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Preferred Apartment Communities, Inc. Reports Results for Third Quarter 2021

11/08/2021

Total Revenues

$111.0 million for Q3 2021; $345.4 million for the nine months ended September 30, 2021

______________

Net Loss Per Share

($0.92) per share for Q3 2021; ($2.30) per share for the nine months ended September 30, 2021

______________

Core FFO per Share*

$0.28 per share for Q3 2021; $0.86 per share for the nine months ended September 30, 2021

______________

AFFO Per Share*

$0.40 per share for Q3 2021; $0.75 per share for the nine months ended September 30, 2021

______________

Multifamily Same Store Results*

Same-store rental and other property revenues increased 7.5% and same-store net operating income increased 8.8% for Q3 year over year

______________

Four Multifamily Communities Acquired During Third Quarter 2021

12,052 multifamily units now owned by PAC

______________

Sale of Seven Office Assets Closed During Third Quarter 2021

Transaction also included one office real estate loan investment

Total consideration of $725 million

______________

Guidance Raised

Core FFO range raised to $1.00 - $1.07 for full year 2021

*Core FFO and AFFO results are per weighted-average share and Class A OP Unit outstanding. Core FFO, AFFO and same-store net operating income are non-GAAP measures that are defined below.

ATLANTA--(BUSINESS WIRE)-- Preferred Apartment Communities, Inc. (NYSE: APTS) ("we," "our," the "Company," "Preferred Apartment Communities" or "PAC") today reported results for the quarter ended September 30, 2021. Unless otherwise indicated, all per share results are reported based on the basic weighted average shares of Common Stock and Class A Units ("Class A Units") of the Preferred Apartment Communities Operating Partnership (our "Operating Partnership") outstanding. See Definitions of Non-GAAP Measures.

“The third quarter was an extremely active one for PAC as we continue to execute on our strategic capital recycling initiatives. After completing the sale of the vast majority of our office properties, we immediately put into play our plan to recycle capital into high-quality Sunbelt multifamily assets and with calls and redemptions of Series A Preferred stock in excess of $300 million. As a result of our redeployment efforts, we now have a simplified portfolio with higher embedded organic growth opportunities and lower capital requirements, as well as improved balance sheet flexibility. Our Sunbelt market focus continues to provide an excellent fundamental backdrop in the form of long-term population and job growth, which contributes to sustained high occupancy and NOI growth in our assets. These fundamentals and the quality and vintage of our multifamily portfolio are continuing to produce strong results, with top line same store revenue growth of 7.5% and same-store NOI growth of 8.8%. For the third quarter, our same-store properties had 24.1% rent growth for new leases and 8.8% for renewals for a blended 15.6% increase. This rent growth we saw in the third quarter has continued into October as our new leases are up 25.6% and our renewals have increased 13.3% for a blended 18.6% increase. We look forward to building on these achievements for the balance of the year and into 2022 and beyond,” stated Joel Murphy, Preferred Apartment Communities Chairman and Chief Executive Officer.

Conference Call and Supplemental Data

We will hold our quarterly conference call on Tuesday, November 9, 2021 at 11:00 a.m. Eastern Time to discuss our third quarter 2021 results. To participate in the conference call, please dial in to the following:

Live Conference Call Details

Dial-in Number: 1-877-883-0383
International Dial-in Number: 1-412-902-6506
Company: Preferred Apartment Communities, Inc.
Date: Tuesday, November 9, 2021
Time: 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time)
Passcode: 5239504

The live broadcast of PAC's third quarter 2021 conference call will be available online on a listen-only basis at the company's website, www.pacapts.com, under "Investors" and then click on the "News and Events" heading.

A replay of the call will be archived on PAC's' website under Investors/News and Events/Events.

For Further Information

Paul Cullen
Executive Vice President-Investor Relations
Chief Marketing Officer
investorrelations@pacapts.com
770-818-4144

Operating Results

Our operating results are presented below.

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

% change

 

Nine months ended September 30,

 

% change

 

2021

 

2020

 

 

2021

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues (in thousands)

$

111,012

 

 

$

126,452

 

 

(12.2

)%

 

$

345,418

 

 

$

380,314

 

 

(9.2

)%

 

 

 

 

 

 

 

 

 

 

 

 

Per share data:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) (1)

$

(0.92

)

 

$

(0.79

)

 

 

 

$

(2.30

)

 

$

(6.21

)

 

 

FFO (2)

$

(0.31

)

 

$

0.17

 

 

 

 

$

0.07

 

 

$

(3.17

)

 

 

Core FFO (2)

$

0.28

 

 

$

0.26

 

 

7.7

%

 

$

0.86

 

 

$

0.77

 

 

11.7

%

AFFO (2)

$

0.40

 

 

$

0.07

 

 

471.4

%

 

$

0.75

 

 

$

0.58

 

 

29.3

%

Dividends (3)

$

0.175

 

 

$

0.175

 

 

 

 

$

0.525

 

 

$

0.6125

 

 

(14.3

)%

(1)

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

(2)

 

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

(3)

Per share of Common Stock and Class A Unit outstanding.

Financial

  • Our total revenues for the quarter ended September 30, 2021 decreased approximately $15.4 million, or 12.2%, to $111.0 million from the quarter ended September 30, 2020, due to the absence of revenues from the eight student housing properties that we sold on November 3, 2020 and the seven office properties and one real estate loan investment that we sold during the third quarter 2021. The student housing properties contributed approximately $12.5 million, or 9.9% of our total revenues and the disposed office properties and real estate loan investment contributed approximately $17.3 million, or 13.7% of our total revenues for the quarter ended September 30, 2020. Excluding the contributions of these disposed assets, our year-over-year total revenues would have increased $7.7 million, or 8%.
  • Our net loss per share was $(0.92) and $(0.79) for the three-month periods ended September 30, 2021 and 2020, respectively. Funds From Operations, or FFO, was $(0.31) and $0.17 per weighted average share of Common Stock and Class A Unit outstanding for the three months ended September 30, 2021 and 2020, respectively. The decrease in FFO per share was driven by:

deemed dividends due to calls and cash redemptions of our preferred stock of $(0.51) per share;

lower FFO resulting from the sale of our student housing properties in the fourth quarter 2020 and seven office properties and one real estate loan investment in the third quarter of 2021 of $(0.14) per share;

partially offset by lower cash dividend requirements on our preferred stock of $0.13 per share; and

improved multifamily same-store results of $0.04 per share.

  • Our Core FFO per share increased to $0.28 for the third quarter 2021 from $0.26 for the third quarter 2020, due to:

lower cash dividend requirements on our preferred stock of $0.13 per share;

improved multifamily same-store results of $0.04 per share; and

lower FFO resulting from the sale of our student housing properties in the fourth quarter 2020 and seven office properties and one real estate loan investment in the third quarter of 2021 of $(0.14) per share.

  • Our AFFO per share increased to $0.40 for the third quarter 2021 from $0.07 for the third quarter 2020 due to:

accrued interest income received of $0.16 per share;

lower cash dividend requirements on our preferred stock of $0.13 per share;

cash received from purchase option termination agreements of $0.06 per share;

smaller adjustments to remove non-cash revenues from amortization of deferred revenues, straight-line rent adjustments, above and below market leases and lease inducements of $0.05;

improved multifamily same-store results of $0.04 per share; and

lower FFO resulting from the sale of our student housing properties in the fourth quarter 2020 and seven office properties and one real estate loan investment in the third quarter of 2021 of $(0.14) per share.

  • Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 63.7% and our Core FFO payout ratio to our preferred stockholders was approximately 79.5% for the third quarter 2021. (A)
  • Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 44.6% and our AFFO payout ratio to our preferred stockholders was approximately 73.1% for the third quarter 2021.
  • As of September 30, 2021, our total assets were approximately $3.7 billion, a net decrease from our total assets of approximately $4.7 billion at September 30, 2020, that primarily resulted from the sale of seven office properties during the third quarter 2021 and of our student housing portfolio during the fourth quarter 2020, offset by the acquisition of five multifamily communities (net of dispositions).

(A) We calculate the Core FFO and AFFO payout ratios to Common Stockholders as the ratio of Common Stock dividends and distributions to Core FFO and AFFO. We calculate the Core FFO and AFFO payout ratios to preferred stockholders as the ratio of Preferred Stock dividends to the sum of Preferred Stock dividends and Core FFO 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 below.

Operational

  • Our multifamily communities' same-store rental and other property revenues increased 7.5%, same-store property operating expenses increased 5.7% and same-store net operating income increased 8.8% for the quarter ended September 30, 2021 versus 2020. Our same-store multifamily communities include all our multifamily communities except Artisan at Viera, The Menlo, The Blake, Parkside at the Beach, Horizon at Wiregrass, The Ellison, Alleia at Presidio, The Anson, The Kingson, and Chestnut Farm, all of which were acquired in the last 26 months.
  • Our rental rates for our multifamily same-store properties for new and renewal leases increased 24.1% and 8.8% respectively and 15.6% blended for third quarter 2021 as compared to the expiring leases, excluding shorter-term leases of six months or less.
  • Our rental rates for our multifamily same-store properties for new and renewal leases increased 25.6% and 13.3% respectively and 18.6% blended for October 2021 as compared to the expiring leases, excluding shorter-term leases of six months or less.
  • As of September 30, 2021, the average age of our multifamily communities was approximately 6.1 years, which we believe is the youngest in the public multifamily REIT industry.
  • As of September 30, 2021, all of our owned multifamily communities had achieved stabilization except for The Ellison (that was acquired on June 30, 2021), and Alleia at Presidio, The Anson, The Kingson, and Chestnut Farm, which were all acquired during the third quarter 2021. We define stabilization as reaching 93% occupancy for all three consecutive months within a single quarter.
  • The average physical occupancy of our same-store multifamily communities increased to 97.1% for the three-month period ended September 30, 2021 from 95.6% for the three-month period ended September 30, 2020 and 96.8% for the three-month period ended June 30, 2021.
  • Our average recurring rental revenue collections were approximately 99.2% for multifamily communities and 99.2% for grocery-anchored retail properties for the third quarter 2021.

