Per Unit

Appliances

$

99



$

37.50



$

1



$

0.43



$

100



$

37.93


Carpets



278



105.23







278



105.23


Wood / vinyl flooring

54



20.55







54



20.55


Mini blinds and ceiling fans

14



5.32







14



5.32


Fire safety


4



1.43



13



4.85



17



6.28


HVAC


38



14.38







38



14.38


Computers, equipment, misc.

24



9.05



47



17.64



71



26.69


Elevators





5



2.01



5



2.01


Leasing office and other common amenities

1



0.40



93



35.33



94



35.73


Major structural projects

6



2.34



93



35.10



99



37.44


Cabinets and counter top upgrades





292



110.46



292



110.46


Landscaping and fencing





27



10.26



27



10.26


Parking lot






47



17.85



47



17.85


Common area items





5



1.77



5



1.77


Totals



$

518



$

196.20



$

623



$

235.70



$

1,141



$

431.90


Grocery-Anchored Shopping Center Portfolio

As of March 31, 2018, our grocery-anchored shopping center portfolio consisted of the following properties:

Property name

Location


Year built


GLA (1)


Percent
leased


Grocery anchor
tenant











Castleberry-Southard

 Atlanta, GA


2006


80,018



100.0

%


Publix

Cherokee Plaza

 Atlanta, GA


1958


102,864



100.0

%


Kroger

Lakeland Plaza

 Atlanta, GA


1990


301,711



95.8

%


Sprouts

Powder Springs

 Atlanta, GA


1999


77,853



95.1

%


Publix

Rockbridge Village

 Atlanta, GA


2005


102,432



95.5

%


Kroger

Roswell Wieuca Shopping Center

 Atlanta, GA


2007


74,370



100.0

%


The Fresh Market

Royal Lakes Marketplace

 Atlanta, GA


2008


119,493



84.4

%


Kroger

Sandy Plains Exchange

 Atlanta, GA


1997


72,784



93.2

%


Publix

Summit Point

 Atlanta, GA


2004


111,970



86.5

%


Publix

Thompson Bridge Commons

 Atlanta, GA


2001


92,587



96.1

%


Kroger

Wade Green Village

 Atlanta, GA


1993


74,978



95.9

%


Publix

Woodmont Village

 Atlanta, GA


2002


85,639



96.0

%


Kroger

Woodstock Crossing

 Atlanta, GA


1994


66,122



97.7

%


Kroger

East Gate Shopping Center

 Augusta, GA


1995


75,716



89.5

%


Publix

Fury's Ferry

 Augusta, GA


1996


70,458



98.6

%


Publix

Parkway Centre

 Columbus, GA


1999


53,088



97.4

%


Publix

Spring Hill Plaza

 Nashville, TN


2005


61,570



100.0

%


Publix

Parkway Town Centre

 Nashville, TN


2005


65,587



100.0

%


Publix

The Market at Salem Cove

 Nashville, TN


2010


62,356



97.8

%


Publix

The Market at Victory Village

 Nashville, TN


2007


71,300



98.5

%


Publix

The Overlook at Hamilton Place

 Chattanooga, TN


1992


213,095



100.0

%


The Fresh Market

Shoppes of Parkland

 Miami-Ft. Lauderdale, FL


2000


145,720



100.0

%


BJ's Wholesale Club

Barclay Crossing

 Tampa, FL


1998


54,958



100.0

%


Publix

Deltona Landings

 Orlando, FL


1999


59,966



100.0

%


Publix

University Palms

 Orlando, FL


1993


99,172



100.0

%


Publix

Crossroads Market

 Naples, FL


1993


126,895



98.1

%


Publix

Champions Village

 Houston, TX


1973


383,346



75.0

%


Randalls

Kingwood Glen

 Houston, TX


1998


103,397



100.0

%


Kroger

Independence Square

 Dallas, TX


1977


140,218



84.3

%


Tom Thumb

Oak Park Village

 San Antonio, TX


1970


64,855



100.0

%


H.E.B

Sweetgrass Corner

 Charleston, SC


1999


89,124



100.0

%


Bi-Lo

Irmo Station

 Columbia, SC


1980


99,384



95.3

%


Kroger

Anderson Central

 Greenville Spartanburg, SC


1999


223,211



96.1

%


Walmart

Fairview Market

 Greenville Spartanburg, SC


1998


53,888



73.5

%


Aldi

Rosewood Shopping Center

 Columbia, SC


2002


36,887



90.2

%


Publix

West Town Market

 Charlotte, NC


2004


67,883



100.0

%


Harris Teeter

Heritage Station

 Raleigh, NC


2004


72,946



100.0

%


Harris Teeter

Maynard Crossing

 Raleigh, NC


1996


122,781



98.6

%


Kroger

Southgate Village

 Birmingham, AL


1988


75,092



100.0

%


Publix











Grand total/weighted average





4,055,714



94.1

%




(1) Gross leasable area, or GLA, represents the total amount of property square footage that can be leased to tenants.

