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1.
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Organization and Formation
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Preferred Apartment Communities, Inc. (the “Company”) was formed as a Maryland corporation on September 18, 2009, and intends to qualify as a real estate investment trust for U.S. federal income tax purposes, or REIT, commencing with the tax year ending December 31, 2011. The Company was formed to acquire multifamily properties in select targeted markets throughout the United States. The Company completed an initial public offering on April 5, 2011. Upon completion of the Company's offering transaction, the Company acquired the following two real estate projects ("Acquired Properties").
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On April 15, 2011 the Company acquired Oxford Rise JV, LLC ("Rise JV"), a Delaware limited liability company, which was formed on March 29, 2007. Rise JV owns a 216 unit multifamily residential project located in suburban Philadelphia, Pennsylvania.
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On April 21, 2011 the Company acquired Oxford Summit Partners, LLC ("Oxford Summit"), a Georgia limited liability company, which was formed on July 6, 2005. Oxford Summit owns a 345 unit multifamily residential project located in suburban Atlanta, Georgia.
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Oxford Properties, LLC, a related party, was responsible for the construction and development of both apartment projects. Williams Residential Management, LLC, a related party, is responsible for the property management at both projects. The Acquired Properties operations are presented on a combined basis as a result of common management.
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2.
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Summary of Significant Accounting Policies
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The accompanying combined statement of revenues and certain expenses include the rental and property operations of the Acquired Properties for the three months ended March 31, 2011.
The accompanying combined statement of revenues and certain expenses was prepared for the purpose of complying with the rules and regulations of the United States Securities and Exchange Commission for the acquisition of real estate properties. The combined statement of revenues and certain expenses is not intended to be a complete presentation of the actual operations of the properties for the applicable period, as certain expenses which may not be comparable to the expenses to be incurred in the proposed future operations of the properties have been excluded. Expenses excluded consist of interest expense on certain loans that will not be assumed by the Company, depreciation, amortization and other expenses not directly related to the proposed future operations of the Acquired Properties. The Company is not aware of any material factors relating to the properties other than
Acquired Properties
Notes to Combined Statement of Revenues and Certain Expenses
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2.
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Summary of Significant Accounting Policies (continued)
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those discussed that would cause the reported financial information not to be indicative of future operating results.
At March 31, 2011, the occupancies for Rise JV and Oxford Summit were 95% and 93%, respectively.
The preparation of the combined statement of revenues and certain expenses in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of revenues and certain expenses. Actual results could differ from those estimates.
Revenue Recognition
Residential properties are leased under operating leases with terms of generally one year or less. Rental revenues from residential leases, which include periods of free rent and/or scheduled increases in rental rates over the term of the lease, are recognized on a straight-line basis.
Under the terms of residential leases, residents are obliged to reimburse the projects for certain utility usage, principally water and electricity, where the projects are the primary obligor to the local public utility entity. These utility reimbursements from residents are included in other revenue in the accompanying combined statement of revenues and certain expenses. The utility reimbursements for the three months ended March 31, 2011 for Rise JV was $50,142 and for Oxford Summit was $36,781.
Operating expenses represent the direct expenses of operating the properties and consist primarily of payroll, utilities, repairs and maintenance, insurance, property taxes and other operating expenses that are expected to continue in the proposed future operations of the properties.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. There is no material litigation nor to management’s knowledge is any material litigation currently threatened against the properties other than routine litigation, claims and administrative proceedings arising in the ordinary course of business.
Acquired Properties
Notes to Combined Statement of Revenues and Certain Expenses
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2.
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Summary of Significant Accounting Policies (continued)
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Unaudited Interim Financial Information
The combined statement of revenues and certain expenses for the three months ended March 31, 2011 is unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial information for this interim period have been included. The revenues and certain expenses for any interim period are not necessarily indicative of results for other interim periods or the full year.
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3.
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Related Party Transactions
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Under the provisions of the Operating Agreements, an affiliate of the Company, Williams Residential Management, LLC, is responsible for the management of the Acquired Properties.
The management fee is based on 3% of monthly gross rental income, but never less than $16 per unit. Williams Residential Management, LLC also received payroll reimbursements related to management services. The payroll reimbursements are included in the property operations and maintenance expense of the combined statement. In connection with this activity, affiliates earned fees and received expense reimbursements as follows:
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Three Months Ended
March 31, 2011
(Unaudited)
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Management fees
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$ |
51,823 |
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Payroll reimbursements
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$ |
170,610 |
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Management has evaluated all events and transactions that occurred after March 31, 2011 through June 30, 2011, the date which the statements were available to be issued, and noted no items requiring adjustment of the statements or additional disclosure.