Financing and Capital Markets

  • As of September 30, 2021, approximately 95.1% of our permanent property-level mortgage debt has fixed interest rates and approximately 0.9% has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates. Our overall weighted average interest rate for our mortgage debt portfolio was 3.3% for multifamily communities, 4.2% for office properties, 3.9% for grocery-anchored retail properties and 3.5% in the aggregate.
  • During the third quarter 2021, we issued and sold an aggregate of 37,009 shares of preferred stock and redeemed or called an aggregate of 305,802 shares of preferred stock, resulting in a net reduction of 268,793 outstanding shares of preferred stock, for a net redemption of approximately $272.0 million.
  • At September 30, 2021, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 57.6%.
  • At September 30, 2021, we had $200.0 million available to be drawn on our revolving line of credit.
  • During the third quarter 2021, we issued and sold an aggregate of 1,167,626 shares of Common Stock under our 2019 ATM Offering, generating gross proceeds of approximately $12.9 million and, after deducting commissions and other costs, net proceeds of approximately $12.7 million.

Significant Transactions

  • During the third quarter 2021, we closed on the acquisition of four multifamily communities and the disposition of one multifamily community:

 

 

 

 

 

 

Multifamily Community

 

Location

 

Units

 

Acquisitions:

 

 

 

 

 

Alleia at Presidio

 

Fort Worth, Texas

 

231

 

The Anson

 

Nashville, Tennessee

 

301

 

The Kingson

 

Fredericksburg, Virginia

 

240

 

Chestnut Farm

 

Charlotte, North Carolina

 

256

 

 

 

 

 

 

 

Total

 

 

 

1,028

 

 

 

 

 

 

 

Disposition:

 

 

 

 

 

Vineyards

 

Houston, Texas

 

369

 

 

 

 

 

 

 

  • During the third quarter 2021, we closed on the disposition of the following office buildings:

 

 

 

 

 

 

Property

 

Location

 

Gross Leasable Area
("GLA"), SF

 

Galleria 75

 

Atlanta, Georgia

 

111,000

 

150 Fayetteville

 

Raleigh, North Carolina

 

560,000

 

Capitol Towers

 

Charlotte, North Carolina

 

479,000

 

CAPTRUST Tower

 

Raleigh, North Carolina

 

300,000

 

Morrocroft Centre

 

Charlotte, North Carolina

 

291,000

 

Armour Yards Portfolio (1)

 

Atlanta, Georgia

 

222,000

 

 

 

 

 

 

 

Total

 

 

 

1,963,000

 

 

 

 

 

 

 

(1) Includes the Armour Yards and the 251 Armour Yards assets.

 

 

 

 

 

 

 

  • During the third quarter 2021, we received the full principal and interest amounts due from the repayment of eleven real estate loan investments associated with six properties that totaled approximately $114.1 million, plus purchase option termination fee proceeds of approximately $5.4 million. These transactions collectively returned approximately $119.5 million of capital to us during the third quarter for investment, preferred stock redemptions, or other corporate purposes. Of the six properties represented by these loan payoffs, we acquired three of the assets.
  • On August 11, 2021, we originated a real estate loan investment of up to approximately $23.2 million, in support of the development of a 352-unit multifamily community in suburban Atlanta, Georgia.

Subsequent to Quarter End

  • On October 14, 2021, we closed on a real estate loan investment of up to approximately $16.6 million supporting a 337-unit second phase of The Menlo multifamily community in Jacksonville, Florida.
  • On October 21, 2021, we closed on supplemental notes payable (i) with a principal amount of approximately $7.3 million supporting our Retreat at Greystone multifamily community that bears a fixed interest rate of 3.47% per annum and matures on December 1, 2024 and (ii) with a principal amount of approximately $3.7 million supporting our Aldridge at Town Village multifamily community that bears a fixed interest rate of 3.46% per annum and matures on November 1, 2024.
  • On October 28, 2021, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, payable on January 14, 2022 to stockholders of record on December 15, 2021.
  • Between October 1, 2021 and October 31, 2021, we issued 49,049 shares of Common Stock under the 2019 ATM Offering at an average price of $12.43 per share, for aggregate gross proceeds of approximately $610,000 and, after deducting commissions and other costs, net proceeds of approximately $600,000.
  • Between October 1, 2021 and October 31, 2021, we issued 2,882 shares of Series M1 Preferred Stock and collected net proceeds of approximately $2.8 million after commissions and fees. During the same period, we redeemed 2,001 shares of Series A Preferred Stock, 267 mShares, 8 shares of Series A1 Preferred Stock, and 193 shares of Series M1 Preferred Stock.
  • On November 1, 2021, we repaid the mortgage debt in the amount of $27.4 million supporting our Champions Village grocery-anchored shopping center, and on November 2, 2021, we financed our Woodstock Crossing grocery-anchored shopping center with a $5.3 million mortgage bearing interest at a fixed rate of 2.89% per annum that matures on December 1, 2026.
  • On November 3, 2021, we closed on a real estate loan investment of up to $9.1 million, in support of a 246-unit multifamily community located in the Atlanta, Georgia MSA.

2021 Guidance

Net income (loss) per share - We are continuing to add 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.

Core FFO - We are revising our guidance today to reflect the impact of the third quarter’s performance and milestones. We now expect Core FFO per share in the range of $1.00 to $1.07 for the full year 2021, reflecting a general increase in our expectation and a tightening of the range as we close in on the end of the year.

Underpinning this guidance are the following updated assumptions:

  • Same-Store Multifamily NOI Growth of 5.5 to 7% -- We are raising the low end of the range from our prior range of 5.0% to 7.0%;
  • $300MM to $400MM of acquisitions of multifamily properties, unchanged from previous guidance and
  • New real estate loan investment originations of $50-$100MM, which is also unchanged from previous guidance.

Our guidance continues to include the impact of purchase option terminations revenues and CECL reserve reversals as a result of real estate loan investments being repaid, which in combination with the accelerating growth in the multifamily portfolio, is helping to offset the dilution of the office portfolio sale in the short term. The increase in purchase option revenue represents a significant acceleration of payoffs and acquisitions of properties that were originally contemplated in 2022. This acceleration will have a material benefit to our results in 2021, to the detriment of the results in 2022. These one-time items will be very difficult to replace going forward, as we have fewer purchase option termination revenue opportunities in our loan investment portfolio today. In addition, as we discussed last quarter, our largest loan investment in San Jose, California is scheduled to mature in Q1 2022. There is a chance it will pay off in Q4 2021, which would have a dramatic impact on both 2021 results to the positive, and 2022 results to the negative.

AFFO, Core FFO and FFO are calculated after deductions for all preferred stock dividends. Reconciliations of net income (loss) attributable to common stockholders to FFO, Core FFO and AFFO for the three-month and nine-month periods ended September 30, 2021 and 2020 appear below, as well as on our website using the following link:

https://investors.pacapts.com/q3-2021-quarterly-supplemental-financial-data

Real Estate Assets

At September 30, 2021, our portfolio of owned real estate assets and potential additions from purchase options or rights of first offer we held from our real estate loan investments consisted of:

 

 

 

 

 

 

 

 

 

 

Owned as of
September 30,
2021 (1)

 

Potential
additions (2)

 

Potential total

 

 

Residential properties:

 

 

 

 

 

 

 

Properties

41

 

 

7

 

 

48

 

 

 

Units

12,052

 

 

2,129

 

 

14,181

 

 

 

Grocery-anchored shopping centers:

 

 

 

 

 

 

 

Properties

54

 

 

 

 

54

 

 

 

Gross leasable area (square feet)

6,208,278

 

 

 

 

6,208,278

 

 

 

Office buildings: (3)

 

 

 

 

 

 

 

Properties

3

 

 

 

 

3

 

 

 

Rentable square feet

1,241,000

 

 

 

 

1,241,000

 

 

 

Land

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

(1) One multifamily community and two grocery-anchored shopping centers are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.

 

(2) 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.

 

(3) Seven of our office properties and a real estate loan investment supporting the 8West office building were sold during the third quarter 2021.

Same-Store Financial Data

The following charts present same-store operating results for the Company’s multifamily communities. We define our population of same-store multifamily communities as those that have achieved occupancy at or above 93% for all three consecutive months within a single quarter ("stabilized") before the beginning of the prior year and that have been owned for at least 15 full months as of the end of the first quarter of the current 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 multifamily communities listed below, comprising an aggregate 9,222 units, or 76.5% of our multifamily units.

Same-store net operating income is a non-GAAP measure that is most directly comparable to net income (loss), as shown in the reconciliation below. See Definitions of Non-GAAP Measures below.

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

 

 

 

 

 

 

 

Three months ended:

(in thousands)

 

9/30/2021

 

9/30/2020

 

 

 

 

 

Net income (loss)

 

$

10,025

 

 

$

(3,602

)

Add:

 

 

 

 

Equity stock compensation

 

817

 

 

582

 

Depreciation and amortization

 

39,639

 

 

51,794

 

Interest expense

 

24,847

 

 

29,879

 

Corporate G&A and other

7,772

 

 

7,203

 

(Income) loss from unconsolidated joint venture

 

187

 

 

120

 

Management Internalization

 

242

 

 

577

 

Allowance for expected credit losses

 

265

 

 

(152

)

Less:

 

 

 

 

Interest revenue on notes receivable

 

11,241

 

 

10,649

 

Interest revenue on related party notes receivable

 

415

 

 

609

 

Miscellaneous revenues

 

306

 

 

363

 

Gain on sale of real estate

 

7,942

 

 

3,261

 

Gain on land condemnation

 

 

 

49

 

Loss on sale of real estate loan investment

 

(12

)

 

 

Loss on extinguishment of debt

 

 

 

(518

)

 

 

 

 

 

Property net operating income

 

63,902

 

 

71,988

 

Less:

 

 

 

 

Non same-store property revenues

 

(55,479

)

 

(74,285

)

Add:

 

 

 

 

Non same-store property operating expenses

16,965

 

 

25,640

 

 

 

 

 

Same-store net operating income

 

$

25,388

 

 

$

23,343

 

 

 

 

 

 

Multifamily Communities' Same-Store NOI

 

 

 

 

 

 

 

 

 

 

 

Three months ended:

 

 

 

 

(in thousands)

 

9/30/2021

 

9/30/2020

 

$ change

 

% change

Revenues:

 

 

 

 

 

 

 

 

Rental and other property revenues

 

$

43,573

 

 

$

40,546

 

 

$

3,027

 

 

7.5

%

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Property operating and maintenance

 

7,554

 

 

7,130

 

 

424

 

 

5.9

%

Payroll

 

3,451

 

 

3,247

 

 

204

 

 

6.3

%

Real estate taxes and insurance

 

7,180

 

 

6,826

 

 

354

 

 

5.2

%

Total operating expenses

 

18,185

 

 

17,203

 

 

982

 

 

5.7

%

 

 

 

 

 

 

 

 

 

Same-store net operating income

 

$

25,388

 

 

$

23,343

 

 

$

2,045

 

 

8.8

%

 

 

 

 

 

 

 

 

 

Same-store average physical occupancy

 

97.1

%

 

95.6

%

 

 

 

1.5

%

 

 

 

 

 

 

 

 

 

Corporate level expenses related to the management and operations of the multifamily portfolio are allocated on a per unit basis to property NOI and are included in Multifamily Same-Store NOI.