As of March 31, 2018, our grocery-anchored shopping center portfolio was 94.1% leased. We define percent leased as the percentage of gross leasable area that is leased, including noncancelable lease agreements that have been signed which have not yet commenced.

Details regarding lease expirations (assuming no exercises of tenant renewal options) within our grocery-anchored shopping center portfolio as of March 31, 2018 were:


Total grocery-anchored shopping center portfolio


Number of leases


Leased GLA


Percent of leased
GLA







Month to month

13


25,158



0.7

%

2018

72


239,263



6.3

%

2019

97


561,832



14.7

%

2020

109


497,860



13.0

%

2021

94


440,527



11.5

%

2022

90


313,726



8.2

%

2023

44


203,115



5.3

%

2024

18


551,844



14.5

%

2025

19


298,146



7.8

%

2026

9


127,071



3.3

%

2027

16


112,101



2.9

%

2028+

22


446,360



11.8

%







Total

603


3,817,003



100.0

%

The Company's Quarterly Report on Form 10-Q for first quarter 2018 will present income statements of New Market Properties, LLC within the Results of Operations section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

Second-generation capital expenditures within our grocery-anchored shopping center portfolio by property for the first quarter 2018 totaled $296,000. Second-generation capital expenditures exclude those expenditures made in our grocery-anchored shopping center portfolio (i) to lease space to "first generation" tenants (i.e. leasing capital for existing vacancies and known move-outs at the time of acquisition), (ii) to bring recently acquired properties up to our ownership standards, and (iii) for property re-developments and repositioning.

Office Building Portfolio

As of March 31, 2018, our office building portfolio consisted of the following properties:

Property Name


Location


GLA


Percent
leased

Three Ravinia


Atlanta, GA


814,000



98

%

Westridge at La Cantera


San Antonio, TX


258,000



100

%

Armour Yards


Atlanta, GA


187,000



97

%

Brookwood Center


Birmingham, AL


169,000



100

%

Galleria 75


Atlanta, GA


111,000



94

%












1,539,000



98

%

The Company's office building portfolio includes the following significant tenants:




Square footage


Percent of
Annual Base
Rent


Annual Base
Rent

InterContinental Hotels Group

496,391



34.1

%


$

11,210,020


State Farm Mutual Automobile Insurance Company

183,168



9.8

%


3,232,086


Harland Clarke Corporation

129,016



8.5

%


2,810,678


United Services Automobile Association

129,015



9.2

%


3,042,173


Southern Natural Gas Company, LLC

63,113



5.7

%


1,862,077













1,000,703



67.3

%


$

22,157,034


The Company defines Annual Base Rent as the current monthly base rent annualized under the respective leases.

The Company's leased square footage of its office building portfolio expires according to the following schedule:

Office building portfolio





Percent of

Year of lease
expiration


Rentable square


rented


feet


square feet

2018


5,626



0.4

%

2019


22,890



1.5

%

2020


110,596



7.4

%

2021


231,549



15.5

%

2022


41,532



2.8

%

2023


96,775



6.5

%

2024


24,120



1.6

%

2025


58,276



3.9

%

2026




%

2027


258,031



17.2

%

2028+


645,364



43.2

%






Total


1,494,759



100.0

%

The Company recognized second-generation capital expenditures within its office building portfolio of approximately $60,000 during the first quarter 2018. Second-generation capital expenditures exclude those expenditures made in our office building portfolio (i) to lease space to "first generation" tenants (i.e. leasing capital for existing vacancies and known move-outs at the time of acquisition), (ii) to bring recently acquired properties up to our Class A ownership standards (and which amounts were underwritten into the total investment at the time of acquisition) and (iii) for property re-developments and repositionings.

Definitions of Non-GAAP Measures

We disclose FFO, AFFO and NOI, each of which meet the definition of a "non-GAAP financial measure", as set forth in Item 10(e) of Regulation S-K promulgated by the SEC. As a result we are required to include in this filing a statement of why the Company believes that presentation of these measures provides useful information to investors. None of FFO, AFFO and NOI should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further FFO, AFFO and NOI should be compared with our reported net income or net loss and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements. FFO and AFFO are not considered measures of liquidity and are not alternatives to measures calculated under GAAP.