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

 

 

 

 

 

 

 

Nine months ended:

(in thousands)

 

9/30/2021

 

9/30/2020

 

 

 

 

 

Net income (loss)

 

$

8,873

 

 

$

(199,075

)

Add:

 

 

 

 

Equity stock compensation

 

2,316

 

 

1,058

 

Depreciation and amortization

 

130,198

 

 

153,096

 

Interest expense

 

79,134

 

 

90,608

 

Management fees

 

 

 

3,099

 

Corporate G&A and other

23,007

 

 

20,978

 

(Income) loss from unconsolidated joint venture

 

556

 

 

120

 

Management Internalization

 

727

 

 

179,828

 

Allowance for expected credit losses

 

(58

)

 

5,463

 

Waived asset management and general and administrative expense fees

 

 

 

(1,136

)

Less:

 

 

 

 

Interest revenue on notes receivable

 

34,567

 

 

34,495

 

Interest revenue on related party notes receivable

 

1,230

 

 

3,750

 

Miscellaneous revenues

 

951

 

 

3,798

 

Gain on sale of real estate

 

8,740

 

 

3,261

 

Gain on land condemnation

 

 

 

528

 

Loss on sale of real estate loan investment

 

(12

)

 

 

Loss on extinguishment of debt

 

 

 

(6,674

)

 

 

 

 

 

Property net operating income

 

199,277

 

 

214,881

 

Less:

 

 

 

 

Non same-store property revenues

 

(181,586

)

 

(216,870

)

Add:

 

 

 

 

Non same-store property operating expenses

56,169

 

 

72,590

 

 

 

 

 

Same-store net operating income

 

$

73,860

 

 

$

70,601

 

Multifamily Communities' Same-Store NOI

 

 

 

 

 

 

 

 

 

 

 

Nine months ended:

 

 

 

 

(in thousands)

 

9/30/2021

 

9/30/2020

 

$ change

 

% change

Revenues:

 

 

 

 

 

 

 

 

Rental and other property revenues

 

$

127,085

 

 

$

121,401

 

 

$

5,684

 

 

4.7

%

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Property operating and maintenance

 

21,684

 

 

20,658

 

 

1,026

 

 

5.0

%

Payroll

 

9,828

 

 

9,457

 

 

371

 

 

3.9

%

Real estate taxes and insurance

 

21,713

 

 

20,685

 

 

1,028

 

 

5.0

%

Total operating expenses

 

53,225

 

 

50,800

 

 

2,425

 

 

4.8

%

 

 

 

 

 

 

 

 

 

Same-store net operating income

 

$

73,860

 

 

$

70,601

 

 

$

3,259

 

 

4.6

%

 

 

 

 

 

 

 

 

 

Corporate level expenses related to the management and operations of the multifamily portfolio are allocated on a per unit basis to property NOI and are included in Multifamily Same-Store NOI.

Dividends

Quarterly Dividends on Common Stock and Class A OP Units

On August 6, 2021, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, which was paid on October 15, 2021 to stockholders of record as of September 15, 2021. In conjunction with the Common Stock dividend, our operating partnership declared a distribution on its Class A Units of $0.175 per unit for the third quarter 2021, which was paid on October 15, 2021 to all Class A Unit holders of record as of September 15, 2021.

Monthly Dividends on Preferred Stock

We declared monthly dividends of $5.00 per share on our Series A Preferred Stock, which totaled approximately $52.3 million for the third quarter 2021 and represents a 6% annual yield. We declared monthly dividends of $5.00 per share on our Series A1 Preferred Stock, which totaled approximately $3.6 million for the third quarter 2021 and also represents a 6% annual yield. We declared dividends totaling approximately $1.4 million on our Series M Preferred Stock, or mShares, for the third quarter 2021. The mShares have a dividend rate that escalates from 5.75% in year one of issuance to 7.50% in year eight and thereafter. We declared dividends totaling approximately $0.5 million on our Series M1 Preferred Stock for the third quarter 2021. The Series M1 Preferred Stock has a dividend rate that escalates from 6.1% in year one of issuance to 7.1% in year ten and thereafter.

Forward-Looking Statements

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Estimates of future earnings, guidance, redemptions of Series A Preferred Stock, potential additions of properties from purchase options and rights of first offer from our real estate loan investments, 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. These statements may be identified by the use of forward-looking terminology such as "may," "trend," "will," "expects," "plans," "estimates," "anticipates," "projects," "intends," "believes," "strategy," "goals," "objectives," "outlook" and similar expressions. These risks, uncertainties and contingencies include, but are not limited to, (a) the impact of the COVID-19 pandemic, including any variants, and related federal, state and local government actions on PAC’s business operations and the economic conditions in the markets in which PAC operates; (b) PAC’s ability to mitigate the impacts arising from COVID-19 or any variants thereof; and (c) those disclosed in PAC's filings with the SEC. 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; 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, 2020 that was filed with the SEC on March 1, 2021, 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.

COVID-19

Our percentages of rent collected remained stabilized at or near pre-pandemic levels during the third quarter 2021. While the impacts of COVID-19 and its variants are continuing, the effects on our operations have been manageable and we believe this condition will persist, barring a dramatic change in the trajectory of the pandemic. The Company is continuing to monitor the spread and impact of the variants of COVID-19 as well as vaccination rates in its markets.

Additional Information

The SEC has declared effective the registration statement filed by the Company for each of our public offerings. 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. 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. 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, will arrange to send you a prospectus with respect to the Series A1/M1 Offering upon request by contacting John A. Isakson at (770) 818-4109, 3284 Northside Parkway NW, Suite 150, Atlanta, Georgia 30327.

The final prospectus for the Series A1/M1 Offering, dated October 22, 2019, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183219000097/a424b5-2019seriesamshares.htm

Preferred Apartment Communities, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

 

 

Three months ended September 30,

(In thousands, except per-share figures)

 

2021

 

2020

Revenues:

 

 

 

 

Rental and other property revenues

 

$

99,050

 

 

$

114,831

 

Interest income on loans and notes receivable

 

11,241

 

 

10,649

 

Interest income from related parties

 

415

 

 

609

 

Miscellaneous revenues

 

306

 

 

363

 

 

 

 

 

 

Total revenues

 

111,012

 

 

126,452

 

 

 

 

 

 

Operating expenses:

 

 

 

 

Property operating and maintenance

 

14,956

 

 

19,437

 

Property salary and benefits

4,929

 

 

6,054

 

Property management costs

757

 

 

983

 

Real estate taxes and insurance

 

14,506

 

 

16,369

 

General and administrative

 

7,772

 

 

7,203

 

Equity compensation to directors and executives

817

 

 

582

 

Depreciation and amortization

 

39,639

 

 

51,794

 

Allowance for expected credit losses

 

265

 

 

(152

)

Management Internalization expense

 

242

 

 

577

 

 

 

 

 

 

Total operating expenses

 

83,883

 

 

102,847

 

 

 

 

 

 

Operating income before loss from unconsolidated joint venture and

 

 

 

 

gains on sales of real estate

 

27,129

 

 

23,605

 

Loss from unconsolidated joint venture

 

(187

)

 

(120

)

Gain on sale of real estate, net

 

7,942

 

 

3,261

 

Operating income

 

34,884

 

 

26,746

 

Interest expense

 

24,847

 

 

29,879

 

Loss on extinguishment of debt

 

 

 

(518

)

Gain on land condemnation

 

 

 

49

 

Loss on sale of real estate loan investment

 

(12

)

 

 

 

 

 

 

 

Net income (loss)

 

10,025

 

 

(3,602

)

Net (income) loss attributable to non-controlling interests

(48

)

 

108

 

Net income (loss) attributable to the Company

 

9,977

 

 

(3,494

)

 

 

 

 

 

Dividends to preferred stockholders

 

(57,859

)

 

(35,909

)

Earnings attributable to unvested restricted stock

 

(117

)

 

(96

)

 

 

 

 

 

Net loss attributable to common stockholders

 

(47,999

)

 

$

(39,499

)

 

 

 

 

 

Net loss per share of Common Stock available to

 

 

 

common stockholders, basic and diluted

 

$

(0.92

)

 

$

(0.79

)

 

 

 

 

 

Weighted average number of shares of Common Stock outstanding,

 

 

 

basic and diluted

 

52,455

 

 

49,689

 

Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO

to Net (Loss) Income Attributable to Common Stockholders

 

 

 

 

Three months ended September 30,

(In thousands, except per-share figures)

 

2021

 

2020

 

 

 

 

 

 

Net loss attributable to common stockholders (See note 1)

$

(47,999

)

 

$

(39,499

)

 

 

 

 

 

 

Add:

Depreciation of real estate assets

 

32,807

 

 

41,282

 

 

Amortization of acquired intangible assets and deferred leasing costs

6,613

 

 

9,978

 

 

Net (income) loss attributable to Class A Unitholders (See note 2)

94

 

 

(50

)

 

Gain on sale of real estate

(7,942

)

 

(3,261

)

FFO attributable to common stockholders and unitholders

(16,427

)

 

8,450

 

 

 

 

 

 

 

 

Acquisition and pursuit costs

 

 

3

 

 

Loan cost amortization on acquisition line of credit and loan coordination fees (See note 3)

380

 

 

505

 

 

Payment of costs related to property refinancing

388

 

 

509

 

 

Internalization costs (See note 4)

242

 

 

577

 

 

Deemed dividends for redemptions of and non-cash dividends on preferred stock, plus

 

 

 

 

expenses incurred on calls of preferred stock (See note 5)

30,332

 

 

3,107

 

 

Expenses related to the COVID-19 global pandemic (See note 6)

34

 

 

138

 

Core FFO attributable to common stockholders and unitholders

14,949

 

 

13,289

 

 

 

 

 

 

 

Add:

Non-cash equity compensation to directors and executives

 

817

 

 

582

 

 

Amortization of loan closing costs (See note 7)

 

1,244

 

 

1,288

 

 

Depreciation/amortization of non-real estate assets

 

445

 

 

621

 

 

Net loan origination fees received (See note 8)

 

684

 

 

415

 

 

Deferred interest income received (See note 9)

 

9,094

 

 

375

 

 

Amortization of lease inducements (See note 10)

 

449

 

 

448

 

 

Cash received in excess of (exceeded by) amortization of purchase option termination revenues (See note 11)

2,754

 

 

(421

)

Less:

Non-cash loan interest income (See note 12)

 

(2,330

)

 

(3,317

)

 

Non-cash income for current expected credit losses (See note 13)

 

(149

)

 

(761

)

 

Cash paid for loan closing costs

(150

)

 

(106

)

 

Amortization of acquired real estate intangible liabilities and straight-line rent adjustments (See note 14)

(2,401

)

 

(4,887

)

 

Amortization of deferred revenues (See note 15)

 

(940

)

 

(940

)

 

Normally recurring capital expenditures (See note 16)

(3,145

)

 

(2,983

)

 

 

 

 

 

 

AFFO attributable to common stockholders and Unitholders

$

21,321

 

 

$

3,603

 

 

 

 

 

 

 

Common Stock dividends and distributions to Unitholders declared:

 

 

 

 

Common Stock dividends

 

$

9,432

 

 

$

8,876

 

 

Distributions to Unitholders (See note 2)

 

87

 

 

130

 

 

Total

 

$

9,519

 

 

$

9,006

 

 

 

 

 

 

 

Common Stock dividends and Unitholder distributions per share

 

$

0.1750

 

 

$

0.1750

 

 

 

 

 

 

 

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

$

(0.31

)

 

$

0.17

 

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

$

0.28

 

 

$

0.26

 

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

$

0.40

 

 

$

0.07

 

 

 

 

 

Weighted average shares of Common Stock and Units outstanding:

 

 

 

 

Basic:

 

 

 

 

 

Common Stock

 

52,455

 

 

49,689

 

 

Class A Units

 

497

 

 

742

 

 

Common Stock and Class A Units

 

52,952

 

 

50,431

 

 

Diluted Common Stock and Class A Units (See note 17)

53,472

50,433

Actual shares of Common Stock outstanding, including 662 and 548 unvested shares

 

 

 

of restricted Common Stock at September 30, 2021 and 2020, respectively.

53,559

 

 

50,449

 

Actual Class A Units outstanding at September 30, 2021 and 2020, respectively.

496

 

 

742

 

 

Total

 

54,055

 

 

51,191

 

 

 

 

 

 

 

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

Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO

to Net (Loss) Income Attributable to Common Stockholders

 

 

 

 

Nine months ended September 30,

(In thousands, except per-share figures)

 

2021

 

2020

 

 

 

 

 

 

Net loss attributable to common stockholders (See note 1)

$

(117,175

)

 

$

(300,270

)

 

 

 

 

 

 

Add:

Depreciation of real estate assets

 

105,616

 

 

122,053

 

 

Amortization of acquired intangible assets and deferred leasing costs

23,809

 

 

28,933

 

 

Net (income) loss attributable to Class A Unitholders (See note 2)

77

 

 

(3,393

)

 

Gain on sale of real estate

(8,740

)

 

(3,261

)

FFO attributable to common stockholders and unitholders

3,587

 

 

(155,938

)

 

Acquisition and pursuit costs

5

 

 

381

 

 

Loan cost amortization on acquisition line of credit and loan coordination fees (See note 3)

1,286

 

 

1,711

 

 

Payment of costs related to property refinancing

506

 

 

7,372

 

 

Internalization costs (See note 4)

727

 

 

179,828

 

 

Deemed dividends for redemptions of and non-cash dividends on preferred stock, plus

 

 

 

 

expenses incurred on calls of preferred stock (See note 5)

38,269

 

 

6,423

 

 

Expenses related to the COVID-19 global pandemic (See note 6)

115

 

 

586

 

 

Earnest money forfeited by prospective asset purchaser

 

 

(2,750

)

Core FFO attributable to common stockholders and unitholders

44,495

 

 

37,613

 

 

 

 

 

 

 

Add:

Non-cash equity compensation to directors and executives

 

2,316

 

 

1,058

 

 

Non-cash (income) expense for current expected credit losses (See note 13)

(1,288

)

 

3,647

 

 

Amortization of loan closing costs (See note 7)

 

3,701

 

 

3,631

 

 

Depreciation/amortization of non-real estate assets

 

1,336

 

 

1,793

 

 

Net loan origination fees received (See note 8)

 

1,887

 

 

882

 

 

Deferred interest income received (See note 9)

 

13,580

 

 

8,652

 

 

Amortization of lease inducements (See note 10)

 

1,349

 

 

1,334

 

 

Earnest money forfeited by prospective asset purchaser

 

 

2,750

 

 

Cash received in excess of (exceeded by) amortization of purchase option termination revenues (See note 11)

2,777

 

 

(96

)

Less:

Non-cash loan interest income (See note 12)

 

(8,113

)

 

(9,445

)

 

Cash paid for loan closing costs

(2,041

)

 

(106

)

 

Amortization of acquired real estate intangible liabilities and straight-line rent adjustments (See note 14)

(8,964

)

 

(13,684

)

 

Amortization of deferred revenues (See note 15)

 

(2,821

)

 

(2,821

)

 

Normally recurring capital expenditures (See note 16)

(9,475

)

 

(6,525

)

 

 

 

 

 

 

AFFO attributable to common stockholders and Unitholders

$

38,739

 

 

$

28,683

 

Common Stock dividends and distributions to Unitholders declared:

 

 

 

 

Common Stock dividends

 

27,682

 

 

29,991

 

 

Distributions to Unitholders (See note 2)

 

270

 

 

463

 

 

Total

 

27,952

 

 

30,454

 

 

 

 

 

 

 

Common Stock dividends and Unitholder distributions per share

 

$

0.5250

 

 

$

0.6125

 

 

 

 

 

 

 

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

$

0.07

 

 

$

(3.17

)

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

$

0.86

 

 

$

0.77

 

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

$

0.75

 

 

$

0.58

 

Weighted average shares of Common Stock and Units outstanding:

 

 

 

 

Basic:

 

 

 

 

 

Common Stock

 

51,011

 

 

48,351

 

 

Class A Units

 

547

 

 

776

 

 

Common Stock and Class A Units

 

51,558

 

 

49,127

 

 

Diluted Common Stock and Class A Units (See note 17)

51,945

49,144

Actual shares of Common Stock outstanding, including 662 and 548 unvested shares

 

 

 

of restricted Common Stock at September 30, 2021 and 2020, respectively.

53,559

 

 

50,449

 

Actual Class A Units outstanding at September 30, 2021 and 2020, respectively.

496

 

 

742

 

 

Total

 

54,055

 

 

51,191

 

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

Notes to Reconciliations of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO to Net Loss Attributable to Common Stockholders

1)

Rental and other property revenues and property operating expenses for the three months ended September 30, 2021 include activity for the properties acquired since September 30, 2020. Rental and other property revenues and expenses for the three-month and nine-month periods ended September 30, 2020 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 496,269 Class A Units as of September 30, 2021. Included in this total are 419,228 Class A Units which were granted as partial consideration to the seller in conjunction with theseller'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 0.94% and 1.47% for the three-month periods ended September 30, 2021 and 2020, respectively.

 

 

3)

 

We paid loan coordination fees to Preferred Apartment Advisors, LLC, (our "Former Manager") to reflect the administrative effort involved in arranging debt financing for acquired properties prior to the Internalization Transaction (defined in note 4 below). The fees were calculated as 0.6% of the amount of any mortgage indebtedness on newly-acquired properties or refinancing and are amortized over the lives of the respective mortgage loans. This non-cash amortization expense is an addition to FFO in the calculation of Core FFO and AFFO. At September 30, 2021, aggregate unamortized loan coordination fees were approximately $8.3 million, which will be amortized over a weighted average remaining loan life of approximately 10.2 years.

 

 

4)

 

This adjustment reflects the add-back of (i) consideration paid to the owners of the Former Manager and NMP Advisors, LLC (our "Former Sub-Manager"), (ii) accretion of the discount on the deferred liability payable to the owners of the Former Manager and (iii) due diligence and pursuit costs incurred by the Company related to the internalization of the functions performed by the Former Manager and Former Sub-Manager (the "Internalization Transaction").

 

 

5)

 

This additive adjustment removes the effect of deemed dividends that arise from cash calls and redemptions of preferred stock. For preferred stock shares that are called by the Company or redeemed by the holder, the Company records a deemed dividend for the difference between the redemption of the share at its face value, net of any redemption discount, as compared to the carrying value of the share on the Company’s consolidated balance sheets. Also included in this adjustment is the adding back of expenses incurred related to effecting calls of preferred stock.

 

 

6)

 

This additive adjustment to FFO consists of non-recurring costs for signage, cleaning and supplies necessary to create and maintain work environments necessary to adhere to CDC guidelines during the current COVID-19 pandemic. Since we do not expect to incur similar costs once the COVID-19 pandemic has subsided, we add these costs back to FFO in our calculation of Core FFO.

 

 

7)

 

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. 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 September 30, 2021, unamortized loan costs on all the Company's indebtedness were approximately $30.4 million, which will be amortized over a weighted average remaining loan life of approximately 8.0 years.

 

 

8)

We receive loan origination fees in conjunction with the origination of certain real estate loan investments. The total fees received are additive adjustments to Core FFO in our calculation of AFFO.

 

 

9)

 

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. Once received from the borrower, the amount of additional accrued interest becomes an additive adjustment to Core FFO in our calculation of AFFO.

 

 

10)

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.