Funds From Operations Attributable to Common Stockholders and Unitholders ("FFO")

FFO is one of the most commonly utilized Non-GAAP measures currently in practice. In its 2002 "White Paper on Funds From Operations," which was most recently revised in 2012, the National Association of Real Estate Investment Trusts, or NAREIT, standardized the definition of how Net income/loss should be adjusted to arrive at FFO, in the interests of uniformity and comparability. We have adopted the NAREIT definition for computing FFO as a meaningful supplemental gauge of our operating results, and as is most often presented by other REIT industry participants.

The NAREIT definition of FFO (and the one reported by the Company) is:

Net income/loss:

  • excluding impairment charges on and gains/losses from sales of depreciable property;
  • plus depreciation and amortization of real estate assets and deferred leasing costs; and
  • after adjustments for the Company's proportionate share of unconsolidated partnerships and joint ventures. 

Not all companies necessarily utilize the standardized NAREIT definition of FFO, so caution should be taken in comparing the Company's reported FFO results to those of other companies. The Company's FFO results are comparable to the FFO results of other companies that follow the NAREIT definition of FFO and report these figures on that basis. FFO is a non-GAAP measure that is reconciled to its most comparable GAAP measure, net income/loss available to common stockholders.

Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders ("AFFO")

AFFO makes further adjustments to FFO results in order to arrive at a more refined measure of operating and financial performance. There is no industry standard definition of AFFO and practice is divergent across the industry. The Company calculates AFFO as:

FFO, plus:

  • non-cash equity compensation to directors and executives;
  • amortization of loan closing costs;
  • losses on debt extinguishments or refinancing costs;
  • weather-related property operating losses;
  • amortization of loan coordination fees paid to the Manager;
  • depreciation and amortization of non-real estate assets;
  • net loan fees received;
  • accrued interest income received;
  • deemed dividends on preferred stock redemptions;
  • non-cash dividends on Series M Preferred Stock; and
  • amortization of lease inducements;

Less:

  • non-cash loan interest income;
  • cash paid for loan closing costs;
  • amortization of acquired real estate intangible liabilities;
  • amortization of straight line rent adjustments and deferred revenues; and
  • normally-recurring capital expenditures and capitalized retail direct leasing costs.

AFFO figures reported by us may not be comparable to those AFFO figures reported by other companies. We utilize AFFO as another measure of the operating performance of our portfolio of real estate assets. We believe AFFO is useful to investors as a supplemental gauge of our operating performance and may be useful in comparing our operating performance with other real estate companies. AFFO is a non-GAAP measure that is reconciled to its most comparable GAAP measure, net income/loss available to common stockholders. FFO and AFFO are not considered measures of liquidity and are not alternatives to measures calculated under GAAP.

Multifamily Established Communities' Same Store Net Operating Income (NOI)

We use same store net operating income as an operational metric for our established communities, enabling comparisons of those properties' operating results between the current reporting period and the prior year comparative period. We define our population of established communities as those that are stabilized and that have been owned for at least 15 full months, as of the end of the first quarter of each year, and exclude the operating results of properties for which construction of adjacent phases has commenced, and properties which are undergoing significant capital projects, have sustained significant casualty losses, or are being marketed for sale as of the end of the reporting period. We define net operating income as rental and other property revenues, less total property and maintenance expenses, property management fees, real estate taxes, general and administrative expenses, and property insurance. We believe that net operating income is an important supplemental measure of operating performance for REITs because it provides measures of core operations, rather than factoring in depreciation and amortization, financing costs, acquisition costs, and other corporate expenses. Net operating income is a widely utilized measure of comparative operating performance in the REIT industry, but is not a substitute for the most comparable GAAP-compliant measure, net income/loss.

About Preferred Apartment Communities, Inc.         

Preferred Apartment Communities, Inc. (NYSE: APTS), or the Company, is a Maryland corporation formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As part of our business strategy, we may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and we may make real estate related loans, provide deposit arrangements or provide performance assurances, as may be necessary or appropriate, in connection with the development of multifamily communities and other properties.  As a secondary strategy, we may acquire or originate senior mortgage loans, subordinate loans or real estate loans secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest a lesser portion of our assets in other real estate related investments, including other income-producing property types, senior mortgage loans, subordinate loans or real estate loans secured by interests in other income-producing property types or membership or partnership interests in other income-producing property types as determined by Preferred Apartment Advisors, LLC, or our Manager, as appropriate for us. At March 31, 2018, the Company was the approximate 97.3% owner of Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership. We elected to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, commencing with our tax year ended December 31, 2011.

SOURCE Preferred Apartment Communities, Inc.

For further information: Leonard A. Silverstein, President and Chief Operating Officer, Preferred Apartment Communities, Inc., lsilverstein@pacapts.com, +1-770-818-4147

print email rss