 

 

11)

 

Occasionally we receive fees in exchange for the termination of our purchase options related to certain multifamily communities. These fees are recorded as revenue over the period beginning on the date of termination until the earlier of (i) the maturity of the real estate loan investment and (ii) the sale of the property. The receipt of the cash termination fees are an additive adjustment in our calculation of AFFO and the removal of non-cash revenue from the recognition of the termination fees are a reduction to Core FFO in our calculation of AFFO; both of these adjustments are presented in a single net number within this line. For periods in which recognized termination fee revenues exceeded the amount of cash received, a negative adjustment is shown to Core FFO in our calculation of AFFO; for periods in which cash received exceeded the amount of recognized termination fee revenues, an additive adjustment is shown to Core FFO in our calculation of AFFO.

 

 

12)

 

Loan origination fees (described in note 8 above) are recognized as revenue over the lives of the applicable loans as adjustments of yield using the effective interest method. Similarly, the accrual of additional interest amounts (described in note 9 above) are recognized beginning from loan inception through the repayment of the loan or the refinancing or sale of the underlying property. This adjustment removes the effect of both these types of non-cash loan interest income from Core FFO in our calculation of AFFO.

 

 

13)

 

Effective January 1, 2020, we adopted ASU 2016-03, which requires us to estimate the amount of future credit losses we expect to incur over the lives of our real estate loan investments at the inception of each loan. This loss reserve may be adjusted upward or downward over the lives of our loans and therefore the aggregate net adjustment for each period could be positive (removing the non-cash effect of a net increase in aggregate loss reserves) or negative (removing the non-cash effect of a net decrease in aggregate loss reserves) in these adjustments to Core FFO in calculating AFFO.

 

 

14)

 

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 September 30, 2021, the balance of unamortized below-market lease intangibles was approximately $37.1 million, which will be recognized over a weighted average remaining lease period of approximately 8.3 years.

 

 

15)

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.

 

 

16)

 

We deduct from Core FFO normally recurring capital expenditures that are necessary to maintain our assets’ revenue streams in the calculation of AFFO. This adjustment also deducts from Core FFO capitalized amounts for third party costs during the period to originate or renew leases in our grocery-anchored shopping centers and office buildings. This adjustment includes approximately $21,000 and $59,000 of recurring capitalized expenditures incurred at our corporate offices during the three-month and nine-month periods ended September 30, 2021, respectively. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures. See Capital Expenditures, Grocery-Anchored Shopping Center Portfolio, and Office Building Portfolio sections for definitions of these terms.

 

 

17)

 

Since our AFFO results are positive for the periods reflected, 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 and restricted stock units. 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.

See Definitions of Non-GAAP Measures beginning below.

Preferred Apartment Communities, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per-share par values)

September 30, 2021

 

December 31, 2020

Assets

 

 

 

Real estate

 

 

 

Land

$

553,123

 

 

$

605,282

 

Building and improvements

2,705,489

 

 

3,034,727

 

Tenant improvements

122,341

 

 

184,288

 

Furniture, fixtures, and equipment

358,002

 

 

306,725

 

Construction in progress

5,595

 

 

12,269

 

Gross real estate

3,744,550

 

 

4,143,291

 

Less: accumulated depreciation

(553,697

)

 

(509,547

)

Net real estate

3,190,853

 

 

3,633,744

 

Real estate loan investments, net

181,623

 

 

279,895

 

Total real estate and real estate loan investments, net

3,372,476

 

 

3,913,639

 

 

 

 

 

Cash and cash equivalents

54,568

 

 

28,657

 

Restricted cash

54,010

 

 

47,059

 

Note receivable and revolving line of credit due from related party

9,011

 

 

10,874

 

Accrued interest receivable on real estate loans

15,754

 

 

22,528

 

Acquired intangible assets, net of amortization

67,897

 

 

127,138

 

Tenant lease inducements, net

16,863

 

 

18,206

 

Investment in unconsolidated joint venture

6,101

 

 

6,657

 

Tenant receivables and other assets

62,355

 

 

106,321

 

 

 

 

 

Total assets

$

3,659,035

 

 

$

4,281,079

 

 

 

 

 

Liabilities and equity

 

 

 

Liabilities

 

 

 

Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment

$

2,384,583

 

 

$

2,594,464

 

Revolving line of credit

 

 

22,000

 

Deferred revenue

33,139

 

 

36,733

 

Accounts payable and accrued expenses

51,380

 

 

41,912

 

Deferred liability to Former Manager

23,856

 

 

23,335

 

Contingent liability due to Former Manager

14,682

 

 

14,814

 

Accrued interest payable

6,638

 

 

7,877

 

Dividends and partnership distributions payable

19,797

 

 

20,137

 

Acquired below market lease intangibles, net of amortization

37,097

 

 

51,934

 

Prepaid rent, security deposits and other liabilities

27,769

 

 

29,425

 

Total liabilities

2,598,941

 

 

2,842,631

 

 

 

 

 

Commitments and contingencies

 

 

 

Equity

 

 

 

Stockholders' equity

 

 

 

Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 shares

 

 

 

issued; 1,344 and 1,735 shares outstanding at September 30, 2021 and December 31, 2020, respectively

13

 

 

17

 

Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 247 and 149

 

 

 

shares issued and 246 and 149 shares outstanding at September 30, 2021 and December 31, 2020, respectively

2

 

 

1

 

Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares

 

 

 

issued; 84 and 89 shares outstanding at September 30, 2021 and December 31, 2020, respectively

1

 

 

1

 

Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 34 and 19

 

 

 

shares issued; 32 and 19 shares outstanding at September 30, 2021 and December 31, 2020, respectively

 

 

 

Common Stock, $0.01 par value per share; 400,067 shares authorized; 52,897 and 49,994 shares issued

 

 

 

and outstanding at September 30, 2021 and December 31, 2020, respectively

529

 

 

500

 

Additional paid-in capital

1,245,640

 

 

1,631,646

 

Accumulated (deficit) earnings

(183,562

)

 

(192,446

)

Total stockholders' equity

1,062,623

 

 

1,439,719

 

Non-controlling interest

(2,529

)

 

(1,271

)

Total equity

1,060,094

 

 

1,438,448

 

 

 

 

 

Total liabilities and equity

$

3,659,035

 

 

$

4,281,079

 

Preferred Apartment Communities, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

Nine months ended September 30,

(In thousands)

2021

 

2020

Operating activities:

 

 

 

Net income (loss)

$

8,873

 

 

$

(199,075

)

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

 

 

 

Depreciation and amortization expense

130,198

 

 

153,096

 

Amortization of above and below market leases

(4,374

)

 

(6,145

)

Amortization of deferred revenues and other non-cash revenues

(4,195

)

 

(3,710

)

Amortization of purchase option termination fees

(7,074

)

 

(4,896

)

Amortization of equity compensation, lease incentives and other non-cash expenses

4,284

 

 

3,027

 

Deferred loan cost amortization

4,903

 

 

5,177

 

Non-cash accrued interest income on real estate loan investments

(7,958

)

 

(9,208

)

Receipt of accrued interest income on real estate loan investments

14,732

 

 

10,179

 

Gains on sale of real estate and real estate loan investment, net

(8,728

)

 

(3,789

)

Loss from unconsolidated joint venture

556

 

 

120

 

Cash received for purchase option terminations

9,851

 

 

4,800

 

Loss on extinguishment of debt

 

 

6,674

 

(Decrease) increase in allowance for expected credit losses

(260

)

 

5,463

 

Changes in operating assets and liabilities:

 

 

 

Decrease (increase) in tenant receivables and other assets

2,344

 

 

(16,151

)

Increase in accounts payable and accrued expenses

19,160

 

 

46,821

 

Increase in deferred liability to Former Manager

 

 

22,851

 

Increase in contingent liability

 

 

15,013

 

Increase (decrease) in accrued interest, prepaid rents and other liabilities

2,573

 

 

(249

)

 

 

 

 

Net cash provided by operating activities

164,885

 

 

29,998

 

 

 

 

 

Investing activities:

 

 

 

Investments in real estate loans, net of origination fees

(44,635

)

 

(41,311

)

Repayments of real estate loans and receipt of origination fees

132,970

 

 

71,146

 

Proceeds from sale of real estate loan investment

12,706

 

 

 

Notes receivable (issued) repaid, net

1,863

 

 

14,219

 

Related party notes receivable and lines of credit (issued) repaid, net

 

 

(5,078

)

Acquisition of properties

(335,206

)

 

(187,197

)

Disposition of properties

330,856

 

 

787

 

Proceeds from sale of interest in a joint venture

 

 

19,221

 

Return of capital from investment in unconsolidated joint venture

 

 

12,250

 

Capital improvements to real estate assets

(24,457

)

 

(38,784

)

Investment in property development

(546

)

 

(424

)

 

 

 

 

Net cash provided by (used in) investing activities

73,551

 

 

(155,171

)

 

 

 

 

 

 

 

 

Preferred Apartment Communities, Inc.

Consolidated Statements of Cash Flows - continued

(Unaudited)

 

 

 

 

 

Nine months ended September 30,

(In thousands)

2021

 

2020

 

 

 

 

Financing activities:

 

 

 

Proceeds from mortgage notes payable

286,495

 

 

377,749

 

Repayments of mortgage notes payable

(76,343

)

 

(173,409

)

Payments for deposits and other mortgage loan costs

(5,461

)

 

(10,911

)

Payments for mortgage prepayment costs

 

 

(5,733

)

Proceeds from Revolving Line of Credit

283,000

 

 

321,000

 

Payments on Revolving Line of Credit

(305,000

)

 

(288,000

)

Repayment of Term Loan

 

 

(70,000

)

Proceeds from sales of Preferred Stock, net of offering costs

101,960

 

 

159,096

 

Payments for redemptions and calls of preferred stock

(358,620

)

 

(82,003

)

Proceeds from sales of common stock

27,553

 

 

4,546

 

Common Stock dividends paid

(26,911

)

 

(33,271

)

Preferred stock dividends and Class A Unit distributions paid

(127,086

)

 

(104,428

)

Payments for deferred offering costs

(2,946

)

 

(10,669

)

Distributions to non-controlling interests

(2,215

)

 

(20

)

 

 

 

 

Net cash (used in) provided by financing activities

(205,574

)

 

83,947

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

32,862

 

 

(41,226

)

Cash, cash equivalents and restricted cash, beginning of year

75,716

 

 

137,253

 

Cash, cash equivalents and restricted cash, end of period

$

108,578

 

 

$

96,027

 

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

 

 

 

 

 

September 30, 2021

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily communities:

 

 

 

 

 

(in thousands)

 

 

Berryessa

 

San Jose, CA

 

2/13/2022

 

2/13/2023

 

$

137,616

 

 

$

135,052

 

 

$

126,237

 

 

8.5 / 3

Hidden River II

 

Tampa, FL

 

10/11/2022

 

10/11/2024

 

4,462

 

 

4,462

 

 

4,462

 

 

8.5 / 3.5

Hidden River II Capital

 

Tampa, FL

 

10/11/2022

 

10/11/2024

 

2,763

 

 

2,624

 

 

2,461

 

 

8.5 / 3.5

Vintage Horizon West

 

Orlando, FL

 

10/11/2022

 

10/11/2024

 

10,900

 

 

9,618

 

 

9,019

 

 

8.5 / 5.5

Vintage Jones Franklin

 

Raleigh, NC

 

11/14/2023

 

5/14/2025

 

10,000

 

 

8,797

 

 

7,904

 

 

8.5 / 5.5

Solis Cumming Town

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Center

 

Atlanta, GA

 

9/3/2024

 

9/3/2026

 

20,681

 

 

17,764

 

 

5,584

 

 

8.5 / 5.5

Hudson at Metro West

 

Orlando, FL

 

9/1/2024

 

3/1/2026

 

16,791

 

 

7,803

 

 

 

 

8.5 / 4.5

Oxford Club Drive

 

Atlanta, GA

 

2/11/2025

 

2/11/2027

 

23,150

 

 

3,925

 

 

 

 

8.5 / 4.5

Populus at Pooler

 

Savannah, GA

 

5/27/2025

 

5/27/2026

 

15,907

 

 

3

 

 

 

 

8.5 / 4.25

Populus at Pooler Capital

 

Savannah, GA

 

5/27/2025

 

5/27/2026

 

1,169

 

 

925

 

 

 

 

8.5 / 4.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repaid multifamily communities:

 

 

 

 

 

 

 

 

 

 

 

 

Newbergh

 

Atlanta, GA

 

N/A

 

N/A

 

N/A

 

 

 

11,749

 

 

(2)

Newbergh Capital

 

Atlanta, GA

 

N/A

 

N/A

 

N/A

 

 

 

6,176

 

 

(2)

Vintage Destin

 

Destin, FL

 

N/A

 

N/A

 

N/A

 

 

 

9,736

 

 

(2)

Kennesaw Crossing

 

Atlanta, GA

 

N/A

 

N/A

 

N/A

 

 

 

13,025

 

 

(2)

The Anson

 

Nashville, TN

 

N/A

 

N/A

 

N/A

 

 

 

6,240

 

 

(3)

The Anson Capital

 

Nashville, TN

 

N/A

 

N/A

 

N/A

 

 

 

4,839

 

 

(3)

Chestnut Farm

 

Charlotte, NC

 

N/A

 

N/A

 

N/A

 

 

 

11,671

 

 

(3)

Southpoint

 

Fredericksburg, VA

N/A

 

N/A

 

N/A

 

 

 

7,348

 

 

(3)

Southpoint Capital

 

Fredericksburg, VA

N/A

 

N/A

 

N/A

 

 

 

4,626

 

 

(3)

Cameron Square

 

Alexandria, VA

 

N/A

 

N/A

 

N/A

 

 

 

20,874

 

 

(2)

Cameron Square Capital

 

Alexandria, VA

 

N/A

 

N/A

 

N/A

 

 

 

8,850

 

 

(2)

V & Three

 

Charlotte, NC

 

N/A

 

N/A

 

N/A

 

 

 

10,335

 

 

(2)

V & Three Capital

 

Charlotte, NC

 

N/A

 

N/A

 

N/A

 

 

 

7,162

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office property:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8West

 

Atlanta, GA

 

N/A

 

N/A

 

N/A

 

 

 

11,858

 

 

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

243,439

 

 

190,973

 

 

290,156

 

 

 

Unamortized loan origination fees

 

 

 

 

 

 

 

(1,773)

 

 

(1,194)

 

 

 

Allowances for expected credit losses and doubtful accounts

 

 

 

 

 

(7,577)

 

 

(9,067)

 

 

 

Carrying amount

 

 

 

 

 

 

 

 

 

$

181,623

 

 

$

279,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Carrying amounts presented per loan are amounts drawn.

(2) The loan was repaid in full satisfaction of the principal amount and all interest due.

(3) All principal and interest due on the loan was received as a credit against the purchase price in conjunction with our acquisition of the underlying property.

(4) This loan was sold at par plus accrued interest to Highwoods Properties, an unrelated party, on July 29, 2021.

We hold options or rights of first offer, but not obligations, to purchase some of the properties which are partially financed by our real estate loan investments. Certain option purchase prices may be 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, with discounts up to 15 basis points (if any), depending on the loan. As of September 30, 2021, potential property acquisitions and units from projects in our real estate loan investment portfolio for which we hold a purchase option or right of first offer consisted of:

 

 

 

Total units upon

 

Purchase option window

 

Project/Property

Location

 

completion (1)

 

Begin

 

End

 

 

 

 

 

 

 

 

 

 

Multifamily communities

 

 

 

 

 

 

 

 

Purchase options at discount to market:

 

 

 

 

 

 

 

Hidden River II

Tampa, FL

 

204

 

S + 90 days (2)

 

S + 150 days (2)

 

 

 

 

 

 

 

 

 

 

Purchase options at market or with rights of first offer:

 

 

 

 

 

Hudson at Metro West

Orlando, FL

 

320

 

S + 90 days (2)

 

S + 150 days (2)

 

Vintage Horizon West

Orlando, FL

 

340

 

(3)

 

(3)

 

Vintage Jones Franklin

Raleigh, NC

 

277

 

(3)

 

(3)

 

Solis Cumming Town Center

Atlanta, GA

 

320

 

(4)

 

(4)

 

Club Drive

Atlanta, GA

 

352

 

(5)

 

(5)

 

Populus at Pooler

Savannah, GA

 

316

 

(6)

 

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

2,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

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

(3) The option period window begins on the later of one year following receipt of final certificate of occupancy or 90 days beyond the achievement of a 93% occupancy threshold by the underlying property and ends 60 days beyond the option period beginning date.

(4) We hold a right of first offer on the property.

(5) The option period begins upon the property's achievement of an 85% occupancy threshold. If we are unable to reach an agreement on the property's market value, we have a right of first offer.

(6) The option period begins upon the property's achievement of an 80% occupancy threshold. If we are unable to reach an agreement on the property's market value, we have a right of first offer.

Mortgage Indebtedness

As of September 30, 2021,our mortgage note principal repayment obligations were:

(in thousands)

 

Total

 

 

 

Maturity dates occurring in:

 

 

 

 

 

2021

 

$

36,855

2022

 

117,045

2023

 

82,205

2024

 

290,414

2025

 

57,492

2026

 

335,024

2027

 

317,639

2028

 

245,105

2029

 

245,056

2030

 

356,042

Thereafter

 

342,344

 

 

 

Totals

 

$

2,425,221

Future Principal Payments

The breakdown of the Company’s estimated future principal payments between amortizing payments and payments due at maturity on its debt instruments as of September 30, 2021 were:

Period

 

Future amortizing
principal payments
(in thousands)

 

Future principal
payments at maturity
(in thousands)

2021

 

9,455

 

27,400

2022

 

44,147

 

72,899

2023

 

51,660

 

30,545

2024

 

53,057

 

237,357

2025

 

50,516

 

6,976

2026

 

48,748

 

286,277

2027

 

40,137

 

277,501

2028

 

33,777

 

211,328

2029

 

25,496

 

219,560

2030

 

16,503

 

339,539

Thereafter

 

139,250

 

203,093

 

 

 

 

 

Total

 

512,746

 

1,912,475

Multifamily Communities

As of September 30, 2021, our multifamily community portfolio consisted of the following properties:

 

 

 

 

 

 

 

 

Three months ended
September 30, 2021

Property

 

Location

 

Number of units

 

Average unit
size (sq. ft.)

 

Average physical
occupancy

 

Average rent
per unit

 

 

 

 

 

 

 

 

 

 

 

Same-Store Communities:

 

 

 

 

 

 

 

 

 

 

Aldridge at Town Village

 

Atlanta, GA

 

300

 

969

 

 

97.6

%

 

$

1,520

 

Green Park

 

Atlanta, GA

 

310

 

985

 

 

98.0

%

 

$

1,577

 

Overton Rise

 

Atlanta, GA

 

294

 

1,018

 

 

96.9

%

 

$

1,637

 

Summit Crossing I

 

Atlanta, GA

 

345

 

1,034

 

 

98.8

%

 

$

1,340

 

Summit Crossing II

 

Atlanta, GA

 

140

 

1,100

 

 

98.1

%

 

$

1,444

 

The Reserve at Summit Crossing

 

Atlanta, GA

 

172

 

1,002

 

 

99.6

%

 

$

1,432

 

Avenues at Cypress

 

Houston, TX

 

240

 

1,170

 

 

98.1

%

 

$

1,529

 

Avenues at Northpointe

 

Houston, TX

 

280

 

1,167

 

 

97.9

%

 

$

1,456

 

Stone Creek

 

Houston, TX

 

246

 

852

 

 

96.3

%

 

$

1,186

 

Aster at Lely Resort

 

Naples, FL

 

308

 

1,071

 

 

98.3

%

 

$

1,539

 

Sorrel

 

Jacksonville, FL

 

290

 

1,048

 

 

96.7

%

 

$

1,420

 

Lux at Sorrel

 

Jacksonville, FL

 

265

 

1,025

 

 

96.5

%

 

$

1,458

 

525 Avalon Park

 

Orlando, FL

 

487

 

1,394

 

 

96.5

%

 

$

1,586

 

Citi Lakes

 

Orlando, FL

 

346

 

984

 

 

97.0

%

 

$

1,494

 

Village at Baldwin Park

 

Orlando, FL

 

528

 

1,069

 

 

96.4

%

 

$

1,755

 

Luxe at Lakewood Ranch

 

Sarasota, FL

 

280

 

1,105

 

 

95.1

%

 

$

1,601

 

Venue at Lakewood Ranch

 

Sarasota, FL

 

237

 

1,001

 

 

97.3

%

 

$

1,638

 

Crosstown Walk

 

Tampa, FL

 

342

 

1,070

 

 

97.9

%

 

$

1,445

 

Overlook at Crosstown Walk

 

Tampa, FL

 

180

 

986

 

 

96.9

%

 

$

1,527

 

Citrus Village

 

Tampa, FL

 

296

 

980

 

 

96.5

%

 

$

1,443

 

Five Oaks at Westchase

 

Tampa, FL

 

218

 

983

 

 

96.9

%

 

$

1,601

 

Lodge at Hidden River

 

Tampa, FL

 

300

 

980

 

 

97.7

%

 

$

1,509

 

Lenox Village

 

Nashville, TN

 

273

 

906

 

 

96.1

%

 

$

1,369

 

Regent at Lenox

 

Nashville, TN

 

18

 

1,072

 

 

98.1

%

 

$

1,420

 

Retreat at Lenox

 

Nashville, TN

 

183

 

773

 

 

98.0

%

 

$

1,298

 

CityPark View

 

Charlotte, NC

 

284

 

948

 

 

94.6

%

 

$

1,208

 

CityPark View South

 

Charlotte, NC

 

200

 

1,005

 

 

96.2

%

 

$

1,331

 

Colony at Centerpointe

 

Richmond, VA

 

255

 

1,149

 

 

96.7

%

 

$

1,496

 

Founders Village

 

Williamsburg, VA

 

247

 

1,070

 

 

97.6

%

 

$

1,523

 

Retreat at Greystone

 

Birmingham, AL

 

312

 

1,100

 

 

97.6

%

 

$

1,478

 

Vestavia Reserve

 

Birmingham, AL

 

272

 

1,113

 

 

96.9

%

 

$

1,608

 

Adara Overland Park

 

Kansas City, KS

 

260

 

1,116

 

 

94.6

%

 

$

1,395

 

Claiborne Crossing

 

Louisville, KY

 

242

 

1,204

 

 

98.1

%

 

$

1,400

 

City Vista

 

Pittsburgh, PA

 

272

 

1,023

 

 

96.9

%

 

$

1,502

 

 

 

 

 

 

 

 

 

 

 

 

Total/Average Same-Store Communities

 

 

 

9,222

 

 

 

97.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Stabilized Communities:

 

 

 

 

 

 

 

 

 

 

Artisan at Viera

 

Melbourne, FL

 

259

 

1,070

 

 

97.4

%

 

$

1,737

 

The Menlo

 

Jacksonville, FL

 

332

 

966

 

 

96.3

%

 

$

1,553

 

The Blake

 

Orlando, FL

 

281

 

908

 

 

97.5

%

 

$

1,515

 

Parkside at the Beach

 

Panama City Beach, FL

 

288

 

1,041

 

 

99.3

%

 

$

1,487

 

Horizon at Wiregrass

 

Tampa, FL

 

392

 

973

 

 

98.7

%

 

$

1,600

 

 

 

 

 

 

 

 

 

 

 

 

Total/Average Stabilized Communities

 

 

 

1,552

 

 

 

97.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

The Ellison

 

Atlanta, GA

 

250

 

1,064

 

 

 

 

$

1,626

 

Alleia at Presidio

 

Fort Worth, TX

 

231

 

1,022

 

 

 

 

$

 

The Anson

 

Nashville, TN

 

301

 

989

 

 

 

 

$

 

The Kingson

 

Fredericksburg, VA

 

240

 

993

 

 

 

 

$

 

Chestnut Farm

 

Charlotte, NC

 

256

 

995

 

 

 

 

$

 

Total Multifamily Community Units

 

 

 

12,052

 

 

 

 

 

 

For the three-month period ended September 30, 2021, our average same-store multifamily communities' physical occupancy was 97.1%. We calculate average same-store physical occupancy for quarterly periods as the average of the 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. We believe "Same Property" information is useful as it allows both management and investors to gauge our management effectiveness via comparisons of financial and operational results between interim and annual periods for those subsets of multifamily communities owned for current and prior comparative periods.

For the three-month period ended September 30, 2021, our average stabilized physical occupancy was 97.2%. 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. All of our multifamily communities were stabilized for the three-month period ended September 30, 2021 except The Ellison, Alleia at Presidio, The Anson, The Kingson and Chestnut Farm.

For the three-month period ended September 30, 2021, our average stabilized economic occupancy was 96.6%. 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. We also exclude properties which are currently being marketed for sale, of which we had none at September 30, 2021. Average economic occupancy is useful both to management and investors as a gauge of our effectiveness in realizing the full revenue generating potential of our multifamily communities given market rents and occupancy rates.

Capital Expenditures

We regularly incur capital expenditures related to our owned multifamily communities. 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 September 30, 2021, our capital expenditures for multifamily communities consisted of:

 

Capital Expenditures - Multifamily Communities

 

Recurring

 

Non-recurring

 

Total

(in thousands, except per-unit figures)

Amount

 

Per Unit

 

Amount

 

Per Unit

 

Amount

 

Per Unit

Appliances

$

177

 

 

$

15.51

 

 

$

 

 

$

 

 

$

177

 

 

$

15.51

 

Carpets

570

 

 

49.91

 

 

 

 

 

 

570

 

 

49.91

 

Wood / vinyl flooring

74

 

 

6.53

 

 

143

 

 

12.43

 

 

217

 

 

18.96

 

Mini blinds and ceiling fans

73

 

 

6.38

 

 

 

 

 

 

73

 

 

6.38

 

Fire safety

 

 

 

 

277

 

 

24.52

 

 

277

 

 

24.52

 

HVAC

314

 

 

27.58

 

 

 

 

 

 

314

 

 

27.58

 

Computers, equipment, misc.

 

 

 

 

31

 

 

2.73

 

 

31

 

 

2.73

 

Elevators

2

 

 

0.18

 

 

32

 

 

2.78

 

 

34

 

 

2.96

 

Exterior painting and lighting

 

 

 

 

654

 

 

57.00

 

 

654

 

 

57.00

 

Leasing office and other common amenities

2

 

 

0.15

 

 

243

 

 

21.20

 

 

245

 

 

21.35

 

Major structural projects

 

 

 

 

360

 

 

31.29

 

 

360

 

 

31.29

 

Cabinets, countertops and unit upgrades

 

 

 

 

1,046

 

 

92.68

 

 

1,046

 

 

92.68

 

Landscaping and fencing

 

 

 

 

187

 

 

16.36

 

 

187

 

 

16.36

 

Parking lots and sidewalks

144

 

 

12.73

 

 

17

 

 

1.36

 

 

161

 

 

14.09

 

Signage and sanitation

 

 

 

 

60

 

 

5.29

 

 

60

 

 

5.29

 

Totals

$

1,356

 

 

$

118.97

 

 

$

3,050

 

 

$

267.64

 

 

$

4,406

 

 

$

386.61

 

Grocery-Anchored Shopping Center Portfolio

As of September 30, 2021, 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

Governors Towne Square

Atlanta, GA

 

2004

 

68,658

 

 

100.0

%

 

Publix

Lakeland Plaza

Atlanta, GA

 

1990

 

301,711

 

 

95.3

%

 

Sprouts

Powder Springs

Atlanta, GA

 

1999

 

77,853

 

 

98.2

%

 

Publix

Rockbridge Village

Atlanta, GA

 

2005

 

102,432

 

 

83.0

%

 

Kroger

Roswell Wieuca Shopping Center

Atlanta, GA

 

2007

 

74,370

 

 

97.8

%

 

The Fresh Market

Royal Lakes Marketplace

Atlanta, GA

 

2008

 

119,493

 

 

95.3

%

 

Kroger

Sandy Plains Exchange

Atlanta, GA

 

1997

 

72,784

 

 

100.0

%

 

Publix

Summit Point

Atlanta, GA

 

2004

 

111,970

 

 

83.4

%

 

Publix

Thompson Bridge Commons

Atlanta, GA

 

2001

 

92,587

 

 

96.2

%

 

Kroger

Wade Green Village

Atlanta, GA

 

1993

 

74,978

 

 

94.5

%

 

Publix

Woodmont Village

Atlanta, GA

 

2002

 

85,639

 

 

97.7

%

 

Kroger

Woodstock Crossing

Atlanta, GA

 

1994

 

66,122

 

 

98.5

%

 

Kroger

East Gate Shopping Center

Augusta, GA

 

1995

 

75,716

 

 

93.7

%

 

Publix

Fury's Ferry

Augusta, GA

 

1996

 

70,458

 

 

98.0

%

 

Publix

Parkway Centre

Columbus, GA

 

1999

 

53,088

 

 

97.7

%

 

Publix

Greensboro Village

Nashville, TN

 

2005

 

70,203

 

 

100.0

%

 

Publix

Spring Hill Plaza

Nashville, TN

 

2005

 

66,693

 

 

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

 

 

100.0

%

 

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

Crossroads Market

Naples, FL

 

1993

 

126,895

 

 

100.0

%

 

Publix

Neapolitan Way (2)

Naples, FL

 

1985

 

137,580

 

 

92.3

%

 

Publix

Berry Town Center

Orlando, FL

 

2003

 

99,441

 

 

85.4

%

 

Publix

Deltona Landings

Orlando, FL

 

1999

 

59,966

 

 

98.4

%

 

Publix

University Palms

Orlando, FL

 

1993

 

99,172

 

 

98.9

%

 

Publix

Disston Plaza

Tampa-St. Petersburg, FL

 

1954

 

129,150

 

 

96.1

%

 

Publix

Barclay Crossing

Tampa, FL

 

1998

 

54,958

 

 

100.0

%

 

Publix

Polo Grounds Mall

West Palm Beach, FL

 

1966

 

130,285

 

 

97.3

%

 

Publix

Kingwood Glen

Houston, TX

 

1998

 

103,397

 

 

97.1

%

 

Kroger

Independence Square

Dallas, TX

 

1977

 

140,218

 

 

93.0

%

 

Tom Thumb

Midway Market

Dallas, TX

 

2002

 

85,599

 

 

94.9

%

 

Kroger

Oak Park Village

San Antonio, TX

 

1970

 

64,855

 

 

100.0

%

 

H.E.B.

Irmo Station

Columbia, SC

 

1980

 

99,384

 

 

90.8

%

 

Kroger

Rosewood Shopping Center

Columbia, SC

 

2002

 

36,887

 

 

93.5

%

 

Publix

Anderson Central

Greenville Spartanburg, SC

 

1999

 

223,211

 

 

95.6

%

 

Walmart

Fairview Market

Greenville Spartanburg, SC

 

1998

 

46,303

 

 

97.0

%

 

Aldi

Brawley Commons

Charlotte, NC

 

1997

 

122,028

 

 

97.5

%

 

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

 

 

88.6

%

 

Harris Teeter

Wakefield Crossing

Raleigh, NC

 

2001

 

75,927

 

 

98.2

%

 

Food Lion

Southgate Village

Birmingham, AL

 

1988

 

75,092

 

 

96.8

%

 

Publix

Hollymead Town Center

Charlottesville, VA

 

2005

 

158,807

 

 

88.4

%

 

Harris Teeter

Free State Shopping Center

Washington, DC

 

1970

 

264,152

 

 

88.3

%

 

Giant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,922,612

 

 

95.4

%

 

 

Redevelopment properties:

 

 

 

 

 

 

 

 

 

Champions Village

Houston, TX

 

1973

 

383,346

 

 

66.3

%

 

Randalls

Sweetgrass Corner

Charleston, SC

 

1999

 

89,124

 

 

32.9

%

 

Conway Plaza

Orlando, FL

 

1966

 

117,705

 

 

76.3

%

 

Publix

Hanover Center (3)

Wilmington, NC

 

1954

 

305,346

 

 

81.7

%

 

Harris Teeter

Gayton Crossing

Richmond, VA

 

1983

 

158,316

 

(4)

74.0

%

 

Kroger

Fairfield Shopping Center (3)

Virginia Beach, VA

 

1985

 

231,829

 

 

82.2

%

 

Food Lion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,285,666

 

 

72.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Grand total/weighted average

 

 

 

 

6,208,278

 

 

90.7

%

 

 

 

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

(2) Investment in an unconsolidated joint venture that is not prorated for our ownership percentage.

(3) Property is owned through a consolidated joint venture.

(4) The GLA figure shown excludes the GLA of the Kroger store, which is owned by others.

As of September 30, 2021, our grocery-anchored shopping center portfolio was 90.7% leased (95.4% excluding redevelopment properties). We define percent leased as the percentage of gross leasable area that is leased as of the period end date, including non-cancelable lease agreements that have been signed which have not yet commenced. This metric is used by management to gauge the extent to which our grocery-anchored shopping centers are delivering their total potential rental and other revenues.

Details regarding lease expirations (assuming no exercises of tenant renewal options) within our grocery-anchored shopping center portfolio as of September 30, 2021 were:

 

 

Totals

 

 

Number of leases

 

Leased GLA

 

Percent of
leased GLA

 

 

 

 

 

 

 

Month to month

 

15

 

 

22,260

 

 

0.4

%

2021

 

33

 

 

120,732

 

 

2.1

%

2022

 

179

 

 

621,350

 

 

11.0

%

2023

 

141

 

 

634,275

 

 

11.3

%

2024

 

143

 

 

1,181,466

 

 

21.0

%

2025

 

124

 

 

976,746

 

 

17.4

%

2026

 

121

 

 

557,236

 

 

9.9

%

2027

 

41

 

 

239,323

 

 

4.3

%

2028

 

29

 

 

358,727

 

 

6.4

%

2029

 

26

 

 

177,566

 

 

3.2

%

2030

 

17

 

 

129,154

 

 

2.3

%

2031 +

 

43

 

 

605,861

 

 

10.7

%

 

 

 

 

 

 

 

Total

 

912

 

 

5,624,696

 

5624696

100.0

%

Our grocery-anchored shopping center portfolio contained the following anchor tenants as of September 30, 2021:

Tenant

 

GLA

 

Percent of
total GLA

Publix

 

1,179,030

 

 

19.0

%

Kroger

 

581,593

 

 

9.4

%

Harris Teeter

 

273,273

 

 

4.4

%

Wal-Mart

 

183,211

 

 

3.0

%

BJ's Wholesale Club

 

108,532

 

 

1.7

%

Food Lion

 

76,523

 

 

1.2

%

Giant

 

73,149

 

 

1.2

%

Randall's

 

61,604

 

 

1.0

%

H.E.B

 

54,844

 

 

0.9

%

Tom Thumb

 

43,600

 

 

0.7

%

The Fresh Market

 

43,321

 

 

0.7

%

Sprouts

 

29,855

 

 

0.5

%

Aldi

 

23,622

 

 

0.4

%

 

 

 

 

 

Total

 

2,732,157

 

 

44.1

%

 

 

 

 

 

Our Quarterly Report on Form 10-Q for the period ended September 30, 2021 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 third quarter 2021 totaled approximately $686,000. Second-generation capital expenditures exclude those expenditures made in our grocery-anchored shopping center and office building portfolios (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 redevelopments and repositioning.

Office Building Portfolio

As of September 30, 2021, our office building portfolio consisted of the following properties:

Property Name

 

Location

 

GLA

 

Percent leased

Three Ravinia

 

Atlanta, GA

 

814,000

 

 

81

%

Westridge at La Cantera

 

San Antonio, TX

 

258,000

 

 

100

%

Brookwood Center

 

Birmingham, AL

 

169,000

 

 

100

%

 

 

 

 

 

 

 

Total/Average

 

 

 

1,241,000

 

 

87

%

 

 

 

 

 

 

 

As of September 30, 2021, our office building portfolio includes the following significant tenants:

 

Rentable square
footage

 

Percent of
Annual Base Rent

 

Annual Base Rent (in thousands)

InterContinental Hotels Group

493,000

 

 

44.8

%

 

$

12,064

 

USAA

129,000

 

 

12.2

%

 

3,275

 

Vericast

129,000

 

 

11.2

%

 

3,027

 

Southern Natural Gas

63,000

 

 

7.6

%

 

2,049

 

Surgical Care Associates

48,000

 

 

5.7

%

 

1,543

 

 

 

 

 

 

 

Total

862,000

 

 

81.5

%

 

$

21,958

 

 

 

 

 

 

 

We define Annual Base Rent as the current monthly base rent annualized under the respective leases.

As of September 30, 2021, the leased square footage of our office building portfolio expires according to the following schedule:

Year of lease
expiration

 

Rented square

 

Percent of rented

 

feet

 

square feet

2021

 

1,000

 

 

0.1

%

2022

 

12,000

 

 

1.1

%

2023

 

39,000

 

 

3.7

%

2024

 

22,000

 

 

2.1

%

2025

 

100,000

 

 

9.4

%

2026

 

8,000

 

 

0.7

%

2027

 

323,000

 

 

30.2

%

2028

 

63,000

 

 

5.9

%

2029

 

 

 

%

2030

 

 

 

%

2031 +

 

500,000

 

 

46.8

%

 

 

 

 

 

Total

 

1,068,000

 

 

100.0

%

The Company recognized second-generation capital expenditures within its office building portfolio of approximately $1.1 million during the third quarter 2021.

Definitions of Non-GAAP Measures

We disclose FFO, Core 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. The non-GAAP measures of FFO, Core 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, Core 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, Core 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 restated in 2018,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:

  • depreciation and amortization related to real estate;
  • gains and losses from the sale of certain real estate assets;
  • gains and losses from change in control and
  • impairment writedowns of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

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.

Core Funds From Operations Attributable to Common Stockholders and Unitholders (“Core FFO”)

The Company makes adjustments to FFO to remove costs incurred and revenues recorded that are singular in nature and outside the normal operations of the Company and portray its primary operational results. The Company calculates Core FFO as:

FFO, plus:

  • acquisition and pursuit (dead deal) costs;
  • loan cost amortization on acquisition line of credit and loan coordination fees;
  • losses on debt extinguishments or refinancing costs;
  • Internalization costs;
  • expenses incurred on calls of preferred stock;
  • deemed dividends for redemptions of and non-cash dividends on preferred stock;
  • expenses related to the COVID-19 global pandemic; and

Less:

  • earnest money forfeitures by prospective asset purchasers.

Core FFO figures reported by us may not be comparable to Core FFO figures reported by other companies. We utilize Core FFO as a supplemental measure of the operating performance of our portfolio of real estate assets. We believe Core FFO 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. Since our calculation of Core FFO removes costs incurred and revenues recorded that are often singular in nature and outside the normal operations of the Company, we believe it improves comparability to investors in assessing our core operating results across periods. Core 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 Core 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:

Core FFO, plus:

  • non-cash equity compensation to directors and executives;
  • non-cash (income) expense for current expected credit losses;
  • amortization of loan closing costs;
  • depreciation and amortization of non-real estate assets;
  • net loan origination fees received;
  • deferred interest income received;
  • amortization of lease inducements;
  • cash received in excess of (exceeded by) amortization of purchase option termination revenues;
  • non-cash dividends on Series M1 Preferred Stock and mShares; and
  • earnest money forfeiture from prospective asset purchaser;

Less:

  • non-cash loan interest income;
  • cash paid for loan closing costs;
  • amortization of straight-line rent adjustments and acquired real estate intangible assets and/or liabilities;
  • amortization of deferred revenues; and
  • normally-recurring capital expenditures and capitalized second generation 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. Since our calculation of AFFO removes other significant non-cash charges and revenues and other costs which are not representative of our ongoing business operations, we believe it improves comparability to investors in assessing our core operating results across periods. AFFO is a non-GAAP measure that is reconciled to its most comparable GAAP measure, net income/loss available to common stockholders. FFO, Core FFO and AFFO are not considered measures of liquidity and are not alternatives to measures calculated under GAAP.

Same-Store Net Operating Income (“NOI”)

We use same-store net operating income as an operational metric for our same-store multifamily communities, enabling comparisons of those properties’ operating results between the current reporting period and the prior year comparative period. We define our population of same-store multifamily 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) is a real estate investment trust engaged primarily in the ownership and operation of Class A multifamily properties, with select investments in grocery-anchored shopping centers. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and acquiring or originating real estate loans. As of September 30, 2021, the Company owned or was invested in 107 properties in 13 states, predominantly in the Southeast region of the United States.

Paul Cullen
Executive Vice President-Investor Relations
Chief Marketing Officer
investorrelations@pacapts.com
770-818-4144

Source: Preferred Apartment Communities, Inc.

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